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What changed in EAGLE BANCORP INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of EAGLE BANCORP INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+597 added−658 removedSource: 10-K (2025-02-27) vs 10-K (2024-02-29)

Top changes in EAGLE BANCORP INC's 2024 10-K

597 paragraphs added · 658 removed · 472 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

77 edited+10 added−47 removed162 unchanged
Biggest changeUnder Federal Reserve guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, a banking organization’s incentive compensation arrangements should (i) provide incentives that appropriately balance risk and financial results in a manner that does not encourage employees to expose their organizations to imprudent risk, (ii) be compatible with effective internal controls and risk management and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors.
Biggest changeUnder Federal Reserve guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, a banking organization’s incentive compensation arrangements should (i) provide incentives that appropriately balance risk and financial results in a manner that does not encourage employees to expose their organizations to imprudent risk, (ii) be compatible with effective internal controls and risk management and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. 17 Table o f Contents In 2016, the U.S. financial regulators, including the FRB and the SEC, proposed revised rules on incentive-based payment arrangements at specified regulated entities having at least $1 billion in total assets (including the Company and the Bank), but these proposed rules have not been finalized.
A typical ALCO meeting includes discussion of current economic conditions and balance sheet and other strategies, including interest rate trends and, the current balance sheet and earnings position, comparisons to budget, cash flow estimates, liquidity positions, liquidity stress tests (monthly), and funding alternatives as necessary, interest rate risk position (monthly), including derivative positions, capital positions of the Company and Bank, reviews (including independent reviews) of the investment portfolio of the Bank and Company and the approval of investment transactions.
A typical ALCO meeting includes discussion of current economic conditions and balance sheet and other strategies, including interest rate trends and the current balance sheet and earnings position, comparisons to budget, cash flow estimates, liquidity positions, liquidity stress tests, and funding alternatives as necessary, interest rate risk position (monthly), including derivative positions, capital positions of the Company and Bank, reviews (including independent reviews) of the investment portfolio of the Bank and Company and the approval of investment transactions.
Management believes that the Bank’s target market segments, small and medium-sized for profit and non-profit businesses and the consumer base working or living in and near the Bank’s market area, demand the convenience and personal service that an independent locally based financial institution such as the Bank can offer.
Management believes that the Bank’s target market segments, small, medium and middle-sized for profit and non-profit businesses and the consumer base working or living in and near the Bank’s market area, demand the convenience and personal service that an independent locally based financial institution such as the Bank can offer.
The region also has a very active non-profit sector including trade associations, colleges, universities and major hospitals. Transportation congestion and federal government spending levels remain threats to future economic development and quality of life in the area.
The region also has a very active non-profit sector including trade associations, colleges, universities and major hospitals. Transportation congestion and federal government spending and employment levels remain threats to future economic development and quality of life in the area.
Additionally, under Section 11(c)(5) of the FDIA, a conservator or receiver may be appointed for an institution where: (i) an institution’s obligations exceed its assets; (ii) there is substantial dissipation of the institution’s assets or earnings as a result of any violation of law or any unsafe or unsound practice; (iii) the institution is in an unsafe or unsound condition; (iv) 16 Table of Contents there is a willful violation of a cease-and-desist order; (v) the institution is unable to pay its obligations in the ordinary course of business; (vi) losses or threatened losses deplete all or substantially all of an institution’s capital, and there is no reasonable prospect of becoming “adequately capitalized” without assistance; (vii) there is any violation of law or unsafe or unsound practice or condition that is likely to cause insolvency or substantial dissipation of assets or earnings, weaken the institution’s condition or otherwise seriously prejudice the interests of depositors or the insurance fund; (viii) an institution ceases to be insured; (ix) the institution is undercapitalized and has no reasonable prospect that it will become adequately capitalized, fails to become adequately capitalized when required to do so or fails to submit or materially implement a capital restoration plan; or (x) the institution is critically undercapitalized or otherwise has substantially insufficient capital.
Additionally, under Section 11(c)(5) of the FDIA, a conservator or receiver may be appointed for an institution where: (i) an institution’s obligations exceed its assets; (ii) there is substantial dissipation of the institution’s assets or earnings as a result of any violation of law or any unsafe or unsound practice; (iii) the institution is in an unsafe or unsound condition; (iv) there is a willful violation of a cease-and-desist order; (v) the institution is unable to pay its obligations in the ordinary course of business; (vi) losses or threatened losses deplete all or substantially all of an institution’s capital, and there is no reasonable 14 Table o f Contents prospect of becoming “adequately capitalized” without assistance; (vii) there is any violation of law or unsafe or unsound practice or condition that is likely to cause insolvency or substantial dissipation of assets or earnings, weaken the institution’s condition or otherwise seriously prejudice the interests of depositors or the insurance fund; (viii) an institution ceases to be insured; (ix) the institution is undercapitalized and has no reasonable prospect that it will become adequately capitalized, fails to become adequately capitalized when required to do so or fails to submit or materially implement a capital restoration plan; or (x) the institution is critically undercapitalized or otherwise has substantially insufficient capital.
Landroval Municipal Finance, Inc. focuses on lending to municipalities by buying debt on the public market as well as direct purchase issuance. The Bank operates as a community bank alternative to the super-regional financial institutions, which dominate its primary market area. The cornerstone of the Bank’s philosophy is to provide superior, personalized service to its clients.
Landroval Municipal Finance, Inc. focuses on lending to municipalities by buying debt on the public market as well as direct purchase issuance. The Bank operates as a community bank alternative to the super-regional financial institutions that dominate its primary market area. The cornerstone of the Bank’s philosophy is to provide superior, personalized service to its clients.
In addition, banks that become less than "well-capitalized" under applicable regulatory capital requirements may be restricted in their ability to accept or renew, or prohibited from accepting or renewing, brokered deposits, and less than "well capitalized" banks also are subject to the interest rate restrictions on deposits. Bank Secrecy Act .
Banks that become less than "well-capitalized" under applicable regulatory capital requirements may be restricted in their ability to accept or renew, or prohibited from accepting or renewing, brokered deposits, and less than "well capitalized" banks also are subject to interest rate restrictions on deposits. Bank Secrecy Act .
These themes of convenience and proactive personal service form the basis for the Bank’s business development strategies. Over its twenty-five year history, the Company has grown primarily through organic growth, but also has completed two whole bank acquisitions.
These themes of convenience and proactive personal service form the basis for the Bank’s business development strategies. Over its twenty-six year history, the Company has grown primarily through organic growth, but also has completed two whole bank acquisitions.
Under the rule, the assessment base is the estimated uninsured deposits that an insured depository institution reported in its December 31, 2022 Call Report, excluding the first $5 billion in estimated uninsured deposits. Because the Bank had $4.4 billion in estimated uninsured deposits at December 31, 2022, the special assessment will not affect the Bank.
Under the rule, the assessment base is the estimated uninsured deposits that an insured depository institution reported in its December 31, 2022 Call Report, excluding the first $5 billion in estimated uninsured deposits. Because the Bank had $4.4 billion in estimated uninsured deposits at December 31, 2022, the special assessment will not affect the Bank. Affiliate Transactions .
The Basel III framework, among other things, (i) introduced the concept of common equity tier one capital ("CET1"); (ii) required that most adjustments to regulatory capital measures be made to CET1 and not to the other components of capital; (iii) 14 Table of Contents expanded the scope of the adjustments to capital that may be made as compared to prior regulations; and (iv) specified that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting specified requirements.
The Basel III framework, among other things, (i) introduced the concept of common equity tier one capital ("CET1"); (ii) required that most adjustments to regulatory capital measures be made to CET1 and not to the other components of capital; (iii) expanded the scope of the adjustments to capital that may be made as compared to prior regulations; and (iv) specified that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting specified requirements.
In addition, following the banking sector stress of March 2023, some large banks had advantages in sourcing deposits due to the perceived stability of larger banks. 10 Table of Contents The Bank faces direct competition for loans from each of these institutions described above as well as from on-line lenders and other loan origination firms.
In addition, following the banking sector stress of March 2023, some large banks had advantages in sourcing deposits due to the perceived stability of larger banks. The Bank faces direct competition for loans from each of these institutions described above as well as from on-line lenders and other loan origination firms.
The Bank, a Maryland chartered commercial bank, which is a member of the Federal Reserve System ("Federal Reserve Board," "Federal Reserve" or "FRB"), is the Company’s principal operating subsidiary. It commenced banking operations on July 20, 1998. The Bank currently operates thirteen branch offices: six in Suburban Maryland; four located in the District of Columbia; and three in Northern Virginia.
The Bank, a Maryland chartered commercial bank, which is a member of the Federal Reserve System ("Federal Reserve Board," "Federal Reserve" or "FRB"), is the Company’s principal operating subsidiary. It commenced banking operations on July 20, 1998. The Bank currently operates twelve branch offices: six in Suburban Maryland; three located in the District of Columbia; and three in Northern Virginia.
A subsidiary bank may not extend credit, lease or sell property or furnish any services or fix or vary the consideration for any of the foregoing on the condition that: (i) the customer obtain or provide some additional credit, property or services from or to such bank other than a loan, discount, deposit or trust service; (ii) the customer obtain or provide some additional credit, property or service from or to the Company or any other subsidiary of the Company; or (iii) the customer not obtain some other credit, property or service from competitors, except for reasonable requirements to assure the soundness of credit extended. 13 Table of Contents Branching and Interstate Banking .
A subsidiary bank may not extend credit, lease or sell property or furnish any services or fix or vary the consideration for any of the foregoing on the condition that: (i) the customer obtain or provide some additional credit, property or services from or to such bank other than a loan, discount, deposit or trust service; (ii) the customer obtain or provide some additional credit, property or service from or to the Company or any other subsidiary of the Company; or (iii) the customer not obtain some other credit, property or service from competitors, except for reasonable requirements to assure the soundness of credit extended. 11 Table o f Contents Branching and Interstate Banking .
Risk-based capital requirements assign different capital requirements to various classes of assets and off-balance sheet items based on standardized supervisory measures of risk. The Dodd-Frank Act additionally requires capital requirements to be countercyclical so that the required amount of capital increases in times of economic expansion and decreases in times of economic contraction, consistent with safety and soundness.
Risk-based capital requirements assign different capital requirements to various classes of assets and off-balance sheet items based on standardized supervisory measures of risk. The Dodd-Frank Act additionally requires capital requirements to be counter cyclical so that the required amount of capital increases in times of economic expansion and decreases in times of economic contraction, consistent with safety and soundness.
With certain limited exceptions, a bank holding company is prohibited from acquiring control of any voting shares of any company which is not a bank or bank holding company and from engaging directly or indirectly in any activity other than banking or managing or controlling banks or furnishing services to or performing service for its authorized subsidiaries.
With certain limited exceptions, a bank holding company is prohibited from acquiring control of any voting shares of any company that is not a bank or bank holding company and from engaging directly or indirectly in any activity other than banking or managing or controlling banks or furnishing services to or performing services for its authorized subsidiaries.
With the support of independent third-party experts in this field, we review the compensation of employees and conduct a pay equity analysis as part of our efforts to ensure consistent pay practices. 11 Table of Contents Employee Engagement: We regularly collect feedback to better understand and improve the employee experience and identify opportunities to continually strengthen our culture.
With the support of independent third-party experts in this field, we review the compensation of employees and conduct a pay equity analysis as part of our efforts to ensure consistent pay practices. 9 Table o f Contents Employee Engagement We regularly collect feedback to better understand and improve the employee experience and identify opportunities to continually strengthen our culture.
In our last employee survey, conducted in 2023, nearly 72% of employees participated. We host periodic all-employee conference calls to disseminate information and to respond to employee questions. Learning and Development: We invest in the growth and development of our employees by providing a multi-dimensional approach to learning that is designed to empower, intellectually grow and professionally develop our colleagues.
In our last employee survey, conducted in 2024, nearly 58% of employees participated. We host periodic all-employee conference calls to disseminate information and to respond to employee questions. Learning and Development We invest in the growth and development of our employees by providing a multi-dimensional approach to learning that is designed to empower, intellectually grow and professionally develop our colleagues.
The Bank Secrecy Act requires financial institutions, including banks, to establish anti-money laundering programs, including employee training and independent audit requirements, meet minimum standards specified by the act, follow minimum standards for customer identification and maintenance of customer identification records and regularly compare customer lists against lists of suspected terrorists, terrorist organizations and money launderers.
The Bank Secrecy Act requires financial institutions, including banks, to establish anti-money laundering programs, including employee training and independent audit requirements, meet minimum standards specified by the act, follow minimum standards for customer identification and maintenance of customer identification records and regularly compare customer lists against lists of suspected terrorists, terrorist organizations and money launderers. Office of Foreign Assets Control.
Updated appraisals for real estate secured loans are obtained based on factors relating to borrower financial condition, project status, loan terms and market conditions. The Company’s loan portfolio includes ADC real estate loans including both investment and owner occupied projects. ADC loans amounted to $1.6 billion at December 31, 2023.
Updated appraisals for real estate secured loans are obtained based on factors relating to borrower financial condition, project status, loan terms and market conditions. The Company’s loan portfolio includes ADC real estate loans including both investment and owner occupied projects. ADC loans amounted to $1.8 billion at December 31, 2024.
Although some consolidation has occurred in the market in the past few years, the Bank continues to compete with other community banks, savings and loan associations, credit unions and finance companies, as well as other kinds of financial institutions and enterprises, such as securities firms, insurance companies, savings associations, private lenders and nontraditional competitors such as fintech companies and internet-based lenders, depositories and payment systems.
Although some consolidation has occurred in the market in the past few years, the Bank continues to compete with other community banks, savings and loan associations, credit unions and finance companies, as well as other kinds of financial institutions and enterprises, such as securities firms, 8 Table o f Contents insurance companies, savings associations, private lenders and nontraditional competitors such as fintech companies and internet-based lenders, depositories and payment systems.
These changes also may require significant management attention and resources to make any necessary changes to operations to comply and could have an adverse effect on our business, financial condition and results of operations. Consumer Financial Protection Bureau .
These changes also may require significant management attention and resources to make any necessary changes to operations to comply and could have an adverse effect on our business, financial condition and results of operations.
Any such data provider would also have to make such data available to third parties, with the consumer’s express authorization and through an interface that satisfies formatting, performance and security standards, for the purpose of such third parties providing the consumer with financial products or services requested by the consumer.
Any such data provider is also required to make such data available to third parties, with the consumer’s express authorization and through an interface that satisfies formatting, performance and security standards, for the purpose of such third parties providing the consumer with financial products or services requested by the consumer.
In recent years, federal, state and international lawmakers and regulators have increased their focus on financial institutions’ and other companies’ risk oversight, disclosures and practices in connection with climate change and other environmental, social and governance (“ESG”) matters. For example, on March 21, 2022, the SEC issued a proposed rule on the enhancement and standardization of climate-related disclosures for investors.
In recent years, federal, state and international lawmakers and regulators have increased their focus on financial institutions’ and other companies’ risk oversight, disclosures and practices in connection with climate change and other environmental, social and governance (“ESG”) matters. For example, in March 2024, the SEC issued a final rule on the enhancement and standardization of climate-related disclosures for investors.
A full range of retail banking services are offered to accommodate the individual needs of both corporate customers as well as the community the Bank serves. The Bank also offers online banking, mobile banking and a remote deposit service, which allows clients to facilitate and expedite deposit transactions through the use of electronic devices.
A full range of retail banking services are offered to accommodate the individual needs of both corporate customers as well as the community the Bank serves. The Bank also offers online banking, mobile banking and a remote deposit service, which allows clients to facilitate and expedite deposit transactions through the use of 4 Table o f Contents electronic devices.
The GLB Act enumerates certain activities 12 Table of Contents that are deemed financial in nature, such as underwriting insurance or acting as an insurance principal, agent or broker, underwriting, dealing in or making markets in securities and engaging in merchant banking under certain restrictions.
The GLB Act enumerates certain activities that are deemed financial in nature, such as underwriting insurance or acting as an insurance principal, agent or broker, underwriting, dealing in or making markets in securities and engaging in merchant banking under certain restrictions.
The cumulative amount that is not recognized in regulatory capital will be phased in at 25% per year beginning January 1, 2022. We have elected to adopt the option provided in the March 2020 interim final rule. 15 Table of Contents Prompt Corrective Action .
The cumulative amount that is not recognized in regulatory capital will be phased in at 25% per year beginning January 1, 2022. We have elected to adopt the option provided in the March 2020 interim final rule. 13 Table o f Contents Prompt Corrective Action .
As an institution with over $10 billion in total consolidated assets, the Bank became subject to increased regulation and supervision by the FRB and the FDIC in 2022. As of December 31, 2023, our total assets were $11.7 billion.
As an institution with over $10 billion in total consolidated assets, the Bank became subject to increased regulation and supervision by the FRB and the FDIC in 2022. As of December 31, 2024, our total assets were $11.1 billion.
A complete individual retirement account program is available. The Bank also participates in the IntraFi Network, LLC ("IntraFi") Certificate of Deposit Account Registry Service ("CDARS") and its Insured Cash Sweep ("ICS") program, both of which function to provide greater FDIC insurance coverage for participating Bank customers. The Bank also utilizes brokered deposit funds in its overall asset/liability management program.
The Bank also participates in the IntraFi Network, LLC ("IntraFi") Certificate of Deposit Account Registry Service ("CDARS") and its Insured Cash Sweep ("ICS") program, both of which function to provide greater FDIC insurance coverage for participating Bank customers. The Bank also utilizes brokered deposit funds in its overall asset/liability management program.
Treasury securities, U.S. agency securities, government sponsored enterprise MBS and high grade municipal and corporate securities, with certain exceptions for the purchase of BBB- or non-rated subordinated debentures of U.S. regulated banks following an analysis of credit worthiness.
Treasury securities, U.S. agency securities, government sponsored enterprise 7 Table o f Contents MBS and high grade municipal and corporate securities, with certain exceptions for the purchase of BBB- or non-rated subordinated debentures of U.S. regulated banks following an analysis of credit worthiness.
Prior approval to repurchase or redeem CET1 instruments is only required under the Basel III Rules to the extent that a separate legal or regulatory requirement for prior approval applies, such as the restrictions described under “Share Repurchases” above.
Prior approval to repurchase or 12 Table o f Contents redeem CET1 instruments is only required under the Basel III Rules to the extent that a separate legal or regulatory requirement for prior approval applies, such as the restrictions described under “Share Repurchases” above.
As of December 31, 2023 and 2022, the region had a 2.5% and 3.10% unemployment rate, respectively. The Washington D.C. metropolitan area contains a substantial federal workforce, as well as a variety of support industries that employ professionals such as attorneys, lobbyists, government contractors, real estate developers and investors, non-profit organizations and consultants.
As of November 30, 2024 and 2023, the region had a 3.2% and 2.5% unemployment rate, respectively. The Washington, D.C. metropolitan area contains a substantial federal workforce, as well as a variety of support industries that employ professionals such as attorneys, lobbyists, government contractors, real estate developers and investors, non-profit organizations and consultants.
These changes to the regulatory framework could result in the Bank, among other things, facing higher compliance costs in charging overdraft fees, experiencing a decreased ability to recover amounts extended as overdraft protection, reducing the availability of overdraft protection, and/or charging lower overdraft fees. Fair and Responsible Banking.
Compliance with these new requirements could result in the Bank, among other things, facing higher compliance costs in charging overdraft fees, experiencing a decreased ability to recover amounts extended as overdraft protection, reducing the availability of overdraft protection, and/or charging lower overdraft fees. Fair and Responsible Banking.
The Gross Regional Product ("GRP") for the metropolitan area in 2022 was reported at $660.6 billion, per the Federal Reserve Economic Data. This figure can be heavily attributed to the federal government, but other significant sectors include professional and business services, education, healthcare, leisure and hospitality.
The Gross Regional Product for the metropolitan area in 2023 was reported at $714.7 billion, per the Federal Reserve Economic Data. This figure can be heavily attributed to the federal government, but other significant sectors include professional and business services, education, healthcare, leisure and hospitality.
A portion of the ADC portfolio, both speculative and non-speculative, includes loan funded interest reserves at origination. ADC loans that provide for the use of interest reserves represented approximately 57.6% of the outstanding ADC loan portfolio at December 31, 2023.
A portion of the ADC portfolio, both speculative and non-speculative, includes loan funded interest reserves at origination. ADC loans that provide for the use of interest reserves represented approximately 59% of the outstanding ADC loan portfolio at December 31, 2024.
Failure to comply with these laws and regulations could give rise to regulatory sanctions and actions by the U.S. Department of Justice and state attorneys general. Financial Privacy and Cybersecurity .
Failure to comply with these laws and regulations could give rise to regulatory sanctions and actions by the U.S. Department of Justice and state attorneys general. 15 Table o f Contents Financial Privacy and Cybersecurity .
The DSCR is ordinarily at least 1.0 to 1.15. As part of the underwriting process, DSCRs are stress tested assuming a 200 basis point increase in interest rates from their current levels. Commercial permanent loans generally are underwritten with a term not greater than 10 years or the remaining useful life of the property, whichever is lower.
As part of the underwriting process, DSCRs are generally stress tested assuming a 200 basis point increase in interest rates from their current levels. Commercial permanent loans generally are underwritten with a term not greater than 10 years or the remaining useful life of the property, whichever is lower.
It also authorizes the FRB to determine by regulation what other activities are financial in nature or incidental or complementary thereto. The Company has not elected financial holding company status.
It also 10 Table o f Contents authorizes the FRB to determine by regulation what other activities are financial in nature or incidental or complementary thereto. The Company has not elected financial holding company status.
Construction, land and land development loans represented 77.52% of consolidated risk based capital as of December 31, 2023. Institutions, which are deemed to have concentrations in commercial real estate lending are expected to employ heightened levels of risk management with respect to their commercial real estate portfolios, and may be required to hold higher levels of capital.
Construction, land and land development loans represented 122.60% of consolidated risk based capital as of December 31, 2024. Institutions that are deemed to have concentrations in commercial real estate lending are expected to employ heightened levels of risk management with respect to their commercial real estate portfolios, and may be required to hold higher levels of capital.
In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with regulatory authorities. The Dodd-Frank Act .
In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with regulatory authorities. Consumer Financial Protection Bureau .
At December 31, 2023, owner occupied commercial real estate and construction – commercial and industrial ("C&I") (owner occupied) represented approximately 17% of the loan portfolio while non-owner occupied commercial real estate and real estate construction represented approximately 63% of the loan portfolio. The combined owner and non-owner occupied and commercial real estate loans represented approximately 81% of the loan portfolio.
At December 31, 2024, owner occupied commercial real estate and construction – commercial and industrial ("C&I") (owner occupied) represented approximately 17% of the loan portfolio while non-owner occupied commercial real estate and real estate construction represented approximately 66% of the loan portfolio. The combined owner and non-owner occupied and commercial real estate loans represented approximately 83% of the loan portfolio.
The Bank fully complies with this rule. 20 Table of Contents Affiliate Transactions . The Company and Bank are separate and distinct legal entities, and the Company is an affiliate of the Bank. Federal laws strictly limit the ability of banks to engage in certain transactions with their affiliates.
The Company and Bank are separate and distinct legal entities, and the Company is an affiliate of the Bank. Federal laws strictly limit the ability of banks to engage in certain transactions with their affiliates.
With a population of 6.4 million and projected annualized growth rate of 0.01% through 2029, the region is the 6th largest metropolitan area in the U.S. (U.S. Census Bureau 2022). Total employment in the region is approximately 3.4 million per the 2024 Bureau of Labor Statistics ("BLS") report. The unemployment rate has decreased since 2022.
With a population of 6.4 million and projected annualized growth rate of 0.48% through 2030, the region is the 6th largest metropolitan area in the U.S. (U.S. Census Bureau 2023). Total employment in the region is approximately 3.4 million per the 2025 Bureau of Labor Statistics report. The unemployment rate has increased since 2023.
On October 19, 2023, the CFPB proposed a new rule that would require a provider of payment accounts or products, such as a bank, to make data available to consumers upon request regarding the products or services they obtain from the provider.
In October 2024, the CFPB finalized a new rule that requires a provider of payment accounts or products, such as a bank, to make data available to consumers upon request regarding the products or services they obtain from the provider.
Other deposit services include cash management services, business sweep accounts, lockbox, remote deposit capture, account reconciliation services, merchant card services, safe deposit boxes and Automated Clearing House origination. After-hours depositories and automated teller machine ("ATM") service are also available.
Other deposit services offered by the Bank within our Washington, D.C. metropolitan area market include cash management services, business sweep accounts, lockbox, remote deposit capture, account reconciliation services, merchant card services, safe deposit boxes and Automated Clearing House origination. After-hours depositories and automated teller machine ("ATM") service are also available.
The new rule also includes data collection and reporting requirements, some of which are applicable only to banks with over $10 billion in assets, such as the Bank.
The new rule also includes data collection and reporting requirements, some of which are applicable only to banks with over $10 billion in assets, such as the Bank. Most provisions of the final rule will become effective on January 1, 2026, and the data reporting requirements will become effective on January 1, 2027.
A risk rating system is employed to proactively estimate loss exposure and provide a measuring system for setting general and specific reserve allocations. 5 Table of Contents The composition of the Company’s loan portfolio is heavily weighted toward commercial real estate, both owner occupied and income producing.
Specific loan reserves may be established based upon credit and/or collateral risks on an individual loan basis. A risk rating system is employed to proactively estimate loss exposure and provide a measuring system for setting general and specific reserve allocations. The composition of the Company’s loan portfolio is heavily weighted toward commercial real estate, both owner occupied and income producing.
Our voluntary turnover rate was 12%, 17% and 16%, respectively in 2023, 2022 and 2021. None of our employees are represented by a union or subject to a collective bargaining agreement. Diversity and Inclusion: We strive toward a powerful and diverse team of employees, knowing we are better together with our combined wisdom and intellect.
None of our employees are represented by a union or subject to a collective bargaining agreement. Diversity and Inclusion We strive toward a powerful and inclusive team of employees, knowing we are better together with our combined wisdom and intellect.
As of December 31, 2023, non-owner-occupied commercial real estate loans (including construction, land and land development loans) represented 350.4% of consolidated risk based capital; however, growth in that segment over the past 36 months at 7.0% did not exceed the 50% threshold laid out in the regulatory guidance.
As of December 31, 2024, as per the regulatory guidance, commercial real estate loans (including construction, land and land 16 Table o f Contents development loans) represented 372.6% of consolidated risk based capital; however, growth in that segment over the past 36 months at 26.8% did not exceed the 50% threshold laid out in the regulatory guidance.
The Bank offers a broad range of commercial banking services to its business and professional clients, as well as consumer banking services to individuals living and/or working primarily in the Bank’s market area.
On August 31, 2008, the Company acquired Fidelity & Trust Financial Corporation ("Fidelity") and on October 31, 2014 acquired Virginia Heritage Bank ("Virginia Heritage"). Description of Services. The Bank offers a broad range of commercial banking services to its business and professional clients, as well as consumer banking services to individuals living and/or working primarily in the Bank’s market area.
The changes may also require us to dedicate significant management attention and resources to evaluate and make necessary changes to comply with the new statutory and regulatory requirements. The CFPB has engaged in a number of rulemakings related to residential mortgage transactions.
The changes may also require us to dedicate significant management attention and resources to evaluate and make necessary changes to comply with the new statutory and regulatory requirements.
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 periodically bundles and sells the servicing rights. The Bank's lending activities carry the risk that the borrowers will be unable to perform on their obligations.
The Company securitized these loans through the Government National Mortgage Association ("Ginnie Mae") MBS I program and sold the resulting securities in the open market to authorized dealers in the normal course of business and periodically bundled and sold the servicing rights.
In 2016, the Financial Accounting Standards Board ("FASB") issued the current expected credit losses model ("CECL"), which became applicable to us on January 1, 2020.
The Federal Reserve has indicated that it expects to work with the other federal banking regulators in 2025 on a revised proposal. In 2016, the Financial Accounting Standards Board ("FASB") issued the current expected credit losses model ("CECL"), which became applicable to us on January 1, 2020.
SBA loans are made through programs designed by the federal government to assist the small business community in obtaining financing from financial institutions that are given government guarantees as an incentive to make the loans. Under certain circumstances, the Bank attempts to further mitigate commercial term loan losses by using loan guarantee programs offered by the SBA.
As a preferred lender, the Bank can originate certain SBA loans in-house without prior SBA approval. SBA loans are made through programs designed by the federal government to assist the small business community in obtaining financing from financial institutions that are given government guarantees as an incentive to make the loans.
The proposed rule is intended to give consumers control over their financial data, including with whom it is shared, and encourage competition in the provision of consumer financial products or services.
Data required to be made available under the rule includes transaction information, account balance, account and routing numbers, terms and conditions, upcoming bill information, and certain account verification data. The rule is intended to give consumers control over their financial data, including with whom it is shared, and encourage competition in the provision of consumer financial products or services.
The 2018 Act also adds certain protections for consumers, including veterans and active duty military personnel, expands credit freezes and calls for the creation of an identity theft protection database. 17 Table of Contents In addition, other new proposals for legislation continue to be introduced in the Congress that could further substantially increase regulation of the bank and non-bank financial services industries and impose restrictions on the operations and general ability of firms within the industry to conduct business consistent with historical practices.
Future Legislation and Regulation In addition to the discussion above, other new proposals for legislation continue to be introduced in the Congress that could further substantially increase regulation of the bank and non-bank financial services industries and impose restrictions on the operations and general ability of firms within the industry to conduct business consistent with historical practices.
SBA loans other than Paycheck Protection Program ("PPP") loans are subject to the same cash flow analyses as other commercial loans. SBA loans are subject to a maximum loan size established by the SBA as well as internal loan size guidelines. Refer to Note 4 to the Consolidated Financial Statements for additional information regarding loan origination and risk management.
SBA loans are subject to a maximum loan size established by the SBA as well as internal loan size guidelines. Refer to Note 4 to the Consolidated Financial Statements for additional information regarding loan origination and risk management. Our lending activities are subject to a variety of borrower lending limits imposed by state and federal law.
Residential land ADC loans generally are underwritten with a maximum term of 36 months, including extensions approved at origination. 6 Table of Contents Commercial land acquisition and construction loans are secured by real property where loan funds will be used to acquire land and to construct or improve appropriately zoned real property for the creation of income producing or owner-user commercial properties.
Commercial land acquisition and construction loans are secured by real property where loan funds will be used to acquire land and to construct or improve appropriately zoned real property for the creation of income producing or owner-user commercial properties. Borrowers are generally required to put equity into each project at levels determined by the appropriate loan committee.
The county is also home to public sector employees such as the Loudoun County Schools, County of Loudoun, U.S. Department of Homeland Security and the Postal Service. Effective July 1, 2015, the Bank entered into a multi-faceted support agreement with George Mason University ("George Mason"), the Commonwealth of Virginia’s largest public research university.
Effective July 1, 2015, the Bank entered into a multi-faceted support agreement with George Mason University ("George Mason"), the Commonwealth of Virginia’s largest public research university.
SBA lending is subject to federal legislation that can affect the availability and funding of the program. From time to time, this dependence on legislative funding causes limitations and uncertainties with regard to the continued funding of such programs, which could potentially have an adverse financial impact on our business.
From time to time, this dependence on legislative funding causes limitations and uncertainties with regard to the continued funding of such programs, which could potentially have an adverse financial impact on our business. Up until the second half of 2024, the Company originated multifamily Federal Housing Administration ("FHA") loans through the Department of Housing and Urban Development's Multifamily Accelerated Program.
With a commitment to equality, inclusion and workplace diversity, we focus on understanding, accepting and valuing the differences among people. To accomplish this, we have established a Diversity & Inclusion Advisory Council made up of 18 employee representatives. Women represented 57% of EagleBank’s employees and racial and ethnic minorities represented 65% of EagleBank’s employees as of December 31, 2023.
With a commitment to equality and inclusion for every employee, we focus on understanding, accepting and valuing the differences among people. To accomplish this, we have established a Diversity & Inclusion Advisory Council made up of 20 employee representatives. Compensation and Benefits We provide a competitive compensation and benefits program to help meet the needs of our employees.
The Company made the decision to cease originating residential real estate mortgage loans given the challenged nature of the business and the uncertainty of maintaining or increasing the volume or percentage of revenue or net income that has previously been produced by the residential mortgage business. 4 Table of Contents The Bank emphasizes providing commercial banking services to sole proprietors, small and medium-sized businesses, partnerships, corporations, non-profit organizations and associations and investors living and working in and near the Bank’s primary service area.
The Company made the decision to cease originating residential real estate mortgage loans given the challenged nature of the business and the uncertainty of maintaining or increasing the volume or percentage of revenue or net income that has previously been produced by the residential mortgage business.
Prior to an advance, to justify the draw requisition, the Bank or its contractor inspects the project to determine that the work has been completed. Commercial permanent loans are generally secured by improved real property, which is generating income in the normal course of operation. Debt service coverage, assuming stabilized occupancy, must be satisfactory to support a permanent loan.
Commercial permanent loans are generally secured by improved real property, which is generating income in the normal course of operation. Debt service coverage, assuming stabilized occupancy, must be satisfactory to support a permanent 6 Table o f Contents loan. The DSCR is ordinarily at least 1.0 to 1.15.
Talent Acquisition and Retention: As of December 31, 2023, we employed 452 full and part time employees across our 17 locations, which includes our branch offices, corporate offices and lending and other operating facilities. During 2023, we hired 89 employees and also implemented a reduction-in-force early in the third quarter of 2023 as part of its expense-saving initiatives.
Talent Acquisition and Retention As of December 31, 2024, we employed 451 full and part time employees across our 17 locations, which includes our branch offices, corporate offices and lending and other operating facilities. During 2024, we hired 108 employees. Our voluntary turnover rate was 18%, 12% and 17%, respectively for the years ended December 31, 2024, 2023 and 2022.
Residential development and construction loans will finance projects such as single family subdivisions, planned unit developments, townhouses and condominiums.
Residential development and construction loans will finance projects such as single family subdivisions, planned unit developments, townhouses and condominiums. Residential land ADC loans generally are underwritten with a maximum term of 36 months, including extensions approved at origination.
In originating SBA loans, the Company assumes the risk of non-payment on the unguaranteed portion of the credit. The Company generally sells the guaranteed portion of the loan generating noninterest income from the gains on sale, as well as servicing income on the portion participated.
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 other than Paycheck Protection Program ("PPP") loans are subject to the same cash flow analyses as other commercial loans.
The Bank’s consumer loan portfolio is a smaller portion of the loan portfolio and has historically been comprised generally of two loan types: (i) home equity loans and lines of credit that are structured with an interest only draw period followed either by a balloon maturity or a fully amortized repayment schedule; and, historically, (ii) first lien residential mortgage loans with the intent to sell conforming first trust loans on a servicing released basis to third party investors.
The Bank’s consumer loan portfolio is a smaller portion of the loan portfolio and primarily includes home equity loans and lines of credit that are structured with an interest only draw period followed either by a balloon maturity or a fully amortized repayment schedule. The Bank is also a preferred lender under the Small Business Administration's ("SBA") Preferred Lender Program.
Treasury Department’s Office of Foreign Assets Control ("OFAC"). The OFAC-administered sanctions targeting countries take many different forms.
The United States has imposed economic sanctions that affect transactions with designated foreign countries, foreign nationals and others, which are administered by the U.S. Treasury Department’s Office of Foreign Assets Control ("OFAC"). The OFAC-administered sanctions targeting countries take many different forms.
Further, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. MARKET AREA 8 Table of Contents Listed below are statistics on the primary geographic areas in which the Company operates as published by the U.S. Census Bureau and the Federal Reserve Economic Data.
Further, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. MARKET AREA The primary market area of the Bank is the Washington, D.C. metropolitan area.
Our lending activities are subject to a variety of borrower lending limits imposed by state and federal law. These limits will increase or decrease in response to increases or decreases in the Bank’s level of capital. At December 31, 2023, the Bank had a legal lending limit of $212.0 million.
These limits will increase or decrease in response to increases or decreases in the Bank’s level of capital. At December 31, 2024, the Bank had a legal lending limit of $223.0 million. At December 31, 2024, the average loan size outstanding for Commercial Real Estate ("CRE") and C&I loans was $7.2 million and $1.2 million, respectively.
Real estate also serves as collateral for loans made for other purposes, resulting in 82% of all loans being secured or partially 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.
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 ("LTV") ratio of 80% and a minimum debt service coverage ratio ("DSCR") of 1.0 to 1.15.
Borrowers are generally required to put equity into each project at levels determined by the appropriate loan committee. Commercial land acquisition and construction loans generally are underwritten with a maximum term of 24 months. LTV ratios, with few exceptions, are maintained consistent with or below supervisory guidelines.
Commercial land acquisition and construction loans generally are underwritten with a maximum term of 24 months. LTV ratios, with few exceptions, are maintained consistent with or below supervisory guidelines. Substantially all construction draw requests must be presented in writing on American Institute of Architects documents and certified either by the contractor, the borrower and/or the borrower’s architect.
If a project has not performed as expected, it is not the customary practice of the Company to increase loan funded interest reserves.
If a project has not performed as expected, it is not the customary practice of the Company to increase loan funded interest reserves. As part of its overall risk assessments, management reviews the Bank’s loan portfolio and general economic and market conditions on a regular basis and will continue to adjust both quantitative and qualitative reserve factors as necessary.
The proposed rule would modify or eliminate several long-standing exclusions from requirements generally applicable to consumer credit that previously exempted certain overdraft practices. The proposal would also generally require banks to restructure many overdraft fees, overdraft lines of credit, and other overdraft practices as separate consumer credit accounts that would be subject to those requirements.
The rule generally requires banks to restructure many overdraft fees, overdraft lines of credit, and other overdraft practices as separate consumer credit accounts that would be subject to those requirements. This rule applies to banks with over $10 billion in total assets, including the Bank, starting in October 2025.
The Company is also an active traditional commercial lender providing loans for a variety of purposes, including working capital, equipment and accounts receivable financing. The Company's underwriting standards address collateral and debt service cash flow. Personal guarantees are generally required, but may be limited.
The Company's underwriting standards address collateral and debt service cash flow. Personal guarantees are generally required, but may be limited. In originating SBA loans, the Company assumes the risk of non-payment on the unguaranteed portion of the credit.
Substantially all construction draw requests must be presented in writing on American Institute of Architects documents and certified either by the contractor, the borrower and/or the borrower’s architect. The Company's policies also provide that each draw request shall also include the borrower’s soft cost breakdown certified by the borrower or their Chief Financial Officer.
The Company's policies also provide that each draw request shall also include the borrower’s soft cost breakdown certified by the borrower or their Chief Financial Officer. Prior to an advance, to justify the draw requisition, the Bank or its contractor inspects the project to determine that the work has been completed.
As part of its overall risk assessments, management reviews the Bank’s loan portfolio and general economic and market conditions on a regular basis and will continue to adjust both quantitative and qualitative reserve factors as necessary. 7 Table of Contents Deposit services include business and personal checking accounts, Negotiable Order of Withdrawal ("NOW") accounts, tiered savings and money market accounts and time deposits with varying maturity structures and customer options.
Deposit services include business and personal checking accounts, Negotiable Order of Withdrawal ("NOW") accounts, tiered savings and money market accounts and time deposits with varying maturity structures and customer options. A complete individual retirement account program is available.
Most provisions of the final rule will become effective on January 1, 2026, and the data reporting requirements will become effective on January 1, 2027. 19 Table of Contents Concentration and Risk Guidance. The federal banking regulatory agencies promulgated joint interagency guidance regarding material direct and indirect asset and funding concentrations.
However, the final rule is currently enjoined as to the plaintiff trade associations while a federal court considers a lawsuit challenging the rule. Concentration and Risk Guidance. The federal banking regulatory agencies promulgated joint interagency guidance regarding material direct and indirect asset and funding concentrations.
Removed
On August 31, 2008, the Company acquired Fidelity & Trust Financial Corporation ("Fidelity") and on October 31, 2014 acquired Virginia Heritage Bank ("Virginia Heritage"). Refer to Note 7 to the Consolidated Financial Statements for additional disclosure regarding intangible assets established related to mergers and acquisitions. Description of Services.
Added
The Bank emphasizes providing commercial banking services to sole proprietors, small, medium and middle-sized businesses, partnerships, corporations, non-profit organizations and associations and investors generally living and working in and near the Bank’s primary service area.
Removed
The Company completed the cessation and residual origination and sales activities of first lien residential mortgage origination for secondary sale during the year ended December 31, 2023. The Bank is also a preferred lender under the Small Business Administration's ("SBA") Preferred Lender Program. As a preferred lender, the Bank can originate certain SBA loans in-house without prior SBA approval.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOperational risks that may have an adverse effect on our operations, include (i) risks related to our work productivity; (ii) increased spending on our business continuity efforts; (iii) increased strain on certain risk management practices, including, but not limited to, the effectiveness and accuracy of our models, given the potential lack of data inputs and comparable precedent; (iv) risks related to the effectiveness of our anti-money laundering and other compliance programs; (v) increased cybersecurity risk due to the current hybrid work model in which certain employees split time between working at the office and working remotely, as a result of the technology in the employees’ homes which may not be as robust as in our offices and could cause the networks, information systems, applications, and other tools available to employees to be more limited or less reliable than in our offices; and (vi) risks related to our efforts to provide banking services through digital channels.
Biggest changeOperational risks that may have an adverse effect on our operations, include (i) risks related to our work productivity; (ii) increased spending on our business continuity efforts; (iii) increased strain on certain risk management practices, including, but not limited to, the effectiveness and accuracy of our models, given the potential lack of data inputs and comparable precedent; (iv) risks related to the effectiveness of our anti-money laundering and other compliance programs; (v) increased cybersecurity risk due to, among other things, the increased connectivity of third parties and electronic devices to our systems, hybrid work arrangements and new technologies, such as artificial intelligence; (vi) risks related to our efforts to provide banking services through digital channels; and (vii) operational disruptions at our third-party service providers.
While the Company and Bank carry insurance to protect us from material outlays (excluding regulatory fees and penalties), such insurance may not always fully or even substantially cover such outlays. The Company maintains director and officer insurance policies (“D&O Insurance Policies”) that provide coverage for the legal defense costs.
While the Company and Bank carry insurance to protect us from material outlays (excluding regulatory fees and penalties), such insurance may not always fully or even substantially cover such outlays. The Company maintains director and officer insurance policies (“D&O Insurance Policies”) that provide coverage for legal defense costs.
Economic weaknesses, sustained elevated inflation, challenging business conditions, the implementation of hybrid work arrangements and other changes in business operating practices, market disruptions, adverse economic or market events, rising interest or capitalization rates, declining asset prices, greater volatility in areas where we have concentrated credit risk or deterioration in real estate values or household incomes may cause us to experience a decrease in cash flow and higher credit losses in our portfolios or cause us to write down the value of certain assets.
Economic weaknesses, sustained elevated inflation, challenging business conditions, the implementation or persistence of hybrid work arrangements and other changes in business operating practices, market disruptions, adverse economic or market events, rising interest or capitalization rates, declining asset prices, greater volatility in areas where we have concentrated credit risk or deterioration in real estate values or household incomes may cause us to experience a decrease in cash flow and higher credit losses in our portfolios or cause us to write down the value of certain assets.
Temporary layoffs, staffing freezes, salary reductions or furloughs of government employees or government contractors and other impacts from declining government spending, lapses in appropriations, or changes in fiscal appropriations could have adverse impacts on other businesses in the Company’s market and the general economy of the greater Washington, D.C. metropolitan area and may indirectly lead to a loss of revenues by the Company’s customers, including vendors and lessors to the federal government and government contractors or to their employees, as well as a wide variety of commercial and retail businesses.
Layoffs, staffing freezes, salary reductions or furloughs of government employees or government contractors and other impacts from declining government spending, lapses in appropriations, or changes in fiscal appropriations could have adverse impacts on other businesses in the Company’s market and the general economy of the greater Washington, D.C. metropolitan area and may indirectly lead to a loss of revenues by the Company’s customers, including vendors and lessors to the federal government and government contractors or to their employees, as well as a wide variety of commercial and retail businesses.
The Company and Bank are subject to regulation and supervision by the Federal Reserve and the FDIC, as well as our state regulator. We are subject to U.S. regulatory capital rules, and banking regulators have broad authority to determine whether we are operating in safe and sound manner, including with respect to liquidity risk management and asset quality.
The Company and Bank are subject to regulation and supervision by the Federal Reserve and the FDIC, as well as our state regulator. We are subject to U.S. regulatory capital rules, and banking regulators have broad authority to determine whether we are operating in a safe and sound manner, including with respect to liquidity risk management and asset quality.
Our investment securities portfolio is classified as either “available-for-sale” securities, which are marked to market on a recurring basis and recorded at fair value with unrealized gains or losses reported in accumulated other comprehensive income, or “held-to-maturity” securities, which are recorded at amortized cost less any associated ACL.
Our investment securities portfolio is classified as either “available-for-sale” securities, which are marked to market on a recurring basis and recorded at fair value with unrealized gains or losses reported in accumulated other comprehensive income (loss), or “held-to-maturity” securities, which are recorded at amortized cost less any associated ACL.
Any such legal or regulatory actions may subject us to substantial compensatory or punitive damages, significant fines, penalties, obligations to change our business practices, required changes in our senior officers or other requirements resulting in increased expenses, diminished income and damage to our business.
Any such legal or regulatory actions or investigations may subject us to substantial compensatory or punitive damages, significant fines, penalties, obligations to change our business practices, required changes in our senior officers or other requirements resulting in increased expenses, diminished income and damage to our business.
Moreover, as our asset size, loan portfolio and earnings increase, it may become more difficult to maintain the levels and performance achieved and continue to grow in the future. Additionally, it may become more difficult to maintain or achieve improvements in our expense levels and efficiency ratio.
Moreover, as our asset size, and loan portfolio increase, it may become more difficult to maintain the levels of performance and earnings achieved and to continue to grow in the future. Additionally, it may become more difficult to maintain or achieve improvements in our expense levels and efficiency ratio.
Additionally, we also from time to time receive demand letters from shareholders, and such letters may lead to these shareholders filing claims or derivative suits against us if our engagement with such shareholders ends in a failure to successfully negotiate a settlement.
Additionally, from time to time we receive demand letters from shareholders, and such letters may lead to these shareholders filing claims or derivative suits against us if our engagement with such shareholders ends in a failure to successfully negotiate a settlement.
The Company has incurred and may incur in the future in connection with current ongoing and any potential future investigations and legal proceedings, as they are dependent on various factors, many of which are outside of the Company’s control.
The Company has incurred and may incur in the future legal costs in connection with current ongoing and any potential future investigations and legal proceedings, as they are dependent on various factors, many of which are outside of the Company’s control.
Our ability to pay a cash dividend on our common stock, to repurchase shares of our common stock or to pay interest on our subordinated debt will depend largely upon the ability of the Bank, the Company’s principal operating business, to declare and pay dividends to the Company.
Our ability to pay a cash dividend on our common stock, to repurchase shares of our common stock or to pay interest on our debt will depend largely upon the ability of the Bank, the Company’s principal operating business, to declare and pay dividends to the Company.
Our ability to accurately forecast future losses under this methodology may be impaired by significant uncertainties: • Uncertainties surrounding rapid increases in inflation and interest rates, which have disrupted financial markets and adversely affected commercial real estate and other sectors in the economy. • Uncertainties related to the identification of the appropriate economic indicators. • Uncertainties related to the data utilized to build models and draw assumptions. • Uncertainties and limitations related to the different sources of data: internal data, peer data, market data, macroeconomic data, geopolitical data, etc. • Uncertainties related to the need to make difficult and complex judgments that are often interrelated.
Our ability to accurately forecast future losses under this methodology may be impaired by significant uncertainties: • Uncertainties surrounding volatility in inflation and interest rates, which have disrupted financial markets and adversely affected commercial real estate and other sectors in the economy. • Uncertainties related to the identification of the appropriate economic indicators. • Uncertainties related to the data utilized to build models and draw assumptions. • Uncertainties and limitations related to the different sources of data: internal data, peer data, market data, macroeconomic data, geopolitical data, etc. • Uncertainties related to the need to make difficult and complex judgments that are often interrelated.
If earnings do not meet our current estimates, if we incur unanticipated losses or expenses, if we grow faster than expected or if our capital position and capital planning do not meet supervisory expectations, we may need to obtain additional capital sooner than expected or we may be 25 Table of Contents required to reduce our level of assets or reduce or suspend dividends or stock repurchases (if restarted) or refrain from pursuing growth opportunities we may otherwise consider attractive.
If earnings do not meet our current estimates, if we incur unanticipated losses or expenses, if we grow faster than expected or if our capital position and capital planning do not meet supervisory expectations, we may need to obtain additional capital sooner than expected or we may be required to reduce our level of assets or reduce or suspend dividends or stock repurchases (if restarted) or refrain from pursuing growth opportunities we may otherwise consider attractive.
These factors include the competitive effects of the proposal in the relevant geographic markets; the financial and managerial resources and 27 Table of Contents future prospects of the companies and banks involved in the transaction; the effect of the transaction on the financial stability of the United States; the organizations' compliance with anti-money laundering laws and regulations; the convenience and needs of the communities to be served; and the records of performance under the CRA of the insured depository institutions involved in the transaction.
These factors include the competitive effects of the proposal in the relevant geographic markets; the financial and managerial resources and future prospects of the companies and banks involved in the transaction; the effect of the transaction on the financial stability of the United States; the organizations' compliance with anti-money laundering laws and regulations; the convenience and needs of the communities to be served; and the records of performance under the CRA of the insured depository institutions involved in the transaction.
In addition, the rapid dissemination of negative information through social media, in part, is believed to have led to the collapse of SVB. SVB suffered a level of deposit withdrawals within a time period not previously experienced by a bank.
In addition, the rapid dissemination of negative information through social media, in part, is believed to have accelerated the collapse of SVB. SVB suffered a level of deposit withdrawals within a time period not previously experienced by a bank.
Our profitability depends upon our continued ability to successfully compete with traditional and new financial services providers, some of which maintain a physical presence in our market areas and others of which maintain only 29 Table of Contents a virtual presence. Many competitors have substantially greater resources than us, and some operate under less stringent regulatory environments.
Our profitability depends upon our continued ability to successfully compete with traditional and new financial services providers, some of which maintain a physical presence in our market areas and others of which maintain only a virtual presence. Many competitors have substantially greater resources than us, and some operate under less stringent regulatory environments.
Additionally, if we raise additional capital by making additional offerings of debt or preferred equity securities, upon liquidation of the Company, holders of our debt securities and shares of preferred stock and 31 Table of Contents lenders with respect to other borrowings will receive distributions of our available assets prior to the holders of our common stock.
Additionally, if we raise additional capital by making additional offerings of debt or preferred equity securities, upon liquidation of the Company, holders of our debt securities and shares of preferred stock and lenders with respect to other borrowings will receive distributions of our available assets prior to the holders of our common stock.
The Company employs an earnings simulation model (immediate parallel shifts along the yield curve) on a quarterly basis to monitor its interest rate sensitivity and risk and to model its balance sheet cash flows and the related income statement effects in different interest rate scenarios.
The Company employs an earnings simulation model (immediate parallel shifts along the yield curve) on a quarterly basis to monitor its interest rate sensitivity and risk and to model its balance sheet, cash flows and the related statement of operations effects in different interest rate scenarios.
At December 31, 2023, we had approximately $2.8 billion of deposits, or 31% of our total deposits, in excess of the maximum FDIC insurance coverage limits. Deposits make up a significant source of financing for our investment strategy and funding for our operations. Customers who have uninsured deposits with us could present a heightened risk of withdrawal.
At December 31, 2024, we had approximately $2.2 billion of deposits, or 24% of our total deposits, in excess of the maximum FDIC insurance coverage limits. Deposits make up a significant source of financing for our investment strategy and funding for our operations. Customers who have uninsured deposits with us could present a heightened risk of withdrawal.
Any failure to maintain effective controls, to timely implement any necessary improvement to our internal and disclosure controls or to effect remediation of any material weakness or significant deficiency could, among other things, result in losses from fraud or error, harm our reputation or cause investors to lose confidence in our reported financial information, all of which could have a material adverse effect on our results of operations, financial condition or stock price.
Any failure to maintain effective controls, to timely implement any necessary improvement to our internal and disclosure controls or to effect remediation of any material weakness or significant deficiency could, among other things, result 23 Table o f Contents in losses from fraud or error, harm our reputation or cause investors to lose confidence in our reported financial information, all of which could have a material adverse effect on our results of operations, financial condition or stock price.
Checking and savings account balances and other forms of customer deposits may decrease when customers perceive other investment opportunities, such as stocks, bonds, or money market mutual funds, as providing a better risk/return tradeoff.
Checking and savings account balances and other forms of customer deposits may decrease when customers perceive other investment opportunities, such as stocks, bonds, or money market mutual funds, as providing a better risk/return trade-off.
Additionally, if, for any reason, economic conditions in our market area deteriorate, commercial real estate values, in particular for offices, decline further, or there is significant volatility or weakness in the economy or any significant sector of the area’s economy, our ability to develop our business relationships may be diminished, the quality and collectability of our loans may be adversely affected, the value of collateral may decline and loan demand may be reduced.
Additionally, if, for any reason, economic conditions in our market area deteriorate, commercial real estate values, in particular for offices, decline further, or there is significant volatility or weakness in the economy or any significant sector of the area’s economy, our ability to develop our business relationships may be diminished, 24 Table o f Contents the quality and collectability of our loans may be adversely affected, the value of collateral may decline and loan demand may be reduced.
Our concentration of large depositors may increase our liquidity risk and have an adverse effect on our results of operations. While no single depositor represented more than 10% of total deposits at December 31, 2023, our ten largest depositors not associated with brokered pass-through relationships represented approximately 22% of total deposits.
Our concentration of large depositors may increase our liquidity risk and have an adverse effect on our results of operations. While no single depositor represented more than 10% of total deposits at December 31, 2024, our ten largest depositors not associated with brokered pass-through relationships represented approximately 23% of total deposits.
A large portion of our loan portfolio is related to real estate, with 80% consisting of commercial real estate and real estate construction secured by commercial real estate.
A large portion of our loan portfolio is related to real estate, with 83% consisting of commercial real estate and real estate construction secured by commercial real estate.
We depend on the use of data and modeling in both management’s decision-making, generally, and in meeting regulatory expectations, in particular. The use of statistical and quantitative models and other quantitatively-based analyses is endemic to bank decision-making and regulatory compliance processes and the employment of such analyses is becoming increasingly widespread in our operations.
We depend on the use of data and modeling in both management’s decision-making, generally, and in meeting regulatory expectations, in particular. The use of statistical and quantitative models and other quantitatively-based analyses is endemic to bank decision-making and regulatory compliance processes and the employment of such analyses is common in our operations.
Reputation risk, or the risk to our business, liquidity, funding mix, earnings and financial capital from negative public opinion, adverse publicity or negative information is inherent in our business and has increased substantially due to the interconnected global network which facilitates instant access and instantaneous transmission and communication of information, which may include misinformation, of actual or alleged conduct related to any number of activities or circumstances by the Bank, our directors, our officers, our employees and/or third parties.
Reputation risk, or the risk to our business, liquidity, funding mix, earnings and financial capital from negative public opinion, adverse publicity or negative information is inherent in our business and has increased substantially due to the instant access and instantaneous transmission and communication of information, which may include misinformation, including regarding actual or alleged conduct related to any number of activities or circumstances by the Bank, our directors, our officers, our employees and/or third parties.
Our failure to comply with any applicable laws or regulations or regulatory policies and interpretations of such laws and regulations, or our failure to meet supervisory expectations, could result in sanctions by regulatory agencies, civil money penalties or damage to our reputation, all of which could have a material adverse effect on our business, financial condition and results of operations.
Our failure to comply with any applicable laws or regulations or regulatory policies and interpretations of such laws and regulations, or our failure to meet supervisory expectations, could result in sanctions by 29 Table o f Contents regulatory agencies, civil money penalties or damage to our reputation, all of which could have a material adverse effect on our business, financial condition and results of operations.
Our ability to raise additional financing depends on conditions in the capital markets, economic conditions and a number of other factors, including investor perceptions regarding the banking industry, market conditions and governmental activities and on our financial condition and performance. Accordingly, we may be unable to raise additional financing if needed or on acceptable terms.
Our ability to raise additional financing depends on conditions in the capital markets, economic conditions and a number of other factors, including investor perceptions regarding the banking industry, market conditions and governmental 20 Table o f Contents activities and on our financial condition and performance. Accordingly, we may be unable to raise additional financing if needed or on acceptable terms.
While the Company does not have a significant level of loans to federal government contractors or their subcontractors, which as of December 31, 2023 was $267.4 million, or 3.4% of our loan portfolio, the impact of a shutdown of federal government operations, a decline in federal government spending, a reallocation of government spending to different industries or different areas of the country or a delay in payments to such contractors, whether as a result of a government shutdown or otherwise, could have a ripple effect and adversely affect our results of operations and financial condition, including asset quality, financial capital and liquidity levels.
While the Company does not have a significant level of loans to federal government contractors or their subcontractors, which as of December 31, 2024 was $251.9 million, or 3.2% of our loan portfolio, the impact of a shutdown of federal government operations, a decline in federal government spending or workforce, a reallocation of government spending to different industries or different areas of the country or a delay in payments to such contractors, whether as a result of a government shutdown or otherwise, could have a ripple effect and adversely affect our results of operations and financial condition, including asset quality, financial capital and liquidity levels.
As economic conditions change, we may have to increase our allowance, which could adversely affect our results of operations, earnings, and financial condition. We are subject to operational risks in connection with our employees and our technology that may adversely impact our business. Risk to our operations is inherent in our business.
As economic conditions change, we may have to increase our allowance, which could adversely affect our results of operations, earnings and financial condition. 19 Table o f Contents We are subject to operational risks in connection with our employees and our technology that may adversely impact our business. Risk to our operations is inherent in our business.
The loss of service of one or more of these key personnel could reduce the Company’s ability to successfully implement its long-term business strategy, our business could suffer and the value of the Company’s common stock could be materially adversely affected.
The loss of service of one or more of these key personnel could reduce the Company’s ability to successfully implement its long-term business strategy, our business could suffer and the value of the Company’s common stock could be 27 Table o f Contents materially adversely affected.
In addition to those described in “Caution About Forward Looking Statements,” these factors include: • Actual or anticipated quarterly fluctuations in our operating results and financial condition; • Changes in financial estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to us or other financial institutions; • Reports in the press, internet or investment community generally or relating to our reputation or the financial services industry, whether or not those reports are based on accurate, complete or transparent information; • Uncertainties related to our regulatory relationships or status; • Strategic actions by us or our competitors, such as acquisitions, restructurings, dispositions or financings; • Fluctuations in the stock price and operating results of our competitors, or the financial services industry; • Future sales of our equity or equity-related securities; • Proposed or adopted regulatory changes or developments; • Domestic and international economic and political factors unrelated to our performance; • Actions of one or more investors in selling our common stock short; and • General market conditions and, in particular, developments related to market conditions for the financial services industry, inclusive of the potential adverse impact from: ▪ Terrorism, and current or anticipated military conflicts and other geopolitical events; ▪ Catastrophic events, including natural disasters, and public health crises.
In addition to those described in “Caution About Forward Looking Statements,” these factors include: • Actual or anticipated quarterly fluctuations in our operating results and financial condition; • Changes in financial estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to us or other financial institutions; • Reports in the press, internet or investment community generally or relating to our reputation or the financial services industry, whether or not those reports are based on accurate, complete or transparent information; • Uncertainties related to our regulatory relationships or status; • Strategic actions by us or our competitors, such as acquisitions, restructurings, dispositions or financings; • Fluctuations in the stock price and operating results of our competitors, or the financial services industry; • Future sales of our equity or equity-related securities; • Proposed or adopted regulatory changes or developments; • Domestic and international economic and political factors unrelated to our performance, including political uncertainty in the United States and its effect on the economy of the Washington, D.C. metropolitan area; • Actions of one or more investors in selling our common stock short; and • General market conditions and, in particular, developments related to market conditions for the financial services industry, inclusive of the potential adverse impact from: ▪ Terrorism, and current or anticipated military conflicts and other geopolitical events; ▪ Catastrophic events, including natural disasters, and public health crises. 32 Table o f Contents In addition, the stock market in general has experienced price and volume fluctuations.
As such, the Company's analysis, assuming a static balance sheet, decreases of approximately (0.4)% and (0.9)%, respectively, in projected net interest income and net income over a twelve month period resulting from an instantaneous 100 basis point increase in rates across the yield curve.
As such, the Company's analysis, assuming a static balance sheet, projects decreases of approximately (0.7)% and (1.5)%, respectively, in projected net interest income and net income over a twelve month period resulting from an instantaneous 100 basis point increase in rates across the yield curve.
We may need to raise additional financing in the future to provide sufficient funding to meet our commitments and business needs. In conjunction with any changes to our capital, we must meet certain regulatory capital requirements and maintain sufficient liquidity, including the requirement that we maintain our status as a well-capitalized institution.
We may need to raise additional financing in the future to provide sufficient funding to meet regulatory requirements, supervisory expectations or business needs. In conjunction with any changes to our capital, we must meet certain regulatory capital requirements and maintain sufficient liquidity, including to maintain our status as a well-capitalized institution.
In addition, the stock market in general has experienced price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies, including for reasons unrelated to their operating performance. These broad market fluctuations may adversely affect our stock price, notwithstanding our operating results.
This volatility has had a significant effect on the market price of securities issued by many companies, including for reasons unrelated to their operating performance. These broad market fluctuations may adversely affect our stock price, notwithstanding our operating results.
We are also, from time to time, the subject of subpoenas, requests for information, reviews, investigations and proceedings (both formal and informal) by various agencies and other bodies regarding our current and/or prior business activities.
We are also continually the subject of exams, subpoenas, requests for information, reviews, investigations and proceedings (both formal and informal) by various agencies and other bodies regarding our current and/or prior business activities.
In March 2023, SVB and Signature Bank, which had elevated concentrations of uninsured deposits, experienced large deposit outflows, resulting in the institutions being placed into FDIC receiverships. The collapse of these banking institutions sparked a panic which resulted in many banks, including us, experiencing deposit outflows and changes in deposit composition.
For example, in March 2023, SVB and Signature Bank, which had elevated concentrations of uninsured deposits, experienced large deposit outflows, resulting in the institutions being placed into 22 Table o f Contents FDIC receiverships. The collapse of these banking institutions sparked a panic that resulted in many banks, including us, experiencing deposit outflows and changes in deposit composition.
Damages to real estate underlying mortgage loans or real estate collateral and declines in economic conditions in geographic 30 Table of Contents markets in which the Company’s customers operate may impact our customers’ ability to repay loans or maintain deposits due to climate change effects, which could increase our delinquency rates and average credit loss.
Damages to real estate underlying mortgage loans or real estate collateral, declines in economic conditions in geographic markets in which the Company’s customers operate and increased premiums for and reduced availability of insurance may impact our customers’ ability to repay loans or maintain deposits due to climate change effects, which could increase our delinquency rates and average credit loss.
Our ability to generate loan portfolio growth has been and may continue to be negatively impacted based on the adverse economic effects due to the increase in interest rates, rate of inflation, banking industry stresses and the heightened competition in the Bank’s market area.
Our ability to generate loan portfolio growth has been and may continue to be negatively impacted based on our ability to source deposit funding and lending opportunities, the adverse economic effects due to the levels of interest rates and inflation, banking industry stresses and the heightened competition in the Bank’s market area.
We rely upon independent appraisers at the time of origination to estimate the value of such real estate. Appraisals are only estimates of value, and the soundness of those estimates may be affected by volatility in the real estate market or other changes in market conditions.
A significant portion of our loan portfolio consists of loans secured by real estate. We rely upon independent appraisers at the time of origination to estimate the value of such real estate. Appraisals are only estimates of value, and the soundness of those estimates may be affected by volatility in the real estate market or other changes in market conditions.
Increased market volatility and changes in financial or capital market conditions may be further impacted by energy prices, commercial property values, residential property values, consumer spending, bankruptcies, employment levels, labor shortages, wage inflation, and supply chain disruptions.
Increased market volatility and changes in financial or capital market conditions may be further impacted by energy prices, commercial 18 Table o f Contents property values, residential property values, consumer spending, bankruptcies, employment levels, labor shortages, changes in immigration policy, tariffs and changes in trade policy, wage inflation and supply chain disruptions.
A breach or interruption of information security or cyber-related threats could negatively affect our business, financial condition or earnings. We rely heavily on communications and information systems to conduct our business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan and other systems.
We rely heavily on communications and information systems to conduct our business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan and other systems.
Liquidity stress testing, interest rate sensitivity analysis, allowance for credit loss measurement, portfolio stress testing, assessing capital adequacy and the identification of possible violations of anti-money laundering regulations are examples of areas in which we are dependent on models and the data that underlies them. We anticipate that model-derived insights will be used more widely in decision-making in the future.
Liquidity stress testing, interest rate sensitivity analysis, allowance for credit loss measurement, portfolio stress testing, assessing capital adequacy and the identification of possible violations of anti-money laundering regulations are examples of areas in which we are dependent on models and the data that underlies them.
While we have not incurred any material losses related to cyber-attacks, we may incur substantial costs and suffer other negative consequences if we fall victim to successful cyber-attacks.
While we have not incurred any material losses related to cyber-attacks, we may incur substantial costs and suffer other negative consequences as a result of successful cyber-attacks.
The banking industry is highly regulated and supervised under federal and state laws and regulations that are intended primarily for the protection of depositors, customers, the public, the banking industry as a whole, or the FDIC deposit insurance fund (“DIF”).
This may result in an inability to provide returns to our shareholders. The banking industry is highly regulated and supervised under federal and state laws and regulations that are intended primarily for the protection of depositors, customers, the public, the banking industry as a whole or the FDIC deposit insurance fund (“DIF”).
We may not be able to maintain the relatively low levels of nonperforming assets that we have experienced to date.
We may not be able to achieve or maintain the relatively low levels of nonperforming assets that we have generally experienced prior to 2024.
The occurrence of any failures, interruptions or security breaches of our information systems could damage our reputation, adversely affect customer or investor confidence, result in a loss of customer business, subject us to additional regulatory scrutiny and possible regulatory penalties or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.
The occurrence of any failures, interruptions or security breaches of our information systems could damage our reputation, adversely affect customer or investor confidence, result in a loss of customer business, subject us to additional regulatory scrutiny and possible regulatory penalties or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations. 31 Table o f Contents Failure to keep up with the rapid technological changes in the financial services industry could have a material adverse effect on our competitive position and profitability.
RISKS RELATED TO THE USE OF TECHNOLOGY Our operations, including our transactions with customers, are increasingly conducted via electronic means, and this has increased risks related to cybersecurity. We are exposed to the risk of cyber-attacks in the normal course of business. In addition, we are exposed to cyber-attacks on vendors and merchants that affect us and our customers.
RISKS RELATED TO THE USE OF TECHNOLOGY Our operations, including our transactions with customers and the services we receive from third parties, are increasingly conducted via electronic means, and this has increased risks related to cybersecurity. We are exposed to the risk of cyber-attacks in the normal course of business.
At December 31, 2023, 82% of our loans were secured or partially secured by real estate, primarily commercial real estate. Of these loans, $1.1 billion, or 14% of portfolio loans, were land, land development and construction loans. An additional $1.5 billion, or 18% of portfolio loans, were commercial and industrial loans, which are generally not secured by real estate.
At December 31, 2024, 85% of our loans were secured or partially secured by real estate, primarily commercial real estate. Of these loans, $1.3 billion, or 16% of portfolio loans, were land, land development and construction loans. An additional $1.2 billion, or 15% of portfolio loans, were commercial and industrial loans, which are generally not secured by real estate.
Our business requires the collection and retention of large volumes of customer data, including personally identifiable information ("PII") in various information systems that we maintain and in those maintained by third party service providers.
Our business requires the collection and retention of large volumes of customer data, including personally identifiable information ("PII") in various information systems that we maintain and in those maintained by third party service providers. We also maintain important internal company data such as PII about our employees and information relating to our operations.
At December 31, 2023, $949.0 million, or 12% of the total loan portfolio, comprised commercial real estate loans collateralized by office properties.
At December 31, 2024, $871 million, or 11% of the total loan portfolio, comprised commercial real estate loans collateralized by office properties.
The COVID-19 pandemic has led to significant changes in working arrangements that have impacted and could continue to impact the performance of some of the office properties within our commercial real estate portfolio. Hybrid work arrangements, flexible work schedules, open workplaces and teleconferencing have become increasingly common. These practices enable businesses to reduce their office space requirements.
The impact of the COVID-19 pandemic is still being felt due to the significant changes in working arrangements that have impacted and could continue to impact the performance of some of the office properties within our commercial real estate portfolio. Hybrid work arrangements, flexible work schedules, open workplaces and teleconferencing have become increasingly common.
We use a credit reserving methodology known as the CECL methodology. The provision for credit losses represents management’s estimate of expected credit losses on our portfolio and is recorded in the ACL on our loan portfolio.
The provision for credit losses represents management’s estimate of expected credit losses on our portfolio and is recorded in the ACL on our loan portfolio.
Meeting supervisory expectations or any new regulatory requirements relating to liquidity risk management generally or uninsured deposits in particular could require us to seek to change our funding sources or the size and composition of our balance sheet, to incur higher expenses or to make other changes that adversely affect our net interest income and net interest margin.
Meeting supervisory expectations or any new regulatory requirements relating to liquidity risk management generally or uninsured deposits in particular could require us to seek to change our funding sources or the size and composition of our balance sheet, to incur higher expenses or to make other changes that adversely affect our net interest income and net interest margin. 21 Table o f Contents Our inability to comply with capital and other regulatory requirements would have an adverse impact on our business, financial condition and results of operations.
These factors include, but are not limited to, market conditions, instability in the credit markets, rating agency downgrades of the securities, lack of market pricing of the securities, defaults of the issuers of the securities and issuer impairments.
In pricing the AFS securities portfolio, a variety of factors beyond our control may significantly influence the fair values of these securities. These factors include, but are not limited to, market conditions, instability in the credit markets, rating agency downgrades of the securities, lack of market pricing of the securities, defaults of the issuers of the securities and issuer impairments.
The Washington, D.C. metropolitan area is characterized by a significant number of businesses that are federal government contractors or subcontractors, or which depend on such businesses for a significant portion of their revenues.
These announcements could have an adverse effect on the economy of the Washington, D.C. metropolitan area, which in turn could adversely affect the Company. The Washington, D.C. metropolitan area is characterized by a significant number of businesses that are federal government contractors or subcontractors, or which depend on such businesses for a significant portion of their revenues.
We also maintain important internal company data such as PII about our employees and information relating to our operations. 33 Table of Contents We are subject to complex and evolving laws and regulations governing the privacy and protection of PII of individuals (including customers, employees and other third parties), as well as planning for responding to data security breaches.
We are subject to complex and evolving laws and regulations governing the privacy and protection of PII of individuals (including customers, employees and other third parties), as well as planning for responding to data security breaches.
Failure to successfully keep pace with technological change affecting the financial services industry could harm our ability to compete effectively and could have a material adverse effect on our business, financial condition or results of operations.
We may not be able to implement new technology-driven products and services effectively or be successful in marketing these products and services to customers. Failure to successfully keep pace with technological change affecting the financial services industry could harm our ability to compete effectively and could have a material adverse effect on our business, financial condition or results of operations.
Changes in economic growth may result in unexpected changes in gross domestic product ("GDP"), fluctuations or other significant changes in both debt and equity capital markets and currencies, liquidity of financial markets and the availability and cost of capital and credit. Potential federal government shutdowns, and developments related to the U.S. federal debt ceiling may also have an economic impact.
Changes in economic growth may result in unexpected changes in gross domestic product ("GDP"), fluctuations or other significant changes in both debt and equity capital markets and currencies, liquidity of financial markets and the availability and cost of capital and credit.
As the economy has experienced higher levels of inflation, interest rates have increased due to central banks’ efforts to manage inflation through monetary policy. Financial markets and the banking industry are affected by economic growth and its sustainability.
For example, recently, interest rates have been elevated due to central banks’ efforts to manage inflation through monetary policy. Financial markets and the banking industry are affected by economic growth and its sustainability.
Our financial condition, earnings and asset quality could be adversely affected if our consumer facing operations do not operate in compliance with applicable regulations. 28 Table of Contents While all aspects of our operations are subject to detailed and complex compliance regimes, those portions of our lending operations which most directly deal with consumers pose particular risks given the potential financial, reputational and regulatory consequences of failing to satisfy consumer compliance requirements.
While all aspects of our operations are subject to detailed and complex compliance regimes, those portions of our lending operations which most directly deal with consumers pose particular risks given the potential financial, reputational and regulatory consequences of failing to satisfy consumer compliance requirements.
Our customers and businesses in the Washington, D.C. metropolitan area in general may be adversely impacted as a result of changes in government spending or a government shutdown.
Our customers and businesses in the Washington, D.C. metropolitan area in general may be adversely impacted as a result of changes in government spending or a government shutdown. The presidential administration and certain governmental agencies have announced plans to reduce government spending and the size of the federal government workforce.
A continuation of the movement towards these practices over time could continue to erode the overall demand for office space and, in turn, place downward pressure on occupancy, rental rates and property valuations, each of which could have an adverse effect on our borrowers, the office properties securing their loans, and our ability to collect the amounts owed to us. 22 Table of Contents Our calculation of our ACL relies on estimates and assumptions, resulting in the risk that our calculated ACL may not cover actual future credit losses, which could result in an adverse effect on our business, financial condition, and results of operations.
A continuation of the movement towards these practices over time could continue to erode the overall demand for office space and, in turn, place downward pressure on occupancy, rental rates and property valuations, each of which could have an adverse effect on our borrowers, the office properties securing their loans, and our ability to collect the amounts owed to us.
In the event such costs are significant, they could have a material adverse effect on our business, financial condition, results of operations and stock price. 32 Table of Contents Our operation in our regulatory environment, both current or updated as a result of new or updated laws or rules, may have an adverse impact on our business, our financial condition and our results of operations.
Our operation in our regulatory environment, both current or updated as a result of new or updated laws or rules, may have an adverse impact on our business, our financial condition and our results of operations.
Such conduct could fall short of our customers' and the public's heightened expectations of financial institutions with rigorous privacy, data protection, data security and compliance practices, and could further harm our reputation. 26 Table of Contents Negative perceptions regarding our ability to maintain the security of our technology systems and protect customer data or our compliance programs, could lead to decreases in the levels of deposits that customers and potential customers choose to maintain with us or significantly increase the costs of attracting and retaining customers.
Negative perceptions regarding our ability to maintain the security of our technology systems and protect customer data or our compliance programs, could lead to decreases in the levels of deposits that customers and potential customers choose to maintain with us or significantly increase the costs of attracting and retaining customers.
Accordingly, any failure, or perceived failure, to comply with applicable privacy or data protection laws and regulations may subject us to inquiries, examinations and investigations that could result in requirements to modify or cease certain operations or practices or in significant liabilities, fines or penalties and could damage our reputation and otherwise adversely affect our operations, financial condition and results of operations.
Accordingly, any failure, or perceived failure, to comply with applicable privacy or data protection laws and regulations may subject us to inquiries, examinations and investigations that could result in requirements to modify or cease certain operations or practices or in significant liabilities, fines or penalties and could damage our reputation and otherwise adversely affect our operations, financial condition and results of operations. 30 Table o f Contents RISKS RELATED TO ACCOUNTING AND TAXATION Changes in tax laws could have an adverse effect on us, the banking industry, our customers, the value of collateral securing our loans and demand for loans.
The effective use of technology increases efficiency and enables financial institutions to better serve customers and reduce costs. Our future success will depend, in part, upon our ability to address the needs of customers by using technology to provide products and services that will satisfy customer demands for convenience, as well as to create additional efficiencies in our operations.
Our future success will depend, in part, upon our ability to address the needs of customers by using technology to provide products and services that will satisfy customer demands for convenience, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements.
For example, material increases in inflation rates would likely result in an increase in personnel and other operational costs and an increase in salary and wage expenses, which comprise the Bank’s most significant non-interest expense category. Long periods of high inflation also result in higher interest rates, which will increase the Bank’s deposit costs and overall cost of funds.
Fluctuations in inflation rates may also have a number of adverse effects on the Bank and the Company. For example, material increases in inflation rates would likely result in an increase in personnel and other operational costs and an increase in salary and wage expenses, which comprise the Bank’s most significant non-interest expense category.
For example, since 2020 and in light of the prevalence of hybrid work arrangements and associated lower occupancy rates, the value of commercial real estate secured by office properties has generally declined.
For example, since 2020 and in light of the prevalence of hybrid work arrangements and associated lower occupancy rates, the value of commercial real estate secured by office properties has generally declined. As a result of these factors, the real estate securing some of our loans is less valuable than anticipated at the time the loans were made.
The results of our interest rate sensitivity simulation model depend upon a number of assumptions, which may not prove to be accurate. There can be no assurance that we will be able to successfully manage our interest rate risk. Fluctuations in inflation rates may also have a number of adverse effects on the Bank and the Company.
In addition, if interest rates continue to stay elevated or start to rise again, we may continue to experience deposit outflows. The results of our interest rate sensitivity simulation model depend upon a number of assumptions, which may not prove to be accurate. There can be no assurance that we will be able to successfully manage our interest rate risk.
Conversely, assuming a static balance sheet, we expect decreases of approximately 3.0% and 8.4%, respectively, in projected net interest income and net income over a twelve month period resulting from an instantaneous 100 basis point decrease in rates across the yield curve. In addition, if interest rates continue to rise or stay elevated, we may continue to experience deposit outflows.
Conversely, assuming a static balance sheet, we expect increases of approximately 0.9% and 2.0%, respectively, in projected net interest income and net 25 Table o f Contents income over a twelve month period resulting from an instantaneous 100 basis point decrease in rates across the yield curve.
If we were to experience difficulty recruiting successful bankers, or lose the services of any of our bankers to a new or existing competitor or otherwise, we may be unable to establish and retain valuable relationships and some of our customers or potential customers could choose to use the services of a competitor instead.
If we are unable to recruit successful bankers, or lose the services of any of our bankers to a new or existing competitor or otherwise, we may be unable to establish and retain valuable relationships and some of our customers or potential customers could choose to use the services of a competitor instead Moreover, the Company relies significantly on the expertise and experience of our executive officers and senior management, whose skills, years of industry experience and relationships with customers may be difficult for the Company to replace.
When customers move money out of bank deposits and into other investments, we may lose a relatively low-cost source of funds, increasing our funding costs and negatively affecting our business, liquidity, funding mix, results of operations or financial condition.Adverse changes in the real estate market in our market area could also have an adverse effect on our cost of funds and net interest margin, as we have a significant amount of noninterest bearing deposits related to real estate sales and development.
When customers move money out of bank deposits and into other investments, we may lose a relatively low-cost source of funds, increasing our funding costs and negatively affecting our business, liquidity, funding mix, results of operations or financial condition.
Timely access to liquidity is essential to our business, and being able to meet obligations as they come due and pay deposits when they are withdrawn is critical to ongoing operations. If we are unable to meet our payment obligations on a daily basis, we may be subject to being placed into receivership, regardless of our capital levels.
If we are unable to meet our payment obligations on a daily basis, we may be subject to being placed into receivership, regardless of our capital levels.
We rely on many outside service providers that support our day-to-day operations including data processing and electronic communications, real estate appraisal, loan servicers and local and federal government agencies, offices and courthouses. In light of labor shortages and supply chain disruptions, many of these entities may limit the availability and access of their services, which may impact our business.
Our reliance on external service providers exposes us to operational risk that could adversely impact our business. We rely on many outside service providers that support our day-to-day operations including data processing and electronic communications, real estate appraisal, loan servicers and local and federal government agencies, offices and courthouses.
Secondarily, because of the complexity inherent in these approaches, misunderstanding or misuse of their outputs could similarly result in suboptimal decision-making, which could have a material adverse effect on our business, financial condition, results of operations and share price. 35 Table of Contents GENERAL RISKS The price of our common stock may fluctuate significantly, which may make it difficult for investors to resell shares of common stock at a time or price they find attractive.
In addition, because of the complexity inherent in these approaches, especially those based on artificial intelligence, misunderstanding or misuse of their outputs could similarly result in suboptimal decision-making, which could have a material adverse effect on our business, financial condition, results of operations and share price.
Litigation and regulatory actions, possibly including enforcement actions, could subject us to significant fines, penalties, judgments or other requirements resulting in increased expenses or restrictions on our business activities. In the normal course of our business, we are named as a defendant in various legal actions arising in connection with our current and/or prior business activities or public disclosures.
In the normal course of our business, we are named as a defendant in various legal actions arising in connection with our current and/or prior business activities or public disclosures. Legal actions could include claims for substantial compensatory or punitive damages or claims for indeterminate amounts of damages. Further, we may be subject to regulatory enforcement actions.
We rely upon independent appraisals to determine the value of the real estate that secures a significant portion of our loans, and the values indicated by such appraisals may not be realizable if we are forced to foreclose upon such loans. A significant portion of our loan portfolio consists of loans secured by real estate.
Accordingly, such potential federal government actions could lead to increases in past due loans, nonperforming loans, credit loss reserves and charge-offs and a decline in liquidity. 26 Table o f Contents We rely upon independent appraisals to determine the value of the real estate that secures a significant portion of our loans, and the values indicated by such appraisals may not be realizable if we are forced to foreclose upon such loans.
Brokered deposits or other sources of financing, such as FHLB borrowings and repurchase agreements have historically been, and may in the future be, available only at higher financing costs. Generally, these alternative sources of financing may not be as stable as other types 24 Table of Contents of deposits, or may be associated with higher levels of risk.
Generally, these alternative sources of financing may not be as stable as other types of deposits, or may be associated with higher levels of risk.
In general, cyber incidents can result from deliberate attacks 34 Table of Contents or unintentional events. We have observed an increased level of attention in the industry focused on cyber-attacks that include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data or causing operational disruption.
The financial services industry has been affected by, and will in the future continue to be affected by, cyber-attacks that include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data or causing operational disruption.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe CISO coordinates the Company’s response to a cybersecurity incident, including investigating, recording and evaluating any potential, suspected or confirmed incidents involving non-public customer information or Company confidential information. On a regular basis, the CISO reports to the CRO information security risk issues, risk mitigation progress and developments, and information security enhancement initiatives.
Biggest changeHowever, when a cybersecurity incident does occur, the Company has in place an incident response program to guide our assessment of and response to the incident. The CISO coordinates the Company’s response to a cybersecurity incident, including investigating, recording and evaluating any potential, suspected or confirmed incidents involving non-public customer information or Company confidential information.
The Board is responsible for the oversight of cybersecurity risk management, as well as the selection of a Chief Information Security Officer (“CISO”), the management official responsible for administering and executing the information security program. The Board’s Technology Oversight Committee (“TOC”) assists the Board in its oversight of the information security program.
The Board is responsible for the oversight of cybersecurity risk management, as well as the selection of a Chief Information Security Officer (“CISO”), the management official responsible for administering and executing the information security program. The Board’s Technology Oversight Committee (the “TOC”) assists the Board in its oversight of the information security program.
The TOC reviews information security metrics, oversees significant instances of non-compliance with the 36 Table of Contents information security policy and monitors remediation of those instances, and reviews the appointment of the CISO for recommendation to the Board. At the management level, the Enterprise Risk Management Committee (“ERMC”) is primarily responsible for cybersecurity risk management.
The TOC reviews information security metrics, oversees significant instances of non-compliance with the information security policy and monitors remediation of those instances, and reviews the appointment of the CISO for recommendation to the Board. At the management level, the Enterprise Risk Management Committee (the “ERMC”) is primarily responsible for cybersecurity risk management.
With respect to cybersecurity incidents affecting our third party service providers, the CISO works with our service providers to understand and document any incidents, along with managing the impact to us and reporting such incidents to the CRO, ERMC, TOC, and, if applicable, the Board. To date, we have not incurred any material losses related to cybersecurity incidents.
With respect to cybersecurity incidents affecting our third-party service providers, the Director of Third-Party Risk Management works with our service providers to understand and document any incidents, along with managing the impact to us and reporting such incidents to the CRO, ERMC, TOC, and, if applicable, the Board.
Once escalated to a committee, the committee is responsible for overseeing related remediation. Our CISO is responsible for the overall administration and execution of the information security program and reports to our Chief Risk Officer (“CRO”). Our CISO has over thirty years of experience working in information security for a variety of companies and organizations, including multiple financial institutions.
Once escalated to a committee, the committee is responsible for overseeing related remediation. Our CISO is responsible for the overall administration and execution of the information security program and reports to our Chief Risk Officer (“CRO”).
The CISO monitors the security of, among other things, systems, applications, tools, databases, computers, websites, cloud infrastructure, vendor tools, and user access systems. The CISO performs an annual information security risk assessment, which, among other things, documents inherent risk levels and controls in place to manage those risks. The information security risk assessment is presented to the Board annually.
The CISO performs an annual information security risk assessment, which, among other things, documents inherent risk levels and controls in place to manage those risks. The information security risk assessment is presented to the Board annually. We strive to minimize the occurrence of cybersecurity incidents and the risks resulting from such incidents.
However, the risk management and governance processes described above may not be sufficient to prevent cybersecurity incidents, and we could incur substantial costs and suffer other negative consequences from cybersecurity incidents. See “Part 1, Item IA. – Risk Factors” for more information on the cybersecurity risks facing the Company.
To date, we have not incurred any material losses related to cybersecurity incidents. However, the risk management and governance processes described above may not be sufficient to prevent cybersecurity incidents, and we could incur substantial costs and suffer other negative consequences from cybersecurity incidents.
The CISO and CRO report on the information security program to the TOC and the ERMC and review and propose updates to the information security policy to the ERMC. The Company employs third parties in certain aspects of its information security and cybersecurity risk management.
The CISO and CRO report on the information security program, including the status of information security-related key risk indicators, to the TOC and the ERMC. The Information Security Policy is also approved by the TOC on an annual basis. 33 Table o f Contents The Company employs third parties in certain aspects of its information security and cybersecurity risk management.
We have adopted a Contract and Vendor Management Policy, which addresses the identification, measurement, monitoring, and management of our third-party service provider relationships, including those related to information security. The CISO assesses and monitors information risks posed by third parties and any non-compliance with the controls created to address such risks.
For example, we utilize third parties to conduct certain security operations and maintain certain information security infrastructure. We have adopted a Third Party Risk Management Policy, which addresses the identification, measurement, monitoring, and management of our third-party service provider relationships, including those related to information security.
The CISO also reports the status of information security-related key risk indicators to the CRO. The CISO reports to the TOC monthly on information security developments and emerging risks, both in the industry and specific to the Company.
On a regular basis, the CISO discusses with the CRO information security risk issues, risk mitigation progress and developments and information security enhancement initiatives. The CISO reports to the TOC quarterly on information security developments and emerging risks, both in the industry and specific to the Company.
Removed
We strive to minimize the occurrence of cybersecurity incidents and the risks resulting from such incidents. However, when a cybersecurity incident does occur, the Company has in place an incident response program to guide our assessment of and response to the incident.
Added
Our CISO has over fifteen years of experience working in information security and risk for a variety of companies and organizations, including multiple financial institutions. The CISO monitors the security of, among other things, systems, applications, tools, databases, computers, websites, cloud infrastructure, vendor tools, and user access systems.
Removed
For example, we engage third parties to assess the information security risks related to new products, and we utilize third parties to conduct certain security operations and maintain certain information security infrastructure.
Added
The Director of Third-Party Risk Management, along with the CISO, assess and monitor information risks posed by third parties and any non-compliance with the controls created to address such risks.
Added
See “Part 1, Item IA. – Risk Factors” for more information on the cybersecurity risks facing the Company.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed1 unchanged
Biggest changeAdditional information with respect to premises and equipment is presented in Notes 5 and 6 to the Consolidated Financial Statements.
Biggest changeAdditional information with respect to premises and equipment and leases is presented in Notes 5 and 6 to the Consolidated Financial Statements.
As of December 31, 2023, the Company and its subsidiaries operated out of 17 different locations (some of which have multiple leases); which include our principal corporate office, branch offices, lending centers and an operations center in Washington, D.C., Suburban Maryland and Northern Virginia metropolitan areas.
As of December 31, 2024, the Company and its subsidiaries operated out of 17 different locations (some of which have multiple leases); which include our principal corporate office, branch offices, lending centers and an operations center in Washington, D.C., Suburban Maryland and Northern Virginia metropolitan areas.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed2 unchanged
Biggest changeHowever, in light of the inherent 37 Table of Contents 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 and results of operations or cash flows in any particular reporting period, as well as its reputation. ITEM 4.
Biggest changeHowever, 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 and results of operations or cash flows in any particular reporting period, as well as its reputation.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+2 added−3 removed9 unchanged
Biggest changeThe Company fully utilized the 2023 Repurchase Program as of the second quarter of 2023. See Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters for “Securities Authorized for Issuance Under Equity Compensation Plans.” 38 Table of Contents Stock Price Performance.
Biggest changeThe Company did not repurchase any shares of its common stock during the year ended December 31, 2024. See Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters for “Securities Authorized for Issuance Under Equity Compensation Plans.” Stock Price Performance.
Regulations of the Board of Governors of the Federal Reserve System ("Federal Reserve Board" or "Federal Reserve") and Maryland law place limits on the amount of dividends the Bank may pay to the Company without prior approval.
Regulations of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board" or "Federal Reserve") and Maryland law place limits on the amount of dividends the Bank may pay to the Company without prior approval.
At December 31, 2023 the Bank could pay dividends to the Company to the extent of its earnings so long as it maintained required capital ratios. The FRB has established requirements with respect to the maintenance of appropriate levels of capital by registered bank holding companies.
At December 31, 2024, the Bank could pay dividends to the Company to the extent of its earnings so long as it maintained required capital ratios. The FRB has established requirements with respect to the maintenance of appropriate levels of capital by registered bank holding companies.
The following table compares the cumulative total return on a hypothetical investment of $100 in the Company’s common stock from December 31, 2018 through December 31, 2023, with the hypothetical cumulative total return on the Nasdaq Stock Market Index (U.S. Companies), S&P 500 Index and the KBW Regional Banking Index for the comparable period, including reinvestment of dividends.
The following table compares the cumulative total return on a hypothetical investment of $100 in the Company’s common stock from December 31, 2019 through December 31, 2024, with the hypothetical cumulative total return on the Nasdaq Stock Market Index (U.S. Companies), S&P 500 Index and the KBW Regional Banking Index for the comparable period, including reinvestment of dividends.
The KBW Regional Banking Index seeks to reflect the performance of publicly traded companies that do business as regional banks or thrifts listed on all U.S. stock markets. Eagle Bancorp, Inc.
The KBW Regional Banking Index seeks to reflect the performance of publicly traded companies that do business as regional banks or thrifts listed on all U.S. stock markets. 35 Table o f Contents Eagle Bancorp, Inc.
The Company’s common stock is listed for trading on the Nasdaq Capital Market under the symbol “EGBN.” Over the year ended December 31, 2023, the average daily trading volume amounted to approximately 302,118 shares, an increase from approximately 167,619 shares over the year ended December 31, 2022.
The Company’s common stock is listed for trading on the Nasdaq Capital Market under the symbol “EGBN.” During the year ended December 31, 2024, the average daily trading volume amounted to approximately 310,723 shares, an increase from approximately 302,118 shares during the year ended December 31, 2023.
As of February 9, 2024, our directors and executive officers own approximately 3% of our outstanding shares of common stock. Dividends. The Company pays a regular quarterly cash dividend. In 2023, the Company declared four cash dividends with an aggregate value of $1.80 per share, or $54.3 million.
As of February 10, 2025, our directors and executive officers own approximately 3% of our outstanding shares of common stock. Dividends. The Company pays a regular quarterly cash dividend. In 2024, the Company declared three cash dividends with an aggregate value of $1.07 per share, or $32.1 million.
No assurance can be given that a more active trading market will develop or can be maintained. As of February 9, 2024, there were 29,928,977 shares of common stock outstanding, held by approximately 493 shareholders of record. Based on the most recent analysis, the Company believes beneficial shareholders number approximately 18,405.
No assurance can be given that a more active trading market will develop or can be maintained. As of February 10, 2025, there were 30,204,202 shares of common stock outstanding, held by approximately 469 shareholders of record. Based on the most recent analysis, the Company believes beneficial shareholders number approximately 18,612.
Removed
The Company did not repurchase any shares of its common stock during the fourth quarter of 2023.
Added
The quarterly cash dividend amount was recalibrated to $0.165 in the third quarter of 2024 to reflect the company’s growth plans. Beginning in January 2025, the Company commenced declaring dividends at the time of the quarterly earnings release; previously, it declared dividends at the end of the quarter.
Removed
On December 13, 2022, the Company's Board of Directors authorized a share repurchase program (the "2023 Repurchase Program") that took effect starting January 2, 2023 and authorized the repurchase of 1,600,000 shares of common stock, or approximately 5% of the Company's outstanding shares of common stock.
Added
Years Ended December 31, 2019 2020 2021 2022 2023 2024 Eagle Bancorp, Inc. $100.00 $87.21 $126.02 $98.41 $71.86 $66.17 Nasdaq Composite Index 100.00 144.92 177.06 119.45 172.77 223.866 S&P 500 Index 100.00 118.40 152.39 124.79 157.59 197.02 KBW Nasdaq Regional Banking Index 100.00 91.29 124.74 116.10 115.64 130.904
Removed
Years Ended December 31, 2018 2019 2020 2021 2022 2023 Eagle Bancorp, Inc. 100.00 100.76 87.87 126.98 99.16 72.41 Nasdaq Composite Index 100.00 136.69 198.10 242.03 163.28 236.17 S&P 500 Index 100.00 131.49 155.68 200.37 164.08 207.21 KBW Nasdaq Regional Banking Index 100.00 123.81 113.03 154.45 143.75 143.17

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

245 edited+83 added−109 removed66 unchanged
Biggest changeThe following tables reconcile the GAAP financial measures to the associated non-GAAP financial measures: 47 Table of Contents (dollars in thousands except per share data) December 31, 2023 December 31, 2022 Common shareholders’ equity $ 1,274,283 $ 1,228,321 Less: Intangible assets (104,925) (104,233) Tangible common equity $ 1,169,358 $ 1,124,088 Book value per common share $ 42.58 $ 39.18 Less: Intangible book value per common share (3.50) (3.32) Tangible book value per common share $ 39.08 $ 35.86 Total assets $ 11,664,538 $ 11,150,854 Less: Intangible assets (104,925) (104,233) Tangible assets $ 11,559,613 $ 11,046,621 Tangible common equity ratio 10.12 % 10.18 % Years Ended December 31, (dollars in thousands) 2023 2022 2021 Average common shareholders’ equity $ 1,240,118 $ 1,281,921 $ 1,304,902 Less: Average intangible assets (104,534) (104,248) (104,265) Average tangible common equity $ 1,135,584 $ 1,177,673 $ 1,200,637 Net Income $ 100,534 $ 140,930 $ 176,691 Average tangible common equity $ 1,135,584 $ 1,177,673 $ 1,200,637 Return on average tangible common equity 8.85 % 11.97 % 14.72 % Noninterest expense $ 153,293 $ 165,098 $ 149,165 Net interest income $ 290,546 $ 332,867 $ 324,514 Noninterest income 21,536 23,654 40,385 Operating revenue $ 312,082 $ 356,521 $ 364,899 Efficiency ratio 49.12 % 46.31 % 40.88 % RESULTS OF OPERATIONS Year Ended December 31, 2023 Compared with Year Ended December 31, 2022 Overview Net income for the years ended December 31, 2023 and 2022 was $100.5 million and $140.9 million, respectively.
Biggest changeThe following tables reconcile the GAAP financial measures to the associated non-GAAP financial measures: (dollars in thousands except per share data) December 31, 2024 December 31, 2023 Tangible common equity Common shareholders’ equity $ 1,226,061 $ 1,274,283 Less: Intangible assets (16) (104,925) Tangible common equity (Non-GAAP) $ 1,226,045 $ 1,169,358 Tangible common equity ratio Total assets $ 11,129,508 $ 11,664,538 Less: Intangible assets (16) (104,925) Tangible assets $ 11,129,492 $ 11,559,613 Tangible common equity ratio (Non-GAAP) 11.02 % 10.12 % Tangible book value per share calculations Book value per common share $ 40.60 $ 42.58 Less: Intangible book value per common share (0.01) (3.50) Tangible book value per common share (Non-GAAP) $ 40.59 $ 39.08 Years Ended December 31, (dollars in thousands) 2024 2023 2022 Average tangible common equity Average common shareholders’ equity $ 1,246,168 $ 1,240,118 $ 1,281,921 Less: Average intangible assets (50,868) (104,534) (104,248) Average tangible common equity (Non-GAAP) $ 1,195,300 $ 1,135,584 $ 1,177,673 Return on average tangible common equity Net income (loss) available to common shareholders $ (47,035) $ 100,534 $ 140,930 Average tangible common equity $ 1,195,300 1,135,584 1,177,673 Return on average tangible common equity (Non-GAAP) (3.93) % 8.85% 11.97% Operating return on average tangible common equity Net income (loss) available to common shareholders $ (47,035) $ 100,534 $ 140,930 Add back of goodwill impairment 104,168 — — Operating net income (Non-GAAP) $ 57,133 $ 100,534 $ 140,930 Average tangible common equity $ 1,195,300 1,135,584 1,177,673 Operating return on average tangible common equity (Non-GAAP) 4.78 % 8.85 % 11.97 % 43 Table o f Contents Years Ended December 31, (dollars in thousands) 2024 2023 2022 Efficiency ratio Net interest income $ 288,688 $ 290,546 $ 332,867 Noninterest income 19,939 21,536 23,654 Total net revenue 308,627 312,082 356,521 Noninterest expense 274,634 153,293 165,098 Exclude goodwill impairment (104,168) — — Operating noninterest expense (Non-GAAP) 170,466 153,293 165,098 Efficiency ratio (Non-GAAP) 88.99 % 49.12 % 46.31 % Operating efficiency ratio (Non-GAAP) 55.23 % 49.12 % 46.31 % Operating net income Net income (loss) $ (47,035) $ 100,534 $ 140,930 Add back of goodwill impairment 104,168 — — Operating net income (Non-GAAP) $ 57,133 $ 57,133 $ 100,534 $ 140,930 Operating earnings per share (diluted) Earnings (loss) per share (diluted) (1) $(1.56) $3.31 $4.39 Add back of goodwill impairment per share (diluted) 3.45 — — Operating earnings per share (diluted) (Non-GAAP) $1.89 $3.31 $4.39 (1) For periods ended with a net loss, anti-dilutive financial instruments have been excluded from the calculation of earnings per share (diluted).
Tangible common equity is defined as total common shareholders’ equity reduced by goodwill and other intangible assets. (2) Total revenue calculated as net interest income plus noninterest income. (3) Tangible book value per common share, a non-GAAP financial measure, is defined as tangible common shareholders’ equity divided by total common shares outstanding.
Tangible common equity is defined as total common shareholders’ equity reduced by goodwill and other intangible assets. (2) Total net revenue calculated as net interest income plus noninterest income. (3) Tangible book value per common share, a non-GAAP financial measure, is defined as tangible common shareholders’ equity divided by total common shares outstanding.
The federal banking regulators have issued guidance for those institutions, which are deemed to have concentrations in commercial real estate lending.
The federal banking regulators have issued guidance for those institutions, which are deemed to have concentrations in commercial real estate lending.
Pursuant to the supervisory criteria contained in the guidance for identifying institutions with a potential commercial real estate concentration risk, institutions which have (1) total reported loans for construction, land development and other land acquisitions which represent 100% or more of an institution’s total risk-based capital; or (2) total commercial real estate loans representing 300% or more of the institution’s total risk-based capital and the institution’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months are identified as having potential commercial real estate concentration risk.
Pursuant to the supervisory criteria contained in the guidance for identifying institutions with a potential commercial real estate concentration risk, institutions which have (1) total reported loans for construction, land development and other land acquisitions which represent 100% or more of an institution’s total risk-based capital; or (2) total commercial real estate loans representing 300% or more of the institution’s total risk-based capital and the institution’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months are identified as having potential commercial real estate concentration risk.
Institutions which are deemed to have concentrations in commercial real estate lending are expected to employ heightened levels of risk management with respect to their commercial real estate portfolios and may be required to hold higher levels of capital.
Institutions which are deemed to have concentrations in commercial real estate lending are expected to employ heightened levels of risk management with respect to their commercial real estate portfolios and may be required to hold higher levels of capital.
The Company, like many community banks, has in commercial real estate loans, and the Company has experienced growth in its commercial real estate portfolio in recent years.
The Company, like many community banks, has commercial real estate loans, and the Company has experienced growth in its commercial real estate portfolio in recent years.
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.
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.
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, and therefore, such modifications are not considered to be loan restructurings to a borrower experiencing financial difficulty, as the accommodation of a borrower's request does not rise to the level of a concession if the modified transaction is at market rates and terms and/or the borrower is not experiencing financial difficulty.
Management, from time-to-time and in the ordinary course of business, implements renewals, modifications, extensions and/or changes in terms of loans to borrowers who have the ability to repay on reasonable market-based terms, as circumstances may warrant, and therefore, such modifications are not considered to be loan restructurings to a borrower experiencing financial difficulty, as the accommodation of a borrower's request does not rise to the level of a concession if the modified transaction is at market rates and terms and/or the borrower is not experiencing financial difficulty.
These sources are believed by the Company to represent a reliable and cost efficient alternative funding source for the Bank, but there can be no assurance that they will continue to be adequate or appropriate to meet our liquidity needs. The Bank also is able to obtain one way CDARS deposits and participates in IntraFi’s Insured Network Deposit, (“IND”).
These sources are believed by the Company to represent a reliable and cost efficient alternative funding source for the Bank, but there can be no assurance that they will continue to be adequate or appropriate to meet our liquidity needs. The Bank also is able to obtain one way CDARS deposits and participates in IntraFi’s Insured Network Deposit Program, (“IND”).
The AFS classification requires that investment securities be recorded at fair value with any difference between the fair value and amortized cost (the purchase price adjusted by any discount accretion or premium amortization) reported as a component of shareholders’ equity (accumulated other comprehensive income), net of deferred income taxes, while securities classified as HTM are recorded and presented at their amortized cost.
The AFS classification requires that investment securities be recorded at fair value with any difference between the fair value and amortized cost (the purchase price adjusted by any discount accretion or premium amortization) reported as a component of shareholders’ equity (accumulated other comprehensive income (loss)), net of deferred income taxes, while securities classified as HTM are recorded and presented at their amortized cost.
The Washington, D.C. metropolitan area maintains a diverse economy which includes a stable public sector, a large healthcare component, substantial business services and a highly educated work force. The private sector, in particular, the Leisure and Hospitality sector has seen some recovery in recent years following the adverse effects of the pandemic.
The Washington, D.C. metropolitan area maintains a diverse economy which includes the public sector, a large healthcare component, substantial business services and a highly educated work force. The private sector, in particular, the Leisure and Hospitality sector has seen some recovery in recent years following the adverse effects of the pandemic.
Additionally, the Bank has participated in the BTFP established by Federal Reserve Bank in March 2023. The Federal Reserve announced in January 2024 that the BTFP will stop originating new loans on March 11, 2024, as scheduled.
Additionally, the Bank participated in the BTFP established by Federal Reserve Bank in March 2023. The Federal Reserve announced in January 2024 that the BTFP will stop originating new loans on March 11, 2024, as scheduled.
At December 31, 2023, the capital position of the Company and its wholly owned subsidiary, the Bank, continue to exceed regulatory requirements and well-capitalized guidelines. The primary indicators relied on by bank regulators in measuring the capital position are four ratios as follows: Tier 1 risk-based capital ratio, Total risk-based capital ratio, the Leverage ratio and the CET1 ratio.
At December 31, 2024, the capital position of the Company and its wholly owned subsidiary, the Bank, continue to exceed regulatory requirements and well-capitalized guidelines. The primary indicators relied on by bank regulators in measuring the capital position are four ratios as follows: Tier 1 risk-based capital ratio, Total risk-based capital ratio, the Leverage ratio and the CET1 ratio.
Loan modifications to borrowers experiencing financial difficulty that result in a direct change in the timing or amount of contractual cash flows include situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the listed modifications.
Loan modifications to borrowers experiencing financial difficulties that result in a direct change in the timing or amount of contractual cash flows include situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the listed modifications.
Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Form 10-K for the fiscal year ended December 31, 2022.
Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Form 10-K for the fiscal year ended December 31, 2023.
Approximately 60% of the Company's investment portfolio of debt securities is held in an available-for-sale status which allows for flexibility, subject to holdings held as collateral for customer repurchase agreements and public funds, to generate cash from sales as needed to meet ongoing loan demand.
Approximately 57% of the Company's investment portfolio of debt securities is held in an available-for-sale status which allows for flexibility, subject to holdings held as collateral for customer repurchase agreements and public funds, to generate cash from sales as needed to meet ongoing loan demand.
Certain policies, including those identified below for the year ended December 31, 2023, inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported.
Certain policies, including those identified below for the year ended December 31, 2024, inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported.
The information contained in this section should be read together with the December 31, 2023 audited Consolidated Financial Statements and the accompanying Notes included in Item 8 Financial Statements And Supplementary Data of this Form 10-K. This section of this Form 10-K generally discusses 2023 items and year-to-year comparisons between 2023 and 2022.
The information contained in this section should be read together with the December 31, 2024 audited Consolidated Financial Statements and the accompanying Notes included in Item 8 Financial Statements And Supplementary Data of this Form 10-K. This section of this Form 10-K generally discusses 2024 items and year-to-year comparisons between 2024 and 2023.
You can reference the discussion and analysis of our results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2022 in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” within that report. Caution About Forward Looking Statements . This report contains forward looking statements.
You can reference the discussion and analysis of our results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2023 in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” within that report. Caution About Forward Looking Statements . This report contains forward looking statements.
The potential outflow of such deposits is a risk unless we pay a more competitive rate of interest on them, which could significantly and negatively impact the Bank’s interest expense and net interest margin, as the transfer of some noninterest-bearing deposits to interest-bearing deposits did in 2023.
The potential outflow of such deposits is a risk unless we pay a more competitive rate of interest on them, which could significantly and negatively impact the Bank’s interest expense and net interest margin, as the transfer of some noninterest-bearing deposits to interest-bearing deposits did in 2024.
The Bank currently has a total of thirteen branch offices (six in Suburban Maryland, four in Washington, D.C. and three in Northern Virginia), a principal corporate office, four lending centers (two are co-located with branches and one co-located in the principal corporate office) and one operations center.
The Bank currently has a total of twelve branch offices (six in Suburban Maryland, three in Washington, D.C. and three in Northern Virginia), a principal corporate office, four lending centers (two are co-located with branches and one co-located in the principal corporate office) and one operations center.
An industry for this purpose is defined as a group of businesses that are engaged in similar activities and have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. 59 Table of Contents Certain directors and executive officers have had loan transactions with the Company.
An industry for this purpose is defined as a group of businesses that are engaged in similar activities and have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. Certain directors and executive officers have had loan transactions with the Company.
For collateral dependent financial 64 Table of Contents assets where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date.
For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date.
In March 2023, the Federal Reserve Board announced that it would make available additional funding to eligible depository institutions through the creation of the BTFP. The BTFP provides eligible depository institutions, including the Bank, an additional source of liquidity.
In March 2023, the Federal Reserve Board announced that it would make available additional funding to eligible depository institutions through the creation of the BTFP. The BTFP provided eligible depository institutions, including the Bank, an additional source of liquidity.
Although growth in that segment over the past 36 months at 7% did not exceed the 50% threshold laid out in the regulatory guidance, we expect the heightened supervisory expectations to continue to apply to us given the federal banking regulators' general focus on commercial real estate exposures at banks.
Although growth in that segment over the past 36 months at 26.8% did not exceed the 50% threshold laid out in the regulatory guidance, we expect the heightened supervisory expectations to continue to apply to us given the federal banking regulators' general focus on commercial real estate exposures at banks.
The following factors, among others, could cause our financial performance to differ materially from that expressed in such forward looking statements: • Changes in the general economic, political, social and health conditions, including the macroeconomic and other challenges and uncertainties resulting from the effects of pandemics and natural disasters; • The timely development of competitive new products and services and the acceptance of these products and services by new and existing customers; • The willingness of customers to substitute competitors’ products and services for our products and services; • Our management of liquidity risks in our operations, including, but not limited to, risks related to customer deposits, deposits in excess of the Federal Deposit Insurance Corporation ("FDIC") insurance coverage limits, access to capital markets and securities and market values; • The effect of acquisitions we may make, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions; • Our management of risks inherent in our real estate loan portfolio, and the risk of a prolonged downturn in the real estate market, which could impair the value of, and our ability to sell, properties which stand as collateral for loans we make; • Our decision to cease originating residential mortgages; • The growth and profitability of noninterest or fee income being less than expected; • Changes in the level of our nonperforming assets and charge-offs; • Changes in consumer spending and savings habits; • The impact of climate change or government action and societal responses to climate change; • Difficulty recruiting or retaining successful bankers, executive officers or other key personnel; • Changing bank regulatory conditions, policies or programs, whether arising as new legislation or regulatory initiatives, that could lead to restrictions on activities of banks generally, or our subsidiary bank in particular, more restrictive regulatory capital requirements, increased costs, including deposit insurance premiums, regulation or prohibition of certain income producing activities or changes in the secondary market for loans and other products; 40 Table of Contents • The impact of changes in financial services policies, laws and regulations, including laws, regulations and policies concerning taxes, banking, securities and insurance and the application thereof by regulatory bodies; • The effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System ("Federal Reserve Board," "Federal Reserve" or "FRB"), inflation, interest rate, market and monetary fluctuations; • Results of examinations of us by our regulators, including the possibility that our regulators may, among other things, require us to increase our allowance for credit losses, to write-down assets, to hold more capital or to incur costs to remediate supervisory findings; • The effects or impact of any litigation, regulatory proceeding, including enforcement proceedings and any possibly resulting fines, judgments, expenses or restrictions on our business activities; • Unanticipated regulatory or judicial proceedings; • The effect of changes in accounting policies and practices, as may be adopted from time-to-time by bank regulatory agencies, the SEC, the Public Company Accounting Oversight Board ("PCAOB") or the Financial Accounting Standards Board ("FASB"); • Cybersecurity breaches, threats, and cyber-fraud that cause the Bank to sustain financial losses; • Technological and social media changes; • Our management of risks inherent in the use of statistical and quantitative data and modeling; • The strength of the United States economy, in general, and the strength of the local economies in which we conduct operations; • Geopolitical conditions, including acts or threats of terrorism, actions taken by the United States or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the United States and abroad; and • The factors discussed under the caption “Risk Factors” in this report.
The following factors, among others, could cause our financial performance to differ materially from that expressed in such forward looking statements: • Changes in the general economic, political, social and health conditions, including the macroeconomic and other challenges and uncertainties resulting from the effects of pandemics and natural disasters; • The timely development of competitive new products and services and the acceptance of these products and services by new and existing customers; • The willingness of customers to substitute competitors’ products and services for our products and services; • Our management of liquidity risks in our operations, including, but not limited to, risks related to customer deposits, deposits in excess of the Federal Deposit Insurance Corporation ("FDIC") insurance coverage limits, access to capital markets and securities and market values; • The effect of acquisitions we may make, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions; • Our management of risks inherent in our real estate loan portfolio, and the risk of a prolonged downturn in the real estate market, which could impair the value of, and our ability to sell, properties which stand as collateral for loans we make; • The growth and profitability of noninterest or fee income being less than expected; • Changes in the level of our nonperforming assets and charge-offs; • Changes in consumer spending and savings habits; • The impact of climate change or government action and societal responses to climate change; • Difficulty recruiting or retaining successful bankers, executive officers or other key personnel; • Changing bank regulatory conditions, policies or programs, whether arising as new legislation or regulatory initiatives, that could lead to restrictions on activities of banks generally, or our subsidiary bank in particular, more restrictive regulatory capital requirements, increased costs, including deposit insurance premiums, regulation or prohibition of certain income producing activities or changes in the secondary market for loans and other products; 37 Table o f Contents • The impact of changes in financial services policies, laws and regulations, including laws, regulations and policies concerning taxes, banking, securities and insurance and the application thereof by regulatory bodies; • The effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System ("Federal Reserve Board," "Federal Reserve" or "FRB"), inflation, interest rate, market and monetary fluctuations; • Results of examinations of us by our regulators, including the possibility that our regulators may, among other things, require us to increase our allowance for credit losses, to write-down assets, to hold more capital or to incur costs to remediate supervisory findings; • The effects or impact of any litigation, governmental investigations and proceedings, including enforcement proceedings and any possibly resulting fines, judgments, expenses or restrictions on our business activities; • Unanticipated regulatory or judicial proceedings; • The effect of changes in accounting policies and practices, as may be adopted from time-to-time by bank regulatory agencies, the SEC, the Public Company Accounting Oversight Board ("PCAOB") or the Financial Accounting Standards Board ("FASB"); • Cybersecurity breaches, threats, and cyber-fraud that cause the Bank to sustain financial losses; • Technological and social media changes; • Our management of risks inherent in the use of statistical and quantitative data and modeling; • The strength of the United States economy, in general, and the strength of the local economies in which we conduct operations; • Changes in trade, immigration, fiscal and monetary policies; • Political uncertainty in the United States and its effects on the economy of the Washington, D.C. metropolitan area; • Geopolitical conditions, including acts or threats of terrorism, actions taken by the United States or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the United States and abroad; and • The factors discussed under the caption “Risk Factors” in this report.
To meet funding needs during periods of high loan demand and seasonal variations in core deposits, the Bank regularly utilizes 67 Table of Contents alternative funding sources such as secured borrowings from the FHLB, federal funds purchased lines of credit from correspondent banks and brokered deposits from regional and national brokerage firms.
To meet funding needs during periods of high loan demand and seasonal variations in core deposits, the Bank regularly utilizes alternative funding sources such as secured borrowings from the FHLB, federal funds purchased lines of credit from correspondent banks and brokered deposits from regional and national brokerage firms.
Construction, land and land development loans represented 111% of consolidated risk based capital. Management has extensive experience in commercial real estate lending and has implemented and continues to maintain risk management procedures and underwriting criteria with respect to its commercial real estate portfolio designed to address the risks inherent in that asset class.
Construction, land and land development loans represented 122.6% of consolidated risk based capital. Management has extensive experience in commercial real estate lending and has implemented and continues to maintain risk management procedures and underwriting criteria with respect to its commercial real estate portfolio designed to address the risks inherent in that asset class.
The ten largest depositors not associated with brokered pass-through relationships represented approximately 22% of total deposits in the aggregate as of December 31, 2023. The Company maintains a significant deposit relationship with a third-party payments processor, whose business results in deposit inflows and outflows on an ongoing basis, which contributes to variations in period end compared to average deposit balances.
The ten largest depositors not associated with brokered pass-through relationships represented approximately 23% of total deposits in the aggregate as of December 31, 2024. The Company maintains a significant deposit relationship with a third-party payments processor, whose business results in deposit inflows and outflows on an ongoing basis, which contributes to variations in period end compared to average deposit balances.
Government, U.S. agencies and U.S. Government-sponsored enterprises, whose securities owned by the Company had a book or fair value exceeding 10% of the Company’s shareholders’ equity. The following tables provides information, on an amortized cost basis, for AFS and HTM portfolios regarding the expected maturity and weighted-average yield of the investment portfolio at December 31, 2023.
Government, U.S. agencies and U.S. Government-sponsored enterprises, whose securities owned by the Company had a book or fair value exceeding 10% of the Company’s shareholders’ equity. The following tables provide information, on an amortized cost basis, for AFS and HTM portfolios regarding the expected maturity and weighted-average yield of the investment portfolio at December 31, 2024.
Also, please refer to the discussion under the caption “Critical Accounting Policies and Estimates” within Management’s Discussion and Analysis of Financial Condition and Results of Operation for further discussion of the methodology which management employs to maintain an adequate ACL, as well as the discussion under the caption “Provision for Credit Losses” for a discussion of the Companys calculation of the provision for credit losses during the years ended December 31, 2023 and 2022.
Also, please refer to the discussion under the caption “Critical Accounting Policies and Estimates” within Management’s Discussion and Analysis of Financial Condition and Results of Operation for further discussion of the methodology which management employs to maintain an adequate ACL, as well as the discussion under the caption “Provision for Credit Losses” for a discussion of the Company's calculation of the provision for credit losses during the years ended December 31, 2024 and 2023.
We have omitted discussion of the earliest of the three years covered by our consolidated financial statements presented in this report as that disclosure is included in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission ("SEC") on February 9, 2023.
We have omitted discussion of the earliest of the three years covered by our consolidated financial statements presented in this report as that disclosure is included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission ("SEC") on February 29, 2024.
The AFS portfolio comprises U.S. treasury bonds (3.2% of AFS securities), U.S. agency securities (44.6% of AFS securities) with an average duration of 3.1 years, seasoned MBS that are 100% agency issued (48.3% of AFS securities for residential mortgage-backed and 3.3% for commercial mortgage-backed), which have an average duration of 3.4 years with contractual maturities of the underlying mortgages of up to thirty years, municipal bonds (0.6% of AFS securities), which have an average duration of 6.8 years, and corporate bonds (0.1% of AFS securities), which have an average duration of 6.1 years.
The AFS portfolio comprises U.S. treasury bonds (2.0% of AFS securities), U.S. agency securities (44.1% of AFS securities) with an average duration of 2.5 years, seasoned MBS that are 100% agency issued (49.3% of AFS securities for residential mortgage-backed and 3.9% for commercial mortgage-backed), which have an average duration of 4 years with contractual maturities of the underlying mortgages of up to thirty years, municipal bonds (0.6% of AFS securities), which have an average duration of 6 years, and corporate bonds (0.1% of AFS securities), which have an average duration of 5.6 years.
Refer to the “Use of Non-GAAP Financial Measures” section for additional detail and a reconciliation of GAAP to non-GAAP financial measures. 49 Table of Contents Net Interest Income and Net Interest Margin Net interest income is the difference between interest income on earning assets and the cost of funds supporting those assets.
Refer to the “Use of Non-GAAP Financial Measures” section for additional detail and a reconciliation of GAAP to non-GAAP financial measures. 45 Table o f Contents Net Interest Income and Net Interest Margin Net interest income is the difference between interest income on earning assets and the cost of funds supporting those assets.
The Bank has developed and implemented analytical procedures for evaluating credit requests, has refined the Company’s risk rating system and has adopted enhanced monitoring of the loan portfolio and the adequacy of the ACL, in particular on its commercial real estate and construction loans (including those collateralized by office properties).
The Bank has developed and implemented analytical procedures for evaluating credit requests, has refined the Company’s risk rating system and has adopted enhanced monitoring of the loan portfolio and the adequacy of the ACL, in particular on its commercial real estate and construction loans (including those collateralized by office properties). These analyses include stress testing.
The increase is primarily due to the increase in nonperforming loans discussed below. The Company had no accruing loans 90 days or more past due at December 31, 2023 or December 31, 2022. Management prioritizes remaining attentive to early signs of deterioration in borrowers’ financial conditions and to taking action to mitigate risk.
The increase is primarily due to the increase in nonperforming loans discussed below. The Company had no accruing loans that were 90 days or more past due at December 31, 2024 or December 31, 2023. Management prioritizes remaining attentive to early signs of deterioration in borrowers’ financial conditions and to taking action designed to mitigate risk.
(2) Comprise unencumbered assets that could be liquidated or used as collateral to obtain additional liquidity through debt financing. The funding mix has continued to change throughout the year ended December 31, 2023. Deposits at year end were $8.8 billion and $8.7 billion at December 31, 2023 and 2022, respectively.
(2) Comprise unencumbered assets that could be liquidated or used as collateral to obtain additional liquidity through debt financing. The funding mix has continued to change throughout the year ended December 31, 2024. Deposits at year end were $9.1 billion and $8.8 billion at December 31, 2024 and 2023, respectively.
See Note 10 to the Consolidated Financial Statements for additional information regarding the maturities of time deposits and the Average Balances Table in the “Net Interest Income and Net Interest Margin” section for the average rates paid on interest-bearing deposits.
See Note 10 to the Consolidated Financial Statements for additional information 63 Table o f Contents regarding the maturities of time deposits and the Average Balances Table in the “Net Interest Income and Net Interest Margin” section for the average rates paid on interest-bearing deposits.
The changes in qualitative components were due to perceived weakness in the 52 Table of Contents commercial real estate market, in addition to the high inflationary environment offset by a reduction in the quantitative reserves based on a decline in individually evaluated loans.
The changes in qualitative components were due to perceived weakness in the commercial real estate market, in addition to high inflationary environment offset by a reduction in the quantitative reserves based on a decline in individually evaluated loans.
Interest rates do not necessarily move in the same direction or to the same extent as the price of goods or services. 75 Table of Contents NEW AUTHORITATIVE ACCOUNTING GUIDANCE Refer to Note 1 to the Consolidated Financial Statements for New Authoritative Accounting Guidance and their expected impact on the Company’s Financial Statements. 76 Table of Contents
Interest rates do not necessarily move in the same direction or to the same extent as the price of goods or services. NEW AUTHORITATIVE ACCOUNTING GUIDANCE Refer to Note 1 to the Consolidated Financial Statements for New Authoritative Accounting Guidance and their expected impact on the Company’s Financial Statements. 71 Table o f Contents
For example, the effects of the COVID-19 pandemic and related hybrid or fully remote working environment has negatively impacted the performance outlook in the central business district office commercial real estate segment of our loan portfolio, which informed our CECL economic forecast and continued to adversely impact our loss reserve as of December 31, 2023.
For example, the effects of the COVID-19 pandemic and related hybrid or fully remote working environment has negatively impacted the performance outlook in the central business district office CRE segment of our loan portfolio, which informed our CECL economic forecast and continued to adversely impact our loss reserve as of December 31, 2024.
Interest bearing deposits with banks and other short-term investments represent liquid funds held at the Federal Reserve to meet general liquidity needs of the Company, such as future loan demand and future increases in investment securities, among others.
Interest bearing deposits with banks and other short-term investments primarily consist of liquid assets held at the Federal Reserve to meet general liquidity needs of the Company, such as future loan demand and future increases in investment securities, among others.
As of December 31, 2023, the unrealized losses recorded on the available-for-sale securities were acting as a deterrent to any sale of those securities to raise liquidity. However, these securities are utilized as pledged assets that provide secondary liquidity through the form of additional available borrowings.
As of December 31, 2024, the unrealized losses recorded on the available-for-sale securities were acting as a deterrent to any sale of those securities to raise liquidity. However, these securities can be utilized as pledged assets that provide secondary liquidity through the form of additional available borrowings.
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.
Generally, the Company would obtain updated appraisals or evaluations where it has reason to believe, based upon market indications (such as comparable sales, a scenario in which the Company is considering legitimate offers below carrying value, broker indications and similar factors), that the current appraisal does not accurately reflect current value.
The Bank raises and renews time deposits through its branch network, for its public funds customers, and through brokered certificates of deposits ("CDs") to meet the needs of its community of savers and as part of its interest rate risk management and liquidity planning.
The Bank raises and renews time deposits through its branch network, for its public funds customers, and through brokered certificates of deposits ("CDs") to meet the needs of its community of savers and as part of its interest rate 64 Table o f Contents risk management and liquidity planning.
Fiscal and monetary policies have a direct and indirect impact on the level and volatility of interest rates, liquidity of financial markets, the availability and cost of capital, and market conditions of financing.
Fiscal and monetary policies have a direct and indirect impact on the level and volatility of interest rates, liquidity of financial markets, the availability and cost of capital, and market conditions of financing. Actual real U.S.
When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell.
When repayment is expected to be from 60 Table o f Contents the sale of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell.
If one or more of the factors affecting our forward looking information and statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward looking information and statements contained in this report. You should not place undue reliance on our forward looking information and statements.
If one or more of the factors affecting our forward looking information and statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward looking information and statements contained in this report. No undue reliance should be placed on our forward looking information and statements.
The Company, like many community banks, has a concentration in commercial real estate loans, and the Company has experienced growth in its commercial real estate portfolio in recent years. As of December 31, 2023, non-owner occupied commercial real estate loans (including construction, land and land development loans) represented 350.4% of consolidated risk based capital.
The Company, like many community banks, has a concentration in commercial real estate loans, and the Company has experienced growth in its commercial real estate portfolio in recent years. As of December 31, 2024, non-owner occupied commercial real estate loans (including construction, land and land development loans) represented 372.6% of consolidated risk based capital.
Significant variation in the amount of nonperforming loans may occur from period to period because the amount of nonperforming loans depends largely on the condition of a relatively small number of individual credits and borrowers relative to the total loan portfolio. At December 31, 2023, there were $335.8 million of Substandard loans.
Significant variation in the amount of nonperforming loans may occur from period to period because the amount of nonperforming loans depends largely on the condition of a relatively small number of individual credits and borrowers relative to the total loan portfolio. At December 31, 2024, there were $426.4 million of Substandard loans.
Additionally, the Bank can purchase up to $155.0 million in federal funds on an unsecured basis from its correspondents, against which there were no amounts outstanding at December 31, 2023 and can borrow unsecured funds under one-way CDARS and ICS brokered deposits in the amount of $1.7 billion, against which there was $94 million outstanding at December 31, 2023.
Additionally, the Bank can purchase up to $145.0 million in federal funds on an unsecured basis from its correspondents, against which there were no amounts outstanding at December 31, 2024 and can borrow unsecured funds under one-way CDARS and ICS brokered deposits in the amount of $1.1 billion, against which there was $73 million outstanding at December 31, 2024.
At December 31, 2023, we did exceed the construction, land development, and other land acquisitions regulatory concentration threshold, and we continue to monitor our concentration in commercial real estate lending and remain in compliance with the guidance issued by the federal banking regulators. Construction, land and land development loans represent 111% of total risk based capital.
At December 31, 2024, we did exceed the construction, land development, and other land acquisitions regulatory concentration threshold, and we continue to monitor our concentration in commercial real estate lending and remain in compliance with the guidance issued by the federal banking regulators. Construction, land and land development loans represent 122.60% of consolidated risk based capital.
Please refer to the discussion under “Critical Accounting Policies and Estimates” above and in Note 1 to the Consolidated Financial Statements for an overview of the methodology management employs on a quarterly basis to assess the adequacy of the allowance and the provisions charged to expense.
Refer to the discussion under “Critical Accounting Policies and Estimates” in Management's Discussion and Analysis of Financial Condition and Results of Operations 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.
The balances in these accounts were $30.6 million at December 31, 2023 compared to $35.1 million at December 31, 2022. Customer repurchase agreements are not deposits and are not insured by the FDIC, but are collateralized by U.S. agency securities and/or U.S. agency backed MBS.
The balances in these accounts were $33.2 million at December 31, 2024 compared to $30.6 million at December 31, 2023. Customer repurchase agreements are not deposits and are not insured by the FDIC, but are collateralized by U.S. agency securities and/or U.S. agency backed MBS.
The HTM portfolio comprises seasoned MBS that are 100% agency issued (65.8% of HTM securities for residential mortgage-backed and 8.9% for commercial mortgage-backed), which have an average duration of 4.7 years with contractual 55 Table of Contents maturities of the underlying mortgages of up to thirty years, municipal bonds (12.3% of HTM securities), which have an average duration of 6.1 years, and corporate bonds (13.0% of HTM securities), which have an average duration of 5.3 years.
The HTM portfolio comprises seasoned MBS that are 100% agency issued (64.5% of HTM securities for residential mortgage-backed and 9.4% for commercial mortgage-backed), which have an average duration of 5.4 years with contractual maturities of the underlying mortgages of up to thirty years, municipal bonds (12.1% of HTM securities), which have an average duration of 6.7 years, and corporate bonds (14.0% of HTM securities), which have an average duration of 4.3 years.
We continue to see opportunities for growth in the commercial real estate market in our focused sectors; our processes for evaluating these opportunities are designed to subject them to reasonable underwriting standards, including appropriate collateral and cash flow necessary to support debt service.
We continue to see opportunities for growth in the commercial lending market in our focused sectors; our processes for evaluating these opportunities are designed to ensure they are subject to reasonable underwriting standards, including appropriate collateral and cash flow necessary to support debt service.
The Company seeks to manage the risks relating to commercial real estate and its capital adequacy through the development and implementation of its Capital Policy and Capital Plan, the preparation of pro-forma projections including stress testing and the development of internal minimum targets for regulatory capital ratios that are subject to approval by the the Board of Directors (the "Board") and in excess of well capitalized ratio requirements.
The Company seeks to manage the risks relating to commercial real estate and its capital adequacy through the development and implementation of its Capital Policy and Capital Plan, the preparation of pro-forma projections including stress testing and the development of internal minimum targets for regulatory capital ratios that are subject to approval by the Board and in excess of well capitalized ratios (as defined in the section “Regulation” above).
This program requires the Company to maintain a sufficient investment securities level to accommodate the fluctuations in balances which may occur in these accounts. At December 31, 2023 the Company had $2.2 billion in time deposits, an increase of $1.4 billion from year end December 31, 2022.
This program requires the Company to maintain a sufficient investment securities level to accommodate the fluctuations in balances which may occur in these accounts. At December 31, 2024, the Company had $2.8 billion in time deposits, an increase of $0.6 billion from year end December 31, 2023.
Although growth in that segment over the past 36 months at 7% did not exceed the 50% threshold laid out in the regulatory guidance, we expect the heightened supervisory expectations to continue to apply to us given the federal banking regulators’ general focus on commercial real estate exposures at banks.
Although growth in that segment over the past 36 months at 26.8% did not exceed the 50% threshold laid out in the regulatory guidance, we expect the 69 Table o f Contents heightened supervisory expectations to continue to apply to us given the federal banking regulators’ general focus on commercial real estate exposures at banks.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion provides information about the results of operations, financial condition, liquidity, and capital resources of the Company.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion provides information about the results of operations, financial condition, liquidity, and capital resources of the Company as of the dates and periods indicated.
In 2008, the Company recorded an unidentified intangible asset (goodwill) incident to the acquisition of Fidelity of $2.2 million. In 2014, the Company recorded an initial amount of unidentified intangible (goodwill) incident to the acquisition of Virginia Heritage of approximately $102 million.
In 2014, the Company recorded an initial amount of unidentified intangible (goodwill) incident to the acquisition of Virginia Heritage of approximately $102 million.
The Company’s capital ratios were all well in excess of guidelines established by the Federal Reserve Board and the Bank’s capital ratios were in excess of those required to be classified as a “well capitalized” institution under the prompt corrective action provisions of the Federal Deposit Insurance Act.
The Company’s capital ratios were all well in excess of requirements established by the Federal Reserve Board and the Bank’s capital ratios were in excess of those required to be classified as a “well capitalized” institution under the prompt 70 Table o f Contents corrective action provisions of the Federal Deposit Insurance Act.
The Company uses regression analysis of historical internal and peer data (as Company loss data is insufficient) to determine suitable loss drivers to utilize when modeling lifetime PD and LGD. This analysis also determines how expected PD will react to forecasted levels of the loss drivers.
The Company uses regression analysis of historical internal and peer data provided by a third-party service provider (as Company loss data is insufficient) to determine suitable loss drivers to utilize when modeling lifetime PD and LGD. This analysis also determines how expected PD will react to forecasted levels of the loss drivers.
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 was organized in October 1997 and 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.
Also, refer to the table in the "Allowance for Credit Losses" section which reflects activity in the ACL. The total provision for credit losses was $31.5 million during the year ended December 31, 2023, as compared to $266 thousand during the year ended December 31, 2022.
Also, refer to the table in the "Allowance for Credit Losses" section which reflects activity in the ACL. The total provision for credit losses was $66.4 million during the year ended December 31, 2024, as compared to $31.5 million during the year ended December 31, 2023.
The transferred securities had unrealized losses of $66.2 million, and, as of December 31, 2023, $51.7 million remains in accumulated other comprehensive loss and will be amortized ratably over the remaining lives of the securities through accumulated other comprehensive loss.
The transferred securities had unrealized losses of $66.2 million, and, as of December 31, 2024, $44.8 million remains in accumulated other comprehensive loss and will be amortized ratably over the remaining lives of the securities through accumulated other comprehensive loss.
The Bank posted additional collateral to the FHLB during the year ended December 31, 2023 to increase its eligibility for advances to meet its ongoing liquidity needs and expects to continue utilizing this source of funding in the future.
The Bank posted additional collateral to the FHLB during the year ended December 31, 2024 to increase its availability to meet its ongoing liquidity needs and expects to continue utilizing this source of funding in the future.
See Notes 1, 3 and 4 to the Consolidated Financial Statements, the “Provision for Credit Losses” section in Management’s Discussion and Analysis and the risk factors related to our business and economic conditions in Item 1A for more information on the provision for credit losses.
See Notes 1, 3 and 4 to the Consolidated Financial Statements, the “Provision for Credit Losses” and "Allowance for Credit Losses" section in Management’s Discussion and Analysis of Financial Condition and Results of Operations and the risk factors related to our business and economic conditions in Item 1A for more information on the provision for credit losses and ACL for the loan portfolio.
The allocation of the allowance to each category is not necessarily indicative of future losses or charge-offs and does not restrict the usage of the allowance for any specific loan or category.
The allocation of the allowance to each category is not necessarily indicative of future losses or charge-offs and does not restrict the usage of the allowance to absorb losses in any category.
Although these loans are made to a diversified pool of unrelated borrowers across numerous businesses, adverse developments in the Washington, D.C. metropolitan real estate market could have an adverse impact on this portfolio of loans and the Company’s income and financial position.
Although all of these loans are made to a diversified pool of unrelated borrowers across numerous businesses, adverse developments in the real estate market could continue to have an adverse impact on this portfolio of loans and the Company’s earnings and financial position.
In terms of funding, total deposits at December 31, 2023 were $8.8 billion as compared to $8.7 billion at December 31, 2022, an increase of 1%. Total borrowed funds (excluding customer repurchase agreements) were $1.4 billion and $1.0 billion at December 31, 2023 and 2022, respectively.
In terms of funding, total deposits at December 31, 2024 were $9.1 billion as compared to $8.8 billion at December 31, 2023, an increase of 4%. Total borrowed funds (excluding customer repurchase agreements) were $566.1 million and $1.4 billion at December 31, 2024 and 2023, respectively.
Should the Bank elect to exercise its right to terminate the George Mason contract, contractual obligations would decrease $3.5 million and $3.6 million for the first option period (years 11-15) and the second option period (16-20), respectively. (5) Low Income Housing Tax Credits (“LIHTC”) expected payments for unfunded affordable housing commitments.
Should the Bank elect to exercise its right to terminate the George Mason contract, its contractual obligation would decrease by $3.6 million for the option period (years 16-20). (5) Low Income Housing Tax Credits (“LIHTC”) expected payments for unfunded affordable housing commitments.
At December 31, 2023, the Bank also has custodial agreements with various broker-dealers through IntraFi's IND program which provided $786.5 million of brokered deposits.
At December 31, 2024, the Bank also has custodial agreements with various broker-dealers through IntraFi's IND program which provided $894.7 million of brokered deposits.
For 2023, as compared to 2022, average loans, excluding loans held for sale, increased by $609.7 million, or 8%, driven by originations and advances that outpaced payoffs and paydowns. Average investment securities for 2023 were 23% of average earning assets compared to 25% for 2022.
For 2024, as compared to 2023, average loans, excluding loans held for sale, increased by $181.8 million, or 2%, driven by originations and advances that outpaced payoffs and paydowns. Average investment securities for 2024 were 20% of average earning assets compared to 23% for 2023.
This provision considers the probability that unfunded commitments will fund. There was a reversal of $267 thousand in 2023, as compared to a provision of $1.5 million in 2022. Noninterest Income Noninterest income includes service charges on deposits, gain on sale of loans, gain on sale of investment securities, income from bank owned life insurance (“BOLI”) and other income.
This provision considers the probability that unfunded commitments will fund among other factors. There was a reversal of $2.1 million in 2024, compared to $0.3 million reversal in 2023. Noninterest Income Noninterest income includes service charges on deposits, gain on sale of loans, gain on sale of investment securities, income from bank owned life insurance (“BOLI”) and other income.
At December 31, 2023, the Company had $2.3 billion in noninterest bearing demand deposits, representing 26% of total deposits compared to $3.2 billion of noninterest bearing demand deposits at December 31, 2022, or 36% of total deposits.
At December 31, 2024, the Company had $1.5 billion in noninterest bearing demand deposits, representing 17% of total deposits compared to $2.3 billion of noninterest bearing demand deposits at December 31, 2023, or 26% of total deposits.
At December 31, 2023 and December 31, 2022, total deposits included estimated totals of $2.8 billion and $4.4 billion of uninsured deposits, which represented 31% and 51% of total deposits, respectively.
At December 31, 2024 and 2023, total deposits included estimated totals of $2.2 billion and $2.8 billion of uninsured deposits, which represented 24% and 31% of total deposits, respectively.
Office loans within Washington D.C., Washington's Maryland Suburbs and Northern Virginia were $879.0 million and $851.9 million, or 11.0% and 11.2% of total loans, at December 31, 2023 and December 31, 2022, respectively.
Office loans within Washington D.C., Washington's Maryland Suburbs and Northern Virginia were $795.0 million and $879.0 million, or 10.0% and 11.0% of total loans, at December 31, 2024 and December 31, 2023, respectively.
Included in nonperforming assets at December 31, 2023 is OREO of $1.1 million, consisting of 2 foreclosed properties. Included in nonperforming assets at December 31, 2022 was OREO of $2.0 million, consisting of 4 foreclosed properties. OREO properties are carried at the lower of cost or at fair value less estimated costs to sell.
Included in nonperforming assets at December 31, 2024 is OREO of $2.7 million, consisting of five foreclosed properties, compared to OREO of $1.1 million, consisting of three foreclosed properties at December 31, 2023. OREO properties are carried at the lower of cost or at fair value less estimated costs to sell.
Average total deposits for the year ended December 31, 2023 were $8.9 billion, as compared to $10.1 billion for the same period in 2022, a 12% decrease. Time deposits were $2.2 billion at December 31, 2023, which was 25% of deposits. This was an increase from $783.5 million at December 31, 2022, which was 9% of deposits.
Average total deposits for the year ended December 31, 2024 were $9.5 billion, as compared to $8.9 billion for the same period in 2023, a 7% increase. Time deposits were $2.8 billion at December 31, 2024, which was 30% of deposits. This was an increase from $2.2 billion at December 31, 2023, which was 25% of deposits.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

42 edited+11 added−7 removed17 unchanged
Biggest changeThe few remaining loans that were still tied to LIBOR based rates on June 30, 2023 were transitioned to their appropriate fallback rate on July 3, 2023. 77 Table of Contents In the current and expected future interest rate environment, the Company has been maintaining its investment portfolio with the goal of managing the balance between yield and risk in its portfolio of MBS.
Biggest changeIn the current and expected future interest rate environment, the Company has been maintaining its investment portfolio to manage the balance between yield and risk in its portfolio of MBS. Further, the Company has been principally collecting cash flows from the investment portfolio to provide liquidity.
Banking is generally a business of managing the maturity and repricing mismatch inherent in its asset and liability cash flows to provide net interest income growth consistent with the Company’s profit objectives.
Banking is generally a business of managing the maturity and repricing mismatch inherent in its asset and liability cash flows to provide stable net interest income growth consistent with the Company’s profit objectives.
The Bank’s ALCO formulates and monitors the management of interest rate risk through policies and guidelines established by it and overseen by the Audit Committee and the full Board and through review of detailed reports discussed quarterly.
The Bank’s ALCO formulates and monitors the management of interest rate risk through policies and guidelines established by it and overseen by the Audit Committee and the full Board of Directors and through review of detailed reports discussed quarterly.
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 December 31, 2023. In addition to analysis of simultaneous changes in interest rates along the yield curve, an analysis of changes based on interest rate “ramps” is also performed.
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 December 31, 2024. In addition to analysis of simultaneous changes in interest rates along the yield curve, an analysis of changes based on interest rate “ramps” is also performed.
As quantified in the table below, the Company’s analysis at December 31, 2023 shows a moderate effect on net interest income over the next 12 months, as well as a moderate effect on the economic value of equity when interest rates are shocked down 100, 200 and 300 basis points and up 100, 200, 300 and 400 basis points.
As quantified in the table below, the Company’s analysis at December 31, 2024 shows a moderate effect on net interest income over the next 12 months, as well as a moderate effect on the economic value of equity when interest rates are shocked down 100, 200 and 300 basis points and up 100, 200, 300 and 400 basis points.
The model utilizes current balance sheet data and attributes and is adjusted for assumptions as to investment maturities (including prepayments), loan prepayments, interest rates, deposit decay rates, and the level of noninterest income and noninterest expense. Further discussion of the limitations of this analysis are listed below and in Item 1A. Risk Factors.
The model utilizes current balance sheet data and attributes and is adjusted for assumptions as to investment maturities (including prepayments), loan prepayments, interest rates, deposit decay rates, and the level of noninterest income and noninterest expense. Further discussion of the limitations of this analysis are listed below and in Item 1A.
Each of the above analyses may not, on its own, be an accurate indicator of how our net interest income will be affected by changes in interest rates. Income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates.
Each of the above analyses may not, on its own, be an accurate indicator of how our net interest income will be affected by current and future changes in interest rates. Income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates.
Finally, the ability of many borrowers to service their debt may decrease in the event of a significant interest rate increase. 79 Table of Contents While an instantaneous parallel shift in interest rates was used in this analysis to provide an estimate of exposure under these scenarios, we believe that a non-immediate parallel shifts in interest rates would have a more modest impact.
Finally, the ability of many borrowers to service their debt may decrease in the event of a significant interest rate increase. While an instantaneous parallel shift in interest rates was used in this analysis to provide an estimate of exposure under these scenarios, we believe that a non-immediate parallel shifts in interest rates would have a more modest impact.
The model's prediction is the result of increases in both interest income on variable and adjustable rate loans and interest expense on its deposit liabilities, based on our funding needs, market conditions and certain contractual obligations but with no changes in the mix of assets or liabilities or the spreads we are able to earn.
The model's prediction in a rising rate environment is the result of increases in both interest income on variable and adjustable rate loans and interest expense on its deposit liabilities, based on our funding needs, market conditions and certain contractual obligations but with no changes in the mix of assets or liabilities or the spreads we are able to earn.
For the market value of equity, the Company has adopted a policy limit of -12% for a 100 basis point change, -15% for a 200 basis point change, -25% for a 300 basis point change and -30% for a 400 basis point change.
For the economic value of equity, the Company has adopted a policy limit of -12% for a 100 basis point change, -15% for a 200 basis point change, -25% for a 300 basis point change and -30% for a 400 basis point change.
ALCO reviews each of the above interest rate sensitivity analyses along with several different interest rate scenarios as part of its responsibility to provide a satisfactory, consistent level of profitability within the framework of established liquidity, loan, investment, borrowing and capital policies. 80 Table of Contents
ALCO reviews each of the above interest rate sensitivity analyses along with several different interest rate scenarios as part of its responsibility to provide a satisfactory, consistent level of profitability within the framework of established liquidity, loan, investment, borrowing and capital policies. 75 Table o f Contents
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Asset/Liability Management of Interest Rate Risk A fundamental risk in banking is exposure to market risk, or interest rate risk, since a bank’s net income is largely dependent on net interest income.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Asset/Liability Management of Interest Rate Risk A fundamental risk in banking is exposure to market risk, specifically interest rate risk, since a bank’s earnings are largely dependent on net interest income.
The Company believes that the change in the net interest spread for the full year 2023 has been consistent with its risk analysis at December 31, 2022 when accounting for balance sheet volume and mix changes.
The Company believes that the stable net interest spread for the full year 2024 has been consistent with its risk analysis at December 31, 2023 when accounting for balance sheet volume and mix changes.
The following table reflects the result of the simulation analysis on the December 31, 2023 asset and liability 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 (1.1)% (2.7)% (6.1)% +300 (0.7)% (1.7)% (4.1)% +200 (0.6)% (1.4)% (2.5)% +100 (0.4)% (0.9)% (1.0)% — — — — (100) 3.0% 8.4% 0.3% (200) 6.9% 19.1% (1.0)% (300) 11.0% 30.5% (4.7)% The results of the simulation are within the relevant policy limits adopted by the Company for percentage change in net interest income.
The following table reflects the result of the simulation analysis on the December 31, 2024 asset and liability balances: Change in interest rates (basis points) Percentage change in 12-month net interest income Percentage change in 12-month net income Percentage change in economic value of equity +400 (2.9)% (6.3)% (14.1)% +300 (2.2)% (4.8)% (11.0)% +200 (1.5)% (3.3)% (7.6)% +100 (0.7)% (1.5)% (3.9)% — — — — (100) 0.9% 2.0% 5.0% (200) 1.7% 3.8% 9.6% (300) 0.3% 0.5% 10.9% The results of the simulation are within the relevant policy limits adopted by the Company for percentage change in net interest income.
On an annual basis, the Company back-tests the actual change in its net interest spread against expected change and actual market interest rate movements and other factors impacting actual as compared to projected results.
On an annual basis, the Company back-tests the actual change in its net interest spread against expected change and actual market interest rate movements and other factors impacting actual as compared to projected results. The loan portfolio remained relatively flat throughout 2024.
We may also experience increases in provisions for credit losses, adversely affecting our net income, if the creditworthiness of the issuers declines, whether due to idiosyncratic factors, economic conditions generally or otherwise.
We may also experience increases in provisions for credit losses, adversely affecting our earnings, if the creditworthiness of the issuers declines, whether due to idiosyncratic factors, economic conditions generally or other unforeseen factors or events.
The Bank does have deposits with contractual terms which means these deposits will change 100 basis points for every 100 basis points change in market rates. Thus, the overall measure of the correlation between deposit costs and market rate changes is modeled at 100%.
The Bank does have deposits with contractual rate terms which means these deposits will change 100 basis points for every 100 basis points change in market rates. Thus, the overall measure of the correlation between deposit costs and market rate changes is modeled at 100%. The Company utilized the same assumptions for its analysis at December 31, 2023.
At December 31, 2023, $79.3 million of corporate bonds were subordinated debt from other financial institutions. Corporate bonds generally, and subordinated debt in particular, pose credit risk such that if any of these issuers were to enter bankruptcy or insolvency proceedings, we could experience losses that may be material to operating results and our financial condition.
Corporate bonds generally, and subordinated debt in particular, pose credit risk such that if any of these issuers were to enter bankruptcy or insolvency proceedings, we could experience losses that may be material to operating results and our financial condition.
During the year ended December 31, 2023, the Company was able to produce a net interest margin of 2.53% as compared to 2.93% during the same period in 2022 and continues to manage its overall interest rate risk position.
During the year ended December 31, 2024, the Company produced a net interest margin of 2.37% as compared to 2.53% during the same period in 2023 and continues to manage its overall interest rate risk position.
The changes in net interest income, net income and the economic value of equity in higher interest rate shock scenarios at December 31, 2023 are not believed to be excessive. Certain shortcomings are inherent in the method of analysis presented in the foregoing table.
The changes in net interest income, net income and the economic value of equity in higher interest rate shock scenarios at December 31, 2024 are not believed to be excessive and are within policy limits. 74 Table o f Contents Certain shortcomings are inherent in the method of analysis presented in the foregoing table.
At December 31, 2023, the Company had a portfolio of $3.0 billion of variable and adjustable rate loans that were subject to interest rate floors with a weighted average rate of 7.99%.
At December 31, 2024, the Company had a portfolio of $3.0 billion of variable and adjustable rate loans that were subject to interest rate floors with a weighted average rate of 7.24%, which was a 75 bps decrease from December 31, 2023.
The data is then subjected to a “shock test” which assumes a simultaneous change in interest rates up 100, 200, 300 and 400 basis points or down 100, 200 and 300 basis points, along the entire yield curve, but not below zero.
Risk Factors, and in other periodic and current reports filed by the Company with the SEC. The data is then subjected to a “shock test” which assumes a simultaneous change in interest rates up 100, 200, 300 and 400 basis points or down 100, 200 and 300 basis points, along the entire yield curve, but not below zero.
Interest rate floors on certain of the Company's variable and adjustable rate loans may provide asset yield protection in a low-interest rate environment; however, they are also expected to delay the impact of increases to market rates on interest income until such floors have been exceeded, although this is not relevant for the current rate environment with most variable rate loans well above their floor rate.
Interest rate floors on certain of the Company's variable and adjustable rate loans may provide asset yield protection in a low-interest rate environment; however, they are also expected to delay the impact of increases to market rates on interest income until such floors have been exceeded.
The re-pricing duration on the loan portfolio was 12 months at December 31, 2023 and 13 months at December 31, 2022, with fixed-rate loans amounting to 38% of total loans at December 31, 2023 and 2022. Variable and adjustable rate loans comprised 62% of total loans at December 31, 2023 and 2022.
The re-pricing duration on the loan portfolio was 10.6 months at December 31, 2024 and 12 months at December 31, 2023, with fixed-rate loans amounting to 38.1% and 38.2% of total loans at December 31, 2024 and 2023, respectively. Variable and adjustable rate loans comprised 61.9% and 61.8% of total loans at December 31, 2024 and 2023, respectively.
Treasury rate increased by 106 basis points from 3.00% to 4.06% while the average ten year U.S. Treasury rate increased by 101 basis points from 2.95% to 3.96%. The Company’s cost of interest bearing deposits increased by 96 basis points across its interest-bearing deposits, which comprise 74% of its total deposits, at December 31, 2023.
Treasury rate increased by 7 basis points from 4.06% to 4.13% while the average ten year U.S. Treasury rate increased by 25 basis points from 3.96% to 4.21%. The Company’s cost of interest bearing deposits decreased by 14 basis points across its interest-bearing deposits, which comprise 83% of its total deposits, at December 31, 2024.
There can be no assurance that the Company will be able to successfully achieve its optimal asset liability mix, given competitive pressures, customer preferences and the inability to forecast future interest rates and movements with complete accuracy.
There can be no assurance that the Company will be able to successfully achieve its optimal asset liability mix, given competitive pressures, customer preferences and the inability to forecast future interest rates and movements with complete accuracy. In the year ended December 31, 2024, the Federal Reserve instituted 100 basis points of interest rate cuts.
Such analysis represents the impact of a more gradual change in interest rates, as well as yield curve shape changes. 78 Table of Contents For the analysis presented below, at December 31, 2023, the simulation assumes a 100 basis point change in interest rates on interest bearing deposits for each 100 basis point change in market interest rates in a decreasing interest rate shock scenario with a floor of 10 basis points and assumes a 100 basis point change in interest rates on interest bearing deposits for each 100 basis point change in market interest rates in an increasing interest rate shock scenario.
For the analysis presented below, at December 31, 2024, the simulation assumes a 100 basis point change in interest rates on interest bearing deposits for each 100 basis point change in market interest rates in a decreasing interest rate shock scenario with a floor of 10 basis points and assumes a 100 basis point change in interest rates on interest bearing deposits for each 100 basis point change in market interest rates in an increasing interest rate shock scenario.
The net unrealized loss before income tax on the investment securities available-for-sale portfolio was $162.0 million and $205.3 million at December 31, 2023 and 2022, respectively. At December 31, 2023, the net unrealized loss position represented 9.72% of the investment portfolio's book value.
The net unrealized loss before income tax on the AFS securities portfolio was $141.5 million and $162.0 million at December 31, 2024 and 2023, respectively. At December 31, 2024, the net unrealized loss position represented 10.04% of the investment portfolio's book value.
The model also assumes a stable interest rate environment after the programmed rate change, allowing assets and liabilities to reprice at their schedule in a stable environment, which may be quite different than real world conditions.
The model also assumes a stable interest rate environment after the programmed changes in the yields, which assumes repricing of assets and liabilities as scheduled in a stable environment, which may be quite different than real world conditions.
The weighted average rate of the Company's variable rate loans increased by approximately 85 basis points from December 31, 2022 to December 31, 2023 in connection with the increase in 100 basis points for the same period in Fed Funds rate hikes caused by actions taken by the Federal Reserve Bank.
The weighted average rate of the Company's variable rate loans decreased by approximately 76 basis points from December 31, 2023 to December 31, 2024 in connection with the decrease of 100 basis points for the same period in Fed Funds rate.
The impact of (0.4)% in net interest income and (0.9)% in net income given a 100 basis point increase in market interest rates at December 31, 2023 compares to 9.9% in net interest income and 16.4% in net income for the same period in 2022 and reflects in large measure the beta factor discussion above.
The increase in 12-month net interest income and net income of 0.9% and 2.0%, respectively, given a 100 basis point decrease in market interest rates at December 31, 2024 compares to (0.4)% and (0.9)%, respectively, for the same period in 2023.
Corporate bonds made up 5% of total investments at December 31, 2023 and 2022. U.S. treasury bonds were 2% of total investments at December 31, 2023 and 2022. The duration of the investment portfolio decreased to 4.4 years at December 31, 2023 from 4.8 years at December 31, 2022.
U.S. treasury bonds were 1% of total investments at December 31, 2024 and 2023. The duration of the investment portfolio decreased to 4.2 years at December 31, 2024 from 4.4 years at December 31, 2023. At December 31, 2024, $79.3 million of corporate bonds were subordinated debt from other financial institutions.
The fair value of RPAs is calculated by determining the total expected asset or liability exposure of the derivatives to the borrowers and applying the borrowers’ credit spread to that exposure. Total expected exposure incorporates both the current and potential future exposure of the derivatives, derived from using observable inputs, such as yield curves and volatilities.
The fair value of RPAs is calculated by determining the total expected asset or liability exposure of the derivatives to the borrowers and applying the borrowers’ credit spread to that exposure.
The Company employs an earnings simulation model (immediate parallel shifts along the yield curve) on a quarterly basis to monitor its interest rate sensitivity and risk and to model its balance sheet cash flows and the related income statement effects in different interest rate scenarios.
The majority of those loans are expected to reset at rates higher than their floor at their next rate reset date. 73 Table o f Contents The Company employs an earnings simulation model (immediate parallel shifts along the yield curve) on a quarterly basis to monitor its interest rate sensitivity and risk and to model its balance sheet cash flows and the related statement of operations effects in different interest rate scenarios.
The percentage mix of municipal securities was 5% of total investments at December 31, 2023 and 2022. The portion of the portfolio invested in MBS was 61% and 63% at December 31, 2023 and 2022. The portion of the portfolio invested in U.S. agency investments was 27% at December 31, 2023 and 25% at December 31, 2022.
The portion of the portfolio invested in MBS was 62% and 61% at December 31, 2024 and 2023. The portion of the portfolio invested in U.S. agency investments was 25% at December 31, 2024 and 27% at December 31, 2023. Corporate bonds made up 6% of total investments at December 31, 2024 and 2023.
Variable rate loans are generally indexed to either the one-month London Interbank Offered Rate (“LIBOR”) (prior to the June 30, 2023 LIBOR cessation date), with fallback language to reference the Secured Overnight Funding Rate ("SOFR"), or the Wall Street Journal prime interest rate, while adjustable rate loans are indexed primarily to the five year U.S. Treasury interest rate.
Variable rate loans are generally indexed to the Secured Overnight Funding Rate ("SOFR") or the Wall Street Journal prime interest rate, while adjustable rate loans are indexed primarily to the five year U.S. Treasury interest rate.
During 2023, average market interest rates were increased across the yield curve as compared to the 2022 year end. As compared to the year 2022, the average two year U.S. Treasury rate in 2023 increased by 159 basis points from 2.99% to 4.58%. The average five year U.S.
During 2024, the yield curve normalized and became less inverted as the short end of the curve came down as the long end increased as compared to the 2023 year end. As compared to the year 2023, the average two year U.S. Treasury rate in 2024 decreased by 21 basis points from 4.58% to 4.37%. The average five year U.S.
This moderate impact is due substantially to the significant level of variable rate and repriceable assets and liabilities and related shorter relative durations. The repricing duration of the investment portfolio at December 31, 2023 is 4.4 years, the loan portfolio 1.0 years, the interest bearing deposit portfolio 1.2 years, and the borrowed funds portfolio 0.3 years.
This moderate impact is due substantially to the significant level of variable rate and repriceable assets and liabilities and related shorter relative durations.
At December 31, 2023, only $183.9 million of loans held by the Company were earning interest at their floor rate, as compared to $241.0 million at December 31, 2022. The majority of those loans are expected to reset at rates higher than their floor at their next rate reset date. The loan portfolio increased throughout 2023.
At December 31, 2024, only $123.6 million or 1.56% of loans held by the Company were earning interest at their floor rate, as compared to $183.9 million or 2.31% at December 31, 2023.
The duration of the deposit portfolio decreased to 28 months at December 31, 2023 from 29 months at December 31, 2022. The Company experienced a total deposit increase of $94.9 million for the year ended December 31, 2023 as compared to a total loan increase of $333.1 million for the same period.
The Company experienced a total deposit increase of $323.0 million for the year ended December 31, 2024 as compared to a total loan decrease of $33.8 million for the same period. The funding mix changed throughout the year ended December 31, 2024. Deposits at year end were $9.1 billion and $8.8 billion at December 31, 2024 and 2023, respectively.
These derivatives are not designated as hedges, are not speculative and have an asset position with a notional value of $49.5 million as of December 31, 2023. The changes in fair value for these contracts are recognized directly in earnings.
Total expected exposure incorporates 72 Table o f Contents both the current and potential future exposure of the derivatives, derived from using observable inputs, such as yield curves and volatilities. These derivatives are not designated as hedges, are not speculative and have an asset position with a notional value of $49.5 million as of December 31, 2024.
The increase was primarily attributable to a $1.4 billion increase in interest bearing time deposits, offset by a $871.7 million reduction in noninterest bearing deposits and a $326.7 million reduction in savings and money market accounts as a result of an increase of disintermediation driven primarily by an increase in interest rates.
The increase in deposits was primarily attributable to a $558.2 million decrease in noninterest bearing demand deposits, offset by a $734.7 million increase in time deposits. Refer to the "Deposits and Other Borrowings" section below for further discussion of deposits and borrowings.
Removed
In that environment, the Company's result for net interest spread in 2023 was 1.28% compared to 2.33% for the year of 2022. The decline in the net interest spread was due primarily to an increase in the rate on funding costs, of which lower average liquidity was a factor in ultimately reducing the net interest spread.
Added
The Company's result for net interest spread in 2024 was 1.28% unchanged from 2023. Net interest spread was unchanged with offsetting decreases to interest earning assets and interest bearing liabilities.
Removed
Although the Company has experienced net interest margin compression during the year ended December 31, 2023, the Company's interest rate risk modeling shows net interest margin expansion in an increasing rate environment.
Added
At December 31, 2024, the amortized cost less allowance of the investment portfolio decreased by $336.5 million, or 12.5%, as compared to the balance at December 31, 2023. Based on amortized cost basis, the percentage mix of municipal securities was 6% of total investments at December 31, 2024 and 2023.
Removed
Further, the Company has been principally collecting cash flows from the investment portfolio to provide liquidity. Additionally, the Company has limited call risk in its U.S. agency investment portfolio. At December 31, 2023, the amortized cost less allowance of the investment portfolio decreased by $213.2 million, or 7.4%, as compared to the balance at December 31, 2022.
Added
The changes in fair value for these contracts are recognized directly in earnings. The duration of the deposit portfolio decreased to 11 months at December 31, 2024 from 28 months at December 31, 2023. This decline is attributable to a shift in deposit mix, lower short term interest rates, and modeling assumption updates.
Removed
The shortfall was funded by increased borrowings, primarily with BTFP borrowings during the year ended December 31, 2023. The funding mix has continued to change throughout the year ended December 31, 2023. Deposits at year end were $8.8 billion and $8.7 billion at December 31, 2023 and 2022, respectively.
Added
Yields on interest-earning assets and interest bearing deposits decreased as a result of the Federal Reserve rate cuts. However a decrease in non-interest bearing deposits replaced with an increase in interest bearing deposits resulted in a decrease in net interest margin as compared to the prior year-end.
Removed
The growth in interest bearing deposits was driven by the increased utilization of brokered deposits, particularly brokered time deposits, during the year ended December 31, 2023, as discussed in "Deposits and Other Borrowings" above. Additionally, the Company’s cost of interest increased by 269 basis points across its interest-bearing deposits, which comprise 74.12% of its total deposits, at December 31, 2022.
Added
Our rate risk modeling showed very modest net interest margin compression in an increased interest rate environment while showing modest net interest margin expansion in a declining interest rate environment.
Removed
At December 31, 2022, the Company assumed a 70 basis point change in interest rates on interest bearing deposits for each 100 basis point change in market interest rates, with a floor of 10 basis points and 0 basis points on decreasing and increasing rate shock scenarios, respectively.
Added
The opposite is true in a falling interest rate environment as decreases in both interest income on variable and adjustable rate loans and interest expense on deposit liabilities drive modest margin expansion.
Removed
At the end of 2023 compared in the end of 2022, increasing rates do not lead to increased income because we model that rate increases pass through to our borrowers basis point for basis point as opposed to the prior year where our model suggested rising rates would not be fully passed on to depositors.
Added
In 2024, interest rate floors have not been relevant in the current interest rate environment since most variable rate loans are well above their floor rate.
Added
The most recent interest rate cuts of 100 basis points instituted by the Federal Reserve at the end of September 2024, and in the fourth quarter of 2024 were signs of improvements in the economic outlook. In 2025, the economic outlook continues to evolve and any additional adjustments to interest rates are uncertain.
Added
Such analysis represents the impact of a more gradual change in interest rates, as well as yield curve shape changes.
Added
At December 31, 2024, the repricing duration of (a) the investment portfolio was 4.2 years, (b) the loan portfolio 0.9 years, (c) the interest bearing deposit portfolio was 0.2 years, and (d) the borrowed funds portfolio was 0.5 years.
Added
The analysis at the end of 2024 consistent with the analysis at the end of 2023, showed that in an environment of increasing rates, income decreases.

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