10-Q

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, DC 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Quarterly Period Ended September 30, 2019
	OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to_________

Commission File Number 0-25923

Eagle Bancorp, Inc. 

(Exact name of registrant as specified in its charter)

Maryland	52-2061461
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
7830 Old Georgetown Road, Third Floor, Bethesda, Maryland	20814
(Address of principal executive offices)	(Zip Code)

(301)986-1800 

(Registrant’s telephone number, including area code) 

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

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

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value	EGBN	The Nasdaq Stock Market LLC

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

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

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

Large accelerated filer ☒	Accelerated filer ☐
Non-accelerated filer  ☐	Smaller Reporting Company ☐
	Emerging Growth Company  ☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act 

Yes ☐ No ☒

As of October 31, 2019, the registrant had 33,583,928 shares of Common Stock outstanding.

EAGLE BANCORP, INC. 

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Changes in Shareholders’ Equity	6
	Consolidated Statements of Cash Flows	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	61
Item 4.	Controls and Procedures	62
PART II.	OTHER INFORMATION	62
Item 1.	Legal Proceedings	62
Item 1A.	Risk Factors	62
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	62
Item 3.	Defaults Upon Senior Securities	62
Item 4.	Mine Safety Disclosures	62
Item 5.	Other Information	62
Item 6.	Exhibits	62
Signatures		65

2 

Item 1 – Financial Statements (Unaudited)

EAGLE BANCORP, INC. 

Consolidated Balance Sheets (Unaudited) 

(dollars in thousands, except per share data)

Assets	September 30, 2019			December 31, 2018
Cash and due from banks	$	6,657		$	6,773
Federal funds sold		27,711			11,934
Interest bearing deposits with banks and other short-term investments		361,154			303,157
Investment securities available-for-sale, at fair value		708,545			784,139
Federal Reserve and Federal Home Loan Bank stock		28,725			23,506
Loans held for sale		52,199			19,254
Loans		7,559,161			6,991,447
Less allowance for credit losses		(73,720	)		(69,944	)
Loans, net		7,485,441			6,921,503
Premises and equipment, net		14,515			16,851
Operating lease right-of-use assets		26,552			—
Deferred income taxes		29,722			33,027
Bank owned life insurance		74,726			73,441
Intangible assets, net		104,915			105,766
Other real estate owned		1,487			1,394
Other assets		81,118			88,392
Total Assets	$	9,003,467		$	8,389,137
Liabilities and Shareholders’ Equity
Liabilities
Deposits:
Noninterest bearing demand	$	2,051,106		$	2,104,220
Interest bearing transaction		918,011			593,107
Savings and money market		3,034,530			2,949,559
Time, $100,000 or more		772,340			801,957
Other time		626,526			525,442
Total deposits		7,402,513			6,974,285
Customer repurchase agreements		30,297			30,413
Other short-term borrowings		100,000			—
Long-term borrowings		217,589			217,296
Operating lease liabilities		29,586			—
Other liabilities		38,888			58,202
Total Liabilities		7,818,873			7,280,196
Shareholders’ Equity
Common stock, par value $.01 per share; shares authorized 100,000,000, shares issued and outstanding 33,720,522 and 34,387,919, respectively		336			342
Additional paid in capital		502,566			528,380
Retained earnings		677,055			584,494
Accumulated other comprehensive income (loss)		4,637			(4,275	)
Total Shareholders’ Equity		1,184,594			1,108,941
Total Liabilities and Shareholders’ Equity	$	9,003,467		$	8,389,137

See notes to consolidated financial statements.

3 

EAGLE BANCORP, INC. 

Consolidated Statements of Operations (Unaudited) 

(dollars in thousands, except per share data)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Interest Income
Interest and fees on loans	$	102,297	$	95,570	$	302,007	$	270,924
Interest and dividends on investment securities		4,904		4,875		15,740		12,525
Interest on balances with other banks and short-term investments		1,762		1,897		4,533		4,152
Interest on federal funds sold		71		18		167		104
Total interest income		109,034		102,360		322,447		287,705
Interest Expense
Interest on deposits		24,576		16,719		67,937		39,896
Interest on customer repurchase agreements		82		54		255		166
Interest on short-term borrowings		408		1,317		1,983		3,425
Interest on long-term borrowings		2,979		2,979		8,937		8,937
Total interest expense		28,045		21,069		79,112		52,424
Net Interest Income		80,989		81,291		243,335		235,281
Provision for Credit Losses		3,186		2,441		10,146		6,060
Net Interest Income After Provision For Credit Losses		77,803		78,850		233,189		229,221
Noninterest Income
Service charges on deposits		1,494		1,814		4,794		5,188
Gain on sale of loans		2,563		1,434		5,874		4,632
Gain on sale of investment securities		153		—		1,628		68
Increase in the cash surrender value of bank owned life insurance		431		373		1,285		1,073
Other income		1,673		2,019		5,384		5,536
Total noninterest income		6,314		5,640		18,965		16,497
Noninterest Expense
Salaries and employee benefits		19,095		17,157		60,482		51,827
Premises and equipment expenses		3,503		3,889		11,007		11,691
Marketing and advertising		1,210		1,191		3,626		3,419
Data processing		2,183		2,423		7,161		7,144
Legal, accounting and professional fees		3,625		2,130		8,074		7,282
FDIC insurance		85		933		2,327		2,559
Other expenses		3,772		3,891		12,459		11,102
Total noninterest expense		33,473		31,614		105,136		95,024
Income Before Income Tax Expense		50,644		52,876		147,018		150,694
Income Tax Expense		14,149		13,928		39,531		38,735
Net Income	$	36,495	$	38,948	$	107,487	$	111,959
Earnings Per Common Share
Basic	$	1.07	$	1.14	$	3.12	$	3.26
Diluted	$	1.07	$	1.13	$	3.12	$	3.25

See notes to consolidated financial statements.

4 

EAGLE BANCORP, INC. 

Consolidated Statements of Comprehensive Income (Unaudited) 

(dollars in thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net Income	$	36,495		$	38,948		$	107,487		$	111,959
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities available for sale		1,174			(3,148	)		13,140			(10,206	)
Reclassification adjustment for net gains included in net income		(110	)		—			(1,190	)		(51	)
Total unrealized gain (loss) on investment securities		1,064			(3,148	)		11,950			(10,257	)
Unrealized (loss) gain on derivatives		11			625			(1,664	)		3,547
Reclassification adjustment for amounts included in net income		(205	)		(158	)		(1,374	)		(156	)
Total unrealized (loss) gain on derivatives		(194	)		467			(3,038	)		3,391
Other comprehensive income (loss)		870			(2,681	)		8,912			(6,866	)
Comprehensive Income	$	37,365		$	36,267		$	116,399		$	105,093

See notes to consolidated financial statements.

5 

EAGLE BANCORP, INC. 

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) 

(dollars in thousands except share data)

	Common						Additional Paid			Retained			Accumulated Other Comprehensive			Total Shareholders’
	Shares			Amount			in Capital			Earnings			Income (Loss)			Equity
Balance July 1, 2019		34,539,853		$	343		$	532,585		$	647,887		$	3,767		$	1,184,582
Net Income		—			—			—			36,495			—			36,495
Other comprehensive income, net of tax		—			—			—			—			870			870
Stock-based compensation expense		—			—			3,147			—			—			3,147
Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes		(1,251	)		—			—			—			—			—
Issuance of common stock related to employee stock purchase plan		4,120			—			213			—			—			213
Cash dividends declared ($0.22 per share)		—			—			—			(7,327	)		—			(7,327	)
Common stock repurchased		(822,200	)		(7	)		(33,379	)		—			—			(33,386	)
Balance September 30, 2019		33,720,522		$	336		$	502,566		$	677,055		$	4,637		$	1,184,594
Balance July 1, 2018		34,305,071		$	341		$	524,176		$	505,229		$	(6,609	)	$	1,023,137
Net Income		—			—			—			38,948			—			38,948
Other comprehensive loss, net of tax		—			—			—			—			(2,681	)		(2,681	)
Stock-based compensation expense		—			—			2,031			—			—			2,031
Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes		(320	)		—			—			—			—			—
Issuance of common stock related to employee stock purchase plan		3,722			—			216			—			—			216
Balance September 30, 2018		34,308,473		$	341		$	526,423		$	544,177		$	(9,290	)	$	1,061,651
Balance January 1, 2019		34,387,919		$	342		$	528,380		$	584,494		$	(4,275	)	$	1,108,941
Net Income		—			—			—			107,487			—			107,487
Other comprehensive income, net of tax		—			—			—			—			8,912			8,912
Stock-based compensation expense		—			—			6,648			—			—			6,648
Issuance of common stock related to options exercised, net of shares withheld for payroll taxes		26,784			—			332			—			—			332
Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes		(13,995	)		1			(1	)		—			—			—
Vesting of performance based stock awards, net of shares withheld for payroll taxes		17,655			—			—			—			—			—
Time based stock awards granted		112,636			—			—			—			—			—
Issuance of common stock related to employee stock purchase plan		11,723			—			585			—			—			585
Cash dividends declared ($0.44 per share)		—			—			—			(14,926	)		—			(14,926	)
Common stock repurchased		(822,200	)		(7	)		(33,378	)		—			—			(33,385	)
Balance September 30, 2019		33,720,522		$	336		$	502,566		$	677,055		$	4,637		$	1,184,594
Balance January 1, 2018		34,185,163		$	340		$	520,304		$	431,544		$	(1,750	)	$	950,438
Net Income		—			—			—			111,959			—			111,959
Other comprehensive loss, net of tax		—			—			—			—			(6,866	)		(6,866	)
Stock-based compensation expense		—			—			5,174			—			—			5,174
Issuance of common stock related to options exercised, net of shares withheld for payroll taxes		32,230			—			338			—			—			338
Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes		(13,681	)		1			(1	)		—			—			—
Time based stock awards granted		94,344			—			—			—			—			—
Issuance of common stock related to employee stock purchase plan		10,417			—			608			—			—			608
Reclassification of the income tax effects of the Tax Cuts and Jobs Act from AOCI (ASU 2018-02)		—			—			—			674			(674	)		—
Balance September 30, 2018		34,308,473		$	341		$	526,423		$	544,177		$	(9,290	)	$	1,061,651

See notes to consolidated financial statements.

6 

EAGLE BANCORP, INC. 

Consolidated Statements of Cash Flows (Unaudited) 

(dollars in thousands)

	Nine Months Ended September 30,
	2019			2018
Cash Flows From Operating Activities:
Net Income	$	107,487		$	111,959
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		10,146			6,060
Depreciation and amortization		5,653			5,292
Amortization of operating lease right-of-use assets		3,022			—
Gains on sale of loans		(5,874	)		(4,632	)
Securities premium amortization (discount accretion), net		3,966			3,297
Origination of loans held for sale		(437,525	)		(325,109	)
Proceeds from sale of loans held for sale		410,454			336,109
Net increase in cash surrender value of BOLI		(1,285	)		(1,073	)
Deferred income tax expense (benefit)		3,305			(6,426	)
Net gain on sale of investment securities		(1,628	)		(68	)
Stock-based compensation expense		6,648			5,174
Net tax benefits from stock compensation		10			108
Decrease (increase) in other assets		7,274			(11,894	)
Decrease in other liabilities		(19,314	)		(10,886	)
Net cash provided by operating activities		92,339			107,911
Cash Flows From Investing Activities:
Purchases of available-for-sale investment securities		(130,693	)		(246,501	)
Proceeds from maturities of available-for-sale securities		129,879			68,901
Proceeds from sale/call of available-for-sale securities		82,982			31,974
Purchases of Federal Reserve and Federal Home Loan Bank stock		(90,219	)		(47,811	)
Proceeds from redemption of Federal Reserve and Federal Home Loan Bank stock		85,000			46,878
Net increase in loans		(574,177	)		(435,773	)
Purchase of BOLI		—			(10,000	)
Increase in premises and equipment		(2,171	)		(727	)
Net cash used in investing activities		(499,399	)		(593,059	)
Cash Flows From Financing Activities:
Increase in deposits		428,228			518,321
Decrease in customer repurchase agreements		(116	)		(40,115	)
Increase in short-term borrowings		100,000			—
Proceeds from exercise of equity compensation plans		332			338
Proceeds from employee stock purchase plan		585			608
Common stock repurchased		(33,385	)		—
Cash dividends paid		(14,926	)		—
Net cash provided by financing activities		480,718			479,152
Net Increase (Decrease) In Cash and Cash Equivalents		73,658			(5,996	)
Cash and Cash Equivalents at Beginning of Period		321,864			190,473
Cash and Cash Equivalents at End of Period	$	395,522		$	184,477
Supplemental Cash Flows Information:
Interest paid	$	81,834		$	53,405
Income taxes paid	$	43,250		$	39,900
Non-Cash Investing Activities
Initial recognition of operating lease right-of-use assets	$	29,574		$	—
Initial recognition of operating lease liabilities	$	33,535		$	—
Transfers from loans to other real estate owned	$	93		$	—

See notes to consolidated financial statements. 

7 

EAGLE BANCORP, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

(Unaudited)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

The Consolidated Financial Statements include the accounts of Eagle Bancorp, Inc. and its subsidiaries (the “Company”). Active subsidiaries include: EagleBank (the “Bank”), Eagle Insurance Services, LLC, Bethesda Leasing, LLC, and Landroval Municipal Finance, Inc., with all significant intercompany transactions eliminated.

The Consolidated Financial Statements of the Company included herein are unaudited. The Consolidated Financial Statements reflect all adjustments, consisting of normal recurring accruals that in the opinion of management, are necessary to present fairly the results for the periods presented. The amounts as of and for the year ended December 31, 2018 were derived from audited Consolidated Financial Statements. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The Company applies the accounting policies contained in Note 1 to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. There have been no significant changes to the Company’s Accounting Policies as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 except as indicated in the “Accounting Standards Adopted in 2019” section below. The Company believes that the disclosures are adequate to make the information presented not misleading. Certain reclassifications have been made to amounts previously reported to conform to the current period presentation.

These statements should be read in conjunction with the audited Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results of operations to be expected for the remainder of the year, or for any other period.

Nature of Operations

The Company, through the Bank, conducts a full service community banking business, primarily in Northern Virginia, Suburban Maryland, and Washington, D.C. The primary financial services offered by the Bank include real estate, commercial and consumer lending, as well as traditional deposit and repurchase agreement products. The Bank is also active in the origination and sale of residential mortgage loans, the origination of small business loans, and the origination, securitization and sale of multifamily Federal Housing Administration (“FHA”) loans. The guaranteed portion of small business loans, guaranteed by the Small Business Administration (“SBA”), is typically sold to third party investors in a transaction apart from the loan’s origination. The Bank offers its products and services through twenty banking offices, five lending centers and various electronic capabilities, including remote deposit services and digital banking services. Eagle Insurance Services, LLC, a subsidiary of the Bank, offers access to insurance products and services through a referral program with a third party insurance broker. Landroval Municipal Finance, Inc., a subsidiary of the Bank, focuses on lending to municipalities by buying debt on the public market as well as direct purchase issuance.

Use of Estimates

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

8 

New Authoritative Accounting Guidance

Accounting Standards Adopted in 2019

ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 has, among other things, required lessees to recognize a lease liability, which is a lessee’s obligation to make lease payments, measured on a discounted basis; and a right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 did not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model and ASC Topic 606, “Revenue from Contracts with Customers.” ASU 2016-02 became effective for us on January 1, 2019 and initially required transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842) – Targeted Improvements,” which, among other things, provides an additional transition method that allows entities to not apply the guidance in ASU 2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In December 2018, the FASB also issued ASU 2018-20, “Leases (Topic 842) - Narrow-Scope Improvements for Lessors,” which provides for certain policy elections and changes lessor accounting for sales and similar taxes and certain lessor costs. Upon adoption of ASU 2016-02, ASU 2018-11 and ASU 2018-20 on January 1, 2019, we recognized ROU assets of $29.6 million and related lease liabilities of $33.5 million which reduced the March 31, 2019 total risk based capital ratio by six basis points. We elected to apply certain practical expedients provided under ASU 2016-02 whereby we did not reassess (i) whether any expired or existing contracts were or contained leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. We also elected to not apply the recognition requirements of ASU 2016-02 to any short-term leases (as defined by related accounting guidance). We utilized the modified-retrospective transition approach prescribed by ASU 2018-11.

Accounting Standards Pending Adoption

ASU 2016-13, “Measurement of Credit Losses on Financial Instruments (Topic 326).” This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. In issuing the standard, the FASB is responding to criticism that today’s guidance for determining the allowance for credit losses delays recognition of expected future credit losses. The standard will replace today’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. The CECL model does not apply to available-for-sale (“AFS”) debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. ASU No. 2016-13 is effective for the Company beginning on January 1, 2020. Entities will apply any changes resulting from the application of the new standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). We have substantially concluded our data gap analysis. Our CECL model has been substantially developed and third party model validation is on-going. We have entered our data into the model and are working on the qualitative and forecasting aspects of the methodology. We have established a steering committee with representation from various departments across the enterprise. The committee has agreed to a project plan and has regular meetings to ensure adherence to our implementation timeline. The Company is currently evaluating the provisions of ASU No. 2016-13 to determine the potential impact the new standard will have on the Company’s Consolidated Financial Statements. We preliminarily expect this rule to increase the reserve for credit losses by 10-20% inclusive of the impact on commitments to lend upon implementation on January 1, 2020. This number may change as we finalize and validate our model and update our system of internal controls as a result of the rule change.

Note 2. Cash and Due from Banks

Regulation D of the Federal Reserve Act requires that banks maintain noninterest reserve balances with the Federal Reserve Bank based principally on the type and amount of their deposits. During 2019, the Bank maintained balances at the Federal Reserve sufficient to meet reserve requirements, as well as significant excess reserves, on which interest is paid.

Additionally, the Bank maintains interest bearing balances with the Federal Home Loan Bank of Atlanta and noninterest bearing balances with domestic correspondent banks as compensation for services they provide to the Bank.

9 

Note 3. Investment Securities Available-for-Sale

Amortized cost and estimated fair value of securities available-for-sale are summarized as follows:

			Gross		Gross		Estimated
September 30, 2019	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value
U. S. agency securities	$	171,585	$	941	$	706	$	171,820
Residential mortgage backed securities		434,042		5,404		1,417		438,029
Municipal bonds		61,680		2,278		—		63,958
Corporate bonds		9,532		82		—		9,614
U.S. Treasury		24,919		7		—		24,926
Other equity investments		198		—		—		198
	$	701,956	$	8,712	$	2,123	$	708,545
			Gross		Gross		Estimated
December 31, 2018	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value
U. S. agency securities	$	260,150	$	228	$	4,033	$	256,345
Residential mortgage backed securities		477,949		1,575		7,293		472,231
Municipal bonds		45,814		439		484		45,769
Corporate bonds		9,503		79		6		9,576
Other equity investments		218		—		—		218
	$	793,634	$	2,321	$	11,816	$	784,139

In addition, at September 30, 2019 and December 31, 2018 the Company held $28.7 million and $23.5 million, respectively, in equity securities in a combination of Federal Reserve Bank (“FRB”) and Federal Home Loan Bank (“FHLB”) stocks, which are required to be held for regulatory purposes and which are not marketable, and therefore are carried at cost.

Gross unrealized losses and fair value by length of time that the individual available-for-sale securities have been in a continuous unrealized loss position are as follows:

			Less than				12 Months
			12 Months				or Greater				Total
			Estimated				Estimated				Estimated
September 30, 2019	Number of		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(dollars in thousands)	Securities		Value		Losses		Value		Losses		Value		Losses
U. S. agency securities		32	$	36,162	$	132	$	59,843	$	574	$	96,005	$	706
Residential mortgage backed securities		98		53,769		287		116,438		1,130		170,207		1,417
Municipal bonds		1		30		—		—		—		30		—
		131	$	89,961	$	419	$	176,281	$	1,704	$	266,242	$	2,123

			Less than				12 Months
			12 Months				or Greater				Total
			Estimated				Estimated				Estimated
December 31, 2018	Number of		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(dollars in thousands)	Securities		Value		Losses		Value		Losses		Value		Losses
U. S. agency securities		58	$	72,679	$	533	$	144,636	$	3,500	$	217,315	$	4,033
Residential mortgage backed securities		151		61,199		527		225,995		6,766		287,194		7,293
Municipal bonds		11		4,299		50		17,041		434		21,340		484
Corporate bonds		1		1,494		6		—		—		1,494		6
		221	$	139,671	$	1,116	$	387,672	$	10,700	$	527,343	$	11,816

The unrealized losses that exist are generally the result of changes in market interest rates and interest spread relationships since original purchases. The weighted average duration of debt securities, which comprise 99.9% of total investment securities, is relatively short at 2.9 years . If quoted prices are not available, fair value is measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. The Company does not believe that the investment securities that were in an unrealized loss position as of September 30, 2019 represent an other-than-temporary impairment. The Company does not intend to sell the investments and it is more likely than not that the Company will not have to sell the securities before recovery of its amortized cost basis, which may be at maturity.

10 

The amortized cost and estimated fair value of investments available-for-sale at September 30, 2019 and December 31, 2018 by contractual maturity are shown in the table below. Expected maturities for residential mortgage backed securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	September 30, 2019				December 31, 2018
	Amortized		Estimated		Amortized		Estimated
(dollars in thousands)	Cost		Fair Value		Cost		Fair Value
U. S. agency securities maturing:
One year or less	$	78,924	$	79,178	$	128,148	$	125,545
After one year through five years		79,835		79,809		119,856		118,883
Five years through ten years		12,826		12,833		12,146		11,917
Residential mortgage backed securities		434,042		438,029		477,949		472,231
Municipal bonds maturing:
One year or less		6,116		6,185		8,097		8,167
After one year through five years		16,474		16,940		15,025		15,081
Five years through ten years		36,028		37,540		21,626		21,385
After ten years		3,062		3,293		1,066		1,136
Corporate bonds maturing:
After one year through five years		8,032		8,114		8,003		8,076
After ten years		1,500		1,500		1,500		1,500
U.S. Treasury		24,919		24,926		—		—
Other equity investments		198		198		218		218
	$	701,956	$	745,343	$	793,634	$	784,139

For the nine months ended September 30, 2019, gross realized gains on sales of investments securities were $1.6 million, primarily due to $829 thousand of noninterest income recognized during March 2019 on interest rate swap terminations, and $20 thousand gross realized losses on sales of investment securities. For the nine months ended September 30, 2018, gross realized gains on sales of investments securities were $93 thousand and gross realized losses on sales of investment securities were $25 thousand. 

Proceeds from sales and calls of investment securities for the nine months ended September 30, 2019 were $129.9 million compared to $42.1 million for the same period in 2018.

The carrying value of securities pledged as collateral for certain government deposits, securities sold under agreements to repurchase, and certain lines of credit with correspondent banks at September 30, 2019 and December 31, 2018 was $439.4 million and $528.2 million, respectively, which is well in excess of required amounts in order to operationally provide significant reserve amounts for new business. As of September 30, 2019 and December 31, 2018, there were no holdings of securities of any one issuer, other than the U.S. Government and U.S. agency securities, which exceeded ten percent of shareholders’ equity.

Note 4. Mortgage Banking Derivative

As part of its mortgage banking activities, the Bank enters into interest rate lock commitments, which are commitments to originate loans where the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate. The Bank then locks in the loan and interest rate with an investor and commits to deliver the loan if settlement occurs (“best efforts”) or commits to deliver the locked loan in a binding (“mandatory”) delivery program with an investor. Certain loans under interest rate lock commitments are covered under forward sales contracts of mortgage backed securities (“MBS”). Forward sales contracts of MBS are recorded at fair value with changes in fair value recorded in noninterest income. Interest rate lock commitments and commitments to deliver loans to investors are considered derivatives. The market value of interest rate lock commitments and best efforts contracts are not readily ascertainable with precision because they are not actively traded in stand-alone markets. The Bank determines the fair value of interest rate lock commitments and delivery contracts by measuring the fair value of the underlying asset, which is impacted by current interest rates, taking into consideration the probability that the interest rate lock commitments will close or will be funded.

11 

Certain additional risks arise from these forward delivery contracts in that the counterparties to the contracts may not be able to meet the terms of the contracts. The Bank does not expect any counterparty to any MBS to fail to meet its obligation. Additional risks inherent in mandatory delivery programs include the risk that, if the Bank does not close the loans subject to interest rate risk lock commitments, it will still be obligated to deliver MBS to the counterparty under the forward sales agreement. Should this be required, the Bank could incur significant costs in acquiring replacement loans or MBS and such costs could have an adverse effect on mortgage banking operations.

The fair value of the mortgage banking derivatives is recorded as a freestanding asset or liability with the change in value being recognized in current earnings during the period of change.

At September 30, 2019 the Bank had mortgage banking derivative financial instruments with a notional value of $134.3 million related to its forward contracts as compared to $49.6 million at December 31, 2018. The fair value of these mortgage banking derivative instruments at September 30, 2019 was $313 thousand included in other assets and $3 thousand included in other liabilities as compared to $229 thousand included in other assets and $269 thousand included in other liabilities at December 31, 2018.

Included in other noninterest income for the three and nine months ended September 30, 2019 was a net gain of $30 thousand and a net gain $249 thousand, respectively, relating to mortgage banking derivative instruments as compared to a net loss of $10 thousand and net loss of $42 thousand as of September 30, 2018. The amount included in other noninterest income for the three and nine months ended September 30, 2019 pertaining to its mortgage banking hedging activities was a net realized gain of $277 thousand and a net realized gain of $228 thousand, respectively, as compared to a net realized gain of $56 thousand and no net realized gain as of September 30, 2018.

Note 5. Loans and Allowance for Credit Losses

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

Loans, net of unamortized net deferred fees, at September 30, 2019 and December 31, 2018 are summarized by type as follows:

	September 30, 2019						December 31, 2018
(dollars in thousands)	Amount			%			Amount			%
Commercial	$	1,466,862			19	%	$	1,553,112			22	%
Income producing - commercial real estate		3,812,284			51	%		3,256,900			46	%
Owner occupied - commercial real estate		956,345			13	%		887,814			13	%
Real estate mortgage - residential		104,563			1	%		106,418			2	%
Construction - commercial and residential		1,053,789			14	%		1,039,815			15	%
Construction - C&I (owner occupied)		81,916			1	%		57,797			1	%
Home equity		81,117			1	%		86,603			1	%
Other consumer		2,285			—			2,988			—
Total loans		7,559,161			100	%		6,991,447			100	%
Less: allowance for credit losses		(73,720	)					(69,944	)
Net loans	$	7,485,441					$	6,921,503

Unamortized net deferred fees amounted to $24.5 million and $26.5 million at September 30, 2019 and December 31, 2018, respectively.

As of September 30, 2019 and December 31, 2018, the Bank serviced $102.9 million and $111.1 million, respectively, of multifamily FHA loans, SBA loans and other loan participations which are not reflected as loan balances on the Consolidated Balance Sheets.

12 

Loan Origination / Risk Management

The Company’s goal is to mitigate risks in the event of unforeseen threats to the loan portfolio as a result of economic downturn or other negative influences. Plans for mitigating inherent risks in managing loan assets include: carefully enforcing loan policies and procedures, evaluating each borrower’s business plan during the underwriting process and throughout the loan term, identifying and monitoring primary and alternative sources for loan repayment, and obtaining collateral to mitigate economic loss in the event of liquidation. Specific loan reserves are established based upon credit and/or collateral risks on an individual loan basis. A risk rating system is employed to proactively estimate loss exposure and provide a measuring system for setting general and specific reserve allocations.

The composition of the Company’s loan portfolio is heavily weighted toward commercial real estate, both owner occupied and income producing real estate. At September 30, 2019, owner occupied - commercial real estate and construction - C&I (owner occupied) represent approximately 14% of the loan portfolio. At September 30, 2019, non-owner occupied commercial real estate and real estate construction represented approximately 65% of the loan portfolio. The combined owner occupied and commercial real estate loans represent approximately 79% of the loan portfolio. Real estate also serves as collateral for loans made for other purposes, resulting in 85% of all loans being secured by real estate. These loans are underwritten to mitigate lending risks typical of this type of loan such as declines in real estate values, changes in borrower cash flow and general economic conditions. The Bank typically requires a maximum loan to value of 80% and minimum cash flow debt service coverage of 1.15 to 1.0. Personal guarantees may be required, but may be limited. In making real estate commercial mortgage loans, the Bank generally requires that interest rates adjust not less frequently than five years.

The Company is also an active traditional commercial lender providing loans for a variety of purposes, including working capital, equipment and account receivable financing. This loan category represents approximately 19% of the loan portfolio at September 30, 2019 and was generally variable or adjustable rate. Commercial loans meet reasonable underwriting standards, including appropriate collateral and cash flow necessary to support debt service. Personal guarantees are generally required, but may be limited. SBA loans represent approximately 2% of the commercial loan category. In originating SBA loans, the Company assumes the risk of non-payment on the unguaranteed portion of the credit as well as potential repairs to the SBA guarantees. The Company generally sells the guaranteed portion of the loan generating noninterest income from the gains on sale, as well as servicing income on the portion participated. SBA loans are subject to the same cash flow analyses as other commercial loans. SBA loans are subject to a maximum loan size established by the SBA as well as internal loan size guidelines.

Approximately 1% of the loan portfolio at September 30, 2019 consists of home equity loans and lines of credit and other consumer loans. These credits, while making up a small portion of the loan portfolio, demand the same emphasis on underwriting and credit evaluation as other types of loans advanced by the Bank.

Approximately 1% of the loan portfolio consists of residential mortgage loans. The repricing duration of these loans was 22 months. These credits represent first liens on residential property loans originated by the Bank. While the Bank’s general practice is to originate and sell (servicing released) loans made by its Residential Lending department, from time to time certain loan characteristics do not meet the requirements of third party investors and these loans are instead maintained in the Bank’s portfolio until they are resold to another investor at a later date or mature.

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

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

Loans intended for residential land acquisition, lot development and construction are made on the premise that the land: 1) is or will be developed for building sites for residential structures, and; 2) will ultimately be utilized for construction or improvement of residential zoned real properties, including the creation of housing. Residential development and construction loans will finance projects such as single family subdivisions, planned unit developments, townhouses, and condominiums. Residential land acquisition, development and construction loans generally are underwritten with a maximum term of 36 months, including extensions approved at origination.

Commercial land acquisition and construction loans are secured by real property where loan funds will be used to acquire land and to construct or improve appropriately zoned real property for the creation of income producing or owner user commercial properties. Borrowers are generally required to put equity into each project at levels determined by the appropriate Loan Committee. Commercial land acquisition and construction loans generally are underwritten with a maximum term of 24 months.

13 

Substantially all construction draw requests must be presented in writing on American Institute of Architects documents and certified either by the contractor, the borrower and/or the borrower’s architect. Each draw request shall also include the borrower’s soft cost breakdown certified by the borrower or their Chief Financial Officer. Prior to an advance, the Bank or its contractor inspects the project to determine that the work has been completed, to justify the draw requisition.

Commercial permanent loans are generally secured by improved real property which is generating income in the normal course of operation. Debt service coverage, assuming stabilized occupancy, must be satisfactory to support a permanent loan. The debt service coverage ratio is ordinarily at least 1.15 to 1.0. As part of the underwriting process, debt service coverage ratios are stress tested assuming a 200 basis point increase in interest rates from their current levels.

Commercial permanent loans generally are underwritten with a term not greater than 10 years or the remaining useful life of the property, whichever is lower. The preferred term is between 5 to 7 years, with amortization to a maximum of 25 years.

The Company’s loan portfolio includes ADC real estate loans including both investment and owner occupied projects. ADC loans amounted to $1.66 billion at September 30, 2019. A portion of the ADC portfolio, both speculative and non-speculative, includes loan funded interest reserves at origination. ADC loans that provide for the use of interest reserves represent approximately 71% of the outstanding ADC loan portfolio at September 30, 2019. The decision to establish a loan-funded interest reserve is made upon origination of the ADC loan and is based upon a number of factors considered during underwriting of the credit including: (1) the feasibility of the project; (2) the experience of the sponsor; (3) the creditworthiness of the borrower and guarantors; (4) borrower equity contribution; and (5) the level of collateral protection. When appropriate, an interest reserve provides an effective means of addressing the cash flow characteristics of a properly underwritten ADC loan. The Company recognizes that one of the risks inherent in the use of interest reserves is the potential masking of underlying problems with the project and/or the borrower’s ability to repay the loan. In order to mitigate this inherent risk, the Company employs a series of reporting and monitoring mechanisms on all ADC loans, whether or not an interest reserve is provided, including: (1) construction and development timelines which are monitored on an ongoing basis which track the progress of a given project to the timeline projected at origination; (2) a construction loan administration department independent of the lending function; (3) third party independent construction loan inspection reports; (4) monthly interest reserve monitoring reports detailing the balance of the interest reserves approved at origination and the days of interest carry represented by the reserve balances as compared to the then current anticipated time to completion and/or sale of speculative projects; and (5) quarterly commercial real estate construction meetings among senior Company management, which includes monitoring of current and projected real estate market conditions. If a project has not performed as expected, it is not the customary practice of the Company to increase loan funded interest reserves.

14 

The following tables detail activity in the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2019 and 2018. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

				Income Producing - Commercial			Owner Occupied - Commercial			Real Estate Mortgage -			Construction - Commercial and			Home			Other
(dollars in thousands)	Commercial			Real Estate			Real Estate			Residential			Residential			Equity			Consumer			Total
Three Months Ended September 30, 2019
Allowance for credit losses:
Balance at beginning of period	$	18,136		$	27,010		$	5,756		$	1,355		$	19,006		$	581		$	242		$	72,086
Loans charged-off		(1,794	)		—			—			—			—			—			—			(1,794	)
Recoveries of loans previously charged-off		210			—			—			—			15			—			17			242
Net loans charged-off		(1,584	)		—			—			—			15			—			17			(1,552	)
Provision for credit losses		1,617			1,517			(158	)		(3	)		251			(6	)		(32	)		3,186
Ending balance	$	18,169		$	28,527		$	5,598		$	1,352		$	19,272		$	575		$	227		$	73,720
Nine Months Ended September 30, 2019
Allowance for credit losses:
Balance at beginning of period	$	15,857		$	28,034		$	6,242		$	965		$	18,175		$	599		$	72		$	69,944
Loans charged-off		(1,799	)		(5,343	)		—			—			—			—			(2	)		(7,144	)
Recoveries of loans previously charged-off		377			302			2			3			52			—			38			774
Net loans (charged-off) recoveries		(1,422	)		(5,041	)		2			3			52			—			36			(6,370	)
Provision for credit losses		3,734			5,534			(646	)		384			1,045			(24	)		119			10,146
Ending balance	$	18,169		$	28,527		$	5,598		$	1,352		$	19,272		$	575		$	227		$	73,720
As of September 30, 2019
Allowance for credit losses:
Individually evaluated for impairment	$	8,196		$	1,200		$	375		$	650		$	—		$	13		$	—		$	10,434
Collectively evaluated for impairment		9,973			27,327			5,223			702			19,272			562			227			63,286
Ending balance	$	18,169		$	28,527		$	5,598		$	1,352		$	19,272		$	575		$	227		$	73,720
Three Months Ended September 30, 2018
Allowance for credit losses:
Balance at beginning of period	$	12,206		$	27,988		$	6,003		$	757		$	18,651		$	673		$	331		$	66,609
Loans charged-off		(1,174	)		—			—			—			(643	)		—			(15	)		(1,832	)
Recoveries of loans previously charged-off		60			—			—			1			899			6			5			971
Net loans (charged-off) recoveries		(1,114	)		—			—			1			256			6			(10	)		(861	)
Provision for credit losses		4,557			(601	)		(72	)		(9	)		(1,368	)		(48	)		(18	)		2,441
Ending balance	$	15,649		$	27,387		$	5,931		$	749		$	17,539		$	631		$	303		$	68,189
Nine Months Ended September 30, 2018
Allowance for credit losses:
Balance at beginning of period	$	13,102		$	25,376		$	5,934		$	944		$	18,492		$	770		$	140		$	64,758
Loans charged-off		(2,435	)		(121	)		(132	)		—			(1,160	)		—			(15	)		(3,863	)
Recoveries of loans previously charged-off		86			2			2			4			994			133			13			1,234
Net loans (charged-off) recoveries		(2,349	)		(119	)		(130	)		4			(166	)		133			(2	)		(2,629	)
Provision for credit losses		4,896			2,130			127			(199	)		(787	)		(272	)		165			6,060
Ending balance	$	15,649		$	27,387		$	5,931		$	749		$	17,539		$	631		$	303		$	68,189
As of September 30, 2018
Allowance for credit losses:
Individually evaluated for impairment	$	6,271		$	3,043		$	500		$	—		$	—		$	—		$	56		$	9,870
Collectively evaluated for impairment		9,378			24,344			5,431			749			17,539			631			247			58,319
Ending balance	$	15,649		$	27,387		$	5,931		$	749		$	17,539		$	631		$	303		$	68,189

16

The Company’s recorded investments in loans as of September 30, 2019 and December 31, 2018 related to each balance in the allowance for loan losses by portfolio segment and disaggregated on the basis of the Company’s impairment methodology was as follows:

			Income Producing -		Owner Occupied -		Real Estate		Construction -
			Commercial		Commercial		Mortgage -		Commercial and		Home		Other
(dollars in thousands)	Commercial		Real Estate		Real Estate		Residential		Residential		Equity		Consumer		Total
September 30, 2019
Recorded investment in loans:
Individually evaluated for impairment	$	28,155	$	39,089	$	6,616	$	5,365	$	9,148	$	750	$	—	$	89,123
Collectively evaluated for impairment		1,438,707		3,773,195		949,729		99,198		1,126,557		80,367		2,285		7,470,038
Ending balance	$	1,466,862	$	3,812,284	$	956,345	$	104,563	$	1,135,705	$	81,117	$	2,285	$	7,559,161
December 31, 2018
Recorded investment in loans:
Individually evaluated for impairment	$	8,738	$	61,747	$	5,307	$	1,228	$	7,012	$	487	$	—	$	84,519
Collectively evaluated for impairment		1,544,374		3,195,153		882,507		105,190		1,090,600		86,116		2,988		6,906,928
Ending balance	$	1,553,112	$	3,256,900	$	887,814	$	106,418	$	1,097,612	$	86,603	$	2,988	$	6,991,447

17

Credit Quality Indicators

The Company uses several credit quality indicators to manage credit risk in an ongoing manner. The Company’s primary credit quality indicators are to use an internal credit risk rating system that categorizes loans into pass, watch, special mention, or classified categories. Credit risk ratings are applied individually to those classes of loans that have significant or unique credit characteristics that benefit from a case-by-case evaluation. These are typically loans to businesses or individuals in the classes which comprise the commercial portfolio segment. Groups of loans that are underwritten and structured using standardized criteria and characteristics, such as statistical models (e.g., credit scoring or payment performance), are typically risk rated and monitored collectively. These are typically loans to individuals in the classes which comprise the consumer portfolio segment.

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

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

Watch: Loan paying as agreed with generally acceptable asset quality; however the obligor’s performance has not met expectations. Balance sheet and/or income statement has shown deterioration to the point that the obligor could not sustain any further setbacks. Credit is expected to be strengthened through improved obligor performance and/or additional collateral within a reasonable period of time.

Special Mention: Loans in the classes that comprise the commercial portfolio segment that have potential weaknesses that deserve management’s close attention. If not addressed, these potential weaknesses may result in deterioration of the repayment prospects for the loan. The special mention credit quality indicator is not used for classes of loans that comprise the consumer portfolio segment. Management believes that there is a moderate likelihood of some loss related to those loans that are considered special mention.

Classified: Classified (a) Substandard - Loans inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the company will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual loans classified substandard.

Classified (b) Doubtful - Loans that have all the weaknesses inherent in a loan classified substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors, which may work to the advantage and strengthening of the assets, its classification as an estimated loss is deferred until its more exact status may be determined.

18

The Company’s credit quality indicators are updated generally on a quarterly basis, but no less frequently than annually.

 The following table presents by class and by credit quality indicator, the recorded investment in the Company’s loans and leases as of September 30, 2019 and December 31, 2018.

			Watch and						Total
(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Loans
September 30, 2019
Commercial	$	1,392,189	$	46,518	$	28,155	$	—	$	1,466,862
Income producing - commercial real estate		3,662,436		110,759		39,089		—		3,812,284
Owner occupied - commercial real estate		892,720		57,009		6,616		—		956,345
Real estate mortgage – residential		98,564		634		5,365		—		104,563
Construction - commercial and residential		1,126,557		—		9,148		—		1,135,705
Home equity		79,681		686		750		—		81,117
Other consumer		2,285		—		—		—		2,285
Total	$	7,254,432	$	215,606	$	89,123	$	—	$	7,559,161
December 31, 2018
Commercial	$	1,505,477	$	25,584	$	22,051	$	—	$	1,553,112
Income producing - commercial real estate		3,172,479		1,536		82,885		—		3,256,900
Owner occupied - commercial real estate		844,286		38,221		5,307		—		887,814
Real estate mortgage – residential		104,543		647		1,228		—		106,418
Construction - commercial and residential		1,090,600		—		7,012		—		1,097,612
Home equity		85,434		682		487		—		86,603
Other consumer		2,988		—		—		—		2,988
Total	$	6,805,807	$	66,670	$	118,970	$	—	$	6,991,447

Nonaccrual and Past Due Loans

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

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The following table presents, by class of loan, information related to nonaccrual loans as of September 30, 2019 and December 31, 2018.

(dollars in thousands)	September 30, 2019		December 31, 2018
Commercial	$	16,074	$	7,115
Income producing - commercial real estate		5,654		1,766
Owner occupied - commercial real estate		4,124		2,368
Real estate mortgage - residential		5,635		1,510
Construction - commercial and residential		9,148		3,031
Home equity		487		487
Total nonaccrual loans (1)(2)	$	41,122	$	16,277

(1) Excludes troubled debt restructurings (“TDRs”) that were performing under their restructured terms totaling $8.6 million at September 30, 2019 and $24.0 million at December 31, 2018.

(2) Gross interest income of $2.7 million and $707 thousand would have been recorded for the nine months ended September 30, 2019 and 2018, respectively, if nonaccrual loans shown above had been current and in accordance with their original terms, while the interest actually recorded on such loans was $598 thousand and $193 thousand for the nine months ended September 30, 2019 and 2018, respectively. See Note 1 to the Consolidated Financial Statements for a description of the Company’s policy for placing loans on nonaccrual status.

The following table presents, by class of loan, an aging analysis and the recorded investments in loans past due as of September 30, 2019 and December 31, 2018.

	Loans		Loans		Loans						Total Recorded
	30-59 Days		60-89 Days		90 Days or		Total Past		Current		Investment in
(dollars in thousands)	Past Due		Past Due		More Past Due		Due Loans		Loans		Loans
September 30, 2019
Commercial	$	4,639	$	3,509	$	16,074	$	24,222	$	1,442,640	$	1,466,862
Income producing - commercial real estate		21,737		22,190		5,654		66,109		3,746,175		3,812,284
Owner occupied - commercial real estate		3,626		21,768		4,124		29,518		926,827		956,345
Real estate mortgage – residential		634		—		5,635		6,269		98,294		104,563
Construction - commercial and residential		—		1,866		9,148		11,014		1,124,691		1,135,705
Home equity		86		130		487		703		80,414		81,117
Other consumer		13		8		—		21		2,264		2,285
Total	$	30,735	$	49,471	$	41,122	$	137,856	$	7,421,305	$	7,559,161
December 31, 2018
Commercial	$	4,535	$	2,870	$	7,115	$	14,520	$	1,538,592	$	1,553,112
Income producing - commercial real estate		5,855		27,479		1,766		35,100		3,221,800		3,256,900
Owner occupied - commercial real estate		5,051		2,370		2,368		9,789		878,025		887,814
Real estate mortgage – residential		2,456		1,698		1,510		5,664		100,754		106,418
Construction - commercial and residential		4,392		—		3,031		7,423		1,090,189		1,097,612
Home equity		630		47		487		1,164		85,439		86,603
Other consumer		—		—		—		—		2,988		2,988
Total	$	22,919	$	34,464	$	16,277	$	73,660	$	6,917,787	$	6,991,447

Impaired Loans

Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged-off when deemed uncollectible.

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The following table presents, by class of loan, information related to impaired loans for the periods ended September 30, 2019 and December 31, 2018.

	Unpaid		Recorded		Recorded
	Contractual		Investment		Investment		Total				Average Recorded Investment				Interest Income Recognized
	Principal		With No		With		Recorded		Related		Quarter		Year		Quarter			Year
(dollars in thousands)	Balance		Allowance		Allowance		Investment		Allowance		To Date		To Date		To Date			To Date
September 30, 2019
Commercial	$	18,243	$	5,641	$	11,331	$	16,972	$	8,196	$	16,967	$	15,638	$	117		$	220
Income producing - commercial real estate		10,041		1,853		8,188		10,041		1,200		9,497		19,479		412			510
Owner occupied - commercial real estate		7,407		6,630		777		7,407		375		6,113		5,693		120			213
Real estate mortgage – residential		5,635		3,179		2,456		5,635		650		5,638		5,640		—			—
Construction - commercial and residential		10,308		9,148		—		9,148		—		9,152		7,111		—			15
Home equity		487		487		—		487		13		487		487		—			—
Other consumer		—		—		—		—		—		—		—		—			—
Total	$	52,121	$	26,938	$	22,752	$	49,690	$	10,434	$	47,854	$	54,048	$	649		$	958
December 31, 2018
Commercial	$	8,613	$	2,057	$	6,084	$	8,141	$	4,803	$	10,306	$	8,359	$	(126	)	$	190
Income producing - commercial real estate		21,402		1,720		19,682		21,402		2,465		15,331		12,309		189			550
Owner occupied - commercial real estate		5,731		4,361		1,370		5,731		600		5,746		6,011		47			196
Real estate mortgage – residential		1,510		1,510		—		1,510		—		1,516		1,688		—			2
Construction - commercial and residential		3,031		3,031		—		3,031		1,050		3,031		2,028		—			68
Home equity		487		487		—		487		—		487		491		—			—
Other consumer		—		—		—		—		—		46		69		—			—
Total	$	40,774	$	13,166	$	27,136	$	40,302	$	8,918	$	36,463	$	30,955	$	110		$	1,006

Modifications

A modification of a loan constitutes a TDR when a borrower is experiencing financial difficulty and the modification constitutes a concession. The Company offers various types of concessions when modifying a loan. Commercial and industrial loans modified in a TDR often involve temporary interest-only payments, term extensions, and converting revolving credit lines to term loans. Additional collateral, a co-borrower, or a guarantor is often requested. Commercial mortgage and construction loans modified in a TDR often involve reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or substituting or adding a new borrower or guarantor. Construction loans modified in a TDR may also involve extending the interest-only payment period. As of September 30, 2019, all performing TDRs were categorized as interest-only modifications.

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

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The following table presents by class, the recorded investment of loans modified in TDRs held by the Company for the periods ended September 30, 2019 and 2018.

	For the nine months Ended September 30, 2019
	Number of				Income Producing -		Owner Occupied -		Construction -
(dollars in thousands)	Contracts		Commercial		Commercial Real Estate		Commercial Real Estate		Commercial Real Estate		Total
Troubled debt restructurings
Restructured accruing		7	$	898	$	4,387	$	3,283	$	—	$	8,568
Restructured nonaccruing		3		1,521		—		—		—		1,521
Total		10	$	2,419	$	4,387	$	3,283	$	—	$	10,089
Specific allowance			$	—	$	1,000	$	—	$	—	$	1,000
Restructured and subsequently defaulted			$		$	2,300	$	—	$	—	$	2,300
	For the nine months Ended September 30, 2018
	Number of				Income Producing -		Owner Occupied -		Construction -
(dollars in thousands)	Contracts		Commercial		Commercial Real Estate		Commercial Real Estate		Commercial Real Estate		Total
Troubled debt restructurings
Restructured accruing		10	$	4,942	$	9,212	$	3,391	$	—	$	17,545
Restructured nonaccruing		4		723		—		—		—		723
Total		14	$	5,665	$	9,212	$	3,391	$	—	$	18,268
Specific allowance			$	2,000	$	3,500	$	—	$	—	$	5,500
Restructured and subsequently defaulted			$	—	$	937	$	—	$	—	$	937

The Company had ten TDR’s at September 30, 2019 totaling approximately $10.1 million. Seven of these loans totaling approximately $8.6 million are performing under their modified terms. There was one performing TDR totaling $2.3 million that defaulted on its modified terms which was reclassified to nonperforming loans during the nine months ended September 30, 2019. During the nine months ended September 30, 2018, there were two performing TDRs totaling $937 thousand that defaulted on their modified terms which were reclassified to nonperforming loans. A default is considered to have occurred once the TDR is past due 90 days or more or it has been placed on nonaccrual. For the three months ended September 30, 2019, there was one restructured loan totaling approximately $309 thousand that was paid off from the sale proceeds of the collateral property. Commercial and consumer loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a TDR subsequently default, the Company evaluates the loan for possible further impairment. The allowance may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan. For the three months ended September 30, 2019, there were no loans modified in a TDR, as compared to the three months ended September 30, 2018 which had one loan totaling $2.4 million modified in a TDR.

Note 6. Leases

A lease is defined as a contract that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On January 1, 2019, the Company adopted ASU No. 2016-02 “Leases” (Topic 842) and all subsequent ASUs that modified Topic 842. For the Company, Topic 842 primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee.

Substantially all of the leases in which the Company is the lessee are comprised of real estate property for branch offices, ATM locations, and corporate office space. Substantially all of our leases are classified as operating leases, and as such, were previously not recognized on the Company’s consolidated statements of condition. With the adoption of Topic 842, operating lease agreements were required to be recognized on the consolidated statements of condition as a right-of-use (“ROU”) asset and a corresponding lease liability.

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As of September 30, 2019, the Company had $26.6 million of operating lease ROU assets and $29.6 million of operating lease liabilities on the Company’s Consolidated Balance Sheet. The Company elects not to recognize ROU assets and lease liabilities arising from short-term leases, leases with initial terms of twelve months or less, or equipment leases (deemed immaterial) on the Consolidated Statements of Condition.

Our leases contain terms and conditions of options to extend or terminate the lease which are recognized as part of the ROU assets and lease liabilities when an economic benefit to exercise the option exists and there is a 90% probability that the Company will exercise the option. If these criteria are not met, the options are not included in our ROU assets and lease liabilities.

As of September 30, 2019, our leases do not contain material residual value guarantees or impose restrictions or covenants related to dividends or the Company’s ability to incur additional financial obligations. As of September 30, 2019, there were no leases that have been signed but did not yet commence as of the reporting date that create significant rights and obligations for the Company.

The following table presents lease costs and other lease information.

	Nine Months Ended
(dollars in thousands)	September 30, 2019
Lease Cost
Operating Lease Cost (Cost resulting from lease payments)	$	5,857
Variable Lease Cost (Cost excluded from lease payments)		815
Sublease Income		(282	)
Net Lease Cost	$	6,390

Operating Lease - Operating Cash Flows (Fixed Payments)	$	6,382
Operating Lease - Operating Cash Flows (Liability Reduction)		5,458
Right-of-Use Assets - Operating Leases		26,552
Weighted Average Lease Term - Operating Leases		5.11 years
Weighted Average Discount Rate - Operating Leases		4.00	%

Future minimum payments for operating leases with initial or remaining terms of one year or more as of September 30, 2019 were as follows:

(dollars in thousands)
Twelve Months Ended:
September 30, 2020	$	8,532
September 30, 2021		7,857
September 30, 2022		5,868
September 30, 2023		4,379
September 30, 2024		3,663
Thereafter		4,327
Total Future Minimum Lease Payments		34,626
Amounts Representing Interest		(5,040	)
Present Value of Net Future Minimum Lease Payments	$	29,586

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Note 7. Affordable Housing Projects Tax Credit Partnerships

Included in Other Assets, the Company makes equity investments in various limited partnerships that sponsor affordable housing projects utilizing the Low Income Housing Tax Credit (“LIHTC”) pursuant to Section 42 of the Internal Revenue Code. The purpose of these investments is to achieve a satisfactory return on capital, to facilitate the sale of affordable housing products offerings, and to assist in achieving goals associated with the Community Reinvestment Act. The primary activities of the limited partnerships include the identification, development, and operation of multi-family housing that is leased to qualifying residential tenants. Generally, these types of investments are funded through a combination of debt and equity.

The Company is a limited partner in each LIHTC limited partnership. Each limited partnership is managed by an unrelated third party general partner who exercises significant control over the affairs of the limited partnership. The general partner has all the rights, powers and authority granted or permitted to be granted to a general partner of a limited partnership. Duties entrusted to the general partner of each limited partnership include, but are not limited to: investment in operating companies, company expenditures, investment of excess funds, borrowing funds, employment of agents, disposition of fund property, prepayment and refinancing of liabilities, votes and consents, contract authority, disbursement of funds, accounting methods, tax elections, bank accounts, insurance, litigation, cash reserve, and use of working capital reserve funds. Except for limited rights granted to the limited partner(s) relating to the approval of certain transactions, the limited partner(s) may not participate in the operation, management, or control of the limited partnership’s business, transact any business in the limited partnership’s name or have any power to sign documents for or otherwise bind the limited partnership. In addition, the general partner may only be removed by the limited partner(s) in the event the general partner fails to comply with the terms of the agreement or is negligent in performing its duties.

The general partner of each limited partnership has both the power to direct the activities which most significantly affect the performance of each partnership and the obligation to absorb losses or the right to receive benefits that could be significant to the entities. Therefore, the Company has determined that it is not the primary beneficiary of any LIHTC partnership. The Company accounts for its affordable housing tax credit investments using the proportional amortization method. The Company’s net affordable housing tax credit investments were $28.0 million and related unfunded commitments were $11.0 million as of September 30, 2019 and are included in Other Assets and Other Liabilities in the Consolidated Statements of Condition. The Company’s net affordable housing tax credit investments were $28.2 million and related unfunded commitments were $15.0 million as of December 31, 2018.

Note 8. Other Derivatives

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments.

Cash Flow Hedges of Interest Rate Risk

The Company uses interest rate swap agreements to assist in its interest rate risk management. The Company’s objective in using interest rate derivatives designated as cash flow hedges is to add stability to interest expense and to better manage its exposure to interest rate movements. To accomplish this objective, the Company utilizes interest rate swaps as part of its interest rate risk management strategy intended to mitigate the potential risk of rising interest rates on the Bank’s cost of funds. The notional amounts of the interest rate swaps designated as cash flow hedges do not represent amounts exchanged by the counterparties, but rather, the notional amount is used to determine, along with other terms of the derivative, the amounts to be exchanged between the counterparties. The interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from one counterparty in exchange for the Company making fixed payments. The Company’s intent is to hedge its exposure to the variability in potential future interest rate conditions on existing financial instruments.

For derivatives designated as cash flow hedges, changes in the fair value of the derivative are initially reported in other comprehensive income (outside of earnings), net of tax, and subsequently reclassified to earnings when the hedged transaction affects earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged transactions.

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As of September 30, 2019, the Company had one designated cash flow hedge notional interest rate swap transaction outstanding amounting to $100 million associated with the Company’s variable rate deposits, as compared to three designated cash flow hedge notional interest rate swap transactions outstanding as of December 31, 2018 amounting to $250 million associated with the Company’s variable rate deposits. The decline in the amount of hedged variable rate deposits was due to a reduction in such variable rate deposits. The net unrealized loss before income tax on the swap was $362 thousand at September 30, 2019 compared to a net unrealized gain before income tax of $3.7 million at December 31, 2018. The unrealized loss in value since year end 2018 was due to the termination of two of the interest rate swap transactions as part of the Company’s asset liability strategy as well as declines in market interest rates. As a result of the swap terminations, the Company recognized $829 thousand in noninterest income during March 2019. Additionally, the Company will amortize $248 thousand of realized gain as a reduction to interest expense through the swap’s original maturity date of March 31, 2020.

Amounts reported in accumulated other comprehensive income related to designated cash flow hedge derivatives will be reclassified to interest income/expense as interest payments are made/received on the Company’s variable-rate assets/liabilities. During the quarter ended September 30, 2019, the Company reclassified $264 thousand related to designated cash flow hedge derivatives from accumulated other comprehensive income to decrease interest expense. During the next twelve months, the Company estimates (based on existing interest rates) that $134 thousand will be reclassified as an increase in interest expense.

Non-designated Hedges

Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate caps and swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

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

Credit-risk-related Contingent Features

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.

The Company is exposed to credit risk in the event of nonperformance by the interest rate derivative counterparty. The Company minimizes this risk by entering into derivative contracts with only large, stable financial institutions, and the Company has not experienced, and does not expect, any losses from counterparty nonperformance on the interest rate derivatives. The Company monitors counterparty risk in accordance with the provisions of ASC Topic 815, “Derivatives and Hedging.” In addition, the interest rate derivative agreements contain language outlining collateral-pledging requirements for each counterparty. Collateral must be posted when the market value exceeds certain threshold limits.

The interest rate derivative agreements detail: 1) that collateral be posted when the market value exceeds certain threshold limits associated with the secured party’s exposure; 2) if the Company defaults on any of its indebtedness (including default where repayment of the indebtedness has not been accelerated by the lender), then the Company could also be declared in default on its derivative obligations; 3) if the Company fails to maintain its status as a well capitalized institution then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

As of September 30, 2019, the aggregate fair value of derivative contracts with credit risk contingent features (i.e., containing collateral posting or termination provisions based on our capital status) that was in a net liability position totaled $362 thousand. The Company has a minimum collateral posting threshold with its derivative counterparty. As of September 30, 2019, the Company was not required to post collateral with its derivative counterparty against its obligations under this agreement. If the Company had breached any provisions under the agreement at September 30, 2019, it could have been required to settle its obligations under the agreement at the termination value.

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The table below identifies the balance sheet category and fair value of the Company’s designated cash flow hedge derivative instruments and non-designated hedges as of September 30, 2019 and December 31, 2018.

	September 30, 2019					December 31, 2018
	Notional				Balance Sheet	Notional				Balance Sheet
	Amount		Fair Value		Category	Amount		Fair Value		Category
Derivatives designated as hedging instruments
(dollars in thousands)
Interest rate product	$	—	$	—	Other Assets	$	250,000	$	3,727	Other Assets
(dollars in thousands)
Interest rate product	$	100,000	$	348	Other Liabilities	$	—	$	—	Other Liabilities
Derivatives not designated as hedging instruments
(dollars in thousands)
Interest rate product	$	26,000	$	15
Interest rate product		26,517		213
Interest rate product	$	52,517	$	228	Other Assets	$	—	$	—	Other Assets
(dollars in thousands)
Interest rate product	$	26,000	$	15	Other Liabilities	$	—	$	—	Other Liabilities
Interest rate product		26,517		220	Other Liabilities
Other Contracts		27,500		117	Other Liabilities		27,500		59	Other Liabilities
	$	80,017	$	352	Other Liabilities	$	27,500	$	59	Other Liabilities

The table below presents the pre-tax net gains (losses) of the Company’s designated cash flow hedges for the three and nine months ended September 30, 2019 and 2018.

Derivatives in Subtopic 815-20 Hedging Relationships (dollars in thousands)	Amount of Gain or (Loss) Recognized in OCI on Derivative					Location of Gain or (Loss) Recognized from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income
	Three Months Ended September 30,						Three Months Ended September 30,
	2019			2018			2019		2018
Derivatives in Cash Flow Hedging Relationships
Interest Rate Products	$	(107	)	$	849	Interest Expense	$	264	$	214
Total	$	(107	)	$	849		$	264	$	214

Derivatives in Subtopic 815-20 Hedging Relationships (dollars in thousands)	Amount of Gain or (Loss) Recognized in OCI on Derivative					Location of Gain or (Loss) Recognized from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income
	Nine Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019		2018
Derivatives in Cash Flow Hedging Relationships
Interest Rate Products	$	(1,974	)	$	4,401	Interest Expense	$	1,039	$	230
Interest Rate Products		—			—	Gain on sale of investment securities		829		—
Total	$	(1,974	)	$	4,401		$	1,868	$	230

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The table below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018.

The Effect of Fair Value and Cash Flow Hedge Accounting on the Statement of Financial Performance

	Location and Amount of Gain or (Loss) Recognized in Income on Fair Value
	and Cash Flow Hedging Relationships (in 000's)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2019		2018
	Interest Expense				Interest Expense		Gain on sale of investment securities		Interest Expense
Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value or cash flow hedges are recorded	$	264	$	214	$	1,039	$	829	$	16
Gain or (loss) on cash flow hedging relationships in Subtopic 815-20
Interest contracts
Amount of gain or (loss) reclassified from accumulated other  comprehensive income into income	$	264	$	214	$	1,039	$	—	$	230
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income as a result that a forecasted transaction is no longer probable of occurring	$	—	$	—	$	—	$	829	$	—
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income -  Included Component	$	264	$	214	$	1,039	$	829	$	230
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income -  Excluded Component	$	—	$	—	$	—	$	—	$	—

Effect of Derivatives Not Designated as Hedging Instruments on the Statement of Financial Performance
Derivatives Not Designated as Hedging Instruments under Subtopic 815-20	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative					Amount of Gain or (Loss) Recognized in Income on Derivative
		Three Months Ended September 30,					Nine Months Ended September 30,
		2019			2018		2019			2018
Interest Rate Products	Other income / (expense)		(7	)				(7	)
Other Contracts	Other income / (expense)		(16	)		—		(58	)		—
Total			(23	)		—		(65	)		—

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Balance Sheet Offsetting: Our designated cash flow hedge interest rate derivatives are eligible for offset in the Consolidated Balance Sheets and are subject to master netting arrangements. Our derivative transactions with counterparties are generally executed under International Swaps and Derivative Association (“ISDA”) master agreements which include “right of set-off” provisions. In such cases there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis. The Company generally offsets such financial instruments for financial reporting purposes.

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s cash flow hedge derivatives as of September 30, 2019 and December 31, 2018.

As of September 30, 2019
Offsetting of Derivative Assets (dollars in thousands)							Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Balance Sheet		Net Amounts of Assets presented in the Balance Sheet		Financial Instruments		Cash Collateral Posted		Net Amount
Derivatives	$	228	$	—	$	228	$	—	$	—	$	228

Offsetting of Derivative Liabilities (dollars in thousands)							Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Balance Sheet		Net Amounts of Liabilities presented in the Balance Sheet		Financial Instruments		Cash Collateral Posted		Net Amount
Derivatives	$	669	$	—	$	669	$	—	$	—	$	669

As of December 31, 2018
Offsetting of Derivative Assets (dollars in thousands)							Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Balance Sheet		Net Amounts of Assets presented in the Balance Sheet		Financial Instruments		Cash Collateral Posted		Net Amount
Derivatives	$	3,840	$	—	$	3,840	$	—	$	—	$	3,840

Offsetting of Derivative Liabilities (dollars in thousands)							Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Balance Sheet		Net Amounts of Liabilities presented in the Balance Sheet		Financial Instruments		Cash Collateral Posted		Net Amount
Derivatives	$	59	$	—	$	59	$	—	$	—	$	59

Note 9. Other Real Estate Owned

The activity within Other Real Estate Owned (“OREO”) for the three and nine months ended September 30, 2019 and 2018 is presented in the table below. There were two residential real estate loans in the process of foreclosure as of September 30, 2019 totaling $4.0 million. 

For the three and nine months ended September 30, 2019 and 2018, there were no sales of OREO property.

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2019		2018		2019		2018
Beginning Balance	$	1,394	$	1,394	$	1,394	$	1,394
Real estate acquired from borrowers		93		—		93		—
Properties sold		—		—		—		—
Ending Balance	$	1,487	$	1,394	$	1,487	$	1,394

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Note 10. Long-Term Borrowings

The following table presents information related to the Company’s long-term borrowings as of September 30, 2019 and December 31, 2018.

(dollars in thousands)	September 30, 2019			December 31, 2018
Subordinated Notes, 5.75%	$	70,000		$	70,000
Subordinated Notes, 5.00%		150,000			150,000
Less: unamortized debt issuance costs		(2,411	)		(2,704	)
Long-term borrowings	$	217,589		$	217,296

On August 5, 2014, the Company completed the sale of $70.0 million of its 5.75% subordinated notes, due September 1, 2024 (the “2024 Notes”). The 2024 Notes were offered to the public at par and qualify as Tier 2 capital for regulatory purposes to the fullest extent permitted under the Basel III Rule capital requirements. The net proceeds were approximately $68.8 million, which includes $1.2 million in deferred financing costs which are being amortized over the life of the 2024 Notes.

On July 26, 2016, the Company completed the sale of $150.0 million of its 5.00% Fixed-to-Floating Rate Subordinated Notes, due August 1, 2026 (the “2026 Notes”). The 2026 Notes were offered to the public at par and qualify as Tier 2 capital for regulatory purposes to the fullest extent permitted under the Basel III Rule capital requirements. The net proceeds were approximately $147.35 million, which includes $2.6 million in deferred financing costs which are being amortized over the life of the 2026 Notes.

Note 11. Net Income per Common Share

The calculation of net income per common share for the three and nine months ended September 30, 2019 and 2018 was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars and shares in thousands, except per share data)	2019		2018		2019		2018
Basic:
Net income	$	36,495	$	38,948	$	107,487	$	111,959
Average common shares outstanding		34,233		34,309		34,418		34,292
Basic net income per common share	$	1.07	$	1.14	$	3.12	$	3.26
Diluted:
Net income	$	36,495	$	38,948	$	107,487	$	111,959
Average common shares outstanding		34,233		34,309		34,418		34,292
Adjustment for common share equivalents		23		152		33		152
Average common shares outstanding-diluted		34,256		34,461		34,451		34,444
Diluted net income per common share	$	1.07	$	1.13	$	3.12	$	3.25
Anti-dilutive shares		2		3		20		—

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Note 12. Other Comprehensive Income

The following table presents the components of other comprehensive income (loss) for the three and nine months ended September 30, 2019 and 2018.

(dollars in thousands)	Before Tax			Tax Effect			Net of Tax
Three Months Ended September 30, 2019
Net unrealized gain on securities available-for-sale	$	1,585		$	411		$	1,174
Less: Reclassification adjustment for net gains included in net income		(153	)		(43	)		(110	)
Total unrealized gain		1,432			368			1,064
Net unrealized gain on derivatives		24			(13	)		11
Less: Reclassification adjustment for gain included in net income		(285	)		(80	)		(205	)
Total unrealized loss		(261	)		(67	)		(194	)
Other Comprehensive Income	$	1,171		$	301		$	870
Three Months Ended September 30, 2018
Net unrealized loss on securities available-for-sale	$	(4,253	)	$	1,105		$	(3,148	)
Less: Reclassification adjustment for net gains included in net income		—			—			—
Total unrealized loss		(4,253	)		1,105			(3,148	)
Net unrealized gain on derivatives		846			221			625
Less: Reclassification adjustment for losses included in net income		(211	)		(53	)		(158	)
Total unrealized gain		635			168			467
Other Comprehensive Loss	$	(3,618	)	$	1,273		$	(2,681	)
Nine Months Ended September 30, 2019
Net unrealized gain on securities available-for-sale	$	17,712		$	(4,572	)	$	13,140
Less: Reclassification adjustment for net gains included in net income		(1,628	)		(438	)		(1,190	)
Total unrealized gain		16,084			(5,010	)		11,950
Net unrealized loss on derivatives		(2,210	)		546			(1,664	)
Less: Reclassification adjustment for gain included in net income		(1,879	)		(505	)		(1,374	)
Total unrealized loss		(4,089	)		41			(3,038	)
Other Comprehensive Income	$	11,995		$	(4,969	)	$	8,912
Nine Months Ended September 30, 2018
Net unrealized loss on securities available-for-sale	$	(13,079	)	$	2,873		$	(10,206	)
Less: Reclassification adjustment for net gains included in net income		(68	)		(17	)		(51	)
Total unrealized loss		(13,147	)		2,856			(10,257	)
Net unrealized gain on derivatives		4,380			833			3,547
Less: Reclassification adjustment for losses included in net income		(209	)		(53	)		(156	)
Total unrealized gain		4,171			780			3,391
Other Comprehensive Loss	$	(8,976	)	$	3,636		$	(6,866	)

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The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax, for the three and nine months ended September 30, 2019 and 2018.

(dollars in thousands)	Securities Available For Sale			Derivatives			Accumulated Other Comprehensive Income (Loss)
Three Months Ended September 30, 2019
Balance at Beginning of Period	$	3,842		$	75		$	(3,767	)
Other comprehensive income (loss) before reclassifications		1,174			(11	)		1,185
Amounts reclassified from accumulated other comprehensive income		(110	)		(205	)		(315	)
Net other comprehensive income (loss) during period		1,064			(194	)		870
Balance at End of Period	$	4,906		$	(269	)	$	4,637
Three Months Ended September 30, 2018
Balance at Beginning of Period	$	(10,914	)	$	4,305		$	(6,609	)
Other comprehensive income (loss) before reclassifications		(3,148	)		625			(2,523	)
Amounts reclassified from accumulated other comprehensive income		—			(158	)		(158	)
Net other comprehensive (loss) income during period		(3,148	)		467			(2,681	)
Balance at End of Period	$	(14,062	)	$	4,772		$	(9,290	)

(dollars in thousands)	Securities Available For Sale			Derivatives			Accumulated Other Comprehensive Income (Loss)
Nine Months Ended September 30, 2019
Balance at Beginning of Period	$	(7,044	)	$	2,769		$	(4,275	)
Other comprehensive income (loss) before reclassifications		13,140			(1,664	)		11,476
Amounts reclassified from accumulated other comprehensive income		(1,190	)		(1,374	)		(2,564	)
Net other comprehensive income (loss) during period		11,950			(3,038	)		8,912
Balance at End of Period	$	4,906		$	(269	)	$	4,637
Nine Months Ended September 30, 2018
Balance at Beginning of Period	$	(3,131	)	$	1,381		$	(1,750	)
Other comprehensive income (loss) before reclassifications		(10,206	)		3,547			(6,659	)
Amounts reclassified from accumulated other comprehensive income		(51	)		(156	)		(207	)
Net other comprehensive (loss) income during period		(10,257	)		3,391			(6,866	)
Reclassification of the Income Tax Effects of the Tax Cuts and Jobs Act from AOCI		(674	)		—			(674	)
Balance at End of Period	$	(14,062	)	$	4,772		$	(9,290	)

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The following table presents the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2019 and 2018.

Details about Accumulated Other Comprehensive Income Components (dollars in thousands)	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)						Affected Line Item in the Statement Where Net Income is Presented
	Three Months Ended September 30,
	2019			2018
Realized gain on sale of investment securities	$	153		$	—		Gain on sale of investment securities
Interest income (expense) derivative deposits		285			(211	)	Interest expense on deposits
Income tax (expense) benefit		(123	)		53		Income Tax Expense
Total Reclassifications for the Period	$	315		$	(158	)	Net Income

Details about Accumulated Other Comprehensive Income Components (dollars in thousands)	Amount Reclassified from Accumulated Other Comprehensive Income						Affected Line Item in the Statement Where Net Income is Presented
	Nine Months Ended September 30,
	2019			2018
Realized gain on sale of investment securities	$	1,628		$	(68	)	Gain on sale of investment securities
Realized gain on swap termination		829			—		Gain on sale of investment securities
Interest income (expense) derivative deposits		1,050			(209	)	Interest expense on deposits
Income tax (benefit) expense		(943	)		70		Income Tax Expense
Total Reclassifications for the Period	$	2,564		$	(207	)	Net Income

Note 13. Fair Value Measurements

The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. ASC Topic 820, “Fair Value Measurements and Disclosures,” establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1 Quoted prices in active exchange markets for identical assets or liabilities; also includes certain U.S. Treasury and other U.S. Government and agency securities actively traded in over-the-counter markets.

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

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

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Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis as of September 30, 2019 and December 31, 2018.

(dollars in thousands)	Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total (Fair Value)
September 30, 2019
Assets:
Investment securities available-for-sale:
U. S. agency securities	$	—	$	171,820	$	—	$	171,820
Residential mortgage backed securities		—		438,029		—		438,029
Municipal bonds		—		63,958		—		63,958
Corporate bonds		—		—		9,614		9,614
U.S. Treasury		—		24,926		—		24,926
Other equity investments		—		—		198		198
Loans held for sale		—		52,199		—		52,199
Interest Rate Caps		—		228		—		228
Mortgage banking derivatives		—		—		313		313
Total assets measured at fair value on a recurring basis as of September 30, 2019	$	—	$	751,160	$	10,125	$	761,285
Liabilities:
Interest rate swap derivatives	$	—	$	362	$	—	$	362
Derivative liability		—		117		—		117
Interest Rate Caps		—		235		—		235
Mortgage banking derivatives		—		—		3		3
Total liabilities measured at fair value on a recurring basis as of September 30, 2019	$	—	$	714	$	3	$	717

December 31, 2018
Assets:
Investment securities available-for-sale:
U. S. agency securities	$	—	$	256,345	$	—	$	256,345
Residential mortgage backed securities		—		472,231		—		472,231
Municipal bonds		—		45,769		—		45,769
Corporate bonds		—		—		9,576		9,576
Other equity investments		—		—		218		218
Loans held for sale		—		19,254		—		19,254
Mortgage banking derivatives		—		—		229		229
Interest rate swap derivatives		—		3,727		—		3,727
Total assets measured at fair value on a recurring basis as of December 31, 2018	$	—	$	797,326	$	10,023	$	807,349
Liabilities:
Mortgage banking derivatives	$	—	$	—	$	269	$	269
Total liabilities measured at fair value on a recurring basis as of December 31, 2018	$	—	$	—	$	269	$	269

Investment Securities Available-for-Sale: Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair value is measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange such as the New York Stock Exchange, Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include U.S. agency debt securities, mortgage backed securities issued by Government Sponsored Entities (“GSE’s”) and municipal bonds. Securities classified as Level 3 include securities in less liquid markets, the carrying amounts approximate the fair value.

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

33

The following table summarizes the difference between the aggregate fair value and the aggregate unpaid principal balance for loans held for sale measured at fair value as of September 30, 2019 and December 31, 2018.

	September 30, 2019
(dollars in thousands)	Fair Value		Aggregate Unpaid Principal Balance		Difference
Residential mortgage loans held for sale	$	52,199	$	51,291	$	908
FHA mortgage loans held for sale	$	—	$	—	$	—
	December 31, 2018
(dollars in thousands)	Fair Value		Aggregate Unpaid Principal Balance		Difference
Residential mortgage loans held for sale	$	19,254	$	18,797	$	457
FHA mortgage loans held for sale	$	—	$	—	$	—

No residential mortgage loans held for sale were 90 or more days past due or on nonaccrual status as of September 30, 2019 or December 31, 2018.

Interest rate swap derivatives: These derivative instruments consist of interest rate swap agreements, which are accounted for as cash flow hedges under ASC 815. The Company’s derivative position is classified within Level 2 of the fair value hierarchy and is valued using models generally accepted in the financial services industry and that use actively quoted or observable market input values from external market data providers and/or non-binding broker-dealer quotations. The fair value of the derivatives is determined using discounted cash flow models. These models’ key assumptions include the contractual terms of the respective contract along with significant observable inputs, including interest rates, yield curves, nonperformance risk and volatility. Derivative contracts are executed with a Credit Support Annex, which is a bilateral agreement that requires collateral postings when the market value exceeds certain threshold limits. These agreements protect the interests of the Company and its counterparties should either party suffer a credit rating deterioration.

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

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

Mortgage banking derivatives: The Company relies on a third-party pricing service to value its mortgage banking derivative financial assets and liabilities, which the Company classifies as a Level 3 valuation. The external valuation model to estimate the fair value of its interest rate lock commitments to originate residential mortgage loans held for sale includes grouping the interest rate lock commitments by interest rate and terms, applying an estimated pull-through rate based on historical experience, and then multiplying by quoted investor prices determined to be reasonably applicable to the loan commitment groups based on interest rate, terms, and rate lock expiration dates of the loan commitment groups. The Company also relies on an external valuation model to estimate the fair value of its forward commitments to sell residential mortgage loans (i.e., an estimate of what the Company would receive or pay to terminate the forward delivery contract based on market prices for similar financial instruments), which includes matching specific terms and maturities of the forward commitments against applicable investor pricing.

34

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

(dollars in thousands)	Investment Securities			Mortgage Banking Derivatives		Total
Assets:
Beginning balance at January 1, 2019	$	9,794		$	229	$	10,023
Realized (loss) gain included in earnings		(20	)		84		64
Unrealized gain included in other comprehensive income		12			—		12
Purchases of available-for-sale securities		3,030			—		3,030
Principal redemption		(3,004	)		—		(3,004	)
Ending balance at September 30, 2019	$	9,812		$	313	$	10,125

Liabilities:
Beginning balance at January 1, 2019	$	—	$	269		$	269
Realized gain included in earnings		—		(266	)		(266	)
Principal redemption		—		—			—
Ending balance at September 30, 2019	$	—	$	3		$	3

(dollars in thousands)	Investment Securities		Mortgage Banking Derivatives		Total
Assets:
Beginning balance at January 1, 2018	$	1,718	$	43	$	1,761
Realized gain included in earnings		—		186		186
Purchases of available-for-sale securities		8,076		—		8,076
Principal redemption		—		—		—
Ending balance at December 31, 2018	$	9,794	$	229	$	10,023

Liabilities:
Beginning balance at January 1, 2018	$	—	$	10	$	10
Realized loss included in earnings		—		259		259
Principal redemption		—		—		—
Ending balance at December 31, 2018	$	—	$	269	$	269

The other equity securities classified as Level 3 consist of equity investments in the form of common stock of two local banking companies which are not publicly traded, and for which the carrying amount approximates fair value.

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Company measures certain assets at fair value on a nonrecurring basis and the following is a general description of the methods used to value such assets.

Impaired loans: The Company does not record loans at fair value on a recurring basis; however, from time to time, a loan is considered impaired and an allowance for loan loss is established. The Company considers a loan impaired when it is probable that the Company will be unable to collect all amounts due according to the original contractual terms of the note agreement, including both principal and interest. Management has determined that nonaccrual loans and loans that have had their terms restructured in a troubled debt restructuring meet this impaired loan definition. Once a loan is identified as individually impaired, management measures impairment in accordance with ASC Topic 310, “Receivables.” The fair value of impaired loans is estimated using one of several methods, including the collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring a specific allowance represent loans for which the fair value of expected repayments or collateral exceed the recorded investment in such loans. At September 30, 2019, substantially all of the Company’s impaired loans were evaluated based upon the fair value of the collateral. In accordance with ASC Topic 820, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the loan as nonrecurring Level 3. For individually evaluated impaired loans, the amount of impairment is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate or the estimated fair value of the underlying collateral for collateral-dependent loans, which the Company classifies as a Level 3 valuation.

35

Other real estate owned: Other real estate owned is initially recorded at fair value less estimated selling costs. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral, which the Company classifies as a Level 3 valuation.

Assets measured at fair value on a nonrecurring basis are included in the table below:

(dollars in thousands)	Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total (Fair Value)
September 30, 2019
Impaired loans:
Commercial	$	—	$	—	$	8,776	$	8,776
Income producing - commercial real estate		—		—		8,841		8,841
Owner occupied - commercial real estate		—		—		7,032		7,032
Real estate mortgage - residential		—		—		4,985		4,985
Construction - commercial and residential		—		—		9,148		9,148
Home equity		—		—		474		474
Other real estate owned		—		—		1,487		1,487
Total assets measured at fair value on a nonrecurring basis as of September 30, 2019	$	—	$	—	$	40,743	$	40,743
(dollars in thousands)	Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total (Fair Value)
December 31, 2018
Impaired loans:
Commercial	$	—	$	—	$	3,338	$	3,338
Income producing - commercial real estate		—		—		18,937		18,937
Owner occupied - commercial real estate		—		—		5,131		5,131
Real estate mortgage - residential		—		—		1,510		1,510
Construction - commercial and residential		—		—		1,981		1,981
Home equity		—		—		487		487
Other real estate owned		—		—		1,394		1,394
Total assets measured at fair value on a nonrecurring basis as of December 31, 2018	$	—	$	—	$	32,778	$	32,778

Fair Value of Financial Instruments

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

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

36

The estimated fair value of the Company’s financial instruments at September 30, 2019 and December 31, 2018 are as follows:

					Fair Value Measurements
(dollars in thousands)	Carrying Value		Fair Value		Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2019
Assets
Cash and due from banks	$	6,657	$	6,657	$	—	$	6,657	$	—
Federal funds sold		27,711		27,711		—		27,711		—
Interest bearing deposits with other banks		361,154		361,154		—		361,154		—
Investment securities		708,545		708,545		—		698,733		9,812
Federal Reserve and Federal Home Loan Bank stock		28,725		28,725		—		28,725		—
Loans held for sale		52,199		52,199		—		52,199		—
Loans		7,485,441		7,572,385		—		—		7,572,385
Bank owned life insurance		74,726		74,726		—		74,726		—
Annuity investment		12,103		12,103		—		12,103		—
Interest Rate Caps		228		228		—		228		—
Mortgage banking derivatives		313		313		—		—		313
Liabilities
Noninterest bearing deposits		2,051,106		2,051,106		—		2,051,106		—
Interest bearing deposits		3,952,541		3,952,541		—		3,952,541		—
Certificates of deposit		1,398,866		1,443,542		—		1,443,542		—
Customer repurchase agreements		30,297		30,297		—		30,297		—
Borrowings		317,589		328,330		—		328,330		—
Interest rate swap derivatives		362		362				362		—
Derivative liability		117		117		—		117		—
Interest Rate Caps		235		235		—		235		—
Mortgage banking derivatives		3		3		—		—		3
December 31, 2018
Assets
Cash and due from banks	$	6,773	$	6,773	$	—	$	6,773	$	—
Federal funds sold		11,934		11,934		—		11,934		—
Interest bearing deposits with other banks		303,157		303,157		—		303,157		—
Investment securities		784,139		784,139		—		774,345		9,794
Federal Reserve and Federal Home Loan Bank stock		23,506		23,506		—		23,506		—
Loans held for sale		19,254		19,254		—		19,254		—
Loans		6,921,503		6,921,048		—		—		6,921,048
Bank owned life insurance		73,441		73,441		—		73,441		—
Annuity investment		12,417		12,417		—		12,417		—
Mortgage banking derivatives		229		229		—		—		229
Interest rate swap derivatives		3,727		3,727		—		3,727		—
Liabilities
Noninterest bearing deposits		2,104,220		2,104,220		—		2,104,220		—
Interest bearing deposits		3,542,666		3,542,666		—		3,542,666		—
Certificates of deposit		1,327,400		1,325,209		—		1,325,209		—
Customer repurchase agreements		30,413		30,413		—		30,413		—
Borrowings		217,196		218,006		—		218,006		—
Mortgage banking derivatives		269		269		—		—		269

37

Note 14. Supplemental Executive Retirement Plan

The Bank has entered into Supplemental Executive Retirement and Death Benefit Agreements (the “SERP Agreements”) with certain of the Bank’s executive officers, which upon the executive’s retirement, will provide for a stated monthly payment for such executive’s lifetime subject to certain death benefits described below. The retirement benefit is computed as a percentage of each executive’s projected average base salary over the five years preceding retirement, assuming retirement at age 67. The SERP Agreements provide that (a) the benefits vest ratably over six years of service to the Bank, with the executive receiving credit for years of service prior to entering into the SERP Agreement, (b) death, disability and change-in-control shall result in immediate vesting, and (c) the monthly amount will be reduced if retirement occurs earlier than age 67 for any reason other than death, disability or change-in-control. The SERP Agreements further provide for a death benefit in the event the retired executive dies prior to receiving 180 monthly installments, paid either in a lump sum payment or continued monthly installment payments, such that the executive’s beneficiary has received payment(s) sufficient to equate to a cumulative 180 monthly installments.

The SERP Agreements are unfunded arrangements maintained primarily to provide supplemental retirement benefits and comply with Section 409A of the Internal Revenue Code. The Bank financed the retirement benefits by purchasing fixed annuity contracts with four insurance carriers in 2013 totaling $11.4 million that have been designed to provide a future source of funds for the lifetime retirement benefits of the SERP Agreements. The primary impetus for utilizing fixed annuities is a substantial savings in compensation expenses for the Bank as opposed to a traditional SERP Agreement. For the three and nine months ended September 30, 2019, the annuity contracts accrued $51 thousand of income and $147 thousand of income offset by $165 thousand of annual fees, respectively, which were included in other noninterest income on the Consolidated Statement of Operations. For the three and nine months ended September 30, 2018, the annuity contracts accrued $56 thousand of income and $161 thousand of income offset by $123 thousand of annual fees, respectively, which were included in other noninterest income on the Consolidated Statement of Operations. The cash surrender value of the annuity contracts was $12.1 million and $12.4 million at September 30, 2019 and December 31, 2018, respectively, and is included in other assets on the Consolidated Balance Sheets. For the three and nine months ended September 30, 2019, the Company recorded benefit expense accruals of $101 thousand and $303 thousand, respectively, for this post retirement benefit. For the three and nine months ended September 30, 2018, the Company recorded benefit expense accruals of $100 thousand and $586 thousand, respectively, for this post retirement benefit.

Upon death of a named executive, the annuity contract related to such executive terminates. The Bank has purchased additional bank owned life insurance contracts, which would effectively finance payments (up to a 15 year certain amount) to the executives’ named beneficiaries.

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion provides information about the results of operations, and financial condition, liquidity, and capital resources of the Company and its subsidiaries as of the dates and periods indicated. This discussion and analysis should be read in conjunction with the unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this report and the Management Discussion and Analysis in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

This report contains forward looking statements within the meaning of the Securities Exchange Act of 1934, as amended, including statements of goals, intentions, and expectations as to future trends, plans, events or results of Company operations and policies and regarding general economic conditions. In some cases, forward- looking statements can be identified by use of such words as “may,” “will,” “anticipate,” “believes,” “expects,” “plans,” “estimates,” “potential,” “continue,” “should,” and similar words or phrases. These statements are based upon current and anticipated economic conditions, nationally and in the Company’s market, interest rates and interest rate policy, competitive factors and other conditions, which by their nature are not susceptible to accurate forecast, and are subject to significant uncertainty. For details on factors that could affect these expectations, see the risk factors and other cautionary language included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 and in other periodic and current reports filed by the Company with the Securities and Exchange Commission. Because of these uncertainties and the assumptions on which this discussion and the forward-looking statements are based, actual future operations and results in the future may differ materially from those indicated herein. Readers are cautioned against placing undue reliance on any such forward looking statements.

 38

GENERAL

The Company is a growth-oriented, one-bank holding company headquartered in Bethesda, Maryland, which is currently celebrating twenty-one years of successful operations. The Company provides general commercial and consumer banking services through the Bank, its wholly owned banking subsidiary, a Maryland chartered bank which is a member of the Federal Reserve System. The Company was organized in October 1997, to be the holding company for the Bank. The Bank was organized in 1998 as an independent, community oriented, full service banking alternative to the super regional financial institutions, which dominate the Company’s primary market area. The Company’s philosophy is to provide superior, personalized service to its customers. The Company focuses on relationship banking, providing each customer with a number of services and becoming familiar with and addressing customer needs in a proactive, personalized fashion. The Bank currently has a total of twenty branch offices, including nine in Northern Virginia, six in Suburban Maryland, and five in Washington, D.C.

The Bank offers a broad range of commercial banking services to its business and professional clients as well as full service consumer banking services to individuals living and/or working primarily in the Bank’s market area. The Bank emphasizes providing commercial banking services to sole proprietors, small and medium-sized businesses, non-profit organizations and associations, and investors living and working in and near the primary service area. These services include the usual deposit functions of commercial banks, including business and personal checking accounts, “NOW” accounts and money market and savings accounts, business, construction, and commercial loans, residential mortgages and consumer loans, and cash management services. The Bank is also active in the origination and sale of residential mortgage loans and the origination of SBA loans. The residential mortgage loans are originated for sale to third-party investors, generally large mortgage and banking companies, under best efforts and mandatory delivery commitments with the investors to purchase the loans subject to compliance with pre-established criteria. The Bank generally sells the guaranteed portion of the SBA loans in a transaction apart from the loan origination generating noninterest income from the gains on sale, as well as servicing income on the portion participated. The Company originates multifamily FHA loans through the Department of Housing and Urban Development’s Multifamily Accelerated Program (“MAP”). The Company securitizes these loans through the Government National Mortgage Association (“Ginnie Mae”) MBS I program and sells the resulting securities in the open market to authorized dealers in the normal course of business and periodically bundles and sells the servicing rights. Bethesda Leasing, LLC, a subsidiary of the Bank, holds title to and manages other real estate owned (“OREO”) assets. Eagle Insurance Services, LLC, a subsidiary of the Bank, offers access to insurance products and services through a referral program with a third party insurance broker. Additionally, the Bank offers investment advisory services through referral programs with third parties. Landroval Municipal Finance, Inc., a subsidiary of the Bank, focuses on lending to municipalities by buying debt on the public market as well as direct purchase issuance.

CRITICAL ACCOUNTING POLICIES

The Company’s Consolidated Financial Statements are prepared in accordance with GAAP and follow general practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the Consolidated Financial Statements; accordingly, as this information changes, the Consolidated Financial Statements could reflect different estimates, assumptions, and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions, and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or a valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The Company applies the accounting policies contained in Note 1 to Consolidated Financial Statements included in the Company’s Annual report on Form 10-K for the year ended December 31, 2018. There have been no significant changes to the Company’s Accounting Policies as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 except as indicated in “Accounting Standards Adopted in 2019” in Note 1 to the Consolidated Financial Statements.

 39

RESULTS OF OPERATIONS

Earnings Summary

Net income for the three months ended September 30, 2019 was $36.5 million compared to $38.9 million net income for the three months ended September 30, 2018, a 6% decrease. Net income per basic common share for the three months ended September 30, 2019 was $1.07 compared to $1.14 for the same period in 2018, a 6% decrease. Net income per diluted common share for the three months ended September 30, 2019 was $1.07 compared to $1.13 for the same period in 2018, a 5% decrease.

Net income declined for the three months ended September 30, 2019 relative to the same period in 2018 due to slightly higher revenues (i.e. net interest income plus noninterest income) offset by a larger increase in noninterest expenses in the 2019 period. Furthermore, earnings in the third quarter of 2019 were impacted by two significant non-recurring expense items. First, the Company recorded $2.0 million of accelerated shared based compensation expense due to the resignation of certain directors of the Company and Bank. Second, as a result of the FDIC Deposit Insurance Fund exceeding 1.38% of insured deposits at June 30, 2019, EagleBank recognized a $1.1 million credit to its FDIC assessment expense in the third quarter of 2019. Excluding these two non-recurring items, net income for the third quarter of 2019 would have been $37.1 million ($1.08 per diluted share).

The provision for income taxes was $14.1 million, an increase of $221 thousand, or 2%, compared to the same period in 2018. The most significant portion of revenue is net interest income, which decreased by less than 1% for the three months ended September 30, 2019 over the same period in 2018 ($81.0 million versus $81.3 million).

For the three months ended September 30, 2019, the Company reported an annualized return on average assets (“ROAA”) of 1.62% as compared to 1.93% for the three months ended September 30, 2018. The annualized return on average common equity (“ROACE”) for the three months ended September 30, 2019 was 12.09% as compared to 14.85% for the three months ended September 30, 2018. The annualized return on average tangible common equity (“ROATCE”) for the three months ended September 30, 2019 was 13.25% as compared to 16.54% for the three months ended September 30, 2018. The decline in these ratios was primarily due to net interest margin compression, the net impact of the two non-recurring expense items discussed above, as well as additional legal costs associated with ongoing investigations discussed in the “Noninterest Expense” section.

For the nine months ended September 30, 2019, the Company’s net income was $107.5 million, a 4% decrease from $112.0 million net income for the same period in 2018. Net income per basic common share for the nine months ended September 30, 2019 was $3.12 compared to $3.26 for the same period in 2018, a 4% decrease. Net income per diluted common share for the nine months ended September 30, 2019 was $3.12 compared to $3.25 for the same period in 2018, a 4% decrease.

The decrease in net income for the nine months ended September 30, 2019 can be attributed primarily to $8.2 million of nonrecurring charges related to acceleration of share based compensation expenses associated with the retirement of our former Chairman and Chief Executive Officer and the resignation of certain directors. The provision for income taxes was $39.5 million, an increase of $796 thousand or 2% compared to the same period in 2018. The most significant portion of revenue is net interest income, which increased 3% for the nine months ended September 30, 2019 over the same period in 2018 ($243.3 million versus $235.3 million), resulting from growth in average earning assets of 11% partially offset by a decline in the net interest margin to 3.88% from 4.15%.

For the nine months ended September 30, 2019, the Company reported an annualized ROAA of 1.66% as compared to 1.92% for the nine months ended September 30, 2018. The annualized ROACE for the nine months ended September 30, 2019 was 12.34% as compared to 14.92% for the nine months ended September 30, 2018. The annualized ROATCE for the nine months ended September 30, 2019 was 13.57% as compared to 16.70% for the nine months ended September 30, 2018. The decline in these ratios was primarily due to net interest margin compression and the nonrecurring charges related to acceleration of share based compensation expenses discussed above.

 40

The net interest margin, which measures the difference between interest income and interest expense (i.e. net interest income) as a percentage of earning assets, was 3.72% for the three months ended September 30, 2019 and 4.14% for the same period in 2018. Average earning asset yields decreased 21 basis points to 5.00% for the three months ended September 30, 2019, as compared to 5.21% for the same period in 2018. The average cost of interest bearing liabilities increased by 27 basis points (to 2.02% from 1.75%) for the three months ended September 30, 2019 as compared to the same period in 2018. Combining the change in the yield on earning assets and the costs of interest bearing liabilities, the net interest spread decreased by 48 basis points for the three months ended September 30, 2019 as compared to 2018 (2.98% versus 3.46%).

The benefit of noninterest sources funding earning assets increased by 6 basis points to 74 basis points from 68 basis points for the three months ended September 30, 2019 versus the same period in 2018. The combination of a 48 basis point decrease in the net interest spread and a 6 basis point increase in the value of noninterest sources resulted in a 42 basis point decrease in the net interest margin for the three months ended September 30, 2019 as compared to the same period in 2018. The Company considers the value of its noninterest sources of funds as very significant to its business model and its overall profitability.

The net interest margin was 3.88% for the nine months ended September 30, 2019 and 4.15% for the same period in 2018. Average earning asset yields increased 6 basis points to 5.14% for the nine months ended September 30, 2019, as compared to 5.08% for the same period in 2018. The average cost of interest bearing liabilities increased by 52 basis points (to 2.02% from 1.50%) for the nine months ended September 30, 2019 as compared to the same period in 2018. Combining the change in the yield on earning assets and the costs of interest bearing liabilities, the net interest spread decreased by 46 basis points for the nine months ended September 30, 2019 as compared to 2018 (3.12% versus 3.58%).

The benefit of noninterest sources funding earning assets increased by 19 basis points to 76 basis points from 57 basis points for the nine months ended September 30, 2019 versus the same period in 2018. The combination of a 46 basis point decrease in the net interest spread and a 19 basis point increase in the value of noninterest sources resulted in a 27 basis point decrease in the net interest margin for the nine months ended September 30, 2019 as compared to the same period in 2018.

The Company believes it has effectively managed its net interest margin and shown some growth in net interest income over the past twelve months as market interest rates have trended sharply lower. This factor has been significant to overall earnings performance over the past twelve months as net interest income represents 93% of the Company’s total revenue for the three months ended September 30, 2019.

For the first nine months of 2019, total loans grew 8% over December 31, 2018, and average loans were 11% higher in the first nine months of 2019 as compared to the first nine months of 2018. At September 30, 2019, total deposits were 6% higher than deposits at December 31, 2018, while average deposits were 13% higher for the first nine months of 2019 compared with the first nine months of 2018.

In order to fund growth in average loans of 11% over the nine months ended September 30, 2019 as compared to the same period in 2018, as well as sustain significant liquidity, the Company has relied on funding from interest bearing accounts primarily as a result of effectively building new and enhanced client relationships, and an enhanced focus on time deposits.

In terms of the average asset composition or mix, loans, which generally have higher yields than securities and other earning assets, represented 87% and 86% of average earning assets for the first nine months of 2019 and 2018, respectively. For the first nine months of 2019, as compared to the same period in 2018, average loans, excluding loans held for sale, increased $715.0 million, or 11%, due primarily to growth in income producing - commercial real estate, owner occupied - commercial real estate, and commercial loans. Average investment securities for both the nine months ended September 30, 2019 and 2018 amounted to 9% of average earning assets. The combination of federal funds sold, interest bearing deposits with other banks and loans held for sale represented 4% and 5% of average earning assets for the first nine months of 2019 and 2018, respectively.

The provision for credit losses was $3.2 million for the three months ended September 30, 2019 as compared to $2.4 million for the three months ended September 30, 2018. Net charge-offs of $1.5 million in the third quarter of 2019 represented an annualized 0.08% of average loans, excluding loans held for sale, as compared to $862 thousand, or an annualized 0.05% of average loans, excluding loans held for sale, in the third quarter of 2018. Net charge-offs in the third quarter of 2019 were attributable primarily to commercial loans ($1.6 million).

 41

At September 30, 2019 the allowance for credit losses represented 0.98% of loans outstanding, as compared to 1.00% at December 31, 2018. The allowance for credit losses at September 30, 2019 represented 128% of nonperforming loans, as compared to 430% at December 31, 2018. Nonperforming loans of $57.7 million as of September 30, 2019 included one loan of $16.5 million which was brought current shortly after quarter end. Excluding a $16.5 million nonperforming loan that was brought current shortly after quarter end, the coverage ratio would have been 179% as of September 30, 2019. The lower coverage ratio was due to an increase in nonperforming loans at September 30, 2019, substantially attributable to softness in the market for ultra high-end residential properties.

Total noninterest income for the three months ended September 30, 2019 increased to $6.3 million from $5.6 million for the three months ended September 30, 2018, a 12% increase, due substantially to $1.1 million higher gains on the sale of residential mortgage loans ($2.5 million versus $1.4 million) resulting from higher loan origination and sales volume as compared to 2018, partially offset by lower service charges on deposit accounts of $320 thousand. Residential mortgage loans closed were $224 million for the third quarter of 2019 versus $107 million for the third quarter of 2018.

The efficiency ratio, which measures the ratio of noninterest expense to total revenue, was 38.34% for the third quarter of 2019, as compared to 36.37% for the third quarter of 2018. Noninterest expenses totaled $33.5 million for the three months ended September 30, 2019, as compared to $31.6 million for the three months ended September 30, 2018, a 6% increase. Salaries and employee benefits expense increased by $1.9 million due primarily to $2.0 million of non-recurring charges related to the acceleration of share based compensation expense. Legal, accounting and professional fees increased $1.5 million from $2.1 million to $3.6 million, as discussed in the “Noninterest Expense” section. Data processing expense decreased by $240 thousand primarily due to ongoing contract renegotiations. FDIC insurance decreased $848 thousand from $933 thousand to $85 thousand as the increased premium cost of a higher assessment base was effectively offset by the $1.1 million FDIC assessment credit detailed in the “Earnings Summary” section.

The provision for credit losses was $10.1 million for the nine months ended September 30, 2019 as compared to $6.1 million for the nine months ended September 30, 2018. The higher provisioning for the nine months ended September 30, 2019, as compared to the same period in 2018, is due primarily to higher net charge-offs. Net charge-offs of $6.4 million for the nine months ended September 30, 2019 represented an annualized 0.12% of average loans, excluding loans held for sale, as compared to $2.6 million, or an annualized 0.05% of average loans, excluding loans held for sale, in the first nine months of 2018. Net charge-offs in the first nine months of 2019 were attributable to commercial real estate loans ($5.0 million) and commercial loans ($1.4 million).

Total noninterest income for the nine months ended September 30, 2019 increased to $19.0 million from $16.5 million for the nine months ended September 30, 2018, a 15% increase, due substantially to $1.6 million higher gains on the sale of investment securities primarily due to $829 thousand of noninterest income recognized during March 2019 on interest rate swap terminations, and $1.4 million higher gains on the sale of residential mortgage loans ($5.7 million versus $4.3 million) resulting from higher volume as compared to 2018, offset by $394 thousand lower service charges on deposit accounts. Residential mortgage loans closed were $470 million for the nine months ended September 30, 2019 versus $334 million for the same period in 2018.

The efficiency ratio, which measures the ratio of noninterest expense to total revenue, was 40.08% for the first nine months of 2019, as compared to 37.74% for the same period in 2018. Noninterest expenses totaled $105.1 million for the nine months ended September 30, 2019, as compared to $95.0 million for the nine months ended September 30, 2018, an 11% increase. Cost increases for salaries and benefits for the nine months ended September 30, 2019 were $8.7 million, due primarily to $8.2 million of nonrecurring charges related to acceleration of share based compensation expenses associated with the retirement of our former Chairman and Chief Executive Officer and the resignation of certain directors. Legal, accounting, and professional fees increased by $792 thousand from $7.3 million to $8.1 million, the reasons of which are further discussed in the “Noninterest Expense” section. Other expenses increased $1.4 million, due primarily to real estate and utility costs on special assets ($441 thousand) and director compensation ($424 thousand).

The ratio of common equity to total assets decreased to 13.16% at September 30, 2019 from 13.22% at December 31, 2018, due primarily to total assets growing faster than retained earnings, which were reduced by the two non-recurring items discussed in the “Earnings Summary” section. As discussed later in “Capital Resources and Adequacy,” the regulatory capital ratios of the Bank and Company remain above well capitalized levels.

 42

Net Interest Income and Net Interest Margin

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

For the three months ended September 30, 2019, net interest income decreased by less than 1%, average loans increased by $846.6 million, and average deposits increased by $834.2 million over the same period for 2018. The net interest margin was 3.72% for the three months ended September 30, 2019 and 4.14% for the same period in 2018.

For the nine months ended September 30, 2019, net interest income increased 3%, average loans increased by $715.0 million and average deposits increased by $794.2 million over the same period for 2018. The net interest margin was 3.88% for the nine months ended September 30, 2019 and 4.15% for the same period in 2018. The Company believes its current net interest margin remains favorable compared to peer banking companies.

The tables below present the average balances and rates of the major categories of the Company’s assets and liabilities for the three and nine months ended September 30, 2019 and 2018. Included in the table is a measurement of interest rate spread and margin. Interest rate spread is the difference (expressed as a percentage) between the interest rate earned on earning assets less the interest rate paid on interest bearing liabilities. While the interest rate spread provides a quick comparison of earnings rates versus cost of funds, management believes that margin provides a better measurement of performance. The net interest margin (as compared to net interest spread) includes the effect of noninterest bearing sources in its calculation. Net interest margin is net interest income expressed as a percentage of average earning assets.

 43

Eagle Bancorp, Inc. 

Consolidated Average Balances, Interest Yields And Rates (Unaudited) 

(dollars in thousands)

	Three Months Ended September 30,
	2019							2018
	Average Balance		Interest		Average Yield/Rate			Average Balance		Interest		Average Yield/Rate
ASSETS
Interest earning assets:
Interest bearing deposits with other banks and other short-term investments	$	344,853	$	1,762		2.03	%	$	377,324	$	1,897		1.99	%
Loans held for sale (1)		49,765		492		3.95	%		23,511		274		4.66	%
Loans (1) (2)		7,492,816		101,805		5.39	%		6,646,264		95,296		5.69	%
Investment securities available for sale (2)		741,907		4,904		2.62	%		735,586		4,875		2.63	%
Federal funds sold		25,855		71		1.09	%		10,737		18		0.67	%
Total interest earning assets		8,655,196		109,034		5.00	%		7,793,422		102,360		5.21	%
Total noninterest earning assets		341,452							297,815
Less: allowance for credit losses		73,242							67,702
Total noninterest earning assets		268,210							230,113
TOTAL ASSETS	$	8,923,406						$	8,023,535
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest bearing liabilities:
Interest bearing transaction	$	791,785	$	1,828		0.92	%	$	482,820	$	973		0.80	%
Savings and money market		2,922,751		13,606		1.85	%		2,596,010		9,636		1.47	%
Time deposits		1,444,328		9,142		2.51	%		1,220,755		6,110		1.99	%
Total interest bearing deposits		5,158,864		24,576		1.89	%		4,299,585		16,719		1.54	%
Customer repurchase agreements		27,809		82		1.17	%		30,445		54		0.70	%
Other short-term borrowings		100,100		408		1.59	%		216,851		1,317		2.38	%
Long-term borrowings		217,555		2,979		5.36	%		217,164		2,979		5.37	%
Total interest bearing liabilities		5,504,328		28,045		2.02	%		4,764,045		21,069		1.75	%
Noninterest bearing liabilities:
Noninterest bearing demand		2,160,450							2,185,559
Other liabilities		61,115							33,105
Total noninterest bearing liabilities		2,221,565							2,218,664
Shareholders’ Equity		1,197,513							1,040,826
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	8,923,406						$	8,023,535
Net interest income			$	80,989						$	81,291
Net interest spread						2.98	%						3.46	%
Net interest margin						3.72	%						4.14	%
Cost of funds						1.28	%						1.07	%

(1) Loans placed on nonaccrual status are included in average balances. Net loan fees and late charges included in interest income on loans totaled $4.3 million and $5.0 million for the three months ended September 30, 2019 and 2018, respectively.

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

 44

Eagle Bancorp, Inc.

Consolidated Average Balances, Interest Yields and Rates (Unaudited)

(dollars in thousands)

	Nine Months Ended September 30,
	2019							2018
	Average Balance		Interest		Average Yield/Rate			Average Balance		Interest		Average Yield/Rate
ASSETS
Interest earning assets:
Interest bearing deposits with other banks and other short-term investments	$	285,150	$	4,533		2.13	%	$	321,266	$	4,152		1.73	%
Loans held for sale (1)		34,265		1,041		4.05	%		24,692		839		4.53	%
Loans (1) (2)		7,265,726		300,966		5.54	%		6,550,754		270,085		5.51	%
Investment securities available-for-sale (2)		784,970		15,740		2.68	%		664,798		12,525		2.52	%
Federal funds sold		21,352		167		1.05	%		15,060		104		0.92	%
Total interest earning assets		8,391,463		322,447		5.14	%		7,576,570		287,705		5.08	%
Total noninterest earning assets		339,355							294,948
Less: allowance for credit losses		70,902							66,429
Total noninterest earning assets		268,453							228,519
TOTAL ASSETS	$	8,659,916						$	7,805,089
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest bearing liabilities:
Interest bearing transaction	$	696,825	$	4,206		0.81	%	$	433,921	$	2,252		0.69	%
Savings and money market		2,781,663		37,848		1.82	%		2,670,578		23,846		1.19	%
Time deposits		1,406,237		25,883		2.46	%		1,078,608		13,798		1.71	%
Total interest bearing deposits		4,884,725		67,937		1.86	%		4,183,107		39,896		1.28	%
Customer repurchase agreements		29,617		255		1.15	%		45,504		166		0.49	%
Other short-term borrowings		113,845		1,983		2.30	%		228,398		3,425		1.98	%
Long-term borrowings		217,458		8,937		5.42	%		217,068		8,937		5.43	%
Total interest bearing liabilities		5,245,645		79,112		2.02	%		4,674,077		52,424		1.50	%
Noninterest bearing liabilities:
Noninterest bearing demand		2,183,412							2,090,868
Other liabilities		66,318							36,705
Total noninterest bearing liabilities		2,249,730							2,127,573
Shareholders’ equity		1,164,541							1,003,439
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	8,659,916						$	7,805,089
Net interest income			$	243,335						$	235,281
Net interest spread						3.12	%						3.58	%
Net interest margin						3.88	%						4.15	%
Cost of funds						1.26	%						0.93	%

(1) Loans placed on nonaccrual status are included in average balances. Net loan fees and late charges included in interest income on loans totaled $13.1 million and $14.9 million for the nine months ended September 30, 2019 and 2018, respectively.

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

 45

Provision for Credit Losses

The provision for credit losses represents the amount of expense charged to current earnings to fund the allowance for credit losses. The amount of the allowance for credit losses is based on many factors which reflect management’s assessment of the risk in the loan portfolio. Those factors include historical losses, economic conditions and trends, the value and adequacy of collateral, volume and mix of the portfolio, performance of the portfolio, and internal loan processes of the Company and Bank.

Management has developed a comprehensive analytical process to monitor the adequacy of the allowance for credit losses. The process and guidelines were developed utilizing, among other factors, the guidance from federal banking regulatory agencies. The results of this process, in combination with conclusions of the Bank’s outside consultants’ review of the risk inherent in the loan portfolio, support management’s assessment as to the adequacy of the allowance at the balance sheet date. Please refer to the discussion under the caption “Critical Accounting Policies” contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 for an overview of the methodology management employs on a quarterly basis to assess the adequacy of the allowance and the provisions charged to expense. Also, refer to the table on page 44 which reflects activity in the allowance for credit losses.

During the three months ended September 30, 2019, the allowance for credit losses reflected $3.2 million in provision for credit losses and $1.5 million in net charge-offs during the period. The provision for credit losses was $3.2 million for the three months ended September 30, 2019 as compared to $2.4 million for the same period in 2018. Net charge-offs of $1.5 million in the third quarter of 2019 represented an annualized 0.08% of average loans, excluding loans held for sale, as compared to $862 thousand, or an annualized 0.05% of average loans, excluding loans held for sale, in the third quarter of 2018.

During the nine months ended September 30, 2019, the allowance for credit losses reflected $10.1 million in provision for credit losses and $6.4 million in net charge-offs during the period. The provision for credit losses was $10.1 million for the nine months ended September 30, 2019 as compared to $6.1 million for the same period in 2018. Net charge-offs of $6.4 million in the first nine months of 2019 represented an annualized 0.12% of average loans, excluding loans held for sale, as compared to $2.6 million, or an annualized 0.05% of average loans, excluding loans held for sale, in the first nine months of 2018.

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

The maintenance of a high quality loan portfolio, with an adequate allowance for possible credit losses, will continue to be a primary management objective for the Company.

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

	Nine Months Ended September 30,
(dollars in thousands)	2019			2018
Balance at beginning of period	$	69,944		$	64,758
Charge-offs:
Commercial		1,799			2,435
Income producing - commercial real estate		5,343			121
Owner occupied - commercial real estate		—			132
Real estate mortgage - residential		—			—
Construction - commercial and residential		—			1,160
Construction - C&I (owner occupied)		—			—
Home equity		—			—
Other consumer		2			15
Total charge-offs		7,144			3,863
Recoveries:
Commercial		377			86
Income producing - commercial real estate		302			2
Owner occupied - commercial real estate		2			2
Real estate mortgage - residential		3			4
Construction - commercial and residential		52			994
Construction - C&I (owner occupied)		—			—
Home equity		—			133
Other consumer		38			13
Total recoveries		774			1,234
Net charge-offs		6,370			2,629
Provision for Credit Losses		10,146			6,060
Balance at end of period	$	73,720		$	68,189
Annualized ratio of net charge-offs during the period to average loans outstanding during the period		0.12	%		0.05	%

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

	September 30, 2019					December 31, 2018
(dollars in thousands)	Amount		%(1)			Amount		%(1)
Commercial	$	18,169		19	%	$	15,857		22	%
Income producing - commercial real estate		28,527		51	%		28,034		46	%
Owner occupied - commercial real estate		5,598		13	%		6,242		13	%
Real estate mortgage - residential		1,352		1	%		965		2	%
Construction - commercial and residential		17,882		14	%		17,484		15	%
Construction - C&I (owner occupied)		1,390		1	%		691		1	%
Home equity		575		1	%		599		1	%
Other consumer		227		—			72		—
Total allowance	$	73,720		100	%	$	69,944		100	%

(1) Represents the percent of loans in each category to total loans.

 47

Nonperforming Assets

As shown in the table below, the Company’s level of nonperforming assets, which is comprised of loans delinquent 90 days or more, nonaccrual loans, which includes the nonperforming portion of TDRs, and OREO, totaled $59.1 million at September 30, 2019 representing 0.66% of total assets, as compared to $17.7 million of nonperforming assets, or 0.21% of total assets, at December 31, 2018. Nonperforming assets of $59.1 million as of September 30, 2019 included one loan of $16.5 million which was brought current shortly after quarter end. Excluding this loan the ratio of nonperforming assets to total assets would have been 0.47% as of September 30, 2019. The additional increase in nonperforming loans at September 30, 2019, was substantially attributable to softness in the market for ultra high-end residential properties.

The Company had one accruing loan 90 days or more past due at September 30, 2019. This loan totaled $16.5 million and was brought current shortly after quarter end. The Company had no accruing loans 90 days or more past due at December 31, 2018. Management remains attentive to early signs of deterioration in borrowers’ financial conditions and to taking the appropriate action to mitigate risk. Furthermore, the Company is diligent in placing loans on nonaccrual status and believes, based on its loan portfolio risk analysis, that its allowance for credit losses, at 0.98% of total loans at September 30, 2019, is adequate to absorb potential credit losses within the loan portfolio at that date.

Included in nonperforming assets are loans that the Company considers to be impaired. Impaired loans are defined as those as to which we believe it is probable that we will not collect all amounts due according to the contractual terms of the loan agreement, as well as those loans whose terms have been modified in a TDR that have not shown a period of performance as required under applicable accounting standards. Valuation allowances for those loans determined to be impaired are evaluated in accordance with ASC Topic 310—“Receivables,” and updated quarterly. For collateral dependent impaired loans, the carrying amount of the loan is determined by current appraised value less estimated costs to sell the underlying collateral, which may be adjusted downward under certain circumstances for actual events and/or changes in market conditions. For example, current average actual selling prices less average actual closing costs on an impaired multi-unit real estate project may indicate the need for an adjustment in the appraised valuation of the project, which in turn could increase the associated ASC Topic 310 specific reserve for the loan. Generally, all appraisals associated with impaired loans are updated on a not less than annual basis.

Loans are considered to have been modified in a TDR when, due to a borrower’s financial difficulties, the Company makes unilateral concessions to the borrower that it would not otherwise consider. Concessions could include interest rate reductions, principal or interest forgiveness, forbearance, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. Alternatively, management, from time-to-time and in the ordinary course of business, implements renewals, modifications, extensions, and/or changes in terms of loans to borrowers who have the ability to repay on reasonable market-based terms, as circumstances may warrant. Such modifications are not considered to be TDRs as the accommodation of a borrower’s request does not rise to the level of a concession if the modified transaction is at market rates and terms and/or the borrower is not experiencing financial difficulty. For example: (1) adverse weather conditions may create a short term cash flow issue for an otherwise profitable retail business which suggests a temporary interest only period on an amortizing loan; (2) there may be delays in absorption on a real estate project which reasonably suggests extension of the loan maturity at market terms; or (3) there may be maturing loans to borrowers with demonstrated repayment ability who are not in a position at the time of maturity to obtain alternate long-term financing. The determination of whether a restructured loan is a TDR requires consideration of all of the facts and circumstances surrounding the change in terms, and the exercise of prudent business judgment. The Company had ten TDR’s at September 30, 2019 totaling approximately $10.1 million. Seven of these loans totaling approximately $8.6 million are performing under their modified terms. There was one performing TDR totaling $2.3 million that defaulted on its modified terms which was reclassified to nonperforming loans during the nine months ended September 30, 2019. During the nine months ended September 30, 2018, there were two performing TDRs totaling $937 thousand that defaulted on their modified terms which were reclassified to nonperforming loans. A default is considered to have occurred once the TDR is past due 90 days or more or it has been placed on nonaccrual. For the three months ended September 30, 2019, there was one restructured loan totaling approximately $309 thousand that was paid off from the sale proceeds of the collateral property. Commercial and consumer loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a TDR subsequently default, the Company evaluates the loan for possible further impairment. The allowance may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan. For the three months ended September 30, 2019, there were no loans modified in a TDR, as compared to the three months ended September 30, 2018 which had one loan totaling $2.4 million modified in a TDR.

 48

Total nonperforming loans amounted to $57.7 million at September 30, 2019 (0.76% of total loans) compared to $16.3 million at December 31, 2018 (0.23% of total loans). Nonperforming loans of $57.7 million as of September 30, 2019 included one loan of $16.5 million which was brought current shortly after quarter end. Excluding this loan the ratio of nonperforming loans to total loans would have been 0.54% as of September 30, 2019. The additional increase in the ratio of nonperforming loans to total loans at September 30, 2019 as compared to December 31, 2018 was due to increased nonperforming loans substantially attributable to softness in the market for ultra high-end residential properties.

Included in nonperforming assets at September 30, 2019 was $1.5 million of OREO consisting of three foreclosed properties. Included in nonperforming assets at December 31, 2018 was $1.4 million of OREO, consisting of one foreclosed property. The Company had one foreclosed property with a net carrying value of $1.4 million at September 30, 2018. OREO properties are carried at fair value less estimated costs to sell. It is the Company’s policy to obtain third party appraisals prior to foreclosure, and to obtain updated third party appraisals on OREO properties generally not less frequently than annually. Generally, the Company would obtain updated appraisals or evaluations where it has reason to believe, based upon market indications (such as comparable sales, legitimate offers below carrying value, broker indications and similar factors), that the current appraisal does not accurately reflect current value. There were no sales of OREO property during the first nine months of 2019 and 2018.

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

	September 30,			December 31,
(dollars in thousands)	2019			2018
Nonaccrual Loans:
Commercial	$	16,074		$	7,115
Income producing - commercial real estate		5,654			1,766
Owner occupied - commercial real estate		4,124			2,368
Real estate mortgage - residential		5,635			1,510
Construction - commercial and residential		9,148			3,031
Construction - C&I (owner occupied)		—			—
Home equity		487			487
Other consumer		—			—
Accrual loans-past due 90 days		16,528			—
Total nonperforming loans (1)		57,650			16,277
Other real estate owned		1,487			1,394
Total nonperforming assets	$	59,137		$	17,671
Coverage ratio, allowance for credit losses to total nonperforming loans		127.87	%		429.72	%
Ratio of nonperforming loans to total loans		0.76	%		0.23	%
Ratio of nonperforming assets to total assets		0.66	%		0.21	%

(1) Nonaccrual loans reported in the table above include one loan totaling $2.3 million that migrated from a performing TDRs during the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018 where there were two loans totaling $937 thousand that migrated from performing TDRs.  

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.

 49

At September 30, 2019, there were $48.3 million of performing loans considered potential problem loans, defined as loans that are not included in the 90 day past due, nonaccrual or restructured categories, but for which known information about possible credit problems causes management to be uncertain as to the ability of the borrowers to comply with the present loan repayment terms, which may in the future result in disclosure in the past due, nonaccrual or restructured loan categories. Potential problem loans decreased to $48.3 million at September 30, 2019 from $102.7 million at December 31, 2018. The Company has taken a conservative posture with respect to risk rating its loan portfolio. Based upon their status as potential problem loans, these loans receive heightened scrutiny and ongoing intensive risk management. Additionally, the Company’s loan loss allowance methodology incorporates increased reserve factors for certain loans considered potential problem loans as compared to the general portfolio. See “Provision for Credit Losses” for a description of the allowance methodology.

Noninterest Income

Total noninterest income includes service charges on deposits, gain on sale of loans, gain on sale of investment securities, income from BOLI and other income.

Total noninterest income for the three months ended September 30, 2019 increased to $6.3 million from $5.6 million for the three months ended September 30, 2018, a 12% increase, due substantially to $1.1 million higher gains on the sale of residential mortgage loans ($2.5 million versus $1.4 million) resulting from higher loan origination and sales volume as compared to 2018, partially offset by lower service charges on deposit accounts of $320 thousand. Residential mortgage loans closed were $224 million for the third quarter of 2019 versus $107 million for the third quarter of 2018.

Total noninterest income for the nine months ended September 30, 2019 increased to $19.0 million from $16.5 million for the nine months ended September 30, 2018, a 15% increase, due substantially to $1.6 million higher gains on the sale of investment securities primarily due to $829 thousand of noninterest income recognized during March 2019 on interest rate swap terminations, and $1.4 million higher gains on the sale of residential mortgage loans ($5.7 million versus $4.3 million) resulting from higher volume as compared to 2018, offset by $394 thousand lower service charges on deposit accounts. Residential mortgage loans closed were $470 million for the nine months ended September 30, 2019 versus $334 million for the same period in 2018.

Servicing agreements relating to the Ginnie Mae mortgage-backed securities program require the Company to advance funds to make scheduled payments of principal, interest, taxes and insurance, if such payments have not been received from the borrowers. The Company will generally recover funds advanced pursuant to these arrangements under the FHA insurance and guarantee program. However, in the interim, the Company must absorb the cost of the funds it advances during the time the advance is outstanding. The Company must also bear the costs of attempting to collect on delinquent and defaulted mortgage loans. In addition, if a defaulted loan is not cured, the mortgage loan would be canceled as part of the foreclosure proceedings and the Company would not receive any future servicing income with respect to that loan. At September 30, 2019, the Company had no funds advanced outstanding under FHA mortgage loan servicing agreements. To the extent the mortgage loans underlying the Company’s servicing portfolio experience delinquencies, the Company would be required to dedicate cash resources to comply with its obligation to advance funds as well as incur additional administrative costs related to increases in collection efforts.

Service charges on deposit accounts decreased by $320 thousand, or 18%, from $1.8 million for the three months ended September 30, 2018 to $1.5 million for the same period in 2019. Service charges on deposit accounts decreased by $394 thousand, or 8%, from $5.2 million for the nine months ended September 30, 2018 to $4.8 million for the same period in 2019. The decrease for the three and nine month period was due primarily to a lower volume of insufficient funds and return item charges.

The Company originates residential mortgage loans and utilizes both “mandatory delivery” and “best efforts” forward loan sale commitments to sell those loans, servicing released. Loans sold are subject to repurchase in circumstances where documentation is deficient or the underlying loan becomes delinquent or pays off within a specified period following loan funding and sale. The Bank considers these potential recourse provisions to be a minimal risk, but has established a reserve under generally accepted accounting principles for possible repurchases. There were no repurchases due to fraud by the borrower during the three months ended September 30, 2019. The reserve amounted to $67 thousand at September 30, 2019 and is included in other liabilities on the Consolidated Balance Sheets. The Bank does not originate “sub-prime” loans and has no exposure to this market segment.

The Company is an originator of SBA loans and its practice is to sell the guaranteed portion of those loans at a premium. Income from this source was $47 thousand for the three months ended September 30, 2019 compared to $73 thousand for the same period in 2018. Income from this source was $171 thousand for the nine months ended September 30, 2019 compared to $373 thousand for the same period in 2018. Activity in SBA loan sales to secondary markets can vary widely from quarter to quarter.

 50

Other income totaled $1.7 million for the three months ended September 30, 2019 as compared to $2.0 million for the same period in 2018, a decrease of 17%. ATM fees decreased slightly to $361 thousand for the three months ended September 30, 2019 from $363 thousand for the same period in 2018, a decrease of less than 1%. Noninterest fee income totaled $437 thousand for the three months ended September 30, 2019 a decrease of $120 thousand, or 20%, over the total for the same period in 2018.

Other income totaled $5.4 million for the nine months ended September 30, 2019 as compared to $5.5 million for the same period in 2018, a decrease of 3%. ATM fees decreased to $1.0 million for the nine months ended September 30, 2019 from $1.1 million for the same period in 2018, a decrease of 4%. Noninterest fee income totaled $1.4 million for both the nine months ended September 30, 2019 and 2018, a decrease of $35 thousand, or 2.5%.

Net investment gains were $153 thousand for the three months ended September 30, 2019 compared to no gains for the same period in 2018. Net investment gains were $1.6 million for the nine months ended September 30, 2019 compared to $68 thousand for the same period in 2018 primarily due to $829 thousand of noninterest income recognized during March 2019 on interest rate swap terminations.

Noninterest Expense

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

Total noninterest expenses totaled $33.5 million for the three months ended September 30, 2019, as compared to $31.6 million for the three months ended September 30, 2018, a 6% increase. Total noninterest expenses totaled $105.1 million for the nine months ended September 30, 2019, as compared to $95.0 million for the nine months ended September 30, 2018, an 11% increase.

Salaries and employee benefits were $19.1 million for the three months ended September 30, 2019, as compared to $17.2 million for the same period in 2018, an increase of 11% due primarily to $2.0 million of non-recurring charges related to the acceleration of share based compensation expense associated with the resignation of certain directors. Salaries and employee benefits were $60.5 million for the nine months ended September 30, 2019, as compared to $51.8 million for the same period in 2018, an increase of 17% due primarily to $8.2 million of nonrecurring charges related to acceleration of share based compensation expenses associated with the retirement of our former Chairman and Chief Executive Officer and the resignation of certain directors.

At September 30, 2019, the Company’s full time equivalent staff numbered 482, as compared to 470 at December 31, 2018, and 478 at September 30, 2018.

Premises and equipment expenses amounted to $3.5 million and $3.9 million for the three months ended September 30, 2019 and 2018, respectively, a 10% decrease. For the three months ended September 30, 2019, the Company recognized $126 thousand of sublease revenue as compared to $123 thousand for the same period in 2018. Premises and equipment expenses amounted to $11.0 million and $11.7 million for the nine month periods ended September 30, 2019 and 2018, respectively, a 6% decrease. For the nine months ended September 30, 2019, the Company recognized $377 thousand of sublease revenue as compared to $379 thousand for the same period in 2018. Sublease revenue is accounted for as a reduction to premises and equipment expenses.

Marketing and advertising expenses totaled $1.2 million for both the three months ended September 30, 2019 and 2018. Marketing and advertising expenses increased to $3.6 million for the nine months ended September 30, 2019 from $3.4 million for the same period in 2018, a 6% increase, primarily due to increased digital, radio and television advertising spend.

Data processing expense decreased to $2.2 million for the three months ended September 30, 2019 from $2.4 million for the same period in 2018, a 10% decrease primarily due to ongoing contract renegotiations. Data processing expense increased to $7.2 million for the nine months ended September 30, 2019 from $7.1 million for the same period in 2018, an increase of less than 1%.

 51

Legal, accounting and professional fees and expenses for the three months ended September 30, 2019 increased to $3.6 million from $2.1 million for the same period in 2018, a 70% increase. Legal, accounting and professional fees and expenses for the nine months ended September 30, 2019 increased to $8.1 million from $7.3 million for the same period in 2018, an 11% increase. The increased expenses for both the quarter and year to date 2019 periods were primarily associated with government agencies investigations previously disclosed in the second quarter 2019 earnings press release. The Company expects to incur elevated levels of legal and professional fees and expenses for at least the remainder of 2019 as it continues to cooperate with these investigations. Other than these increased costs, we do not believe at this time that the resolution of these investigations will be materially adverse to the Company. As a result of these ongoing investigations, there have been no regulatory restrictions placed on the Company’s ability to fully engage in its banking business as presently conducted. We are, however, unable to predict the duration, scope or outcome of these investigations.

FDIC insurance decreased to $85 thousand for the three months ended September 30, 2019 from $933 thousand for the same period in 2018, a 91% decrease as the increased premium cost of a higher assessment base was effectively offset by the $1.1 million FDIC assessment credit detailed in the “Earnings Summary” section. FDIC insurance decreased to $2.3 million for the nine months ended September 30, 2019 from $2.6 million for the same period in 2018, a 9% decrease.

Other expenses decreased to $3.8 million for the three months ended September 30, 2019 from $3.9 million for the same period in 2018, a decrease of 3%. The major components of cost in this category include broker fees, franchise taxes, core deposit intangible amortization, and insurance expense. Other expenses increased to $12.5 million for the nine months ended September 30, 2019 from $11.1 million for the same period in 2018, an increase of 12%, due primarily to real estate and utility costs on special assets ($441 thousand) and director compensation ($424 thousand).

The efficiency ratio, which measures the ratio of noninterest expense to total revenue, was 38.34% for the third quarter of 2019, as compared to 36.37% for the third quarter of 2018. For the first nine months of 2019, the efficiency ratio was 40.08% as compared to 37.74% for the same period in 2018.

As a percentage of average assets, total noninterest expense (annualized) was 1.50% for the three months ended September 30, 2019 as compared to 1.58% for the same period in 2018. As a percentage of average assets, total noninterest expense (annualized) was 1.62% for both the nine months ended September 30, 2019 and 2018.

Income Tax Expense

The Company’s ratio of income tax expense to pre-tax income (“effective tax rate”) increased to 27.9% and 26.9% for the three and nine months ended September 30, 2019, respectively, as compared to 26.3% and 25.7%, respectively, for the same periods in 2018. The higher effective tax rate for the three and nine months ended September 30, 2019, was due primarily to an increase in nondeductible expenses and a decrease in federal tax credits.

FINANCIAL CONDITION

Summary

Total assets at September 30, 2019 were $9.00 billion, a 7% increase as compared to $8.39 billion at December 31, 2018. Total loans (excluding loans held for sale) were $7.56 billion at September 30, 2019, an 8% increase as compared to $6.99 billion at December 31, 2018. Loans held for sale amounted to $52.2 million at September 30, 2019, a 171% increase as compared to $19.3 million at December 31, 2018. The investment portfolio totaled $708.5 million at September 30, 2019, a 10% decrease as compared to $784.1 million at December 31, 2018.

Total deposits at September 30, 2019 were $7.40 billion, compared to deposits of $6.97 billion at December 31, 2018, a 6% increase. Total borrowed funds (excluding customer repurchase agreements) were $317.6 million at September 30, 2019 of which $100.0 million were FHLB advances that mature in August 2029. Total borrowed funds were $217.3 million at December 31, 2018 none of which were FHLB advances. We continue to work on expanding the breadth and depth of our existing relationships while we pursue building new relationships.

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Total shareholders’ equity at September 30, 2019 increased 7% to $1.18 billion from $1.11 billion at December 31, 2018 primarily as the result of growth in retained earnings. The Company’s capital position remains substantially in excess of regulatory requirements for well capitalized status, with a total risk based capital ratio of 16.08% at both September 30, 2019 and December 31, 2018. Tangible book value per share was $32.02 at September 30, 2019, a 10% increase over $29.17 at December 31, 2018. A $0.22 per share dividend was declared in respect of the common stock on September 25, 2019 to shareholders of record on October 15, 2019 and was paid on October 31, 2019. In addition, the tangible common equity ratio was 12.13% at September 30, 2019 and 12.11% at December 31, 2018. Furthermore, Kroll Bond Rating Agency reaffirmed our BBB+ senior unsecured debt rating (A- at the Bank level) based on our strong capital position, above-peer earnings, low operating expense base relative to peer, and a history of strong asset quality metrics.

Under the capital rules applicable to the Company and Bank, in order to be considered well-capitalized, the Bank must have a common equity Tier 1 risk based capital (“CET1”) ratio of 6.5%, a Tier 1 risk-based ratio of 8.0%, a total risk-based capital ratio of 10.0% and a leverage ratio of 5.0%. The Company and the Bank meet all these requirements, and satisfy the requirement to maintain the fully phased in capital conservation buffer of 2.5% of common equity tier 1 capital for capital adequacy purposes. Failure to maintain the required capital conservation buffer would limit the ability of the Company and the Bank to pay dividends, repurchase shares or pay discretionary bonuses.

Loans, net of amortized deferred fees and costs, at September 30, 2019 and December 31, 2018 by major category are summarized below.

	September 30, 2019						December 31, 2018
(dollars in thousands)	Amount			%			Amount			%
Commercial	$	1,466,862			19	%	$	1,553,112			22	%
Income producing - commercial real estate		3,812,284			51	%		3,256,900			46	%
Owner occupied - commercial real estate		956,345			13	%		887,814			13	%
Real estate mortgage - residential		104,563			1	%		106,418			2	%
Construction - commercial and residential		1,053,789			14	%		1,039,815			15	%
Construction - C&I (owner occupied)		81,916			1	%		57,797			1	%
Home equity		81,117			1	%		86,603			1	%
Other consumer		2,285			—			2,988			—
Total loans		7,559,161			100	%		6,991,447			100	%
Less: allowance for credit losses		(73,720	)					(69,944	)
Net loans	$	7,485,441					$	6,921,503

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

Loans outstanding reached $7.60 billion at September 30, 2019, an increase of $567.7 million, or 8%, as compared to $6.99 billion at December 31, 2018. Loan growth during the nine months ended September 30, 2019 was predominantly in the income producing – commercial real estate and owner occupied – commercial real estate loan categories. Despite an increased level of in-market competition for business, the Bank continued to experience organic loan growth across the portfolio. Notwithstanding increased supply of units, multi-family commercial real estate leasing in the Bank’s market area has held up well, particularly for well-located close-in projects. While as a general comment there has been some softening in the Suburban Maryland office leasing market, in certain well located pockets and submarkets, the sector has evidenced some positive absorption. Overall, commercial real estate values have generally held up well with price escalation in prime pockets, but we continue to be cautious of the cap rates at which some assets are trading and we are being careful with valuations as a result. While the ultra high-end real estate market has softened, the moderately priced housing market has remained stable to increasing, with well-located, Metro accessible properties garnering a premium.

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Deposits and Other Borrowings

The principal sources of funds for the Bank are core deposits, consisting of demand deposits, money market accounts, NOW accounts, savings accounts and certificates of deposit. The deposit base includes transaction accounts, time and savings accounts and accounts which customers use for cash management and which provide the Bank with a source of fee income and cross-marketing opportunities, as well as an attractive source of lower cost funds. To meet funding needs during periods of high loan demand and seasonal variations in core deposits, the Bank utilizes alternative funding sources such as secured borrowings from the FHLB, federal funds purchased lines of credit from correspondent banks and brokered deposits from regional and national brokerage firms and Promontory Interfinancial Network, LLC (“Promontory”).

For the nine months ended September 30, 2019, noninterest bearing deposits decreased $53.1 million as compared to December 31, 2018, while interest bearing deposits increased by $481.3 million during the same period.

From time to time, when appropriate in order to fund strong loan demand, the Bank accepts brokered time deposits, generally in denominations of less than $250 thousand, from national brokerage networks, including Promontory. Additionally, the Bank participates in the Certificates of Deposit Account Registry Service (“CDARS”) and the Insured Cash Sweep product (“ICS”), which provides for reciprocal (“two-way”) transactions among banks facilitated by Promontory for the purpose of maximizing FDIC insurance. The Bank also is able to obtain one-way CDARS deposits and participates in Promontory’s Insured Network Deposit (“IND”). At September 30, 2019, total deposits included $1.70 billion of brokered deposits (excluding the CDARS and ICS two-way), which represented 23% of total deposits. At December 31, 2018, total brokered deposits (excluding the CDARS and ICS two-way) were $1.36 billion, or 20% of total deposits. The CDARS and ICS two-way component represented $638.9 million, or 9%, of total deposits and $391.7 million, or 6%, of total deposits at September 30, 2019 and December 31, 2018, respectively. These sources are believed by the Company to represent a reliable and cost efficient alternative funding source for the Bank. However, to the extent that the condition, regulatory position, or reputation of the Company or Bank deteriorates, or to the extent that there are significant changes in market interest rates which the Company and Bank do not elect to match, we may experience an outflow of brokered deposits. In that event we would be required to obtain alternate sources for funding.

At September 30, 2019 the Company had $2.05 billion in noninterest bearing demand deposits, representing 28% of total deposits, compared to $2.10 billion of noninterest bearing demand deposits at December 31, 2018, or 30% of total deposits. Average noninterest bearing deposits were 31% of total deposits for the first nine months of 2019 and 33% for the first nine months of 2018. The Bank also offers business NOW accounts and business savings accounts to accommodate those customers who may have excess short term cash to deploy in interest earning assets.

As an enhancement to the basic noninterest bearing demand deposit account, the Company offers a sweep account, or “customer repurchase agreement,” allowing qualifying businesses to earn interest on short-term excess funds which are not suited for either a certificate of deposit or a money market account. The balances in these accounts were $30.3 million at September 30, 2019 compared to $30.4 million at December 31, 2018. Customer repurchase agreements are not deposits and are not insured by the FDIC, but are collateralized by U.S. agency securities and/or U.S. agency backed mortgage backed securities. These accounts are particularly suitable to businesses with significant fluctuation in the levels of cash flows. Attorney and title company escrow accounts are examples of accounts which can benefit from this product, as are customers who may require collateral for deposits in excess of FDIC insurance limits but do not qualify for other pledging arrangements. This program requires the Company to maintain a sufficient investment securities level to accommodate the fluctuations in balances which may occur in these accounts.

At September 30, 2019 the Company had $1.40 billion in time deposits. Time deposits increased by $71.5 million from year end December 31, 2018. The Bank raises and renews time deposits through its branch network, for its public funds customers, and through brokered CDs to meet the needs of its community of savers and as part of its interest rate risk management and liquidity planning.

 54

The Company had no outstanding balances under its federal funds lines of credit provided by correspondent banks (which are unsecured) at September 30, 2019 and December 31, 2018. The Bank had $100.0 million in short-term borrowings outstanding under its credit facility from the FHLB at September 30, 2019. The Bank did not have short-term borrowings outstanding at December 31, 2018. Outstanding FHLB advances are secured by collateral consisting of a blanket lien on qualifying loans in the Bank’s commercial mortgage, residential mortgage and home equity loan portfolios.

Long-term borrowings outstanding at September 30, 2019 included the Company’s August 5, 2014 issuance of $70.0 million of subordinated notes, due September 1, 2024 and the Company’s July 26, 2016 issuance of $150.0 million of subordinated notes, due August 1, 2026. For additional information on the subordinated notes, please refer to Note 10 to the Consolidated Financial Statements included in this report.

Liquidity Management

Liquidity is a measure of the Company’s and Bank’s ability to meet loan demand and to satisfy depositor withdrawal requirements in an orderly manner. The Bank’s primary sources of liquidity consist of cash and cash balances due from correspondent banks, excess reserves at the Federal Reserve, loan repayments, federal funds sold and other short-term investments, maturities and sales of investment securities, income from operations and new core deposits into the Bank. The Bank’s investment portfolio of debt securities is held in an available-for-sale status which allows for flexibility, subject to holdings held as collateral for customer repurchase agreements, and public funds, to generate cash from sales as needed to meet ongoing loan demand. These sources of liquidity are considered primary and are supplemented by the ability of the Company and Bank to borrow funds or issue brokered deposits, which are termed secondary sources of liquidity and which are substantial. Additionally, the Bank can purchase up to $172.5 million in federal funds on an unsecured basis from its correspondents, against which there was no amount outstanding at September 30, 2019, and can obtain unsecured funds under one-way CDARS and ICS brokered deposits in the amount of $1.35 billion, against which there was $35.3 million outstanding at September 30, 2019. The Bank also has a commitment from Promontory to place up to $700.0 million of brokered deposits from its IND program in amounts requested by the Bank, as compared to an actual balance of $431.8 million at September 30, 2019. At September 30, 2019 the Bank was also eligible to make advances from the FHLB up to $1.7 billion based on collateral at the FHLB, of which there was $100 million outstanding at September 30, 2019. The Bank may enter into repurchase agreements as well as obtain additional borrowing capabilities from the FHLB provided adequate collateral exists to secure these lending relationships. The Bank also has a back-up borrowing facility through the Discount Window at the Federal Reserve Bank of Richmond (“Federal Reserve Bank”). This facility, which amounts to approximately $639.0 million, is collateralized with specific loan assets identified to the Federal Reserve Bank. It is anticipated that, except for periodic testing, this facility would be utilized for contingency funding only.

The loss of deposits, through disintermediation, is one of the greater risks to liquidity. Disintermediation occurs most commonly when rates rise and depositors withdraw deposits seeking higher rates in alternative savings and investment sources than the Bank may offer. The Bank was founded under a philosophy of relationship banking and, therefore, believes that it has less of an exposure to disintermediation and resultant liquidity concerns than do many banks. The Bank makes competitive deposit interest rate comparisons weekly and feels its interest rate offerings are competitive. There is, however, a risk that some deposits would be lost if rates were to increase and the Bank elected not to remain competitive with its deposit rates. Under those conditions, the Bank believes that it is well positioned to use other sources of funds such as FHLB borrowings, brokered deposits, repurchase agreements and correspondent banks’ lines of credit to offset a decline in deposits in the short run. Over the long-term, an adjustment in assets and change in business emphasis could compensate for a potential loss of deposits. The Bank also maintains a marketable investment portfolio to provide flexibility in the event of significant liquidity needs. The Asset Liability Committee of the Bank (“ALCO”) and the full Board of Directors of the Bank have adopted policy guidelines which emphasize the importance of core deposits, adequate asset liquidity and a contingency funding plan. Additionally, as noted above, if the condition, regulatory treatment or reputation of the Company or Bank deteriorates, we may experience an outflow of brokered deposits as a result of our inability to attract them or to accept or renew them. In that event we would be required to obtain alternate sources for funding.

At September 30, 2019, under the Bank’s liquidity formula, it had $4.57 billion of primary and secondary liquidity sources. The amount is deemed adequate to meet current and projected funding needs.

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Commitments and Contractual Obligations

Loan commitments outstanding and lines and letters of credit at September 30, 2019 are as follows:

(dollars in thousands)	2019
Unfunded loan commitments	$	2,140,889
Unfunded lines of credit		88,495
Letters of credit		68,851
Total	$	2,298,235

Unfunded loan commitments are agreements whereby the Bank has made a commitment and the borrower has accepted the commitment to lend to a customer as long as there is satisfaction of the terms or conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee before the commitment period is extended. In many instances, borrowers are required to meet performance milestones in order to draw on a commitment as is the case in construction loans, or to have a required level of collateral in order to draw on a commitment, as is the case in asset based lending credit facilities. Since commitments may expire without being drawn, the total commitment amount does not necessarily represent future cash requirements. As of September 30, 2019, unfunded loan commitments included $103.4 million related to interest rate lock commitments on residential mortgage loans and were of a short-term nature.

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

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

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

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

During the three months ended September 30, 2019, as compared to the same period in 2018, the Company was able to maintain its net interest income relatively stable, produce a net interest margin of 3.72%, and continue to manage its overall interest rate risk position.

The Company, through its ALCO and ongoing financial management practices, monitors the interest rate environment in which it operates and adjusts the rates and maturities of its assets and liabilities to remain competitive and to achieve its overall financial objectives subject to established risk limits. In the current and expected future interest rate environment, the Company has been maintaining its investment portfolio to manage the balance between yield and prepayment risk in its portfolio of mortgage backed securities should interest rates remain at current levels. Further, the Company has been managing the investment portfolio to provide liquidity and provide some additional yield over cash. Additionally, the Company has limited call risk in its U.S. agency investment portfolio. During the three months ended September 30, 2019, the average investment portfolio balances increased modestly as compared to average balances for the three months ended September 30, 2018, but decreased from balances at December 31, 2018. The cash received from deposit growth along with cash flows from the investment portfolio were deployed into loans and the purchase of replacement investments and held in cash.

 56

The percentage mix of municipal securities was 9% of total investments at September 30, 2019 and 6% at September 30, 2018. The portion of the portfolio invested in mortgage backed securities was 73% at September 30, 2019 and 72% at September 30, 2018. The portion of the portfolio invested in U.S. agency investments was 14% at September 30, 2019 and 21% at September 30, 2018. Shorter duration floating rate corporate bonds were 1% of total investments at both September 30, 2019 and September 30, 2018, and SBA bonds, which are included in mortgage backed securities, were 10% and 11% of total investments at September 30, 2019 and September 30, 2018, respectively. More recently over the last three months, as a result of generally lower interest rates, mortgage prepayment speeds increased and the duration of the investment portfolio decreased to 2.9 years at September 30, 2019 from 3.9 years at September 30, 2018.

The re-pricing duration of the loan portfolio was 20 months at September 30, 2019 versus 17 months at December 31, 2018, with fixed rate loans amounting to 40% and 36% of total loans at September 30, 2019 and September 30, 2018, respectively. Variable and adjustable rate loans comprised 60% and 64% of total loans at September 30, 2019 and September 30, 2018, respectively. Variable rate loans are generally indexed to either the one month LIBOR interest rate, or the Wall Street Journal prime interest rate, while adjustable rate loans are indexed primarily to the five year U.S. Treasury interest rate.

The duration of the deposit portfolio increased to 29 months at September 30, 2019 from 26 months at December 31, 2018. The change since December 31, 2018 was due substantially to a change in the mix and duration of time deposits as market interest rates decreased and customers anticipated continuing rate declines. Additionally, the Bank maintained a higher percentage of fixed rate time deposits at September 30, 2019 than was the case at December 31, 2018.

The Company has continued its emphasis on funding loans in its marketplace although competition for new loans persists. A disciplined approach to loan pricing, with variable and adjustable rate loans comprising 60% of total loans (at September 30, 2019), has resulted in a loan portfolio yield of 5.39% for the three months ended September 30, 2019 as compared to 5.69% for the same period in 2018. Variable and adjustable rate loans provide additional income opportunities should interest rates rise from current levels.

The net unrealized gain before income tax on the investment portfolio was $9.1 million at September 30, 2019 as compared to a net unrealized loss before tax of $9.5 million at December 31, 2018. The increase in the net unrealized gain on the investment portfolio at September 30, 2019 as compared to December 31, 2018 was due primarily to lower interest rates at September 30, 2019. At September 30, 2019, the net unrealized gain position represented 1.3% of the investment portfolio’s book value.

There can be no assurance that the Company will be able to successfully achieve its optimal asset liability mix, as a result of competitive pressures, customer preferences and the inability to perfectly forecast future interest rates and movements.

One of the tools used by the Company to manage its interest rate risk is a static GAP analysis presented below. The Company also employs an earnings simulation model on a quarterly basis to monitor its interest rate sensitivity and risk and to model its balance sheet cash flows and the related income statement effects in different interest rate scenarios. The model utilizes current balance sheet data and attributes and is adjusted for assumptions as to investment maturities (including prepayments), loan prepayments, interest rates, and the level of noninterest income and noninterest expense. The data is then subjected to a “shock test” which assumes a simultaneous change in interest rates up 100, 200, 300, and 400 basis points or down 100 and 200, along the entire yield curve, but not below zero. The results are analyzed as to the impact on net interest income, net income and the market equity over the next twelve and twenty-four month periods from September 30, 2019. In addition to analysis of simultaneous changes in interest rates along the yield curve, changes based on interest rate “ramps” is also performed. This analysis represents the impact of a more gradual change in interest rates, as well as yield curve shape changes.

For the analysis presented below, at September 30, 2019, the simulation assumes a 50 basis point change in interest rates on money market and interest bearing transaction deposits for each 100 basis point change in market interest rates in a decreasing interest rate shock scenario with a floor of 10 basis points, and assumes a 70 basis point change in interest rates on money market and interest bearing transaction deposits for each 100 basis point change in market interest rates in an increasing interest rate shock scenario.

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As quantified in the table below, the Company’s analysis at September 30, 2019 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 both down 100 and 200 basis points and up 100, 200, 300, and 400 basis points. This moderate impact is due substantially to the significant level of variable rate and re-priceable assets and liabilities and related shorter relative durations. The re-pricing duration of the investment portfolio at September 30, 2019 is 2.9 years, the loan portfolio 1.7 years, the interest bearing deposit portfolio 2.4 years, and the borrowed funds portfolio 4.4 years.

The following table reflects the result of simulation analysis on the September 30, 2019 asset and liabilities balances:

Change in interest rates (basis points)	Percentage change in net interest income	Percentage change in net income	Percentage change in market value of portfolio equity
+400	+19.2%	+32.7%	+6.9%
+300	+14.4%	+24.6%	+6.0%
+200	+9.7%	+16.4%	+4.9%
+100	+4.8%	+8.2%	+2.9%
0	—	—	—
-100	-3.7%	-6.3%	-4.3%
-200	-8.0%	-13.6%	-14.0%

The results of simulation are within the relevant policy limits adopted by the Company. For net interest income, the Company has adopted a policy limit of -10% for a 100 basis point change, -12% for a 200 basis point change, -18% for a 300 basis point change and -24% for a 400 basis point change. For the market value of equity, the Company has adopted a policy limit of -12% for a 100 basis point change, -15% for a 200 basis point change, -25% for a 300 basis point change and -30% for a 400 basis point change. Due to the level of market rates at September 30, 2019,  interest rate shocks of -300 and -400 basis points leave the Bank with zero and negative rate instruments and are not considered practical or informative.  The changes in net interest income, net income and the economic value of equity in both a higher and lower interest rate shock scenario at September 30, 2019 are not considered to be excessive. The impact of -3.7% in net interest income and -6.3% in net income given a 100 basis point decrease in market interest rates reflects in large measure the impact of variable rate loans and fed funds sold repricing downward while non-interest bearing deposits are not expected to have lower interest costs.

In the third quarter of 2019, the Company continued to manage its interest rate sensitivity position to moderate levels of risk, as indicated in the simulation results above. The interest rate risk position at September 30, 2019 was similar to the interest rate risk position at December 31, 2018.

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

During the third quarter of 2019, average market interest rates decreased across the yield curve. Overall, there was a flattening of the yield curve as compared to the third quarter of 2018 with rate decreases being generally more significant at the longer end of the yield curve.

As compared to the third quarter of 2018, the average two-year U.S. Treasury rate decreased by 89 basis points from 2.58% to 1.69%, the average five year U.S. Treasury rate decreased by 118 basis points from 2.81% to 1.63% and the average ten year U.S. Treasury rate decreased by 112 basis points from 2.92% to 1.80%. The Company’s net interest margin was 3.72% for the third quarter of 2019 and 4.15% in the third quarter of 2018. The Company believes that the net interest margin in the most recent quarter as compared to 2018’s third quarter has been consistent with its interest risk analysis at December 31, 2018.

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GAP Position

Banks and other financial institutions earnings are significantly dependent upon net interest income, which is the difference between interest earned on earning assets and interest expense on interest bearing liabilities. This revenue represented 93% and 94% of the Company’s revenue for the third quarter of 2019 and 2018, respectively.

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

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

At September 30, 2019, the Company had a positive GAP position of approximately $420 million or 5% of total assets out to three months and a positive cumulative GAP position of $384 million or 4% of total assets out to 12 months; as compared to a positive GAP position of approximately $604 million or 7% of total assets out to three months and a positive cumulative GAP position of $417 million or 5% of total assets out to 12 months at December 31, 2018. The change in the positive GAP position at September 30, 2019, as compared to December 31, 2018, was due to an increase in immediately repricing interest bearing liabilities while increasing fixed rate assets. The change in the GAP position at September 30, 2019 as compared to December 31, 2018 is not deemed material to the Company’s overall interest rate risk position, which relies more heavily on simulation analysis which captures the full optionality within the balance sheet. The current position is within guideline limits established by the ALCO. While management believes that this overall position creates a reasonable balance in managing its interest rate risk and maximizing its net interest margin within plan objectives, there can be no assurance as to actual results.

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

If interest rates increase by 100 basis points, the Company’s net interest income and net interest margin are expected to increase modestly due to the impact of significant volumes of variable rate assets together with the assumption of an increase in money market interest rates by 70% of the change in market interest rates.

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

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

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GAP Analysis

September 30, 2019

(dollars in thousands)

Repricible in:	0-3 months			4-12 months			13-36 months			37-60 months			Over 60 months			Total Rate Sensitive		Non Sensitive		Total
RATE SENSITIVE ASSETS:
Investment securities	$	161,837		$	81,444		$	161,635		$	123,778		$	208,576		$	737,270
Loans (1)(2)		3,878,017			648,834			1,271,654			971,558			841,297			7,611,360
Fed funds and other short-term investments		388,865			—			—			—			—			388,865
Other earning assets		74,726			—			—			—			—			74,726
Total	$	4,503,445		$	730,278		$	1,433,289		$	1,095,336		$	1,049,873		$	8,812,221	$	191,246	$	9,003,467
RATE SENSITIVE LIABILITIES:
Noninterest bearing demand	$	77,850		$	215,716		$	463,364		$	336,501		$	957,675		$	2,051,106
Interest bearing transaction		918,011			—			—			—			—			918,011
Savings and money market		2,809,530			—			—			—			225,000			3,034,530
Time deposits		348,057			550,545			369,117			128,008			3,139			1,398,866
Customer repurchase agreements and fed funds purchased		30,297			—			—			—			—			30,297
Other borrowings		—			—			148,197			69,392			100,000			317,589
Total	$	4,183,745		$	766,261		$	980,678		$	533,901		$	1,285,814		$	7,750,399	$	68,474	$	7,818,873
GAP	$	319,700		$	(35,983	)	$	452,611		$	561,435		$	(235,941	)	$	1,061,822
Cumulative GAP	$	319,700		$	283,717		$	736,328		$	1,297,763		$	1,061,822
Cumulative gap as percent of total assets		3.55	%		3.15	%		8.18	%		14.41	%		11.79	%
OFF BALANCE-SHEET:
Interest Rate Swaps - LIBOR based	$	100,000		$	—		$	(100,000	)	$	—		$	—		$	—
Interest Rate Swaps - Fed Funds based		—			—			—			—			—			—
Total	$	100,000		$	—		$	(100,000	)	$	—		$	—		$	—	$	—	$	—
GAP	$	419,700		$	(35,983	)	$	352,611		$	561,435		$	(235,941	)	$	1,061,822
Cumulative GAP	$	419,700		$	383,717		$	736,328		$	1,297,763		$	1,061,822		$	—
Cumulative gap as percent of total assets		4.66	%		4.26	%		8.18	%		14.41	%		11.79	%

(1) Includes loans held for sale.

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

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Capital Resources and Adequacy

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

The federal banking regulators have issued guidance for those institutions which are deemed to have concentrations in commercial real estate lending. Pursuant to the supervisory criteria contained in the guidance for identifying institutions with a potential commercial real estate concentration risk, institutions which have (1) total reported loans for construction, land development, and other land acquisitions which represent 100% or more of an institution’s total risk-based capital; or (2) total commercial real estate loans representing 300% or more of the institution’s total risk-based capital and the institution’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months are identified as having potential commercial real estate concentration risk. Institutions which are deemed to have concentrations in commercial real estate lending are expected to employ heightened levels of risk management with respect to their commercial real estate portfolios, and may be required to hold higher levels of capital. The Company, like many community banks, has a concentration in commercial real estate loans, and the Company has experienced growth in its commercial real estate portfolio in recent years. At September 30, 2019, non-owner-occupied commercial real estate loans (including construction, land, and land development loans) represent 355% of total risk based capital. Construction, land and land development loans represent 123% of total risk based capital. Management has extensive experience in commercial real estate lending, and has implemented and continues to maintain heightened risk management procedures, and strong underwriting criteria with respect to its commercial real estate portfolio. Loan monitoring practices include but are not limited to periodic stress testing analysis to evaluate changes to cash flows, owing to interest rate increases and declines in net operating income. Nevertheless, we may be required to maintain higher levels of capital as a result of our commercial real estate concentrations, which could require us to obtain additional capital, and may adversely affect shareholder returns. The Company has an extensive Capital Plan and Policy, which includes pro-forma projections including stress testing within which the Board of Directors has established internal minimum targets for regulatory capital ratios that are in excess of well capitalized ratios.

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

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

The Board of Governors of the Federal Reserve Board and the FDIC have adopted rules (the “Basel III Rules”) implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (commonly known as Basel III). Under the Basel III rules, the Company and Bank are required to maintain, inclusive of the capital conservation buffer of 2.5%, a minimum CET1 ratio of 7.0%; a minimum ratio of Tier 1 capital to risk-weighted assets of 8.5% a minimum total capital to risk-weighted assets ratio of 10.5% and requires a minimum leverage ratio of 4.0%. The Company and the Bank meet all these requirements, and satisfy the requirement to maintain the fully phased in capital conservation buffer of 2.5% of common equity tier 1 capital for capital adequacy purposes.

During the third quarter of 2019, the Company adopted its first share repurchase program. Under the repurchase program, the Company may repurchase up to 1,715,547 shares of its common stock, or approximately 5% of its outstanding shares of common stock at June 30, 2019 of approximately 34,539,853. The repurchase program will expire on December 31, 2019, subject to earlier termination of the program by the Board of Directors. Through September 30, 2019, the Company has repurchased 822,200 shares at a weighted average price of $40.58 per share.

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The Company announced a regular quarterly cash dividend on September 25, 2019 of $0.22 per share to shareholders of record on October 15, 2019 and payable October 31, 2019.

The actual capital amounts and ratios for the Company and Bank as of September 30, 2019 and December 31, 2018 are presented in the table below.

	Company					Bank								To Be Well Capitalized Under Prompt
	Actual					Actual					Minimum Required For			Corrective Action
(dollars in thousands)	Amount		Ratio			Amount		Ratio			Capital Adequacy Purposes			Regulations *
As of September 30, 2019
CET1 capital (to risk weighted assets)	$	1,074,526		12.76	%	$	1,220,452		14.51	%		7.000	%		6.5	%
Total capital (to risk weighted assets)		1,354,313		16.08	%		1,294,239		15.38	%		10.500	%		10.0	%
Tier 1 capital (to risk weighted assets)		1,074,526		12.76	%		1,220,452		14.51	%		8.500	%		8.0	%
Tier 1 capital (to average assets)		1,074,526		12.19	%		1,220,452		13.87	%		4.000	%		5.0	%
As of December 31, 2018
CET1 capital (to risk weighted assets)	$	1,007,438		12.49	%	$	1,147,151		14.23	%		6.375	%		6.5	%
Total capital (to risk weighted assets)		1,297,427		16.08	%		1,217,140		15.10	%		9.875	%		10.0	%
Tier 1 capital (to risk weighted assets)		1,007,438		12.49	%		1,147,151		14.23	%		7.875	%		8.0	%
Tier 1 capital (to average assets)		1,007,438		12.10	%		1,147,151		13.78	%		5.000	%		5.0	%

* Applies to Bank only

Bank and holding company regulations, as well as Maryland law, impose certain restrictions on dividend payments by the Bank, as well as restricting extensions of credit and transfers of assets between the Bank and the Company. At September 30, 2019 the Bank could pay dividends to the parent to the extent of its earnings so long as it maintained required capital ratios.

Use of Non-GAAP Financial Measures

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

Tangible common equity to tangible assets (the “tangible common equity ratio”) and tangible book value per common share are non-GAAP financial measures derived from GAAP-based amounts. The Company calculates the tangible common equity ratio by excluding the balance of intangible assets from common shareholders’ equity and dividing by tangible assets. The Company calculates tangible book value per common share by dividing tangible common equity by common shares outstanding, as compared to book value per common share, which the Company calculates by dividing common shareholders’ equity by common shares outstanding. The Company calculates return on average tangible common equity by dividing annualized year to date net income by tangible common equity. The Company considers this information important to shareholders as tangible equity is a measure that is consistent with the calculation of capital for bank regulatory purposes, which excludes intangible assets from the calculation of risk based ratios.

 62

GAAP Reconciliation (Unaudited)

(dollars in thousands except per share data)

	Three Months Ended			Nine Months Ended			Twelve Months Ended			Three Months Ended			Nine Months Ended
	September 30, 2019			September 30, 2019			December 31, 2018			September 30, 2018			September 30, 2018
Common shareholders’ equity				$	1,184,594		$	1,108,941					$	1,061,651
Less: Intangible assets					(104,915	)		(105,766	)					(106,481	)
Tangible common equity				$	1,079,679		$	1,003,175					$	955,170
Book value per common share				$	35.13		$	32.25					$	30.94
Less: Intangible book value per common share					(3.11	)		(3.08	)					(3.10	)
Tangible book value per common share				$	32.02		$	29.17					$	27.84
Total assets				$	9,003,467		$	8,389,137					$	8,057,855
Less: Intangible assets					(104,915	)		(105,766	)					(106,481	)
Tangible assets				$	8,898,552		$	8,283,371					$	7,951,374
Tangible common equity ratio					12.13	%		12.11	%					12.01	%
Average common shareholders’ equity	$	1,197,513		$	1,164,541		$	1,022,642		$	1,040,826		$	1,003,439
Less: Average intangible assets		(105,034	)		(105,297	)		(106,806	)		(106,629	)		(106,949	)
Average tangible common equity	$	1,092,479		$	1,059,245		$	915,836		$	934,197		$	896,490
Net Income Available to Common Shareholders	$	36,495		$	107,487		$	152,276		$	38,949		$	111,959
Average tangible common equity	$	1,092,479		$	1,059,245		$	915,836		$	934,197		$	896,490
Annualized Return on Average Tangible Common Equity		13.25	%		13.57	%		16.63	%		16.54	%		16.70	%

(dollars in thousands except per share data)	Nine Months Ended September 30, 2019
	GAAP			Change			Non-GAAP
Noninterest Expense
Nonperforming assets	$	59,137		$	(16,528	)	$	42,609
Nonperforming loans	$	57,650		$	(16,528	)	$	41,122
Other Ratios (annualized):
Nonperforming assets to total assets		0.66	%					0.47	%
Nonperforming loans to total loans		0.76	%					0.54	%
Allowance for credit losses to total nonperforming loans		127.87	%					179.27	%

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures. Based on the evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Securities Exchange Act of 1934) required by Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, our Chief Executive Officer and our Chief Financial Officer have concluded that the Company maintained effective disclosure controls and procedures as of September 30, 2019.

Changes in internal controls. There were no changes in our internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) that occurred during the third quarter of 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

63

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings

From time to time the Company and its subsidiaries are participants in various legal proceedings incidental to their business. In the opinion of management, the liabilities (if any) resulting from such legal proceedings will not have a material effect on the financial position of the Company.

On July 24, 2019, a putative class action lawsuit was filed in the United States District Court for the Southern District of New York against the Company, its current and former President and Chief Executive Officer and its current and former Chief Financial Officer, on behalf of persons similarly situated, who purchased or otherwise acquired Company securities between March 2, 2015 and July 17, 2019. Shiva Stein vs. Eagle Bancorp, Inc., et. al. (Case 1:19-cv-06873).  The plaintiff in the action alleges that certain of the Company’s 10-K reports and other public disclosures contained material misrepresentations, or omitted material information, about the business, operations and management of the Company, including the effectiveness of its internal controls and related party transactions, in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Section 20(a) of that act, resulting in injury to the purported class members as a result the decline in the value of the Company’s common stock following the disclosure of increased legal expenses associated with certain government investigations involving the Company. The relief sought in the lawsuit includes damages. While we continue to review the complaint, the Company believes that the claims asserted are without merit and intends to defend vigorously against them.

Item 1A - Risk Factors

There have been no material changes as of September 30, 2019 in the risk factors from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

(a) Sales of Unregistered Securities	None
(b) Use of Proceeds	Not Applicable
(c) Issuer Purchases of Securities

Period	Total Number of Shares Purchased		Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Plan or Program	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
July 1-31, 2019	—	$	—	—	—
August 1-31, 2019	610,500		39.90	610,500	1,105,047
September 1-30, 2019	211,700		42.54	211,700	893,347
Total	822,200		40.58	822,200	893,347

(1) In August 2019, the Company’s Board of Directors authorized the purchase of up to 1,715,547 shares of the Company’s common stock from the date of approval of the plan through December 31, 2019, subject to earlier termination by the Board of Directors (the “Repurchase Program”). The Repurchase Program was announced by a press release dated August 9, 2019 and a Form 8-K filed on August 9, 2019. Under the Repurchase Program, the Company may acquire its common stock in the open market or in privately negotiated transactions, including 10b5-1 plans. The Repurchase Program may be modified, suspended or terminated by the Board of Directors at any time without notice. No shares were purchased during the three months ended September 30, 2019 other than pursuant to the Repurchase Program.  

Item 3 - Defaults Upon Senior Securities None

Item 4 - Mine Safety Disclosures Not Applicable

Item 5 - Other Information

(a) Required 8-K Disclosures    None

(b) Changes in Procedures for Director Nominations None

 64

Item 6 - Exhibits

3.1	Certificate of Incorporation of the Company, as amended (1)
3.2	Bylaws of the Company (2)
4.1	Subordinated Indenture, dated as of August 5, 2014, between the Company and Wilmington Trust, National Association, as Trustee  (3)
4.2	First Supplemental Indenture, dated as of August 5, 2014, between the Company and Wilmington Trust, National Association, as Trustee (4)
4.3	Form of Global Note representing the 5.75% Subordinated Notes due September 1, 2024 (included in Exhibit 4.2)
4.4	Second Supplemental Indenture, dated as of July 26, 2016, between the Company and Wilmington Trust, National Association, as Trustee (5)
4.5	Form of Global Note representing the 5.00% Fixed-to-Floating Rate Subordinated Notes due August 1, 2026 (included in Exhibit 4.4)
10.1	2016 Stock Option Plan (6)
10.2	2006 Stock Plan (7)
10.3	Employment Agreement dated as of April 7, 2017, between EagleBank and Charles D. Levingston (8)
10.4	Amended and Restated Employment Agreement dated as of January 31, 2017, between EagleBank and Antonio F. Marquez  (9)
10.5	Amended and Restated Employment Agreement dated as of January 31, 2017, between EagleBank and Susan G. Riel (10)
10.6	Amended and Restated Employment Agreement dated as of January 31, 2017, between EagleBank and Janice L. Williams (11)
10.7	Non-Compete Agreement dated as of April 7, 2017, between EagleBank and Charles D. Levingston (12)
10.8	Non-Compete Agreement dated as of August 1, 2014, between EagleBank and Antonio F. Marquez (13)
10.9	Non-Compete Agreement dated as of August 1, 2014, between EagleBank and Susan G. Riel (14)
10.10	Non-Compete Agreement dated as of August 1, 2014, between EagleBank and Janice L. Williams (15)
10.11	Form of Supplemental Executive Retirement Plan Agreement (16)
10.12	Amended and Restated Employment Agreement dated as of January 31, 2017 between EagleBank and Lindsey S. Rheaume (17)
10.13	Non-Compete Agreement dated as of December 15, 2014, between EagleBank and Lindsey S. Rheaume (18)
10.14	Virginia Heritage Bank 2006 Stock Option Plan (19)
10.15	Virginia Heritage Bank 2010 Long-Term Incentive Plan (20)
10.16	First Amendment to Employment Agreement of Charles D. Levingston (21)
10.17	First Amendment to Amended and Restated Employment Agreement of Antonio F. Marquez (22)
10.18	First Amendment to Amended and Restated Employment Agreement of Susan G. Riel (23)
10.19	First Amendment to Amended and Restated Employment Agreement of Janice L. Williams (24)
10.20	First Amendment to Amended and Restated Employment Agreement of Lindsey S. Rheaume (25)
10.21	2019 Senior Executive Incentive Plan (26)
10.22	2019 Long Term Incentive Plan (27)
10.23	Chairman Compensation Agreement dated as of May 31, 2019 among Eagle Bancorp, Inc. Eagle Bank and Norman R. Pozez
10.24	Non-Compete Agreement dated as of May 31, 2019 among Eagle Bancorp, Inc. Eagle Bank and Norman R. Pozez
11	Statement Regarding Computation of Per Share Income
	See Note 11 of the Notes to Consolidated Financial Statements

21	Subsidiaries of the Registrant
31.1	Certification of Susan G. Riel
31.2	Certification of Charles D. Levingston
32.1	Certification of Susan G. Riel
32.2	Certification of Charles D. Levingston
101	Interactive data files pursuant to Rule 405 of Regulation S-T:
		(i)	Consolidated Balance Sheets at September 30, 2019, December 31, 2018
		(ii)	Consolidated Statement of Operations for the three and nine months ended September 30, 2019 and 2018
		(iii)	Consolidated Statement of Comprehensive Income for the three and nine months ended September 30, 2019 and 2018

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(iv)	Consolidated Statement of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2019 and 2018
(v)	Consolidated Statement of Cash Flows for the nine months ended September 30, 2019 and 2018
(vi)	Notes to the Consolidated Financial Statements

(1)	Incorporated by reference to the Exhibit of the same number to the Company’s Current Report on Form 8-K filed on May 17, 2016.
(2)	Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on December 18, 2017.
(3)	Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on August 5, 2014.
(4)	Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on August 5, 2014.
(5)	Incorporated by Reference to Exhibit 4.2 to the Company’s Current report on Form 8-K filed on July 22, 2016.
(6)	Incorporated by reference to Exhibit 4 to the Company’s Registration Statement on Form S-8 (Registration No. 333-211857) filed on June 6, 2016.
(7)	Incorporated by reference to Exhibit 4 to the Company’s Registration Statement on Form S-8 (No. 333-187713)
(8)	Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 11, 2017.
(9)	Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 6, 2017.
(10)	Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on February 6, 2017.
(11)	Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on February 6, 2017.
(12)	Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 11, 2017.
(13)	Incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on December 15, 2014.
(14)	Incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed on December 15, 2014.
(15)	Incorporated by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K filed on December 15, 2014.
(16)	Incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the Year ended December 31, 2013.
(17)	Incorporated by reference to Exhibit 10.7 to the Company’s current Report on Form 8-K filed on February 6, 2017.
(18)	Incorporated by reference to Exhibit 10.29 to the Company’s Form 10-Q for the Quarter ended March 31, 2015.
(19)	Incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (No. 333-199875)
(20)	Incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-8 (No. 333-199875)
(21)	Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 28, 2018.
(22)	Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on February 28, 2018.
(23)	Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on February 28, 2018.
(24)	Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on February 28, 2018.
(25)	Incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on February 28, 2018.
(26)	Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 15, 2019.
(27)	Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 15, 2019.

66

SIGNATURES

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

	EAGLE BANCORP, INC.
Date: November 12, 2019	By:	/s/ Susan G. Riel
		Susan G. Riel, President and Chief Executive Officer of the Company

Date: November 12, 2019	By:	/s/ Charles D. Levingston
		Charles D. Levingston, Executive Vice President and Chief Financial Officer of the Company

67

EX-10.23

Eagle Bancorp, Inc. - 10-Q

Exhibit 10.23

CHAIRMAN COMPENSATION AGREEMENT

THIS CHAIRMAN COMPENSATION AGREEMENT (“Agreement”) is made and entered into as of the 31^st day of May, 2019, by and among Eagle Bancorp, Inc., a Maryland corporation (“Bancorp”), EagleBank, a Maryland chartered commercial bank and the wholly owned subsidiary of Bancorp (the “Bank”), and Norman R. Pozez (“Pozez”).

WHEREAS, Pozez’s service as Chairman of the Boards of Directors of Bancorp and the Bank, involves a more substantial commitment of time and effort than would ordinarily be required as a member of the Board of Directors, and such service is valuable to the Bancorp and Bank as a result of Pozez’s extensive business and organizational knowledge, judgment, skills, acumen, experience and expertise; and

WHEREAS, Bancorp and the Bank desire to continue to receive the benefit of Pozez’s service in the future, and to induce Pozez to serve as Chairman of the Boards of Directors of the Bancorp and the Bank and to utilize his knowledge, judgment, experience, acumen and expertise on behalf of Bancorp and the Bank, in accordance with the terms and conditions of this Agreement; and

WHEREAS, Pozez desires to continue to serve in such capacities, in accordance with such terms and conditions;

NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows:

ARTICLE 1

SERVICE AS CHAIRMAN

1.1          Pozez hereby agrees to serve as Chairman of the Bancorp Board and Bank Board. Notwithstanding anything to the contrary contained herein: (i) Pozez’s service as Chairman of Bancorp shall be subject to his election as a director by the shareholders of Bancorp or appointment as a director by the Bancorp Board; (ii) Pozez’s service as Chairman of the Bank Board shall be subject to his election or appointment as a director by Bancorp, or his appointment as a director by the Bank Board; and (iii) his service as Chairman shall be subject to his election as Chairman by the Bancorp Board and Bank Board, and nothing contained herein shall constitute any agreement, understanding or commitment of the Bancorp to, nominate, appoint or elect Pozez, or cause Pozez to be nominated appointed or elected to the Bancorp Board or Bank Board, or for Pozez to be elected or reelected as Chairman by the Bancorp Board of Bank Board.

1.2          Pozez and the Bank expressly acknowledge that (i) Pozez’s services hereunder shall be solely in his capacity as a member of the Bancorp Board and Bank Board and any committees thereof, and not as an officer or employee, he shall have no management, supervisory or other authority, position, status or power as an officer or employee of Bancorp or Bank; (ii) no employment, partnership or joint venture relationship is created by this Agreement; and (iii) hereby agree that Pozez shall act at all times as an independent contractor hereunder, is responsible for the conduct of his business, including the time and manner in which his services are performed, and (iv) subject to compliance with his obligations under this Agreement (including but not limited to Articles 4 and 8), Pozez shall be permitted to engage in and pursue such simultaneous business, charitable and civic activities and interests as he may desire.

ARTICLE 2

CERTAIN DEFINITIONS

As used in this Agreement, the following terms have the meanings set forth below:

2.1          “Affiliate” means, with respect to any Person, (i) any Person directly or indirectly controlling, controlled by or under common control with such Person, (ii) any Person owning or controlling fifty percent (50%) or more of the outstanding voting interests of such Person, (iii) any officer, director, general partner, managing member, or trustee of, or Person serving in a similar capacity with respect to, such Person, or (iv) any Person who is an officer, director, general partner, member, trustee, or holder of fifty percent (50%) or more of the voting interests of any Person described in clauses (i), (ii), or (iii) of this sentence. For purposes of this definition, the terms “controlling,” “controlled by,” or “under common control with” shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

1 

2.2          “Bancorp” is defined in introductory paragraph of this Agreement. If Bancorp is merged into any other Entity, or transfers substantially all of its business operations or assets to another Entity, the term “Bancorp” shall be deemed to include such successor Entity for purposes of applying Article 8 of this Agreement.

2.3          “Bank” is defined in introductory paragraph of this Agreement. If the Bank is merged into any other Entity, or transfers substantially all of its business operations or assets to another Entity, the term “Bank” shall be deemed to include such successor Entity for purposes of applying Article 8 of this Agreement.

2.4          “Bancorp Board” means the Board of Directors of Bancorp.

2.5          “Bank Board” means the Board of Directors of the Bank.

2.6          “Bank Entity” or “Bank Entities” means and includes any of the Bank, Bancorp and their Affiliates.

2.7          “Bank Regulatory Agency” means any governmental authority, regulatory agency, ministry, department, statutory corporation, central bank or other body of the United States or of any other country or of any state or other political subdivision of any of them having jurisdiction over the Bank Entities or any transaction contemplated, undertaken or proposed to be undertaken by the Bank entities, including, but not necessarily be limited to:

(a)          the Federal Deposit Insurance Corporation or any other federal or state depository insurance organization or fund;

(b)          the Federal Reserve System, the Maryland Division of Financial Institutions, or any other federal or state bank regulatory or commissioner’s office;

(c)          any Person established, organized, owned (in whole or in part) or controlled by any of the foregoing; and

(d)          any predecessor, successor or assignee of any of the foregoing.

2.8          “Change in Control” means and shall be deemed to have occurred if:

(a) there shall be consummated (i) any consolidation, merger, share exchange, or similar transaction relating to Bancorp, or pursuant to which shares of Bancorp’s capital stock are converted into cash, securities of another entity and/or other property, other than a transaction in which the holders of Bancorp’s voting stock immediately before such transaction shall, upon consummation of such transaction, own at least fifty percent (50%) of the voting power of the surviving entity, or (ii) any sale of all or substantially all of the assets of Bancorp, other than a transfer of assets to a related Person which is not treated as a change in control event under §1.409A-3(i)(5)(vii)(B) of the U.S. Treasury Regulations;

(b) any person, entity or group (each within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) shall become the beneficial owner (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of securities of Bancorp representing more than fifty percent (50%) of the voting power of all outstanding securities of Bancorp entitled to vote generally in the election of directors of Bancorp (including, without limitation, any securities of Bancorp that any such Person has the right to acquire pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise, which shall be deemed beneficially owned by such Person); or

2 

(c) over a twelve (12) month period, a majority of the members of the Board of Directors of Bancorp are replaced by directors whose appointment or election was not endorsed by a majority of the members of the Board of Directors of Bancorp in office prior to such appointment or election.

(d) Notwithstanding the foregoing, if the event purportedly constituting a Change in Control under Section 2.8(a), Section 2.8(b), or Section 2.8(c) does not also constitute a “change in ownership” of Bancorp, a “change in effective control” of Bancorp or a “change in the ownership of a substantial portion of the assets” of Bancorp within the meaning of Section 409A, then such event shall not constitute a “Change in Control” hereunder.

2.9          “Code” shall mean the Internal Revenue Code of 1986, as amended, and the Treasury regulations promulgated thereunder.

2.10        “Competitive Business” means the banking and financial services business, which includes, without limitation, consumer savings, commercial banking, the insurance and trust business, the savings and loan business and mortgage lending, or any other business in which any of the Bank Entities is engaged or has invested significant resources within the prior six (6) month period in preparation for becoming actively engaged.

2.11        “Competitive Products or Services” means, as of any time, those products or services of the type that any of the Bank Entities is providing, or is actively preparing to provide, to its customers.

2.12        “Disability” means a mental or physical condition which, in the good faith opinion of the Board of Directors of Bancorp, renders Pozez, with reasonable accommodation, unable or incompetent to carry out the material responsibilities which Pozez performed, or the material duties to which Pozez was entrusted at the time the disability was incurred, which has existed for at least three (3) months and which in the opinion of a physician mutually agreed upon by Bancorp and Pozez (provided that neither party shall unreasonably withhold such agreement) is expected to be permanent or to last for an indefinite duration or a duration in excess of nine (9) months.

2.13        “Effective Date” means March 21, 2019.

2.14        “Expiration Date” means December 31, 2019 or such later date in the event that the Term is renewed in accordance with Section 3.1 herein.

2.15        “Person” means any individual or entity.

2.16        “Termination Date” means the Expiration Date or such earlier date on which the Term expires pursuant to Section 3.3 or is terminated pursuant to Article 7, as applicable.

Other terms are defined throughout this Agreement and have the meanings so given them.

3 

ARTICLE 3

TERM; NO IMPEDIMENTS

3.1.         Initial Term. The initial term of Pozez’s service hereunder shall commence as of (the Effective Date and shall continue until the Expiration Date, unless earlier terminated in accordance with the provisions hereof. 

3.2         Automatic Extension. Upon the Expiration Date and each anniversary thereof, the term hereof shall be extended for one additional year, and the Expiration Date shall be advanced one year, unless (i) this Agreement is earlier terminated in accordance with the provisions hereof, or (ii) Bancorp and Bank shall have provided written notice to Pozez, not less than 30 days prior to then current Expiration Date, of their desire to terminate this Agreement upon expiration of the then current term.

3.3         Term Defined.  For purposes hereof the “Term” of this Agreement shall be the Initial Term as set forth in Section 3.1, as extended from time to time in accordance with Section 3.2, through the Termination Date.

3.3         No Impediments.  Pozez represents and warrants to the Bank that he is not subject to any legal obligations or restrictions that would prevent or limit his entering into this Agreement and performing his services hereunder.

ARTICLES 4

SERVICES

4.1         Nature and Substance.  During the term hereof, Pozez shall perform the duties, functions and obligations customarily associated with the Chairman of a board of directors, and such duties, functions, services or obligations as may be requested from time to time by the Board of Directors of Bancorp or the Bank, as the case may be.  In particular, Pozez shall use his business and organizational knowledge, judgment, skills, acumen, experience, expertise in connection with the oversight and coordination of the corporate governance and legal and ethical compliance and supervisory efforts of the Boards of Directors, and interaction and interface with the Company’s and Bank’s senior management and regulators.

4.2         Performance of Services.  Pozez agrees to devote appropriate attention, skill and efforts to the performance of his services under this Agreement, and shall use his best efforts and discharge his obligations hereunder to the best of his ability for and on behalf of Bancorp and Bank and toward their successful operation.  Pozez agrees that, without the prior written consent of the Board of Bancorp and Bank, he will not during the Term, directly or indirectly, perform services for or obtain a financial or ownership interest in any other Entity (an “Outside Arrangement”) if such Outside Arrangement would interfere with the satisfactory performance of his duties to Bancorp and Bank, present a conflict of interest with the Bank and/or Bancorp, breach his duty of loyalty or fiduciary duties to the Bank and/or Bancorp, or otherwise conflict with the provisions of this Agreement.  Pozez represents that it is his good faith belief that as of the date hereof, he was not, directly or indirectly, performing services for or obtained a financial or ownership interest in any Outside Arrangement that would violate the preceding sentence. Except for such Outside Interests for which, directly or indirectly, he performs services or in which he has obtained a financial or ownership interest as of the date hereof, Pozez shall promptly notify the Chief Executive Officer of the Company and Bank and the Lead Director of the Company and Bank of any Outside Arrangement for which, directly or indirectly, he performs services or in which he obtains a financial or ownership interest, provide the Chief Executive Officer of the Company and Bank and the Lead Director of the Company and Bank with any written agreement in connection therewith and respond fully and promptly to any questions that the Chief Executive Officer of the Company and Bank and the Lead Director of the Company and Bank may ask with respect to any Outside Arrangement.  If the Chief Executive Officer of the Company and Bank and the Lead Director of the Company and Bank determine that Pozez’s participation in an Outside Arrangement would interfere with his satisfactory performance of his duties to the Bancorp or Bank, present a conflict of interest with the Bank and/or Bancorp, breach his duty of loyalty or fiduciary duties to the Bank and/or Bancorp, or otherwise conflict with the provisions of this Agreement, Pozez shall not undertake, or shall cease, such Outside Arrangement as soon as feasible after the Chief Executive Officer notifies him of such determination.  Notwithstanding any provision hereof to the contrary, this Section 4.2 does not restrict Pozez’s right to (i) own securities of any entity that files periodic reports with the Securities and Exchange Commission under Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, provided that his total ownership constitutes less than two percent (2%) of the outstanding securities of such company.

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 4.3         Compliance with Law.  Pozez shall comply with all laws, statutes, ordinances, rules and regulations relating to his retention and duties.

ARTICLE 5

COMPENSATION

5.1.        In payment for all services rendered pursuant to this Agreement, or otherwise provided in his capacity as a member of the Bank Board and/or Bancorp Board, or any committee thereof, and the covenants contained herein, the Bank shall pay to Pozez the following in lieu of any retainer, annual fee, monthly fee, meeting fee, award of equity based compensation or other compensation paid to members of the Bank Board of Bancorp Board generally for service or attendance as a member thereof or any committee thereof; and in lieu of participation in any welfare or benefit plan, program or arrangement made available to any director or employee of the Bancorp or Bank:

5.1.1      Annual Compensation.  Pozez shall be paid an annual retainer during the initial Term (“Annual Compensation”) of nine hundred thousand dollars ($900,000) on an annualized basis.  The Bank shall pay Pozez’s Annual Compensation in equal installments monthly, consistent with the frequency of payments to other non-employee members of the Boards of Directors of Bancorp and the Bank.  The Annual Compensation shall automatically be increased by an amount not less than 5%, as determined by the Compensation Committee of the Board of Directors of Bancorp, during each subsequent calendar year. Such amount, as increased, shall become the Annual Compensation for subsequent periods. Pozez shall not participate in any consideration of his compensation under this Agreement.

5.1.2      Equity Compensation. (a) On the first anniversary of the Effective Date (the “Award Date”), Pozez shall be granted an award of shares of restricted stock under Bancorp’s 2016 Stock Plan, or successor or substitute equity compensation plan, having a fair value as of the Award Date of $705,205.50 (the “Initial Equity Award Value”), with the number of shares subject to such award being determined by dividing the Initial Equity Award Value by the closing price of Bancorp common stock on The Nasdaq Capital Market on the Award Date, and rounding down to the next lower whole number of shares.  Such award shall vest in three substantially equal annual installments, commencing on the first anniversary of the Award Date, provided however, that no fractional shares shall vest, provided further, that any fractional share to which Pozez would have been entitled shall be rolled forward until the sum of all fractional shares shall result in the vesting of a whole share. 

(b) On the second anniversary of the Award Date, Pozez shall be granted an award of shares of restricted stock having a grant date fair value equal to at least $945,000, such amount to be determined by the Compensation Committee of the Board of Directors of Bancorp (the “Equity Award Value”), with the number of shares subject to such award being determined by dividing the Equity Award Value by the closing price of Bancorp common stock on The Nasdaq Capital Market on the applicable award date, and rounding down to the next lower whole number of shares.  Such award shall vest in three substantially equal annual installments, commencing on the first anniversary of the applicable award date, provided however, that no fractional shares shall vest, provided further, that any fractional share to which Pozez would have been entitled shall be rolled forward until the sum of all fractional shares shall result in the vesting of a whole share.

(c) On the third anniversary of the Award Date, Pozez shall be granted an award of shares of restricted stock having a grant date fair value equal to at least 105% of the Equity Award Value, as determined by the Compensation Committee of the Board of Directors of Bancorp, and on each subsequent anniversary of the Award Date, Pozez shall be granted an award of shares of restricted stock having a grant date fair value equal to at least 105% of the prior year’s Equity Award Value, such amount to be determined by the Compensation Committee of the Board of Directors of Bancorp.  Such amount, as increased, shall become the Equity Award Value for subsequent periods.

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(d) For purposes of awards under Subparagraphs (b) and (c) of this Section, the number of shares subject to such award being determined by dividing the then applicable Equity Award Value by the closing price of Bancorp common stock on The Nasdaq Capital Market (“Nasdaq”) on the applicable award date, and rounding down to the next lower whole number of shares.  Such award shall vest in three substantially equal annual installments, commencing on the first anniversary of the applicable award date, provided however, that no fractional shares shall vest, provided further, that any fractional share to which Pozez would have been entitled shall be rolled forward until the sum of all fractional shares shall result in the vesting of a whole share. In the event that any applicable award date hereunder shall not be a trading day on Nasdaq, then such award shall be made on the next succeeding day that is a trading day on Nasdaq.

(e)         The Company shall cause the award agreement relating to awards of restricted stock under this Section to accurately reflect the provisions of this Agreement.

5.1.3       Expenses.  Bancorp and Bank shall, promptly upon presentation of proper expense reports therefor, pay or reimburse Pozez, in accordance with the policies and procedures established from time to time by Bancorp and Bank for their directors, for all reasonable and customary travel (other than local use of an automobile) and other out-of-pocket expenses incurred by Pozez in performing his duties as Chairman.

5.2         Taxation Pozez agrees that he will be treated by Bancorp and Bank as an independent contractor for purposes of all taxes (local, state and federal).  As an independent contractor, Pozez acknowledges that he will not be entitled to receive unemployment benefits in the event this Agreement terminates, or workers’ compensation benefits in the event that he is injured in any manner while performing obligations under this Agreement.  Pozez will be solely responsible to pay any and applicable all local, state and/or federal income and social security and unemployment taxes.  Pozez will reimburse Bancorp and Bank for fifty percent (50%) of any tax amounts or penalties it may become obligated to pay in respect of amounts paid to him, in the event Pozez is ultimately determined to be an employee, rather than an independent contractor, by any court or governmental or administrative agency.

5.3         Life Insurance.  Bancorp and/or Bank may, at its cost, obtain and maintain “key-man” life insurance and/or company/Bank-owned life insurance on Pozez in such amount as determined by the Bancorp Board or Bank Board from time to time.  Pozez agrees to cooperate fully and to take all actions reasonably required by Bancorp or Bank in connection with such insurance.

5.4         Other Benefits.     Pozez shall be eligible to participate in any other life, disability, health or other insurance benefit as may from time to time be generally available to non-employee directors of Bancorp or the Bank, if any, on the same terms and conditions as other non-employee directors may participate.

ARTICLE 6

CONDITIONS SUBSEQUENT TO CONTINUED OPERATION AND EFFECT OF AGREEMENT

6.1          Continued Approval by Bank Regulatory Agencies.  This Agreement and all of its terms and conditions, and the continued operation and effect of this Agreement and the Bancorp’s and Bank’s continuing obligations hereunder, shall at all times be subject to continuing approval of any and all Bank Regulatory Agencies whose approval is a necessary prerequisite to the continued operation, or in the case of Bancorp, ownership and control, of the Bank.  Should any term or condition of this Agreement, upon review by any Bank Regulatory Agency, be found to violate or not be in compliance with any then-applicable statute or any rule, regulation, order or understanding promulgated by any Bank Regulatory Agency, or should any term or condition required to be included herein by any such Bank Regulatory Agency be absent, this Agreement may be rescinded and terminated by the Bank if the parties hereto cannot in good faith agree upon such additions, deletions or modifications as may be deemed necessary or appropriate to bring this Agreement into compliance.

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ARTICLE 7

TERMINATION

Prior to the Expiration Date, the Term of this Agreement may be terminated as provided below in this Article 7.

7.1         Termination for Death or Disability.  The Term shall automatically terminate upon the death of Pozez or upon the determination by the Board of Directors of Bancorp that Pozez is suffering from a Disability.

7.2         Termination by Pozez.  Pozez shall have the right to terminate the Term at any time by tendering his resignation as a member of the Bancorp Board and Bank Board and all committees thereof, such termination to be effective on the date ninety (90) days after the date on which Pozez gives such notice to Bancorp and the Bank unless Bancorp and the Bank advise Pozez in writing of an earlier date on which such termination is to be effective, or Bancorp, the Bank and Pozez agree in writing to a later date on which such termination is to be effective.

7.3.        Automatic Termination upon Termination of Status as a Director.  This Agreement shall automatically terminate if (i) Pozez is not reelected as a member of the Bancorp Board and Bank Board at any annual meeting of shareholders of Bancorp and/or Bank, unless within 15 days thereafter, he is appointed to the Board by action of the Bancorp Board or Bank Board; or (ii) Pozez is removed as a member of the Board of Directors of Bancorp and Bank. 

7.4         Termination by Bancorp and the Bank.  This Agreement shall automatically terminate if (i) the Boards of Directors of the Bancorp and Bank fail to reappoint Pozez as Chairman at the organizational or first regular meeting of the Board of Directors of Bancorp and the Bank following the Annual Meeting of Shareholders of the Bancorp; or (ii) the Boards of Directors of the Bancorp and Bank remove Pozez as Chairman, or elect another director as Chairman; in each case whether or not Pozez remains a member of the Board of Directors.

7.5          Post-Termination Payment of Annual Compensation and Expenses; Vesting.  Following termination under the provisions of Section 7.1, Section 7.2, Section 7.3 or Section 7.4, Pozez (or his estate) shall not be entitled to any further payment except as follows: (a) Bank shall pay any unpaid Annual Compensation due for the period prior to the Termination Date; (b) following submission of proper expense reports, Bank shall reimburse expenses incurred prior to the Termination Date and subject to reimbursement pursuant to Section 5.1.3 hereof.  These payments shall be made promptly upon termination and within the period of time mandated by law; (c) such termination shall not have any effect on unvested awards of shares of restricted stock or other equity compensation awarded under Section 5.1.2 if Pozez shall remain a member of the Board of Directors of Bancorp or Bank; and (d) in the event that Pozez does not remain a member of the Boards of Directors of Bancorp and the Bank following such termination, or in the event that Pozez shall initially remain a member of the Boards of Directors of Company or Bank and subsequently cease to be a member of the Boards of Directors of Bancorp or Bank, all unvested awards shall vest on the date of termination, or on the date on which Pozez ceases to be a member of both Boards of Directors. 

7.6.1      Termination Following a Change in Control. In the event that:

(a)         this Agreement is terminated by Bancorp and/or Bank pursuant to Section 7.3 or Section 7.4 within 12 months following a Change on Control, or

(b)        (i) Bancorp and/or Bank is not the successor, surviving or resulting company or institution following a Change in Control, and (ii) Pozez is not, from and after the effectiveness of such Change in Control, the duly elected or appointed Chairman of such successor, surviving or resulting company or institution,

then in case of each of (a) or (b), and provided that Pozez signs and delivers to the Bank no later than twenty-one (21) days after the Termination Date (the “Submission Period”), a General Release and Waiver in the form attached to this Agreement as Exhibit A (the “Release”), Pozez shall be paid a lump sum cash payment equal to 1.99 times the sum of (i) his then current Annual Compensation and (ii) the value of the most recent Equity Award Value (such sum, the “Change in Control Payment”), provided that Pozez shall be entitled to receive only one Change in Control Payment.

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7.6.2       Limitation on Payment.     Notwithstanding anything in this Agreement to the contrary, to the extent that any Payment to Pozez under Section 7.6.1 may be subject to Section 280G of the Code, or successor provision, if any portion of the Change in Control Payment (together with any other payment distributions in the nature of compensation by any Bank Entity to or for the benefit of Pozez (including, but not limited to, the value of acceleration in vesting in restricted stock, options or any other equity based compensation), whether or not paid or payable or distributed or distributable pursuant to this Agreement, which is required to be taken into consideration in applying Section 280G(b)(2)(A) of the Code) would otherwise constitute a parachute payment (within the meaning of Section 280G(b)(2) of the Code), the amount payable to Pozez shall automatically be reduced by the smallest amount necessary so that no portion of such payments will be a parachute payment.  If any such payments are to be paid in other than a lump sum, such reduction shall be applied in such order as Pozez designates, subject to the approval of Bancorp, not to be unreasonably withheld, conditioned or delayed. If, despite the foregoing sentence, a payment shall be made to Pozez that would constitute a parachute payment, Pozez shall have no right to retain such payment and, immediately upon being informed of the impropriety of such payment, shall return such payment to Bancorp  or the Bank or other Bank Entity that was the payer thereof, together with interest at the applicable federal rate determined pursuant to Section 1274(d) of the Code. All determinations required pursuant to this paragraph shall be made by a reputable law or accounting firm selected by Bancorp and Bank to make a determination.

7.6.3       Compliance with Section 409A.

(a)           It is the intention of the parties hereto that this Agreement and the payments provided for hereunder shall not be subject to, or shall be in accordance with, Section 409A, and thus avoid the imposition of any tax and interest on Pozez pursuant to Section 409A(a)(1)(B) of the Code, and this Agreement shall be interpreted and construed consistent with this intent.  Pozez acknowledges and agrees that he shall be solely responsible for the payment of any tax or penalty which may be imposed or to which he may become subject as a result of the payment of any amounts under this Agreement.

(b)          Notwithstanding any provision of this Agreement to the contrary, if Pozez is a “specified employee” at the time of his “separation from service”, any payment of “nonqualified deferred compensation” (in each case as determined pursuant to Section 409A) that is otherwise to be paid to Pozez within six (6) months following his separation from service, then to the extent that such payment would otherwise be subject to interest and additional tax under Section 409A(a)(l)(B) of the Code, such payment shall be delayed and shall be paid, without interest, on the first business day of the seventh calendar month following Pozez’s separation from service, or, if earlier, upon Pozez’s death.  Any deferral of payments pursuant to the foregoing sentence shall have no effect on any payments that are scheduled to be paid more than six (6) months after the date of separation from service.

(c)         The parties hereto agree that they shall take such actions as may be necessary and permissible under applicable law, regulation and guidance to amend or revise this Agreement in order to ensure that Section 409A(a)(l)(B) does not impose additional tax and interest on payments made pursuant to this Agreement.

ARTICLE 8

CONFIDENTIALITY; NON-COMPETITION; NON-INTERFERENCE

8.1          Confidential Information.  Pozez, during his service as a member of the Boards of Directors of Bancorp and Bank, has had and will have access to and become familiar with, various confidential and proprietary information of the Bank and Bancorp and/or relating to the business of the Bank and Bancorp (“Confidential Information”), including, but not limited to: business plans; operating results; customer data; internal working documents and communications; relationships with and supervision by the Bank’s and Bancorp’s federal and state regulators, and other materials related to the businesses or activities of the Bank and Bancorp which is not generally made available to the public.  Failure to mark any Confidential Information as confidential, proprietary or protected information shall not affect its status as part of the Confidential Information subject to the terms of this Agreement. Notwithstanding the foregoing, “Confidential Information” shall not include (1) information that is or becomes public without a breach of the Agreement, (2) information that became available to Pozez on a non-confidential basis from a source not bound, to the Pozez’s knowledge, by a non-disclosure agreement that covers the relevant information, (3) information that Pozez knows (and can demonstrate that he knows) before commencing employment with the Bank, and (4) information required to be disclosed by law after notice so that the Bancorp and Bank can contest the required disclosure or seek some other protection.

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8.2          Nondisclosure.  Pozez hereby covenants and agrees that he shall not, directly or indirectly, disclose or use, or authorize any person to disclose or use, any Confidential Information (whether or not any of the Confidential Information is novel or known by any other person); provided however, that this restriction shall not apply to the use or disclosure of Confidential Information (i) to any governmental entity to the extent required by law, or (ii) which is or becomes publicly known and available through no wrongful act of Pozez or any affiliate of Pozez. Notwithstanding the foregoing, Pozez, Bancorp and Bank acknowledge and agree that nothing contained in this Article 8 shall be interpreted, construed, asserted or enforced by Bancorp or Bank to prohibit Pozez from reporting possible violations of federal law or regulation to any governmental agency or entity, including but not limited to the Department of Justice, the Securities and Exchange Commission, the Congress, and any agency Inspector General, or making other disclosures that are protected under the whistleblower provisions of federal law or regulation.  Further, nothing contained in this Agreement or any Release and Waiver shall be interpreted, construed, asserted or enforced by the Bank or Bancorp to prohibit or disqualify Pozez from being awarded, receiving and/or enjoying the benefit of, any award, reward, emolument or payment, or other relief of any kind whatsoever, from any agency, which is provided based upon Pozez’s providing information to any such agency as a whistleblower under applicable law or regulation. Bancorp and the Bank hereby waives any right to assert or enforce the provisions of this agreement in a manner which would impede any whistleblower activity in accordance with applicable law or regulation.

8.3          Documents.  All files, papers, records, documents, compilations, summaries, lists, reports, notes, databases, tapes, sketches, drawings, memoranda, and similar items (collectively, “Documents”), whether prepared by Pozez, or otherwise provided to or coming into the possession of Pozez, that contain any Confidential Information about or pertaining or relating to the Bank or Bancorp (the “Company Information”) shall at all times remain the exclusive property of the Bank and Bancorp. Following the termination of Pozez’s service as a member of the Board of Directors of the Bank and/or Bancorp, or at such other time as the Chairman of the Board of Directors of the Bank or Bancorp may request or the Board of Directors of the Bank or Bancorp by resolution determine, Pozez shall take reasonable efforts to (i) return to the Bank and Bancorp all Documents in any tangible form (whether originals, copies or reproductions) and all computer disks or other media containing or embodying any Document or Company Information; and (ii) purge and destroy all Documents and Company Information in any intangible form (including computerized, digital or other electronic format).

8.4          Non-Competition.  Pozez hereby acknowledges and agrees that, during the course of his service to the Bank Entities, in addition to his access to Confidential Information, Pozez has become, and will become, familiar with and involved in all aspects of the business and operations of the Bank Entities. Pozez hereby covenants and agrees that during the Term until the date twenty four (24) months after the Termination Date (the “Restricted Period”), Pozez will not at any time (except for the Bank Entities), directly or indirectly, in any capacity (whether as a proprietor, owner, agent, officer, director, shareholder, organizer, partner, principal, manager, member, employee, contractor, consultant or otherwise):

(a) provide any advice, assistance or services of the kind or nature which he provided to any of the Bank Entities or relating to business activities of the type engaged in by any of the Bank Entities within the preceding two years, to any Person who owns or operates a Competitive Business or to any Person that is attempting to initiate or acquire a Competitive Business (in either case, a “Competitor”) if (i) such Competitor operates, or is planning to operate, any office, branch or other facility (in any case, a “Branch”) that is (or is proposed to be) located within a fifty (50) mile radius of the Bank’s headquarters or any Branch of the Bank Entities and (ii) such Branch competes or will compete with the products or services offered or planned to be offered by the Bank Entities during the Restricted Period; or

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(b) sell or solicit sales of Competitive Products to Persons within such 50 mile radius, or assist any Competitor in such sales activities.

Notwithstanding any provision hereof to the contrary, this Section 8.4 does not restrict Pozez’s right to (i) own securities of any Entity that files periodic reports with the Securities and Exchange Commission under Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended; provided that his total ownership constitutes less than two percent (2%) of the outstanding securities of such company and that such ownership does not does not violate: (A) the Code of Conduct or any other policy of Bancorp or the Bank, including any policy related to inside information; (B) any applicable securities law; or (C) any applicable standstill or other similar contractual obligation of Bancorp or the Bank.

8.5          Non-Interference.  Pozez hereby covenants and agrees that during the Restricted Period, he will not, directly or indirectly, for himself or any other Person (whether as a proprietor, owner, agent, officer, director, shareholder, organizer, partner, principal, member, manager, employee, contractor, consultant or any other capacity):

(a)           induce or attempt to induce any customer, supplier, officer, director, employee, contractor, consultant, agent or representative of, or any other Person that has a business relationship with any Bank Entity, to discontinue, terminate or reduce the extent of its, his or her relationship with any Bank Entity or to take any action that would disrupt or otherwise damage any such relationship;

(b)           solicit any customer of any of the Bank Entities for the purpose of providing any Competitive Products or Services to such customer (other than any solicitation to the general public that is not disproportionately directed at customers of any Bank Entity); or

(c)           solicit any employee of any of the Bank Entities to commence employment with, become a consultant or independent contractor to or otherwise provide services for the benefit of any other Competitive Business.

In applying this Section 8.5:

(i)            the term “customer” shall be deemed to include, at any time, any Person to which any of the Bank Entities had, during the six (6) month period immediately prior to such time, (A) sold any products or provided any services or (B) submitted, or been in the process of submitting or negotiating, a proposal for the sale of any product or the provision of any services;

(ii)           the term “supplier” shall be deemed to include, at any time, any Person which, during the six (6) month period immediately prior to such time, (A) had sold any products or services to any of the Bank Entities or (B) had submitted to any of the Bank Entities a proposal for the sale of any products or services;

(iii)          for purposes of clause (c), the term “employee” shall be deemed to include, at any time, any Person who was employed by any of the Bank Entities within the prior six (6) month period (thereby prohibiting Pozez from soliciting any Person who had been employed by any of the Bank Entities until six (6) months after the date on which such Person ceased to be so employed); and

(iv)          If during the Restricted Period any employee of any of the Bank Entities accepts employment with or is otherwise retained by any Competitive Business of which Pozez is an owner, director, officer, manager, member, employee, partner or employee, or to which Pozez provides material services, it shall be presumed that such employee was hired in violation of the restriction set forth in clause (c) of this Section 8.5, with such presumption to be overcome only upon Pozez’s showing by a preponderance of the evidence that he was not directly or indirectly involved in the hiring, soliciting or encouraging such employee to leave employment with the Bank Entities.

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8.6          Nondisparagement.  During the Restricted Period, the Director shall not, directly or indirectly, orally or in writing, in any forum, or by means of any medium (including, but not limited to, television or radio, newspapers, newsletters, magazines, circulars, blogs, computer networks or bulletin boards, or any other form of communication), make to any third party (including but not limited to any customer, former customer or potential customer of the Bank or Bancorp or any Bank Entity, any employee or other representative of any bank regulatory agency, or any employee of the Bank or Bancorp or any Bank entity, any disparaging or defamatory statements about the Bank or Bancorp or Bank entity.  Nothing in this Section 8.6 shall apply to any communication with any governmental entity to the extent required by law.

8.7          Injunction. In the event of any breach or threatened or attempted breach of any provision of this Article 8 by Pozez, Bancorp and Bank shall, in addition to and not to the exclusion of any other rights and remedies at law or in equity, be entitled to seek and receive from any court of competent jurisdiction (i) full temporary and permanent injunctive relief enjoining and restraining Pozez and each and every other Person concerned therein from the continuation of such violative acts and (ii) a decree for specific performance of the applicable provisions of this Agreement, in each case without being required to furnish any bond or other security.

8.7          Reasonableness.

8.7.1       Pozez has carefully read and considered the provisions of this Article 8 and, having done so, acknowledges that he fully understands them, that he has had the opportunity to consult with counsel of his own choosing regarding the meaning and effect of such provisions at his election, and he agrees that the restrictions and agreements set forth in this Article 8 are fair and reasonable and are reasonably required for the protection of the interests of the Bank Entities and their respective businesses, shareholders, directors, officers and employees.  Pozez further agrees that the restrictions set forth in this Agreement will not impair or unreasonably restrain his ability to earn a livelihood. Pozez further acknowledges that his services as a Director has been and shall continue to be of special, unique and extraordinary value to the Bank.

8.7.2       If any court of competent jurisdiction should determine that the duration, geographical area or scope of any provision or restriction set forth in this Article 8 exceeds the maximum duration, geographic area or scope that is reasonable and enforceable under applicable law, the parties agree that said provision shall automatically be modified and shall be deemed to extend only over the maximum duration, geographical area and/or scope as to which such provision or restriction said court determines to be valid and enforceable under applicable law, which determination the parties direct the court to make, and the parties agree to be bound by such modified provision or restriction.

8.8         Additional Obligations.

8.8.1      Cooperation.  During and after Pozez’s service, Pozez shall fully cooperate with the reasonable requests of Bancorp and the Bank, including providing information, with regard to any matter that Pozez has knowledge of as a result of Pozez’s service as a Director or Chairman of Bancorp and Bank. Pozez further agrees to comply with any reasonable request by Bancorp and the Bank to assist in relation to any investigation into any actual or potential irregularities, including without limitation assisting with any threatened or actual litigation concerning the Bancorp or Bank, giving statements/affidavits, meeting with legal and/or other professional advisors, and attending any legal hearing and giving evidence; provided that Bancorp and/or the Bank shall reimburse Pozez for any reasonable out-of-pocket expenses reasonably incurred by Pozez in giving such assistance.  Pozez agrees to notify Bancorp and the Bank immediately if Pozez is contacted by any third parties for information or assistance with any matter concerning Bancorp or the Bank and agrees to co-operate with Bancorp and the Bank with regard to responding to such requests.

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ARTICLE 9

MISCELLANEOUS

9.1          Assignability.  Pozez shall have no right to assign this Agreement or any of his rights or obligations hereunder to another party or parties.  Bancorp and Bank may assign this Agreement to any of its Affiliates or to any Person that acquires a substantial portion of the operating assets of Bancorp or Bank. Upon any such assignment by Bancorp or Bank, references in this Agreement to Bancorp or Bank shall automatically be deemed to refer to such assignee instead of, or in addition to, Bancorp or Bank, as appropriate in the context.

9.2.         Governing Law; Venue.  This Agreement shall be governed by and construed in accordance with the laws of the State of Maryland applicable to contracts executed and to be performed therein, without giving effect to the choice of law rules thereof. Any action to enforce any provision of this Agreement may be brought only in a court of the State of Maryland or in the United States District Court for the District of Maryland.  Accordingly, each party (a) agrees to submit to the jurisdiction of such courts and to accept service of process at its address for notices and in the manner provided in Section 9.3 for the giving of notices in any such action or proceeding brought in any such court and (b) irrevocably waives any objection to the laying of venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient or inappropriate forum.

9.3.        Notices.  All notices, requests, demands and other communications required to be given or permitted to be given under this Agreement shall be in writing and shall be conclusively deemed to have been given as follows: (a) when hand delivered to the other party; (b) when received by facsimile at the facsimile number set forth below, provided, however, that any notice given by facsimile shall not be effective unless either (i) a duplicate copy of such facsimile notice is promptly given by depositing the same in a United States post office first-class postage prepaid and addressed to the applicable party as set forth below or (ii) the receiving party delivers a written confirmation of receipt for such notice either by facsimile or by any other method permitted under this section; or (c) when deposited in a United States post office with first-class certified  mail, return receipt requested, postage prepaid and addressed to the applicable party as set forth below; or (d) when deposited  with a national overnight delivery service reasonably approved by the parties (Federal Express and DHL WorldWide Express being deemed approved by the parties), postage prepaid, addressed to the applicable party as set forth below with next-business­ day delivery guaranteed; provided that the sending party receives a confirmation of delivery from the delivery service provider.  Any notice given by facsimile shall be deemed received on the date on which notice is received except that if such notice is received after 5:00 p.m. (recipient’s time) or on a non-business day, notice shall be deemed given the next business day).  Any notice sent by Untied States mail shall be deemed given three (3) business days after the same has been deposited in the United States mail.  Any notice given by national overnight delivery service shall be deemed given on the first business day following deposit with such delivery service.  For purposes of this Agreement, the term “business day” shall mean any day other than a Saturday, Sunday or day that is a legal holiday in Montgomery County, Maryland.  The address of a party set forth below may be changed by that party by written notice to the other from time to time pursuant to this Article.

To:	Bancorp or Bank
	c/o Susan G. Riel
	7830 Old Georgetown Road
	Bethesda, MD 20814
	Fax No.: 301-841-9872
	Email: sriel@eaglebankcorp.com
To: Pozez, as set forth on the signature page hereof

9.4.         Entire Agreement.  This Agreement contains all of the agreements and understandings between the parties hereto with respect to Pozez’s service as Chairman of Bancorp and Bank and the subject matter hereof.

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9.5.         Headings.  The Article and Section headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.

9.6.        Severability.  Should any party of this Agreement for any reason be declared or held illegal, invalid or unenforceable, such provisions or portion of such provision shall be deemed severed herefrom, and  such determination shall not affect the legality, validity or enforceability of any remaining portion or provision of this Agreement, which remaining portions and provisions shall remain in force and effect as if this Agreement has been executed with the illegal, invalid or unenforceable portion thereof eliminated.

9.7.        Amendment; Waiver.  Neither this Agreement nor any provision hereof may be amended, modified, changed, waived, discharged or terminated except by an instrument in writing signed by the party against which enforcement of the amendment, modification, change, waiver, discharge or termination is sought, which expressly states an intention to amend, modify, change, waive, discharge or terminate this Agreement. The failure of either party at any time or times to require performance of any provision hereof shall not in any manner affect the right at a later time to enforce the same.  No waiver by either party of the breach of any term, provision or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term, provision or covenant contained in this Agreement.

9.8.        Gender and Number.  As used in this Agreement, the masculine, feminine and neuter gender, and the singular or plural number, shall each be deemed to include the other or others whenever the context so indicates.

9.9.        Binding Effect.  This Agreement is and shall be binding upon, and inures to the benefit of, Bancorp and the Bank, their respective successors and assigns, and Pozez and his heirs, executors, administrators, and personal and legal representatives.

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

EAGLE BANCORP, INC.

By:

Name: Susan G. Riel

Title:  President and Chief Executive Officer

EAGLEBANK

By:

Name: Susan G. Riel

Title:  President and Chief Executive Officer

Norman R. Pozez

8191 Strawberry Lane

Suite #3

Falls Church, Virginia 22042

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EX-10.24

Eagle Bancorp, Inc. - 10-Q

Exhibit 10.24

EAGLEBANK NON-COMPETE AGREEMENT

THIS NON-COMPETE AGREEMENT (“Agreement”) is made and entered into as of the 31^st day of May, 2019, by and among Eagle Bancorp, Inc., a Maryland corporation (“Bancorp”), EagleBank, a Maryland chartered commercial bank and the wholly owned subsidiary of Bancorp (the “Bank”), and Norman R. Pozez (“Pozez”).

WHEREAS, the Bank, Bancorp and Pozez have entered into a Chairman Compensation Agreement of even date herewith (the “Chairman Agreement”) pursuant to which Pozez serves as the Chairman of the Board of Directors of the Bancorp and the Bank, and the parties wish to enter into a supplemental agreement regarding certain rights, benefits and obligations in the event that the Chairman Agreement is terminated following a Change in Control pursuant to the Chairman Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows:

1.             Chairman Agreement.  Pozez acknowledges and agrees that this Agreement supplements the Chairman Agreement, which contains provisions that are independent of this Agreement, and that the parties’ rights and obligations under the Chairman Agreement are not modified or impaired by this Agreement, except to the extent expressly set forth herein.  The obligations of the Bank under this Agreement, including its obligation to pay the compensation provided for in this Agreement, are contingent upon Pozez’s performance of Pozez’s obligations under this Agreement.

2.             Certain Definitions.  As used in this Agreement, the following terms have the meanings set forth below:

2.1          “Affiliate” means, with respect to any Person, (i) any Person directly or indirectly controlling, controlled by or under common control with such Person, (ii) any Person owning or controlling fifty percent (50%) or more of the outstanding voting interests of such Person, (iii) any officer, director, general partner, managing member, or trustee of, or Person serving in a similar capacity with respect to, such Person, or (iv) any Person who is an officer, director, general partner, member, trustee, or holder of fifty percent (50%) or more of the voting interests of any Person described in clauses (i), (ii), or (iii) of this sentence.  For purposes of this definition, the terms “controlling,” “controlled by,” or “under common control with” shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

2.2          “Bancorp” is defined in introductory paragraph of this Agreement. If Bancorp is merged into any other Entity, or transfers substantially all of its business operations or assets to another Entity, the term “Bancorp” shall be deemed to include such successor Entity for purposes of applying Article 8 of this Agreement.

2.3          “Bank” is defined in introductory paragraph of this Agreement. If the Bank is merged into any other Entity, or transfers substantially all of its business operations or assets to another Entity, the term “Bank” shall be deemed to include such successor Entity for purposes of applying Article 8 of this Agreement.

2.4          “Bank Entity” or “Bank Entities” means and includes any of the Bank, Bancorp and their Affiliates.

2.5          “Bank Regulatory Agency” means any governmental authority, regulatory agency, ministry, department, statutory corporation, central bank or other body of the United States or of any other country or of any state or other political subdivision of any of them having jurisdiction over the Bank or any transaction contemplated, undertaken or proposed to be undertaken by the Bank, including, but not necessarily be limited to:

(a)           the Federal Deposit Insurance Corporation or any other federal or state depository insurance organization or fund;

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(b)           the Federal Reserve System, the Maryland Division of Financial Institutions, or any other federal or state bank regulatory or commissioner’s office;

(c)           any Person established, organized, owned (in whole or in part) or controlled by any of the foregoing; and

(d)           any predecessor, successor or assignee of any of the foregoing.

2.6          “Bancorp Board” means the Board of Directors of Bancorp.

2.7          “Bank Board” means the Board of Directors of the Bank.

2.8          “Code” means the Internal Revenue Code of 1986, as amended.

2.9         “Expiration Date” means the earlier of the expiration of the Restricted Period hereunder or the date upon which the Bank elects to terminate this Agreement due to a violation of Article 8 by Pozez.

2.10        “Person” means any individual or entity.

2.11        “Section 409A” means Section 409A of the Code and the regulations and administrative guidance promulgated thereunder.

2.12        “Termination Date” means the Expiration Date or the Termination Date under the Chairman Agreement.

Other terms are defined throughout this Agreement and have the meanings so given them.  Capitalized terms used, but not defined herein which are defined in the Chairman Agreement shall have the meaning ascribed to them in the Chairman Agreement.

3.             Non-Competition Fee.

3.1          Non-Compete Fee Upon Certain Terminations of Chairman Agreement.  In the event of Termination of the Chairman Agreement is terminated under the circumstances set forth in Section 7.6.1(a) or Section 7.6.1(b) of the Chairman Agreement (a “Separation”), and provided that Pozez (a) signs and delivers to the Bank no later than twenty-one (21) days after the Termination Date (the “Submission Period”), (i) a General Release and Waiver in the form attached to this Agreement as Exhibit A (the “Release”) and (b) the Certification required monthly in the form of Exhibit B pursuant to Section 3.4 of this Agreement, the Bank shall, for a period of twelve months following the date on which the Release is executed and delivered to the Bank, continue to pay Pozez, monthly in arrears (on or before the last day of the month for the prior month) an amount equal to one-twelfth (1/12) of the sum of (x) Pozez’s Annual Compensation at the rate being paid as of the Termination Date and (y) the dollar value as of the award date of the most recent Equity Award Value, for each month of the Restricted Period during which Pozez remains in full compliance with the provisions of Articles 3 and 4 of this Agreement.  No payment shall be made pursuant to this Section for any month following non-compliance with the provisions of Section 3 and 4 of this Agreement. Nothing in this Agreement shall affect Pozez’s eligibility for payments under Section 7.6.1 of the Chairman Agreement in accordance with the terms and conditions set forth therein.

3.2          Failure to Sign General Release.  Failure to sign and deliver timely the General Release and Waiver shall be deemed to be an election to waive all rights, benefits and obligations hereunder within the meaning of Section 4.2(b), and shall operate to extinguish this offer; such failure shall not, however, extinguish, avoid or in any way limit Pozez’s obligations under the Chairman Agreement, including Section 8.5 thereof.

3.3          Payment Timing.  Notwithstanding the foregoing: if the twenty-one (21) day period in which Pozez may deliver the Release begins in one calendar year and ends in the following calendar year, the date on which payments will commence under this Article 3 shall be in February of such following calendar year or, if later, the month following the date on which the Release is delivered to the Bank.

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3.4          Reporting  Obligation.  As a condition to receipt of the payments provided in this Article, Pozez shall (a) certify on a monthly basis, in writing, signed by Pozez and delivered to the Bank not later than the 15th day of the month, that Pozez has complied in full with the provisions of Section 4.1, and (b) report in detail all income or compensation of any kind (including without limitation property interests or rights to future remuneration) from services rendered to any Person or entity, excluding the Bank Entities, during the preceding month, all in the form attached hereto as Exhibit B (the “Certification”).  If such Certification is not received in a timely fashion, on the first occurrence, Bancorp and the Bank shall provide written notice to Pozez and an opportunity to cure the violation of this Section within ten days thereafter.  If Pozez fails to cure the reporting obligation to Bancorp’s and the Bank’s reasonable satisfaction within the specified time, or if the Certification is inaccurate or incomplete, Pozez shall be deemed to be in violation of Section 4.1 without further notice or opportunity to cure.

3.5          Contingent Repayment Obligation.  In the event Pozez breaches any provision of Article 4 of this Agreement, Pozez’s entitlement to any payments payable pursuant to this Article 3, if and to the extent not yet paid, shall thereupon immediately cease and terminate as of the date of such breach, with Pozez having the obligation to repay to Bancorp and the Bank any payments that were paid to him during the period of the breach, provided that the non-compete covenant under Section 4(b) remains in effect.

3.6          Payment Adjustments.  Notwithstanding anything to the contrary in this Article 3, any payment pursuant to this Article: (a) shall be subject to (i) any delay in payment or reduction required by Section 5.2 hereof, and (b) shall be subject to a set-off equal to the gross amount of any current or deferred compensation, including wages, salary, fees, benefits, tangible or intangible property or ownership rights or interests or other property rights, received by Pozez or which he becomes entitled to receive in the future as remuneration for services to any Person, business or other entity as a result of, or in exchange for, any work or services performed, or any intellectual property conveyed by Pozez, during the Restricted Period (“Remuneration”), provided that the foregoing provision shall in no way limit or impair Pozez’s obligations or the Bank’s rights under Article 3 or Article 4 of this Agreement.  Pozez understands and agrees that the Bank’s set-off rights will accrue, and any set-off pursuant to this provision will be applied to any non-compete payments due (or previously paid or accrued), after the earlier of Pozez’s receipt or accrual of Remuneration (the Set-off Date), and if Pozez is not entitled to further payments under this Agreement, Pozez agrees to refund the setoff amount in full to the Bank within fourteen (14 days) of Pozez’s Certification reporting such remuneration or the Set-off Date, whichever is later.

4.             Non-Competition.

4.1          (a) Pozez hereby acknowledges and agrees that, during the course of Pozez’s service as a member of the Board of Directors of the Bank, including his service as Chairman, Pozez will have, and has had, access to and become familiar with various confidential and proprietary information of the Bank Entities and/or relating to the business of the Bank Entities (“Confidential Information”), including, but not limited to: business plans; operating results; financial statements and financial information; contracts; mailing lists; purchasing information; customer data (including lists, names and requirements); feasibility studies; personnel related information (including employees’ skills, knowledge, capabilities, performance, compensation, compensation plans, and staffing plans); internal working documents and communications; and other materials related to the businesses or activities of the Bank Entities which is made available only to employees with a need to know or which is not generally made available to the public.  Failure to mark any Confidential Information as confidential, proprietary or protected information shall not affect its status as Confidential Information.  Pozez further acknowledges that in the course of his service as a member of the Board of Directors of the Bancorp and the bank, including as Chairman, Pozez has and will become familiar with and involved in all aspects of the business and operations of the Bank Entities, as well as with confidential information of or about third parties having business dealings with the Bank Entities, including without limitation customers and prospective customers, suppliers, business partners and affiliates of the Bank. Pozez further acknowledges that Pozez’s services have been and shall continue to be of special, unique and extraordinary value to the Bank.

(b) Therefore, Pozez hereby covenants and agrees that upon Separation and until the date one (1) year after the Termination Date (the “Restricted Period”), without the express written consent of the Bancorp Board and the Bank Board, and/or the Chief Executive Officer of Bancorp and the Bank (the “CEO”) in their respective sole discretion: Pozez will not (except for services performed for or on behalf of the Bank Entities as a member of the Board of Directors), directly or indirectly, in any capacity (whether as a proprietor, owner, agent, officer, director, shareholder, organizer, partner, principal, manager, member, employee, contractor, consultant or otherwise) engage in employment or provide services to any person or entity in return for remuneration or a right to remuneration of any kind, including but not limited to current or deferred compensation, wages, salary, fees, benefits, tangible or intangible property or ownership rights or interests or other property rights, whether paid or conveyed to Pozez or promised in the future by any Person, business or other entity as a result of, or in exchange for, any work or services performed, or any intellectual property conveyed by Pozez.

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4.2.         Exceptions; Notice.  (a) Notwithstanding any provision hereof to the contrary, this Article 4 does not restrict Pozez’s right to (i) provide services without remuneration to a not-for-profit entity; or (ii) own securities of any Entity that files periodic reports with the Securities and Exchange Commission under Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, provided that Pozez’s total ownership constitutes less than two percent (2%) of the outstanding securities of such company and such acquisition does not violate: (A) the Code of Conduct or any other policy of the Bank, including any policy related to inside information; (B) any applicable securities law; or (C) any applicable standstill or other similar contractual obligation of the Bank.

(b)  Except as to activities permitted in this Section, before Pozez accepts any position as a director, officer or employee with any other Person or entity while any of Section 4.1 is in effect, Pozez will provide the prospective service recipient with written notice of this Agreement and will deliver a copy of the notice to Bancorp and the Bank.

4.3.         Right to Recovery.  In the event of the breach by Pozez of any of the provisions of this Article, Bancorp and the Bank shall be entitled, in addition to all other available rights and remedies, to recover amounts already paid under Section 3.1 of this Agreement and to withhold any or all of the amounts agreed to be paid to Pozez under Section 3.1.

4.4.         Reasonableness.  Pozez acknowledges and agrees that the restrictions set forth in this Article are founded on valuable consideration, including without limitation the non-compete fees contained in this Agreement, are reasonable in duration and scope and are necessary to protect the legitimate business interests of the Bank Entities and their respective businesses, shareholders, directors, officers and employees. Pozez further acknowledge that these covenants have a unique, very substantial and immeasurable value to the Bank Entities, that Pozez considers the payments hereunder to be fair and adequate compensation for the covenants made by Pozez, that he has sufficient assets and skills to earn a reasonable and satisfactory livelihood, and that the restrictions set forth in this Agreement will not unreasonably restrain Pozez’s ability to earn a livelihood.  Pozez acknowledges and agrees that Confidential Information would provide significant value and unfair competitive advantages to any competitor on a nationwide basis and that a more limited duration or narrower geographic scope to the covenant would not sufficiently protect the Bank Entities’ legitimate business interest in preserving the Confidential Information to which Pozez has had access, given the national nature of financial services and the ability of other persons and entities to engage in competition with the Bank Entities through electronic communications.  Finally, Pozez acknowledges that he fully understands the terms of this Agreement and has had an opportunity to consult with counsel of Pozez’s own choosing if he elects to do so.

4.5          Judicial Modification.  If any court of competent jurisdiction should determine that the duration, geographical area or scope of any provision or restriction set forth in this Article 4 exceeds the maximum duration, geographic area or scope that is reasonable and enforceable under applicable law, the parties agree that, to the extent then allowed under governing law, said provision shall automatically be modified and shall be deemed to extend only over the maximum duration, geographical area and/or scope as to which such provision or restriction said court determines to be valid and enforceable under applicable law, which determination the parties direct the court to make, and the parties agree to be bound by such modified provision or restriction.

5.             Section 409A.

5.1          Avoidance of Imposition.  It is the intention of the parties hereto that this Agreement and the payments provided for hereunder shall not be subject to, or shall be in accordance with, Section 409A, and thus avoid the imposition of any tax and interest on Pozez pursuant to Section 409A(a)(1)(B) of the Code, and this Agreement shall be interpreted and construed consistent with this intent.  Pozez acknowledges and agrees that he shall be solely responsible for the payment of any tax or penalty which may be imposed or to which he may become subject as a result of the payment of any amounts under this Agreement.

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5.2          Possible Delay in Payment(s).  Notwithstanding any provision of this Agreement to the contrary, if Pozez is a “specified employee” at the time of Pozez’s “separation from service”, any payment of “nonqualified deferred compensation” (in each case as determined pursuant to Section 409A) that is otherwise to be paid to Pozez within six (6) months following Pozez’s separation from service, then to the extent that such payment would otherwise be subject to interest and additional tax under Section 409A(a)(1)(B) of the Code, such payment shall be delayed and shall be paid on the first business day of the seventh calendar month following Pozez’s separation from service, or, if earlier, upon Pozez’s death.  Any deferral of payments pursuant to the foregoing sentence shall have no effect on any payments that are scheduled to be paid more than six (6) months after the date of separation from service.

5.3          Modification to Comply.  The parties hereto agree that they shall take such actions as may be necessary and permissible under applicable law, regulation and guidance to amend or revise this Agreement in order to ensure that Section 409A(a)(1)(B) does not impose additional tax and interest on payments made pursuant to this Agreement.

6.             Remedies.  Pozez understands and agrees that money damages may not be a sufficient remedy for a breach by Pozez of the provisions of Article 4 and that, in the event of any breach or threatened or attempted breach of any provision of Article 4 by Pozez, the Bank shall, in addition to and not to the exclusion of any other rights and remedies at law or in equity, be entitled to seek and receive from any court of competent jurisdiction (i) full temporary and permanent injunctive relief enjoining and restraining Pozez and each and every other Person concerned therein from the continuation of such violative acts and (ii) a decree for specific performance of the applicable provisions of this Agreement, without being required to furnish any bond or other security.  In the event of any litigation brought by either party to enforce rights under this Agreement, the prevailing party shall recover from the other party its reasonable attorneys’ fees and costs incurred in connection with such litigation.

7.             Intentionally Omitted.

8.             Assignability.  Pozez shall have no right to assign this Agreement or any of Pozez’s rights or obligations hereunder to another party or parties.  Bancorp and the Bank may assign this Agreement to any of its Affiliates or to any Person that acquires a substantial portion of the operating assets of Bancorp or the Bank.  Upon any such assignment by Bancorp or the Bank, references in this Agreement to Bancorp and the Bank shall automatically be deemed to refer to such assignee instead of, or in addition to, Bancorp and the Bank, as appropriate in the context.

9.             Governing Law; Venue.  This Agreement shall be governed by and construed in accordance with the laws of the State of Maryland applicable to contracts executed and to be performed therein, without giving effect to the choice of law rules thereof.  Any action to enforce any provision of this Agreement may be brought only in a court of the State of Maryland within Montgomery County or in the United States District Court for the District of Maryland.  Accordingly, each party (a) agrees to submit to the jurisdiction of such courts and to accept service of process at its address for notices and in the manner provided in Section 10 for the giving of notices in any such action or proceeding brought in any such court and (b) irrevocably waives any objection to the laying of venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient or inappropriate forum.

10.          Notices.  All notices, requests, demands and other communications required to be given or permitted to be given under this Agreement shall be in writing and shall be conclusively deemed to have been given as follows: (a) when hand delivered to the other party; (b) when received by facsimile at the facsimile number set forth below, provided, however, that any notice given by facsimile shall not be effective unless either (i) a duplicate copy of such facsimile notice is promptly given by depositing the same in a United States post office first-class postage prepaid and addressed to the applicable party as set forth below or (ii) the receiving party delivers a signed written confirmation of receipt for such notice either by facsimile or by any other method permitted under this Section; or (c) when deposited in a United States post office with first-class certified mail, return receipt requested, postage prepaid and addressed to the applicable party as set forth below; or (d) when deposited with a national overnight delivery service reasonably approved by the parties (Federal Express and DHL WorldWide Express being deemed approved by the parties), postage prepaid, addressed to the applicable party as set forth below with next-business-day delivery guaranteed; provided that the sending party receives a confirmation of delivery from the delivery service provider.  Any notice given by facsimile shall be deemed received on the date on which notice is received except that if such notice is received after 5:00 p.m. (recipient’s time) or on a non-business day, notice shall be deemed given the next business day).  Any notice sent by Untied States mail shall be deemed given three (3) business days after the same has been deposited in the United States mail.  Any notice given by national overnight delivery service shall be deemed given on the first business day following deposit with such delivery service.  For purposes of this Agreement, the term “business day” shall mean any day other than a Saturday, Sunday or day that is a legal holiday in Montgomery County, Maryland.  The address of a party set forth below may be changed by that party by written notice to the other from time to time pursuant to this Article.

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To:	Pozez, as set forth on the signature page.
To:	Eagle Bancorp, Inc. and/or EagleBank
	c/o Susan G. Riel
	7830 Old Georgetown Road
	Bethesda, MD 20814
	Fax No.: 301-986-8529

11.          Entire Agreement.  This Agreement contains all of the agreements and understandings between the parties hereto with respect to the terms and conditions upon which Pozez may be entitled to supplemental non-compete compensation and the non-compete covenants which may apply to Pozez under the circumstances set forth herein, and supplements Section 8.4 and Section 8.5 of the Chairman Agreement in the event of a Separation, which shall remain in effect and shall be applicable to Pozez and given full effect without limiting in any way Pozez’s obligations and Bancorp and the Bank’s rights under this Agreement.  No oral agreements or written correspondence shall be held to affect the provisions hereof.  No representation, promise, inducement or statement of intention has been made by either party that is not set forth in this Agreement, and neither party shall be bound by or liable for any alleged representation, promise, inducement or statement of intention not so set forth.

12.          Headings.  The Article and Section headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.

13.          Severability.  Should any part of this Agreement for any reason be declared or held illegal, invalid or unenforceable in whole or in part, such determination shall not affect the legality, validity or enforceability of any remaining portion or provision of this Agreement, which remaining portions and provisions shall remain in force and effect as if this Agreement has been executed with the illegal, invalid or unenforceable portion thereof eliminated, provided that if any court of competent jurisdiction shall find the provisions of Section 4.1(b) to be unenforceable, the parties agree that Section 8.5 of the Chairman Agreement shall remain in effect as to Pozez and he shall be bound thereby.

14.          Amendment; Waiver.  Neither this Agreement nor any provision hereof may be amended, modified, changed, waived, discharged or terminated except by an instrument in writing signed by the party against which enforcement of the amendment, modification, change, waiver, discharge or termination is sought.  The failure of either party at any time or times to require performance of any provision hereof shall not in any manner affect the right at a later time to enforce the same.  No waiver by either party of the breach of any term, provision or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term, provision or covenant contained in this Agreement.

15.          Gender and Number.  As used in this Agreement, the masculine, feminine and neuter gender, and the singular or plural number, shall each be deemed to include the other or others whenever the context so indicates.

16.          Binding Effect. This Agreement is and shall be binding upon, and inures to the benefit of, the Bank, its successors and assigns, and Pozez and Pozez’s heirs, executors, administrators, and personal and legal representatives.

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IN WITNESS WHEREOF, the parties have executed this Chairman Agreement as of the date first written above.

EAGLEBANK
By:
Name:	Susan G. Riel
	President & Chief Executive Officer

NORMAN R. POZEZ

Notice Address:

8191 Strawberry Lane

Suite #3

Falls Church, Virginia 22042

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Attachment A

Form of

General Release and Waiver of All Claims

Pozez (“you”) executes this General Release And Waiver of All Claims (the “Release”) as a condition of receiving certain payments and other benefits in accordance with the terms of Section 3.1 of the Non-Compete Agreement dated as of _______________, 2019.  All capitalized terms used but not otherwise defined herein shall have the same meaning as in your Chairman Agreement.

1. RELEASE.

You hereby release and forever discharge EagleBank and Eagle Bancorp, Inc. [modify to specifically include any additional Affiliates] and each and every one of their former or current subsidiaries, parents, affiliates, directors, officers, employees, agents, parents, affiliates, successors, predecessors, subsidiaries, assigns and attorneys (the “Released Parties”) from any and all charges, claims, damages, injury and actions, in law or equity, which you or your heirs, successors, executors, or other representatives ever had, now have, or may in the future have by reason of any act, omission, matter, cause or thing through the date of your execution of this Release.  You understand that this Release is a general release of all claims you may have against the Released Parties based on any act, omission, matter, case or thing through the date of your execution of this Release.

2. WAIVER.

You realize there are many laws and regulations governing the employment relationship.  These include, but are not limited to, Title VII of the Civil Rights Acts of 1964 and 1991; the Age Discrimination in Employment Act of 1967; the Americans with Disabilities Act; the National Labor Relations Act; 42 U.S.C. § 1981; the Family and Medical Leave Act; the Employee Retirement Income Security Act of 1974 (other than any accrued benefit(s) to which you have a non-forfeitable right under any pension benefit plan); the Older Workers Benefit Protection Act, the Equal Pay Act, the Family and Medical Leave, Act the Maryland Civil Rights Act, the Maryland Wage Payment and Collection Law, Maryland Occupational Safety and Health Act, the Maryland Collective Bargaining Law, and any other state, local and federal employment laws; and any amendments to any of the foregoing.  You also understand there may be other statutes and laws of contract and tort that also relate to your employment.  By signing this Release, you waive and release any rights you may have against the Released Parties under these and any other laws, except those as to which a waiver and release is not permitted as a matter of law, based on any act, omission, matter, cause or thing through the date of your execution of this Release.  You also agree not to initiate, join, or voluntarily participate in any action or suit in any court or to accept any damages or other relief from any such proceeding brought by anyone else based on any act, omission, matter, cause or thing through the date of your execution of this Release, provided that nothing in this Agreement shall be construed to prohibit you from filing a charge with or participating in any investigation or proceeding conducted by the EEOC, NLRB, or any comparable state or local agency.  Notwithstanding the foregoing, you hereby waive your right to recover individual relief with respect to any charge, complaint, or lawsuit filed by you or anyone on your behalf, any you agree that you will not accept any benefit that you may be entitled to receive in connection with any action taken by any other person or agency against the Bank.  Additionally, you represent that you have no pending complaints or charges filed against the Bank.

By execution of this Agreement and in consideration of the benefits provided herein, you understand that you are specifically waiving any rights or claims that you may have under the Age Discrimination in Employment Act (“ADEA”), 29 U.S.C. §§ 621, et sec.  You state that your waiver of these ADEA claims is knowing and voluntary, and you understand that you are forever releasing the Bank (and its affiliates and related persons who are Released Parties) with respect to all such claims.  This waiver does not apply to any rights or claims that relate to events which may occur after the date this Agreement becomes effective, or to any rights or claims to test the knowing and voluntary nature of this Agreement, solely to the extent required under the ADEA and Older Workers Benefit Protection Act (“OWBPA”).

3. NOTICE PERIOD.

This document is important.  We advise you to review it carefully and consult an attorney before signing it, as well as any other professional whose advice you value, such as an accountant or financial advisor.  If you agree to the terms of this Release, sign in the space indicated below for your signature.  You will have twenty-one (21) [45 days if deemed to be a group layoff under OWBPA] calendar days from the date you receive this document to consider whether to sign this Release.  If you choose to sign the Release before the end of that twenty-one day period, you certify that you did so voluntarily for your own benefit and not because of any coercion.

8 

4. RETURN OF PROPERTY.

You certify that you have fully complied with Section 8.4 of your Chairman Agreement.

5. REVOCATION.

You should also understand that even after you have signed this Release, you still have seven (7) days to revoke it. To revoke your acceptance of this Release, Bancorp’s and the Bank’s Board of Directors must receive written notice before the end of the seven (7)-day period. In the event you revoke or do not accept this Release, you will not be entitled to any of the payments or benefits that you would have been entitled to under the Non-compete Agreement by virtue of executing this Release. If you do not revoke this Release within seven (7) days after you sign it, it will be final, binding, and irrevocable.

IN WITNESS WHEREOF, the Parties have knowingly and voluntarily executed this Release, as of the day and year first set forth below.

Name: Date

By:
	Date

9 

Exhibit B

Monthly Report and Certification

Date: ________

Submitted by: ____________________ [Name]

In accordance with Section 3.4 of my Non-compete Agreement with Eagle Bancorp, Inc. and EagleBank, dated as of _________, 2019, (the “Agreement”), I certify that:

a.           I have been and remain in full compliance with Section 4.1 (b) of the Agreement, including, without limitation, my obligation thereunder to refrain from engaging in employment or providing services to any person or entity in exchange for remuneration of any kind, including deferred payments or property rights, except as, and only to the extent, allowed under Section 4.2 (a) and (b) of the Agreement, and I have complied fully with Section 4.2(b) and (c). and make the following report regarding any such employment or services: [fully describe any employment or services in specific detail including parties, locations, dates, terms, duties or services and nature of remuneration]; and

b.           I have fully and accurately reported all prior remuneration since the date of Separation and during the preceding calendar month I received, or acquired rights to receive, only the following remuneration within the meaning of Section 4.1(b) of the Agreement:

1.             Wages, salary, fees, bonuses or other cash compensation:

[insert full description of nature and amount of remuneration and identify payor];

2.           Benefits and/or deferred compensation rights:

[insert full description of nature and amount and identify payor];

3.             Tangible or intangible property or ownership rights or interests or other property rights, whether paid or conveyed to Pozez or promised in the future:

[Insert full property description and identify all other parties to agreement or conveyance].

I acknowledge and agree that any payments made or to be made by Bancorp or the Bank pursuant to the Agreement shall be subject to a set-off equal to the gross amount of any remuneration I have received, or acquire a right to receive in the future, during the Restricted Period, as set forth in Section 3.6(b) of the Agreement, and that the foregoing provision does not limit or impair my obligations or Bancorp’s or the Bank’s rights under Article 3 or Article 4 of the Agreement.  I further understand and agree that Bancorp’s and the Bank’s set-off rights will accrue, and any set-off pursuant to this provision will be applied to any non-compete payments due (or previously paid or accrued), after the earlier of my receipt of income, benefits or property or the vesting of a right or the creation of a contractual entitlement to such income, benefits or property (the Set-off Date), and if I am not entitled to further payments under this Agreement, I agree to refund the setoff amount in full to Bancorp and the Bank within fourteen (14 days) of this Certification or the Set-off Date, whichever is later.

I understand and acknowledge that any false, incomplete or delinquent report or Certification of the foregoing information will result in my forfeiture of rights to payments under the Agreement in the future and may result in an obligation to repay all or part of any payments I have received pursuant to the Agreement to date.

Signature	Date
Print Name

10 

EX-21

Eagle Bancorp, Inc. - 10-Q

Exhibit 21

Name of Entity	Jurisdiction of Organization	Ownership Interest
Eagle Bancorp, Inc. – Registrant	Maryland
EagleBank	Maryland	100%
Eagle Insurance Services, LLC	Maryland	100%
Fidelity Mortgage, Inc.	Maryland	100%
Bethesda Leasing LLC	Maryland	100%
VHB Real Estate LLC	Virginia	100%
Landroval Municipal Finance, Inc.	Washington D.C.	100%
Eagle Commercial Ventures, LLC	Maryland	100%

69

EX-31.1

Eagle Bancorp, Inc. - 10-Q

Exhibit 31.1

CERTIFICATION

I, Susan G. Riel, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Eagle Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 12, 2019	/s/ Susan G. Riel
	President and Chief Executive Officer of the Company

70 

EX-31.2

Eagle Bancorp, Inc. - 10-Q

Exhibit 31.2

CERTIFICATION

I, Charles D. Levingston, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Eagle Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 12, 2019	/s/ Charles D. Levingston
	Executive Vice President and Chief Financial Officer of the Company

71 

EX-32.1

Eagle Bancorp, Inc. - 10-Q

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER 

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Form 10-Q of Eagle Bancorp, Inc. for the quarter ended September 30, 2019, I, Susan G. Riel, President and Chief Executive Officer of Eagle Bancorp, Inc., hereby certify pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:

(1) such Form 10-Q fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Eagle Bancorp, Inc.

/s/ Susan G. Riel	Date: November 12, 2019
Susan G. Riel
President and Chief Executive Officer of the Company

72 

EX-32.2

Eagle Bancorp, Inc. - 10-Q

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER 

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Form 10-Q of Eagle Bancorp, Inc. for the quarter ended September 30, 2019, I, Charles D. Levingston, Executive Vice President and Chief Financial Officer of Eagle Bancorp, Inc., hereby certify pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:

(1) such Form 10-Q fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Eagle Bancorp, Inc.

/s/ Charles D. Levingston	Date: November 12, 2019
Charles D. Levingston
Executive Vice President and Chief Financial Officer of the Company

73 

XML

Note 11. Net Income per Common Share (Tables)

9 Months Ended

Sep. 30, 2019

Earnings Per Common Share

The calculation of net income per common share for the three and nine months ended September 30, 2019 and 2018 was as follows:

The calculation of net income per common share for the three and nine months ended September 30, 2019 and 2018 was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars and shares in thousands, except per share data)	2019		2018		2019		2018
Basic:
Net income	$	36,495	$	38,948	$	107,487	$	111,959
Average common shares outstanding		34,233		34,309		34,418		34,292
Basic net income per common share	$	1.07	$	1.14	$	3.12	$	3.26
Diluted:
Net income	$	36,495	$	38,948	$	107,487	$	111,959
Average common shares outstanding		34,233		34,309		34,418		34,292
Adjustment for common share equivalents		23		152		33		152
Average common shares outstanding-diluted		34,256		34,461		34,451		34,444
Diluted net income per common share	$	1.07	$	1.13	$	3.12	$	3.25
Anti-dilutive shares		2		3		20		—

XML

Amortized cost and estimated fair value of securities available-for-sale are summarized as follows: (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Marketable Securities [Line Items]
Available-for-sale Securities, Amortized Cost Basis	$ 701,956	$ 793,634
Available-for-sale Securities, Accumulated Gross Unrealized Gain, before Tax	8,712	2,321
Available-for-sale Securities, Accumulated Gross Unrealized Loss, before Tax	2,123	11,816
Available-for-sale Securities	708,545	784,139
US Government Agencies Debt Securities [Member]
Marketable Securities [Line Items]
Available-for-sale Securities, Amortized Cost Basis	171,585	260,150
Available-for-sale Securities, Accumulated Gross Unrealized Gain, before Tax	941	228
Available-for-sale Securities, Accumulated Gross Unrealized Loss, before Tax	706	4,033
Available-for-sale Securities	171,820	256,345
Residential Mortgage Backed Securities [Member]
Marketable Securities [Line Items]
Available-for-sale Securities, Amortized Cost Basis	434,042	477,949
Available-for-sale Securities, Accumulated Gross Unrealized Gain, before Tax	5,404	1,575
Available-for-sale Securities, Accumulated Gross Unrealized Loss, before Tax	1,417	7,293
Available-for-sale Securities	438,029	472,231
US States and Political Subdivisions Debt Securities [Member]
Marketable Securities [Line Items]
Available-for-sale Securities, Amortized Cost Basis	61,680	45,814
Available-for-sale Securities, Accumulated Gross Unrealized Gain, before Tax	2,278	439
Available-for-sale Securities, Accumulated Gross Unrealized Loss, before Tax		484
Available-for-sale Securities	63,958	45,769
Corporate Debt Securities [Member]
Marketable Securities [Line Items]
Available-for-sale Securities, Amortized Cost Basis	9,532	9,503
Available-for-sale Securities, Accumulated Gross Unrealized Gain, before Tax	82	79
Available-for-sale Securities, Accumulated Gross Unrealized Loss, before Tax		6
Available-for-sale Securities	9,614	9,576
US Treasury and Government [Member]
Marketable Securities [Line Items]
Available-for-sale Securities, Amortized Cost Basis	24,919
Available-for-sale Securities, Accumulated Gross Unrealized Gain, before Tax	7
Available-for-sale Securities, Accumulated Gross Unrealized Loss, before Tax
Available-for-sale Securities	24,926
Investment Securities [Member]
Marketable Securities [Line Items]
Available-for-sale Securities, Amortized Cost Basis	198	218
Available-for-sale Securities, Accumulated Gross Unrealized Gain, before Tax
Available-for-sale Securities, Accumulated Gross Unrealized Loss, before Tax
Available-for-sale Securities	$ 198	$ 218

XML

Note 4. Mortgage Banking Derivative (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Summary of Investment Holdings [Line Items]
Derivative liabilities	$ 117,000		$ 117,000		$ 269,000
Mortgage Banking Derivative [Member]
Summary of Investment Holdings [Line Items]
Notional amount	134,300,000		134,300,000		49,600,000
Derivative assets	313,000		313,000		229,000
Derivative liabilities	3,000		3,000
Gain (loss) derivatives	30,000	$ (10,000)	249,000	$ (42,000)
Noninterest Income, Other	(30,000)	10,000	(249,000)	$ 42,000
Mortgage Banking Derivative [Member] | Designated as Hedging Instrument [Member]
Summary of Investment Holdings [Line Items]
Gain (loss) derivatives	277,000	56,000	228,000
Noninterest Income, Other	(277,000)	$ (56,000)	(228,000)
Mortgage Banking Derivative [Member] | Other Assets [Member]
Summary of Investment Holdings [Line Items]
Derivative assets	313,000		313,000		229,000
Mortgage Banking Derivative [Member] | Other Liabilities [Member]
Summary of Investment Holdings [Line Items]
Derivative liabilities	$ 3,000		$ 3,000		$ 269,000

XML

Note 9. Other Real Estate Owned

9 Months Ended

Sep. 30, 2019

Banking and Thrift [Abstract]

Note 9. Other Real Estate Owned

Note 9. Other Real Estate Owned

The activity within Other Real Estate Owned (“OREO”) for the three and nine months ended September 30, 2019 and 2018 is presented in the table below. There were two residential real estate loans in the process of foreclosure as of September 30, 2019 totaling $4.0 million. 

For the three and nine months ended September 30, 2019 and 2018, there were no sales of OREO property.

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2019		2018		2019		2018
Beginning Balance	$	1,394	$	1,394	$	1,394	$	1,394
Real estate acquired from borrowers		93		—		93		—
Properties sold		—		—		—		—
Ending Balance	$	1,487	$	1,394	$	1,487	$	1,394

XML

Note 5. Loans and Allowance for Credit Losses

9 Months Ended

Sep. 30, 2019

Receivables [Abstract]

Note 5. Loans and Allowance for Credit Losses

Note 5. Loans and Allowance for Credit Losses

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

Loans, net of unamortized net deferred fees, at September 30, 2019 and December 31, 2018 are summarized by type as follows:

	September 30, 2019						December 31, 2018
(dollars in thousands)	Amount			%			Amount			%
Commercial	$	1,466,862			19	%	$	1,553,112			22	%
Income producing - commercial real estate		3,812,284			51	%		3,256,900			46	%
Owner occupied - commercial real estate		956,345			13	%		887,814			13	%
Real estate mortgage - residential		104,563			1	%		106,418			2	%
Construction - commercial and residential		1,053,789			14	%		1,039,815			15	%
Construction - C&I (owner occupied)		81,916			1	%		57,797			1	%
Home equity		81,117			1	%		86,603			1	%
Other consumer		2,285			—			2,988			—
Total loans		7,559,161			100	%		6,991,447			100	%
Less: allowance for credit losses		(73,720	)					(69,944	)
Net loans	$	7,485,441					$	6,921,503

Unamortized net deferred fees amounted to $24.5 million and $26.5 million at September 30, 2019 and December 31, 2018, respectively.

As of September 30, 2019 and December 31, 2018, the Bank serviced $102.9 million and $111.1 million, respectively, of multifamily FHA loans, SBA loans and other loan participations which are not reflected as loan balances on the Consolidated Balance Sheets.

Loan Origination / Risk Management

The Company’s goal is to mitigate risks in the event of unforeseen threats to the loan portfolio as a result of economic downturn or other negative influences. Plans for mitigating inherent risks in managing loan assets include: carefully enforcing loan policies and procedures, evaluating each borrower’s business plan during the underwriting process and throughout the loan term, identifying and monitoring primary and alternative sources for loan repayment, and obtaining collateral to mitigate economic loss in the event of liquidation. Specific loan reserves are established based upon credit and/or collateral risks on an individual loan basis. A risk rating system is employed to proactively estimate loss exposure and provide a measuring system for setting general and specific reserve allocations.

The composition of the Company’s loan portfolio is heavily weighted toward commercial real estate, both owner occupied and income producing real estate. At September 30, 2019, owner occupied - commercial real estate and construction - C&I (owner occupied) represent approximately 14% of the loan portfolio. At September 30, 2019, non-owner occupied commercial real estate and real estate construction represented approximately 65% of the loan portfolio. The combined owner occupied and commercial real estate loans represent approximately 79% of the loan portfolio. Real estate also serves as collateral for loans made for other purposes, resulting in 85% of all loans being secured by real estate. These loans are underwritten to mitigate lending risks typical of this type of loan such as declines in real estate values, changes in borrower cash flow and general economic conditions. The Bank typically requires a maximum loan to value of 80% and minimum cash flow debt service coverage of 1.15 to 1.0. Personal guarantees may be required, but may be limited. In making real estate commercial mortgage loans, the Bank generally requires that interest rates adjust not less frequently than five years.

The Company is also an active traditional commercial lender providing loans for a variety of purposes, including working capital, equipment and account receivable financing. This loan category represents approximately 19% of the loan portfolio at September 30, 2019 and was generally variable or adjustable rate. Commercial loans meet reasonable underwriting standards, including appropriate collateral and cash flow necessary to support debt service. Personal guarantees are generally required, but may be limited. SBA loans represent approximately 2% of the commercial loan category. In originating SBA loans, the Company assumes the risk of non-payment on the unguaranteed portion of the credit as well as potential repairs to the SBA guarantees. The Company generally sells the guaranteed portion of the loan generating noninterest income from the gains on sale, as well as servicing income on the portion participated. SBA loans are subject to the same cash flow analyses as other commercial loans. SBA loans are subject to a maximum loan size established by the SBA as well as internal loan size guidelines.

Approximately 1% of the loan portfolio at September 30, 2019 consists of home equity loans and lines of credit and other consumer loans. These credits, while making up a small portion of the loan portfolio, demand the same emphasis on underwriting and credit evaluation as other types of loans advanced by the Bank.

Approximately 1% of the loan portfolio consists of residential mortgage loans. The repricing duration of these loans was 22 months. These credits represent first liens on residential property loans originated by the Bank. While the Bank’s general practice is to originate and sell (servicing released) loans made by its Residential Lending department, from time to time certain loan characteristics do not meet the requirements of third party investors and these loans are instead maintained in the Bank’s portfolio until they are resold to another investor at a later date or mature.

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

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

Loans intended for residential land acquisition, lot development and construction are made on the premise that the land: 1) is or will be developed for building sites for residential structures, and; 2) will ultimately be utilized for construction or improvement of residential zoned real properties, including the creation of housing. Residential development and construction loans will finance projects such as single family subdivisions, planned unit developments, townhouses, and condominiums. Residential land acquisition, development and construction loans generally are underwritten with a maximum term of 36 months, including extensions approved at origination.

Commercial land acquisition and construction loans are secured by real property where loan funds will be used to acquire land and to construct or improve appropriately zoned real property for the creation of income producing or owner user commercial properties. Borrowers are generally required to put equity into each project at levels determined by the appropriate Loan Committee. Commercial land acquisition and construction loans generally are underwritten with a maximum term of 24 months.

Substantially all construction draw requests must be presented in writing on American Institute of Architects documents and certified either by the contractor, the borrower and/or the borrower’s architect. Each draw request shall also include the borrower’s soft cost breakdown certified by the borrower or their Chief Financial Officer. Prior to an advance, the Bank or its contractor inspects the project to determine that the work has been completed, to justify the draw requisition.

Commercial permanent loans are generally secured by improved real property which is generating income in the normal course of operation. Debt service coverage, assuming stabilized occupancy, must be satisfactory to support a permanent loan. The debt service coverage ratio is ordinarily at least 1.15 to 1.0. As part of the underwriting process, debt service coverage ratios are stress tested assuming a 200 basis point increase in interest rates from their current levels.

Commercial permanent loans generally are underwritten with a term not greater than 10 years or the remaining useful life of the property, whichever is lower. The preferred term is between 5 to 7 years, with amortization to a maximum of 25 years.

The Company’s loan portfolio includes ADC real estate loans including both investment and owner occupied projects. ADC loans amounted to $1.66 billion at September 30, 2019. A portion of the ADC portfolio, both speculative and non-speculative, includes loan funded interest reserves at origination. ADC loans that provide for the use of interest reserves represent approximately 71% of the outstanding ADC loan portfolio at September 30, 2019. The decision to establish a loan-funded interest reserve is made upon origination of the ADC loan and is based upon a number of factors considered during underwriting of the credit including: (1) the feasibility of the project; (2) the experience of the sponsor; (3) the creditworthiness of the borrower and guarantors; (4) borrower equity contribution; and (5) the level of collateral protection. When appropriate, an interest reserve provides an effective means of addressing the cash flow characteristics of a properly underwritten ADC loan. The Company recognizes that one of the risks inherent in the use of interest reserves is the potential masking of underlying problems with the project and/or the borrower’s ability to repay the loan. In order to mitigate this inherent risk, the Company employs a series of reporting and monitoring mechanisms on all ADC loans, whether or not an interest reserve is provided, including: (1) construction and development timelines which are monitored on an ongoing basis which track the progress of a given project to the timeline projected at origination; (2) a construction loan administration department independent of the lending function; (3) third party independent construction loan inspection reports; (4) monthly interest reserve monitoring reports detailing the balance of the interest reserves approved at origination and the days of interest carry represented by the reserve balances as compared to the then current anticipated time to completion and/or sale of speculative projects; and (5) quarterly commercial real estate construction meetings among senior Company management, which includes monitoring of current and projected real estate market conditions. If a project has not performed as expected, it is not the customary practice of the Company to increase loan funded interest reserves.

The following tables detail activity in the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2019 and 2018. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

				Income Producing - Commercial			Owner Occupied - Commercial			Real Estate Mortgage -			Construction - Commercial and			Home			Other
(dollars in thousands)	Commercial			Real Estate			Real Estate			Residential			Residential			Equity			Consumer			Total
Three Months Ended September 30, 2019
Allowance for credit losses:
Balance at beginning of period	$	18,136		$	27,010		$	5,756		$	1,355		$	19,006		$	581		$	242		$	72,086
Loans charged-off		(1,794	)		—			—			—			—			—			—			(1,794	)
Recoveries of loans previously charged-off		210			—			—			—			15			—			17			242
Net loans charged-off		(1,584	)		—			—			—			15			—			17			(1,552	)
Provision for credit losses		1,617			1,517			(158	)		(3	)		251			(6	)		(32	)		3,186
Ending balance	$	18,169		$	28,527		$	5,598		$	1,352		$	19,272		$	575		$	227		$	73,720
Nine Months Ended September 30, 2019
Allowance for credit losses:
Balance at beginning of period	$	15,857		$	28,034		$	6,242		$	965		$	18,175		$	599		$	72		$	69,944
Loans charged-off		(1,799	)		(5,343	)		—			—			—			—			(2	)		(7,144	)
Recoveries of loans previously charged-off		377			302			2			3			52			—			38			774
Net loans (charged-off) recoveries		(1,422	)		(5,041	)		2			3			52			—			36			(6,370	)
Provision for credit losses		3,734			5,534			(646	)		384			1,045			(24	)		119			10,146
Ending balance	$	18,169		$	28,527		$	5,598		$	1,352		$	19,272		$	575		$	227		$	73,720
As of September 30, 2019
Allowance for credit losses:
Individually evaluated for impairment	$	8,196		$	1,200		$	375		$	650		$	—		$	13		$	—		$	10,434
Collectively evaluated for impairment		9,973			27,327			5,223			702			19,272			562			227			63,286
Ending balance	$	18,169		$	28,527		$	5,598		$	1,352		$	19,272		$	575		$	227		$	73,720
Three Months Ended September 30, 2018
Allowance for credit losses:
Balance at beginning of period	$	12,206		$	27,988		$	6,003		$	757		$	18,651		$	673		$	331		$	66,609
Loans charged-off		(1,174	)		—			—			—			(643	)		—			(15	)		(1,832	)
Recoveries of loans previously charged-off		60			—			—			1			899			6			5			971
Net loans (charged-off) recoveries		(1,114	)		—			—			1			256			6			(10	)		(861	)
Provision for credit losses		4,557			(601	)		(72	)		(9	)		(1,368	)		(48	)		(18	)		2,441
Ending balance	$	15,649		$	27,387		$	5,931		$	749		$	17,539		$	631		$	303		$	68,189
Nine Months Ended September 30, 2018
Allowance for credit losses:
Balance at beginning of period	$	13,102		$	25,376		$	5,934		$	944		$	18,492		$	770		$	140		$	64,758
Loans charged-off		(2,435	)		(121	)		(132	)		—			(1,160	)		—			(15	)		(3,863	)
Recoveries of loans previously charged-off		86			2			2			4			994			133			13			1,234
Net loans (charged-off) recoveries		(2,349	)		(119	)		(130	)		4			(166	)		133			(2	)		(2,629	)
Provision for credit losses		4,896			2,130			127			(199	)		(787	)		(272	)		165			6,060
Ending balance	$	15,649		$	27,387		$	5,931		$	749		$	17,539		$	631		$	303		$	68,189
As of September 30, 2018
Allowance for credit losses:
Individually evaluated for impairment	$	6,271		$	3,043		$	500		$	—		$	—		$	—		$	56		$	9,870
Collectively evaluated for impairment		9,378			24,344			5,431			749			17,539			631			247			58,319
Ending balance	$	15,649		$	27,387		$	5,931		$	749		$	17,539		$	631		$	303		$	68,189

The Company’s recorded investments in loans as of September 30, 2019 and December 31, 2018 related to each balance in the allowance for loan losses by portfolio segment and disaggregated on the basis of the Company’s impairment methodology was as follows:

			Income Producing -		Owner Occupied -		Real Estate		Construction -
			Commercial		Commercial		Mortgage -		Commercial and		Home		Other
(dollars in thousands)	Commercial		Real Estate		Real Estate		Residential		Residential		Equity		Consumer		Total
September 30, 2019
Recorded investment in loans:
Individually evaluated for impairment	$	28,155	$	39,089	$	6,616	$	5,365	$	9,148	$	750	$	—	$	89,123
Collectively evaluated for impairment		1,438,707		3,773,195		949,729		99,198		1,126,557		80,367		2,285		7,470,038
Ending balance	$	1,466,862	$	3,812,284	$	956,345	$	104,563	$	1,135,705	$	81,117	$	2,285	$	7,559,161
December 31, 2018
Recorded investment in loans:
Individually evaluated for impairment	$	8,738	$	61,747	$	5,307	$	1,228	$	7,012	$	487	$	—	$	84,519
Collectively evaluated for impairment		1,544,374		3,195,153		882,507		105,190		1,090,600		86,116		2,988		6,906,928
Ending balance	$	1,553,112	$	3,256,900	$	887,814	$	106,418	$	1,097,612	$	86,603	$	2,988	$	6,991,447

Credit Quality Indicators

The Company uses several credit quality indicators to manage credit risk in an ongoing manner. The Company’s primary credit quality indicators are to use an internal credit risk rating system that categorizes loans into pass, watch, special mention, or classified categories. Credit risk ratings are applied individually to those classes of loans that have significant or unique credit characteristics that benefit from a case-by-case evaluation. These are typically loans to businesses or individuals in the classes which comprise the commercial portfolio segment. Groups of loans that are underwritten and structured using standardized criteria and characteristics, such as statistical models (e.g., credit scoring or payment performance), are typically risk rated and monitored collectively. These are typically loans to individuals in the classes which comprise the consumer portfolio segment.

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

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

Watch: Loan paying as agreed with generally acceptable asset quality; however the obligor’s performance has not met expectations. Balance sheet and/or income statement has shown deterioration to the point that the obligor could not sustain any further setbacks. Credit is expected to be strengthened through improved obligor performance and/or additional collateral within a reasonable period of time.

Special Mention: Loans in the classes that comprise the commercial portfolio segment that have potential weaknesses that deserve management’s close attention. If not addressed, these potential weaknesses may result in deterioration of the repayment prospects for the loan. The special mention credit quality indicator is not used for classes of loans that comprise the consumer portfolio segment. Management believes that there is a moderate likelihood of some loss related to those loans that are considered special mention.

Classified: Classified (a) Substandard - Loans inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the company will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual loans classified substandard.

Classified (b) Doubtful - Loans that have all the weaknesses inherent in a loan classified substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors, which may work to the advantage and strengthening of the assets, its classification as an estimated loss is deferred until its more exact status may be determined.

The Company’s credit quality indicators are updated generally on a quarterly basis, but no less frequently than annually.

 The following table presents by class and by credit quality indicator, the recorded investment in the Company’s loans and leases as of September 30, 2019 and December 31, 2018.

			Watch and						Total
(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Loans
September 30, 2019
Commercial	$	1,392,189	$	46,518	$	28,155	$	—	$	1,466,862
Income producing - commercial real estate		3,662,436		110,759		39,089		—		3,812,284
Owner occupied - commercial real estate		892,720		57,009		6,616		—		956,345
Real estate mortgage – residential		98,564		634		5,365		—		104,563
Construction - commercial and residential		1,126,557		—		9,148		—		1,135,705
Home equity		79,681		686		750		—		81,117
Other consumer		2,285		—		—		—		2,285
Total	$	7,254,432	$	215,606	$	89,123	$	—	$	7,559,161
December 31, 2018
Commercial	$	1,505,477	$	25,584	$	22,051	$	—	$	1,553,112
Income producing - commercial real estate		3,172,479		1,536		82,885		—		3,256,900
Owner occupied - commercial real estate		844,286		38,221		5,307		—		887,814
Real estate mortgage – residential		104,543		647		1,228		—		106,418
Construction - commercial and residential		1,090,600		—		7,012		—		1,097,612
Home equity		85,434		682		487		—		86,603
Other consumer		2,988		—		—		—		2,988
Total	$	6,805,807	$	66,670	$	118,970	$	—	$	6,991,447

Nonaccrual and Past Due Loans

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The following table presents, by class of loan, information related to nonaccrual loans as of September 30, 2019 and December 31, 2018.

(dollars in thousands)	September 30, 2019		December 31, 2018
Commercial	$	16,074	$	7,115
Income producing - commercial real estate		5,654		1,766
Owner occupied - commercial real estate		4,124		2,368
Real estate mortgage - residential		5,635		1,510
Construction - commercial and residential		9,148		3,031
Home equity		487		487
Total nonaccrual loans (1)(2)	$	41,122	$	16,277

(1) Excludes troubled debt restructurings (“TDRs”) that were performing under their restructured terms totaling $8.6 million at September 30, 2019 and $24.0 million at December 31, 2018.

(2) Gross interest income of $2.7 million and $707 thousand would have been recorded for the nine months ended September 30, 2019 and 2018, respectively, if nonaccrual loans shown above had been current and in accordance with their original terms, while the interest actually recorded on such loans was $598 thousand and $193 thousand for the nine months ended September 30, 2019 and 2018, respectively. See Note 1 to the Consolidated Financial Statements for a description of the Company’s policy for placing loans on nonaccrual status.

The following table presents, by class of loan, an aging analysis and the recorded investments in loans past due as of September 30, 2019 and December 31, 2018.

	Loans		Loans		Loans						Total Recorded
	30-59 Days		60-89 Days		90 Days or		Total Past		Current		Investment in
(dollars in thousands)	Past Due		Past Due		More Past Due		Due Loans		Loans		Loans
September 30, 2019
Commercial	$	4,639	$	3,509	$	16,074	$	24,222	$	1,442,640	$	1,466,862
Income producing - commercial real estate		21,737		22,190		5,654		66,109		3,746,175		3,812,284
Owner occupied - commercial real estate		3,626		21,768		4,124		29,518		926,827		956,345
Real estate mortgage – residential		634		—		5,635		6,269		98,294		104,563
Construction - commercial and residential		—		1,866		9,148		11,014		1,124,691		1,135,705
Home equity		86		130		487		703		80,414		81,117
Other consumer		13		8		—		21		2,264		2,285
Total	$	30,735	$	49,471	$	41,122	$	137,856	$	7,421,305	$	7,559,161
December 31, 2018
Commercial	$	4,535	$	2,870	$	7,115	$	14,520	$	1,538,592	$	1,553,112
Income producing - commercial real estate		5,855		27,479		1,766		35,100		3,221,800		3,256,900
Owner occupied - commercial real estate		5,051		2,370		2,368		9,789		878,025		887,814
Real estate mortgage – residential		2,456		1,698		1,510		5,664		100,754		106,418
Construction - commercial and residential		4,392		—		3,031		7,423		1,090,189		1,097,612
Home equity		630		47		487		1,164		85,439		86,603
Other consumer		—		—		—		—		2,988		2,988
Total	$	22,919	$	34,464	$	16,277	$	73,660	$	6,917,787	$	6,991,447

Impaired Loans

Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged-off when deemed uncollectible.

The following table presents, by class of loan, information related to impaired loans for the periods ended September 30, 2019 and December 31, 2018.

	Unpaid		Recorded		Recorded
	Contractual		Investment		Investment		Total				Average Recorded Investment				Interest Income Recognized
	Principal		With No		With		Recorded		Related		Quarter		Year		Quarter			Year
(dollars in thousands)	Balance		Allowance		Allowance		Investment		Allowance		To Date		To Date		To Date			To Date
September 30, 2019
Commercial	$	18,243	$	5,641	$	11,331	$	16,972	$	8,196	$	16,967	$	15,638	$	117		$	220
Income producing - commercial real estate		10,041		1,853		8,188		10,041		1,200		9,497		19,479		412			510
Owner occupied - commercial real estate		7,407		6,630		777		7,407		375		6,113		5,693		120			213
Real estate mortgage – residential		5,635		3,179		2,456		5,635		650		5,638		5,640		—			—
Construction - commercial and residential		10,308		9,148		—		9,148		—		9,152		7,111		—			15
Home equity		487		487		—		487		13		487		487		—			—
Other consumer		—		—		—		—		—		—		—		—			—
Total	$	52,121	$	26,938	$	22,752	$	49,690	$	10,434	$	47,854	$	54,048	$	649		$	958
December 31, 2018
Commercial	$	8,613	$	2,057	$	6,084	$	8,141	$	4,803	$	10,306	$	8,359	$	(126	)	$	190
Income producing - commercial real estate		21,402		1,720		19,682		21,402		2,465		15,331		12,309		189			550
Owner occupied - commercial real estate		5,731		4,361		1,370		5,731		600		5,746		6,011		47			196
Real estate mortgage – residential		1,510		1,510		—		1,510		—		1,516		1,688		—			2
Construction - commercial and residential		3,031		3,031		—		3,031		1,050		3,031		2,028		—			68
Home equity		487		487		—		487		—		487		491		—			—
Other consumer		—		—		—		—		—		46		69		—			—
Total	$	40,774	$	13,166	$	27,136	$	40,302	$	8,918	$	36,463	$	30,955	$	110		$	1,006

Modifications

A modification of a loan constitutes a TDR when a borrower is experiencing financial difficulty and the modification constitutes a concession. The Company offers various types of concessions when modifying a loan. Commercial and industrial loans modified in a TDR often involve temporary interest-only payments, term extensions, and converting revolving credit lines to term loans. Additional collateral, a co-borrower, or a guarantor is often requested. Commercial mortgage and construction loans modified in a TDR often involve reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or substituting or adding a new borrower or guarantor. Construction loans modified in a TDR may also involve extending the interest-only payment period. As of September 30, 2019, all performing TDRs were categorized as interest-only modifications.

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

The following table presents by class, the recorded investment of loans modified in TDRs held by the Company for the periods ended September 30, 2019 and 2018.

	For the nine months Ended September 30, 2019
	Number of				Income Producing -		Owner Occupied -		Construction -
(dollars in thousands)	Contracts		Commercial		Commercial Real Estate		Commercial Real Estate		Commercial Real Estate		Total
Troubled debt restructurings
Restructured accruing		7	$	898	$	4,387	$	3,283	$	—	$	8,568
Restructured nonaccruing		3		1,521		—		—		—		1,521
Total		10	$	2,419	$	4,387	$	3,283	$	—	$	10,089
Specific allowance			$	—	$	1,000	$	—	$	—	$	1,000
Restructured and subsequently defaulted			$		$	2,300	$	—	$	—	$	2,300
	For the nine months Ended September 30, 2018
	Number of				Income Producing -		Owner Occupied -		Construction -
(dollars in thousands)	Contracts		Commercial		Commercial Real Estate		Commercial Real Estate		Commercial Real Estate		Total
Troubled debt restructurings
Restructured accruing		10	$	4,942	$	9,212	$	3,391	$	—	$	17,545
Restructured nonaccruing		4		723		—		—		—		723
Total		14	$	5,665	$	9,212	$	3,391	$	—	$	18,268
Specific allowance			$	2,000	$	3,500	$	—	$	—	$	5,500
Restructured and subsequently defaulted			$	—	$	937	$	—	$	—	$	937

The Company had ten TDR’s at September 30, 2019 totaling approximately $10.1 million. Seven of these loans totaling approximately $8.6 million are performing under their modified terms. There was one performing TDR totaling $2.3 million that defaulted on its modified terms which was reclassified to nonperforming loans during the nine months ended September 30, 2019. During the nine months ended September 30, 2018, there were two performing TDRs totaling $937 thousand that defaulted on their modified terms which were reclassified to nonperforming loans. A default is considered to have occurred once the TDR is past due 90 days or more or it has been placed on nonaccrual. For the three months ended September 30, 2019, there was one restructured loan totaling approximately $309 thousand that was paid off from the sale proceeds of the collateral property. Commercial and consumer loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a TDR subsequently default, the Company evaluates the loan for possible further impairment. The allowance may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan. For the three months ended September 30, 2019, there were no loans modified in a TDR, as compared to the three months ended September 30, 2018 which had one loan totaling $2.4 million modified in a TDR.

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The following table presents information related to the Company’s long-term borrowings as of September 30, 2019 and December 31, 2018. (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018	Jul. 26, 2016	Aug. 05, 2014
Debt Instrument [Line Items]
Less: unamortized debt issuance costs	$ (2,411)	$ (2,704)
Long-term borrowings	$ 217,589	217,296
Subordinated Debt [Member]
Debt Instrument [Line Items]
Debt Instrument, Interest Rate, Stated Percentage	5.75%			5.75%
Subordinated Debt	$ 70,000	70,000
Subordinated Notes 5.75 Member
Debt Instrument [Line Items]
Debt Instrument, Interest Rate, Stated Percentage	5.00%		5.00%
Subordinated Debt	$ 150,000	$ 150,000

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The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s cash flow hedge derivatives as of September 30, 2019 and December 31, 2018. (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Derivative Instruments, Gain (Loss) [Line Items]
Derivative liabilities	$ 117	$ 269
Derivative Instrument Member
Derivative Instruments, Gain (Loss) [Line Items]
Derivative Asset, Fair Value, Gross Asset	228	3,840
Derivative assets	228	3,840
Derivative Asset, Fair Value, Amount Not Offset Against Collateral	228	3,840
Derivative Asset, Fair Value, Gross Liability	669	59
Derivative liabilities	669	59
Derivative Liability, Fair Value, Amount Not Offset Against Collateral	$ 669	$ 59

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Note 7. Affordable Housing Projects Tax Credit Partnerships (Details Narrative) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Equity Method Investments and Joint Ventures [Abstract]
Amortization Method Qualified Affordable Housing Project Investments	$ 28,000,000.0	$ 28,200,000
Qualified Affordable Housing Project Investments, Commitment	$ 11,000,000.0	$ 15,000,000.0

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The following is a reconciliation of activity for assets and liabilities measured at fair value based on Significant Other Unobservable Inputs (Level 3): (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2019	Dec. 31, 2018
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Beginning balance at January 1, 2018	$ 10,023	$ 1,761
Realized gain included in earnings	64	186
Unrealized gain included in other comprehensive income	12
Purchases of available-for-sale securities	3,030	8,076
Principal redemption	(3,004)
Ending balance at December 31, 2018	10,125	10,023
Beginning balance at January 1, 2018	269	10
Realized loss included in earnings	(266)	259
Ending balance at December 31, 2018	3	269
Principal redemption
Mortgage Banking Derivatives Member
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Beginning balance at January 1, 2018	229	43
Realized gain included in earnings	84	186
Unrealized gain included in other comprehensive income
Purchases of available-for-sale securities
Principal redemption
Ending balance at December 31, 2018	313	229
Beginning balance at January 1, 2018	269	10
Realized loss included in earnings	(266)	259
Ending balance at December 31, 2018	3	269
Principal redemption
Investment Securities [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Beginning balance at January 1, 2018	9,794	1,718
Realized gain included in earnings	(20)
Unrealized gain included in other comprehensive income	12
Purchases of available-for-sale securities	3,030	8,076
Principal redemption	(3,004)
Ending balance at December 31, 2018	9,812	9,794
Beginning balance at January 1, 2018
Realized loss included in earnings
Ending balance at December 31, 2018
Principal redemption

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Consolidated Balance Sheets (Unaudited) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Assets
Cash and due from banks	$ 6,657,000	$ 6,773,000
Federal funds sold	27,711,000	11,934,000
Interest bearing deposits with banks and other short-term investments	361,154,000	303,157,000
Investment securities available-for-sale, at fair value	708,545,000	784,139,000
Federal Reserve and Federal Home Loan Bank stock	28,725,000	23,506,000
Loans held for sale	52,199,000	19,254,000
Loans	7,559,161,000	6,991,447,000
Less allowance for credit losses	(73,720,000)	(69,944,000)
Loans, net	7,485,441,000	6,921,503,000
Premises and equipment, net	14,515,000	16,851,000
Operating lease right-of-use assets	26,552,000
Deferred income taxes	29,722,000	33,027,000
Bank owned life insurance	74,726,000	73,441,000
Intangible assets, net	104,915,000	105,766,000
Other real estate owned	1,487,000	1,394,000
Other assets	81,118,000	88,392,000
Total Assets	9,003,467,000	8,389,137,000
Deposits:
Noninterest bearing demand	2,051,106,000	2,104,220,000
Interest bearing transaction	918,011,000	593,107,000
Savings and money market	3,034,530,000	2,949,559,000
Time, $100,000 or more	772,340,000	801,957,000
Other time	626,526,000	525,442,000
Total deposits	7,402,513,000	6,974,285,000
Customer repurchase agreements	30,297,000	30,413,000
Other short-term borrowings	100,000,000
Long-term borrowings	217,589,000	217,296,000
Operating lease liabilities	29,586,000
Other liabilities	38,888,000	58,202,000
Total Liabilities	7,818,873,000	7,280,196,000
Shareholders’ Equity
Common stock, par value $.01 per share; shares authorized 100,000,000, shares issued and outstanding 33,720,522 and 34,387,919, respectively	336,000	342,000
Additional paid in capital	502,566,000	528,380,000
Retained earnings	677,055,000	584,494,000
Accumulated other comprehensive income (loss)	4,637,000	(4,275,000)
Total Shareholders’ Equity	1,184,594,000	1,108,941,000
Total Liabilities and Shareholders’ Equity	$ 9,003,467,000	$ 8,389,137,000

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Consolidated Statements of Changes in Shareholders' Equity (Unaudited) - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Beginning balance, value at Dec. 31, 2017	$ 340	$ 520,304	$ 431,544	$ (1,750)	$ 950,438
Common Stock, Shares, Outstanding, Beginning Balance at Dec. 31, 2017	34,185,163
Net Income			111,959		111,959
Other comprehensive loss, net of tax				(6,866)	(6,866)
Stock-based compensation expense		5,174			5,174
Vesting of time based stock awards issued at grant date (shares)	(13,681)
Issuance of common stock related to employee stock purchase plan		608			608
Issuance of common stock related to employee purchase plan (shares)	10,417
Ending balance, value at Sep. 30, 2018	$ 341	526,423	544,177	(9,290)	1,061,651
Common Stock, Shares, Outstanding, Ending Balance at Sep. 30, 2018	34,308,473
Issuance of common stock related to options exercised, net of shares withheld for payroll taxes		338			338
Issuance of common stock related to options exercised (shares)	32,230
Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes	$ 1	(1)
Time based stock awards granted (shares)	94,344
Reclassification of the income tax effects of the Tax Cuts and Jobs Act from AOCI (ASU 2018-02)			674	(674)
Beginning balance, value at Jun. 30, 2018	$ 341	524,176	505,229	(6,609)	1,023,137
Common Stock, Shares, Outstanding, Beginning Balance at Jun. 30, 2018	34,305,071
Net Income			38,948		38,948
Other comprehensive loss, net of tax				(2,681)	(2,681)
Stock-based compensation expense		2,031			2,031
Vesting of time based stock awards issued at grant date (shares)	(320,000)
Issuance of common stock related to employee stock purchase plan		216			216
Issuance of common stock related to employee purchase plan (shares)	3,722
Ending balance, value at Sep. 30, 2018	$ 341	526,423	544,177	(9,290)	1,061,651
Common Stock, Shares, Outstanding, Ending Balance at Sep. 30, 2018	34,308,473
Beginning balance, value at Dec. 31, 2018	$ 342	528,380	584,494	(4,275)	$ 1,108,941
Common Stock, Shares, Outstanding, Beginning Balance at Dec. 31, 2018	34,387,919				34,387,919
Net Income			107,487		$ 107,487
Other comprehensive loss, net of tax				8,912	8,912
Stock-based compensation expense		6,648			6,648
Vesting of time based stock awards issued at grant date (shares)	(13,995)
Issuance of common stock related to employee stock purchase plan		585			585
Issuance of common stock related to employee purchase plan (shares)	11,723
Cash dividends declared ($0.44 per share)			(14,926)		(14,926)
Common stock repurchased	$ (7)	(33,378)			(33,385)
Common stock repurchased (shares)	(822,200)
Ending balance, value at Sep. 30, 2019	$ 336	502,566	677,055	4,637	$ 1,184,594
Common Stock, Shares, Outstanding, Ending Balance at Sep. 30, 2019	33,720,522				33,720,522
Issuance of common stock related to options exercised, net of shares withheld for payroll taxes		332			$ 332
Issuance of common stock related to options exercised (shares)	26,784
Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes	$ 1	(1)
Vesting of performance based stock awards (shares)	17,655
Time based stock awards granted (shares)	112,636
Beginning balance, value at Jun. 30, 2019	$ 343	532,585	647,887	3,767	1,184,582
Common Stock, Shares, Outstanding, Beginning Balance at Jun. 30, 2019	34,539,853
Net Income			36,495		36,495
Other comprehensive loss, net of tax				870	870
Stock-based compensation expense		3,147			3,147
Vesting of time based stock awards issued at grant date (shares)	(1,251)
Issuance of common stock related to employee stock purchase plan		213			213
Issuance of common stock related to employee purchase plan (shares)	4,120
Cash dividends declared ($0.44 per share)			(7,327)		(7,327)
Common stock repurchased	$ (7)	(33,379)			(33,386)
Common stock repurchased (shares)	(822,200)
Ending balance, value at Sep. 30, 2019	$ 336	$ 502,566	$ 677,055	$ 4,637	$ 1,184,594
Common Stock, Shares, Outstanding, Ending Balance at Sep. 30, 2019	33,720,522				33,720,522

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The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax, for the three and nine months ended September 30, 2019 and 2018. (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Note 12. Other Comprehensive Income
AOCI, Debt Securities, Available-for-sale, Adjustment, after Tax	$ 3,842	$ (10,914)	$ (7,044)	$ (3,131)
Accumulated Other Comprehensive Income (Loss), Cumulative Changes in Net Gain (Loss) from Cash Flow Hedges, Effect Net of Tax, Beginning Balance	75	4,305	2,769	1,381
Accumulated Other Comprehensive Income (Loss), Net of Tax	3,767	6,609	4,275	1,750
Other comprehensive income (loss) before reclassifications	1,174	(3,148)	13,140	(10,206)
OciBeforeReclassificationsNetOfTaxAttributableToParent2	11	(625)	1,664	(3,547)
OCI, before Reclassifications, Net of Tax, Attributable to Parent	1,185	(2,523)	11,476	(6,659)
Reclassification from AOCI Current Period Net of Tax Attributable to Parent	110		1,190	51
Purchased Fixed Annuity for Financing Retirement Benefits [Member] [Default Label]	205	158	1,374	156
Reclassification from AOCI, Current Period, Net of Tax, Attributable to Parent	315	158	2,564	207
Net other comprehensive income during the period	1,064	(3,148)	11,950	(10,257)
Net other comprehensive income (loss) during period	194	(467)	3,038	(3,391)
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent	870	(2,681)	8,912	(6,866)
Balance at end of period	4,906	(14,062)	4,906	(14,062)
Accumulated Other Comprehensive Income (Loss), Cumulative Changes in Net Gain (Loss) from Cash Flow Hedges, Effect Net of Tax	269	(4,772)	269	(4,772)
Accumulated Other Comprehensive Income (Loss), Net of Tax	4,637	(9,290)	4,637	(9,290)
AOCI, Debt Securities, Available-for-sale, Adjustment, after Tax	(3,842)	10,914	7,044	3,131
Other comprehensive income (loss) before reclassifications	(1,174)	3,148	(13,140)	10,206
OciBeforeReclassificationsNetOfTaxAttributableToParent2	(11)	625	(1,664)	3,547
OCI, before Reclassifications, Net of Tax, Attributable to Parent	(1,185)	2,523	(11,476)	6,659
Reclassification from AOCI Current Period Net of Tax Attributable to Parent	(110)		(1,190)	(51)
Net other comprehensive income during the period	(1,064)	3,148	(11,950)	10,257
Net other comprehensive income (loss) during period	(194)	467	(3,038)	3,391
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent	(870)	2,681	(8,912)	6,866
Balance at end of period	(4,906)	14,062	(4,906)	14,062
Accumulated Other Comprehensive Income (Loss), Cumulative Changes in Net Gain (Loss) from Cash Flow Hedges, Effect Net of Tax	75	4,305	(269)	4,772
Accumulated Other Comprehensive Income (Loss), Net of Tax	(4,637)	9,290	(4,637)	9,290
Accumulated Other Comprehensive Income (Loss), Net of Tax	(4,637)	6,609	(4,637)	9,290
Reclassification of the Income Tax Effects of the Tax Cuts and Jobs Act from AOCI				674
OtherComprehensiveIncomeLossReclassificationAdjustmentFromAOCIForWritedownOfSecuritiesNetOfTax3
OtherComprehensiveIncomeLossReclassificationAdjustmentFromAOCIForWritedownOfSecuritiesNetOfTax1				674
Accumulated Other Comprehensive Income (Loss), Cumulative Changes in Net Gain (Loss) from Cash Flow Hedges, Effect Net of Tax, Ending Balance	$ (269)	$ 4,772	$ (269)	$ 4,772

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The following tables detail activity in the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2019 and 2018. Allocation of a portion of the allowance to one category of loans does not preclude its availabil (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Allowance for credit losses
Balance at beginning of period	$ 72,086	$ 66,609	$ 69,944	$ 64,758
Loans charged-off	(1,794)	(1,832)	(7,144)	(3,863)
Recoveries of loans previously charged-off	242	971	774	1,234
Net loans charged-off	(1,552)	(861)	(6,370)	(2,629)
Provision for credit losses	3,186	2,441	10,146	6,060
Ending balance	73,720	68,189	73,720	68,189
Net loans (charged-off) recoveries	(1,552)	(861)	(6,370)	(2,629)
Individually evaluated for impairment	10,434	9,870	10,434	9,870
Collectively evaluated for impairment	63,286	58,319	63,286	58,319
Commercial Portfolio Segment [Member]
Allowance for credit losses
Balance at beginning of period	18,136	12,206	15,857	13,102
Loans charged-off	(1,794)	(1,174)	(1,799)	(2,435)
Recoveries of loans previously charged-off	210	60	377	86
Net loans charged-off	(1,584)	(1,114)	(1,422)	(2,349)
Provision for credit losses	1,617	4,557	3,734	4,896
Ending balance	18,169	15,649	18,169	15,649
Net loans (charged-off) recoveries	(1,584)	(1,114)	(1,422)	(2,349)
Individually evaluated for impairment	8,196	6,271	8,196	6,271
Collectively evaluated for impairment	9,973	9,378	9,973	9,378
Income Producing - Commercial Real Estate [Member]
Allowance for credit losses
Balance at beginning of period	27,010	27,988	28,034	25,376
Loans charged-off	0	0	(5,343)	(121)
Recoveries of loans previously charged-off	0	0	302	2
Net loans charged-off	0	0	(5,041)	(119)
Provision for credit losses	1,517	(601)	5,534	2,130
Ending balance	28,527	27,387	28,527	27,387
Net loans (charged-off) recoveries	0	0	(5,041)	(119)
Individually evaluated for impairment	1,200	3,043	1,200	3,043
Collectively evaluated for impairment	27,327	24,344	27,327	24,344
Owner Occupied - Commercial Real Estate - [Member]
Allowance for credit losses
Balance at beginning of period	5,756	6,003	6,242	5,934
Loans charged-off	0	0	0	(132)
Recoveries of loans previously charged-off	0	0	2	2
Net loans charged-off	0	0	2	(130)
Provision for credit losses	(158)	(72)	(646)	127
Ending balance	5,598	5,931	5,598	5,931
Net loans (charged-off) recoveries	0	0	2	(130)
Individually evaluated for impairment	375	500	375	500
Collectively evaluated for impairment	5,223	5,431	5,223	5,431
Residential Portfolio Segment [Member]
Allowance for credit losses
Balance at beginning of period	1,355	757	965	944
Loans charged-off	0	0	0	0
Recoveries of loans previously charged-off	0	1	3	4
Net loans charged-off	0	1	3	4
Provision for credit losses	(3)	(9)	384	(199)
Ending balance	1,352	749	1,352	749
Net loans (charged-off) recoveries	0	1	3	4
Individually evaluated for impairment	650	0	650	0
Collectively evaluated for impairment	702	749	702	749
Construction - Commercial and Residential [Member]
Allowance for credit losses
Balance at beginning of period	19,006	18,651	18,175	18,492
Loans charged-off	0	(643)	0	(1,160)
Recoveries of loans previously charged-off	15	899	52	994
Net loans charged-off	15	256	52	(166)
Provision for credit losses	251	(1,368)	1,045	(787)
Ending balance	19,272	17,539	19,272	17,539
Net loans (charged-off) recoveries	15	256	52	(166)
Individually evaluated for impairment	0	0	0	0
Collectively evaluated for impairment	19,272	17,539	19,272	17,539
Home Equity [Member]
Allowance for credit losses
Balance at beginning of period	581	673	599	770
Loans charged-off	0	0	0	0
Recoveries of loans previously charged-off	0	6	0	133
Net loans charged-off	0	6		133
Provision for credit losses	(6)	(48)	(24)	(272)
Ending balance	575	631	575	631
Net loans (charged-off) recoveries	0	6		133
Individually evaluated for impairment	13	0	13	0
Collectively evaluated for impairment	562	631	562	631
Other Consumer [Member]
Allowance for credit losses
Balance at beginning of period	242	331	72	140
Loans charged-off	0	(15)	(2)	(15)
Recoveries of loans previously charged-off	17	5	38	13
Net loans charged-off	17	(10)	36	(2)
Provision for credit losses	(32)	(18)	119	165
Ending balance	227	303	227	303
Net loans (charged-off) recoveries	17	(10)	36	(2)
Individually evaluated for impairment	0	56	0	56
Collectively evaluated for impairment	$ 227	$ 247	$ 227	$ 247

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The following table presents, by class of loan, an aging analysis and the recorded investments in loans past due as of September 30, 2019 and December 31, 2018. (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due	$ 137,856	$ 73,660
Current Loans	7,421,305	6,917,787
Total Recorded Investment in Loans	7,559,161	6,991,447
Financial Asset, 30 to 59 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due	30,735	22,919
Financial Asset, 60 to 89 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due	49,471	34,464
Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due	41,122	16,277
Commercial Portfolio Segment [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due	24,222	14,520
Current Loans	1,442,640	1,538,592
Total Recorded Investment in Loans	1,466,862	1,553,112
Commercial Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due	4,639	4,535
Commercial Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due	3,509	2,870
Commercial Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due	16,074	7,115
Income Producing - Commercial Real Estate [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due	66,109	35,100
Current Loans	3,746,175	3,221,800
Total Recorded Investment in Loans	3,812,284	3,256,900
Income Producing - Commercial Real Estate [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due	21,737	5,855
Income Producing - Commercial Real Estate [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due	22,190	27,479
Income Producing - Commercial Real Estate [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due	5,654	1,766
Owner Occupied - Commercial Real Estate - [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due	29,518	9,789
Current Loans	926,827	878,025
Total Recorded Investment in Loans	956,345	887,814
Owner Occupied - Commercial Real Estate - [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due	3,626	5,051
Owner Occupied - Commercial Real Estate - [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due	21,768	2,370
Owner Occupied - Commercial Real Estate - [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due	4,124	2,368
Residential Portfolio Segment [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due	6,269	5,664
Current Loans	98,294	100,754
Total Recorded Investment in Loans	104,563	106,418
Residential Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due	634	2,456
Residential Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due		1,698
Residential Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due	5,635	1,510
Construction - Commercial and Residential [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due	11,014	7,423
Current Loans	1,124,691	1,090,189
Total Recorded Investment in Loans	1,135,705	1,097,612
Construction - Commercial and Residential [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due		4,392
Construction - Commercial and Residential [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due	1,866
Construction - Commercial and Residential [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due	9,148	3,031
Home Equity [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due	703	1,164
Current Loans	80,414	85,439
Total Recorded Investment in Loans	81,117	86,603
Home Equity [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due	86	630
Home Equity [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due	130	47
Home Equity [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due	487	487
Other Consumer [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due	21
Current Loans	2,264	2,988
Total Recorded Investment in Loans	2,285	2,988
Other Consumer [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due	13
Other Consumer [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due	8
Other Consumer [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Loans 90 Days of More Past Due

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The following table presents lease costs and other lease information. (Details) - USD ($)	9 Months Ended
	Sep. 30, 2019	Dec. 31, 2018
Note 6. Leases
Operating Lease Cost (Cost resulting from lease payments)	$ 5,857,000
Variable Lease Cost (Cost excluded from lease payments)	815,000
Sublease Income	(282,000)
Net Lease Cost	6,390,000
Operating Lease, Payments	6,382,000
Operating Lease - Operating Cash Flows (Liability Reduction)	5,458,000
Operating Lease, Right-of-Use Asset	$ 26,552,000
Operating Lease, Weighted Average Remaining Lease Term	5 years 40 days 3 hours 36 minutes
Operating Lease, Weighted Average Discount Rate, Percent	4.00%

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Note 10. Long-Term Borrowings (Tables)

9 Months Ended

Sep. 30, 2019

Debt Disclosure [Abstract]

The following table presents information related to the Company’s long-term borrowings as of September 30, 2019 and December 31, 2018.

The following table presents information related to the Company’s long-term borrowings as of September 30, 2019 and December 31, 2018.

(dollars in thousands)	September 30, 2019			December 31, 2018
Subordinated Notes, 5.75%	$	70,000		$	70,000
Subordinated Notes, 5.00%		150,000			150,000
Less: unamortized debt issuance costs		(2,411	)		(2,704	)
Long-term borrowings	$	217,589		$	217,296

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Note 5. Loans and Allowance for Credit Losses (Tables)

9 Months Ended

Sep. 30, 2019

Receivables [Abstract]

Loans, net of unamortized net deferred fees, at September 30, 2019 and December 31, 2018 are summarized by type as follows:

Loans, net of unamortized net deferred fees, at September 30, 2019 and December 31, 2018 are summarized by type as follows:

	September 30, 2019						December 31, 2018
(dollars in thousands)	Amount			%			Amount			%
Commercial	$	1,466,862			19	%	$	1,553,112			22	%
Income producing - commercial real estate		3,812,284			51	%		3,256,900			46	%
Owner occupied - commercial real estate		956,345			13	%		887,814			13	%
Real estate mortgage - residential		104,563			1	%		106,418			2	%
Construction - commercial and residential		1,053,789			14	%		1,039,815			15	%
Construction - C&I (owner occupied)		81,916			1	%		57,797			1	%
Home equity		81,117			1	%		86,603			1	%
Other consumer		2,285			—			2,988			—
Total loans		7,559,161			100	%		6,991,447			100	%
Less: allowance for credit losses		(73,720	)					(69,944	)
Net loans	$	7,485,441					$	6,921,503

The following tables detail activity in the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2019 and 2018. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

The following tables detail activity in the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2019 and 2018. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

				Income Producing - Commercial			Owner Occupied - Commercial			Real Estate Mortgage -			Construction - Commercial and			Home			Other
(dollars in thousands)	Commercial			Real Estate			Real Estate			Residential			Residential			Equity			Consumer			Total
Three Months Ended September 30, 2019
Allowance for credit losses:
Balance at beginning of period	$	18,136		$	27,010		$	5,756		$	1,355		$	19,006		$	581		$	242		$	72,086
Loans charged-off		(1,794	)		—			—			—			—			—			—			(1,794	)
Recoveries of loans previously charged-off		210			—			—			—			15			—			17			242
Net loans charged-off		(1,584	)		—			—			—			15			—			17			(1,552	)
Provision for credit losses		1,617			1,517			(158	)		(3	)		251			(6	)		(32	)		3,186
Ending balance	$	18,169		$	28,527		$	5,598		$	1,352		$	19,272		$	575		$	227		$	73,720
Nine Months Ended September 30, 2019
Allowance for credit losses:
Balance at beginning of period	$	15,857		$	28,034		$	6,242		$	965		$	18,175		$	599		$	72		$	69,944
Loans charged-off		(1,799	)		(5,343	)		—			—			—			—			(2	)		(7,144	)
Recoveries of loans previously charged-off		377			302			2			3			52			—			38			774
Net loans (charged-off) recoveries		(1,422	)		(5,041	)		2			3			52			—			36			(6,370	)
Provision for credit losses		3,734			5,534			(646	)		384			1,045			(24	)		119			10,146
Ending balance	$	18,169		$	28,527		$	5,598		$	1,352		$	19,272		$	575		$	227		$	73,720
As of September 30, 2019
Allowance for credit losses:
Individually evaluated for impairment	$	8,196		$	1,200		$	375		$	650		$	—		$	13		$	—		$	10,434
Collectively evaluated for impairment		9,973			27,327			5,223			702			19,272			562			227			63,286
Ending balance	$	18,169		$	28,527		$	5,598		$	1,352		$	19,272		$	575		$	227		$	73,720
Three Months Ended September 30, 2018
Allowance for credit losses:
Balance at beginning of period	$	12,206		$	27,988		$	6,003		$	757		$	18,651		$	673		$	331		$	66,609
Loans charged-off		(1,174	)		—			—			—			(643	)		—			(15	)		(1,832	)
Recoveries of loans previously charged-off		60			—			—			1			899			6			5			971
Net loans (charged-off) recoveries		(1,114	)		—			—			1			256			6			(10	)		(861	)
Provision for credit losses		4,557			(601	)		(72	)		(9	)		(1,368	)		(48	)		(18	)		2,441
Ending balance	$	15,649		$	27,387		$	5,931		$	749		$	17,539		$	631		$	303		$	68,189
Nine Months Ended September 30, 2018
Allowance for credit losses:
Balance at beginning of period	$	13,102		$	25,376		$	5,934		$	944		$	18,492		$	770		$	140		$	64,758
Loans charged-off		(2,435	)		(121	)		(132	)		—			(1,160	)		—			(15	)		(3,863	)
Recoveries of loans previously charged-off		86			2			2			4			994			133			13			1,234
Net loans (charged-off) recoveries		(2,349	)		(119	)		(130	)		4			(166	)		133			(2	)		(2,629	)
Provision for credit losses		4,896			2,130			127			(199	)		(787	)		(272	)		165			6,060
Ending balance	$	15,649		$	27,387		$	5,931		$	749		$	17,539		$	631		$	303		$	68,189
As of September 30, 2018
Allowance for credit losses:
Individually evaluated for impairment	$	6,271		$	3,043		$	500		$	—		$	—		$	—		$	56		$	9,870
Collectively evaluated for impairment		9,378			24,344			5,431			749			17,539			631			247			58,319
Ending balance	$	15,649		$	27,387		$	5,931		$	749		$	17,539		$	631		$	303		$	68,189

The Company’s recorded investments in loans as of September 30, 2019 and December 31, 2018 related to each balance in the allowance for loan losses by portfolio segment and disaggregated on the basis of the Company’s impairment methodology was as follows:

The Company’s recorded investments in loans as of September 30, 2019 and December 31, 2018 related to each balance in the allowance for loan losses by portfolio segment and disaggregated on the basis of the Company’s impairment methodology was as follows:

			Income Producing -		Owner Occupied -		Real Estate		Construction -
			Commercial		Commercial		Mortgage -		Commercial and		Home		Other
(dollars in thousands)	Commercial		Real Estate		Real Estate		Residential		Residential		Equity		Consumer		Total
September 30, 2019
Recorded investment in loans:
Individually evaluated for impairment	$	28,155	$	39,089	$	6,616	$	5,365	$	9,148	$	750	$	—	$	89,123
Collectively evaluated for impairment		1,438,707		3,773,195		949,729		99,198		1,126,557		80,367		2,285		7,470,038
Ending balance	$	1,466,862	$	3,812,284	$	956,345	$	104,563	$	1,135,705	$	81,117	$	2,285	$	7,559,161
December 31, 2018
Recorded investment in loans:
Individually evaluated for impairment	$	8,738	$	61,747	$	5,307	$	1,228	$	7,012	$	487	$	—	$	84,519
Collectively evaluated for impairment		1,544,374		3,195,153		882,507		105,190		1,090,600		86,116		2,988		6,906,928
Ending balance	$	1,553,112	$	3,256,900	$	887,814	$	106,418	$	1,097,612	$	86,603	$	2,988	$	6,991,447

The following table presents by class and by credit quality indicator, the recorded investment in the Company’s loans and leases as of September 30, 2019 and December 31, 2018.

 The following table presents by class and by credit quality indicator, the recorded investment in the Company’s loans and leases as of September 30, 2019 and December 31, 2018.

			Watch and						Total
(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Loans
September 30, 2019
Commercial	$	1,392,189	$	46,518	$	28,155	$	—	$	1,466,862
Income producing - commercial real estate		3,662,436		110,759		39,089		—		3,812,284
Owner occupied - commercial real estate		892,720		57,009		6,616		—		956,345
Real estate mortgage – residential		98,564		634		5,365		—		104,563
Construction - commercial and residential		1,126,557		—		9,148		—		1,135,705
Home equity		79,681		686		750		—		81,117
Other consumer		2,285		—		—		—		2,285
Total	$	7,254,432	$	215,606	$	89,123	$	—	$	7,559,161
December 31, 2018
Commercial	$	1,505,477	$	25,584	$	22,051	$	—	$	1,553,112
Income producing - commercial real estate		3,172,479		1,536		82,885		—		3,256,900
Owner occupied - commercial real estate		844,286		38,221		5,307		—		887,814
Real estate mortgage – residential		104,543		647		1,228		—		106,418
Construction - commercial and residential		1,090,600		—		7,012		—		1,097,612
Home equity		85,434		682		487		—		86,603
Other consumer		2,988		—		—		—		2,988
Total	$	6,805,807	$	66,670	$	118,970	$	—	$	6,991,447

The following table presents, by class of loan, information related to nonaccrual loans as of September 30, 2019 and December 31, 2018.

The following table presents, by class of loan, information related to nonaccrual loans as of September 30, 2019 and December 31, 2018.

(dollars in thousands)	September 30, 2019		December 31, 2018
Commercial	$	16,074	$	7,115
Income producing - commercial real estate		5,654		1,766
Owner occupied - commercial real estate		4,124		2,368
Real estate mortgage - residential		5,635		1,510
Construction - commercial and residential		9,148		3,031
Home equity		487		487
Total nonaccrual loans (1)(2)	$	41,122	$	16,277

(1) Excludes troubled debt restructurings (“TDRs”) that were performing under their restructured terms totaling $8.6 million at September 30, 2019 and $24.0 million at December 31, 2018.

(2) Gross interest income of $2.7 million and $707 thousand would have been recorded for the nine months ended September 30, 2019 and 2018, respectively, if nonaccrual loans shown above had been current and in accordance with their original terms, while the interest actually recorded on such loans was $598 thousand and $193 thousand for the nine months ended September 30, 2019 and 2018, respectively. See Note 1 to the Consolidated Financial Statements for a description of the Company’s policy for placing loans on nonaccrual status.

The following table presents, by class of loan, an aging analysis and the recorded investments in loans past due as of September 30, 2019 and December 31, 2018.

The following table presents, by class of loan, an aging analysis and the recorded investments in loans past due as of September 30, 2019 and December 31, 2018.

	Loans		Loans		Loans						Total Recorded
	30-59 Days		60-89 Days		90 Days or		Total Past		Current		Investment in
(dollars in thousands)	Past Due		Past Due		More Past Due		Due Loans		Loans		Loans
September 30, 2019
Commercial	$	4,639	$	3,509	$	16,074	$	24,222	$	1,442,640	$	1,466,862
Income producing - commercial real estate		21,737		22,190		5,654		66,109		3,746,175		3,812,284
Owner occupied - commercial real estate		3,626		21,768		4,124		29,518		926,827		956,345
Real estate mortgage – residential		634		—		5,635		6,269		98,294		104,563
Construction - commercial and residential		—		1,866		9,148		11,014		1,124,691		1,135,705
Home equity		86		130		487		703		80,414		81,117
Other consumer		13		8		—		21		2,264		2,285
Total	$	30,735	$	49,471	$	41,122	$	137,856	$	7,421,305	$	7,559,161
December 31, 2018
Commercial	$	4,535	$	2,870	$	7,115	$	14,520	$	1,538,592	$	1,553,112
Income producing - commercial real estate		5,855		27,479		1,766		35,100		3,221,800		3,256,900
Owner occupied - commercial real estate		5,051		2,370		2,368		9,789		878,025		887,814
Real estate mortgage – residential		2,456		1,698		1,510		5,664		100,754		106,418
Construction - commercial and residential		4,392		—		3,031		7,423		1,090,189		1,097,612
Home equity		630		47		487		1,164		85,439		86,603
Other consumer		—		—		—		—		2,988		2,988
Total	$	22,919	$	34,464	$	16,277	$	73,660	$	6,917,787	$	6,991,447

The following table presents, by class of loan, information related to impaired loans for the periods ended September 30, 2019 and December 31, 2018.

The following table presents, by class of loan, information related to impaired loans for the periods ended September 30, 2019 and December 31, 2018.

	Unpaid		Recorded		Recorded
	Contractual		Investment		Investment		Total				Average Recorded Investment				Interest Income Recognized
	Principal		With No		With		Recorded		Related		Quarter		Year		Quarter			Year
(dollars in thousands)	Balance		Allowance		Allowance		Investment		Allowance		To Date		To Date		To Date			To Date
September 30, 2019
Commercial	$	18,243	$	5,641	$	11,331	$	16,972	$	8,196	$	16,967	$	15,638	$	117		$	220
Income producing - commercial real estate		10,041		1,853		8,188		10,041		1,200		9,497		19,479		412			510
Owner occupied - commercial real estate		7,407		6,630		777		7,407		375		6,113		5,693		120			213
Real estate mortgage – residential		5,635		3,179		2,456		5,635		650		5,638		5,640		—			—
Construction - commercial and residential		10,308		9,148		—		9,148		—		9,152		7,111		—			15
Home equity		487		487		—		487		13		487		487		—			—
Other consumer		—		—		—		—		—		—		—		—			—
Total	$	52,121	$	26,938	$	22,752	$	49,690	$	10,434	$	47,854	$	54,048	$	649		$	958
December 31, 2018
Commercial	$	8,613	$	2,057	$	6,084	$	8,141	$	4,803	$	10,306	$	8,359	$	(126	)	$	190
Income producing - commercial real estate		21,402		1,720		19,682		21,402		2,465		15,331		12,309		189			550
Owner occupied - commercial real estate		5,731		4,361		1,370		5,731		600		5,746		6,011		47			196
Real estate mortgage – residential		1,510		1,510		—		1,510		—		1,516		1,688		—			2
Construction - commercial and residential		3,031		3,031		—		3,031		1,050		3,031		2,028		—			68
Home equity		487		487		—		487		—		487		491		—			—
Other consumer		—		—		—		—		—		46		69		—			—
Total	$	40,774	$	13,166	$	27,136	$	40,302	$	8,918	$	36,463	$	30,955	$	110		$	1,006

The following table presents by class, the recorded investment of loans modified in TDRs held by the Company for the periods ended September 30, 2019 and 2018.

The following table presents by class, the recorded investment of loans modified in TDRs held by the Company for the periods ended September 30, 2019 and 2018.

	For the nine months Ended September 30, 2019
	Number of				Income Producing -		Owner Occupied -		Construction -
(dollars in thousands)	Contracts		Commercial		Commercial Real Estate		Commercial Real Estate		Commercial Real Estate		Total
Troubled debt restructurings
Restructured accruing		7	$	898	$	4,387	$	3,283	$	—	$	8,568
Restructured nonaccruing		3		1,521		—		—		—		1,521
Total		10	$	2,419	$	4,387	$	3,283	$	—	$	10,089
Specific allowance			$	—	$	1,000	$	—	$	—	$	1,000
Restructured and subsequently defaulted			$		$	2,300	$	—	$	—	$	2,300
	For the nine months Ended September 30, 2018
	Number of				Income Producing -		Owner Occupied -		Construction -
(dollars in thousands)	Contracts		Commercial		Commercial Real Estate		Commercial Real Estate		Commercial Real Estate		Total
Troubled debt restructurings
Restructured accruing		10	$	4,942	$	9,212	$	3,391	$	—	$	17,545
Restructured nonaccruing		4		723		—		—		—		723
Total		14	$	5,665	$	9,212	$	3,391	$	—	$	18,268
Specific allowance			$	2,000	$	3,500	$	—	$	—	$	5,500
Restructured and subsequently defaulted			$	—	$	937	$	—	$	—	$	937

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Note 13. Fair Value Measurements

9 Months Ended

Sep. 30, 2019

Fair Value Disclosures [Abstract]

Note 13. Fair Value Measurements

Note 13. Fair Value Measurements

The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. ASC Topic 820, “Fair Value Measurements and Disclosures,” establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1 Quoted prices in active exchange markets for identical assets or liabilities; also includes certain U.S. Treasury and other U.S. Government and agency securities actively traded in over-the-counter markets.

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

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

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis as of September 30, 2019 and December 31, 2018.

(dollars in thousands)	Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total (Fair Value)
September 30, 2019
Assets:
Investment securities available-for-sale:
U. S. agency securities	$	—	$	171,820	$	—	$	171,820
Residential mortgage backed securities		—		438,029		—		438,029
Municipal bonds		—		63,958		—		63,958
Corporate bonds		—		—		9,614		9,614
U.S. Treasury		—		24,926		—		24,926
Other equity investments		—		—		198		198
Loans held for sale		—		52,199		—		52,199
Interest Rate Caps		—		228		—		228
Mortgage banking derivatives		—		—		313		313
Total assets measured at fair value on a recurring basis as of September 30, 2019	$	—	$	751,160	$	10,125	$	761,285
Liabilities:
Interest rate swap derivatives	$	—	$	362	$	—	$	362
Derivative liability		—		117		—		117
Interest Rate Caps		—		235		—		235
Mortgage banking derivatives		—		—		3		3
Total liabilities measured at fair value on a recurring basis as of September 30, 2019	$	—	$	714	$	3	$	717

December 31, 2018
Assets:
Investment securities available-for-sale:
U. S. agency securities	$	—	$	256,345	$	—	$	256,345
Residential mortgage backed securities		—		472,231		—		472,231
Municipal bonds		—		45,769		—		45,769
Corporate bonds		—		—		9,576		9,576
Other equity investments		—		—		218		218
Loans held for sale		—		19,254		—		19,254
Mortgage banking derivatives		—		—		229		229
Interest rate swap derivatives		—		3,727		—		3,727
Total assets measured at fair value on a recurring basis as of December 31, 2018	$	—	$	797,326	$	10,023	$	807,349
Liabilities:
Mortgage banking derivatives	$	—	$	—	$	269	$	269
Total liabilities measured at fair value on a recurring basis as of December 31, 2018	$	—	$	—	$	269	$	269

Investment Securities Available-for-Sale: Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair value is measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange such as the New York Stock Exchange, Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include U.S. agency debt securities, mortgage backed securities issued by Government Sponsored Entities (“GSE’s”) and municipal bonds. Securities classified as Level 3 include securities in less liquid markets, the carrying amounts approximate the fair value.

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

The following table summarizes the difference between the aggregate fair value and the aggregate unpaid principal balance for loans held for sale measured at fair value as of September 30, 2019 and December 31, 2018.

	September 30, 2019
(dollars in thousands)	Fair Value		Aggregate Unpaid Principal Balance		Difference
Residential mortgage loans held for sale	$	52,199	$	51,291	$	908
FHA mortgage loans held for sale	$	—	$	—	$	—
	December 31, 2018
(dollars in thousands)	Fair Value		Aggregate Unpaid Principal Balance		Difference
Residential mortgage loans held for sale	$	19,254	$	18,797	$	457
FHA mortgage loans held for sale	$	—	$	—	$	—

No residential mortgage loans held for sale were 90 or more days past due or on nonaccrual status as of September 30, 2019 or December 31, 2018.

Interest rate swap derivatives: These derivative instruments consist of interest rate swap agreements, which are accounted for as cash flow hedges under ASC 815. The Company’s derivative position is classified within Level 2 of the fair value hierarchy and is valued using models generally accepted in the financial services industry and that use actively quoted or observable market input values from external market data providers and/or non-binding broker-dealer quotations. The fair value of the derivatives is determined using discounted cash flow models. These models’ key assumptions include the contractual terms of the respective contract along with significant observable inputs, including interest rates, yield curves, nonperformance risk and volatility. Derivative contracts are executed with a Credit Support Annex, which is a bilateral agreement that requires collateral postings when the market value exceeds certain threshold limits. These agreements protect the interests of the Company and its counterparties should either party suffer a credit rating deterioration.

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

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

Mortgage banking derivatives: The Company relies on a third-party pricing service to value its mortgage banking derivative financial assets and liabilities, which the Company classifies as a Level 3 valuation. The external valuation model to estimate the fair value of its interest rate lock commitments to originate residential mortgage loans held for sale includes grouping the interest rate lock commitments by interest rate and terms, applying an estimated pull-through rate based on historical experience, and then multiplying by quoted investor prices determined to be reasonably applicable to the loan commitment groups based on interest rate, terms, and rate lock expiration dates of the loan commitment groups. The Company also relies on an external valuation model to estimate the fair value of its forward commitments to sell residential mortgage loans (i.e., an estimate of what the Company would receive or pay to terminate the forward delivery contract based on market prices for similar financial instruments), which includes matching specific terms and maturities of the forward commitments against applicable investor pricing.

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

(dollars in thousands)	Investment Securities			Mortgage Banking Derivatives		Total
Assets:
Beginning balance at January 1, 2019	$	9,794		$	229	$	10,023
Realized (loss) gain included in earnings		(20	)		84		64
Unrealized gain included in other comprehensive income		12			—		12
Purchases of available-for-sale securities		3,030			—		3,030
Principal redemption		(3,004	)		—		(3,004	)
Ending balance at September 30, 2019	$	9,812		$	313	$	10,125

Liabilities:
Beginning balance at January 1, 2019	$	—	$	269		$	269
Realized gain included in earnings		—		(266	)		(266	)
Principal redemption		—		—			—
Ending balance at September 30, 2019	$	—	$	3		$	3

(dollars in thousands)	Investment Securities		Mortgage Banking Derivatives		Total
Assets:
Beginning balance at January 1, 2018	$	1,718	$	43	$	1,761
Realized gain included in earnings		—		186		186
Purchases of available-for-sale securities		8,076		—		8,076
Principal redemption		—		—		—
Ending balance at December 31, 2018	$	9,794	$	229	$	10,023

Liabilities:
Beginning balance at January 1, 2018	$	—	$	10	$	10
Realized loss included in earnings		—		259		259
Principal redemption		—		—		—
Ending balance at December 31, 2018	$	—	$	269	$	269

The other equity securities classified as Level 3 consist of equity investments in the form of common stock of two local banking companies which are not publicly traded, and for which the carrying amount approximates fair value.

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Company measures certain assets at fair value on a nonrecurring basis and the following is a general description of the methods used to value such assets.

Impaired loans: The Company does not record loans at fair value on a recurring basis; however, from time to time, a loan is considered impaired and an allowance for loan loss is established. The Company considers a loan impaired when it is probable that the Company will be unable to collect all amounts due according to the original contractual terms of the note agreement, including both principal and interest. Management has determined that nonaccrual loans and loans that have had their terms restructured in a troubled debt restructuring meet this impaired loan definition. Once a loan is identified as individually impaired, management measures impairment in accordance with ASC Topic 310, “Receivables.” The fair value of impaired loans is estimated using one of several methods, including the collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring a specific allowance represent loans for which the fair value of expected repayments or collateral exceed the recorded investment in such loans. At September 30, 2019, substantially all of the Company’s impaired loans were evaluated based upon the fair value of the collateral. In accordance with ASC Topic 820, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the loan as nonrecurring Level 3. For individually evaluated impaired loans, the amount of impairment is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate or the estimated fair value of the underlying collateral for collateral-dependent loans, which the Company classifies as a Level 3 valuation.

Other real estate owned: Other real estate owned is initially recorded at fair value less estimated selling costs. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral, which the Company classifies as a Level 3 valuation.

Assets measured at fair value on a nonrecurring basis are included in the table below:

(dollars in thousands)	Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total (Fair Value)
September 30, 2019
Impaired loans:
Commercial	$	—	$	—	$	8,776	$	8,776
Income producing - commercial real estate		—		—		8,841		8,841
Owner occupied - commercial real estate		—		—		7,032		7,032
Real estate mortgage - residential		—		—		4,985		4,985
Construction - commercial and residential		—		—		9,148		9,148
Home equity		—		—		474		474
Other real estate owned		—		—		1,487		1,487
Total assets measured at fair value on a nonrecurring basis as of September 30, 2019	$	—	$	—	$	40,743	$	40,743
(dollars in thousands)	Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total (Fair Value)
December 31, 2018
Impaired loans:
Commercial	$	—	$	—	$	3,338	$	3,338
Income producing - commercial real estate		—		—		18,937		18,937
Owner occupied - commercial real estate		—		—		5,131		5,131
Real estate mortgage - residential		—		—		1,510		1,510
Construction - commercial and residential		—		—		1,981		1,981
Home equity		—		—		487		487
Other real estate owned		—		—		1,394		1,394
Total assets measured at fair value on a nonrecurring basis as of December 31, 2018	$	—	$	—	$	32,778	$	32,778

Fair Value of Financial Instruments

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

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

The estimated fair value of the Company’s financial instruments at September 30, 2019 and December 31, 2018 are as follows:

					Fair Value Measurements
(dollars in thousands)	Carrying Value		Fair Value		Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2019
Assets
Cash and due from banks	$	6,657	$	6,657	$	—	$	6,657	$	—
Federal funds sold		27,711		27,711		—		27,711		—
Interest bearing deposits with other banks		361,154		361,154		—		361,154		—
Investment securities		708,545		708,545		—		698,733		9,812
Federal Reserve and Federal Home Loan Bank stock		28,725		28,725		—		28,725		—
Loans held for sale		52,199		52,199		—		52,199		—
Loans		7,485,441		7,572,385		—		—		7,572,385
Bank owned life insurance		74,726		74,726		—		74,726		—
Annuity investment		12,103		12,103		—		12,103		—
Interest Rate Caps		228		228		—		228		—
Mortgage banking derivatives		313		313		—		—		313
Liabilities
Noninterest bearing deposits		2,051,106		2,051,106		—		2,051,106		—
Interest bearing deposits		3,952,541		3,952,541		—		3,952,541		—
Certificates of deposit		1,398,866		1,443,542		—		1,443,542		—
Customer repurchase agreements		30,297		30,297		—		30,297		—
Borrowings		317,589		328,330		—		328,330		—
Interest rate swap derivatives		362		362				362		—
Derivative liability		117		117		—		117		—
Interest Rate Caps		235		235		—		235		—
Mortgage banking derivatives		3		3		—		—		3
December 31, 2018
Assets
Cash and due from banks	$	6,773	$	6,773	$	—	$	6,773	$	—
Federal funds sold		11,934		11,934		—		11,934		—
Interest bearing deposits with other banks		303,157		303,157		—		303,157		—
Investment securities		784,139		784,139		—		774,345		9,794
Federal Reserve and Federal Home Loan Bank stock		23,506		23,506		—		23,506		—
Loans held for sale		19,254		19,254		—		19,254		—
Loans		6,921,503		6,921,048		—		—		6,921,048
Bank owned life insurance		73,441		73,441		—		73,441		—
Annuity investment		12,417		12,417		—		12,417		—
Mortgage banking derivatives		229		229		—		—		229
Interest rate swap derivatives		3,727		3,727		—		3,727		—
Liabilities
Noninterest bearing deposits		2,104,220		2,104,220		—		2,104,220		—
Interest bearing deposits		3,542,666		3,542,666		—		3,542,666		—
Certificates of deposit		1,327,400		1,325,209		—		1,325,209		—
Customer repurchase agreements		30,413		30,413		—		30,413		—
Borrowings		217,196		218,006		—		218,006		—
Mortgage banking derivatives		269		269		—		—		269

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The following table summarizes the difference between the aggregate fair value and the aggregate unpaid principal balance for loans held for sale measured at fair value as of September 30, 2019 and December 31, 2018. (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Loans Held-for-sale, Fair Value Disclosure	$ 52,199	$ 19,254
Residential Mortgage Backed Securities [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Loans Held-for-sale, Fair Value Disclosure	52,199	19,254
Aggregate Unpaid Principal Balance	51,291	18,797
Difference	908	457
F H A Mortgage Backed Securities [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Loans Held-for-sale, Fair Value Disclosure
Aggregate Unpaid Principal Balance
Difference

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Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares	Sep. 30, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Common stock, par value	$ 0.01	$ 0.01
Common stock, authorized	100,000,000	100,000,000
Common stock, issued	33,720,522	34,387,919
Common stock, outstanding	33,720,522	34,387,919

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Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (Parenthetical) - $ / shares	3 Months Ended	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2019
Statement of Stockholders' Equity [Abstract]
Common Stock, Dividends, Per Share, Cash Paid	$ 0.22	$ 0.44

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The following table presents the components of other comprehensive income (loss) for the three and nine months ended September 30, 2019 and 2018. (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Note 12. Other Comprehensive Income
Other Comprehensive Income (Loss), Securities, Available-for-Sale, Unrealized Holding Gain (Loss) Arising During Period, before Tax	$ 1,585	$ (4,253)	$ 17,712	$ (13,079)
Other Comprehensive Income (Loss), Securities, Available-for-Sale, Unrealized Holding Gain (Loss) Arising During Period, Tax	411	1,105	(4,572)	2,873
Other Comprehensive Income (Loss), Securities, Available-for-Sale, Unrealized Holding Gain (Loss) Arising During Period, after Tax	1,174	(3,148)	13,140	(10,206)
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI for Sale of Securities, before Tax	153	0	(1,628)	(68)
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI for Sale of Securities, Tax	43	0	438	17
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI for Sale of Securities, Net of Tax	110	(0)	1,190	51
Other Comprehensive Income (Loss), Available-for-sale Securities Adjustment, before Tax, Portion Attributable to Parent	1,432	(4,253)	16,084	(13,147)
Other Comprehensive Income (Loss), Available-for-sale Securities, Tax, Portion Attributable to Parent	368	1,105	(5,010)	2,856
Other Comprehensive Income (Loss), Available-for-sale Securities Adjustment, Net of Tax, Portion Attributable to Parent	1,064	(3,148)	11,950	(10,257)
Other Comprehensive Income (Loss), Unrealized Gain (Loss) on Derivatives Arising During Period, before Tax	24	846	(2,210)	4,380
Other Comprehensive Income (Loss), Unrealized Gain (Loss) on Derivatives Arising During Period, Tax	13	(221)	(546)	(833)
Other Comprehensive Income (Loss), Unrealized Gain (Loss) on Derivatives Arising During Period, Net of Tax	11	625	(1,664)	3,547
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI on Derivatives, before Tax	285	211	1,879	209
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI on Derivatives, Tax	80	(53)	(505)	(53)
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI on Derivatives, Net of Tax	205	158	1,374	156
Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, before Tax, Portion Attributable to Parent	261	(635)	4,089	(4,171)
Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, Tax	67	(168)	(41)	(780)
Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, Net of Tax, Portion Attributable to Parent	194	(467)	3,038	(3,391)
Other Comprehensive Income (Loss), before Tax, Portion Attributable to Parent	1,171	(3,618)	11,995	(8,976)
Other Comprehensive Income (Loss), Tax, Portion Attributable to Parent	301	1,273	(4,969)	3,636
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent	870	(2,681)	8,912	(6,866)
Other Comprehensive Income (Loss), Securities, Available-for-Sale, Unrealized Holding Gain (Loss) Arising During Period, before Tax	(1,585)	4,253	(17,712)	13,079
Other Comprehensive Income (Loss), Securities, Available-for-Sale, Unrealized Holding Gain (Loss) Arising During Period, after Tax	(1,174)	3,148	(13,140)	10,206
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI for Sale of Securities, before Tax	(153)	0	1,628	68
Other Comprehensive Income (Loss), Available-for-sale Securities Adjustment, before Tax, Portion Attributable to Parent	(1,432)	4,253	(16,084)	13,147
Other Comprehensive Income (Loss), Available-for-sale Securities Adjustment, Net of Tax, Portion Attributable to Parent	(1,064)	3,148	(11,950)	10,257
Other Comprehensive Income (Loss), Unrealized Gain (Loss) on Derivatives Arising During Period, Tax	(13)	221	546	833
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI on Derivatives, Tax	(80)	53	505	53
Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, before Tax, Portion Attributable to Parent	(261)	635	(4,089)	4,171
Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, Tax	(67)	168	41	780
Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, Net of Tax, Portion Attributable to Parent	(194)	467	(3,038)	3,391
Other Comprehensive Income (Loss), before Tax, Portion Attributable to Parent	(1,171)	3,618	(11,995)	8,976
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent	(870)	2,681	(8,912)	6,866
Other Comprehensive Income (Loss), Securities, Available-for-Sale, Unrealized Holding Gain (Loss) Arising During Period, Tax	(411)	(1,105)	4,572	(2,873)
Other Comprehensive Income (Loss), Available-for-sale Securities, Tax, Portion Attributable to Parent	(368)	(1,105)	5,010	(2,856)
Other Comprehensive Income (Loss), Unrealized Gain (Loss) on Derivatives Arising During Period, before Tax	(24)	(846)	2,210	(4,380)
Other Comprehensive Income (Loss), Unrealized Gain (Loss) on Derivatives Arising During Period, Net of Tax	(11)	(625)	1,664	(3,547)
Other Comprehensive Income (Loss), Tax, Portion Attributable to Parent	$ (301)	$ (1,273)	$ 4,969	$ (3,636)

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Future minimum payments for operating leases with initial or remaining terms of one year or more as of September 30, 2019 were as follows: (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Note 6. Leases
September 30, 2020	$ 8,532,000
September 30, 2021	7,857,000
September 30, 2022	5,868,000
September 30, 2023	4,379,000
September 30, 2024	3,663,000
Thereafter	4,327,000
Total Future Minimum Lease Payments	34,626,000
Amounts Representing Interest	(5,040,000)
Present Value of Net Future Minimum Lease Payments	$ 29,586,000

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The Company’s recorded investments in loans as of September 30, 2019 and December 31, 2018 related to each balance in the allowance for loan losses by portfolio segment and disaggregated on the basis of the Company’s impairment methodology was as follows: (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Recorded investment in loans:
Individually evaluated for impairment	$ 89,123	$ 84,519
Collectively evaluated for impairment	7,470,038	6,906,928
Ending balance	7,559,161	6,991,447
Commercial Portfolio Segment [Member]
Recorded investment in loans:
Individually evaluated for impairment	28,155	8,738
Collectively evaluated for impairment	1,438,707	1,544,374
Ending balance	1,466,862	1,553,112
Income Producing - Commercial Real Estate [Member]
Recorded investment in loans:
Individually evaluated for impairment	39,089	61,747
Collectively evaluated for impairment	3,773,195	3,195,153
Ending balance	3,812,284	3,256,900
Owner Occupied - Commercial Real Estate - [Member]
Recorded investment in loans:
Individually evaluated for impairment	6,616	5,307
Collectively evaluated for impairment	949,729	882,507
Ending balance	956,345	887,814
Residential Portfolio Segment [Member]
Recorded investment in loans:
Individually evaluated for impairment	5,365	1,228
Collectively evaluated for impairment	99,198	105,190
Ending balance	104,563	106,418
Construction - Commercial and Residential [Member]
Recorded investment in loans:
Individually evaluated for impairment	9,148	7,012
Collectively evaluated for impairment	1,126,557	1,090,600
Ending balance	1,135,705	1,097,612
Home Equity [Member]
Recorded investment in loans:
Individually evaluated for impairment	750	487
Collectively evaluated for impairment	80,367	86,116
Ending balance	81,117	86,603
Other Consumer [Member]
Recorded investment in loans:
Individually evaluated for impairment
Collectively evaluated for impairment	2,285	2,988
Ending balance	$ 2,285	$ 2,988

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The following table presents, by class of loan, information related to impaired loans for the periods ended September 30, 2019 and December 31, 2018. (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Oct. 11, 2019	Dec. 31, 2018
Financing Receivable, Past Due [Line Items]
Unpaid Contractual Principal Balance	$ 52,121		$ 52,121			$ 40,774
Recorded Investment With No Allowance	26,938		26,938			13,166
Recorded Investment With Allowance	22,752		22,752			27,136
Related Allowance	49,690		49,690			40,302
Related Allowance	10,434		10,434			8,918
Average Recorded Investment	47,854	$ 36,463	54,048	$ 30,955
Impaired Financing Receivable, Interest Income, Accrual Method	649	110	958	1,006
Commercial Portfolio Segment [Member]
Financing Receivable, Past Due [Line Items]
Unpaid Contractual Principal Balance	18,243		18,243			8,613
Recorded Investment With No Allowance	5,641		5,641			2,057
Recorded Investment With Allowance	11,331		11,331			6,084
Related Allowance	16,972		16,972			8,141
Related Allowance	8,196		8,196			4,803
Average Recorded Investment	16,967	10,306	15,638	8,359
Impaired Financing Receivable, Interest Income, Accrual Method	117	126	220	190
Income Producing - Commercial Real Estate [Member]
Financing Receivable, Past Due [Line Items]
Unpaid Contractual Principal Balance	10,041		10,041			21,402
Recorded Investment With No Allowance	1,853		1,853			1,720
Recorded Investment With Allowance	8,188		8,188			19,682
Related Allowance	10,041		10,041			21,402
Related Allowance	1,200		1,200			2,465
Average Recorded Investment	9,497	15,331	19,479	12,309
Impaired Financing Receivable, Interest Income, Accrual Method	412	189	510	550
Owner Occupied - Commercial Real Estate - [Member]
Financing Receivable, Past Due [Line Items]
Unpaid Contractual Principal Balance	7,407		7,407			5,731
Recorded Investment With No Allowance	6,630		6,630			4,361
Recorded Investment With Allowance	777		777			1,370
Related Allowance	7,407		7,407			5,731
Related Allowance	375		375			600
Average Recorded Investment	6,113	5,746	5,693	6,011
Impaired Financing Receivable, Interest Income, Accrual Method	120	47	213	196
Residential Portfolio Segment [Member]
Financing Receivable, Past Due [Line Items]
Unpaid Contractual Principal Balance	5,635		5,635			1,510
Recorded Investment With No Allowance	3,179		3,179			1,510
Recorded Investment With Allowance	2,456		2,456
Related Allowance	5,635		5,635			1,510
Related Allowance	650		650
Average Recorded Investment	5,638	1,516	5,640	1,688
Impaired Financing Receivable, Interest Income, Accrual Method				2
Construction - Commercial and Residential [Member]
Financing Receivable, Past Due [Line Items]
Unpaid Contractual Principal Balance	10,308		10,308		$ 3,031
Recorded Investment With No Allowance	9,148		9,148			3,031
Related Allowance	9,148		9,148			3,031
Related Allowance						1,050
Average Recorded Investment	9,152	3,031	7,111	2,028
Impaired Financing Receivable, Interest Income, Accrual Method			15	68
Home Equity [Member]
Financing Receivable, Past Due [Line Items]
Unpaid Contractual Principal Balance	487		487			487
Recorded Investment With No Allowance	487		487			487
Related Allowance	487		487			$ 487
Related Allowance	13		13
Average Recorded Investment	$ 487	487	$ 487	491
Other Consumer [Member]
Financing Receivable, Past Due [Line Items]
Average Recorded Investment		$ 46		$ 69

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Note 3. Investment Securities Available-for-Sale (Tables)

9 Months Ended

Sep. 30, 2019

Investments, Debt and Equity Securities [Abstract]

Amortized cost and estimated fair value of securities available-for-sale are summarized as follows:

Amortized cost and estimated fair value of securities available-for-sale are summarized as follows:

			Gross		Gross		Estimated
September 30, 2019	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value
U. S. agency securities	$	171,585	$	941	$	706	$	171,820
Residential mortgage backed securities		434,042		5,404		1,417		438,029
Municipal bonds		61,680		2,278		—		63,958
Corporate bonds		9,532		82		—		9,614
U.S. Treasury		24,919		7		—		24,926
Other equity investments		198		—		—		198
	$	701,956	$	8,712	$	2,123	$	708,545
			Gross		Gross		Estimated
December 31, 2018	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value
U. S. agency securities	$	260,150	$	228	$	4,033	$	256,345
Residential mortgage backed securities		477,949		1,575		7,293		472,231
Municipal bonds		45,814		439		484		45,769
Corporate bonds		9,503		79		6		9,576
Other equity investments		218		—		—		218
	$	793,634	$	2,321	$	11,816	$	784,139

Gross unrealized losses and fair value by length of time that the individual available-for-sale securities have been in a continuous unrealized loss position are as follows:

Gross unrealized losses and fair value by length of time that the individual available-for-sale securities have been in a continuous unrealized loss position are as follows:

			Less than				12 Months
			12 Months				or Greater				Total
			Estimated				Estimated				Estimated
September 30, 2019	Number of		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(dollars in thousands)	Securities		Value		Losses		Value		Losses		Value		Losses
U. S. agency securities		32	$	36,162	$	132	$	59,843	$	574	$	96,005	$	706
Residential mortgage backed securities		98		53,769		287		116,438		1,130		170,207		1,417
Municipal bonds		1		30		—		—		—		30		—
		131	$	89,961	$	419	$	176,281	$	1,704	$	266,242	$	2,123

			Less than				12 Months
			12 Months				or Greater				Total
			Estimated				Estimated				Estimated
December 31, 2018	Number of		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(dollars in thousands)	Securities		Value		Losses		Value		Losses		Value		Losses
U. S. agency securities		58	$	72,679	$	533	$	144,636	$	3,500	$	217,315	$	4,033
Residential mortgage backed securities		151		61,199		527		225,995		6,766		287,194		7,293
Municipal bonds		11		4,299		50		17,041		434		21,340		484
Corporate bonds		1		1,494		6		—		—		1,494		6
		221	$	139,671	$	1,116	$	387,672	$	10,700	$	527,343	$	11,816

The amortized cost and estimated fair value of investments available-for-sale at September 30, 2019 and December 31, 2018 by contractual maturity are shown in the table below. Expected maturities for residential mortgage backed securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

The amortized cost and estimated fair value of investments available-for-sale at September 30, 2019 and December 31, 2018 by contractual maturity are shown in the table below. Expected maturities for residential mortgage backed securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	September 30, 2019				December 31, 2018
	Amortized		Estimated		Amortized		Estimated
(dollars in thousands)	Cost		Fair Value		Cost		Fair Value
U. S. agency securities maturing:
One year or less	$	78,924	$	79,178	$	128,148	$	125,545
After one year through five years		79,835		79,809		119,856		118,883
Five years through ten years		12,826		12,833		12,146		11,917
Residential mortgage backed securities		434,042		438,029		477,949		472,231
Municipal bonds maturing:
One year or less		6,116		6,185		8,097		8,167
After one year through five years		16,474		16,940		15,025		15,081
Five years through ten years		36,028		37,540		21,626		21,385
After ten years		3,062		3,293		1,066		1,136
Corporate bonds maturing:
After one year through five years		8,032		8,114		8,003		8,076
After ten years		1,500		1,500		1,500		1,500
U.S. Treasury		24,919		24,926		—		—
Other equity investments		198		198		218		218
	$	701,956	$	745,343	$	793,634	$	784,139

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Note 12. Other Comprehensive Income

9 Months Ended

Sep. 30, 2019

Note 12. Other Comprehensive Income

Note 12. Other Comprehensive Income

Note 12. Other Comprehensive Income

The following table presents the components of other comprehensive income (loss) for the three and nine months ended September 30, 2019 and 2018.

(dollars in thousands)	Before Tax			Tax Effect			Net of Tax
Three Months Ended September 30, 2019
Net unrealized gain on securities available-for-sale	$	1,585		$	411		$	1,174
Less: Reclassification adjustment for net gains included in net income		(153	)		(43	)		(110	)
Total unrealized gain		1,432			368			1,064
Net unrealized gain on derivatives		24			(13	)		11
Less: Reclassification adjustment for gain included in net income		(285	)		(80	)		(205	)
Total unrealized loss		(261	)		(67	)		(194	)
Other Comprehensive Income	$	1,171		$	301		$	870
Three Months Ended September 30, 2018
Net unrealized loss on securities available-for-sale	$	(4,253	)	$	1,105		$	(3,148	)
Less: Reclassification adjustment for net gains included in net income		—			—			—
Total unrealized loss		(4,253	)		1,105			(3,148	)
Net unrealized gain on derivatives		846			221			625
Less: Reclassification adjustment for losses included in net income		(211	)		(53	)		(158	)
Total unrealized gain		635			168			467
Other Comprehensive Loss	$	(3,618	)	$	1,273		$	(2,681	)
Nine Months Ended September 30, 2019
Net unrealized gain on securities available-for-sale	$	17,712		$	(4,572	)	$	13,140
Less: Reclassification adjustment for net gains included in net income		(1,628	)		(438	)		(1,190	)
Total unrealized gain		16,084			(5,010	)		11,950
Net unrealized loss on derivatives		(2,210	)		546			(1,664	)
Less: Reclassification adjustment for gain included in net income		(1,879	)		(505	)		(1,374	)
Total unrealized loss		(4,089	)		41			(3,038	)
Other Comprehensive Income	$	11,995		$	(4,969	)	$	8,912
Nine Months Ended September 30, 2018
Net unrealized loss on securities available-for-sale	$	(13,079	)	$	2,873		$	(10,206	)
Less: Reclassification adjustment for net gains included in net income		(68	)		(17	)		(51	)
Total unrealized loss		(13,147	)		2,856			(10,257	)
Net unrealized gain on derivatives		4,380			833			3,547
Less: Reclassification adjustment for losses included in net income		(209	)		(53	)		(156	)
Total unrealized gain		4,171			780			3,391
Other Comprehensive Loss	$	(8,976	)	$	3,636		$	(6,866	)

The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax, for the three and nine months ended September 30, 2019 and 2018.

(dollars in thousands)	Securities Available For Sale			Derivatives			Accumulated Other Comprehensive Income (Loss)
Three Months Ended September 30, 2019
Balance at Beginning of Period	$	3,842		$	75		$	(3,767	)
Other comprehensive income (loss) before reclassifications		1,174			(11	)		1,185
Amounts reclassified from accumulated other comprehensive income		(110	)		(205	)		(315	)
Net other comprehensive income (loss) during period		1,064			(194	)		870
Balance at End of Period	$	4,906		$	(269	)	$	4,637
Three Months Ended September 30, 2018
Balance at Beginning of Period	$	(10,914	)	$	4,305		$	(6,609	)
Other comprehensive income (loss) before reclassifications		(3,148	)		625			(2,523	)
Amounts reclassified from accumulated other comprehensive income		—			(158	)		(158	)
Net other comprehensive (loss) income during period		(3,148	)		467			(2,681	)
Balance at End of Period	$	(14,062	)	$	4,772		$	(9,290	)

(dollars in thousands)	Securities Available For Sale			Derivatives			Accumulated Other Comprehensive Income (Loss)
Nine Months Ended September 30, 2019
Balance at Beginning of Period	$	(7,044	)	$	2,769		$	(4,275	)
Other comprehensive income (loss) before reclassifications		13,140			(1,664	)		11,476
Amounts reclassified from accumulated other comprehensive income		(1,190	)		(1,374	)		(2,564	)
Net other comprehensive income (loss) during period		11,950			(3,038	)		8,912
Balance at End of Period	$	4,906		$	(269	)	$	4,637
Nine Months Ended September 30, 2018
Balance at Beginning of Period	$	(3,131	)	$	1,381		$	(1,750	)
Other comprehensive income (loss) before reclassifications		(10,206	)		3,547			(6,659	)
Amounts reclassified from accumulated other comprehensive income		(51	)		(156	)		(207	)
Net other comprehensive (loss) income during period		(10,257	)		3,391			(6,866	)
Reclassification of the Income Tax Effects of the Tax Cuts and Jobs Act from AOCI		(674	)		—			(674	)
Balance at End of Period	$	(14,062	)	$	4,772		$	(9,290	)

The following table presents the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2019 and 2018.

Details about Accumulated Other Comprehensive Income Components (dollars in thousands)	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)						Affected Line Item in the Statement Where Net Income is Presented
	Three Months Ended September 30,
	2019			2018
Realized gain on sale of investment securities	$	153		$	—		Gain on sale of investment securities
Interest income (expense) derivative deposits		285			(211	)	Interest expense on deposits
Income tax (expense) benefit		(123	)		53		Income Tax Expense
Total Reclassifications for the Period	$	315		$	(158	)	Net Income

Details about Accumulated Other Comprehensive Income Components (dollars in thousands)	Amount Reclassified from Accumulated Other Comprehensive Income						Affected Line Item in the Statement Where Net Income is Presented
	Nine Months Ended September 30,
	2019			2018
Realized gain on sale of investment securities	$	1,628		$	(68	)	Gain on sale of investment securities
Realized gain on swap termination		829			—		Gain on sale of investment securities
Interest income (expense) derivative deposits		1,050			(209	)	Interest expense on deposits
Income tax (benefit) expense		(943	)		70		Income Tax Expense
Total Reclassifications for the Period	$	2,564		$	(207	)	Net Income

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Note 9. Other Real Estate Owned (Tables)

9 Months Ended

Sep. 30, 2019

Banking and Thrift [Abstract]

For the three and nine months ended September 30, 2019 and 2018, there were no sales of OREO property.

For the three and nine months ended September 30, 2019 and 2018, there were no sales of OREO property.

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2019		2018		2019		2018
Beginning Balance	$	1,394	$	1,394	$	1,394	$	1,394
Real estate acquired from borrowers		93		—		93		—
Properties sold		—		—		—		—
Ending Balance	$	1,487	$	1,394	$	1,487	$	1,394

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Loans, net of unamortized net deferred fees, at September 30, 2019 and December 31, 2018 are summarized by type as follows: (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Financing Receivable, Past Due [Line Items]
Loans	$ 7,559,161	$ 6,991,447
Loans, percent	100.00%	100.00%
Less: allowance for credit losses	$ 73,720	$ 69,944
Loans, net	7,485,441	6,921,503
Commercial Portfolio Segment [Member]
Financing Receivable, Past Due [Line Items]
Loans	$ 1,466,862	$ 1,553,112
Loans, percent	19.00%	22.00%
Income Producing - Commercial Real Estate [Member]
Financing Receivable, Past Due [Line Items]
Loans	$ 3,812,284	$ 3,256,900
Loans, percent	51.00%	46.00%
Owner Occupied - Commercial Real Estate - [Member]
Financing Receivable, Past Due [Line Items]
Loans	$ 956,345	$ 887,814
Loans, percent	13.00%	13.00%
Residential Portfolio Segment [Member]
Financing Receivable, Past Due [Line Items]
Loans	$ 104,563	$ 106,418
Loans, percent	1.00%	2.00%
Construction- Commercial amd Residential [Member]
Financing Receivable, Past Due [Line Items]
Loans	$ 1,053,789	$ 1,039,815
Loans, percent	14.00%	15.00%
Construction C and I (Owner Occupied) Member
Financing Receivable, Past Due [Line Items]
Loans	$ 81,916	$ 57,797
Loans, percent	1.00%	1.00%
Home Equity [Member]
Financing Receivable, Past Due [Line Items]
Loans	$ 81,117	$ 86,603
Loans, percent	1.00%	1.00%
Other Consumer [Member]
Financing Receivable, Past Due [Line Items]
Loans	$ 2,285	$ 2,988
Loans, percent

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Note 12. Other Comprehensive Income (Tables)

9 Months Ended

Sep. 30, 2019

Note 12. Other Comprehensive Income

The following table presents the components of other comprehensive income (loss) for the three and nine months ended September 30, 2019 and 2018.

The following table presents the components of other comprehensive income (loss) for the three and nine months ended September 30, 2019 and 2018.

(dollars in thousands)	Before Tax			Tax Effect			Net of Tax
Three Months Ended September 30, 2019
Net unrealized gain on securities available-for-sale	$	1,585		$	411		$	1,174
Less: Reclassification adjustment for net gains included in net income		(153	)		(43	)		(110	)
Total unrealized gain		1,432			368			1,064
Net unrealized gain on derivatives		24			(13	)		11
Less: Reclassification adjustment for gain included in net income		(285	)		(80	)		(205	)
Total unrealized loss		(261	)		(67	)		(194	)
Other Comprehensive Income	$	1,171		$	301		$	870
Three Months Ended September 30, 2018
Net unrealized loss on securities available-for-sale	$	(4,253	)	$	1,105		$	(3,148	)
Less: Reclassification adjustment for net gains included in net income		—			—			—
Total unrealized loss		(4,253	)		1,105			(3,148	)
Net unrealized gain on derivatives		846			221			625
Less: Reclassification adjustment for losses included in net income		(211	)		(53	)		(158	)
Total unrealized gain		635			168			467
Other Comprehensive Loss	$	(3,618	)	$	1,273		$	(2,681	)
Nine Months Ended September 30, 2019
Net unrealized gain on securities available-for-sale	$	17,712		$	(4,572	)	$	13,140
Less: Reclassification adjustment for net gains included in net income		(1,628	)		(438	)		(1,190	)
Total unrealized gain		16,084			(5,010	)		11,950
Net unrealized loss on derivatives		(2,210	)		546			(1,664	)
Less: Reclassification adjustment for gain included in net income		(1,879	)		(505	)		(1,374	)
Total unrealized loss		(4,089	)		41			(3,038	)
Other Comprehensive Income	$	11,995		$	(4,969	)	$	8,912
Nine Months Ended September 30, 2018
Net unrealized loss on securities available-for-sale	$	(13,079	)	$	2,873		$	(10,206	)
Less: Reclassification adjustment for net gains included in net income		(68	)		(17	)		(51	)
Total unrealized loss		(13,147	)		2,856			(10,257	)
Net unrealized gain on derivatives		4,380			833			3,547
Less: Reclassification adjustment for losses included in net income		(209	)		(53	)		(156	)
Total unrealized gain		4,171			780			3,391
Other Comprehensive Loss	$	(8,976	)	$	3,636		$	(6,866	)

The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax, for the three and nine months ended September 30, 2019 and 2018.

The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax, for the three and nine months ended September 30, 2019 and 2018.

(dollars in thousands)	Securities Available For Sale			Derivatives			Accumulated Other Comprehensive Income (Loss)
Three Months Ended September 30, 2019
Balance at Beginning of Period	$	3,842		$	75		$	(3,767	)
Other comprehensive income (loss) before reclassifications		1,174			(11	)		1,185
Amounts reclassified from accumulated other comprehensive income		(110	)		(205	)		(315	)
Net other comprehensive income (loss) during period		1,064			(194	)		870
Balance at End of Period	$	4,906		$	(269	)	$	4,637
Three Months Ended September 30, 2018
Balance at Beginning of Period	$	(10,914	)	$	4,305		$	(6,609	)
Other comprehensive income (loss) before reclassifications		(3,148	)		625			(2,523	)
Amounts reclassified from accumulated other comprehensive income		—			(158	)		(158	)
Net other comprehensive (loss) income during period		(3,148	)		467			(2,681	)
Balance at End of Period	$	(14,062	)	$	4,772		$	(9,290	)

(dollars in thousands)	Securities Available For Sale			Derivatives			Accumulated Other Comprehensive Income (Loss)
Nine Months Ended September 30, 2019
Balance at Beginning of Period	$	(7,044	)	$	2,769		$	(4,275	)
Other comprehensive income (loss) before reclassifications		13,140			(1,664	)		11,476
Amounts reclassified from accumulated other comprehensive income		(1,190	)		(1,374	)		(2,564	)
Net other comprehensive income (loss) during period		11,950			(3,038	)		8,912
Balance at End of Period	$	4,906		$	(269	)	$	4,637
Nine Months Ended September 30, 2018
Balance at Beginning of Period	$	(3,131	)	$	1,381		$	(1,750	)
Other comprehensive income (loss) before reclassifications		(10,206	)		3,547			(6,659	)
Amounts reclassified from accumulated other comprehensive income		(51	)		(156	)		(207	)
Net other comprehensive (loss) income during period		(10,257	)		3,391			(6,866	)
Reclassification of the Income Tax Effects of the Tax Cuts and Jobs Act from AOCI		(674	)		—			(674	)
Balance at End of Period	$	(14,062	)	$	4,772		$	(9,290	)

The following table presents the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2019 and 2018.

The following table presents the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2019 and 2018.

Details about Accumulated Other Comprehensive Income Components (dollars in thousands)	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)						Affected Line Item in the Statement Where Net Income is Presented
	Three Months Ended September 30,
	2019			2018
Realized gain on sale of investment securities	$	153		$	—		Gain on sale of investment securities
Interest income (expense) derivative deposits		285			(211	)	Interest expense on deposits
Income tax (expense) benefit		(123	)		53		Income Tax Expense
Total Reclassifications for the Period	$	315		$	(158	)	Net Income

Details about Accumulated Other Comprehensive Income Components (dollars in thousands)	Amount Reclassified from Accumulated Other Comprehensive Income						Affected Line Item in the Statement Where Net Income is Presented
	Nine Months Ended September 30,
	2019			2018
Realized gain on sale of investment securities	$	1,628		$	(68	)	Gain on sale of investment securities
Realized gain on swap termination		829			—		Gain on sale of investment securities
Interest income (expense) derivative deposits		1,050			(209	)	Interest expense on deposits
Income tax (benefit) expense		(943	)		70		Income Tax Expense
Total Reclassifications for the Period	$	2,564		$	(207	)	Net Income

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Gross unrealized losses and fair value by length of time that the individual available-for-sale securities have been in a continuous unrealized loss position are as follows: (Details) $ in Thousands	Sep. 30, 2019 USD ($)	Dec. 31, 2018 USD ($)
Marketable Securities [Line Items]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	131	221
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	$ 89,961	$ 139,671
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Accumulated Loss	419	1,116
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	176,281	387,672
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Accumulated Loss	1,704	10,700
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	266,242	527,343
Available-for-sale Securities, Continuous Unrealized Loss Position, Accumulated Loss	$ 2,123	$ 11,816
US Government Agencies Debt Securities [Member]
Marketable Securities [Line Items]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	32	58
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	$ 36,162	$ 72,679
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Accumulated Loss	132	533
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	59,843	144,636
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Accumulated Loss	574	3,500
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	96,005	217,315
Available-for-sale Securities, Continuous Unrealized Loss Position, Accumulated Loss	$ 706	$ 4,033
Residential Mortgage Backed Securities [Member]
Marketable Securities [Line Items]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	98	151
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	$ 53,769	$ 61,199
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Accumulated Loss	287	527
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	116,438	225,995
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Accumulated Loss	1,130	6,766
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	170,207	287,194
Available-for-sale Securities, Continuous Unrealized Loss Position, Accumulated Loss	$ 1,417	$ 7,293
US States and Political Subdivisions Debt Securities [Member]
Marketable Securities [Line Items]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	1	11
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	$ 30	$ 4,299
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Accumulated Loss		50
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value		17,041
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Accumulated Loss		434
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	30	21,340
Available-for-sale Securities, Continuous Unrealized Loss Position, Accumulated Loss		$ 484
Corporate Debt Securities [Member]
Marketable Securities [Line Items]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions		1
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value		$ 1,494
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Accumulated Loss		6
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Accumulated Loss
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value		1,494
Available-for-sale Securities, Continuous Unrealized Loss Position, Accumulated Loss		$ 6

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Note 8. Other Derivatives

9 Months Ended

Sep. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Note 8. Other Derivatives

Note 8. Other Derivatives

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments.

Cash Flow Hedges of Interest Rate Risk

The Company uses interest rate swap agreements to assist in its interest rate risk management. The Company’s objective in using interest rate derivatives designated as cash flow hedges is to add stability to interest expense and to better manage its exposure to interest rate movements. To accomplish this objective, the Company utilizes interest rate swaps as part of its interest rate risk management strategy intended to mitigate the potential risk of rising interest rates on the Bank’s cost of funds. The notional amounts of the interest rate swaps designated as cash flow hedges do not represent amounts exchanged by the counterparties, but rather, the notional amount is used to determine, along with other terms of the derivative, the amounts to be exchanged between the counterparties. The interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from one counterparty in exchange for the Company making fixed payments. The Company’s intent is to hedge its exposure to the variability in potential future interest rate conditions on existing financial instruments.

For derivatives designated as cash flow hedges, changes in the fair value of the derivative are initially reported in other comprehensive income (outside of earnings), net of tax, and subsequently reclassified to earnings when the hedged transaction affects earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged transactions.

As of September 30, 2019, the Company had one designated cash flow hedge notional interest rate swap transaction outstanding amounting to $100 million associated with the Company’s variable rate deposits, as compared to three designated cash flow hedge notional interest rate swap transactions outstanding as of December 31, 2018 amounting to $250 million associated with the Company’s variable rate deposits. The decline in the amount of hedged variable rate deposits was due to a reduction in such variable rate deposits. The net unrealized loss before income tax on the swap was $362 thousand at September 30, 2019 compared to a net unrealized gain before income tax of $3.7 million at December 31, 2018. The unrealized loss in value since year end 2018 was due to the termination of two of the interest rate swap transactions as part of the Company’s asset liability strategy as well as declines in market interest rates. As a result of the swap terminations, the Company recognized $829 thousand in noninterest income during March 2019. Additionally, the Company will amortize $248 thousand of realized gain as a reduction to interest expense through the swap’s original maturity date of March 31, 2020.

Amounts reported in accumulated other comprehensive income related to designated cash flow hedge derivatives will be reclassified to interest income/expense as interest payments are made/received on the Company’s variable-rate assets/liabilities. During the quarter ended September 30, 2019, the Company reclassified $264 thousand related to designated cash flow hedge derivatives from accumulated other comprehensive income to decrease interest expense. During the next twelve months, the Company estimates (based on existing interest rates) that $134 thousand will be reclassified as an increase in interest expense.

Non-designated Hedges

Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate caps and swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

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

Credit-risk-related Contingent Features

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.

The Company is exposed to credit risk in the event of nonperformance by the interest rate derivative counterparty. The Company minimizes this risk by entering into derivative contracts with only large, stable financial institutions, and the Company has not experienced, and does not expect, any losses from counterparty nonperformance on the interest rate derivatives. The Company monitors counterparty risk in accordance with the provisions of ASC Topic 815, “Derivatives and Hedging.” In addition, the interest rate derivative agreements contain language outlining collateral-pledging requirements for each counterparty. Collateral must be posted when the market value exceeds certain threshold limits.

The interest rate derivative agreements detail: 1) that collateral be posted when the market value exceeds certain threshold limits associated with the secured party’s exposure; 2) if the Company defaults on any of its indebtedness (including default where repayment of the indebtedness has not been accelerated by the lender), then the Company could also be declared in default on its derivative obligations; 3) if the Company fails to maintain its status as a well capitalized institution then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

As of September 30, 2019, the aggregate fair value of derivative contracts with credit risk contingent features (i.e., containing collateral posting or termination provisions based on our capital status) that was in a net liability position totaled $362 thousand. The Company has a minimum collateral posting threshold with its derivative counterparty. As of September 30, 2019, the Company was not required to post collateral with its derivative counterparty against its obligations under this agreement. If the Company had breached any provisions under the agreement at September 30, 2019, it could have been required to settle its obligations under the agreement at the termination value.

The table below identifies the balance sheet category and fair value of the Company’s designated cash flow hedge derivative instruments and non-designated hedges as of September 30, 2019 and December 31, 2018.

	September 30, 2019					December 31, 2018
	Notional				Balance Sheet	Notional				Balance Sheet
	Amount		Fair Value		Category	Amount		Fair Value		Category
Derivatives designated as hedging instruments
(dollars in thousands)
Interest rate product	$	—	$	—	Other Assets	$	250,000	$	3,727	Other Assets
(dollars in thousands)
Interest rate product	$	100,000	$	348	Other Liabilities	$	—	$	—	Other Liabilities
Derivatives not designated as hedging instruments
(dollars in thousands)
Interest rate product	$	26,000	$	15
Interest rate product		26,517		213
Interest rate product	$	52,517	$	228	Other Assets	$	—	$	—	Other Assets
(dollars in thousands)
Interest rate product	$	26,000	$	15	Other Liabilities	$	—	$	—	Other Liabilities
Interest rate product		26,517		220	Other Liabilities
Other Contracts		27,500		117	Other Liabilities		27,500		59	Other Liabilities
	$	80,017	$	352	Other Liabilities	$	27,500	$	59	Other Liabilities

The table below presents the pre-tax net gains (losses) of the Company’s designated cash flow hedges for the three and nine months ended September 30, 2019 and 2018.

Derivatives in Subtopic 815-20 Hedging Relationships (dollars in thousands)	Amount of Gain or (Loss) Recognized in OCI on Derivative					Location of Gain or (Loss) Recognized from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income
	Three Months Ended September 30,						Three Months Ended September 30,
	2019			2018			2019		2018
Derivatives in Cash Flow Hedging Relationships
Interest Rate Products	$	(107	)	$	849	Interest Expense	$	264	$	214
Total	$	(107	)	$	849		$	264	$	214

Derivatives in Subtopic 815-20 Hedging Relationships (dollars in thousands)	Amount of Gain or (Loss) Recognized in OCI on Derivative					Location of Gain or (Loss) Recognized from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income
	Nine Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019		2018
Derivatives in Cash Flow Hedging Relationships
Interest Rate Products	$	(1,974	)	$	4,401	Interest Expense	$	1,039	$	230
Interest Rate Products		—			—	Gain on sale of investment securities		829		—
Total	$	(1,974	)	$	4,401		$	1,868	$	230

The table below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018.

The Effect of Fair Value and Cash Flow Hedge Accounting on the Statement of Financial Performance

	Location and Amount of Gain or (Loss) Recognized in Income on Fair Value
	and Cash Flow Hedging Relationships (in 000's)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2019		2018
	Interest Expense				Interest Expense		Gain on sale of investment securities		Interest Expense
Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value or cash flow hedges are recorded	$	264	$	214	$	1,039	$	829	$	16
Gain or (loss) on cash flow hedging relationships in Subtopic 815-20
Interest contracts
Amount of gain or (loss) reclassified from accumulated other  comprehensive income into income	$	264	$	214	$	1,039	$	—	$	230
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income as a result that a forecasted transaction is no longer probable of occurring	$	—	$	—	$	—	$	829	$	—
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income -  Included Component	$	264	$	214	$	1,039	$	829	$	230
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income -  Excluded Component	$	—	$	—	$	—	$	—	$	—

Effect of Derivatives Not Designated as Hedging Instruments on the Statement of Financial Performance
Derivatives Not Designated as Hedging Instruments under Subtopic 815-20	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative					Amount of Gain or (Loss) Recognized in Income on Derivative
		Three Months Ended September 30,					Nine Months Ended September 30,
		2019			2018		2019			2018
Interest Rate Products	Other income / (expense)		(7	)				(7	)
Other Contracts	Other income / (expense)		(16	)		—		(58	)		—
Total			(23	)		—		(65	)		—

Balance Sheet Offsetting: Our designated cash flow hedge interest rate derivatives are eligible for offset in the Consolidated Balance Sheets and are subject to master netting arrangements. Our derivative transactions with counterparties are generally executed under International Swaps and Derivative Association (“ISDA”) master agreements which include “right of set-off” provisions. In such cases there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis. The Company generally offsets such financial instruments for financial reporting purposes.

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s cash flow hedge derivatives as of September 30, 2019 and December 31, 2018.

As of September 30, 2019
Offsetting of Derivative Assets (dollars in thousands)							Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Balance Sheet		Net Amounts of Assets presented in the Balance Sheet		Financial Instruments		Cash Collateral Posted		Net Amount
Derivatives	$	228	$	—	$	228	$	—	$	—	$	228

Offsetting of Derivative Liabilities (dollars in thousands)							Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Balance Sheet		Net Amounts of Liabilities presented in the Balance Sheet		Financial Instruments		Cash Collateral Posted		Net Amount
Derivatives	$	669	$	—	$	669	$	—	$	—	$	669

As of December 31, 2018
Offsetting of Derivative Assets (dollars in thousands)							Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Balance Sheet		Net Amounts of Assets presented in the Balance Sheet		Financial Instruments		Cash Collateral Posted		Net Amount
Derivatives	$	3,840	$	—	$	3,840	$	—	$	—	$	3,840

Offsetting of Derivative Liabilities (dollars in thousands)							Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Balance Sheet		Net Amounts of Liabilities presented in the Balance Sheet		Financial Instruments		Cash Collateral Posted		Net Amount
Derivatives	$	59	$	—	$	59	$	—	$	—	$	59

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Note 4. Mortgage Banking Derivative

9 Months Ended

Sep. 30, 2019

Note 4. Mortgage Banking Derivative

Note 4. Mortgage Banking Derivative

Note 4. Mortgage Banking Derivative

As part of its mortgage banking activities, the Bank enters into interest rate lock commitments, which are commitments to originate loans where the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate. The Bank then locks in the loan and interest rate with an investor and commits to deliver the loan if settlement occurs (“best efforts”) or commits to deliver the locked loan in a binding (“mandatory”) delivery program with an investor. Certain loans under interest rate lock commitments are covered under forward sales contracts of mortgage backed securities (“MBS”). Forward sales contracts of MBS are recorded at fair value with changes in fair value recorded in noninterest income. Interest rate lock commitments and commitments to deliver loans to investors are considered derivatives. The market value of interest rate lock commitments and best efforts contracts are not readily ascertainable with precision because they are not actively traded in stand-alone markets. The Bank determines the fair value of interest rate lock commitments and delivery contracts by measuring the fair value of the underlying asset, which is impacted by current interest rates, taking into consideration the probability that the interest rate lock commitments will close or will be funded.

Certain additional risks arise from these forward delivery contracts in that the counterparties to the contracts may not be able to meet the terms of the contracts. The Bank does not expect any counterparty to any MBS to fail to meet its obligation. Additional risks inherent in mandatory delivery programs include the risk that, if the Bank does not close the loans subject to interest rate risk lock commitments, it will still be obligated to deliver MBS to the counterparty under the forward sales agreement. Should this be required, the Bank could incur significant costs in acquiring replacement loans or MBS and such costs could have an adverse effect on mortgage banking operations.

The fair value of the mortgage banking derivatives is recorded as a freestanding asset or liability with the change in value being recognized in current earnings during the period of change.

At September 30, 2019 the Bank had mortgage banking derivative financial instruments with a notional value of $134.3 million related to its forward contracts as compared to $49.6 million at December 31, 2018. The fair value of these mortgage banking derivative instruments at September 30, 2019 was $313 thousand included in other assets and $3 thousand included in other liabilities as compared to $229 thousand included in other assets and $269 thousand included in other liabilities at December 31, 2018.

Included in other noninterest income for the three and nine months ended September 30, 2019 was a net gain of $30 thousand and a net gain $249 thousand, respectively, relating to mortgage banking derivative instruments as compared to a net loss of $10 thousand and net loss of $42 thousand as of September 30, 2018. The amount included in other noninterest income for the three and nine months ended September 30, 2019 pertaining to its mortgage banking hedging activities was a net realized gain of $277 thousand and a net realized gain of $228 thousand, respectively, as compared to a net realized gain of $56 thousand and no net realized gain as of September 30, 2018.

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The table below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018. (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Derivative Instruments, Gain (Loss) [Line Items]
Derivative, Gain (Loss) on Derivative, Net	$ 23		$ 65
Interest Expense [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Gain (Loss) on Cash Flow Hedge Ineffectiveness, Net	264	$ 214	1,039	$ 16
Derivative Instruments, Gain (Loss) Reclassified from Accumulated OCI into Income, Effective Portion, Net	264	214	1,039	230
Interest Expense [Member] | Included Component Member
Derivative Instruments, Gain (Loss) [Line Items]
Derivative Instruments, Gain (Loss) Reclassified from Accumulated OCI into Income, Effective Portion, Net	264	$ 214	1,039	$ 230
Gain (Loss) on Derivative Instruments [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Gain (Loss) on Cash Flow Hedge Ineffectiveness, Net			829
Derivative Instruments, Gain (Loss) Reclassified from Accumulated OCI into Income, Effective Portion, Net			829
Gain (Loss) on Derivative Instruments [Member] | Included Component Member
Derivative Instruments, Gain (Loss) [Line Items]
Derivative Instruments, Gain (Loss) Reclassified from Accumulated OCI into Income, Effective Portion, Net			829
Nonoperating Income (Expense) [Member] | Interest Rate Swap 1 [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Derivative, Gain (Loss) on Derivative, Net	7		7
Nonoperating Income (Expense) [Member] | Other Contract [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Derivative, Gain (Loss) on Derivative, Net	$ 16		$ 58

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Note 6. Leases (Details Narrative) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Note 6. Leases
Operating Lease, Right-of-Use Asset	$ 26,552,000
Operating Lease, Liability	$ 29,586,000
Probability to extend lease	90.00%

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Note 9. Other Real Estate Owned (Details Narrative)	Sep. 30, 2019 USD ($)
Banking and Thrift [Abstract]
Other real estate in foreclosure	$ 4,000,000.0

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The following table presents, by class of loan, information related to nonaccrual loans as of September 30, 2019 and December 31, 2018. (Details) - USD ($)	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Financing Receivable, Past Due [Line Items]
Financing Receivable, Nonaccrual	$ 41,122,000		$ 16,277,000
Loans and Leases Receivable, Impaired, Interest Lost on Nonaccrual Loans	2,700,000	$ 707,000
Nonaccrual loans, recorded interest income	598,000	$ 193,000
Performing Financial Instruments [Member]
Financing Receivable, Past Due [Line Items]
Financing Receivable, Troubled Debt Restructuring	8,600,000		24,000,000.0
Commercial Portfolio Segment [Member]
Financing Receivable, Past Due [Line Items]
Financing Receivable, Nonaccrual	16,074,000		7,115,000
Income Producing - Commercial Real Estate [Member]
Financing Receivable, Past Due [Line Items]
Financing Receivable, Nonaccrual	5,654,000		1,766,000
Owner Occupied - Commercial Real Estate - [Member]
Financing Receivable, Past Due [Line Items]
Financing Receivable, Nonaccrual	4,124,000		2,368,000
Residential Portfolio Segment [Member]
Financing Receivable, Past Due [Line Items]
Financing Receivable, Nonaccrual	5,635,000		1,510,000
Construction - Commercial and Residential [Member]
Financing Receivable, Past Due [Line Items]
Financing Receivable, Nonaccrual	9,148,000		3,031,000
Home Equity [Member]
Financing Receivable, Past Due [Line Items]
Financing Receivable, Nonaccrual	$ 487,000		$ 487,000

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Note 5. Loans and Allowance for Credit Losses (Details Narrative)	3 Months Ended		9 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)
Financing Receivable, Past Due [Line Items]
Unamortized net deferred fees	$ 24,500,000		$ 24,500,000		$ 26,500,000
Servicing Asset at Fair Value, Amount	$ 102,900,000		$ 102,900,000		111,100,000
Loans secured by real estate (percent)	85.00%		85.00%
Maximum loan to value (percent)	80.00%		80.00%
Number of loans			10	14
Financing Receivable, Troubled Debt Restructuring, Postmodification			$ 10,089,000	$ 18,268,000
Number of loans - restructured accruing			7	10
Financing Receivable, Troubled Debt Restructuring, Subsequent Default, Number of Contracts		1	1	2
Financing Receivable, Troubled Debt Restructuring, Subsequent Default			$ 2,300,000	$ 937,000
Financing Receivable, Troubled Debt Restructuring, Premodification		$ 2,400,000
Collateral Sold [Member]
Financing Receivable, Past Due [Line Items]
Financing Receivable, Modifications, Number of Contracts	1
Modified TDR loan paid off	$ 309,000,000
Performing Financial Instruments [Member]
Financing Receivable, Past Due [Line Items]
Financing Receivable, Troubled Debt Restructuring	$ 8,600,000		$ 8,600,000		$ 24,000,000.0
Maximum [Member]
Financing Receivable, Past Due [Line Items]
Debt Service Coverage	1.15		1.15
Minimum [Member]
Financing Receivable, Past Due [Line Items]
Debt Service Coverage	1.0		1.0
Owner occupied And Commercial Real Estate [Member]
Financing Receivable, Past Due [Line Items]
Percent of loan portfolio	79.00%		79.00%
Owner occupied And Commercial Real Estate [Member] | C And I Owner Occupied [Member]
Financing Receivable, Past Due [Line Items]
Percent of loan portfolio	14.00%		14.00%
Non Owner Occupied Commercial Real Estate and Construction [Member]
Financing Receivable, Past Due [Line Items]
Percent of loan portfolio	65.00%		65.00%
Commercial Portfolio Segment [Member]
Financing Receivable, Past Due [Line Items]
Percent of loan portfolio	19.00%		19.00%
Term of Loans Underwritten			10 years
Term Amortization Of Underwritten Loans			25 years
Financing Receivable, Troubled Debt Restructuring, Postmodification			$ 2,419,000	5,665,000
Financing Receivable, Troubled Debt Restructuring, Subsequent Default
Commercial Portfolio Segment [Member] | Maximum [Member]
Financing Receivable, Past Due [Line Items]
Debt Service Coverage	1.15		1.15
Term of Loans Underwritten			7 years
Commercial Portfolio Segment [Member] | Minimum [Member]
Financing Receivable, Past Due [Line Items]
Debt Service Coverage	1.0		1.0
Term of Loans Underwritten			5 years
Commercial Portfolio Segment [Member] | SBA Loans [Member]
Financing Receivable, Past Due [Line Items]
Percent of loan portfolio	2.00%		2.00%
Home Equity Loans Lines Of Credit Other Consume Loans [Member]
Financing Receivable, Past Due [Line Items]
Percent of loan portfolio	1.00%		1.00%
Residential Portfolio Segment [Member]
Financing Receivable, Past Due [Line Items]
Percent of loan portfolio	1.00%		1.00%
Repricing period			22 months
Commercial Land Acquisition Constructin Loans [Member]
Financing Receivable, Past Due [Line Items]
Term of Loans Underwritten			24 months
A D C Loan Portfolio [Member]
Financing Receivable, Past Due [Line Items]
ADC real estate loans	$ 1,660,000,000		$ 1,660,000,000
Percent of ADC loan portfolio using interest reserves	71.00%		71.00%

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Assets measured at fair value on a nonrecurring basis are included in the table below: (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Impaired Loans
Total assets measured at fair value on a nonrecurring basis as of December 31, 2018	$ 761,285	$ 807,349
Fair Value, Nonrecurring [Member]
Impaired Loans
Other real estate owned	1,487	1,394
Total assets measured at fair value on a nonrecurring basis as of December 31, 2018	40,743	32,778
Fair Value, Inputs, Level 1 [Member]
Impaired Loans
Total assets measured at fair value on a nonrecurring basis as of December 31, 2018
Fair Value, Inputs, Level 1 [Member] | Fair Value, Nonrecurring [Member]
Impaired Loans
Other real estate owned
Total assets measured at fair value on a nonrecurring basis as of December 31, 2018
Fair Value, Inputs, Level 2 [Member]
Impaired Loans
Total assets measured at fair value on a nonrecurring basis as of December 31, 2018	751,160	797,326
Fair Value, Inputs, Level 2 [Member] | Fair Value, Nonrecurring [Member]
Impaired Loans
Other real estate owned
Total assets measured at fair value on a nonrecurring basis as of December 31, 2018
Fair Value, Inputs, Level 3 [Member]
Impaired Loans
Total assets measured at fair value on a nonrecurring basis as of December 31, 2018	10,125	10,023
Fair Value, Inputs, Level 3 [Member] | Fair Value, Nonrecurring [Member]
Impaired Loans
Other real estate owned	1,487	1,394
Total assets measured at fair value on a nonrecurring basis as of December 31, 2018	40,743	32,778
Commercial Portfolio Segment [Member] | Fair Value, Nonrecurring [Member]
Impaired Loans
Home equity	8,776	3,338
Commercial Portfolio Segment [Member] | Fair Value, Inputs, Level 1 [Member] | Fair Value, Nonrecurring [Member]
Impaired Loans
Home equity
Commercial Portfolio Segment [Member] | Fair Value, Inputs, Level 2 [Member] | Fair Value, Nonrecurring [Member]
Impaired Loans
Home equity
Commercial Portfolio Segment [Member] | Fair Value, Inputs, Level 3 [Member] | Fair Value, Nonrecurring [Member]
Impaired Loans
Home equity	8,776	3,338
Income Producing - Commercial Real Estate [Member] | Fair Value, Nonrecurring [Member]
Impaired Loans
Home equity	8,841	18,937
Income Producing - Commercial Real Estate [Member] | Fair Value, Inputs, Level 1 [Member] | Fair Value, Nonrecurring [Member]
Impaired Loans
Home equity
Income Producing - Commercial Real Estate [Member] | Fair Value, Inputs, Level 2 [Member] | Fair Value, Nonrecurring [Member]
Impaired Loans
Home equity
Income Producing - Commercial Real Estate [Member] | Fair Value, Inputs, Level 3 [Member] | Fair Value, Nonrecurring [Member]
Impaired Loans
Home equity	8,841	18,937
Owner Occupied - Commercial Real Estate - [Member] | Fair Value, Nonrecurring [Member]
Impaired Loans
Home equity	7,032	5,131
Owner Occupied - Commercial Real Estate - [Member] | Fair Value, Inputs, Level 1 [Member] | Fair Value, Nonrecurring [Member]
Impaired Loans
Home equity
Owner Occupied - Commercial Real Estate - [Member] | Fair Value, Inputs, Level 2 [Member] | Fair Value, Nonrecurring [Member]
Impaired Loans
Home equity
Owner Occupied - Commercial Real Estate - [Member] | Fair Value, Inputs, Level 3 [Member] | Fair Value, Nonrecurring [Member]
Impaired Loans
Home equity	7,032	5,131
Residential Portfolio Segment [Member] | Fair Value, Nonrecurring [Member]
Impaired Loans
Home equity	4,985	1,510
Residential Portfolio Segment [Member] | Fair Value, Inputs, Level 1 [Member] | Fair Value, Nonrecurring [Member]
Impaired Loans
Home equity
Residential Portfolio Segment [Member] | Fair Value, Inputs, Level 2 [Member] | Fair Value, Nonrecurring [Member]
Impaired Loans
Home equity
Residential Portfolio Segment [Member] | Fair Value, Inputs, Level 3 [Member] | Fair Value, Nonrecurring [Member]
Impaired Loans
Home equity	4,985	1,510
Construction - Commercial and Residential [Member] | Fair Value, Nonrecurring [Member]
Impaired Loans
Home equity	9,148	1,981
Construction - Commercial and Residential [Member] | Fair Value, Inputs, Level 1 [Member] | Fair Value, Nonrecurring [Member]
Impaired Loans
Home equity
Construction - Commercial and Residential [Member] | Fair Value, Inputs, Level 2 [Member] | Fair Value, Nonrecurring [Member]
Impaired Loans
Home equity
Construction - Commercial and Residential [Member] | Fair Value, Inputs, Level 3 [Member] | Fair Value, Nonrecurring [Member]
Impaired Loans
Home equity	9,148	1,981
Home Equity [Member] | Fair Value, Nonrecurring [Member]
Impaired Loans
Home equity	474	487
Home Equity [Member] | Fair Value, Inputs, Level 1 [Member] | Fair Value, Nonrecurring [Member]
Impaired Loans
Home equity
Home Equity [Member] | Fair Value, Inputs, Level 2 [Member] | Fair Value, Nonrecurring [Member]
Impaired Loans
Home equity
Home Equity [Member] | Fair Value, Inputs, Level 3 [Member] | Fair Value, Nonrecurring [Member]
Impaired Loans
Home equity	$ 474	$ 487

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Note 1. Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Note 1. Summary of Significant Accounting Policies

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

The Consolidated Financial Statements include the accounts of Eagle Bancorp, Inc. and its subsidiaries (the “Company”). Active subsidiaries include: EagleBank (the “Bank”), Eagle Insurance Services, LLC, Bethesda Leasing, LLC, and Landroval Municipal Finance, Inc., with all significant intercompany transactions eliminated.

The Consolidated Financial Statements of the Company included herein are unaudited. The Consolidated Financial Statements reflect all adjustments, consisting of normal recurring accruals that in the opinion of management, are necessary to present fairly the results for the periods presented. The amounts as of and for the year ended December 31, 2018 were derived from audited Consolidated Financial Statements. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The Company applies the accounting policies contained in Note 1 to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. There have been no significant changes to the Company’s Accounting Policies as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 except as indicated in the “Accounting Standards Adopted in 2019” section below. The Company believes that the disclosures are adequate to make the information presented not misleading. Certain reclassifications have been made to amounts previously reported to conform to the current period presentation.

These statements should be read in conjunction with the audited Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results of operations to be expected for the remainder of the year, or for any other period.

Nature of Operations

The Company, through the Bank, conducts a full service community banking business, primarily in Northern Virginia, Suburban Maryland, and Washington, D.C. The primary financial services offered by the Bank include real estate, commercial and consumer lending, as well as traditional deposit and repurchase agreement products. The Bank is also active in the origination and sale of residential mortgage loans, the origination of small business loans, and the origination, securitization and sale of multifamily Federal Housing Administration (“FHA”) loans. The guaranteed portion of small business loans, guaranteed by the Small Business Administration (“SBA”), is typically sold to third party investors in a transaction apart from the loan’s origination. The Bank offers its products and services through twenty banking offices, five lending centers and various electronic capabilities, including remote deposit services and digital banking services. Eagle Insurance Services, LLC, a subsidiary of the Bank, offers access to insurance products and services through a referral program with a third party insurance broker. Landroval Municipal Finance, Inc., a subsidiary of the Bank, focuses on lending to municipalities by buying debt on the public market as well as direct purchase issuance.

Use of Estimates

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

New Authoritative Accounting Guidance

Accounting Standards Adopted in 2019

ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 has, among other things, required lessees to recognize a lease liability, which is a lessee’s obligation to make lease payments, measured on a discounted basis; and a right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 did not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model and ASC Topic 606, “Revenue from Contracts with Customers.” ASU 2016-02 became effective for us on January 1, 2019 and initially required transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842) – Targeted Improvements,” which, among other things, provides an additional transition method that allows entities to not apply the guidance in ASU 2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In December 2018, the FASB also issued ASU 2018-20, “Leases (Topic 842) - Narrow-Scope Improvements for Lessors,” which provides for certain policy elections and changes lessor accounting for sales and similar taxes and certain lessor costs. Upon adoption of ASU 2016-02, ASU 2018-11 and ASU 2018-20 on January 1, 2019, we recognized ROU assets of $29.6 million and related lease liabilities of $33.5 million which reduced the March 31, 2019 total risk based capital ratio by six basis points. We elected to apply certain practical expedients provided under ASU 2016-02 whereby we did not reassess (i) whether any expired or existing contracts were or contained leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. We also elected to not apply the recognition requirements of ASU 2016-02 to any short-term leases (as defined by related accounting guidance). We utilized the modified-retrospective transition approach prescribed by ASU 2018-11.

Accounting Standards Pending Adoption

ASU 2016-13, “Measurement of Credit Losses on Financial Instruments (Topic 326).” This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. In issuing the standard, the FASB is responding to criticism that today’s guidance for determining the allowance for credit losses delays recognition of expected future credit losses. The standard will replace today’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. The CECL model does not apply to available-for-sale (“AFS”) debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. ASU No. 2016-13 is effective for the Company beginning on January 1, 2020. Entities will apply any changes resulting from the application of the new standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). We have substantially concluded our data gap analysis. Our CECL model has been substantially developed and third party model validation is on-going. We have entered our data into the model and are working on the qualitative and forecasting aspects of the methodology. We have established a steering committee with representation from various departments across the enterprise. The committee has agreed to a project plan and has regular meetings to ensure adherence to our implementation timeline. The Company is currently evaluating the provisions of ASU No. 2016-13 to determine the potential impact the new standard will have on the Company’s Consolidated Financial Statements. We preliminarily expect this rule to increase the reserve for credit losses by 10-20% inclusive of the impact on commitments to lend upon implementation on January 1, 2020. This number may change as we finalize and validate our model and update our system of internal controls as a result of the rule change.

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The following table presents the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2019 and 2018. (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Reclassification Adjustment out of Accumulated Other Comprehensive Income on Derivatives [Line Items]
Realized gain on sale of investment securities	$ 153		$ 1,628	$ 68
Income tax (benefit) expense	(14,149)	(13,928)	(39,531)	(38,735)
Total Reclassifications for the Period	(315)	(158)	(2,564)	(207)
Reclassification out of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income on Derivatives [Line Items]
Realized gain on sale of investment securities	153		1,628	(68)
Interest income (expense) derivative deposits	285	(211)	1,050	(209)
Income tax (benefit) expense	(123)	53	(943)	70
Total Reclassifications for the Period	$ 315	$ (158)	2,564	(207)
Realized gain on swap termination			$ 829

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Cover - shares	9 Months Ended
	Sep. 30, 2019	Oct. 31, 2019
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Sep. 30, 2019
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2019
Current Fiscal Year End Date	--12-31
Entity File Number	0-25923
Entity Registrant Name	Eagle Bancorp, Inc.
Entity Central Index Key	0001050441
Entity Tax Identification Number	52-2061461
Entity Incorporation, State or Country Code	MD
Entity Address, Address Line One	7830 Old Georgetown Road
Entity Address, Address Line Two	Third Floor
Entity Address, City or Town	Bethesda
Entity Address, State or Province	MD
Entity Address, Postal Zip Code	20814
City Area Code	(301)
Local Phone Number	986-1800
Title of 12(b) Security	Common Stock, $0.01 par value
Trading Symbol	EGBN
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		33,583,928

XML

Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Income Statement [Abstract]
Net Income	$ 36,495	$ 38,948	$ 107,487	$ 111,959
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities available for sale	1,174	(3,148)	13,140	(10,206)
Reclassification adjustment for net gains included in net income	(110)	0	(1,190)	(51)
Total unrealized gain (loss) on investment securities	1,064	(3,148)	11,950	(10,257)
Unrealized (loss) gain on derivatives	11	625	(1,664)	3,547
Reclassification adjustment for amounts included in net income	(205)	(158)	(1,374)	(156)
Total unrealized (loss) gain on derivatives	(194)	467	(3,038)	3,391
Other comprehensive income (loss)	870	(2,681)	8,912	(6,866)
Comprehensive Income	$ 37,365	$ 36,267	$ 116,399	$ 105,093

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Note 10. Long-Term Borrowings (Details Narrative) - USD ($)	Jul. 26, 2016	Aug. 05, 2014	Sep. 30, 2019
Subordinated Debt [Member]
Debt Instrument [Line Items]
Proceeds from Issuance of Subordinated Long-term Debt		$ 70,000,000.0
Debt Instrument, Interest Rate, Stated Percentage		5.75%	5.75%
Net proceeds from issuance of subordinated debt		$ 68,800,000
Debt Issuance Costs, Gross	$ 2,600,000	$ 1,200,000
Subordinated Notes 5.75 Member
Debt Instrument [Line Items]
Proceeds from Issuance of Subordinated Long-term Debt	$ 150,000,000.0
Debt Instrument, Interest Rate, Stated Percentage	5.00%		5.00%
Net proceeds from issuance of subordinated debt	$ 147,350,000

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Note 6. Leases (Tables)

9 Months Ended

Sep. 30, 2019

Note 6. Leases

The following table presents lease costs and other lease information.

The following table presents lease costs and other lease information.

	Nine Months Ended
(dollars in thousands)	September 30, 2019
Lease Cost
Operating Lease Cost (Cost resulting from lease payments)	$	5,857
Variable Lease Cost (Cost excluded from lease payments)		815
Sublease Income		(282	)
Net Lease Cost	$	6,390

Operating Lease - Operating Cash Flows (Fixed Payments)	$	6,382
Operating Lease - Operating Cash Flows (Liability Reduction)		5,458
Right-of-Use Assets - Operating Leases		26,552
Weighted Average Lease Term - Operating Leases		5.11 years
Weighted Average Discount Rate - Operating Leases		4.00	%

Future minimum payments for operating leases with initial or remaining terms of one year or more as of September 30, 2019 were as follows:

Future minimum payments for operating leases with initial or remaining terms of one year or more as of September 30, 2019 were as follows:

(dollars in thousands)
Twelve Months Ended:
September 30, 2020	$	8,532
September 30, 2021		7,857
September 30, 2022		5,868
September 30, 2023		4,379
September 30, 2024		3,663
Thereafter		4,327
Total Future Minimum Lease Payments		34,626
Amounts Representing Interest		(5,040	)
Present Value of Net Future Minimum Lease Payments	$	29,586

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Note 14. Supplemental Executive Retirement Plan

9 Months Ended

Sep. 30, 2019

Retirement Benefits [Abstract]

Note 14. Supplemental Executive Retirement Plan

Note 14. Supplemental Executive Retirement Plan

The Bank has entered into Supplemental Executive Retirement and Death Benefit Agreements (the “SERP Agreements”) with certain of the Bank’s executive officers, which upon the executive’s retirement, will provide for a stated monthly payment for such executive’s lifetime subject to certain death benefits described below. The retirement benefit is computed as a percentage of each executive’s projected average base salary over the five years preceding retirement, assuming retirement at age 67. The SERP Agreements provide that (a) the benefits vest ratably over six years of service to the Bank, with the executive receiving credit for years of service prior to entering into the SERP Agreement, (b) death, disability and change-in-control shall result in immediate vesting, and (c) the monthly amount will be reduced if retirement occurs earlier than age 67 for any reason other than death, disability or change-in-control. The SERP Agreements further provide for a death benefit in the event the retired executive dies prior to receiving 180 monthly installments, paid either in a lump sum payment or continued monthly installment payments, such that the executive’s beneficiary has received payment(s) sufficient to equate to a cumulative 180 monthly installments.

The SERP Agreements are unfunded arrangements maintained primarily to provide supplemental retirement benefits and comply with Section 409A of the Internal Revenue Code. The Bank financed the retirement benefits by purchasing fixed annuity contracts with four insurance carriers in 2013 totaling $11.4 million that have been designed to provide a future source of funds for the lifetime retirement benefits of the SERP Agreements. The primary impetus for utilizing fixed annuities is a substantial savings in compensation expenses for the Bank as opposed to a traditional SERP Agreement. For the three and nine months ended September 30, 2019, the annuity contracts accrued $51 thousand of income and $147 thousand of income offset by $165 thousand of annual fees, respectively, which were included in other noninterest income on the Consolidated Statement of Operations. For the three and nine months ended September 30, 2018, the annuity contracts accrued $56 thousand of income and $161 thousand of income offset by $123 thousand of annual fees, respectively, which were included in other noninterest income on the Consolidated Statement of Operations. The cash surrender value of the annuity contracts was $12.1 million and $12.4 million at September 30, 2019 and December 31, 2018, respectively, and is included in other assets on the Consolidated Balance Sheets. For the three and nine months ended September 30, 2019, the Company recorded benefit expense accruals of $101 thousand and $303 thousand, respectively, for this post retirement benefit. For the three and nine months ended September 30, 2018, the Company recorded benefit expense accruals of $100 thousand and $586 thousand, respectively, for this post retirement benefit.

Upon death of a named executive, the annuity contract related to such executive terminates. The Bank has purchased additional bank owned life insurance contracts, which would effectively finance payments (up to a 15 year certain amount) to the executives’ named beneficiaries.

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Note 10. Long-Term Borrowings

9 Months Ended

Sep. 30, 2019

Debt Disclosure [Abstract]

Note 10. Long-Term Borrowings

Note 10. Long-Term Borrowings

The following table presents information related to the Company’s long-term borrowings as of September 30, 2019 and December 31, 2018.

(dollars in thousands)	September 30, 2019			December 31, 2018
Subordinated Notes, 5.75%	$	70,000		$	70,000
Subordinated Notes, 5.00%		150,000			150,000
Less: unamortized debt issuance costs		(2,411	)		(2,704	)
Long-term borrowings	$	217,589		$	217,296

On August 5, 2014, the Company completed the sale of $70.0 million of its 5.75% subordinated notes, due September 1, 2024 (the “2024 Notes”). The 2024 Notes were offered to the public at par and qualify as Tier 2 capital for regulatory purposes to the fullest extent permitted under the Basel III Rule capital requirements. The net proceeds were approximately $68.8 million, which includes $1.2 million in deferred financing costs which are being amortized over the life of the 2024 Notes.

On July 26, 2016, the Company completed the sale of $150.0 million of its 5.00% Fixed-to-Floating Rate Subordinated Notes, due August 1, 2026 (the “2026 Notes”). The 2026 Notes were offered to the public at par and qualify as Tier 2 capital for regulatory purposes to the fullest extent permitted under the Basel III Rule capital requirements. The net proceeds were approximately $147.35 million, which includes $2.6 million in deferred financing costs which are being amortized over the life of the 2026 Notes.

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Note 6. Leases

9 Months Ended

Sep. 30, 2019

Note 6. Leases

Note 6. Leases

Note 6. Leases

A lease is defined as a contract that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On January 1, 2019, the Company adopted ASU No. 2016-02 “Leases” (Topic 842) and all subsequent ASUs that modified Topic 842. For the Company, Topic 842 primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee.

Substantially all of the leases in which the Company is the lessee are comprised of real estate property for branch offices, ATM locations, and corporate office space. Substantially all of our leases are classified as operating leases, and as such, were previously not recognized on the Company’s consolidated statements of condition. With the adoption of Topic 842, operating lease agreements were required to be recognized on the consolidated statements of condition as a right-of-use (“ROU”) asset and a corresponding lease liability.

As of September 30, 2019, the Company had $26.6 million of operating lease ROU assets and $29.6 million of operating lease liabilities on the Company’s Consolidated Balance Sheet. The Company elects not to recognize ROU assets and lease liabilities arising from short-term leases, leases with initial terms of twelve months or less, or equipment leases (deemed immaterial) on the Consolidated Statements of Condition.

Our leases contain terms and conditions of options to extend or terminate the lease which are recognized as part of the ROU assets and lease liabilities when an economic benefit to exercise the option exists and there is a 90% probability that the Company will exercise the option. If these criteria are not met, the options are not included in our ROU assets and lease liabilities.

As of September 30, 2019, our leases do not contain material residual value guarantees or impose restrictions or covenants related to dividends or the Company’s ability to incur additional financial obligations. As of September 30, 2019, there were no leases that have been signed but did not yet commence as of the reporting date that create significant rights and obligations for the Company.

The following table presents lease costs and other lease information.

	Nine Months Ended
(dollars in thousands)	September 30, 2019
Lease Cost
Operating Lease Cost (Cost resulting from lease payments)	$	5,857
Variable Lease Cost (Cost excluded from lease payments)		815
Sublease Income		(282	)
Net Lease Cost	$	6,390

Operating Lease - Operating Cash Flows (Fixed Payments)	$	6,382
Operating Lease - Operating Cash Flows (Liability Reduction)		5,458
Right-of-Use Assets - Operating Leases		26,552
Weighted Average Lease Term - Operating Leases		5.11 years
Weighted Average Discount Rate - Operating Leases		4.00	%

Future minimum payments for operating leases with initial or remaining terms of one year or more as of September 30, 2019 were as follows:

(dollars in thousands)
Twelve Months Ended:
September 30, 2020	$	8,532
September 30, 2021		7,857
September 30, 2022		5,868
September 30, 2023		4,379
September 30, 2024		3,663
Thereafter		4,327
Total Future Minimum Lease Payments		34,626
Amounts Representing Interest		(5,040	)
Present Value of Net Future Minimum Lease Payments	$	29,586

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Note 2. Cash and Due from Banks

9 Months Ended

Sep. 30, 2019

Cash and Cash Equivalents [Abstract]

Note 2. Cash and Due from Banks

Note 2. Cash and Due from Banks

Regulation D of the Federal Reserve Act requires that banks maintain noninterest reserve balances with the Federal Reserve Bank based principally on the type and amount of their deposits. During 2019, the Bank maintained balances at the Federal Reserve sufficient to meet reserve requirements, as well as significant excess reserves, on which interest is paid.

Additionally, the Bank maintains interest bearing balances with the Federal Home Loan Bank of Atlanta and noninterest bearing balances with domestic correspondent banks as compensation for services they provide to the Bank.

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Note 1. Summary of Significant Accounting Policies (Details Narrative)	Sep. 30, 2019 USD ($)	Jan. 02, 2019 USD ($)	Dec. 31, 2018 USD ($)
Product Information [Line Items]
Operating Lease, Right-of-Use Asset	$ 26,552,000
Operating Lease, Liability	$ 29,586,000
Minimum [Member]
Product Information [Line Items]
Increase in reserve for credit losses	10.00%
Maximum [Member]
Product Information [Line Items]
Increase in reserve for credit losses	20.00%
Adjustments for New Accounting Principle, Early Adoption [Member]
Product Information [Line Items]
Operating Lease, Right-of-Use Asset		$ 29,600,000
Operating Lease, Liability		$ 33,500,000
Banking Service Member
Product Information [Line Items]
Number of locations	20
Lending Services [Member]
Product Information [Line Items]
Number of locations	5

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Note 3. Investment Securities Available-for-Sale (Details Narrative) - USD ($)	3 Months Ended			9 Months Ended
	Sep. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Net Investment Income [Line Items]
Federal Home Loan Bank Stock and Federal Reserve Bank Stock	$ 28,725,000			$ 28,725,000		$ 23,506,000
Debt securities as percentage of total investment securities	99.90%			99.90%
Debt securities weighted average duration				2 years 328 days 12 hours
Available-for-sale Securities, Gross Realized Gains				$ 1,600,000	$ 93,000
Noninterest Income	$ 6,314,000		$ 5,640,000	18,965,000	16,497,000
Available-for-sale Securities, Gross Realized Losses				20,000	25
Proceeds from Sale of Available-for-sale Securities				$ 129,900,000	$ 42,100,000
Holdings of securities of any one issuer	1000.00%			1000.00%
Collateral Pledged [Member]
Net Investment Income [Line Items]
Available-for-sale securities pledged as collateral	$ 439,400,000			$ 439,400,000		528,200,000
Interest Rate Swap [Member]
Net Investment Income [Line Items]
Noninterest Income		$ 829,000
Equity Securities [Member]
Net Investment Income [Line Items]
Federal Home Loan Bank Stock and Federal Reserve Bank Stock	$ 28,700,000			$ 28,700,000		$ 23,500,000

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Note 8. Other Derivatives (Details Narrative) - USD ($)	3 Months Ended			9 Months Ended
	Sep. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Derivative Instruments, Gain (Loss) [Line Items]
Unrealized loss swap pretax net	$ 362,000			$ 362,000
Unrealized gain swap pretax net						$ 3,700,000
Swap termination noninterest income		$ 829,000
Future Amortizable Realized Gain Termination of Swap	248,000			248,000
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI on Derivatives, before Tax	285,000		$ 211,000	1,879,000	$ 209,000
Estimate of future reclassifications cash flow hedges	134,000			134,000
Derivative Liability, Fair Value, Amount Offset Against Collateral	362,000			362,000
Designated as Hedging Instrument [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI on Derivatives, before Tax	264,000		$ 214,000	1,868,000	$ 230,000
Interest Rate Contract [Member] | Designated as Hedging Instrument [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Derivative, Notional Amount	$ 100,000,000			$ 100,000,000		$ 250,000,000

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The table below identifies the balance sheet category and fair value of the Company’s designated cash flow hedge derivative instruments and non-designated hedges as of September 30, 2019 and December 31, 2018. (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Derivative Instruments, Gain (Loss) [Line Items]
Derivative liabilities	$ 117,000	$ 269,000
Other Assets [Member] | Nondesignated 1 [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Notional Amount	26,000,000
Derivative assets	15,000
Other Assets [Member] | Nondesignated 2 [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Notional Amount	26,517,000
Derivative assets	213,000
Other Assets [Member] | Not Designated as Hedging Instrument [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Notional Amount	52,517,000
Derivative assets	228,000
Other Liabilities [Member] | Nondesignated 1 [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Notional Amount	26,000
Derivative liabilities	15,000
Other Liabilities [Member] | Nondesignated 2 [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Notional Amount	27,500,000	27,500
Derivative liabilities	117,000	59,000
Other Liabilities [Member] | Nondesignated 3 [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Notional Amount	26,517	27,500
Derivative liabilities	220,000	59,000
Other Liabilities [Member] | Nondesignated 4 [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Notional Amount	80,017
Derivative liabilities	352,000
Interest Rate Contract [Member] | Other Assets [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Notional Amount		250,000
Derivative assets		$ 3,727,000
Interest Rate Contract [Member] | Other Liabilities [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Notional Amount	100,000
Derivative liabilities	$ 348,000

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Note 7. Affordable Housing Projects Tax Credit Partnerships

9 Months Ended

Sep. 30, 2019

Equity Method Investments and Joint Ventures [Abstract]

Note 7. Affordable Housing Projects Tax Credit Partnerships

Note 7. Affordable Housing Projects Tax Credit Partnerships

Included in Other Assets, the Company makes equity investments in various limited partnerships that sponsor affordable housing projects utilizing the Low Income Housing Tax Credit (“LIHTC”) pursuant to Section 42 of the Internal Revenue Code. The purpose of these investments is to achieve a satisfactory return on capital, to facilitate the sale of affordable housing products offerings, and to assist in achieving goals associated with the Community Reinvestment Act. The primary activities of the limited partnerships include the identification, development, and operation of multi-family housing that is leased to qualifying residential tenants. Generally, these types of investments are funded through a combination of debt and equity.

The Company is a limited partner in each LIHTC limited partnership. Each limited partnership is managed by an unrelated third party general partner who exercises significant control over the affairs of the limited partnership. The general partner has all the rights, powers and authority granted or permitted to be granted to a general partner of a limited partnership. Duties entrusted to the general partner of each limited partnership include, but are not limited to: investment in operating companies, company expenditures, investment of excess funds, borrowing funds, employment of agents, disposition of fund property, prepayment and refinancing of liabilities, votes and consents, contract authority, disbursement of funds, accounting methods, tax elections, bank accounts, insurance, litigation, cash reserve, and use of working capital reserve funds. Except for limited rights granted to the limited partner(s) relating to the approval of certain transactions, the limited partner(s) may not participate in the operation, management, or control of the limited partnership’s business, transact any business in the limited partnership’s name or have any power to sign documents for or otherwise bind the limited partnership. In addition, the general partner may only be removed by the limited partner(s) in the event the general partner fails to comply with the terms of the agreement or is negligent in performing its duties.

The general partner of each limited partnership has both the power to direct the activities which most significantly affect the performance of each partnership and the obligation to absorb losses or the right to receive benefits that could be significant to the entities. Therefore, the Company has determined that it is not the primary beneficiary of any LIHTC partnership. The Company accounts for its affordable housing tax credit investments using the proportional amortization method. The Company’s net affordable housing tax credit investments were $28.0 million and related unfunded commitments were $11.0 million as of September 30, 2019 and are included in Other Assets and Other Liabilities in the Consolidated Statements of Condition. The Company’s net affordable housing tax credit investments were $28.2 million and related unfunded commitments were $15.0 million as of December 31, 2018.

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Note 3. Investment Securities Available-for-Sale

9 Months Ended

Sep. 30, 2019

Investments, Debt and Equity Securities [Abstract]

Note 3. Investment Securities Available-for-Sale

Note 3. Investment Securities Available-for-Sale

Amortized cost and estimated fair value of securities available-for-sale are summarized as follows:

			Gross		Gross		Estimated
September 30, 2019	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value
U. S. agency securities	$	171,585	$	941	$	706	$	171,820
Residential mortgage backed securities		434,042		5,404		1,417		438,029
Municipal bonds		61,680		2,278		—		63,958
Corporate bonds		9,532		82		—		9,614
U.S. Treasury		24,919		7		—		24,926
Other equity investments		198		—		—		198
	$	701,956	$	8,712	$	2,123	$	708,545
			Gross		Gross		Estimated
December 31, 2018	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value
U. S. agency securities	$	260,150	$	228	$	4,033	$	256,345
Residential mortgage backed securities		477,949		1,575		7,293		472,231
Municipal bonds		45,814		439		484		45,769
Corporate bonds		9,503		79		6		9,576
Other equity investments		218		—		—		218
	$	793,634	$	2,321	$	11,816	$	784,139

In addition, at September 30, 2019 and December 31, 2018 the Company held $28.7 million and $23.5 million, respectively, in equity securities in a combination of Federal Reserve Bank (“FRB”) and Federal Home Loan Bank (“FHLB”) stocks, which are required to be held for regulatory purposes and which are not marketable, and therefore are carried at cost.

Gross unrealized losses and fair value by length of time that the individual available-for-sale securities have been in a continuous unrealized loss position are as follows:

			Less than				12 Months
			12 Months				or Greater				Total
			Estimated				Estimated				Estimated
September 30, 2019	Number of		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(dollars in thousands)	Securities		Value		Losses		Value		Losses		Value		Losses
U. S. agency securities		32	$	36,162	$	132	$	59,843	$	574	$	96,005	$	706
Residential mortgage backed securities		98		53,769		287		116,438		1,130		170,207		1,417
Municipal bonds		1		30		—		—		—		30		—
		131	$	89,961	$	419	$	176,281	$	1,704	$	266,242	$	2,123

			Less than				12 Months
			12 Months				or Greater				Total
			Estimated				Estimated				Estimated
December 31, 2018	Number of		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(dollars in thousands)	Securities		Value		Losses		Value		Losses		Value		Losses
U. S. agency securities		58	$	72,679	$	533	$	144,636	$	3,500	$	217,315	$	4,033
Residential mortgage backed securities		151		61,199		527		225,995		6,766		287,194		7,293
Municipal bonds		11		4,299		50		17,041		434		21,340		484
Corporate bonds		1		1,494		6		—		—		1,494		6
		221	$	139,671	$	1,116	$	387,672	$	10,700	$	527,343	$	11,816

The unrealized losses that exist are generally the result of changes in market interest rates and interest spread relationships since original purchases. The weighted average duration of debt securities, which comprise 99.9% of total investment securities, is relatively short at 2.9 years . If quoted prices are not available, fair value is measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. The Company does not believe that the investment securities that were in an unrealized loss position as of September 30, 2019 represent an other-than-temporary impairment. The Company does not intend to sell the investments and it is more likely than not that the Company will not have to sell the securities before recovery of its amortized cost basis, which may be at maturity.

The amortized cost and estimated fair value of investments available-for-sale at September 30, 2019 and December 31, 2018 by contractual maturity are shown in the table below. Expected maturities for residential mortgage backed securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	September 30, 2019				December 31, 2018
	Amortized		Estimated		Amortized		Estimated
(dollars in thousands)	Cost		Fair Value		Cost		Fair Value
U. S. agency securities maturing:
One year or less	$	78,924	$	79,178	$	128,148	$	125,545
After one year through five years		79,835		79,809		119,856		118,883
Five years through ten years		12,826		12,833		12,146		11,917
Residential mortgage backed securities		434,042		438,029		477,949		472,231
Municipal bonds maturing:
One year or less		6,116		6,185		8,097		8,167
After one year through five years		16,474		16,940		15,025		15,081
Five years through ten years		36,028		37,540		21,626		21,385
After ten years		3,062		3,293		1,066		1,136
Corporate bonds maturing:
After one year through five years		8,032		8,114		8,003		8,076
After ten years		1,500		1,500		1,500		1,500
U.S. Treasury		24,919		24,926		—		—
Other equity investments		198		198		218		218
	$	701,956	$	745,343	$	793,634	$	784,139

For the nine months ended September 30, 2019, gross realized gains on sales of investments securities were $1.6 million, primarily due to $829 thousand of noninterest income recognized during March 2019 on interest rate swap terminations, and $20 thousand gross realized losses on sales of investment securities. For the nine months ended September 30, 2018, gross realized gains on sales of investments securities were $93 thousand and gross realized losses on sales of investment securities were $25 thousand. 

Proceeds from sales and calls of investment securities for the nine months ended September 30, 2019 were $129.9 million compared to $42.1 million for the same period in 2018.

The carrying value of securities pledged as collateral for certain government deposits, securities sold under agreements to repurchase, and certain lines of credit with correspondent banks at September 30, 2019 and December 31, 2018 was $439.4 million and $528.2 million, respectively, which is well in excess of required amounts in order to operationally provide significant reserve amounts for new business. As of September 30, 2019 and December 31, 2018, there were no holdings of securities of any one issuer, other than the U.S. Government and U.S. agency securities, which exceeded ten percent of shareholders’ equity.

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Note 11. Net Income per Common Share

9 Months Ended

Sep. 30, 2019

Earnings Per Common Share

Note 11. Net Income per Common Share

Note 11. Net Income per Common Share

The calculation of net income per common share for the three and nine months ended September 30, 2019 and 2018 was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars and shares in thousands, except per share data)	2019		2018		2019		2018
Basic:
Net income	$	36,495	$	38,948	$	107,487	$	111,959
Average common shares outstanding		34,233		34,309		34,418		34,292
Basic net income per common share	$	1.07	$	1.14	$	3.12	$	3.26
Diluted:
Net income	$	36,495	$	38,948	$	107,487	$	111,959
Average common shares outstanding		34,233		34,309		34,418		34,292
Adjustment for common share equivalents		23		152		33		152
Average common shares outstanding-diluted		34,256		34,461		34,451		34,444
Diluted net income per common share	$	1.07	$	1.13	$	3.12	$	3.25
Anti-dilutive shares		2		3		20		—

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Note 13. Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2019

Fair Value Disclosures [Abstract]

The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis as of September 30, 2019 and December 31, 2018.

The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis as of September 30, 2019 and December 31, 2018.

(dollars in thousands)	Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total (Fair Value)
September 30, 2019
Assets:
Investment securities available-for-sale:
U. S. agency securities	$	—	$	171,820	$	—	$	171,820
Residential mortgage backed securities		—		438,029		—		438,029
Municipal bonds		—		63,958		—		63,958
Corporate bonds		—		—		9,614		9,614
U.S. Treasury		—		24,926		—		24,926
Other equity investments		—		—		198		198
Loans held for sale		—		52,199		—		52,199
Interest Rate Caps		—		228		—		228
Mortgage banking derivatives		—		—		313		313
Total assets measured at fair value on a recurring basis as of September 30, 2019	$	—	$	751,160	$	10,125	$	761,285
Liabilities:
Interest rate swap derivatives	$	—	$	362	$	—	$	362
Derivative liability		—		117		—		117
Interest Rate Caps		—		235		—		235
Mortgage banking derivatives		—		—		3		3
Total liabilities measured at fair value on a recurring basis as of September 30, 2019	$	—	$	714	$	3	$	717

December 31, 2018
Assets:
Investment securities available-for-sale:
U. S. agency securities	$	—	$	256,345	$	—	$	256,345
Residential mortgage backed securities		—		472,231		—		472,231
Municipal bonds		—		45,769		—		45,769
Corporate bonds		—		—		9,576		9,576
Other equity investments		—		—		218		218
Loans held for sale		—		19,254		—		19,254
Mortgage banking derivatives		—		—		229		229
Interest rate swap derivatives		—		3,727		—		3,727
Total assets measured at fair value on a recurring basis as of December 31, 2018	$	—	$	797,326	$	10,023	$	807,349
Liabilities:
Mortgage banking derivatives	$	—	$	—	$	269	$	269
Total liabilities measured at fair value on a recurring basis as of December 31, 2018	$	—	$	—	$	269	$	269

The following table summarizes the difference between the aggregate fair value and the aggregate unpaid principal balance for loans held for sale measured at fair value as of September 30, 2019 and December 31, 2018.

The following table summarizes the difference between the aggregate fair value and the aggregate unpaid principal balance for loans held for sale measured at fair value as of September 30, 2019 and December 31, 2018.

	September 30, 2019
(dollars in thousands)	Fair Value		Aggregate Unpaid Principal Balance		Difference
Residential mortgage loans held for sale	$	52,199	$	51,291	$	908
FHA mortgage loans held for sale	$	—	$	—	$	—
	December 31, 2018
(dollars in thousands)	Fair Value		Aggregate Unpaid Principal Balance		Difference
Residential mortgage loans held for sale	$	19,254	$	18,797	$	457
FHA mortgage loans held for sale	$	—	$	—	$	—

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

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

(dollars in thousands)	Investment Securities			Mortgage Banking Derivatives		Total
Assets:
Beginning balance at January 1, 2019	$	9,794		$	229	$	10,023
Realized (loss) gain included in earnings		(20	)		84		64
Unrealized gain included in other comprehensive income		12			—		12
Purchases of available-for-sale securities		3,030			—		3,030
Principal redemption		(3,004	)		—		(3,004	)
Ending balance at September 30, 2019	$	9,812		$	313	$	10,125

Liabilities:
Beginning balance at January 1, 2019	$	—	$	269		$	269
Realized gain included in earnings		—		(266	)		(266	)
Principal redemption		—		—			—
Ending balance at September 30, 2019	$	—	$	3		$	3

(dollars in thousands)	Investment Securities		Mortgage Banking Derivatives		Total
Assets:
Beginning balance at January 1, 2018	$	1,718	$	43	$	1,761
Realized gain included in earnings		—		186		186
Purchases of available-for-sale securities		8,076		—		8,076
Principal redemption		—		—		—
Ending balance at December 31, 2018	$	9,794	$	229	$	10,023

Liabilities:
Beginning balance at January 1, 2018	$	—	$	10	$	10
Realized loss included in earnings		—		259		259
Principal redemption		—		—		—
Ending balance at December 31, 2018	$	—	$	269	$	269

Assets measured at fair value on a nonrecurring basis are included in the table below:

Assets measured at fair value on a nonrecurring basis are included in the table below:

(dollars in thousands)	Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total (Fair Value)
September 30, 2019
Impaired loans:
Commercial	$	—	$	—	$	8,776	$	8,776
Income producing - commercial real estate		—		—		8,841		8,841
Owner occupied - commercial real estate		—		—		7,032		7,032
Real estate mortgage - residential		—		—		4,985		4,985
Construction - commercial and residential		—		—		9,148		9,148
Home equity		—		—		474		474
Other real estate owned		—		—		1,487		1,487
Total assets measured at fair value on a nonrecurring basis as of September 30, 2019	$	—	$	—	$	40,743	$	40,743
(dollars in thousands)	Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total (Fair Value)
December 31, 2018
Impaired loans:
Commercial	$	—	$	—	$	3,338	$	3,338
Income producing - commercial real estate		—		—		18,937		18,937
Owner occupied - commercial real estate		—		—		5,131		5,131
Real estate mortgage - residential		—		—		1,510		1,510
Construction - commercial and residential		—		—		1,981		1,981
Home equity		—		—		487		487
Other real estate owned		—		—		1,394		1,394
Total assets measured at fair value on a nonrecurring basis as of December 31, 2018	$	—	$	—	$	32,778	$	32,778

The estimated fair value of the Company’s financial instruments at September 30, 2019 and December 31, 2018 are as follows:

The estimated fair value of the Company’s financial instruments at September 30, 2019 and December 31, 2018 are as follows:

					Fair Value Measurements
(dollars in thousands)	Carrying Value		Fair Value		Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2019
Assets
Cash and due from banks	$	6,657	$	6,657	$	—	$	6,657	$	—
Federal funds sold		27,711		27,711		—		27,711		—
Interest bearing deposits with other banks		361,154		361,154		—		361,154		—
Investment securities		708,545		708,545		—		698,733		9,812
Federal Reserve and Federal Home Loan Bank stock		28,725		28,725		—		28,725		—
Loans held for sale		52,199		52,199		—		52,199		—
Loans		7,485,441		7,572,385		—		—		7,572,385
Bank owned life insurance		74,726		74,726		—		74,726		—
Annuity investment		12,103		12,103		—		12,103		—
Interest Rate Caps		228		228		—		228		—
Mortgage banking derivatives		313		313		—		—		313
Liabilities
Noninterest bearing deposits		2,051,106		2,051,106		—		2,051,106		—
Interest bearing deposits		3,952,541		3,952,541		—		3,952,541		—
Certificates of deposit		1,398,866		1,443,542		—		1,443,542		—
Customer repurchase agreements		30,297		30,297		—		30,297		—
Borrowings		317,589		328,330		—		328,330		—
Interest rate swap derivatives		362		362				362		—
Derivative liability		117		117		—		117		—
Interest Rate Caps		235		235		—		235		—
Mortgage banking derivatives		3		3		—		—		3
December 31, 2018
Assets
Cash and due from banks	$	6,773	$	6,773	$	—	$	6,773	$	—
Federal funds sold		11,934		11,934		—		11,934		—
Interest bearing deposits with other banks		303,157		303,157		—		303,157		—
Investment securities		784,139		784,139		—		774,345		9,794
Federal Reserve and Federal Home Loan Bank stock		23,506		23,506		—		23,506		—
Loans held for sale		19,254		19,254		—		19,254		—
Loans		6,921,503		6,921,048		—		—		6,921,048
Bank owned life insurance		73,441		73,441		—		73,441		—
Annuity investment		12,417		12,417		—		12,417		—
Mortgage banking derivatives		229		229		—		—		229
Interest rate swap derivatives		3,727		3,727		—		3,727		—
Liabilities
Noninterest bearing deposits		2,104,220		2,104,220		—		2,104,220		—
Interest bearing deposits		3,542,666		3,542,666		—		3,542,666		—
Certificates of deposit		1,327,400		1,325,209		—		1,325,209		—
Customer repurchase agreements		30,413		30,413		—		30,413		—
Borrowings		217,196		218,006		—		218,006		—
Mortgage banking derivatives		269		269		—		—		269

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The amortized cost and estimated fair value of investments available-for-sale at September 30, 2019 and December 31, 2018 by contractual maturity are shown in the table below. Expected maturities for residential mortgage backed securities will differ from (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Marketable Securities [Line Items]
Debt Securities, Available-for-sale, Amortized Cost	$ 701,956	$ 793,634
Investment securities available-for-sale, at fair value	708,545	784,139
US Government Agencies Debt Securities [Member]
Marketable Securities [Line Items]
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, within One Year, Amortized Cost	78,924	128,148
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, within One Year, Fair Value	79,178	125,545
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, after One Through Five Years, Amortized Cost	79,835	119,856
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, after One Through Five Years, Fair Value	79,809	118,883
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, after Five Through Ten Years, Amortized Cost	12,826	12,146
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, after Five Through Ten Years, Fair Value	12,833	11,917
Residential Mortgage Backed Securities [Member]
Marketable Securities [Line Items]
Debt Securities, Available-for-sale, Maturity, without Single Maturity Date, Amortized Cost	434,042	477,949
Debt Securities, Available-for-sale, Maturity, without Single Maturity Date, Fair Value	438,029	472,231
US States and Political Subdivisions Debt Securities [Member]
Marketable Securities [Line Items]
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, within One Year, Amortized Cost	6,116	8,097
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, within One Year, Fair Value	6,185	8,167
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, after One Through Five Years, Amortized Cost	16,474	15,025
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, after One Through Five Years, Fair Value	16,940	15,081
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, after Five Through Ten Years, Amortized Cost	36,028	21,626
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, after Five Through Ten Years, Fair Value	37,540	21,385
Debt Securities, Available-for-sale, Allocated and Single Maturity Date, Maturity, after 10 Years, Amortized Cost	3,062	1,066
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, after 10 Years, Fair Value	3,293	1,136
Corporate Debt Securities [Member]
Marketable Securities [Line Items]
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, after One Through Five Years, Amortized Cost	8,032	8,003
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, after One Through Five Years, Fair Value	8,114	8,076
Debt Securities, Available-for-sale, Allocated and Single Maturity Date, Maturity, after 10 Years, Amortized Cost	1,500	1,500
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, after 10 Years, Fair Value	1,500	1,500
US Treasury and Government [Member]
Marketable Securities [Line Items]
Debt Securities, Available-for-sale, Maturity, without Single Maturity Date, Amortized Cost	24,919
Debt Securities, Available-for-sale, Maturity, without Single Maturity Date, Fair Value	24,926
Investment Securities [Member]
Marketable Securities [Line Items]
Debt Securities, Available-for-sale, Maturity, without Single Maturity Date, Amortized Cost	198	218
Debt Securities, Available-for-sale, Maturity, without Single Maturity Date, Fair Value	198	218
Other Debt Obligations [Member]
Marketable Securities [Line Items]
Investment securities available-for-sale, at fair value	$ 745,343	$ 784,139

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For the three and nine months ended September 30, 2019 and 2018, there were no sales of OREO property. (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Banking and Thrift [Abstract]
Other Real Estate	$ 1,487	$ 1,394	$ 1,487	$ 1,394
Beginning Balance	1,394	1,394	1,394	1,394
Real estate acquired from borrowers	93		93
Properties sold
Ending Balance	$ 1,487	$ 1,394	$ 1,487	$ 1,394

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The table below presents the pre-tax net gains (losses) of the Company’s designated cash flow hedges for the three and nine months ended September 30, 2019 and 2018. (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Derivative Instruments, Gain (Loss) [Line Items]
Other Comprehensive Income (Loss), Unrealized Gain (Loss) on Derivatives Arising During Period, before Tax	$ (24,000)	$ (846,000)	$ 2,210,000	$ (4,380,000)
Other Comprehensive Income (Loss), Unrealized Gain (Loss) on Derivatives Arising During Period, before Tax	24,000	846,000	(2,210,000)	4,380,000
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI on Derivatives, before Tax	285,000	211,000	1,879,000	209,000
Interest Rate Contract [Member] | Interest Expense [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI on Derivatives, before Tax	264,000	214,000	1,039,000	230,000
Interest Rate Contract [Member] | Gain (Loss) on Derivative Instruments [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI on Derivatives, before Tax			829,000
Designated as Hedging Instrument [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Other Comprehensive Income (Loss), Unrealized Gain (Loss) on Derivatives Arising During Period, before Tax	107,000	(849,000)	1,974,000	(4,401,000)
Other Comprehensive Income (Loss), Unrealized Gain (Loss) on Derivatives Arising During Period, before Tax	(107,000)	849,000	(1,974,000)	4,401,000
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI on Derivatives, before Tax	264,000	214,000	1,868,000	230,000
Designated as Hedging Instrument [Member] | Interest Rate Contract [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Other Comprehensive Income (Loss), Unrealized Gain (Loss) on Derivatives Arising During Period, before Tax	(107,000)	(849,000)	(1,974,000)	(4,401,000)
Other Comprehensive Income (Loss), Unrealized Gain (Loss) on Derivatives Arising During Period, before Tax	$ 107,000	$ 849,000	$ 1,974,000	$ 4,401,000

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Note 14. Supplemental Executive Retirement Plan (Details Narrative)	3 Months Ended		9 Months Ended
	Sep. 30, 2019 USD ($) Number	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($) Number	Sep. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)
Defined Benefit Plan Disclosure [Line Items]
Retirement plan monthly installments | Number	180		180
Number of cumulative monthly installments | Number	180		180
Finance term of death benefits			15 years
SERP Member
Defined Benefit Plan Disclosure [Line Items]
Time period for calculating base salary under SERP agreements			5 years
Retirement age	67		67
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period			6 years
SERP Member | Fixed annuity contracts SERP Member
Defined Benefit Plan Disclosure [Line Items]
Number of insurance carriers	4		4
Fixed annuity contracts	$ 11,400,000		$ 11,400,000
Accrued income	51,000	$ 56,000	147,000	$ 161,000
Annual benefit plan fees			165,000	123,000
Cash surrender of life insurance	12,100,000		12,100,000		$ 12,400,000
Defined Benefit Plan, Net Periodic Benefit Cost (Credit)	$ 101,000	$ 100,000	$ 303,000	$ 586,000
SERP Member | Less than
Defined Benefit Plan Disclosure [Line Items]
Retirement age	67		67

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The following table presents by class and by credit quality indicator, the recorded investment in the Company’s loans and leases as of September 30, 2019 and December 31, 2018. (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Financing Receivable, Past Due [Line Items]
Total	$ 7,559,161	$ 6,991,447
Pass [Member]
Financing Receivable, Past Due [Line Items]
Total	7,254,432	6,805,807
Watch and Special Mention [Member]
Financing Receivable, Past Due [Line Items]
Total	215,606	66,670
Substandard [Member]
Financing Receivable, Past Due [Line Items]
Total	89,123	118,970
Doubtful [Member]
Financing Receivable, Past Due [Line Items]
Total
Commercial Portfolio Segment [Member]
Financing Receivable, Past Due [Line Items]
Total	1,466,862	1,553,112
Commercial Portfolio Segment [Member] | Pass [Member]
Financing Receivable, Past Due [Line Items]
Total	1,392,189	1,505,477
Commercial Portfolio Segment [Member] | Watch and Special Mention [Member]
Financing Receivable, Past Due [Line Items]
Total	46,518	25,584
Commercial Portfolio Segment [Member] | Substandard [Member]
Financing Receivable, Past Due [Line Items]
Total	28,155	22,051
Commercial Portfolio Segment [Member] | Doubtful [Member]
Financing Receivable, Past Due [Line Items]
Total
Income Producing - Commercial Real Estate [Member]
Financing Receivable, Past Due [Line Items]
Total	3,812,284	3,256,900
Income Producing - Commercial Real Estate [Member] | Pass [Member]
Financing Receivable, Past Due [Line Items]
Total	3,662,436	3,172,479
Income Producing - Commercial Real Estate [Member] | Watch and Special Mention [Member]
Financing Receivable, Past Due [Line Items]
Total	110,759	1,536
Income Producing - Commercial Real Estate [Member] | Substandard [Member]
Financing Receivable, Past Due [Line Items]
Total	39,089	82,885
Income Producing - Commercial Real Estate [Member] | Doubtful [Member]
Financing Receivable, Past Due [Line Items]
Total
Owner Occupied - Commercial Real Estate - [Member]
Financing Receivable, Past Due [Line Items]
Total	956,345	887,814
Owner Occupied - Commercial Real Estate - [Member] | Pass [Member]
Financing Receivable, Past Due [Line Items]
Total	892,720	844,286
Owner Occupied - Commercial Real Estate - [Member] | Watch and Special Mention [Member]
Financing Receivable, Past Due [Line Items]
Total	57,009	38,221
Owner Occupied - Commercial Real Estate - [Member] | Substandard [Member]
Financing Receivable, Past Due [Line Items]
Total	6,616	5,307
Owner Occupied - Commercial Real Estate - [Member] | Doubtful [Member]
Financing Receivable, Past Due [Line Items]
Total
Residential Portfolio Segment [Member]
Financing Receivable, Past Due [Line Items]
Total	104,563	106,418
Residential Portfolio Segment [Member] | Pass [Member]
Financing Receivable, Past Due [Line Items]
Total	98,564	104,543
Residential Portfolio Segment [Member] | Watch and Special Mention [Member]
Financing Receivable, Past Due [Line Items]
Total	634	647
Residential Portfolio Segment [Member] | Substandard [Member]
Financing Receivable, Past Due [Line Items]
Total	5,365	1,228
Residential Portfolio Segment [Member] | Doubtful [Member]
Financing Receivable, Past Due [Line Items]
Total
Construction - commercial and residential [Member]
Financing Receivable, Past Due [Line Items]
Total	1,135,705
Construction - commercial and residential [Member] | Pass [Member]
Financing Receivable, Past Due [Line Items]
Total	1,126,557
Construction - commercial and residential [Member] | Watch and Special Mention [Member]
Financing Receivable, Past Due [Line Items]
Total
Construction - commercial and residential [Member] | Substandard [Member]
Financing Receivable, Past Due [Line Items]
Total	9,148
Construction - commercial and residential [Member] | Doubtful [Member]
Financing Receivable, Past Due [Line Items]
Total
Home Equity [Member]
Financing Receivable, Past Due [Line Items]
Total	81,117	86,603
Home Equity [Member] | Pass [Member]
Financing Receivable, Past Due [Line Items]
Total	79,681	85,434
Home Equity [Member] | Watch and Special Mention [Member]
Financing Receivable, Past Due [Line Items]
Total	686	682
Home Equity [Member] | Substandard [Member]
Financing Receivable, Past Due [Line Items]
Total	750	487
Home Equity [Member] | Doubtful [Member]
Financing Receivable, Past Due [Line Items]
Total
Other Consumer [Member]
Financing Receivable, Past Due [Line Items]
Total	2,285	2,988
Other Consumer [Member] | Pass [Member]
Financing Receivable, Past Due [Line Items]
Total	2,285	2,988
Other Consumer [Member] | Watch and Special Mention [Member]
Financing Receivable, Past Due [Line Items]
Total
Other Consumer [Member] | Substandard [Member]
Financing Receivable, Past Due [Line Items]
Total
Other Consumer [Member] | Doubtful [Member]
Financing Receivable, Past Due [Line Items]
Total
Construction - Commercial and Residential [Member]
Financing Receivable, Past Due [Line Items]
Total	$ 1,135,705	1,097,612
Construction - Commercial and Residential [Member] | Pass [Member]
Financing Receivable, Past Due [Line Items]
Total		1,090,600
Construction - Commercial and Residential [Member] | Watch and Special Mention [Member]
Financing Receivable, Past Due [Line Items]
Total
Construction - Commercial and Residential [Member] | Substandard [Member]
Financing Receivable, Past Due [Line Items]
Total		7,012
Construction - Commercial and Residential [Member] | Doubtful [Member]
Financing Receivable, Past Due [Line Items]
Total

XML

The following table presents by class, the recorded investment of loans modified in TDRs held by the Company for the periods ended September 30, 2019 and 2018. (Details)	9 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)
Troubled debt restructurings
Restructured accruing	$ 8,568,000	$ 17,545,000
Number of loans - restructured accruing	7	10
Restructured nonaccruing	$ 1,521,000	$ 723,000
Number of loans - restructured nonaccruing	3	4
Total	$ 10,089,000	$ 18,268,000
Number of loans	10	14
Specific allowance	$ 1,000,000	$ 5,500,000
Restructured and subsequently defaulted	2,300,000	937,000
Commercial Portfolio Segment [Member]
Troubled debt restructurings
Restructured accruing	898,000	4,942,000
Restructured nonaccruing	1,521,000	723,000
Total	2,419,000	5,665,000
Specific allowance		2,000,000
Restructured and subsequently defaulted
Income Producing - Commercial Real Estate [Member]
Troubled debt restructurings
Restructured accruing	4,387,000	9,212,000
Restructured nonaccruing
Total	4,387,000	9,212,000
Specific allowance	1,000,000	3,500,000
Restructured and subsequently defaulted	2,300,000	937,000
Owner Occupied - Commercial Real Estate - [Member]
Troubled debt restructurings
Restructured accruing	3,283,000	3,391,000
Restructured nonaccruing
Total	3,283,000	3,391,000
Specific allowance
Restructured and subsequently defaulted
Construction - Commercial and Residential [Member]
Troubled debt restructurings
Restructured accruing
Restructured nonaccruing
Total
Specific allowance
Restructured and subsequently defaulted

XML

The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis as of September 30, 2019 and December 31, 2018. (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Debt Securities, Available-for-sale [Abstract]
Corporate bonds	$ 708,545	$ 784,139
Other equity investments	198	218
Loans held for sale	52,199	19,254
Total assets measured at fair value on a recurring basis as of December 31, 2018	761,285	807,349
Mortgage banking derivatives	117	269
Total liabilities measured at fair value on a recurring basis as of December 31, 2018	717	269
Interest Rate Cap [Member]
Debt Securities, Available-for-sale [Abstract]
Interest rate swap derivatives	228
Mortgage banking derivatives	235
Mortgage Banking Derivative [Member]
Debt Securities, Available-for-sale [Abstract]
Interest rate swap derivatives	313	229
Mortgage banking derivatives	3
Interest Rate Swap [Member]
Debt Securities, Available-for-sale [Abstract]
Interest rate swap derivatives		3,727
Mortgage banking derivatives	362
Fair Value, Inputs, Level 1 [Member]
Debt Securities, Available-for-sale [Abstract]
Corporate bonds
Other equity investments
Loans held for sale
Total assets measured at fair value on a recurring basis as of December 31, 2018
Mortgage banking derivatives
Total liabilities measured at fair value on a recurring basis as of December 31, 2018
Fair Value, Inputs, Level 1 [Member] | Interest Rate Cap [Member]
Debt Securities, Available-for-sale [Abstract]
Interest rate swap derivatives
Mortgage banking derivatives
Fair Value, Inputs, Level 1 [Member] | Mortgage Banking Derivative [Member]
Debt Securities, Available-for-sale [Abstract]
Interest rate swap derivatives
Mortgage banking derivatives
Fair Value, Inputs, Level 1 [Member] | Interest Rate Swap [Member]
Debt Securities, Available-for-sale [Abstract]
Interest rate swap derivatives
Mortgage banking derivatives
Fair Value, Inputs, Level 2 [Member]
Debt Securities, Available-for-sale [Abstract]
Corporate bonds	698,733	774,345
Other equity investments
Loans held for sale	52,199	19,254
Total assets measured at fair value on a recurring basis as of December 31, 2018	751,160	797,326
Mortgage banking derivatives	117
Total liabilities measured at fair value on a recurring basis as of December 31, 2018	714
Fair Value, Inputs, Level 2 [Member] | Interest Rate Cap [Member]
Debt Securities, Available-for-sale [Abstract]
Interest rate swap derivatives	228
Mortgage banking derivatives	235
Fair Value, Inputs, Level 2 [Member] | Mortgage Banking Derivative [Member]
Debt Securities, Available-for-sale [Abstract]
Interest rate swap derivatives
Mortgage banking derivatives
Fair Value, Inputs, Level 2 [Member] | Interest Rate Swap [Member]
Debt Securities, Available-for-sale [Abstract]
Interest rate swap derivatives	228	3,727
Mortgage banking derivatives	362
Fair Value, Inputs, Level 3 [Member]
Debt Securities, Available-for-sale [Abstract]
Corporate bonds	9,812	9,794
Other equity investments	198	218
Loans held for sale
Total assets measured at fair value on a recurring basis as of December 31, 2018	10,125	10,023
Mortgage banking derivatives		269
Total liabilities measured at fair value on a recurring basis as of December 31, 2018	3	269
Fair Value, Inputs, Level 3 [Member] | Interest Rate Cap [Member]
Debt Securities, Available-for-sale [Abstract]
Interest rate swap derivatives
Mortgage banking derivatives
Fair Value, Inputs, Level 3 [Member] | Mortgage Banking Derivative [Member]
Debt Securities, Available-for-sale [Abstract]
Interest rate swap derivatives	313	229
Mortgage banking derivatives	3	269
Fair Value, Inputs, Level 3 [Member] | Interest Rate Swap [Member]
Debt Securities, Available-for-sale [Abstract]
Interest rate swap derivatives
Mortgage banking derivatives
US Government Agencies Debt Securities [Member]
Debt Securities, Available-for-sale [Abstract]
Corporate bonds	171,820	256,345
US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Debt Securities, Available-for-sale [Abstract]
Corporate bonds
US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Debt Securities, Available-for-sale [Abstract]
Corporate bonds	171,820	256,345
US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Debt Securities, Available-for-sale [Abstract]
Corporate bonds
Residential Mortgage Backed Securities [Member]
Debt Securities, Available-for-sale [Abstract]
Corporate bonds	438,029	472,231
Loans held for sale	52,199	19,254
Residential Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Debt Securities, Available-for-sale [Abstract]
Corporate bonds
Residential Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Debt Securities, Available-for-sale [Abstract]
Corporate bonds	438,029	472,231
Residential Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Debt Securities, Available-for-sale [Abstract]
Corporate bonds
US States and Political Subdivisions Debt Securities [Member]
Debt Securities, Available-for-sale [Abstract]
Corporate bonds	63,958	45,769
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Debt Securities, Available-for-sale [Abstract]
Corporate bonds
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Debt Securities, Available-for-sale [Abstract]
Corporate bonds	63,958	45,769
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Debt Securities, Available-for-sale [Abstract]
Corporate bonds
Corporate Debt Securities [Member]
Debt Securities, Available-for-sale [Abstract]
Corporate bonds	9,614	9,576
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Debt Securities, Available-for-sale [Abstract]
Corporate bonds
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Debt Securities, Available-for-sale [Abstract]
Corporate bonds
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Debt Securities, Available-for-sale [Abstract]
Corporate bonds	9,614	$ 9,576
US Treasury and Government [Member]
Debt Securities, Available-for-sale [Abstract]
Corporate bonds	24,926
US Treasury and Government [Member] | Fair Value, Inputs, Level 1 [Member]
Debt Securities, Available-for-sale [Abstract]
Corporate bonds
US Treasury and Government [Member] | Fair Value, Inputs, Level 2 [Member]
Debt Securities, Available-for-sale [Abstract]
Corporate bonds	24,926
US Treasury and Government [Member] | Fair Value, Inputs, Level 3 [Member]
Debt Securities, Available-for-sale [Abstract]
Corporate bonds

XML

Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Interest Income
Interest and fees on loans	$ 102,297	$ 95,570	$ 302,007	$ 270,924
Interest and dividends on investment securities	4,904	4,875	15,740	12,525
Interest on balances with other banks and short-term investments	1,762	1,897	4,533	4,152
Interest on federal funds sold	71	18	167	104
Total interest income	109,034	102,360	322,447	287,705
Interest Expense
Interest on deposits	24,576	16,719	67,937	39,896
Interest on customer repurchase agreements	82	54	255	166
Interest on short-term borrowings	408	1,317	1,983	3,425
Interest on long-term borrowings	2,979	2,979	8,937	8,937
Total interest expense	28,045	21,069	79,112	52,424
Net Interest Income	80,989	81,291	243,335	235,281
Provision for Credit Losses	3,186	2,441	10,146	6,060
Net Interest Income After Provision For Credit Losses	77,803	78,850	233,189	229,221
Noninterest Income
Service charges on deposits	1,494	1,814	4,794	5,188
Gain on sale of loans	2,563	1,434	5,874	4,632
Gain on sale of investment securities	153		1,628	68
Increase in the cash surrender value of bank owned life insurance	431	373	1,285	1,073
Other income	1,673	2,019	5,384	5,536
Total noninterest income	6,314	5,640	18,965	16,497
Noninterest Expense
Salaries and employee benefits	19,095	17,157	60,482	51,827
Premises and equipment expenses	3,503	3,889	11,007	11,691
Marketing and advertising	1,210	1,191	3,626	3,419
Data processing	2,183	2,423	7,161	7,144
Legal, accounting and professional fees	3,625	2,130	8,074	7,282
FDIC insurance	85	933	2,327	2,559
Other expenses	3,772	3,891	12,459	11,102
Total noninterest expense	33,473	31,614	105,136	95,024
Income Before Income Tax Expense	50,644	52,876	147,018	150,694
Income Tax Expense	14,149	13,928	39,531	38,735
Net Income	$ 36,495	$ 38,948	$ 107,487	$ 111,959
Earnings Per Common Share
Basic	$ 1.07	$ 1.14	$ 3.12	$ 3.26
Diluted	$ 1.07	$ 1.13	$ 3.12	$ 3.25

XML

The calculation of net income per common share for the three and nine months ended September 30, 2019 and 2018 was as follows: (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Earnings Per Common Share
Net income	$ 36,495	$ 38,948	$ 107,487	$ 111,959
Average common shares outstanding	34,233	34,309	34,418	34,292
Basic net income per common share	$ 1.07	$ 1.14	$ 3.12	$ 3.26
Adjustment for common share equivalents	23	152	33	152
Average common shares outstanding-diluted	34,256	34,461	34,451	34,444
Diluted net income per common share	$ 1.07	$ 1.13	$ 3.12	$ 3.25
Anti-dilutive shares	2	3	20

XML

The estimated fair value of the Company’s financial instruments at September 30, 2019 and December 31, 2018 are as follows: (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Assets
Federal funds sold	$ 27,711	$ 11,934
Interest bearing deposits with other banks	361,154	303,157
Investment securities	708,545	784,139
Loans held for sale	52,199	19,254
Bank owned life insurance	74,726	73,441
Liabilities
Interest bearing deposits	918,011	593,107
Mortgage banking derivatives	117	269
Interest Rate Swap [Member]
Assets
Interest rate swap derivatives		3,727
Liabilities
Mortgage banking derivatives	362
Mortgage Banking Derivative [Member]
Assets
Interest rate swap derivatives	313	229
Liabilities
Mortgage banking derivatives	3
Interest Rate Cap [Member]
Assets
Interest rate swap derivatives	228
Liabilities
Mortgage banking derivatives	235
Fair Value, Inputs, Level 1 [Member]
Assets
Cash and due from banks
Federal funds sold
Interest bearing deposits with other banks
Investment securities
Federal Reserve and Federal Home Loan Bank stock
Loans held for sale
Loans
Bank owned life insurance
Annuity investment
Liabilities
Noninterest bearing deposits
Interest bearing deposits
Certificates of deposit
Customer repurchase agreements
Borrowings
Mortgage banking derivatives
Fair Value, Inputs, Level 1 [Member] | Interest Rate Swap [Member]
Assets
Interest rate swap derivatives
Liabilities
Mortgage banking derivatives
Fair Value, Inputs, Level 1 [Member] | Mortgage Banking Derivative [Member]
Assets
Interest rate swap derivatives
Liabilities
Mortgage banking derivatives
Fair Value, Inputs, Level 1 [Member] | Interest Rate Cap [Member]
Assets
Interest rate swap derivatives
Liabilities
Mortgage banking derivatives
Fair Value, Inputs, Level 2 [Member]
Assets
Cash and due from banks	6,657	6,773
Federal funds sold	27,711	11,934
Interest bearing deposits with other banks	361,154	303,157
Investment securities	698,733	774,345
Federal Reserve and Federal Home Loan Bank stock	28,725	23,506
Loans held for sale	52,199	19,254
Loans
Bank owned life insurance	74,726	73,441
Annuity investment	12,103	12,417
Liabilities
Noninterest bearing deposits	2,051,106	2,104,220
Interest bearing deposits	3,952,541	3,542,666
Certificates of deposit	1,443,542	1,325,209
Customer repurchase agreements	30,297	30,413
Borrowings	328,330	218,006
Mortgage banking derivatives	117
Fair Value, Inputs, Level 2 [Member] | Interest Rate Swap [Member]
Assets
Interest rate swap derivatives	228	3,727
Liabilities
Mortgage banking derivatives	362
Fair Value, Inputs, Level 2 [Member] | Mortgage Banking Derivative [Member]
Assets
Interest rate swap derivatives
Liabilities
Mortgage banking derivatives
Fair Value, Inputs, Level 2 [Member] | Interest Rate Cap [Member]
Assets
Interest rate swap derivatives	228
Liabilities
Mortgage banking derivatives	235
Fair Value, Inputs, Level 3 [Member]
Assets
Cash and due from banks
Federal funds sold
Interest bearing deposits with other banks
Investment securities	9,812	9,794
Federal Reserve and Federal Home Loan Bank stock
Loans held for sale
Loans	7,572,385	6,921,048
Bank owned life insurance
Annuity investment
Liabilities
Noninterest bearing deposits
Interest bearing deposits
Certificates of deposit
Customer repurchase agreements
Borrowings
Mortgage banking derivatives		269
Fair Value, Inputs, Level 3 [Member] | Interest Rate Swap [Member]
Assets
Interest rate swap derivatives
Liabilities
Mortgage banking derivatives
Fair Value, Inputs, Level 3 [Member] | Mortgage Banking Derivative [Member]
Assets
Interest rate swap derivatives	313	229
Liabilities
Mortgage banking derivatives	3	269
Fair Value, Inputs, Level 3 [Member] | Interest Rate Cap [Member]
Assets
Interest rate swap derivatives
Liabilities
Mortgage banking derivatives
Reported Value Measurement [Member]
Assets
Cash and due from banks	6,657	6,773
Federal funds sold	27,711	11,934
Interest bearing deposits with other banks	361,154	303,157
Investment securities	708,545	784,139
Federal Reserve and Federal Home Loan Bank stock	28,725	23,506
Loans held for sale	52,199	19,254
Loans	7,485,441	6,921,503
Bank owned life insurance	74,726	73,441
Annuity investment	12,103	12,417
Liabilities
Noninterest bearing deposits	2,051,106	2,104,220
Interest bearing deposits	3,952,541	3,542,666
Certificates of deposit	1,398,866	1,327,400
Customer repurchase agreements	30,297	30,413
Borrowings	317,589	217,196
Mortgage banking derivatives	117
Reported Value Measurement [Member] | Interest Rate Swap [Member]
Assets
Interest rate swap derivatives	228	3,727
Liabilities
Mortgage banking derivatives	362
Reported Value Measurement [Member] | Mortgage Banking Derivative [Member]
Assets
Interest rate swap derivatives	313	229
Liabilities
Mortgage banking derivatives	3	269
Reported Value Measurement [Member] | Interest Rate Cap [Member]
Liabilities
Mortgage banking derivatives	235
Portion at Fair Value Measurement [Member]
Assets
Cash and due from banks	6,657	6,773
Federal funds sold	27,711	11,934
Interest bearing deposits with other banks	361,154	303,157
Investment securities	708,545	784,139
Federal Reserve and Federal Home Loan Bank stock	28,725	23,506
Loans held for sale	52,199	19,254
Loans	7,572,385	6,921,048
Bank owned life insurance	74,726	73,441
Annuity investment	12,103	12,417
Liabilities
Noninterest bearing deposits	2,051,106	2,104,220
Interest bearing deposits	3,952,541	3,542,666
Certificates of deposit	1,443,542	1,325,209
Customer repurchase agreements	30,297	30,413
Borrowings	328,330	218,006
Mortgage banking derivatives	117
Portion at Fair Value Measurement [Member] | Interest Rate Swap [Member]
Assets
Interest rate swap derivatives	228	3,727
Liabilities
Mortgage banking derivatives	362
Portion at Fair Value Measurement [Member] | Mortgage Banking Derivative [Member]
Assets
Interest rate swap derivatives	313	229
Liabilities
Mortgage banking derivatives	3	$ 269
Portion at Fair Value Measurement [Member] | Interest Rate Cap [Member]
Liabilities
Mortgage banking derivatives	$ 235

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Cash Flows From Operating Activities:
Net Income	$ 107,487	$ 111,959
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	10,146	6,060
Depreciation and amortization	5,653	5,292
Amortization of operating lease right-of-use assets	3,022
Gains on sale of loans	(5,874)	(4,632)
Securities premium amortization (discount accretion), net	3,966	3,297
Origination of loans held for sale	(437,525)	(325,109)
Proceeds from sale of loans held for sale	410,454	336,109
Net increase in cash surrender value of BOLI	(1,285)	(1,073)
Deferred income tax expense (benefit)	3,305	(6,426)
Net gain on sale of investment securities	(1,628)	(68)
Stock-based compensation expense	6,648	5,174
Net tax benefits from stock compensation	10	108
Decrease (increase) in other assets	7,274	(11,894)
Decrease in other liabilities	(19,314)	(10,886)
Net cash provided by operating activities	92,339	107,911
Cash Flows From Investing Activities:
Purchases of available-for-sale investment securities	(130,693)	(246,501)
Proceeds from maturities of available-for-sale securities	129,879	68,901
Proceeds from sale/call of available-for-sale securities	82,982	31,974
Purchases of Federal Reserve and Federal Home Loan Bank stock	(90,219)	(47,811)
Proceeds from redemption of Federal Reserve and Federal Home Loan Bank stock	85,000	46,878
Net increase in loans	(574,177)	(435,773)
Purchase of BOLI	0	(10,000)
Increase in premises and equipment	(2,171)	(727)
Net cash used in investing activities	(499,399)	(593,059)
Cash Flows From Financing Activities:
Increase in deposits	428,228	518,321
Decrease in customer repurchase agreements	(116)	(40,115)
Increase in short-term borrowings	100,000
Proceeds from exercise of equity compensation plans	332	338
Proceeds from employee stock purchase plan	585	608
Common stock repurchased	(33,385)	0
Cash dividends paid	(14,926)	0
Net cash provided by financing activities	480,718	479,152
Net Increase (Decrease) In Cash and Cash Equivalents	73,658	(5,996)
Cash and Cash Equivalents at Beginning of Period	321,864	190,473
Cash and Cash Equivalents at End of Period	395,522	184,477
Supplemental Cash Flows Information:
Interest paid	81,834	53,405
Income taxes paid	43,250	39,900
Non-Cash Investing Activities
Initial recognition of operating lease right-of-use assets	29,574
Initial recognition of operating lease liabilities	33,535
Transfers from loans to other real estate owned	$ 93

XML

Note 8. Other Derivatives (Tables)

9 Months Ended

Sep. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The table below identifies the balance sheet category and fair value of the Company’s designated cash flow hedge derivative instruments and non-designated hedges as of September 30, 2019 and December 31, 2018.

The table below identifies the balance sheet category and fair value of the Company’s designated cash flow hedge derivative instruments and non-designated hedges as of September 30, 2019 and December 31, 2018.

	September 30, 2019					December 31, 2018
	Notional				Balance Sheet	Notional				Balance Sheet
	Amount		Fair Value		Category	Amount		Fair Value		Category
Derivatives designated as hedging instruments
(dollars in thousands)
Interest rate product	$	—	$	—	Other Assets	$	250,000	$	3,727	Other Assets
(dollars in thousands)
Interest rate product	$	100,000	$	348	Other Liabilities	$	—	$	—	Other Liabilities
Derivatives not designated as hedging instruments
(dollars in thousands)
Interest rate product	$	26,000	$	15
Interest rate product		26,517		213
Interest rate product	$	52,517	$	228	Other Assets	$	—	$	—	Other Assets
(dollars in thousands)
Interest rate product	$	26,000	$	15	Other Liabilities	$	—	$	—	Other Liabilities
Interest rate product		26,517		220	Other Liabilities
Other Contracts		27,500		117	Other Liabilities		27,500		59	Other Liabilities
	$	80,017	$	352	Other Liabilities	$	27,500	$	59	Other Liabilities

The table below presents the pre-tax net gains (losses) of the Company’s designated cash flow hedges for the three and nine months ended September 30, 2019 and 2018.

The table below presents the pre-tax net gains (losses) of the Company’s designated cash flow hedges for the three and nine months ended September 30, 2019 and 2018.

Derivatives in Subtopic 815-20 Hedging Relationships (dollars in thousands)	Amount of Gain or (Loss) Recognized in OCI on Derivative					Location of Gain or (Loss) Recognized from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income
	Three Months Ended September 30,						Three Months Ended September 30,
	2019			2018			2019		2018
Derivatives in Cash Flow Hedging Relationships
Interest Rate Products	$	(107	)	$	849	Interest Expense	$	264	$	214
Total	$	(107	)	$	849		$	264	$	214

Derivatives in Subtopic 815-20 Hedging Relationships (dollars in thousands)	Amount of Gain or (Loss) Recognized in OCI on Derivative					Location of Gain or (Loss) Recognized from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income
	Nine Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019		2018
Derivatives in Cash Flow Hedging Relationships
Interest Rate Products	$	(1,974	)	$	4,401	Interest Expense	$	1,039	$	230
Interest Rate Products		—			—	Gain on sale of investment securities		829		—
Total	$	(1,974	)	$	4,401		$	1,868	$	230

The table below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018.

The table below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018.

The Effect of Fair Value and Cash Flow Hedge Accounting on the Statement of Financial Performance

	Location and Amount of Gain or (Loss) Recognized in Income on Fair Value
	and Cash Flow Hedging Relationships (in 000's)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2019		2018
	Interest Expense				Interest Expense		Gain on sale of investment securities		Interest Expense
Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value or cash flow hedges are recorded	$	264	$	214	$	1,039	$	829	$	16
Gain or (loss) on cash flow hedging relationships in Subtopic 815-20
Interest contracts
Amount of gain or (loss) reclassified from accumulated other  comprehensive income into income	$	264	$	214	$	1,039	$	—	$	230
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income as a result that a forecasted transaction is no longer probable of occurring	$	—	$	—	$	—	$	829	$	—
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income -  Included Component	$	264	$	214	$	1,039	$	829	$	230
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income -  Excluded Component	$	—	$	—	$	—	$	—	$	—

Effect of Derivatives Not Designated as Hedging Instruments on the Statement of Financial Performance
Derivatives Not Designated as Hedging Instruments under Subtopic 815-20	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative					Amount of Gain or (Loss) Recognized in Income on Derivative
		Three Months Ended September 30,					Nine Months Ended September 30,
		2019			2018		2019			2018
Interest Rate Products	Other income / (expense)		(7	)				(7	)
Other Contracts	Other income / (expense)		(16	)		—		(58	)		—
Total			(23	)		—		(65	)		—

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s cash flow hedge derivatives as of September 30, 2019 and December 31, 2018.

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s cash flow hedge derivatives as of September 30, 2019 and December 31, 2018.

As of September 30, 2019
Offsetting of Derivative Assets (dollars in thousands)							Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Balance Sheet		Net Amounts of Assets presented in the Balance Sheet		Financial Instruments		Cash Collateral Posted		Net Amount
Derivatives	$	228	$	—	$	228	$	—	$	—	$	228

Offsetting of Derivative Liabilities (dollars in thousands)							Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Balance Sheet		Net Amounts of Liabilities presented in the Balance Sheet		Financial Instruments		Cash Collateral Posted		Net Amount
Derivatives	$	669	$	—	$	669	$	—	$	—	$	669

As of December 31, 2018
Offsetting of Derivative Assets (dollars in thousands)							Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Balance Sheet		Net Amounts of Assets presented in the Balance Sheet		Financial Instruments		Cash Collateral Posted		Net Amount
Derivatives	$	3,840	$	—	$	3,840	$	—	$	—	$	3,840

Offsetting of Derivative Liabilities (dollars in thousands)							Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Balance Sheet		Net Amounts of Liabilities presented in the Balance Sheet		Financial Instruments		Cash Collateral Posted		Net Amount
Derivatives	$	59	$	—	$	59	$	—	$	—	$	59

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Note 1. Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The Consolidated Financial Statements include the accounts of Eagle Bancorp, Inc. and its subsidiaries (the “Company”). Active subsidiaries include: EagleBank (the “Bank”), Eagle Insurance Services, LLC, Bethesda Leasing, LLC, and Landroval Municipal Finance, Inc., with all significant intercompany transactions eliminated.

The Consolidated Financial Statements of the Company included herein are unaudited. The Consolidated Financial Statements reflect all adjustments, consisting of normal recurring accruals that in the opinion of management, are necessary to present fairly the results for the periods presented. The amounts as of and for the year ended December 31, 2018 were derived from audited Consolidated Financial Statements. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The Company applies the accounting policies contained in Note 1 to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. There have been no significant changes to the Company’s Accounting Policies as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 except as indicated in the “Accounting Standards Adopted in 2019” section below. The Company believes that the disclosures are adequate to make the information presented not misleading. Certain reclassifications have been made to amounts previously reported to conform to the current period presentation.

These statements should be read in conjunction with the audited Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results of operations to be expected for the remainder of the year, or for any other period.

Nature of Operations

Nature of Operations

The Company, through the Bank, conducts a full service community banking business, primarily in Northern Virginia, Suburban Maryland, and Washington, D.C. The primary financial services offered by the Bank include real estate, commercial and consumer lending, as well as traditional deposit and repurchase agreement products. The Bank is also active in the origination and sale of residential mortgage loans, the origination of small business loans, and the origination, securitization and sale of multifamily Federal Housing Administration (“FHA”) loans. The guaranteed portion of small business loans, guaranteed by the Small Business Administration (“SBA”), is typically sold to third party investors in a transaction apart from the loan’s origination. The Bank offers its products and services through twenty banking offices, five lending centers and various electronic capabilities, including remote deposit services and digital banking services. Eagle Insurance Services, LLC, a subsidiary of the Bank, offers access to insurance products and services through a referral program with a third party insurance broker. Landroval Municipal Finance, Inc., a subsidiary of the Bank, focuses on lending to municipalities by buying debt on the public market as well as direct purchase issuance.

Use of Estimates

Use of Estimates

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

New Authoritative Accounting Guidance

New Authoritative Accounting Guidance

Accounting Standards Adopted in 2019

ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 has, among other things, required lessees to recognize a lease liability, which is a lessee’s obligation to make lease payments, measured on a discounted basis; and a right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 did not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model and ASC Topic 606, “Revenue from Contracts with Customers.” ASU 2016-02 became effective for us on January 1, 2019 and initially required transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842) – Targeted Improvements,” which, among other things, provides an additional transition method that allows entities to not apply the guidance in ASU 2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In December 2018, the FASB also issued ASU 2018-20, “Leases (Topic 842) - Narrow-Scope Improvements for Lessors,” which provides for certain policy elections and changes lessor accounting for sales and similar taxes and certain lessor costs. Upon adoption of ASU 2016-02, ASU 2018-11 and ASU 2018-20 on January 1, 2019, we recognized ROU assets of $29.6 million and related lease liabilities of $33.5 million which reduced the March 31, 2019 total risk based capital ratio by six basis points. We elected to apply certain practical expedients provided under ASU 2016-02 whereby we did not reassess (i) whether any expired or existing contracts were or contained leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. We also elected to not apply the recognition requirements of ASU 2016-02 to any short-term leases (as defined by related accounting guidance). We utilized the modified-retrospective transition approach prescribed by ASU 2018-11.

Accounting Standards Pending Adoption

ASU 2016-13, “Measurement of Credit Losses on Financial Instruments (Topic 326).” This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. In issuing the standard, the FASB is responding to criticism that today’s guidance for determining the allowance for credit losses delays recognition of expected future credit losses. The standard will replace today’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. The CECL model does not apply to available-for-sale (“AFS”) debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. ASU No. 2016-13 is effective for the Company beginning on January 1, 2020. Entities will apply any changes resulting from the application of the new standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). We have substantially concluded our data gap analysis. Our CECL model has been substantially developed and third party model validation is on-going. We have entered our data into the model and are working on the qualitative and forecasting aspects of the methodology. We have established a steering committee with representation from various departments across the enterprise. The committee has agreed to a project plan and has regular meetings to ensure adherence to our implementation timeline. The Company is currently evaluating the provisions of ASU No. 2016-13 to determine the potential impact the new standard will have on the Company’s Consolidated Financial Statements. We preliminarily expect this rule to increase the reserve for credit losses by 10-20% inclusive of the impact on commitments to lend upon implementation on January 1, 2020. This number may change as we finalize and validate our model and update our system of internal controls as a result of the rule change.