10-Q/A 2020 estate. estimates. The ASU 2016-13,“Measurement of Credit Losses on Financial Instruments (Topic 326).” Proceeds from sales and calls of investment securities for the nine months ended September 30, 2019. Derivatives liabilities. Loans, net of unamortized net deferred fees, at September 30, Approximately Residential land acquisition, development and construction loans generally are underwritten with a maximum term of 36 months, including extensions approved at origination. Commercial land acquisition and construction loans generally are underwritten with a maximum term of 24 months. The Company’s loan portfolio includes The following tables detail activity in the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2019: The following table presents, by class of loan, an aging analysis and the recorded investments in loans past due as of September 30, The following table presents, by class of loan, information related to impaired loans 2019: modifications In response to the COVID-19 pandemic and its economic impact to our customers, we implemented a short-term modification program that complies with the CARES Act and ASC 310-40 to provide temporary payment relief to those borrowers directly impacted by COVID-19 who were not more than 30 days past due as of December 31, 2019. This program allows for a deferral of payments for 90 days, which we extended for an additional 90 days, for a maximum of 180 days on a cumulative and successive basis. The The following table presents by class, the recorded investment of loans modified in TDRs held by the Company for the periods ended September 30, 2020 and 2019. Risk For derivatives designated as cash flow hedges, termination of two of its interest rate swap transactions as part of the Company’s asset liability strategy as well as declines in market interest rates. The table below identifies the balance sheet category and fair 2019. 2019. 2019. 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 2019. The estimated fair Contents - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 2019. loss methodology for determining our provision for credit losses as required by the Current Expected Credit Loss ("CECL") standard described below, have contributed to an increased provision for credit losses for the first nine months of 2020. We continue to monitor the impact of COVID-19 closely, as well as any effects that may result from the CARES Act and other legislative and regulatory developments related to COVID-19; however, the extent to which the COVID-19 pandemic will impact our operations and financial results during the remainder of 2020 is highly uncertain. The draws. three months ended September 30, 2020 a decrease of 0.4%, compared to the same period in 2019. The provision for income taxes was $31.8 million for the nine months ended September 30, 2020, a decrease of $7.7 million compared to the same period in 2019. The components and drivers of the change are discussed in the "Income Tax Expense" section below. loan balance is mostly attributable to the successful completion of construction projects and the related construction loan payoffs. In order to fund secondary sources of liquidity. explained below, substantially offset by growth in average earning assets of 17.9%. For the nine months ended September 30, the second quarter of 2020. In addition, our cost of funds declined 7 basis points (from 0.65% to 0.58%), while the yield on earning assets declined by 25 basis points (from 3.91% to 3.66%). Average liquidity for the third quarter was $1.3 billion versus $1.1 billion for the second quarter of 2020. The yield on our loan assets was negatively impacted by the low interest rate environment in the third quarter of 2020, including a 19 basis point decline in the average one-month LIBOR rate. A substantial portion of the variable rate loan portfolio has interest rate floors that cushioned the decline in loan yields. 2019. 2019. indicated (unaudited). There is uncertain Included in nonperforming assets at September 30, 2019. Total noninterest income includes service charges on deposits, gain on sale of loans, gain on sale of investment securities, 2019. 2019, a 4% increase. 2019. Marketing and advertising offset by $931 thousand higher OREO property tax expense on a single relationship, and $378 thousand higher franchise taxes. 2019. 2019. The decrease in the effective tax rate was mainly attributable to a decrease in disallowed compensation de Total deposits at September 30, 2020 and December 31, 2019, respectively, which is recorded in other assets. the above property types could be impacted by the tenancies associated with impacted industries. The Bank is working with CRE investor borrowers and monitoring rent collections as part of our portfolio management oversight. From time to time, when appropriate in order to fund strong loan demand, the Bank accepts brokered time deposits, generally in denominations of less than $250 thousand, from Liquidity Management 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. follows (unaudited): 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. The pipeline of loan commitments remains strong. The Bank did see additional draws on committed lines of credit during the second half of the first quarter which were largely paid back down in the second and third quarters. The Company, along with many other banks, has been challenged in 2020 during a period of extremely low interest rates together with a relatively flat yield curve. replacement investments and held in cash. 2019. The duration of the deposit portfolio accounts as deposit competition waned with rates at all-time lows and the additions of some four and five year CDs at historically low rates. interest rates. 2019, respectively. The sale category 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. identification, review and reporting of related party transactions;10-Q☒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) 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☐ (Do not mark if a smaller reporting company)Smaller Reporting Company ☐Act).Act Yes ☐ No ☒☐2017,2020, the registrantregistrant had 34,178,01432,234,966 shares of CommonCommon Stock outstanding.PART I.FINANCIAL INFORMATIONPART I. FINANCIAL INFORMATION 345678497777787878787878787881Assets 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 September 30, 2020 December 31, 2019 Assets Cash and due from banks $ 7,559 $ 7,539 Federal funds sold 30,830 38,987 Interest bearing deposits with banks and other short-term investments 818,719 195,447 Investment securities available for sale, at fair value (amortized cost of $956,803 and $839,192 and allowance for credit losses of $156 and $0 as of September 30, 2020 and December 31, 2019, respectively). 977,570 843,363 Federal Reserve and Federal Home Loan Bank stock 40,061 35,194 Loans held for sale 79,084 56,707 Loans 7,880,255 7,545,748 Less allowance for credit losses (110,215) (73,658) Loans, net 7,770,040 7,472,090 Premises and equipment, net 12,204 14,622 Operating lease right-of-use assets 27,180 27,372 Deferred income taxes 36,363 29,804 Bank owned life insurance 76,326 75,724 Intangible assets, net 105,165 104,739 Other real estate owned 4,987 1,487 Other assets 120,206 85,644 Total Assets $ 10,106,294 $ 8,988,719 Liabilities and Shareholders’ Equity Liabilities Deposits: Noninterest bearing demand $ 2,384,108 $ 2,064,367 Interest bearing transaction 823,607 863,856 Savings and money market 3,956,553 3,013,129 Time, $100,000 or more 553,949 663,987 Other time 460,568 619,052 Total deposits 8,178,785 7,224,391 Customer repurchase agreements 24,293 30,980 Other short-term borrowings 300,000 250,000 Long-term borrowings 267,980 217,687 Operating lease liabilities 30,457 29,959 Reserve for unfunded commitments 5,092 0 Other liabilities 76,285 45,021 Total Liabilities 8,882,892 7,798,038 Shareholders’ Equity 320 331 Additional paid in capital 442,592 482,286 Retained earnings 766,219 705,105 Accumulated other comprehensive income 14,271 2,959 Total Shareholders’ Equity 1,223,402 1,190,681 Total Liabilities and Shareholders’ Equity $ 10,106,294 $ 8,988,719 OperationsIncome (Unaudited) 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 Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Interest Income Interest and fees on loans $ 89,296 $ 102,297 $ 278,979 $ 302,007 Interest and dividends on investment securities 4,141 4,904 14,139 15,740 Interest on balances with other banks and short-term investments 384 1,762 2,104 4,533 Interest on federal funds sold 12 71 84 167 Total interest income 93,833 109,034 295,306 322,447 Interest Expense Interest on deposits 10,995 24,576 44,055 67,937 Interest on customer repurchase agreements 84 82 257 255 Interest on short-term borrowings 505 408 1,363 1,983 Interest on long-term borrowings 3,211 2,979 9,486 8,937 Total interest expense 14,795 28,045 55,161 79,112 Net Interest Income 79,038 80,989 240,145 243,335 Provision for Credit Losses 6,607 3,186 40,654 10,146 Provision for Unfunded Commitments (2,078) 0 974 0 Net Interest Income After Provision For Credit Losses 74,509 77,803 198,517 233,189 Noninterest Income Service charges on deposits 1,061 1,494 3,428 4,794 Gain on sale of loans 12,226 2,563 16,249 5,874 Gain on sale of investment securities 115 153 1,650 1,628 Increase in the cash surrender value of bank owned life insurance 413 431 1,655 1,285 Other income 4,029 1,673 12,827 5,384 Total noninterest income 17,844 6,314 35,809 18,965 Noninterest Expense Salaries and employee benefits 19,388 19,095 54,289 60,482 Premises and equipment expenses 5,125 3,503 12,414 11,007 Marketing and advertising 928 1,210 3,117 3,626 Data processing 2,700 2,183 7,955 7,161 Legal, accounting and professional fees 3,097 3,625 14,064 8,074 FDIC insurance 2,152 85 5,556 2,327 Other expenses 3,525 3,772 11,759 12,459 Total noninterest expense 36,915 33,473 109,154 105,136 Income Before Income Tax Expense 55,438 50,644 125,172 147,018 Income Tax Expense 14,092 14,149 31,847 39,531 Net Income $ 41,346 $ 36,495 $ 93,325 $ 107,487 Earnings Per Common Share Basic $ 1.28 $ 1.07 $ 2.88 $ 3.12 Diluted $ 1.28 $ 1.07 $ 2.88 $ 3.12 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, 2020 2019 2020 2019 Net Income $ 41,346 $ 36,495 $ 93,325 $ 107,487 Other comprehensive income, net of tax: Unrealized (loss) gain on securities available for sale (624) 1,174 13,354 13,140 Reclassification adjustment for net gains included in net income (86) (110) (1,231) (1,190) Total unrealized (loss) gain on investment securities (710) 1,064 12,123 11,950 Unrealized gain (loss) on derivatives 24 11 (1,324) (1,664) Reclassification adjustment for amounts included in net income 289 (205) 513 (1,374) Total unrealized gain (loss) on derivatives 313 (194) (811) (3,038) Other comprehensive (loss) income (397) 870 11,312 8,912 Comprehensive Income $ 40,949 $ 37,365 $ 104,637 $ 116,399 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 Other Common Additional Paid Retained Comprehensive Shareholders' Shares Amount in Capital Earnings Income Equity Balance July 1, 2020 32,224,756 $ 320 $ 440,934 $ 731,973 $ 14,668 $ 1,187,895 Net Income — — — 41,346 — 41,346 Other comprehensive loss, net of tax — — — — (397) (397) Stock-based compensation expense — — 1,452 — — 1,452 Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes (3,297) — — — — — Issuance of common stock related to employee stock purchase plan 7,177 — 206 — — 206 Cash dividends declared ($0.22 per share) — — — (7,100) — (7,100) Balance September 30, 2020 32,228,636 $ 320 $ 442,592 $ 766,219 $ 14,271 $ 1,223,402 Balance July 1, 2019 34,539,853 $ 343 $ 532,585 $ 647,887 $ 3,767 $ 1,184,582 Net Income — — — 36,495 — 36,495 Other comprehensive income, net of tax — — — — 870 870 Stock-based compensation expense — — 3,147 — — 3,147 Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes (1,251) — — — — — Issuance of common stock related to employee stock purchase plan 4,120 — 213 — — 213 Cash dividends declared ($0.22 per share) — — (7,327) — (7,327) Common stock repurchased (822,200) $ (7) $ (33,379) $ — $ — $ (33,386) Balance September 30, 2019 33,720,522 $ 336 $ 502,566 $ 677,055 $ 4,637 $ 1,184,594 Accumulated Other Common Additional Paid Retained Comprehensive Shareholders' Shares Amount in Capital Earnings Income Equity Balance January 1, 2020 33,241,496 $ 331 $ 482,286 $ 705,105 $ 2,959 $ 1,190,681 Cumulative effect adjustment due to the adoption of ASC 326, net of tax — — — (10,931) — (10,931) Net Income — 0 0 93,325 0 93,325 Other comprehensive income, net of tax — — — — 11,312 11,312 Stock-based compensation expense — — 3,874 — — 3,874 Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes (28,218) — — — — — Vesting of performance based stock awards, net of shares withheld for payroll taxes 4,126 — — — — — Time based stock awards granted 176,252 — — — — — Issuance of common stock related to employee stock purchase plan 17,821 — 589 — — 589 Cash dividends declared ($0.66 per share) — — — (21,280) — (21,280) Common stock repurchased (1,182,841) (11) (44,157) — — (44,168) Balance September 30, 2020 32,228,636 $ 320 $ 442,592 $ 766,219 $ 14,271 $ 1,223,402 Balance January 1, 2019 34,387,919 $ 342 $ 528,380 $ 584,494 $ (4,275) $ 1,108,941 Net Income — — — 107,487 — $ 107,487 Other comprehensive income, net of tax — — — — 8,912 $ 8,912 Stock-based compensation expense — — 6,648 — — $ 6,648 Issuance of common stock related to options exercised, net of shares withheld for payroll taxes 26,784 — 332 — — $ 332 Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes (13,995) 1 (1) — — $ — Vesting of performance based stock awards, net of shares withheld for payroll taxes 17,655 — — — — $ — Time based stock awards granted 112,636 — — — — $ — Issuance of common stock related to employee stock purchase plan 11,723 — 585 — — $ 585 Cash dividends declared ($0.44 per share) — — — (14,926) — $ (14,926) Common stock repurchased (822,200) $ (7) $ (33,378) $ — $ — $ (33,385) Balance September 30, 2019 33,720,522 $ 336 $ 502,566 $ 677,055 $ 4,637 $ 1,184,594 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, 2020 2019 Cash Flows From Operating Activities: Net Income $ 93,325 $ 107,487 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 40,654 10,146 Provision for unfunded commitments 974 0 Depreciation and amortization 3,515 5,653 Amortization of operating lease right-of-use assets 5,276 3,022 Gains on sale of loans (16,249) (5,874) Gains on sale of GNMA loans (2,443) 0 Securities premium amortization (discount accretion), net 5,345 3,966 Origination of loans held for sale (862,171) (437,525) Proceeds from sale of loans held for sale 856,043 410,454 Net increase in cash surrender value of BOLI (1,655) (1,285) Deferred income tax (benefit) expense (6,559) 3,305 Net gain on sale of other real estate owned (1,180) 0 Net gain on sale of investment securities (1,650) (1,628) Stock-based compensation expense 3,874 6,648 Net tax benefits from stock compensation 99 10 (Increase) decrease in other assets (45,493) 7,274 Increase (decrease) in other liabilities 35,880 (19,314) Net cash provided by operating activities 107,585 92,339 Cash Flows From Investing Activities: Purchases of available-for-sale investment securities (465,119) (130,693) Proceeds from maturities of available-for-sale securities 208,264 129,879 Proceeds from sale/call of available-for-sale securities 130,265 82,982 Purchases of Federal Reserve and Federal Home Loan Bank stock (9,116) (90,219) Proceeds from redemption of Federal Reserve and Federal Home Loan Bank stock 4,250 85,000 Net increase in loans (343,665) (574,177) Increase (decrease) in premises and equipment (445) (2,171) Net cash used in investing activities (475,566) (499,399) Cash Flows From Financing Activities: Increase in deposits 954,394 428,228 Decrease in customer repurchase agreements (6,687) (116) Increase in short-term borrowings 50,000 100,000 Increase in long-term borrowings 50,293 0 Proceeds from exercise of equity compensation plans 0 332 Proceeds from employee stock purchase plan 564 585 Common stock repurchased (44,168) (33,385) Cash dividends paid (21,280) (14,926) Net cash provided by financing activities 983,116 480,718 Net Increase In Cash and Cash Equivalents 615,135 73,658 Cash and Cash Equivalents at Beginning of Period 241,973 321,864 Cash and Cash Equivalents at End of Period $ 857,108 $ 395,522 Supplemental Cash Flows Information: Interest paid $ 59,011 $ 81,834 Income taxes paid $ 29,850 $ 43,250 Non-Cash Investing Activities Initial recognition of operating lease right-of-use assets $ 998 $ 29,574 Transfers from loans to other real estate owned $ 3,500 $ 93 7,. Active subsidiaries include: EagleBank (the “Bank”), Eagle Commercial Ventures, LLC (“ECV”), Eagle Insurance Services, LLC, and Bethesda Leasing, LLC, and Landroval Municipal Finance, Inc., with all significant intercompany transactions eliminated.20162019 were derived from audited Consolidated Financial Statements. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. There have been no significant changesCommission ("SEC"). In addition to the Company’s“Critical Accounting Policies as disclosedPolicies” impacted by the new Current Expected Credit Loss (“CECL”) standard described below, the Company applies the accounting policies contained in Note 1 to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2019. The Company believes that the disclosures are adequate to make the information presented not misleading. Certain reclassifications have been made to amounts previously reported to conform to the current period presentation.These statements should be read in conjunction with the audited Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 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, 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-one20 banking offices, five5 lending centers and various electronic capabilities, including remote deposit services and mobiledigital banking services. Eagle Insurance Services, LLC, a subsidiary of the Bank, offers access to insurance products and services through a referral program with a third party insurance broker. 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 constructionpublic market as well as direct purchase issuance. Bethesda Leasing, a subsidiary of the Bank, holds title to repossessed real estate projects; these transactions involve higher levels of risk, together with commensurate higher returns. Refer to Higher Risk Lending – Revenue Recognition below.inof assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and accompanying notes.statements. Actual results maycould differ from those estimates and such differences could be material to the 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.Investment SecuritiesCompany has no securities classified as trading, or as held to maturity. Securities available-for-sale are acquired as part of the Company’s asset/liability management strategy 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 orallowance for credit losses, being reported as accumulated other comprehensive income/(loss), a separate component of shareholders’ equity, net of deferred income tax. Realized gains and losses, using the specific identification method, are included as a separate component of noninterest income in the Consolidated Statements of Operations.Premiums and discounts on investment securities are amortized/accreted to the earlier of call or maturity based on expected lives, which lives are adjusted based on prepayment assumptions and call optionality if any. Declines in the fair value of individual available-for-sale securities belowfinancial instruments and the status of contingencies are particularly susceptible to significant change.costability to fulfill their financial obligations to the Company. The World Health Organization has declared COVID-19 to be a global pandemic indicating that are other-than-temporary in nature result in write-downsalmost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. The spread of the individual securitiesoutbreak has caused significant disruptions in the U.S. economy and has disrupted banking and other financial activity in the areas in which the Company operates. While there has been no material adverse impact to their fair value. Factors affecting the determinationCompany’s employees and operations to date, COVID-19 could still potentially create widespread business continuity or credit issues for the Company depending on how much longer the pandemic lasts. Congress, the President, and the Federal Reserve have taken several actions designed to cushion the economic fallout. Most notably, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law at the end of whether other-than-temporary impairment has occurred includeMarch 2020 as a downgrading $2 trillion legislative package. The goal of the security byCARES Act is to prevent a rating agency,severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors. The package also includes extensive emergency funding for hospitals and providers. In addition to the general impact of COVID-19, certain provisions of the CARES Act as well as other follow-up stimulus legislative and regulatory relief efforts have had and are expected to continue to have a significant deterioration inmaterial impact on the Company’s operations.issuer, orexpected COVID-19 related economic crisis. At this time, the Company is unable to project the full extent of the materiality of such an impact, but recognizes the breadth of the economic impact is likely to impact its fee income in future periods.changescenario, interest income in management’s intent andfuture periods could be negatively impacted. At this time the Company is unable to project the full extent of the materiality of such an impact, but recognizes the breadth of the economic impact may affect its borrowers’ ability to hold a securityrepay in future periods.ashort term funding have recently been very low. If funding costs were to become elevated for an extended period of time, sufficient to allow for any anticipated recovery in fair value. Management systematically evaluates investment securities for other-than-temporary declines in fair valueit could have an adverse effect on a quarterly basis. This analysis requires management to consider various factors, which include the: (1) duration and magnitudethe Company’s net interest margin. If an extended recession caused large numbers of the decline in value; (2) financial condition of the issuer or issuers; and (3) structure of the security.The entire amount of an impairment loss is recognized in earnings only when: (1)Company’s customers to withdraw their funds, the Company intends to sell the security;might become more reliant on volatile or (2) it is more likely than not that the Company will have to sell the security before recoveryexpensive sources of its amortized cost basis; or (3)funding.recover the entire amortized cost basis of the security. In all other situations, only the portion of the impairment loss representing the credit loss must be recognized in earnings, with the remaining portion being recognized in shareholders’ equity as comprehensive income, net of deferred taxes.Loans Held for SaleThe 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 electedaffect its ability to carry loans held for sale at fair value. Fair value is derived from secondary market quotations for similar instruments. Gains and losses on sales of these loans are recorded as a component of noninterest income in the Consolidated Statements of Operations.The Company’s current practice is to sell residential mortgage loans held for sale on a servicing released basis, and, therefore, it has no intangible asset recorded in the normal course of businessaccount timely for the value ofassets on its balance sheet; however, this could change in future periods. While certain valuation assumptions and judgments will change to account for pandemic-related circumstances such servicing as of September 30, 2017, December 31, 2016 and September 30, 2016. The sale of the guaranteed portion of SBA loans on a servicing retained basis, in a transaction apart from the loan’s origination, gives rise to an excess servicing asset, which is computed on a loan by loan basis with the unamortized amount being included in intangible assets in the Consolidated Balance Sheets. This excess servicing asset is being amortized on a 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 wherewidening credit spreads, 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 theanticipate significant changes in fair value of FHA interest rate lock commitments and FHA forward loan sale commitments. Revenue from servicing commercial FHA mortgages 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 policymethodology used 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, ordetermine 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 onassets measured in accordance with GAAP.cash basis.Higher Risk Lending – Revenue RecognitionThe Company had occasionally made higher risk acquisition, development,further 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 throughsustained decline in 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 asstock price. As of SeptemberJune 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 adequacy of the allowance for credit losses is determined through careful and continuous review and evaluation of the loan portfolio and involves the balancing of a number of factors to establish a prudent level of allowance. Among the factors considered in evaluating the adequacy of the allowance 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, changes in the size and character of the loan portfolio, and management’s judgment with respect to current and expected economic conditions and their impact 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 level of the allowance through the provision for credit losses, which is recorded as a current period operating expense. The allowance 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,2020, 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 environmental 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 expected 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 rationale 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 performsperformed a qualitative assessment to determine whether it iswas more likely than not that the fair value of athe reporting unit iswas less than its carrying amount. If, after assessing updated qualitative factors, the Company determines it is not more likely than not thatAs of June 30, 2020, a triggering event was deemed to have occurred as a result of COVID-19 and, accordingly, a step one assessment was performed by comparing the fair value of athe reporting unit is less thanwith its carrying amount it does not have to perform the two-step goodwill impairment test.(including goodwill). 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 judgmentalis subjective and often involveinvolves 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.comparable factors. Based on the results of qualitative assessmentsthe assessment of all reporting units, the Company concluded that no impairment existed at December 31, 2016. However, futureas of June 30, 2020. The Company determined that there were no triggering events and an impairment analysis was not performed as of September 30, 2020. An impairment analysis will next be performed during the fourth quarter as part of our regularly scheduled annual impairment testing. 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 Derivativesexposedworking with customers directly affected by COVID-19. The Company is prepared to certain risks arising from bothoffer short-term assistance in accordance with regulatory guidelines. As a result of the current economic environment caused by the COVID-19 virus, the Company is engaging in more frequent communication with borrowers to better understand their situation and the challenges faced, allowing it to respond proactively as needs and issues arise. Should economic conditions worsen, the Company could experience further increases in its businessrequired allowance for credit losses (“ACL”) and record additional provision for credit losses. It is possible that the Company’s asset quality measures could worsen at future measurement periods if the effects of COVID-19 are prolonged.Three Months Ended Nine Months Ended (dollars in thousands) September 30, 2020 September 30, 2020 Provision for credit losses- loans $ 6,589 $ 40,498 Provision for credit losses- AFS debt securities 18 156 Total provision for credit losses $ 6,607 $ 40,654 economic conditions. The Company principally manages its exposuresaccommodations 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” sectionborrowers" for a discussion on forward commitment contracts,the impact of the CARES Act on TDRs.also considered derivatives.Atapplied to principal. A loan is placed back on accrual status when both principal and interest are current and it is probable that we will be able to collect all amounts due (both principal and interest) according to the inceptionterms of the loan agreement.derivative contract,credit loss will be incurred, with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. The allowance for credit losses is a valuation account that is deducted from the Company designatesamortized cost basis of loans to present the derivativenet amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged- off.onedifferences in underwriting standards, portfolio mix, loan concentrations, credit quality, or term, as well as for changes in environmental conditions, such as changes in unemployment rates, property values or other relevant factors.three typesreserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist. Reserves on loans that do not share risk characteristics are evaluated on an individual basis (nonaccrual, TDR). Nonaccrual loans are specifically reviewed for loss potential and when deemed appropriate are assigned a reserve based on an individual evaluation. For purposes of determining the Company’s intentionspool-basis reserve, the remainder of the portfolio, representing all loans not assigned an individual reserve, is segregated by call report codes. These historical loss rates are then modified to incorporate our reasonable and beliefsupportable forecast of future losses at the portfolio segment level, as well as any necessary qualitative adjustments. A similar process is employed to likely effectivenesscalculate a reserve assigned to off-balance sheet commitments, specifically unfunded loan commitments and letters of credit, and any needed reserve is recorded in reserve for unfunded commitments on the Consolidated Balance Sheets. For periods beyond which we are able to develop reasonable and supportable forecasts, we revert to the historical loss rate on a straight line basis over a twelve month period. See further detail regarding our forecasting methodology in the “Discounted Cash Flow Method” section below.hedge.variety of industries. These three typesloans are (1)used for general corporate purposes including financing working capital, internal growth, and acquisitions; and are generally secured by accounts receivable, inventory, equipment and other assets of our clients’ businesses.hedgedemonstrated record of past success with similar properties. Collateral properties include apartment buildings, office buildings, hotels, mixed-use buildings, retail, data centers, warehouse, and shopping centers. The primary source of repayment on these loans is generally expected to come from lease or operation of the real property collateral. Income producing commercial real estate loans are impacted by fluctuation in collateral values, as well as rental demand and rates.recognized asset or liability or of an unrecognized firm commitment (“fair value hedge”), (2)reasonable expectation that a hedge ofloan will be in a forecasted transactiontrouble debt restructuring or the variabilityextension or renewal options are included in the borrower contract.flowsflow (“DCF”) method to be received or paid relatedestimate expected credit losses for the commercial, income producing – commercial real estate, owner occupied – commercial real estate, real estate mortgage - residential, construction – commercial and residential, construction – C&I (owner occupied), home equity, and other consumer loan pools. For each of these loan segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, probability of default, and loss given default. The modeling of expected prepayment speeds is based on historical internal data.recognized asset or liability (“historical loss rate over twelve months on a straight-line basis. Management leverages economic projections from reputable and independent third parties to inform its loss driver forecasts over the forecast period.hedge”), or (3) anstream at the instrument with no hedging designation (“stand-alone derivative”). Regarding Interest Rate Swap Derivatives,level. Instrument effective yield is calculated, net of the Company has no fair value hedges, only cash flow hedges. For a cash flow hedge,impacts of prepayment assumptions, and 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 wheninstrument expected cash flows are exchangedthen discounted at that effective yield to produce an instrument-level Net Present Value ("NPV"). An ACL is established for the difference between counterparties). For both fair valuethe instrument’s NPV 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 derivativesamortized cost basis.qualify for hedge accountingshare risk characteristics 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 on 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 andevaluated 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 asindividual basis. For 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 ofdependent 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. Diluted 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 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. In addition, the FASB has begun 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.” Since 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 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 annual 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,where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the NPV from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized costs basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.2016-012016-13 replaced the legacy other-than-temporary impairment (“OTTI”) model with a credit loss model, it retained the fundamental nature of the legacy OTTI model. One notable change from the legacy OTTI model is when evaluating whether credit loss exists, an entity may no longer consider the length of time fair value has been less than amortized cost. For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either criterion is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit losses. Losses are charged against the allowance when management believes the uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Any impairment not recorded through an allowance for credit loss is recognized in other comprehensive income as a non-credit-related impairment. The majority of available-for-sale debt securities as of September 30, 2020 and December 31, 2019 were issued by US agencies. However, as of September 30, 2020, the Company determined that part of the unrealized loss positions in AFS corporate and municipal securities could be the result of credit losses, and therefore, an allowance for credit losses of $156 thousand was recorded. See Note 3 Investment Securities for more information.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 followingStatements 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. This ASU significantly changes how entities will measure credit losses for most financial assets Under the CECL standard and certain other instruments that are not measured at fair value through net income. In issuingbased on the standard,January 1, 2020 effective date, the FASB is respondingCompany made an initial adjustment 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.credit losses of $10.6 million along with $4.1 million to the reserve for unfunded commitments. In addition, entities will needaccordance with adoption of CECL, the initial January 1, 2020 cumulative-effect adjustment was to discloseretained earnings (net of taxes) under the amortized cost balancemodified retrospective approach. Results 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 permittedJanuary 1, 2020 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP. Refer to the “Allowance for interimCredit Losses- Loans” section above for additional detail.annual reporting periods beginning after December 15, 2018. Entities will applyLeases (Topic 842)" ("ASU 2020-2") incorporates SEC SAB 119 (updated from SAB 102) into the standard’s provisions asAccounting Standards Codification (the "Codification") by aligning SEC recommended policies and procedures with ASC 326. ASU 2020-2 was effective on January 1, 2020 and had no significant impact on our documentation requirements, financial statement or disclosures.cumulative-effect adjustment to retained earnings aswide variety 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 transactionstopics in the statementCodification with the intent to make the Codification easier to understand and apply by eliminating inconsistencies and providing clarifications. ASU 2020-3 was effective immediately upon its release in March 2020 and did not have a material impact on our consolidated financial statements.cash flows. ThisGAAP by clarifying and amending other existing guidance. 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 is2019-12 will be effective for interimus on January 1, 2021 and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, provided that all of the amendments 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 our consolidated financial statements.Company’s Consolidated Financial Statements.ASU No. 2017-04,“Simplifyinganticipated transition away from LIBOR toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the Testeffective interest rate and the modification will be considered "minor" so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for Goodwill Impairment.” FASB issued this update in January 2017. The guidance removes Step 2as a continuation of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment will nowexisting agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be the amount by which a reporting unit’s carrying value exceeds its fair value,required for modifications not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged.accounted for as separate contracts. ASU No. 2017-042020-4 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 interim and annual reporting periods beginning after December 15, 2019, applied prospectively. Early adoption is permitted for any impairment tests performed aftercontract modifications as of 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 have2020, or prospectively from 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, with early adoption, including adoption indate within an interim period permitted. The Company plansthat includes or is subsequent to adoptMarch 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 2017-12 on January 1, 2019.must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. We anticipate this ASU 2017-12 requires a modified retrospectivewill 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 method in which the Company will recognize the cumulative effectby allowing prospective recognition of the change on the opening balance of each affected component of equity in the statement of financial position ascontinuation of the datecontract, rather than extinguishment of adoption. While the Company continues to assess all potentialold contract resulting in writing off unamortized fees/costs. We are evaluating the impacts of the standard, we currently expect adoption tothis ASU and have an immaterial impactnot yet determined whether LIBOR transition and this ASU will have material effects on our business operations and consolidated financial statements.2017,the first nine months of 2020, the Bank maintained balances at the Federal Reserve sufficient to meet reserve requirements, as well as significant excess reserves, on which interest is paid. 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 September 30, 2020 Amortized Unrealized Unrealized for Credit Fair (dollars in thousands) Cost Gains Losses Losses Value U.S. agency securities $ 130,313 $ 1,638 $ (665) $ — $ 131,286 Residential mortgage backed securities 702,655 14,578 (590) — 716,643 Municipal bonds 90,292 4,551 (114) (16) 94,713 Corporate bonds 33,345 1,596 (71) (140) 34,730 Other equity investments 198 — — — 198 $ 956,803 $ 22,363 $ (1,440) $ (156) $ 977,570 Gross Gross Estimated December 31, 2019 Amortized Unrealized Unrealized Fair (dollars in thousands) Cost Gains Losses Value U.S. agency securities $ 180,228 $ 621 $ (1,055) $ 179,794 Residential mortgage backed securities 541,490 4,337 (1,975) 543,852 Municipal bonds 71,902 2,034 (5) 73,931 Corporate bonds 10,530 203 — 10,733 U.S. Treasury 34,844 11 — 34,855 Other equity investments 198 — — 198 $ 839,192 $ 7,206 $ (3,035) $ 843,363 2017,2020 and December 31, 2019 the Company held $31.0$40.1 million and $35.2 million, respectively, in equity securities in a combination of Federal Reserve Bank (“FRB”) and Federal Home Loan Bank (“FHLB”) stocks, which are required to be held for regulatory purposes and which are not marketable, and therefore are carried at cost.
Accrued interest on available-for-sale securities totaled $3.1 million and $3.2 million at September 30, 2020 and December 31, 2019, respectively, and was included in other assets in the Consolidated Balance Sheets.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 Less than 12 Months 12 Months or Greater Total Estimated Estimated Estimated September 30, 2020 Number of Fair Unrealized Fair Unrealized Fair Unrealized (dollars in thousands) Securities Value Losses Value Losses Value Losses U. S. agency securities 25 $ 20,762 $ 32 $ 43,607 $ 633 $ 64,369 $ 665 Residential mortgage backed securities 33 139,848 549 7,334 41 147,182 590 Municipal bonds 4 14,086 114 0 0 14,086 114 Corporate bonds 1 2,954 71 0 0 2,954 71 63 $ 177,650 $ 766 $ 50,941 $ 674 $ 228,591 $ 1,440 Less than 12 Months 12 Months or Greater Total Estimated Estimated Estimated December 31, 2019 Number of Fair Unrealized Fair Unrealized Fair Unrealized (dollars in thousands) Securities Value Losses Value Losses Value Losses U. S. agency securities 36 $ 75,159 $ 439 $ 51,481 $ 616 $ 126,640 $ 1,055 Residential mortgage backed securities 111 197,794 1,148 90,742 827 288,536 1,975 Municipal bonds 1 1,994 5 0 0 1,994 5 148 $ 274,947 $ 1,592 $ 142,223 $ 1,443 $ 417,170 $ 3,035 exist are generallypart of the unrealized loss positions in AFS corporate and municipal securities could be the result of changes in market interest ratescredit losses, and interest spread relationships since original purchases.therefore, an allowance for credit losses of $156 thousand was recorded. The weighted average duration of debt securities, which comprise 99.9% of total investment securities, is relatively short at 3.53.1 years. If quoted prices are not available, fair value is measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’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 intend to sell the investments and it is more likely than not that the Company will not have to sell the securities before recovery of its amortized cost basis, which may be at maturity.20172020 and December 31, 20162019 by contractual maturity are shown in the table below. Expected maturities for residential mortgage backed securities (“MBS”) will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. 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, 2020 December 31, 2019 Amortized Estimated Amortized Estimated (dollars in thousands) Cost Fair Value Cost Fair Value U. S. agency securities maturing: One year or less $ 38,000 $ 38,111 $ 96,332 $ 96,226 After one year through five years 81,181 82,057 76,121 75,821 Five years through ten years 11,132 11,224 7,775 7,747 Residential mortgage backed securities 702,655 716,643 541,490 543,852 Municipal bonds maturing: One year or less 4,834 4,868 5,897 5,969 After one year through five years 26,677 27,912 21,416 21,953 Five years through ten years 56,781 59,771 42,589 44,015 After ten years 2,000 2,072 2,000 1,994 Corporate bonds maturing: One year or less 5,214 5,257 502 508 After one year through five years 21,156 22,124 8,528 8,725 After ten years 6,975 7,489 1,500 1,500 U.S. treasury — — 34,844 34,855 Other equity investments 198 198 198 198 Allowance for Credit Losses — (156) — 0 $ 956,803 $ 977,570 $ 839,192 $ 843,363 2017,2020, gross realized gains on sales of investments securities were $795 thousand$1.7 million and there were 0 gross realized losses on sales of investment securities were $254 thousand.securities. For the nine months ended September 30, 2016,2019, gross realized gains on sales of investments securities were $1.3$1.6 million, of which $829 thousand was recognized during March 2019 on interest rate swap terminations, and there were 0 gross realized losses on sales of investment securities were $202 thousand.securities.20172020 were $70.1$130.3 million andcompared to $83.0 million for the same period in 2016 were $94.2 million.20172020 and December 31, 2019 was $459.9$320 million and $378 million, respectively, which is well in excess of required amounts in order to operationally provide significant reserve amounts for new business. As of September 30, 20172020 and December 31, 2016,2019, there were no holdings of securities of any one issuer, other than the U.S. Government and U.S. agency securities, which exceeded ten10 percent of shareholders’ equity.Derivativesecurities (“MBS”).securities. Forward sales contracts of MBS are recorded at fair value with changes in fair value recorded in noninterest income. Interest rate lock commitments and commitments to deliver loans to investors are considered derivatives. The market value of interest rate lock commitments and best efforts contracts are not readily ascertainable with precision because they are not actively traded in stand-alone markets. The Bank determines the fair value of interest rate lock commitments and delivery contracts by measuring the fair value of the underlying asset, which is impacted by current interest rates, taking into consideration the probability that the interest rate lock commitments will close or will be funded.20172020, 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 attotaling $6.0 million. At September 30, 2016. 2019 the Bank had mortgage banking derivative financial instruments of $134.3 million notional value. The fair value of these mortgage banking derivative instruments at September 30, 2017December 31, 2019 was $63$280 thousand included in other assets and $36$66 thousand included in other liabilities as compared to $217 thousand included in other assets and $222 thousand included in other liabilities at September 30, 2016.20172020 was a net gainloss of $71$145 thousand and a net gainloss of $335$309 thousand relating to mortgage banking derivative instruments as compared to a net lossgain of $46$30 thousand and a net gain of $274$249 thousand for the three and nine months ended September 30, 2016.2019. The amount included in other noninterest income for the three and nine months ended September 30, 20172020 pertaining to its mortgage banking hedging activities was a net realized lossgain of $14$34 thousand and $912a net gain of $27 thousand, respectively, as compared to a net realized gain of $151$277 thousand and a net unrealized lossgain of $156$228 thousand, respectively, for the same periods inthree and nine months ended September 30, 2016.2019.2017,2020 (unaudited) and December 31, 2016, and September 30, 20162019 are summarized by type as follows:September 30, 2020 December 31, 2019 (dollars in thousands) Amount % Amount % Commercial $ 1,524,613 19 % $ 1,545,906 20 % PPP loans 456,115 6 % 0 0 Income producing - commercial real estate 3,724,839 47 % 3,702,747 50 % Owner occupied - commercial real estate 997,645 13 % 985,409 13 % Real estate mortgage - residential 82,385 1 % 104,221 1 % Construction - commercial and residential 879,144 11 % 1,035,754 14 % Construction - C&I (owner occupied) 140,357 2 % 89,490 1 % Home equity 72,648 1 % 80,061 1 % Other consumer 2,509 0 2,160 0 Total loans 7,880,255 100 % 7,545,748 100 % Less: allowance for credit losses (110,215) (73,658) $ 7,770,040 $ 7,472,090 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.$23.3 million, $22.3$33.0 million and $20.9$25.2 million at September 30, 2017,2020 and December 31, 2016, and September 30, 2016,2019, respectively.20172020 and December 31, 2016,2019, the Bank serviced $176.5$94 million and $128.8$99 million, respectively, of multifamily FHA loans, SBA loans and other loan participations whichthat are not reflected as loan balances on the Consolidated Balance Sheets.2017,2020, owner occupied - commercial real estate and construction -– C&I (owner occupied) represent approximately 13%14% of the loan portfolio. At September 30, 2017,2020, non-owner occupied commercial real estate and real estate construction represented approximately 63%58% of the loan portfolio. The combined owner occupied and commercial real estate and construction loans represent approximately 76%73% of the loan portfolio. Real estate also serves as collateral for loans made for other purposes, resulting in 79% of all loans being secured by real estate. These loans are underwritten to mitigate lending risks typical of this type of loan such as declines in real estate values, changes in borrower cash flow and general economic conditions. The Bank typically requires a maximum loan to value of 80% and minimum cash flow debt service coverage of 1.15 to 1.0. Personal guarantees may be required, but may be limited. In making real estate commercial mortgage loans, the Bank generally requires that interest rates adjust not less frequently than five years.20%19% of the loan portfolio at September 30, 20172020 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%1% of the commercial loan category of loans.category. In originating SBA loans, the Company assumes the risk of non-payment on the unguaranteed portion of the credit.credit as well as potential recourse to the SBA guarantees. The Company generally sells the guaranteed portion of the loan generating noninterest income from the gains on sale, as well as servicing income on the portion participated. SBA loans are subject to the same cash flow analyses as other commercial loans. SBA loans are subject to a maximum loan size established by the SBA.SBA as well as internal loan size guidelines.2%6% of the loan portfolio at September 30, 20172020 consists of PPP loans to eligible customers. PPP loans are expected to primarily be repaid via forgiveness provisions (under the CARES Act) from the SBA. These loans are fully guaranteed as to principal and interest by the SBA and ultimately by the full faith and credit of the U.S. Government; as a result, they were approved utilizing different underwriting standards than the Bank's other commercial loans. PPP loans are included in the CECL model but do not carry an allowance for credit loss due to the aforementioned government guarantees.2%1% of the loan portfolio consists of residential mortgage loans. The repricing duration of these loans was 15 months.17 months at September 30, 2020. 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.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.ADCacquisition, development and construction (“ADC”) real estate loans including both investment and owner occupied projects. ADC loans amounted to $1.44$1.4 billion at September 30, 2017.2020. A portion of the ADC portfolio, both speculative and non-speculative, includes loan funded interest reserves at origination. ADC loans are serviced by loan fundedthat provide for the use of interest reserves and represent approximately 79%58% of the outstanding ADC loan portfolio at September 30, 2017.2020. The decision to establish a loan-funded interest reserve is made upon origination of the ADC loan and is based upon a number of factors considered during underwriting of the credit including: (1) the feasibility of the project; (2) the experience of the sponsor; (3) the creditworthiness of the borrower and guarantors; (4) the borrower equity contribution; and (5) the level of collateral protection. When appropriate, an interest reserve provides an effective means of addressing the cash flow characteristics of a properly underwritten ADC loan. The Company 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’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 which are monitored on an ongoing basis which track the progress of a given project to the timeline projected at origination; (2) a construction loan administration department independent of the lending function; (3) third party independent construction loan inspection reports; (4) monthly interest reserve monitoring reports detailing the balance of the interest reserves approved at origination and the days of interest carry represented by the reserve balances as compared to the then current anticipated time to completion and/or sale of speculative projects; and (5) quarterly commercial real estate construction meetings among senior Company management, which includes monitoring of current and projected real estate market conditions. If a project has not performed as expected, it is not the customary practice of the Company to increase loan funded interest reserves.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 Losses20172020 and 2016.2019. PPP loans are excluded from these tables since they do not carry an allowance for credit loss, as these loans are fully guaranteed as to principal and interest by the SBA, whose guarantee is backed by the full faith and credit of the U.S. 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 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, 2020 Allowance for credit losses: Balance at beginning of period $ 28,078 $ 51,863 $ 12,341 $ 1,550 $ 13,808 $ 1,112 $ 44 $ 108,796 Loans charged-off (187) (3,750) (20) — (1,179) (92) — (5,228) Recoveries of loans previously charged-off 45 — — — — — 13 58 Net loans charged-off (142) (3,750) (20) — (1,179) (92) 13 (5,170) Provision for credit losses (712) 7,327 769 321 (1,088) (13) (15) 6,589 Ending balance $ 27,224 $ 55,440 $ 13,090 $ 1,871 $ 11,541 $ 1,007 $ 42 $ 110,215 Nine Months Ended September 30, 2020 Allowance for credit losses: Balance at beginning of period, prior to adoption of ASC 326 $ 18,832 $ 29,265 $ 5,838 $ 1,557 $ 17,485 $ 656 $ 25 $ 73,658 Impact of adopting ASC 326 892 11,230 4,674 (301) (6,143) 245 17 10,614 Loans charged-off (7,332) (4,300) (20) — (2,947) (92) — (14,691) Recoveries of loans previously charged-off 116 — — — — — 20 136 Net loans (charged-off) recoveries (7,216) (4,300) (20) — (2,947) (92) 20 (14,555) Provision for credit losses 14,716 19,245 2,598 615 3,146 198 (20) 40,498 Ending balance $ 27,224 $ 55,440 $ 13,090 $ 1,871 $ 11,541 $ 1,007 $ 42 $ 110,215 As of September 30, 2020 Allowance for credit losses: Individually evaluated for impairment $ 9,593 $ 5,999 $ 670 $ 1,148 $ 204 $ — $ 3 $ 17,617 Collectively evaluated for impairment 17,631 49,441 12,420 723 11,337 1,007 39 92,598 Ending balance $ 27,224 $ 55,440 $ 13,090 $ 1,871 $ 11,541 $ 1,007 $ 42 $ 110,215 Three Months Ended September 30, 2019 Allowance for credit losses: Balance at beginning of period $ 18,136 $ 27,010 $ 5,756 $ 1,355 $ 19,006 $ 581 $ 242 $ 72,086 Loans charged-off (1,794) — — — — — (1,794) Recoveries of loans previously charged-off 210 — — 15 — 17 242 Net loans charged-off (1,584) 0 0 0 15 — 17 (1,552) Provision for credit losses 1,617 1,517 (158) (3) 251 (6) (32) 3,186 Ending balance $ 18,169 $ 28,527 $ 5,598 $ 1,352 $ 19,272 $ 575 $ 227 $ 73,720 Nine Months Ended September 30, 2019 Allowance for credit losses: Balance at beginning of period $ 15,857 $ 28,034 $ 6,242 $ 965 $ 18,175 $ 599 $ 72 $ 69,944 Loans charged-off (1,799) (5,343) — — — — (2) (7,144) Recoveries of loans previously charged-off 377 302 2 3 52 — 38 774 Net loans (charged-off) recoveries (1,422) (5,041) 2 3 52 — 36 (6,370) Provision for credit losses 3,734 5,534 (646) 384 1,045 (24) 119 10,146 Ending balance $ 18,169 $ 28,527 $ 5,598 $ 1,352 $ 19,272 $ 575 $ 227 $ 73,720 As of September 30, 2019 Allowance for credit losses: Individually evaluated for impairment $ 8,196 $ 1,200 $ 375 $ 650 $ 0 $ 13 $ 0 $ 10,434 Collectively evaluated for impairment 9,973 27,327 5,223 702 19,272 562 227 63,286 Ending balance $ 18,169 $ 28,527 $ 5,598 $ 1,352 $ 19,272 $ 575 $ 227 $ 73,720 Company’s recorded investments infollowing table presents the amortized cost basis of collateral-dependent loans by class of loans as of September 30, 2017, 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.(dollars in thousands) Business/Other Assets Real Estate Commercial $ 14,075 $ 2,948 Income producing - commercial real estate 3,193 26,063 Owner occupied - commercial real estate — 14,215 Real estate mortgage - residential — 5,335 Construction - commercial and residential — 2,274 Home equity — 109 Other consumer 8 — Total $ 17,276 $ 50,944 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’s performance has not met expectations. Balance sheet and/or income statement has shown deterioration to the point that the obligor could not sustain any further setbacks. Credit is expected to be strengthened through improved obligor performance and/or additional collateral within a reasonable period of time. Special Mention: Loans in the classes that comprise the commercial portfolio segment that have potential weaknesses that deserve management’s close attention. If not addressed, these potential weaknesses may result in deterioration of the repayment prospects for the loan. The special mention credit quality indicator is not used for classes of loans that comprise the consumer portfolio segment. Management believes that there is a moderate likelihood of some loss related to those loans that are considered special mention. Classified: - – 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 -basismost recent analysis performed, the risk category of currently existing facts, conditions,loans by class of loans and values, highly questionable and improbable. The possibilityyear of lossorigination 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.follows:September 30, 2020 (dollars in thousands) Prior 2016 2017 2018 2019 2020 Total Commercial Pass 375,848 124,678 306,487 249,287 193,594 155,505 1,405,399 Watch 32,430 3,125 32,399 9,478 3,674 — 81,106 Special Mention 1,302 0 0 451 0 — 1,753 Substandard 16,915 4,766 2,046 12,421 207 — 36,355 Total 426,495 132,569 340,932 271,637 197,475 155,505 1,524,613 PPP loans Pass — — — — — 456,115 456,115 Total — — — — — 456,115 456,115 Income producing - commercial real estate Pass 756,002 402,690 421,428 685,804 705,972 377,721 3,349,617 Watch 150,215 15,480 74,168 53,616 4,640 — 298,119 Special Mention 203 0 0 0 47,644 — 47,847 Substandard 13,375 800 4,656 4,883 5,542 — 29,256 Total 919,795 418,970 500,252 744,303 763,798 377,721 3,724,839 Owner occupied - commercial real estate Pass 344,863 105,381 115,144 139,991 74,286 29,169 808,834 Watch 50,018 2,038 2,645 95,171 24,761 — 174,633 Substandard 9,584 764 0 355 3,475 — 14,178 Total 404,465 108,183 117,789 235,517 102,522 29,169 997,645 Real estate mortgage - residential Pass 18,121 3,410 10,377 14,593 23,100 6,837 76,438 Watch 612 0 — — — — 612 Substandard 1,181 4,154 — — — — 5,335 Total 19,914 7,564 10,377 14,593 23,100 6,837 82,385 Construction - commercial and residential Pass 32,535 65,703 286,922 314,061 104,335 46,832 850,388 Watch 853 — 25,629 — — — 26,482 Substandard — 1,866 408 — — — 2,274 Total 33,388 67,569 312,959 314,061 104,335 46,832 879,144 Construction - C&I (owner occupied) Pass 11,162 10,577 6,501 29,963 18,761 43,997 120,961 Watch 787 — 2,121 3,251 13,237 — 19,396 Total 11,949 10,577 8,622 33,214 31,998 43,997 140,357 Home Equity Pass 38,049 4,970 8,274 8,314 4,369 6,918 70,894 Watch 1,401 — — — — — 1,401 Substandard 304 — — — 49 — 353 Total 39,754 4,970 8,274 8,314 4,418 6,918 72,648 Other Consumer Pass 2,039 169 108 50 100 33 2,499 Substandard 10 — — — — — 10 Total 2,049 169 108 50 100 33 2,509 Total Recorded Investment $ 1,857,809 $ 750,571 $ 1,299,313 $ 1,621,689 $ 1,227,746 $ 1,123,127 $ 7,880,255 generally on a quarterly basis, but no less frequently than annually.annually; however, credits rated watch or below are reviewed more frequently. The following table presents by class and by credit quality indicator, the recorded investment in the Company’s loans and leases as of 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 Total (dollars in thousands) Pass Watch Special Mention Substandard Doubtful Loans December 31, 2019 Commercial $ 1,470,636 $ 38,522 $ 11,460 $ 25,288 $ — $ 1,545,906 Income producing - commercial real estate 3,667,585 16,069 — 19,093 — 3,702,747 Owner occupied - commercial real estate 925,800 53,146 — 6,463 — 985,409 Real estate mortgage - residential 98,228 628 — 5,365 — 104,221 Construction - commercial and residential 1,113,734 — — 11,510 — 1,125,244 Home equity 78,626 948 — 487 — 80,061 Other consumer 2,160 — — — — 2,160 Total $ 7,356,769 $ 109,313 $ 11,460 $ 68,206 $ — $ 7,545,748 Loansconsidered past due if the required principal and interest payments have not been received aspast-due 30 days or more. The Committees make a thorough assessment of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, 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 ninety 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.The following table presents, by classloan, 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.
Contents(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.20172020 (unaudited) and December 31, 2016.Loans Loans Loans Total Recorded Current 30-59 Days 60-89 Days 90 Days or Total Past Investment in (dollars in thousands) Loans Past Due Past Due More Past Due Due Loans Non-Accrual Loans September 30, 2020 Commercial $ 1,494,038 $ 4,585 $ 10,154 $ — $ 14,739 $ 15,836 $ 1,524,613 PPP loans 456,115 — — — — 0 456,115 Income producing - commercial real estate 3,696,949 — 7,822 — 7,822 20,068 3,724,839 Owner occupied - commercial real estate 983,021 0 446 — 446 14,178 997,645 Real estate mortgage - residential 76,798 — — — — 5,587 82,385 Construction - commercial and residential 876,361 — 509 — 509 2,274 879,144 Construction - C&I (owner occupied) 138,837 1,520 — — 1,520 0 140,357 Home equity 71,837 656 46 — 702 109 72,648 Other consumer 2,492 9 0 — 9 8 2,509 Total $ 7,796,448 $ 6,770 $ 18,977 $ — $ 25,747 $ 58,060 $ 7,880,255 December 31, 2019 Commercial $ 1,527,134 $ 3,063 $ 781 $ — $ 3,844 $ 14,928 $ 1,545,906 Income producing - commercial real estate 3,687,494 — 5,542 — 5,542 9,711 3,702,747 Owner occupied - commercial real estate 965,938 13,008 — — 13,008 6,463 985,409 Real estate mortgage – residential 95,057 3,533 — — 3,533 5,631 104,221 Construction - commercial and residential 1,113,735 — — — — 11,509 1,125,244 Home equity 79,246 136 192 — 328 487 80,061 Other consumer 2,151 — 9 — 9 0 2,160 Total $ 7,470,755 $ 19,740 $ 6,524 $ — $ 26,264 $ 48,729 $ 7,545,748 September 30, 2020 December 31, 2019 Nonaccrual with Nonaccrual with Total Total No Allowance an Allowance Nonaccrual Nonaccrual (dollars in thousands) for Credit Loss for Credit Loss Loans Loans Commercial 572 15,262 15,834 14,928 PPP loans 0 0 0 0 Income producing - commercial real estate 6,690 13,379 20,069 9,711 Owner occupied - commercial real estate 12,627 1,551 14,178 6,463 Real estate mortgage - residential 1,434 4,154 5,588 5,631 Construction - commercial and residential 1,866 408 2,274 11,509 Home equity 109 0 109 487 Other consumer 5 3 8 0 $ 23,303 $ 34,757 $ 58,060 $ 48,729 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 Loansarewere considered impaired when, based on current information and events, it iswas probable the Company willwould be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. If a loan iswas impaired, a specific valuation allowance iswas allocated, if necessary, so that the loan iswas 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 iswas expected solely from the collateral. Interest paymentsThe Bank’s loan policy requires that loans be placed on impaired loansnonaccrual if they are typically applied to principalninety days past-due, unless collectabilitythey are well secured and in the process of the principal amount is reasonably assured, in which case interest is recognized on a cash basis.collection. Impaired loans, or portions thereof, are charged offwere charged-off when deemed uncollectible.for the periods ended September 30, 2017,at December 31, 2016 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 Unpaid Recorded Recorded Average Recorded Interest Income Contractual Investment Investment Total Investment Recognized Principal With No With Recorded Related Year Year (dollars in thousands) Balance Allowance Allowance Investment Allowance to Date To Date December 31, 2019 Commercial $ 15,814 $ 11,858 $ 3,956 $ 15,814 $ 5,714 $ 15,682 $ 270 Income producing - commercial real estate 14,093 2,713 11,380 14,093 2,145 18,133 382 Owner occupied - commercial real estate 7,349 6,388 961 7,349 415 6,107 197 Real estate mortgage - residential 5,631 3,175 2,456 5,631 650 5,638 — Construction - commercial and residential 11,509 11,101 408 11,509 100 8,211 92 Home equity 487 — 487 487 100 487 — Other consumer — — — — — — — Total $ 54,883 $ 35,235 $ 19,648 $ 54,883 $ 9,124 $ 54,258 $ 941 athe borrower is experiencing financial difficulty and the modification constitutes a concession. The Company offers various types of concessions when modifying a loan. Commercial and industrial loans modified in a TDR often involve temporary interest-only payments, term extensions, and converting revolving credit lines to term loans. Additional collateral, a co-borrower, or a guarantor is often requested. Commercial mortgage and construction loans modifiedThe most common change in a TDR often involve reducingterms provided by the interest rate for the remaining termCompany is an extension of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or substituting or adding a new borrower or guarantor. Construction loans modified in a TDR may also involve extending the interest-only payment period.term. As of September 30, 2017,2020, all performing TDRs were categorized as interest-only modifications.following table presents by class, the recorded investment of loans modified in a TDRdeferred payments along with interest accrued during the three months endeddeferral period are due and payable on the maturity date. As of September 30, 20172020, we granted ongoing temporary modifications on approximately 321 loans representing approximately $851 million (10.8% of total loans) in outstanding exposure. Additionally, none of the deferrals are reflected in the Company's asset quality measures (i.e. non-performing loans) due to the provision of the CARES Act that permits U.S. financial institutions to temporarily suspend the GAAP requirements to treat such short-term loan modifications as TDR. Similar provisions have also been confirmed by interagency guidance issued by the federal banking agencies and 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 $ — $ — $ — $ — $ — Nine Months Ended September 30, 2020 Income Owner Number Producing - Occupied - Construction - of Commercial Commercial Commercial (dollars in thousands) Contracts Commercial Real Estate Real Estate Real Estate Total Troubled debt restructurings Restructured accruing 7 $ 1,297 $ 9,188 $ 37 $ 0 $ 10,522 Restructured nonaccruing 4 138 6,342 2,370 0 8,850 Total 11 $ 1,435 $ 15,530 $ 2,407 $ 0 $ 19,372 Specific allowance $ 227 $ 629 $ 0 $ 0 $ 856 Restructured and subsequently defaulted $ 138 $ 11,161 $ 2,370 $ 0 $ 13,669 Nine Months Ended September 30, 2019 Income Owner Number Producing - Occupied - Construction - of Commercial Commercial Commercial (dollars in thousands) Contracts Commercial Real Estate Real Estate Real Estate Total Troubled debt restructurings Restructured accruing 7 $ 898 $ 4,387 $ 3,283 $ 0 $ 8,568 Restructured nonaccruing 3 1,521 0 0 0 1,521 Total 10 $ 2,419 $ 4,387 $ 3,283 $ 0 $ 10,089 Specific allowance $ 0 $ 1,000 $ 0 $ 0 $ 1,000 Restructured and subsequently defaulted $ 0 $ 2,300 $ 0 $ 0 $ 2,300 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, 20172020 totaling approximately $13.2$19.4 million. NineNaN of these loans totaling approximately $12.3$10.5 million are performing under their modified terms. DuringFor the first nine months of 2017,2020 and 2019, there was one defaultwere 2 performing TDR loans each, totaling $6.3 million and $0.9 million, respectively, that defaulted 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.their modified terms. A default is considered to have occurred once the TDR is past due 90 days or more or it has been placed on nonaccrual. There were two nonperforming TDRs totaling $588 thousand reclassified to nonperforming loans duringnon-accrual status. For the ninethree months ended September 30, 2017. There2020, there were 0 restructured loans where the collateral was one nonperforming TDRsold and the loans paid in full, as compared to the same period in 2019, when there was 1 restructured loan totaling $5.0 million reclassified to nonperforming loans duringapproximately $309 thousand that was paid off from the ninesale proceeds of the collateral property. 2016. Commercial2020 and 2019, 0 loans were re-underwritten and removed from TDR status. Commercial and consumer loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a TDR subsequently default, the Company evaluates the loan for possible further impairment. The allowance may be increased, adjustments may be made in the allocation of the allowance or partial charge-offs may be taken to further write-down the carrying value of the loan. There were two loans totaling $251 thousand modified in a TDR duringFor both the three months ended September 30, 2017, as compared to the three months ended September 30, 2016 which had one loan totaling $801 thousand2020 and 2019, there were no loans modified in a TDR.Nine Months Ended (dollars in thousands) September 30, 2020 September 30, 2019 Lease Cost Operating Lease Cost (Cost resulting from lease payments) $ 6,253 $ 5,857 Variable Lease Cost (Cost excluded from lease payments) 720 815 Sublease Income (261) (282) Net Lease Cost $ 6,712 $ 6,390 Operating Lease - Operating Cash Flows (Fixed Payments) $ 6,648 $ 6,382 Right-of-Use Assets - Operating Leases $ 27,180 $ 26,552 Weighted Average Lease Term - Operating Leases 5.27 yrs 5.11 yrs Weighted Average Discount Rate - Operating Leases 4.00 % 4.00 % (dollars in thousands) Twelve Months Ended: September 30, 2021 $ 8,384 September 30, 2022 6,592 September 30, 2023 5,296 September 30, 2024 4,595 September 30, 2025 3,847 Thereafter 5,162 Total Future Minimum Lease Payments 33,876 Amounts Representing Interest (3,419) Present Value of Net Future Minimum Lease Payments $ 30,457 Swap Derivativesentered 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’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’s intent is to hedge its exposure to the variability in potential future interest rate conditions on existing financial instruments.As of September 30, 2017, the Company had three forward starting designated cash flow hedge interest rate swap transactions outstanding that had an aggregate notional amount of $250 million associated 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 term 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.an immaterial amount$829 thousand in earningsnoninterest income during March 2019 due to hedge ineffectiveness during both the nine month periods ended September 30, 2017 and September 30, 2016.quarter ended September 30, 2017, the Company reclassified $307 thousand related to designated cash flow hedge derivatives from accumulated other comprehensive income to interest expense. During the next twelve months, the Company estimates (based on existing interest rates) that $657$842 thousand will be reclassified as an increase 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’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.2017,2020, the aggregate fair value of all designated cash flow hedgethe derivative contractscontract 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 werethat was in a net liability position as of September 30, 2017).totaled $5.5 million. The Company has a minimum collateral posting threshold with its derivative counterparty. As of September 30, 2017,2020, the Company has minimumwas required to post collateral posting thresholdstotaling $2.2 million with certain of its derivative counterparties and has posted collateral of $890 thousandcounterparty against its obligations under these agreements.this agreement. If the Company had breached any provisions under the agreementsagreement at September 30, 2017,2020, it could have been required to settle its obligations under the agreementsagreement at the termination value.valuesvalue of the Company’s designated cash flow hedge derivative instruments and non-designated hedges as of September 30, 20172020 (unaudited) 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, 2020 December 31, 2019 Notional Balance Sheet Notional Balance Sheet Derivatives designated as hedging instruments (dollars in thousands) Amount Fair Value Category Amount Fair Value Category Interest rate product $ 100,000 $ 910 Other Liabilities $ 100,000 $ 206 Other Liabilities Derivatives not designated as hedging instruments (dollars in thousands Interest rate product $ 176,851 $ 4,306 Other Assets $ 56,806 $ 311 Other Assets Mortgage banking derivatives 409,988 6,015 Other Assets 49,869 280 Other Assets 586,839 10,321 586,839 10,321 106,675 591 Interest rate product $ 176,851 $ 4,561 Other Liabilities $ 56,806 $ 319 Other Liabilities Other Contracts 27,031 136 Other Liabilities 27,384 86 Other Liabilities Mortgage banking derivatives $ 0 $ 0 Other Liabilities $ 49,869 $ 66 Other Liabilities $ 203,882 $ 4,697 Other Liabilities $ 134,059 $ 471 Other Liabilities 20172020 and 2019:The Effect of Fair Value and Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income Location of Gain or (Loss) Amount of Gain or (Loss) Amount of Gain (Loss) Recognized in Recognized from Reclassified from Accumulated OCI OCI on Derivative Accumulated Other into Income Derivatives in Subtopic 815-20 Hedging Three Months Ended September 30, Comprehensive Income into Three Months Ended September 30, Relationships (dollars in thousands) 2020 2019 Income 2020 2019 Derivatives in Cash Flow Hedging Relationships Interest Rate Products 31 (107) Interest Expense (389) 264 Total 31 (107) (389) 264 Location of Gain or (Loss) Recognized from Accumulated Other Amount of Gain or (Loss) Amount of (Loss) Recognized in Comprehensive Income into Reclassified from Accumulated OCI OCI on Derivative Income into Income Derivatives in Subtopic 815-20 Hedging Nine Months Ended September 30, Nine Months Ended September 30, Relationships (dollars in thousands) 2020 2019 2020 2019 Derivatives in Cash Flow Hedging Relationships Interest Rate Products (1,517) (1,974) Interest Expense (755) 1,039 Interest Rate Products — 0 Gain on sale of investment securities — 829 Total (1,517) (1,974) (755) 1,868 yearthree and nine months 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 The Effect of Fair Value and Cash Flow Hedge Accounting on the Statements of Income Location and Amount of Gain or (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships (in 000's) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 2019 Interest Interest Interest Gain on sale of Expense Expense Expense investment securities Total amounts of income and expense line items presented in the consolidated statement of income in which the effects of fair value or cash flow hedges are recorded $ 389 $ 264 $ 755 $ 1,039 $ 829 Gain or (loss) on cash flow hedging relationships in Subtopic 815-20 Interest contracts Amount of gain or (loss) reclassified from accumulated other comprehensive income into income $ 389 $ 264 $ 755 $ 1,039 $ 0 Amount of gain or (loss) reclassified from accumulated other comprehensive income into income as a result that a forecasted transaction is no longer probable of occurring $ 0 $ 0 $ 0 $ 0 $ 829 Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income - Included Component $ 389 $ 264 $ 755 $ 1,039 $ 829 Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income - Excluded Component $ 0 $ 0 $ 0 $ 0 $ 0 Effect of Derivatives Not Designated as Hedging Instruments on the Statements of Income Amount of Income (Loss) Amount of Income (Loss) Recognized in Income on Recognized in Income on Location of Derivative Derivative Derivatives Not Designated as Hedging (Loss) Recognized in Three Months Ended September 30, Nine Months Ended September 30, Instruments under Subtopic 815-20 Income on Derivative 2020 2019 2020 2019 Interest Rate Products Other income / (expense) (40) (7) (326) (7) Mortgage banking derivatives Other income / (expense) 6,015 (380) 6,015 316 Other Contracts Other income / (expense) (13) (16) (77) (58) Total 5,962 (403) 5,612 251 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 As of September 30, 2020 Gross Gross Amounts Not Offset in the Gross Amounts Net Amounts of Assets presented in the Balance Sheet Balance Sheet Amounts of Offset in Cash Offsetting of Derivative Assets (dollars in thousands) Recognized the Balance Financial Collateral Net Assets Sheet Instruments Posted Amount Derivatives $ 4,306 $ — $ 4,306 $ — $ — $ 4,306 Gross Gross Amounts Not Offset in the Gross Amounts Net Amounts of Liabilities presented in the Balance Sheet Balance Sheet Amounts of Offset in Cash Recognized the Balance Financial Collateral Net Offsetting of Derivative Liabilities (dollars in thousands) Liabilities Sheet Instruments Posted Amount Derivatives $ 5,216 $ — $ 5,216 $ — $ 230 $ 4,986 As of December 31, 2019 Gross Gross Amounts Not Offset in the Gross Amounts Net Amounts of Assets presented in the Balance Sheet Balance Sheet Amounts of Offset in Cash Offsetting of Derivative Assets (dollars in thousands) Recognized the Balance Financial Collateral Net Assets Sheet Instruments Posted Amount Derivatives $ 311 — $ 311 — — $ 311 Gross Gross Amounts Not Offset in the Gross Amounts Net Amounts of Liabilities presented in the Balance Sheet Balance Sheet Amounts of Offset in Cash Recognized the Balance Financial Collateral Net Offsetting of Derivative Liabilities (dollars in thousands) Liabilities Sheet Instruments Posted Amount Derivatives $ 611 — $ 611 — $ 500 $ 111 7.8. Other Real Estate Owned20172020 and 20162019 (unaudited) is presented in the table below. There were no residential real estate loans in the process of foreclosure as of September 30, 2017.2020. For the three and nine months ended September 30, 2017, proceeds on2020 there was 1 sale of an OREO were $1.2 million and $2.1 million. For the three months ended September 30, 2017,property, while there were two OREO properties with a total carrying valuezero sales in the same periods in 2019.$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 Three Months Ended September 30, Nine Months Ended September 30, (dollars in thousands) 2020 2019 2020 2019 Beginning Balance $ 8,237 $ 1,394 $ 1,487 $ 1,394 Real estate acquired from borrowers 0 93 6,750 93 Properties sold (3,250) 0 (3,250) 0 Ending Balance $ 4,987 $ 1,487 $ 4,987 $ 1,487 8.9. Long-Term Borrowings2017,2020 (unaudited) 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, 2020 December 31, 2019 Subordinated Notes, 5.75% $ 70,000 $ 70,000 Subordinated Notes, 5.0% 150,000 150,000 FHLB Advance, 1.81% 50,000 0 Less: unamortized debt issuance costs (2,020) (2,313) Long-term borrowings $ 267,980 $ 217,687 “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 includes $1.2 million in deferred financing costs which are being amortized over the life of the 2024 Notes.$147.35$147.4 million, which includes $2.6 million in deferred financing costs which are being amortized over the life of the 2026 Notes.9.10. Net Income per Common Share20172020 and 20162019 (unaudited) 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 Note 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 Three Months Ended September 30, Nine Months Ended September 30, (dollars and shares in thousands, except per share data) 2020 2019 2020 2019 Basic: Net income $ 41,346 $ 36,495 $ 93,325 $ 107,487 Average common shares outstanding 32,229 34,233 32,434 34,418 Basic net income per common share $ 1.28 $ 1.07 $ 2.88 $ 3.12 Diluted: Net income $ 41,346 $ 36,495 $ 93,325 $ 107,487 Average common shares outstanding 32,229 34,233 32,434 34,418 Adjustment for common share equivalents 22 23 24 33 Average common shares outstanding-diluted 32,251 34,256 32,458 34,451 Diluted net income per common share $ 1.28 $ 1.07 $ 2.88 $ 3.12 Anti-dilutive shares 26 2 26 20 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.20172020 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, 2020 Net unrealized loss on securities available-for-sale $ (840) $ 216 $ (624) Less: Reclassification adjustment for net gains included in net income (115) 29 (86) Total unrealized loss (955) 245 (710) Net unrealized gain on derivatives 31 (7) 24 Less: Reclassification adjustment for loss included in net income 389 (100) 289 Total unrealized gain 420 (107) 313 Other Comprehensive Income $ (535) $ 138 $ (397) Three Months Ended September 30, 2019 Net unrealized gain on securities available-for-sale $ 1,585 $ 411 $ 1,174 Less: Reclassification adjustment for net gains included in net income (153) (43) (110) Total unrealized gain 1,432 368 1,064 Net unrealized gain on derivatives 24 (13) 11 Less: Reclassification adjustment for gain included in net income (285) (80) (205) Total unrealized loss (261) 67 (194) Other Comprehensive Income $ 1,171 $ 301 $ 870 Nine Months Ended September 30, 2020 Net unrealized gain on securities available-for-sale $ 18,402 $ (5,048) $ 13,354 Less: Reclassification adjustment for net gains included in net income (1,650) 419 (1,231) Total unrealized gain 16,752 (4,629) 12,123 Net unrealized loss on derivatives (1,986) 662 (1,324) Less: Reclassification adjustment for gain included in net income 688 (175) 513 Total unrealized loss (1,298) 487 (811) Other Comprehensive Income $ 15,454 $ (4,142) $ 11,312 Nine Months Ended September 30, 2019 Net unrealized gain on securities available-for-sale $ 17,712 $ (4,572) $ 13,140 Less: Reclassification adjustment for net gains included in net income (1,628) (438) (1,190) Total unrealized gain 16,084 (5,010) 11,950 Net unrealized loss on derivatives (2,210) 546 (1,664) Less: Reclassification adjustment for gain included in net income (1,879) (505) (1,374) Total unrealized loss (4,089) 41 (3,038) Other Comprehensive Income $ 11,995 $ (4,969) $ 8,912 income,, net of tax, for the three and nine months ended September 30, 20172020 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 Accumulated Other Available Comprehensive Income (dollars in thousands) For Sale Derivatives (Loss) Three Months Ended September 30, 2020 Balance at Beginning of Period $ 15,942 $ (1,274) $ 14,668 Other comprehensive income (loss) before reclassifications (624) 24 (600) Amounts reclassified from accumulated other comprehensive income (loss) (86) 289 203 Net other comprehensive income (loss) during period (710) 313 (397) Balance at End of Period $ 15,232 $ (961) $ 14,271 Securities Accumulated Other Available Comprehensive Income (dollars in thousands) For Sale Derivatives (Loss) Three Months Ended September 30, 2019 Balance at Beginning of Period $ 3,842 $ (75) $ 3,767 Other comprehensive income (loss) before reclassifications 1,174 11 1,185 Amounts reclassified from accumulated other comprehensive loss (110) (205) (315) Net other comprehensive income (loss) during period 1,064 (194) 870 Balance at End of Period $ 4,906 $ (269) $ 4,637 Securities Accumulated Other Available Comprehensive Income (dollars in thousands) For Sale Derivatives (Loss) Nine Months Ended September 30, 2020 Balance at Beginning of Period $ 3,109 $ (150) $ 2,959 Other comprehensive income (loss) before reclassifications 13,354 (1,324) 12,030 Amounts reclassified from accumulated other comprehensive income (loss) (1,231) 513 (718) Net other comprehensive income (loss) during period 12,123 (811) 11,312 Balance at End of Period $ 15,232 $ (961) $ 14,271 Securities Accumulated Other Available Comprehensive Income (dollars in thousands) For Sale Derivatives (Loss) Nine Months Ended September 30, 2019 Balance at Beginning of Period $ (7,044) $ 2,769 $ (4,275) Other comprehensive income (loss) before reclassifications 13,140 (1,664) 11,476 Amounts reclassified from accumulated other comprehensive loss (1,190) (1,374) (2,564) Net other comprehensive income (loss) during period 11,950 (3,038) 8,912 Balance at End of Period $ 4,906 $ (269) $ 4,637 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, 20172020 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 Affected Line Item in Details about Accumulated Other Comprehensive (Loss) Income the Statement Where Comprehensive Income Components Three Months Ended September 30, Net Income is Presented (dollars in thousands) 2020 2019 Realized gain on sale of investment securities $ 115 $ 153 Gain on sale of investment securities Interest income derivative deposits (389) 285 Interest expense on deposits Income tax expense 71 (123) Income Tax Expense Total Reclassifications for the Period $ (203) $ 315 Net Income Amount Reclassified from Accumulated Other Affected Line Item in Details about Accumulated Other Comprehensive (Loss) Income the Statement Where Comprehensive Income Components Nine Months Ended September 30, Net Income is Presented (dollars in thousands) 2020 2019 Realized gain on sale of investment securities $ 1,650 $ 1,628 Gain on sale of investment securities Realized gain on swap termination 0 829 Gain on sale of investment securities Interest income derivative deposits (688) 1,050 Interest expense on deposits Income tax expense (244) (943) Income Tax Expense Total Reclassifications for the Period $ 718 $ 2,564 Net Income 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, 20172020 (unaudited) 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, 2020 Assets: Investment securities available-for-sale: U. S. agency securities $ 0 $ 131,286 $ — $ 131,286 Residential mortgage backed securities 0 716,643 — 716,643 Municipal bonds 0 94,713 — 94,713 Corporate bonds 0 33,230 1,500 34,730 Other equity investments 0 0 198 198 Loans held for sale 0 79,084 — 79,084 Interest Rate Caps 0 4,233 — 4,233 Mortgage banking derivatives — — 6,015 6,015 Total assets measured at fair value on a recurring basis as of September 30, 2020 $ 0 $ 1,059,189 $ 7,713 $ 1,066,902 Liabilities: Interest rate swap derivatives $ 0 $ 910 $ 0 $ 910 Derivative liability 0 136 0 136 Interest Rate Caps 0 4,487 0 4,487 Total liabilities measured at fair value on a recurring basis as of September 30, 2020 $ 0 $ 5,533 $ 0 $ 5,533 December 31, 2019 Assets: Investment securities available-for-sale: U. S. agency securities $ 0 $ 179,794 $ — $ 179,794 Residential mortgage backed securities 0 543,852 — 543,852 Municipal bonds 0 73,931 — 73,931 Corporate bonds 0 — 10,733 10,733 U.S. Treasury 0 34,855 — 34,855 Other equity investments 0 — 198 198 Loans held for sale 0 56,707 — 56,707 Interest Rate Caps 0 317 — 317 Mortgage banking derivatives 0 — 280 280 Total assets measured at fair value on a recurring basis as of December 31, 2019 $ 0 $ 889,456 $ 11,211 $ 900,667 Liabilities: Interest rate swap derivatives $ 0 $ 203 $ — $ 203 Derivative liability 0 86 — 86 Interest Rate Caps 0 312 — 312 Mortgage banking derivatives 0 — 66 66 Total liabilities measured at fair value on a recurring basis as of December 31, 2019 $ 0 $ 601 $ 66 $ 667 Securities Available-for-Sale(“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 sales of multifamily FHA securities are recorded as a component of noninterest income in the Consolidated Statements of Operations.Income. 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, 20172020 (unaudited) 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 $ — $ — $ — No2019.September 30, 2020 Aggregate Unpaid Principal (dollars in thousands) Fair Value Balance Difference Loans held for sale $ 79,084 $ 77,572 $ 1,512 December 31, 2019 Aggregate Unpaid Principal (dollars in thousands) Fair Value Balance Difference Loans held for sale $ 56,707 $ 55,834 $ 873 20172020 or December 31, 2016. forward starting interest rate swap agreements, which are accounted for as cash flow hedges.hedges under ASC 815. The Company’s derivative position is classified within Level 2 of the fair value hierarchy and is valued using models generally accepted in the financial services industry and that use actively quoted or observable market input values from external market data providers and/or non-binding broker-dealer quotations. The fair value of the derivatives is determined using discounted cash flow models. These models’ key assumptions include the contractual terms of the respective contract along with significant observable inputs, including interest rates, yield curves, nonperformance risk and volatility. Derivative contracts are executed with a Credit Support Annex, which is a bilateral agreement that requires collateral postings when the market value exceeds certain threshold limits. These agreements protect the interests of the Company and its counterparties should either party suffer a credit rating deterioration.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.
Mortgage banking derivative for loans settled best efforts basis: The significant unobservable input (Level 3) used in the fair value measurement of the Company's interest rate lock commitments is the pull through ratio, which represents the percentage of loans currently in a lock position which management estimates will ultimately close. An increase in the pull through ratio (i.e. higher percentage of loans are estimated to close) will increase the gain or loss. The pull through ratio is largely dependent on the loan processing stage that a loan is currently in. The pull through rate is computed by the Company's secondary marketing consultant using historical data and the ratio is periodically reviewed by the Company for reasonableness. 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 Investment Mortgage Balancing (dollars in thousands) Securities Derivatives Total Assets: Beginning balance at January 1, 2020 $ 10,931 $ 280 $ 11,211 Realized gain (loss) included in earnings 0 5,735 5,735 Unrealized gain included in other comprehensive income 0 — 0 Purchases of available-for-sale securities 0 — 0 Principal redemption 0 — 0 Migrated to Level 2 valuation $ (9,233) $ — $ (9,233) Ending balance at September 30, 2020 $ 1,698 $ 6,015 $ 7,713 Liabilities: Beginning balance at January 1, 2020 $ 0 $ 66 $ 66 Realized loss included in earnings — (66) (66) Principal redemption 0 0 0 Ending balance at September 30, 2020 $ 0 $ 0 $ 0 Investment Mortgage Balancing (dollars in thousands) Securities Derivatives Total Assets: Beginning balance at January 1, 2019 $ 9,794 $ 229 $ 10,023 Realized (loss) gain included in earnings (20) 51 31 Unrealized gain included in other comprehensive income 131 — 131 Purchases of available-for-sale securities 4,030 — 4,030 Principal redemption (3,004) — (3,004) Ending balance at December 31, 2019 $ 10,931 $ 280 $ 11,211 Liabilities: Beginning balance at January 1, 2019 $ 0 $ 269 $ 269 Realized gain included in earnings 0 (203) (203) Principal redemption 0 0 0 Ending balance at December 31, 2019 $ 0 $ 66 $ 66 amount approximatesamounts approximate fair value.September 30, 2020 December 31, 2019 (dollars in thousands) Valuation Technique Description Range Fair Value Fair Value Mortgage banking derivatives Pricing Model Pull Through Rate 69.9% - 81.4% 78.44 % $ 6,015 0 76.25 % 76.25 $ 280 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. At September 30, 2017,2020, 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 require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the loan as nonrecurring Level 3.
Pre Adoption of CECL: The Company did not record loans at fair value on a recurring basis; however, from time to time, a loan was considered impaired and an allowance for loan loss was established. The Company considered a loan impaired when it was probable that the Company would be unable to collect all amounts due according to the original contractual terms of the note agreement, including both principal and interest. Management had determined that nonaccrual loans and loans that had their terms restructured in a TDR met this impaired loan definition. Once a loan was identified as individually impaired, management measures impairment in accordance with ASC Topic 310, “Receivables.” The fair value of impaired loans was estimated using one of several methods, including the collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring a specific allowance represented loans for which the fair value of expected repayments or collateral exceeded the recorded investment in such loans.Significant Significant Other Other Observable Unobservable Quoted Prices Inputs Inputs Total (dollars in thousands) (Level 1) (Level 2) (Level 3) (Fair Value) September 30, 2020 Commercial $ 0 $ 824 $ 16,307 $ 17,131 Income producing - commercial real estate 0 22,220 7,036 29,256 Owner occupied - commercial real estate 0 11,535 2,680 14,215 Real estate mortgage - residential 0 1,893 3,442 5,335 Construction - commercial and residential 0 0 2,274 2,274 Home equity 0 109 0 109 Other consumer 0 0 8 8 Other real estate owned 0 0 0 0 Total assets measured at fair value on a nonrecurring basis as of September 30, 2020 $ 0 $ 36,581 $ 31,747 $ 68,328 Significant Significant Other Other Observable Unobservable Quoted Prices Inputs Inputs Total (dollars in thousands) (Level 1) (Level 2) (Level 3) (Fair Value) December 31, 2019 Impaired loans: Commercial $ 0 $ 0 $ 10,100 $ 10,100 Income producing - commercial real estate 0 0 11,948 11,948 Owner occupied - commercial real estate 0 0 6,934 6,934 Real estate mortgage - residential 0 0 4,981 4,981 Construction - commercial and residential 0 0 11,409 11,409 Home equity 0 0 387 387 Other real estate owned 0 0 1,487 1,487 Total assets measured at fair value on a nonrecurring basis as of December 31, 2019 $ 0 $ 0 $ 47,246 $ 47,246 The following methods and assumptions were used to estimate the fair valueeach 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. The 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.valuesvalue of the Company’s financial instruments at September 30, 20172020 (unaudited) and December 31, 20162019 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, 2020 Assets Cash and due from banks $ 7,559 $ 7,559 $ 0 $ 7,559 $ 0 Federal funds sold 30,830 30,830 0 30,830 0 Interest bearing deposits with other banks 818,719 818,719 0 818,719 0 Investment securities 977,570 977,570 0 976,070 1,500 Federal Reserve and Federal Home Loan Bank stock 40,061 40,061 0 40,061 0 Loans held for sale 79,084 79,084 0 79,084 0 Loans 7,770,040 7,733,020 — — 7,733,020 Bank owned life insurance 76,326 76,326 0 76,326 0 Annuity investment 14,541 14,541 0 14,541 0 Mortgage banking derivatives 6,015 6,015 0 0 6,015 Interest Rate Caps 4,233 4,233 0 4,233 0 Liabilities Noninterest bearing deposits 2,384,108 2,384,108 0 2,384,108 0 Interest bearing deposits 4,780,160 4,780,160 0 4,780,160 0 Certificates of deposit 1,014,517 1,033,703 0 1,033,703 0 Customer repurchase agreements 24,293 24,293 0 24,293 0 Borrowings 567,980 573,641 0 573,641 0 Interest rate swap derivatives 910 910 0 910 0 Derivative liability 136 136 0 136 0 Interest Rate Caps 4,487 4,487 0 4,487 0 December 31, 2019 Assets Cash and due from banks $ 7,539 $ 7,539 $ 0 $ 7,539 $ 0 Federal funds sold 38,987 38,987 0 38,987 0 Interest bearing deposits with other banks 195,447 195,447 0 195,447 0 Investment securities 843,363 843,363 0 832,432 10,931 Federal Reserve and Federal Home Loan Bank stock 35,194 35,194 0 35,194 0 Loans held for sale 56,707 56,707 0 56,707 0 Loans 7,472,090 7,550,249 0 0 7,550,249 Bank owned life insurance 75,724 75,724 0 75,724 0 Annuity investment 14,697 14,697 0 14,697 0 Interest Rate Caps 280 280 0 280 0 Liabilities Noninterest bearing deposits 2,064,367 2,064,367 0 2,064,367 0 Interest bearing deposits 3,876,985 3,876,985 0 3,876,985 0 Certificates of deposit 1,283,039 1,291,688 0 1,291,688 0 Customer repurchase agreements 30,980 30,980 0 30,980 0 Borrowings 467,687 328,330 0 328,330 0 Interest rate swap derivatives 203 203 0 203 0 Derivative liability 86 86 0 86 0 Interest Rate Caps 312 312 0 312 0 Mortgage banking derivatives 66 66 0 0 66 Note 13. Supplemental Executive Retirement PlanThe Bank has entered into Supplemental Executive Retirement and Death Benefit Agreements (the “SERP Agreements”) with certainthe Bank’s executive officers other than Mr. Paul, which upon the executive’s retirement, will provide for a stated monthly payment for such executive’s lifetime subject to certain death benefits described below. The retirement benefit is computed as a percentage of each executive’s projected average base salary over the five years preceding retirement, assuming retirement at age 67. The SERP Agreements provide that (a) the benefits vest ratably over six years of service to the Bank, with the executive receiving credit for years of service prior to entering into the SERP Agreement, (b) death, disability and change-in-control shall result in immediate vesting, and (c) 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 benefit in the event the retired executive dies prior to receiving 180 monthly installments, paid either 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 Agreements are unfunded arrangements maintained primarily to provide supplemental retirement benefits and comply with Section 409A of the Internal Revenue Code. The Bank financed the retirement benefits by purchasing fixed annuity contracts with four insurance in 2013 carriers totaling $11.4 million that have been designed 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 savings 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.Item– 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’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,“can,” “anticipates,” “believes,” “expects,” “plans,” “estimates,” “potential,” “continue,“assume," "probable," "possible," "continue,” “should,” “could,” “would,” “strive," "seeks," "deem," "projections," "forecast," "consider," "indicative," "uncertainty," "likely," "unlikely," ""likelihood," "unknown," "attributable," "depends," "intends," "generally," "feel" "typically," "judgment," "subjective" and similar words or phrases. These statements are based upon current and anticipated economic conditions, nationally and in the Company’s market (including the macroeconomic and other challenges and uncertainties resulting from the coronavirus (“COVID-19”) pandemic, including on our credit quality and business operations), interest rates and interest rate policy, competitive factors and other conditions, which by their nature are not susceptible to accurate forecast, and are subject to significant uncertainty. For details on factors that could affect these expectations, see the risk factors contained in this report and the risk factors and other cautionary language included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20162019, the Company's Quarterly Report on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020 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. 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 nineteentwenty-two years of successful operations. 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’s primary market area. The Company’s philosophy is to provide superior, personalized service to its customers. The Company focuses on relationship banking, providing each customer with a number of services and becoming familiar with and addressing customer needs in a proactive, personalized fashion. The Bank currently has a total of twenty-onetwenty branch offices, including nine in Northern Virginia, sevensix in Montgomery County,Suburban Maryland, and five in Washington, D.C.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” 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. The residential mortgage loans are originated for sale to third-party investors, generally large mortgage and banking companies, under best efforts and or mandatory delivery commitments with the investors to purchase the loans subject to compliance with pre-established criteria. The decision whether to sell 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’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 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 Company, had provided subordinated financingBank, focuses on lending to municipalities by buying debt on the public market as well as direct purchase issuance.acquisition, development and/foreseeable future.constructionproposed to provide forms of real estate projects. ECV lending involves higherrelief, such as streamlining the application process for forgiveness of all PPP loans under $50,000, limiting debt collections efforts, including foreclosures, and encouraging or requiring extensions, modifications or forbearance, with respect to certain loans and fees. Governmental actions taken in response to the COVID-19 pandemic have not always been coordinated or consistent across jurisdictions but, in general, have been expanding in scope and intensity. The efficacy and ultimate effect of these actions is not known.risk, togetheron and off-balance sheet liquidity and have maintained regulatory capital ratios significantly above the well capitalized. Furthermore, we suspended our share repurchase program during the first quarter of 2020. Accordingly, we made no share repurchases in the second quarter of 2020. The Company’s Board of Directors approved lifting the suspension of the Company’s share repurchase program in the third quarter of 2020; however, no share repurchases were made in the third quarter of 2020. The Board of Directors has authorized management through the current share repurchase program to continue to evaluate opportunities for share repurchases. As a result, management may enter the markets from time to time as determined appropriate.commensuratethe implementation of the expected returns.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, 2019 and Note 1 to the information usedConsolidated Financial Statements included in this report. There have been no significant changes to record valuation adjustmentsthe Company’s accounting policies as disclosed in the Company’s Annual Report on Form 10-K 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 categorizedthe year ended December 31, 2019 except as available-for-sale with unrealized gainsindicated below and losses net of income tax being a component of shareholders’ equity and accumulated other comprehensive loss.AllowanceProvision for Credit LossesThe and Provision for Unfunded Commitmentsis("ACL") with respect to loan receivables and a reserve for unfunded commitments (“RUC”) as estimates of those losses. The amount of such losses will vary depending upon the risk characteristics of the loan portfolio as affected by economic conditions such as changes in interest rates, the financial performance of borrowers and unemployment rates.may be sustained in our loan portfolio. delayed the recognition of a credit loss until it was “probable” a loss event was “incurred.”allowanceestimate of expected credit losses under the CECL approach is based on two principles of accounting: (a) ASC Topic 450,“Contingencies,” which requiresrelevant information about past events, current conditions, and reasonable and supportable forecasts 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 thataffect the Company will not collect all principal and interest payments according to the contractual termscollectability of the loan.reported amounts. Historical loss experience is generally the starting point for estimating expected credit losses. We then consider whether the historical loss experience should be adjusted for asset-specific risk characteristics or current conditions at the reporting date that did not exist over the period from which historical experience was used. Finally, we consider forecasts about future economic conditions that are reasonable and supportable. The loss, if any, can beRUC represents the expected credit losses on off-balance sheet commitments such as unfunded commitments to extend credit and standby letters of credit. The RUC is determined by estimating future draws and applying the difference between the loan balance and the value of collateral, the present value of expected future cash flows, or values observable 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 basedloss rates 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 and for the fair market value 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 used 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 type and risk assessment. Allowance factors relate 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, changes 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.including in connection withand the valuationRUC. Our determination 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 volumefor credit losses requires significant reliance on estimates and classification of loans. Changes in allowance factors can have a direct impact onsignificant judgment as to the amount and timing of expected future cash flows on loans, significant reliance on historical loss rates on homogenous portfolios, consideration of our quantitative and qualitative evaluation of economic factors, and the reliance on our reasonable and supportable forecasts. The Company uses the discounted cash flow (“DCF”) method to estimate expected credit losses for the commercial, income producing – commercial real estate, owner occupied – commercial real estate, real estate mortgage – residential, construction – commercial and residential, construction – C&I (owner occupied), home equity, and other consumer loan pools. For each of these loan segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, probability of default, and loss given default. The modeling of expected prepayment speeds are based on historical internal data. The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the provision,loss drivers. For all loan pools utilizing the DCF method, management utilizes and forecasts national unemployment as an initial loss driver, which is next adjusted to estimate regional unemployment rates. For all DCF models, management has determined that eight quarters represents a related after tax effectreasonable and supportable forecast period and reverts back to a historical loss rate over twelve months on net income. Errorsa straight-line basis. Management leverages economic projections from reputable and independent third parties to inform its loss driver forecasts over the forecast period. PPP loans are included in management’s perceptionthe model but do not carry a reserve, as these loans are fully guaranteed as to principal and assessmentinterest by the SBA, whose guarantee is backed by the full faith and credit of the global factors and their impact on theU.S. Government.could resultsegment also includes an amount for inherent risks not reflected in the allowancehistorical analyses. Relevant factors include, but are not being adequatelimited to, coverconcentrations of credit risk, changes in underwriting standards, experience and depth of lending staff, and trends in delinquencies. While our methodology in establishing the reserve for credit losses attributes portions of the ACL and RUC to the commercial and consumer portfolio segments, the entire ACL and RUC is available to absorb credit losses inherent in the total loan portfolio and total amount of unfunded credit commitments, respectively.additional provisions or charge-offs. Alternatively, errors in management’s perceptiongreater volatility to the reserve for credit losses, and assessment oftherefore, greater volatility to our reported earnings. For example, the global factors and their impact onCOVID-19 pandemic has negatively impacted the portfolio could resultperformance outlook in the allowance beingAccommodation & Food Service segment of our loan portfolio, which informs our CECL economic forecast and increased our loss reserve as of September 30, 2020. See Notes 1 and 5 to the Consolidated Financial Statements, the “Provision for Credit Losses” section in excess of amounts necessary to cover lossesManagement’s Discussion and Analysis, and the COVID-19 risk factors in the portfolio, and may result in lower provisions in the future. For additionalItem 1A for more information regardingon the provision for credit losses, referlosses.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 assetsbe a triggering event that lack physical substance but can be distinguished fromcaused us to perform a 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 assessmenttest to determine whether it is more likely than notif an impairment charge was required for 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.period. 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 judgmentalinvolves judgement and often involveinvolves 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 assessmentsthe assessment of all reporting units, the Company concluded that no goodwill impairment existed at December 31, 2016.as of June 30, 2020. However, future events could cause the Company to conclude that goodwill or other intangibles have become impaired, which would result in recording an impairment loss. Any resulting impairment loss could have a material adverse impact on the Company’sCompany's financial condition and results of operations.Stock Based CompensationThe Company follows Management did not consider a triggering event to have occurred during the provisionsthird quarter of ASC Topic 718,“Compensation,” which requires the expense recognition for the fair value2020. Annual impairment testing of share based compensation awards, suchintangibles and goodwill 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 usedrequired by GAAP will be performed in the hedging transaction has been and is expected to continue to be highly effective in offsetting changes in fair values or cash flowsfourth quarter 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 as2020.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.ContentsFor the three months ended September 30, 2017, net income was $29.9 million, a 22% increase over the $24.5 million net2016. Net income per basic common share2020 was $41.3 million compared to $36.5 million for the three months ended September 30, 2017 was $0.87 compared to $0.73 for the same period in 2016,2019, a 19%13% increase. Net income per basic and diluted common share for the three months ended September 30, 20172020 was $0.87$1.28 compared to $0.72$1.07 per basic and diluted common share for the same period in 2016,2019, a 21%20% 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, 20172020 was $2.48$93.3 million compared to $2.14$107.5 million for the same period in 2016,nine months ended September 30, 2019, a 16% increase.13% decrease. Net income per basic and diluted common share for the nine months ended September 30, 20172020 was $2.47$2.88 compared to $2.11$3.12 for the same period in 2016, a 17% increase.The increase in net2019, an 8% decrease.2017 can be attributed primarily2020 relative to the same period in 2019 due to higher noninterest income (as discussed below). This was partially offset by an increase in totalprovisioning for credit losses and lower net interest income. In particular, the provision for credit losses increased to $6.6 million for the three months ended September 30, 2020 compared to $3.2 million for the same period in 2019, a 107% increase (see "Provision for Credit Losses" section below for further details on drivers of the change). Net income declined for the nine months ended September 30, 2020 relative to the same period in 2019 due substantially to a decline in the net interest margin, and increased provisioning for credit losses (see "Provision for Credit Losses" section below, and Note 1 and Note 5 for further detail on CECL), partially offset by higher noninterest income (as discussed in the "Noninterest Income" section below).of 11% over the same period in 2016. Netis net interest income, grew 11%which decreased to $79.0 million for the three months ended September 30, 2017 as2020 compared to $81.0 million for the same period in 2016 due to2019. The decrease resulted from a decline in the net interest margin substantially offset by growth in average earning asset growthassets of 10%17.9%.For the three months ended September 30, 2017, the Company reported an annualized ROAA of 1.66% as compared to 1.50% for the three months ended September 30, 2016. The annualized ROACE for the three months ended September 30, 2017 was 12.86%, as compared to 12.04% 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. 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 are due to increased earnings.increased 3 basis points from 4.11%was 3.08% for the three months ended September 30, 2016 to 4.14%2020 and 3.72% for the same period in 2019. The net interest margin was 3.27% for the nine months ended September 30, 2020 and 3.88% for the same period in 2019. The drivers of the change are detailed in the "Net Interest Income and Net Interest Margin" section below.2017. Average earning asset yields were 4.74%2020 increased to $17.8 million from $6.3 million for the three months ended September 30, 2017 and 4.60% for the same period in 2016. The average cost of interest bearing liabilities increased by 20 basis points (to 0.97% from 0.77%)2019, a 183% increase. Service charges on deposits for the three months ended September 30, 2017 as compared2020 decreased from $1.5 million to $1.1 million for the same period in 2016. Combiningthree months ended September 30, 2019, a 29.0% decrease, due to lesser insufficient funds fees. Total noninterest income for the change innine months ended September 30, 2020 increased to $35.8 million from $19.0 million for the yieldnine months ended September 30, 2019, an 89% increase. Service charges on deposits for the nine months ended September 30, 2020 decreased to $3.4 million from $4.8 million for the nine months ended September 30, 2019, a 28% decrease, due to lesser insufficient funds fees. For further information on the components and drivers of these changes see "Noninterest Income" section below.and the costs of interest bearing liabilities, the net interest spread decreased by 641 basis points to 33 basis points for the three months ended September 30, 20172020 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 2874 basis points for the three months ended September 30, 2017 versus the same period in 2016. 2019, due to significantly lower market interest rates. 623 basis point decrease in the net interest spread and a 941 basis point increasedecrease in the value of noninterest sources resulted in the 3a 64 basis point increasedecrease in the net interest margin for the three months ended September 30, 20172020 as compared to the same period in 2016. The net interest margin was positively impacted2019. The benefit of noninterest sources funding earning assets decreased 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 two34 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 9to 42 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 2176 basis points for the nine months ended September 30, 20172020 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 2016.2019 due to significantly lower market interest rates. The combination of a 2127 basis point decrease in the net interest spread and a 1234 basis point increasedecrease in the value of noninterest sources resulted in the 9a 61 basis point decrease in the net interest margin for the nine months ended September 30, 20172020 as compared to the same period in 2016. The net2019. Despite currently having lesser value resulting from lower interest marginrates, the Company continues to consider the value of its noninterest sources of funds as very significant to its business model and its overall profitability over the longer term.positively impacted by$12.2 million compared to $2.6 million for the three basis points inmonths ended September 30, 2019, an increase of 377%. Gain on sale of loans for the nine months ended September 30, 2017 as a result of $1.72020 increased to $16.2 million in amortization of the credit mark established in connection with the Merger. The net interest margin was positively impacted by two basis points infrom $5.9 million for the nine months ended September 30, 20162019, a 177% increase, due to higher gains on the sale of residential mortgage loans ($10.3 million). Residential lending gains for the three and nine months ended September 30, 2020 are impacted by the change in strategy to almost exclusively lock loans on a best efforts basis during the third quarter of 2020 and an adjustment to the accounting methodology by which gains are recognized to align with GAAP, as described in the "Noninterest Income" section below.result141% increase, due substantially to $1.2 million gain on the sale of $1.1an OREO property and $912 thousand higher gains associated with the origination, securitization, sale and servicing of FHA loans. Other income for the nine months ended September 30, 2020 increased to $12.8 million in amortizationfrom $5.4 million for the nine months ended September 30, 2019, a 138% increase due substantially to $3.4 million higher gains associated with the origination, securitization, sale, and servicing of FHA loans, $1.4 million higher small business investment company ("SBIC") income, $1.2 million gain on the sale of an OREO property, $1.2 million higher swap fee income, and $703 thousand higher commitment fees, partially offset by lower service charges on deposits of $1.4 million.credit mark adjustment fromchange.Merger. net interest margin and net interest income over the past twelve months as market interest rates (on average) have remained relatively low.trended sharply lower. This factor has been significant to overall earnings performance over the past twelve months as net interest income represents 91%87% of the Company’sCompany's total revenue for the nine months ended September 30, 2017.For the first nine months of 2017,2020.grew 7% over(including PPP loans) were 4.4% higher than they were at December 31, 2016,2019, and averaged 11%average loans were 8.2% 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 for2020 as compared to the first nine months ended September 30, 2017 compared withof 2019. PPP loans represented $456.1 million of total loans at the same periodend of the third quarter 2020. Excluding PPP loans, the decrease in 2016.growth in average loans of 11% over the nine months ended September 30, 2017 as compared to the same period in 2016, as well assuch loan increases and 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 noninterestfunding from interest bearing accounts primarily as a result of effectively building newinflows from certain financial intermediary relationships. At September 30, 2020, total deposits were 13.2% higher than deposits at December 31, 2019, while average deposits were 16.8% higher for the first nine months of 2020 compared with the first nine months of 2019. This has led the Company to be able to sustain strong primary and enhanced client relationships.were 87.0%represented 80% and 87% of average earning assets for the first nine months ended September 30, 2017of 2020 and 87.2% for the same period in 2016.2019, respectively. For the first nine months ended September 30, 2017,of 2020, as compared to the same period in 2016,2019, average loans, excluding loans held for sale, increased $596.1$593 million, an 11% increase. The increaseor 8.2%, due primarily to growth in average loansPPP, income producing commercial real estate, and commercial loans. Average investment securities 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, commercial2020 and industrial, and owner occupied – commercial real estate. Average investment securities for2019 both the nine month periods ended September 30, 2017 and 2016 amounted to 8% of9% average earning assets. The combination of federal funds sold, interest bearing deposits with other banks and loans held for sale averaged 5%represented 11% and 4% of average earning assets for both the first nine months of 20172020 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.Total noninterest income for the three months ended September 30, 2017 increased to $6.8 million from $6.4 million for the three months ended September 30, 2016, a 6% increase, due substantially to income of $780 thousand on the origination, securitization, servicing and sale 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 $1.8 million for the third quarter of 2017 versus $2.9 million for the same period in 2016). There was no revenue related to FHA Multifamily-Backed GNMA securities 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%.The efficiency ratio, which measures the ratio of noninterest expense to total revenue, was 37.49% for the third quarter of 2017, as compared to 40.54% for the third quarter of 2016. Noninterest expenses totaled $29.5 million for the three months ended September 30, 2017, as compared to $28.8 million for the three months ended September 30, 2016, a 2% increase. Legal, accounting, and professional fees increased 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 due to the prior year acceleration of restricted stock awards, offset by merit increases.The provision for credit losses was $4.9 million for the nine months ended September 30, 2017 as compared to $9.2 million for the nine months ended September 30, 2016. The lower provisioning in the first nine months of 2017, 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 million during the first nine months of 2017, as compared to an increase of $483.6 million during the same period in 2016, and to overall improved asset quality. Net charge-offs of $991 thousand 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, in the first nine months of 2016. Net charge-offs in the first nine months of 2017 were attributable primarily to commercial real estate loans.Total noninterest income for the nine months ended September 30, 2017 was $19.9 million as compared to $20.3 million for the nine months ended September 30, 2016, a 2% 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 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 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 the same period in 2016. Excluding investment securities net gains, total noninterest income was $19.3 million for the nine months ended September 30, 2017, as compared to $19.1 million for the same period in 2016, a 1% increase.The efficiency ratio, which measures the ratio of noninterest expense to total revenue, was 38.86% for the nine months ended September 30, 2017 as compared to 40.32% for the same period in 2016. Noninterest expenses totaled $88.7 million for the nine months ended September 30, 2017, as compared to $85.2 million for the nine months ended September 30, 2016, a 4% increase. Cost increases for salaries and benefits were $1.3 million, 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. Marketing and advertising increased by $322 thousand due 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.increaseddecreased to 12.63%12.11% at September 30, 20172020 from 12.06%13.25% at September 30, 2016,December 31, 2019, due primarily to an increase of $110.4total assets growing faster than common equity, including common equity reductions due to $44 million in retained earnings.share repurchase activity, the approximate $10.6 million charge to common equity due to implementation of CECL on January 1, 2020, and COVID-19’s impact on our loan loss provisioning as discussed in the “Earnings Summary” above. As discussed later in “Capital Resources and Adequacy,” the regulatory capital ratios of the Bank and Company remain above well capitalized levels.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 $79.0 million and average deposits increased by $474.1 million. The net interest margin was 4.14% for the three months ended September 30, 2017, as compared to 4.11%2020 and $81.0 million for the same period in 2016.2019, which reflects the impact of lower interest rates and higher cash balances given strong deposit flows, partially offset by improved funding mix and lower funding costs. The Company believes itslack of growth was primarily the result of a decline in the net interest margin, remains favorable as compared to its peer banking companies.2017,2020, net interest income increased 9% overdecreased by $3.2 million from the same period for 2016. Average loans increased by $596.1 million andin prior year, resulting from net interest margin declines despite growth in average deposits increased by $456.0 million. earning assets of 17.0%.4.14%3.08% for the three months ended September 30, 2020 and 3.72% for the same period in 2019, which reflects the impact of lower interest rates and higher cash balances given strong deposit flows, partially offset by improved funding mix and lower funding costs.2017, as compared to 4.23%2020 and 3.88% for the same period in 2016. The Company believes its2019, owing in part to the COVID-19 pandemic, the sharply lower interest rate environment in 2020 as compared to 2019, together with a substantially higher on balance sheet liquidity position were the primary factors that negatively impacted the year to date net interest margin. Additionally, the net interest margin remains favorablefor both the three and nine months ended September 30, 2020 was negatively impacted by approximately two basis points due to lower rates on PPP loans in 2020.its peer banking companies.20172020 and 2016.2019. 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 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, 2020 2019 Average
BalanceInterest Average
Yield/RateAverage
BalanceInterest Average
Yield/RateASSETS Interest earning assets: Interest bearing deposits with other banks and other short-term investments $ 1,275,932 $ 384 0.12 % $ 344,853 $ 1,762 2.03 % 79,354 567 2.86 % 49,765 492 3.95 % 7,910,260 88,730 4.46 % 7,492,816 101,805 5.39 % 906,990 4,141 1.82 % 741,907 4,904 2.62 % Federal funds sold 33,403 11 0.13 % 25,855 71 1.09 % Total interest earning assets 10,205,939 93,833 3.66 % 8,655,196 109,034 5.00 % Total noninterest earning assets 376,681 341,452 Less: allowance for credit losses 109,025 73,242 Total noninterest earning assets 267,656 268,210 TOTAL ASSETS $ 10,473,595 $ 8,923,406 LIABILITIES AND SHAREHOLDERS’ EQUITY Interest bearing liabilities: Interest bearing transaction $ 756,005 $ 483 0.25 % $ 791,785 $ 1,828 0.92 % Savings and money market 3,998,603 4,929 0.49 % 2,922,751 13,606 1.85 % Time deposits 1,112,664 5,583 2.00 % 1,444,328 9,142 2.51 % Total interest bearing deposits 5,867,272 10,995 0.75 % 5,158,864 24,576 1.89 % Customer repurchase agreements 28,523 84 1.17 % 27,809 82 1.17 % Other short-term borrowings 300,003 506 0.66 % 100,100 408 1.59 % Long-term borrowings 267,946 3,211 4.69 % 217,555 2,979 5.36 % Total interest bearing liabilities 6,463,744 14,796 0.91 % 5,504,328 28,045 2.02 % Noninterest bearing liabilities: Noninterest bearing demand 2,724,640 2,160,450 Other liabilities 74,066 61,115 Total noninterest bearing liabilities 2,798,706 2,221,565 Shareholders’ Equity 1,211,145 1,197,513 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 10,473,595 $ 8,923,406 Net interest income $ 79,037 $ 80,989 Net interest spread 2.75 % 2.98 % Net interest margin 3.08 % 3.72 % Cost of funds 0.58 % 1.28 % 0.58 % 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.(2)Interest and fees on loans and investments exclude tax equivalent adjustments.Nine Months Ended September 30, 2020 2019 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 $ 990,051 $ 2,104 0.28 % $ 285,150 $ 4,533 2.13 % 66,158 1,605 3.23 % 34,265 1,041 4.05 % 7,859,188 277,373 4.71 % 7,265,726 300,966 5.54 % 865,484 14,139 2.18 % 784,970 15,740 2.68 % Federal funds sold 33,424 84 0.34 % 21,352 167 1.05 % Total interest earning assets 9,814,305 295,305 4.02 % 8,391,463 322,447 5.14 % Total noninterest earning assets 368,974 339,355 Less: allowance for credit losses 99,198 70,902 Total noninterest earning assets 269,776 268,453 TOTAL ASSETS $ 10,084,081 $ 8,659,916 LIABILITIES AND SHAREHOLDERS’ EQUITY Interest bearing liabilities: Interest bearing transaction $ 787,434 $ 2,679 0.45 % $ 696,825 $ 4,206 0.81 % Savings and money market 3,751,397 21,619 0.77 % 2,781,663 37,848 1.82 % Time deposits 1,199,654 19,757 2.20 % 1,406,237 25,883 2.46 % Total interest bearing deposits 5,738,485 44,055 1.03 % 4,884,725 67,937 1.86 % Customer repurchase agreements 29,710 257 1.16 % 29,617 255 1.15 % Other short-term borrowings 273,452 1,364 0.66 % 113,845 1,983 2.30 % Long-term borrowings 257,265 9,486 4.84 % 217,458 8,937 5.42 % Total interest bearing liabilities 6,298,912 55,162 1.17 % 5,245,645 79,112 2.02 % Noninterest bearing liabilities: Noninterest bearing demand 2,519,867 2,183,412 Other liabilities 71,314 66,318 Total noninterest bearing liabilities 2,591,181 2,249,730 Shareholders’ equity 1,193,988 1,164,541 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 10,084,081 $ 8,659,916 Net interest income $ 240,143 $ 243,335 Net interest spread 2.85 % 3.12 % Net interest margin 3.27 % 3.88 % Cost of funds 0.75 % 1.26 % allowanceACL on loans and the ACL on available for credit losses.sale investment securities. The amount of the allowance for credit losses on loans is based on many factors whichthat reflect management’s assessment of the risk 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.agencies. agencies, relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, loan concentrations, credit quality, or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values or other relevant factors. Refer to additional detail regarding these forecasts in the “Discounted Cash Flow Method" section of Note 1 to the Consolidated Financial Statements.review consultant,portfolio, support management’s assessment as to the adequacy of the allowance at the balance sheet date. Please refer to the discussion under the caption “Critical Accounting Policies” above and in Note 1 to the Consolidated Financial Statements for an overview of the methodology management employs on a quarterly basis to assess the adequacy of the allowance and the provisions charged to expense. Also, refer to the table aton the next page 60, which reflects activity in the allowance for credit losses.2017,2020, the allowance for credit losses increased $1.9 million, reflecting $1.9ACL on loans reflected $6.6 million in provision for credit losses attributable to the ACL for loans and $2 thousand$5.2 million in net charge-offs, during the period.which were attributable primarily to two large commercial real estate relationships totaling $4.9 million. The provision for credit losses on loans was $1.9$6.6 million for the three months ended September 30, 20172020 as compared to $2.3$3.2 million for the same period in 2016.2019. The lowerhigher provisioning in the third quarter of 2017,2020, as compared to the third quarter of 2016, is2019, was primarily due to lower net charge-offsthe implementation of the CECL accounting standard for credit loss allowances and to overall improved asset quality.the impact of COVID-19 on our actual and expected future credit losses. Net charge-offs of $2 thousand$5.2 million in the third quarter of 20172020 represented an annualized 0.00%0.26% of average loans, excluding loans held for sale, as compared to $2.0$1.5 million, or an annualized 0.14%0.08% of average loans, excluding loans held for sale, in the third quarter of 2016.2017,2020, the allowance for credit losses increased $3.9 million, reflecting $4.9ACL on loans reflected $40.7 million in provision for credit losses attributable to the ACL for loans, a day one CECL impact of $10.6 million charged to retained earnings, and $991 thousand$14.6 million in net charge-offs during the period. The provision for credit losses on loans was $4.9$40.7 million for the nine months ended September 30, 20172020 as compared to $9.2$10.1 million for the same period in 2019. The higher provisioning for the nine months ended September 30, 2016. The lower provisioning2020, as compared to the same period in 2019, is primarily due to the implementation of CECL and the impact of COVID-19 on our actual and expected future credit losses. Net charge-offs of $14.6 million in the first nine months of 2017, 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 million during the first nine months of 2017, as compared to an increase of $483.6 million during the same period in 2016, and to overall improved asset quality. Net charge-offs of $991 thousand in the first nine months of 20172020 represented an annualized 0.02%0.25% of average loans, excluding loans held for sale, as compared to $5.0$6.4 million, or an annualized 0.13%0.12% of average loans, excluding loans held for sale, 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’s loan policy requires that loans be placed on nonaccrual if they are ninety days past-due, unless they are well secured and in the process of collection. Additionally, Credit Administration specifically analyzes the status of development and construction projects, sales activities and utilization of interest reserves in order to carefully and prudently assess potential increased levels of risk requiring additional reserves.possible credit losses, will continue to be a primary management objective for the Company.indicated. 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) 2020 2019 Balance at beginning of period, prior to adoption of CECL $ 73,658 $ 69,944 Impact of adopting CECL 10,614 — Charge-offs: Commercial 7,332 1,799 Income producing - commercial real estate 4,300 5,343 Owner occupied - commercial real estate 20 — Real estate mortgage - residential — — Construction - commercial and residential 2,947 — Construction - C&I (owner occupied) — — Home equity 92 — Other consumer — 2 Total charge-offs 14,691 7,144 Recoveries: Commercial 116 377 Income producing - commercial real estate — 302 Owner occupied - commercial real estate — 2 Real estate mortgage - residential — 3 Construction - commercial and residential — 52 Construction - C&I (owner occupied) — — Home equity — — Other consumer 20 38 Total recoveries 136 774 Net charge-offs 14,555 6,370 Provision for Credit Losses- Loans 40,498 10,146 Balance at end of period $ 110,215 $ 73,720 Annualized ratio of net charge-offs during the period to average loans outstanding during the period 0.25 % 0.12 % September 30, 2020 December 31, 2019 (dollars in thousands) Amount % (1) Amount % (1) Commercial $ 27,224 25 % $ 18,169 20 % PPP loans — — % — — % Income producing - commercial real estate 55,440 49 % 28,527 50 % Owner occupied - commercial real estate 13,090 12 % 5,598 13 % Real estate mortgage - residential 1,871 2 % 1,352 1 % Construction - commercial and residential 9,493 9 % 17,739 14 % Construction - C&I (owner occupied) 2,048 2 % 1,533 1 % Home equity 1,007 1 % 575 1 % Other consumer 42 — % 227 — % Total allowance $ 110,215 100 % $ 73,720 100 % 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 %
Under the CECL standard and based on the January 1, 2020 effective date, the Company made an initial adjustment to the allowance for credit losses of $10.6 million along with $4.1 million to the reserve for unfunded commitments. This adjustment increased the ratio of the allowance to total loans to 1.12% at January 1, 2020 from 0.98% at December 31, 2019. Based on our ongoing risk analysis and modeling under the CECL allowance methodology, the Company further increased the allowance for loan losses to 1.23% as of March 31, 2020 and again to 1.36% as of June 30, 2020, which included the assessment of COVID-19 risks as of March 31, 2020 and as of June 30, 2020, respectively. Based on our ongoing risk analysis and modeling through September 30, 2020, under the CECL allowance methodology, the Company further increased the allowance for loan losses to 1.40% of total loans, which reflects COVID-19 risks assessments and an updated unemployment forecast for the Washington, D.C. metropolitan area.$18.0$63.0 million at September 30, 20172020 representing 0.24%0.62% of total assets, as compared to $20.6$50.2 million of nonperforming assets, or 0.30%0.56% of total assets, at December 31, 2016 and $27.5 million of nonperforming assets, or 0.41% of total assets, at2019.2016. The2020, 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’ 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%1.40% of total loans at September 30, 2017,2020, is adequate to absorb potentialexpected credit losses within the loan portfolio at that date.Includedareincluded loans that the Company considersconsidered to be impaired. Impaired loans arewere defined as those as to which we believebelieved it iswas probable that we willwould not collect all amounts due according to the contractual terms of the loan agreement, as well as those loans whose terms havehad been modified in a TDR that havehad not shown a period of performance as required under applicable accounting standards. Valuation allowances for those loans determined to be impaired arewere evaluated in accordance with ASC Topic 310—”“Receivables,” and updated quarterly. For collateral dependent impaired loans, the carrying amount of the loan iswas determined by current appraised value less estimated costs to sell the underlying collateral, which may behave been adjusted downward under certain circumstances 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 indicatehave indicated the need for an adjustment in the appraised valuation 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 arewere 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 consideration of all of the facts and circumstances surrounding the change in terms, and the exercise of prudent business judgment. The Company had thirteen TDR’s11 TDRs at September 30, 20172020 totaling approximately $13.2$19.4 million. Ninefour of these loans totaling approximately $12.3$8.9 million are performing under their modified terms. DuringFor the first nine months of 2017,2020, there were two performing TDR loans totaling $6.3 million that defaulted on their modified terms. For the first nine months of 2019, there was one defaultperforming TDR loan totaling $2.3 million that defaulted 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.its modified terms. A default is considered to have occurred once the TDR is past due 90 days or more or it has been placed on nonaccrual. There were two nonperforming TDRs totaling $588 thousand reclassified to nonperforming loans during the nine months ended September 30, 2017. There was one nonperforming TDR totaling $5.0 million reclassified to nonperforming loans during the nine months ended September 30, 2016. Commercial and consumer loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a TDR subsequently default, the Company evaluates the loan for possible further impairment. The allowance may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan. There were two loans totaling $251 thousand modified in a TDR duringFor both the three months ended September 30, 2017, as compared to the three months ended September 30, 2016 which had one loan totaling $801 thousand2020 and 2019, there were no loans modified in a TDR.Industry/Collateral Type Number of Notes Total Outstanding (in millions) Deferred Note Count Total Deferred Outstanding (in millions) Percentage Outstanding Deferred Weighted Avg LTV of RE Collateral Average Loan Size (in millions) Hotels 43 $ 532 17 $ 387 72.7 % 60 % $ 22.8 Transportation & Warehousing 66 $ 173 34 $ 134 77.5 % 65 % $ 3.9 Restaurants 427 $ 274 127 $ 115 42.0 % 61 % $ 0.9 Retail 319 $ 475 17 $ 73 15.4 % 69 % $ 4.3 Other Real Estate 919 $ 3,752 21 $ 34 0.9 % 47 % $ 1.6 Healthcare 196 $ 249 8 $ 28 11.2 % 67 % $ 3.5 Art/Entertainment/Recreation 65 $ 138 8 $ 23 16.7 % 15 % $ 2.9 Other 2,992 $ 2,287 89 $ 57 2.5 % 60 % $ 0.6 Total 5,027 $ 7,880 321 $ 851 10.8 % 62 % $ 2.7 $16.6$58.1 million at September 30, 2017 (0.27%2020 (0.74% of total loans), compared to $17.9$48.7 million at December 31, 2016 (0.31%2019 (0.65% of total loans) and $22.3 million at September 30, 2016 (0.41%.20172020 was $1.4$5.0 million of OREO consisting of onefour foreclosed property. properties. This compared to $1.5 million of OREO, consisting of three foreclosed properties at December 31, 2019. The increase was due to a foreclosure involving an ultra high-end residential property located in Washington, D.C. The Company is continuing to see softness in the market for ultra high-end residential properties. This is particularly true in light of COVID-19 and the related limitations in marketing residential properties.$2.7 million at December 31, 2016 and three foreclosed properties with a net carrying value of $5.2$1.5 million at September 30, 2016.2019. OREO properties are carried at 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. DuringThere was one sale of an OREO property 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 for2020 and no sales during the first nine months ended September 30, 2017, as compared to the same period in 2016 is due to the sale of two OREO properties.indicated.indicated (unaudited for September 30, 2020).(dollars in thousands) September 30, 2020 December 31, 2019 Nonaccrual Loans: Commercial $ 15,836 $ 14,928 Income producing - commercial real estate 20,068 9,711 Owner occupied - commercial real estate 14,178 6,463 Real estate mortgage - residential 5,587 5,631 Construction - commercial and residential 2,274 11,509 Construction - C&I (owner occupied) — — Home equity 109 487 Loans held for sale — — Other consumer 8 — Accruing loans-past due 90 days — — Total nonperforming loans (1) 58,060 48,729 Other real estate owned 4,987 1,487 Total nonperforming assets $ 63,047 $ 50,216 Coverage ratio, allowance for credit losses to total nonperforming loans 189.83 % 151.16 % Ratio of nonperforming loans to total loans 0.74 % 0.65 % Ratio of nonperforming assets to total assets 0.62 % 0.56 % 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.2017,2020, there were $18.8$24.9 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 increased to $24.9 million at September 30, 2017 compared to $16.92020 from $20.0 million at December 31, 2016, and $8.7 million at September 30, 2016.2019. The Company has taken a conservative posture with respect to risk rating its loan portfolio. 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 descriptionNoninterest Incomeloan servicing income, income from BOLIbank owned life insurance (“BOLI”) and other income.20172020 increased to $6.8$17.8 million from $6.4$6.3 million for the three months ended September 30, 2016,2019, a 6%183% increase. Gain on sale of loans for the three months ended September 30, 2020 increased to $12.2 million from $2.6 million for the three months ended September 30, 2019, a 377% increase, due substantially to income of $780 thousand on the origination, securitization, servicing and sale of FHA Multifamily-Backed GNMA securities in the third quarter of 2017, offset by lower sales of residential mortgage loans and the resultinghigher gains on the sale of theseresidential mortgage loans (gain of $1.8($9.5 million) and an accounting adjustment, as further discussed below. Owing to the historically low interest rate environment and refinance activity, residential mortgage loan locked commitments were $593.0 million for the third quarter of 2017 versus $2.92020 as compared to $282.1 million for the same periodthird quarter of 2019. Partially offsetting these increases were service charges on deposits for the three months ended September 30, 2020 decreased to $1.1 million from $1.5 million for the three months ended September 30, 2019, a 29% decrease, due to lesser insufficient funds fees.2016). Therethe second quarter of 2020, and continuing through the third quarter of 2020, the Company began to shift its pipeline strategy towards a best efforts lock basis, and for the three months ended September 30, 2020 our residential mortgage loans have been sold almost entirely on a best efforts basis.no income relatedrecognized at closing. In connection with this shift in pipeline strategy from mandatory to FHA Multifamily-Backed GNMA securitiesbest efforts, beginning in the third quarter of 2016.2020, the Company, adjusted its accounting treatment of loans sold on a best efforts basis which accelerated revenue recognition associated with the pipeline to when the loans are committed, in order be accordance with GAAP. The portfoliochange reflects the timely recognition of non-interest income associated with the gains and fees attributable to the best efforts sale and aligns the accounting treatment of $37.0 millionbest efforts with the accounting treatment of loans sold on a mandatory basis. Under the adjustment to the accounting for best efforts implemented in residential mortgages out of the loan portfolio resulted in $168 thousand in revenue during the third quarter of 2017. There was no2020, the Company recognized an additional $1.6 million in noninterest income relatedassociated with the residential mortgage operations. Had the company utilized the adjusted accounting method for best efforts in prior quarters, non-interest income would have been higher by an immaterial amount in those quarters.portfolio sales of residential mortgages out of$4.0 million from $1.7 million for the loan portfolio duringthree months ended September 30, 2019, a 141% increase, primarily due to a $1.2 million gain on the third quarter of 2016. The sale of an OREO property and $912 thousand higher gains associated with the guaranteed portionorigination, securitization, sale and servicing of FHA loans. Gain on SBA loans resulted in $390sale of investment securities were $115 thousand in revenue duringfor the third quarter of 2017three months ended September 30, 2020 compared to $101$153 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 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 $19.92020 increased to $35.8 million as compared to $20.3from $19.0 million for the nine months ended September 30, 2016, a 2% 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 gain2019, an 89% increase. 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 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 related2020 increased 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$16.2 million from $5.9 million for the nine months ended September 30, 2017, as compared2019, a 177% increase, due to $19.1 millionhigher gains on the sale of residential mortgage loans ($10.3 million). Owing to the historically low interest rate environment, refinance activity and the adjustment to the accounting described above, residential mortgage loan locked commitments were $1.4 billion for the same period in 2016, a 1% increase.Service charges on deposit accounts increased by $195 thousand, or 14%, from $1.4 million for the threefirst nine months ended September 30, 20162020 as compared to $1.6$674.2 million for the same periodfirst nine months of 2019. Residential lending gains for the first nine months of 2020 include the $1.6 million change in 2017.accounting treatment discussed above and $2.6 million in hedge and mark to market losses incurred during the first quarter of 2020 attributable to the Federal Reserve’s market actions negatively impacting mortgage backed securities pricing combined with sharp declines in servicing right valuations associated with investor uncertainty surrounding COVID-19 at the end of March 2020. Service charges on deposit accounts increased by $338 thousand, or 8%,deposits for the nine months ended September 30, 2020 decreased to $3.4 million from $4.3$4.8 million for the nine months ended September 30, 2016 to $4.6 million2019, a 28% decrease, due tsame period in 2017. The increase for the 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 compared2020 increased to $2.9$12.8 million in the same period in 2016. Sales of residential mortgage loans yielded gains of $6.1from $5.4 million for the nine months ended September 30, 2017 compared2019, a 138% increase due substantially to $7.1$3.4 million 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 liabilities 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 originator 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 thousand for the three and nine months ended September 30, 2017 compared to $101 thousand and $1.4 million for the three and nine month period in 2016. Activity in SBA loan sales to secondary markets can vary widely from quarter to quarter.Net investmenthigher gains were $542 thousand for the nine months ended September 30, 2017 compared to $1.1 million 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, servicingsale, and saleservicing of FHA Multifamily-Backed Ginnie Mae securities of $780 thousand, gains of $168 thousandloans, $1.4 million higher SBIC income, $1.2 million gain 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 2016 primarily due to revenue associated with the sale of FHA Multifamily-Backed Ginnie Maean OREO property, $1.2 million higher swap fee income, and $703 thousand higher commitment fees, partially offset by less service charges on deposits of $1.4 million. Gains on sale of investment securities of $779 thousand.Other income totaled $6.8were $1.7 million and $1.6 million for the nine months ended September 30, 2017 as compared to $5.2 million for the same period in 2016, an increase2020 and 2019, respectively.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.Contentsmeantime,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, 2017,2020, the Company had no funds advanced outstanding under FHA mortgage loan servicing agreements. To the extent the mortgage loans underlying the Company’s servicing portfolio experience delinquencies, the Company would be required 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.$29.5$36.9 million for the three months ended September 30, 2017,2020, as compared to $28.8$33.5 million for the three months ended September 30, 2016.2019, a 10% increase due substantially to higher FDIC fees and rent expense as discussed below. Total noninterest expenses totaled $88.7$109.2 million for the nine months ended September 30, 2017,2020, as compared to $85.2$105.1 million for the nine months ended September 30, 2016.$16.9$19.4 million for the three months ended September 30, 2017,2020, as compared to $17.1$19.1 million for the same period in 2016, a 1% decrease. Salaries and benefits cost decreases for the three month period were due2019, an increase of $293 thousand or 2%. The increase was primarily to a decrease in employee benefit costs due to higher salaries and increased headcount in the prior year accelerationthird quarter of restricted stock awards,2020, partially offset by merit increases.lower share based compensation expenses. Salaries and employee benefits were $50.5$54.3 million for the nine months ended September 30, 2017,2020, as compared to $49.2$60.5 million for the same period in 2016, a 3% increase. Salaries and benefits cost increases for the nine month period were due primarily to increased merit and incentive compensation, offset by2019, a decrease in employee benefit costsof $6.2 million or 10%. The decrease was primarily due to the prior year acceleration$6.2 million of restricted stock awards. largely nonrecurring charges accrued in the first quarter of 2019 related to share based compensation awards and the resignation of our former CEO and Chairman in March 2019, of which a portion was reversed in the second quarter of 2020. The decrease was partially offset by higher salaries attributable to merit increases and increased headcount in the first nine months of 2020.2017,2020, the Company’s full time equivalent staff numbered 471,515 as compared to 469492 at December 31, 20162019, and 464482 at September 30, 2016.$3.8$5.1 million and $3.5 million for the three month periodsmonths ended September 30, 20172020 and 2016, an increase2019, respectively, a 46% increase. For the first nine months of $60 thousand, or 2%. PremisesSeptember 30, 2020 and 2019 premises and equipment expenses amounted to $11.6$12.4 million forand $11.0 million, respectively, a 13% increase. In accordance with ASC 842 on Leases, a $1.7 million adjustment to rent expense was recorded during the nine month period ended September 30, 2017 and $11.4 million forthird quarter as our internal review process identified a lease extension that was not originally recorded in the same periodlease balances reflected in 2016, an increasethe Statement of 2%. ForCondition upon implementation of the three and nine months ended September 30, 2017, the Company recognized $143 thousand and $365 thousandnew lease accounting standard.expense decreased to $732expenses totaled $928 thousand for the three months ended September 30, 2017 from $857 thousand2020 and $1.2 million for the same period in 2016, a decrease of 15%, primarily due to reduced digital and print advertising spend.2019. Marketing and advertising expense increased to $2.9expenses totaled $3.1 million for the nine months ended September 30, 2017 from $2.62020 and $3.6 million for the same period in 2016, a 13% increase, primarily2019. The decrease for the nine months was due to costs associated with expandedrepurposing of marketing initiatives due to COVID-19, which resulted in a cutback of print, digital and printradio advertising, as well as, a reduction in event-related sponsorships due to cancellations and sponsorships.Legal, accounting and professional feesvirtual modifications to the event structures.$1.2$2.7 million for the three months ended September 30, 20172020 from $771 thousand in$2.2 million for the same period in 2016,2019, a 61% increase. Legal, accounting and professional fees24% increase related to an increase in licensing fees. Data processing expense increased to $3.5$8.0 million for the nine months ended September 30, 20172020 from $2.8$7.2 million infor the same period in 2016,2019, a 24%11% increase. The nine month increase was a result of an increase in expense for the three month period was primarily due to general bank consulting projects. The increase in expense for the nine month period was primarily due to enhanced IT risk managementlicensing fees and general bank consulting projects.FDIC expenses increased to $929network expenses.2017 from $6292020 compared to the three months ended September 30, 2019, as the Bank recognized receivables on legal expenditures associated with insurance coverage where we believe we have a high likelihood of recovery pursuant to our D&O insurance policies. The Bank 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. Legal fees and expenditures of $957 thousand for the same period in 2016. FDIC expenses decreasedthird quarter of 2020 were primarily associated with previously disclosed ongoing governmental investigations and related subpoenas and document requests and our defense of the previously disclosed class action lawsuit. Legal, accounting and professional fees increased $6.0 million to $2.1$14.1 million for the nine months ended September 30, 2017 from $2.22020 compared to $8.0 million for the same periodnine months ended September 30, 2019, primarily as a result of the previously disclosed ongoing governmental investigations and related subpoenas and document requests and our defense of the previously disclosed class action lawsuit, where we filed a motion to dismiss on April 2, 2020. Briefing on our motion is now complete and is under consideration by the court. The amount of legal fees and expenditures for the year is 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 2016. The increasethe future as to which recovery is impossible to predict at this time. See Part II, Item 1 for more information.2017 was due2020 compared to $85 thousand for the same period in 2019, a larger assessment base. The decrease2,432% increase. FDIC expenses were $5.6 million for the nine months ended September 30, 2017 was due2020 compared to $2.3 million for the same period in 2019, 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 million139% increase. The increases for both the three and nine months ended September 30, 2017periods in 2020 compared to the same periods in 2019 were due to a nonrecurring $1.1 million regulatory credit in the third quarter of 2019 and 2016, an increase of 2%. a higher assessment base resulting from growth in total assets.cost in this categoryother expenses include broker fees, franchise taxes, core deposit intangible amortization and insurance expenses.expense. Other expenses amounteddecreased to $12.2$3.5 million for the three months ended September 30, 2020 from $3.8 million for the same period in 2019, a 7% decrease. Other expenses decreased to $11.8 million for the nine months ended September 30, 2017 compared to $11.42020 from $12.5 million for the same period in 2016, an increase of 7%,2019, a 6% decrease, primarily due primarily to an increase in$2.3 million lower broker fees, of $983 thousand.37.49%38.10% for the third quarter of 2017,2020, as compared to 40.54%38.34% for the third quarter of 2016. 2019. For the first nine months of 2020, the efficiency ratio was 39.56% as compared to 40.08% for the same period in 2019.improved to 1.66%was 1.41% for the three months ended September 30, 20172020 as compared to 1.78%1.50% for the same period in 2016.2019. As a percentage of average assets, total noninterest expense (annualized) improved to 2.55%was 1.44% for the nine months ended September 30, 20172020 as compared to 2.73%1.62% for the same period in 2016. Cost control remains a significant operating objective of the Company.improved to 36.8% for the three months ended September 30, 2017 as compared to 38.7% for the same period in 2016. The Company’s effective 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 rate for the three months ended September 30, 2017 was due primarily to tax credit investments in the third quarter of 20172020 was 25.4% as compared to 27.9% for the third quarter of 2019. The decrease was due to disallowed compensation deductions in respect of compensation for key executives in 2020, as well as, additional tax credits in 2020 compared to 2019. On an interim basis, tax expense is recorded using an annual forecasted effective tax rate. The forecasted rate for 2020 is lower than 2019 as a result of lower pre-tax income due to increased credit reserves significantly attributable to COVID-19 along with the impact of the reduction in permanent differences and increased tax credits. As a lower stateresult, the annual effective tax apportionment factor in the current year. rate recorded on an interim basis declined.lowerCompany's effective tax rate for the nine months ended September 30, 2017,2020 was due25.4% as compared to 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 expense26.9% for the nine months ended September 30, 2017.20172020 were $7.39$10.1 billion, a 9%12.4% increase as compared to $6.76 billion at September 30, 2016, and a 7% increase as compared to $6.89$9.0 billion at December 31, 2016.2019. Total loans (excluding loans held for sale) were $6.08$7.9 billion at September 30, 2017, an 11%2020, a 4.4% increase as compared to $5.48 billion at September 30, 2016, and a 7% increase as compared to $5.68$7.6 billion at December 31, 2016.2019, primarily due to PPP loans, which represented $456.1 million of total loans at the end of third quarter. Loans held for sale amounted to $26.0$79.1 million at September 30, 2017 as compared to $78.12020 and $56.7 million at December 31, 2019, a 39.5% increase. The investment portfolio totaled $977.6 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, 2016.2020. As compared to December 31, 2016,2019, the investment portfolio at September 30, 20172020 increased by $17.9$134.2 million, or 3%.15.9%, primarily due to the deployment of deposit inflows in to higher yielding assets.20172020 were $5.91$8.2 billion, a 13.2% increase compared to deposits of $5.56 billion at September 30, 2016, a 6% increase, and deposits of $5.72$7.22 billion at December 31, 2016, a 4% increase. Total borrowed funds (excluding customer repurchase agreements) were $416.8 million at September 30, 2017, $266.4 million at September 30, 2016, and $216.5 million at December 31, 2016.2019. We continue to work on expanding the breadth and depth 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 million in FHLB advances Total borrowed funds (excluding customer repurchase agreements) were borrowed as part of the overall asset liability strategy and to support loan growth. These advances remained outstanding as of September 30, 2017, $100.0 million of these advances will mature in October 2017 and the remaining $100.0 million will mature in March 2018.Total shareholders’ equity at September 30, 2017 increased 15%, to $934.0 million, compared to $815.6$568.0 million at September 30, 2016, and increased 11% from $842.82020, as compared to $467.7 million at December 31, 2016. The increase in2019.20172020, as compared to the same period in 2016 was primarily the result16.20% at December 31, 2019, both common equity tier 1 (“CET1”) risk based capital and tier 1 risk based capital ratios of retained earnings.13.19% at September 30, 2020, as compared to 12.87% at December 31, 2019, and a tier 1 leverage ratio of 10.82% at September 30, 2020, as compared to 11.62% at December 31, 2019. The ratio of common equity to total assets was 12.63%12.11% at September 30, 2017,2020, as compared to 12.06%13.25% at December 31, 2019. Book value per share was $37.96 at September 30, 2016 and 12.23%2020, a 6% increase over $35.82 at December 31, 2016. The Company’s capital position remains substantially 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, 2016.2019. In addition, the tangible common equity ratio was 11.35%11.18% at September 30, 2017,2020, as compared to 10.64%12.22% at December 31, 2019. Tangible book value per share was $34.70 at September 30, 2016 and 10.84%2020, a 6% increase over $32.67 at December 31, 2016.Effective January 1, 2015,2019. Refer to the “Use of Non-GAAP Financial Measures” section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.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 purposes of the risk-based capital ratios, created an additional capital conservation buffer over the required capital ratios and changed what qualifies as capital for purposes of meeting these various capital requirements. Under these standards,Bank, in order to be considered well-capitalized, the Bank must have a 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.2017,2020 (unaudited) and December 31, 20162019 by major category are summarized below.September 30, 2020 December 31, 2019 (dollars in thousands) Amount % Amount % Commercial $ 1,524,613 19 % $ 1,545,906 20 % PPP loans 456,115 6 % — — % Income producing - commercial real estate 3,724,839 47 % 3,702,747 50 % Owner occupied - commercial real estate 997,645 13 % 985,409 13 % Real estate mortgage - residential 82,385 1 % 104,221 1 % Construction - commercial and residential 879,144 11 % 1,035,754 14 % Construction - C&I (owner occupied) 140,357 2 % 89,490 1 % Home equity 72,648 1 % 80,061 1 % Other consumer 2,509 — % 2,160 — % Total loans 7,880,255 100 % 7,545,748 100 % Less: allowance for credit losses (110,215) (73,658) $ 7,770,040 $ 7,472,090 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. $6.08$7.9 billion at September 30, 2017,2020, an increase of $602.2$334.5 million, or 11%4%, as compared to $5.48 billion at September 30, 2016, and an increase of $406.3 million, or 7%, as compared to $5.68$7.6 billion at December 31, 2016. The loan2019. Loan growth during the nine months ended September 30, 2017 over the same period in 20162020 was predominantly in the income producing - commercial real estate, owner occupied - commercial real estate, and commercial and industrial categories. PPP loans. Despite an increaseda continued level of in-market competition for business, the Bank continued to experience strong organic loan production and modest portfolio growth, across the portfolio. Multi-familydriven mostly by PPP loans. Notwithstanding increased supply of units, multi-family commercial real estate leasing in the Bank’s market area has held up well, particularly for well-located close-in projects. While as a general comment, there has been some softening in the Suburban Maryland office leasing market in certain well located pockets and submarkets. Overall, commercial real estate values have generally held up well with price escalation in prime pockets. Thepockets, but we continue to be cautious of the capitalization rates at which some assets are trading and we are being careful with valuations as a result. While the ultra high-end residential real estate market has softened, the moderately priced housing market has remained stable to increasing, with well-located, Metro accessible properties garnering a premium.Owner occupied - commercial real estate However, the potential impact from COVID-19 has not yet been fully reflected in the market. Please refer to the COVID-19 risk factors in Item 1A below.Industry Principal Balance
(in 000’s)% of Loan Portfolio Accommodation & Food Services $ 804,712 10.2 % Retail Trade $ 99,202 1.3 % construction - C&I (owner occupied) represent 13%Food Service industry and Retail Trade are the most immediate at this time. Accommodation and Food Service exposure represents 10.2% of the Bank’s loan portfolio.portfolio as of September 30, 2020 among 331 customers. Retail Trade exposure represents 1.3% of the Bank’s loan portfolio and represented 155 customers. The Bank has a large portionongoing extensive outreach to these customers and is assisting where necessary with PPP loans and payment deferrals or interest-only periods in the short term while customers work with the Bank to develop longer term stabilization strategies as the landscape of its loan portfolio related to real estate, with 76% consistingthe COVID-19 pandemic evolves. The uncertain duration and severity of commercial real estatethe pandemic will likely impact future credit challenges in these areas.real estate construction loans. When owner occupied - commercial real estate and construction - C&I (owner occupied) is excluded, the percentage of totalshows exposures on loans representedsecured by commercial real estate decreases to 63%(“CRE”) by property type as of September 30, 2020 (unaudited). Real estate also serves as collateral forThis table excludes loans made for other purposes, resultingdisclosed in 85%the industry table above.Property Type Principal Balance (in 000’s) % of Loan
PortfolioRestaurant $ 46,710 0.6 % Hotel 35,782 0.5 % Retail 389,485 4.9 % allthe CRE loans being secured by real estate.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 Home Loan Banks (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”).2017,2020, noninterest bearing deposits increased $67.5$319.7 million as compared to December 31, 2016,2019, while interest bearing deposits increased by $130.4$634.7 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 period in 2016, a 9% increase.a 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”), which providesprovide for reciprocal (“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”). At September 30, 2017,2020, total deposits included $883.5 million$1.74 billion of brokered deposits (excluding the CDARS and ICS two-way), which represented 15%21% of total deposits. At December 31, 2016,2019, total brokered deposits (excluding the CDARS and ICS two-way) were $676.7 million,$1.80 billion, or 12%25% of total deposits. The CDARS and ICS two-way component represented $493.4$581.0 million, or 8%7%, of total deposits and $432.1$502.9 million, or 8%7%, of total deposits at September 30, 20172020 and December 31, 2016,2019, 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.20172020, the Company had $1.84$2.4 billion in noninterest bearing demand deposits, representing 32%29% of total deposits, compared to $1.78$2.1 billion of noninterest bearing demand deposits at December 31, 2016,2019, or 31%29% of total deposits. These deposits are primarily business checking accounts on which the payment of interest was prohibited by regulationsA portion of the Federal Reserve prior to July 2011. Since July 2011, banks are not prohibited from paying interest ongrowth in noninterest bearing demand deposits account, including those from businesses. To date,was the result of funding PPP loans into operating accounts at the Bank has elected not to pay interest on business checking accounts, nor isduring the paymentsecond quarter of such interest a prevalent practice in2020. Average noninterest bearing deposits of total deposits for the Bank’s market area at present.first nine months of 2020 and for the first nine months of 2019 were both 31%. 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. Paymentinterest earning assets.whichthat are not suited for either a certificate of deposit or a money market account. The balances in these accounts were $73.6$24.3 million at September 30, 20172020 compared to $68.9$31.0 million at December 31, 2016.2019. Customer repurchase agreements are not deposits and are not insured by the FDIC, but are collateralized by U.S. agency securities and/or U.S. agency backed mortgage backed securities. These accounts are particularly suitable to businesses with significant fluctuation in the levels of cash flows. Attorney and title company escrow accounts are examples of accounts which can benefit from this product, as are customers who may require collateral for deposits in excess of FDIC insurance limits but do not qualify for other pledging arrangements. This program requires the Company to maintain a sufficient investment securities level to accommodate the fluctuations in balances which may occur in these accounts.20172020 and December 31, 2016. The Bank had $200.0 million in short-term borrowings outstanding under its credit facility from the FHLB at2019. At September 30, 2017. There were no borrowings outstanding under its credit facility from2020, the Company had $300 million of FHLB advances borrowed as part of the overall asset liability strategy and to support loan growth, as compared to $250 million at December 31, 2016.2019. Outstanding FHLB advances are secured by collateral consisting of a blanket lien on qualifying loans in the Bank’s commercial mortgage, residential mortgage and home equity loan portfolios.20172020 included the Company’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. At September 30, 2020, the Company had $50 million of FHLB long-term advances borrowed as part of the overall asset liability strategy and to support loan growth. For additional information on the subordinated notes, please refer to “Capital Resources and Adequacy” below.Note 9 to the Consolidated Financial Statements included in this report. 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 outstanding at September 30, 2017,2020, and access to borrowcan obtain unsecured funds under one-way CDARS and ICS brokered deposits in the amount of $1.11$1.47 billion, against which there was $176.9 millionnothing outstanding at September 30, 2017.2020. The Bank also has a commitment from PromontoryIntraFi to place up to $700.0 million$1 billion of brokered deposits from its IND program in amounts requested by the Bank, as compared to an actual balance of $291.1$719.5 million at September 30, 2017.2020. At September 30, 20172020, the Bank was also eligible to make advances from the FHLB up to $1.27$1.3 billion based on loans pledged as collateral atto the FHLB, of which there was $200.0$350 million outstanding at September 30, 2017.2020. The Bank may enter into repurchase agreements as well as obtain additional borrowing capabilities from the FHLB, provided adequate collateral exists to secure these lending relationships. The Bank also has a back-up borrowing facility through the Discount Window at the Federal Reserve Bank of Richmond (“Federal Reserve Bank”). This facility, which amounts to approximately $485.0$621 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.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.2017,2020, under the Bank’s liquidity formula, it had $3.78$4.5 billion of primary and secondary liquidity sources. The amount is deemed adequate to meet current and projected funding needs.20172020 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 $ 2,207,862 Unfunded lines of credit 99,180 Letters of credit 70,087 Total $ 2,377,129 Unfunded loan commitments of $66.1 million asAs of September 30, 2017 were2020, unfunded loan commitments included $410 million related to interest rate lock commitments on residential mortgage loans and were of a short-term nature. Average unfunded loan commitments declined in the third quarter 2020 from the previous seven quarters, from an average of $2.3 billion to just below $2.0 billion primarilyattributable primarily to a decrease in unfunded commitments in accordance with CECL.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’s profit objectives.quarternine months ended September 30, 2017, as compared to the same three months in 2016,2020, 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% for3.27% as compared to 3.88% during the same quarterperiod in 2016,2019, 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. 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 ended September 30, 2017,2020, the average investment portfolio balancesbalance increased by $165.1 million, or 22%, as compared to balances ataverage balance for the three months ended September 30, 2016.2019. The cash received from deposit growth and borrowings along with cash flows off offrom the investment portfolio were deployed into loans, and the purchase of additional investments.11%10% of total investments at September 30, 20172020 and 23%9% at September 30, 2016, the2019. The portion of the portfolio invested in mortgage backed securities decreased to 54%was 73% at both September 30, 2017 from 60% at September 30, 2016.2020 and 2019. The portion of the portfolio invested in U.S. agency investments was 24%7% at September 30, 20172020 and 13%14% at September 30, 2016.2019. Shorter duration floating rate SBA bonds and corporate bonds were 11%1% of total investments both at September 30, 2020 and September 30, 2019, and SBA bonds, which are included in mortgage backed securities, were 8% and 10% of total investments at September 30, 20172020 and 5% at September 30, 2016. Despite the rolling forward of the investment portfolio and the changing mix through the purchase of shorter duration instruments (inclusive of shorter U.S. agency investments), the2019, respectively. The duration of the investment portfolio was 3.5remained relatively consistent at 3.2 years at September 30, 2017 and 3.42020 from 3.3 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.fairly stable at 2219 months at September 30, 2017 versus 23 months2020 as compared to 20 months at September 30, 2016,2019 with fixed rate loans amounting to 34%45% of total loans at both September 30, 20172020 and 2016.40% at September 30, 2019. Variable and adjustable rate loans comprised 66%55% (offset by 3% from the dilution impact of PPP loans) and 60% of total loans at both September 30, 20172020 and September 30, 2016.2019, respectively. Variable rate loans are generally indexed to either the one month LIBOR interest rate, or the Wall Street Journal prime interest rate, while adjustable rate loans are generally indexed primarily to the five year U.S. Treasury interest rate.decreasedincreased to 2044 months at September 30, 20172020 from 2839 months at SeptemberJune 30, 2016.2020. The changeincrease since September 30, 2016June was due substantially to a change in the deposit mix and the duration of money market deposits.and has been able to achieve favorable loan pricing, including interest rate floors on many loan originations, although competitiondemand for new loans persists.during the COVID-19 pandemic has diminished. A disciplined approach to loan pricing, together with loan floors existing in 61%variable and adjustable rate loans comprising 55% of total loans (at(offset by 3% from the dilution impact of PPP loans) at September 30, 2017),2020, has resulted in a loan portfolio yield of 5.19%4.71% for the threenine months ended September 30, 20172020 as compared to 5.08%5.54% for the same period in 2016. Subject to interest rate floors, variable2019. Variable and adjustable rate loans provide additional income opportunities should interest rates rise from current levels.lossgain before income tax on the investment portfolio was $1.7$20.9 million at September 30, 20172020 as compared to a net unrealized gain before tax of $7.4$6.6 million at September 30, 2016.2019. The increase in the net unrealized lossgain on the investment portfolio at September 30, 2017 as compared to the net unrealized gain at September 30, 2016 was due primarily to the higherlower interest rates at September 30, 2017 and the sale of more valuable municipal bonds in the first quarter of 2017.2020. At September 30, 2017,2020, the net unrealized lossgain position represented 0.3%2.3% of the investment portfolio’s book value.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, and the level of noninterest income and noninterest expense. The data is then subjected to a “shock test” which assumes a simultaneous change in interest rates up 100, 200, 300, and 400 basis points or down 100 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 periods from September 30, 2017.2020. In addition to analysis of simultaneous changes in interest rates along the yield curve, changes based on interest rate “ramps” is also performed. This analysis represents the impact of a more gradual change in interest rates, as well as yield curve shape changes.2017,2020, the simulation assumes a 50 basis point change in interest rates on money market and interest bearing transaction deposits for each 100 basis point change in market interest rates in a decreasing interest rate shock scenario with a floor of 0 basis points (compared to a floor of 0 basis points and 10 basis points in the same analysis as of June 30, 2020 and March 31, 2020, respectively), and assumes a 70 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 floor rate in the table below,analysis was lowered due to the fact that in the current interest rate environment, there are interest bearing accounts with current rates less than 10 basis points.20172020 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 and 200 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. The re-pricingrepricing duration of the investment portfolio at September 30, 20172020 is 3.53.2 years, the loan portfolio 1.81.6 years, the interest bearing deposit portfolio 1.73.6 years, and the borrowed funds portfolio 2.46.1 years.20172020 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 16.3% 27.0% 9.8% + 300 11.2% 18.5% 7.7% + 200 6.0% 10.0% 5.5% + 100 1.9% 3.2% 3.1% — — — — - 100 (1.3)% (2.2)% (12.1)% - 200 (2.0)% (3.3)% (20.2)% 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. DueThe amounts in the third quarter exceeded these limits due to a verythe already low probabilitylevel of further declines inrates on non-maturing deposit instruments. Management has determined that due to the level of market rates at September 30, 2020, interest rates, ALCOrate shocks of -100, -200, -300 and management have accepted the policy exception associated with the percentage of net interest income lost in a down 200-400 basis points scenario.leave the Bank with near zero down to negative rate instruments and are not considered practical or informative. 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, 20172020 are not considered to be excessive. The positive impact of +5.1%-1.3% in net interest income and +9.7%-2.2% in net income given a 100 basis point increasedecrease in market interest rates reflects in large measure the impact of variable rate loans and fed funds sold repricing counteracted by adownward while deposits remain at expected floor rates and are not expected to have lower level of expected residential mortgage activity.2017,2020, 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, theThe interest rate risk position at September 30, 20172020, was relatively similar to the interestJune 30, 2020 position for both the up and down rate risk position at December 31, 2016. As compared to December 31, 2016, the sumscenarios.calculating the tables.modeling. Finally, the ability of many borrowers to service their debt may decrease in the event of a significant interest rate increase.2017,2020, average market interest rates increased ondecreased across the short end of the yield curve while decreasing on the mid and long end of the curve. Overall, there was a flatteningslight steepening of the yield curve as compared to the third quarter of 20162019 with rate increases withindecreases being generally more significant at the three year maturity term and decreases further out onshorter end of the yield curve.2016,2019, the average two-year U.S. Treasury rate increaseddecreased by 6155 basis points from 1.30% to 1.36%1.69% to 0.14%, the average five year U.S. Treasury rate was stable at 1.81%decreased by 136 basis points from 1.63% to 0.27% and the average ten year U.S. Treasury rate decreased by 2115 basis points from 2.26%1.80% to 2.24%0.65%. The Company’s net interest spreadmargin was 3.08% for the third quarter of 2017 was 3.77% compared to 3.83% for2020 and 3.72% in the third quarter of 2016. The decline was due in large part to the increase in the cost of interest bearing liabilities.2019. The Company believes that the change in the net interest spreadmargin in the most recent quarter as compared to 2016’s2019’s third quarter has been consistent with its interest rate risk analysis at December 31, 2016.GAPanalysis.91%87% and 93% of the Company’s revenue for the third quarter of both 20172020 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 chart below provides an indication of the sensitivity of the Company to changes in interest rates. A negative GAPgap indicates the degree to which the volume of repriceable liabilities exceeds repriceable assets in given time periods.2017,2020, the Company had a positive GAPgap position of approximately $515.5$425 million, or 7%4% of total assets, out to three months, and a positive cumulative GAPgap position of $117.0$457 million, or 2%5% of total assets out to 12twelve months; as compared to a positive GAPgap position of approximately $1.14 billion$420 million or 17%5% of total assets out to three months and a positive cumulative GAPgap position of $1.13 billion or 16%$384 million of 4% of total assets out to 12 months at December 31, 2016.September 30, 2019. The change in the positive GAPgap position at September 30, 20172020 as compared to December 31, 2016,June 30, 2020 was due substantially to 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 marketterm deposits being assumed to reprice entirelymoving into overnight deposits in the 0-3 month category. Changes in the GAP position between September 30, 2017low and December 31, 2016 were also due to the higher amount of asset liquidity on the balance sheet including an increase inflat interest bearing balances. There was alsorate environment.. Such 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 notnot deemed material to the Company’s overall interest rate risk position, which relies more heavily on simulation analysis that captures the full optionality 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 actual results.areremain appropriate to current economic and interest rate trends.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.GAPgap model. If this were to occur, the effects of a declining interest rate environment may not be in accordance with management’s expectations.
GAP AnalysisGAP 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 % Repricible in: 0-3
months4-12
months13-36
months37-60
monthsOver 60
monthsTotal
Rate
SensitiveNon Sensitive Total RATE SENSITIVE ASSETS: Investment securities $ 207,873 $ 103,032 $ 202,216 $ 152,709 $ 311,740 $ 977,570 3,973,982 818,269 1,543,850 873,128 750,110 7,959,339 Fed funds and other short-term investments 849,549 — — — — 849,549 Other earning assets 76,326 — — — — 76,326 Total $ 5,107,730 $ 921,301 $ 1,746,066 $ 1,025,837 $ 1,061,850 $ 9,862,784 243,510 $ 10,106,294 RATE SENSITIVE LIABILITIES: Noninterest bearing demand $ 85,494 $ 237,819 $ 516,240 $ 380,872 $ 1,163,683 $ 2,384,108 Interest bearing transaction 823,607 — — — — 823,607 Savings and money market 3,631,553 — — — 325,000 3,956,553 Time deposits 217,601 403,135 331,860 58,365 3,556 1,014,517 Customer repurchase agreements and fed funds purchased 24,293 — — — — 24,293 Other borrowings — 148,420 — 69,559 350,000 567,979 Total $ 4,782,548 $ 789,374 $ 848,100 $ 508,796 $ 1,842,239 $ 8,771,057 111,835 $ 8,882,892 GAP $ 325,182 $ 131,927 $ 897,966 $ 517,041 $ (780,389) $ 1,091,727 Cumulative GAP $ 325,182 $ 457,109 $ 1,355,075 $ 1,872,116 $ 1,091,727 Cumulative gap as percent of total assets 3.22 % 4.52 % 13.41 % 18.52 % 10.80 % OFF BALANCE-SHEET: Interest Rate Swaps - LIBOR based $ — $ — $ — $ — $ — $ — Interest Rate Swaps - Fed Funds based 100,000 (100,000) Total $ 100,000 $ (100,000) $ — $ — $ — $ — — $ — GAP $ 425,182 $ 31,927 $ 897,966 $ 517,041 $ (780,389) $ 1,091,727 Cumulative GAP $ 425,182 $ 457,109 $ 1,355,075 $ 1,872,116 $ 1,091,727 $ — Cumulative gap as percent of total assets 4.21 % 4.52 % 13.41 % 18.52 % 10.80 % sale.category.significant growth in its commercial real estate portfolio in recent years. At September 30, 20172020, non-owner-occupied commercial real estate loans (including construction, land, and land development loans) represent 334%328% of total risk based capital. Construction, land and land development loans represent 131%100% 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 criteria with respect to its commercial real estate portfolio. Loan monitoring practices include but are not limited to periodic stress testing analysis to evaluate changes to cash flows, owing to interest rate increases and declines in net operating income. Nevertheless, 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 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, theapproved 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,At September 30, 2020, the Company completedand the saleBank meet all these requirements, and satisfy the requirement to maintain a capital conservation buffer of $150.0 million2.5% of CET1 capital for capital adequacy purposes.5.00% Fixed-to-Floating Rate Subordinated Notes,common stock (inclusive of shares remaining under the initial authorization), through December 31, 2020, subject to earlier termination by the Board of Directors (the “Repurchase Program Extension”). August 1, 2026 (the “Notes”). The Notes were offered to the public at par.heightened volatility of the stock market and uncertainty regarding the impact of COVID-19, the Company’s remaining authorization to repurchase shares was put on hold during the first quarter of 2020 and there were no share repurchases in the second and third quarters of 2020. The notes qualify as Tier 2 capitalCompany’s Board of Directors approved lifting the suspension of the Company’s share repurchase program in the third quarter of 2020. The Board of Directors have authorized management through the current share repurchase program to continue to evaluate opportunities for regulatory purposesshare repurchases.fullest extent permitted under the Basel III Rule.first business day following October 31, 2020.2017,2020 (unaudited) and December 31, 2016 and September 30, 20162019 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, 2020 CET1 capital (to risk weighted assets) $ 1,121,616 13.19 % $ 1,290,062 15.19 % 7.00 % 6.50 % Total capital (to risk weighted assets) 1,422,072 16.72 % 1,384,518 16.30 % 10.50 % 10.00 % Tier 1 capital (to risk weighted assets) 1,121,616 13.19 % 1,290,062 15.19 % 8.50 % 8.00 % Tier 1 capital (to average assets) 1,121,616 10.82 % 1,290,062 12.47 % 4.00 % 5.00 % As of December 31, 2019 CET1 capital (to risk weighted assets) $ 1,082,516 12.87 % $ 1,225,486 14.64 % 7.00 % 6.50 % Total capital (to risk weighted assets) 1,362,253 16.20 % 1,299,223 15.52 % 10.50 % 10.00 % Tier 1 capital (to risk weighted assets) 1,082,516 12.87 % 1,225,486 14.64 % 8.50 % 8.00 % Tier 1 capital (to average assets) 1,082,516 11.62 % 1,225,486 13.18 % 4.00 % 5.00 % only.20172020 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, 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. 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.Non-GAAP Reconciliation (Unaudited) (dollars in thousands except per share data) 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 Less: Intangible assets (107,150 ) (107,419 ) (107,694 ) Tangible common equity $ 826,832 $ 735,380 $ 707,945 Book value per common share $ 27.33 $ 24.77 $ 24.28 Less: Intangible book value per common share (3.14 ) (3.16 ) (3.20 ) Tangible book value per common share $ 24.19 $ 21.61 $ 21.08 Total assets $ 7,393,656 $ 6,890,096 $ 6,762,132 Less: Intangible assets (107,150 ) (107,419 ) (107,694 ) Tangible assets $ 7,286,506 $ 6,782,677 $ 6,654,438 Tangible common equity ratio 11.35 % 10.84 % 10.64 % Three Months Ended
September 30, 2020Nine Months Ended
September 30, 2020Year Ended
December 31, 2019Three Months Ended
September 30, 2019Nine Months Ended
September 30, 2019Common shareholders’ equity $ 1,223,402 $ 1,190,681 $ 1,184,594 Less: Intangible assets (105,165) (104,739) (104,915) Tangible common equity $ 1,118,237 $ 1,085,942 $ 1,079,679 Book value per common share $ 37.96 $ 35.82 $ 35.13 Less: Intangible book value per common share (3.26) (3.15) (3.11) Tangible book value per common share $ 34.70 $ 32.67 $ 32.02 Total assets $ 10,106,294 $ 8,988,719 $ 9,003,467 Less: Intangible assets (105,165) (104,739) (104,915) Tangible assets $ 10,001,129 $ 8,883,980 $ 8,898,552 Tangible common equity ratio 11.18 % 12.22 % 12.13 % Average common shareholders’ equity $ 1,137,826 $ 1,193,988 $ 1,172,051 $ 1,197,513 $ 1,164,542 Less: Average intangible assets (105,106) (104,826) (105,167) (105,034) (105,297) Average tangible common equity $ 1,032,720 $ 1,089,162 $ 1,066,884 $ 1,092,479 $ 1,059,245 Net Income Available to Common Shareholders $ 41,346 $ 93,325 $ 142,943 $ 36,495 $ 107,487 Average tangible common equity $ 1,032,720 $ 1,089,162 $ 1,066,884 $ 1,092,479 $ 1,059,245 Annualized Return on Average Tangible Common Equity 15.93 % 11.45 % 13.40 % 13.25 % 13.57 % 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 weakness2020 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 20172020 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.“Remediation.”Management assessedsystemenhanced controls to determine whether they operate effectively over time. As previously described in Part I, Item 4 of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, that testing process is now complete and management believes that the enhanced controls are operating effectively and the deficiencies that contributed to the material weakness have been remediated, subject to the results of the year-end audit of the Company’s internal control over financial reporting as of September 30, 2017. This assessment was conducted based onby Dixon Hughes Goodman LLP (“DHG”), the Committee of Sponsoring Organizations (“COSO”)Company’s independent auditors.Treadway Commission “Internal Control – Integrated Framework (2013).” Based on this assessment, management believes thatroles of Chairman and Chief Executive Officer and the Company did not maintain effective internal control overappointment of our current Chairman, Norman R. Pozez, and our current President and Chief Executive Officer, Susan G. Riel;asoversight functions, including the addition of September 30, 2017 as a resulttwo new independent directors with extensive experience in risk management and public accounting;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 testinghiring a new Chief Legal Officer (effective January 2020);newly implemented internal controlsCompany's ethics program, including establishing an Ethics Office and related procedures. The material weakness cannot be considered remediated untilappointing an Ethics officer with accountability to the control has operatedAudit Committee, and increased ethics training for a sufficient periodCompany employees;timethe Company's policies and until management has concluded, through testing, that the control is operating effectively. Our goal is to remediate this material weaknessprocedures for the year ending December 31, 2017.–- OTHER INFORMATION–- Legal Proceedingsmay becomeand its subsidiaries are involved in various legal proceedings. Atproceedings incidental to their business in the present time thereordinary course, including matters in which damages in various amounts are noclaimed. Based on information currently available, the Company does not believe that the liabilities (if any) resulting from such legal proceedings will have a material effect on the financial position of the Company. However, in light of the inherent uncertainties involved in such matters, ongoing legal expenses or an adverse outcome in one or more of these matters could materially and adversely affect the Company's financial condition, results of operations or cash flows in any particular reporting period, as well as its reputation.willrelate to the Company’s identification, classification and disclosure of related party transactions; the retirement of certain former officers and directors; and the relationship of the Company and certain of its former officers and directors with a local public official, among other things. The Company is cooperating with these investigations. There have been no regulatory restrictions placed on the Company’s ability to fully engage in its banking business as presently conducted as a result of these ongoing investigations. We are, however, unable to predict the duration, scope or outcome of these investigations. The amount of legal fees and expenditures for the year is net of expected insurance coverage where we believe we have a material adverse impact onhigh likelihood of recovery pursuant to our D&O insurance policies, but does not include any offset for potential claims we may have in the financial condition or earnings of the Company.future as to which recovery is impossible to predict at this time.–- Risk FactorsThereno material changesand may continue to be significant.September 30, 2017the pandemic on our business, which we expect may potentially worsen, particularly since there remains ongoing uncertainty as to how long the COVID-19 pandemic and related containment measures will continue, both in our market area and the rest of the country.. This impact has been, in certain areas, and could continue to be significant, adverse and potentially material. The full extent of thisfrom those disclosedand other cautionary language included in the Company’sCompany's Annual Report on Form 10-K for the year ended December 31, 2016.2019, the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020 and in other periodic and current reports filed by the Company with the Securities and Exchange Commission will likely be exacerbated, and the impact of such risks will likely be magnified, as a result of the COVID-19 pandemic. We expect the negative impacts of the COVID-19 pandemic on our business, financial condition, liquidity and results of operations to be the most severe in the following areas:–- Unregistered Sales of Equity Securities and Use of Proceeds(a)None Use of Proceeds. Not Applicable Issuer Purchases of Securities. NonePeriod Total Number of Shares Purchased (2) Average Price
Paid Per ShareTotal Number of Shares Purchased as Part
of Publicly Announced Plans or ProgramsMaximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) July 1-31, 2020 — — — 447,890 August 1-31, 2020 157 $ 29.52 157 447,733 September 1-30, 2020 — — — 447,733 Total 157 $ 29.52 157 3.1 Certificate of Incorporation of the Company, as amended (1) 3.2 Bylaws of the Company (2) 4.1 Subordinated Indenture, dated as of August 5, 2014, between the Company and Wilmington Trust, National Association, as Trustee (3) 4.2 First Supplemental Indenture, dated as of August 5, 2014, between the Company and Wilmington Trust, National Association, as Trustee (4) 4.3 Form of Global Note representing the 5.75% Subordinated Notes due September 1, 2024 (included in Exhibit 4.2) 4.4 Second Supplemental Indenture, dated as of July 26, 2016, between the Company and Wilmington Trust, National Association, as Trustee (5) 4.5 Form of Global Note representing the 5.00% Fix-to-FloatingFixed-to-Floating Rate Subordinated Notes due August 1, 2026 (included in Exhibit 4.4)2016 Stock Option Plan (6)10.22006 Stock Plan (7)10.3Employment Agreement dated asCertification 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, 2017,2020, December 31, 2016 and September 30, 2016.2019(ii)(ii) Consolidated Statement of OperationsIncome for the three and nine months ended September 30, 20172020 and 2016.2019(iii)(iii) Consolidated Statement of Comprehensive Income for the three and nine months ended September 30, 20172020 and 2016.2019(iv)(iv) Consolidated Statement of Changes in Shareholders’ Equity for the three and nine months ended September 30, 201730,2020 and 2016.2019(v)(v) Consolidated Statement of Cash Flows for the nine months ended September 30, 20172020 and 2016.2019(vi)(vi) Notes to the Consolidated Financial Statements.Statements104 The cover page of this Quarterly Report on Form 10-Q, formatted in Inline XBRL (1)(1) Incorporated by reference to the Exhibit of the same number to the Company’s Current Report on Form 8-K filed on May 17, 2016. (2) (2)Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on May 17, 2016.December 18, 2017.(3) (3)Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on August 5, 2014. (4) (4)Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on August 5, 2014. (5) (5)Incorporated by Referencereference 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, 201718, 2020By: /s/ Ronald D. PaulSusan G. RielRonald D. Paul, Chairman,Susan G. Riel, President and Chief Executive Officer of the CompanyDate: November 9, 201718, 2020By: /s/ Charles D. Levingston Charles D. Levingston, Executive Vice President and Chief Financial Officer of the Company