sasr-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended March 31, 2022

☐ 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: 0-19065

SANDY SPRING BANCORP, INC.

(Exact name of registrant as specified in its charter)


Maryland						52-1532952
(State of incorporation)						(I.R.S. Employer Identification Number)


17801 Georgia Avenue, Olney, Maryland						20832
(Address of principal executive office)						(Zip Code)

301-774-6400

(Registrant’s telephone number, including area code)

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, par value $1.00 per share

SASR

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 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

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

Large accelerated filer ☒ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ☐ Emerging growth company ☐

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

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

Yes ☐ No ☒

The number of outstanding shares of common stock outstanding as of May 4, 2022

Common stock, $1.00 par value – 45,239,757 shares

SANDY SPRING BANCORP, INC.

TABLE OF CONTENTS


			Page
PART I - FINANCIAL INFORMATION

Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidated Statements of Condition - Unaudited as of March 31 , 202 2 and December 31, 202 1			3

Condensed Consolidated Statements of Income - Unaudited for the Three Months Ended March 31 , 202 2 and 202 1			4

Condensed Consolidated Statements of Comprehensive Income – Unaudited for the Three Months Ended March 31 , 20 22 and 202 1			5

Condensed Consolidated Statements of Changes in Stockholders’ Equity – Unaudited for the Three Months Ended March 31 , 202 2 and 202 1			6

Condensed Consolidated Statements of Cash Flows – Unaudited for the Three Months Ended March 31 , 202 2 and 202 1			7

Notes to the Condensed Consolidated Financial Statements			8

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			38

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			63

Item 4. CONTROLS AND PROCEDURES			63

PART II - OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS			64

Item 1A. RISK FACTORS			64

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			64

Item 3. DEFAULTS UPON SENIOR SECURITIES			64

Item 4. MINE SAFETY DISCLOSURES			64

Item 5. OTHER INFORMATION			64

Item 6. EXHIBITS			64

SIGNATURES			65

Part I

Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SANDY SPRING BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CONDITION – UNAUDITED


	March 31,		December 31,
(Dollars in thousands)	2022		2021
Assets:
Cash and due from banks	$	96,074	$	65,630
Federal funds sold	370		312
Interest-bearing deposits with banks	456,382		354,078
Cash and cash equivalents	552,826		420,020
Residential mortgage loans held for sale (at fair value)	17,537		39,409
Investments held-to-maturity, at cost (fair value of $275,834)	285,339		—
Investments available-for-sale (at fair value)	1,259,945		1,465,896
Equity securities	41,157		41,166
Total loans	10,144,328		9,967,091
Less: allowance for credit losses	(110,588)		(109,145)
Net loans	10,033,740		9,857,946
Premises and equipment, net	61,434		59,685
Other real estate owned	1,034		1,034
Accrued interest receivable	33,528		34,349
Goodwill	370,223		370,223
Other intangible assets, net	24,412		25,920
Other assets	286,241		275,078
Total assets	$	12,967,416	$	12,590,726

Liabilities:
Noninterest-bearing deposits	$	4,039,797	$	3,779,630
Interest-bearing deposits	6,812,997		6,845,101
Total deposits	10,852,794		10,624,731
Securities sold under retail repurchase agreements and federal funds purchased	130,784		141,086
Advances from FHLB	—		—
Subordinated debt	370,002		172,712
Total borrowings	500,786		313,798
Accrued interest payable and other liabilities	124,926		132,518
Total liabilities	11,478,506		11,071,047

Stockholders' equity:
Common stock -- par value $1.00; shares authorized 100,000,000; shares issued and outstanding
45,162,908 and 45,118,930 at March 31, 2022 and December 31, 2021, respectively	45,163		45,119
Additional paid in capital	752,671		751,072
Retained earnings	760,347		732,027
Accumulated other comprehensive loss	(69,271)		(8,539)
Total stockholders' equity	1,488,910		1,519,679
Total liabilities and stockholders' equity	$	12,967,416	$	12,590,726

The accompanying notes are an integral part of these statements

SANDY SPRING BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME – UNAUDITED


	Three Months Ended
	March 31,
(Dollars in thousands, except per share data)	2022		2021
Interest income:
Interest and fees on loans	$	99,494	$	107,428
Interest on loans held for sale	198		537
Interest on deposits with banks	113		46
Interest and dividends on investment securities:
Taxable	4,107		3,899
Tax-advantaged	2,124		2,351
Interest on federal funds sold	—		—
Total interest income	106,036		114,261
Interest expense:
Interest on deposits	2,293		4,830
Interest on retail repurchase agreements and federal funds purchased	54		53
Interest on advances from FHLB	—		2,276
Interest on subordinated debt	2,238		2,502
Total interest expense	4,585		9,661
Net interest income	101,451		104,600
Provision/ (credit) for credit losses	1,635		(34,708)
Net interest income after provision/ (credit) for credit losses	99,816		139,308
Non-interest income:
Investment securities gains	8		58
Service charges on deposit accounts	2,326		1,852
Mortgage banking activities	2,298		10,169
Wealth management income	9,337		8,730
Insurance agency commissions	2,115		2,153
Income from bank owned life insurance	795		680
Bank card fees	1,668		1,518
Other income	2,048		3,706
Total non-interest income	20,595		28,866
Non-interest expense:
Salaries and employee benefits	39,373		36,652
Occupancy expense of premises	5,034		5,487
Equipment expense	3,536		3,222
Marketing	1,193		1,212
Outside data services	2,419		2,283
FDIC insurance	984		1,492
Amortization of intangible assets	1,508		1,697
Merger and acquisition expense	—		45
Professional fees and services	2,017		1,731
Other expenses	6,083		14,352
Total non-interest expense	62,147		68,173
Income before income tax expense	58,264		100,001
Income tax expense	14,329		24,537
Net income	$	43,935	$	75,464

Per share information:
Basic net income per common share	$	0.97	$	1.59
Diluted net income per common share	$	0.96	$	1.58
Dividends declared per share	$	0.34	$	0.32

The accompanying notes are an integral part of these statements

SANDY SPRING BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/ (LOSS) – UNAUDITED


	Three Months Ended
	March 31,
(In thousands)	2022		2021
Net income	$	43,935	$	75,464
Other comprehensive loss:
Investments available-for-sale:
Net change in unrealized losses on investments available-for-sale	(65,923)		(28,855)
Related income tax expense	16,897		7,377
Net investment gains reclassified into earnings	(8)		(58)
Related income tax expense	2		15
Net effect on other comprehensive loss	(49,032)		(21,521)

Investments held-to-maturity:
Net change in unrealized loss	(15,929)		—
Related income tax expense	4,083		—
Net effect on other comprehensive loss	(11,846)		—

Defined benefit pension plan:
Net change of unrealized loss	196		227
Related income tax benefit	(50)		(63)
Net effect on other comprehensive loss	146		164
Total other comprehensive loss	(60,732)		(21,357)
Comprehensive income/ (loss)	$	(16,797)	$	54,107

The accompanying notes are an integral part of these statements

SANDY SPRING BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY – UNAUDITED


(Dollars in thousands, except per share data)	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income/ (Loss)		Total Stockholders' Equity
Balances at January 1, 2022	$	45,119	$	751,072	$	732,027	$	(8,539)	$	1,519,679
Net income	—		—		43,935		—		43,935
Other comprehensive loss, net of tax	—		—		—		(60,732)		(60,732)
Total other comprehensive loss									(16,797)
Common stock dividends - $0.34 per share	—		—		(15,615)		—		(15,615)
Stock compensation expense	—		1,472		—		—		1,472
Common stock issued pursuant to:

Stock option plan - 8,897 shares	9		186		—		—		195


Employee stock purchase plan - 9,581 shares	10		426		—		—		436
Restricted stock vesting, net of tax withholding - 25,500 shares	25		(485)		—		—		(460)


Balances at March 31, 2022	$	45,163	$	752,671	$	760,347	$	(69,271)	$	1,488,910

Balances at January 1, 2021	$	47,057	$	846,922	$	557,271	$	18,705	$	1,469,955
Net income	—		—		75,464		—		75,464
Other comprehensive loss, net of tax	—		—		—		(21,357)		(21,357)
Total other comprehensive income									54,107
Common stock dividends - $0.32 per share	—		—		(15,182)		—		(15,182)
Stock compensation expense	—		947		—		—		947
Common stock issued pursuant to:


Stock option plan - 102,365 shares	102		1,429		—		—		1,531

Employee stock purchase plan - 20,417 shares	20		521		—		—		541
Restricted stock vesting, net of tax withholding- 7,830 shares	8		(213)		—		—		(205)


Balances at March 31, 2021	$	47,187	$	849,606	$	617,553	$	(2,652)	$	1,511,694

The accompanying notes are an integral part of these statements

SANDY SPRING BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED


	Three Months Ended March 31,
(Dollars in thousands)	2022		2021
Operating activities:
Net income	$	43,935	$	75,464
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,025		3,462
Provision/ (credit) for credit losses	1,635		(34,708)
Share based compensation expense	1,472		947
Deferred income tax expense	4,177		9,125
Origination of loans held for sale	(104,823)		(536,747)
Proceeds from sales of loans held for sale	129,389		540,736
Gains on sales of loans held for sale	(2,694)		(10,625)

Investment securities gains	(8)		(58)

Tax benefit associated with share based compensation	(245)		426
Net decrease in accrued interest receivable	821		1,872
Net (increase)/ decrease other assets	7,054		(9,461)
Net decrease in accrued expenses and other liabilities	(16,433)		(12,786)
Other, net	(2,201)		370
Net cash provided by operating activities	65,104		28,017
Investing activities:
Sales of equity securities	9		20,913
Purchases of investments available-for-sale	(232,295)		(280,942)
Proceeds from sales of investment available-for-sale	1,261		100,822
Proceeds from maturities, calls and principal payments of investments available-for-sale	68,818		99,668

Proceeds from maturities, calls and principal payments of investments held-to-maturity	4,318		—
Net increase in loans	(174,046)		(37,247)





Sales of/ (expenditures for) premises and equipment	(3,440)		420
Net cash used in investing activities	(335,375)		(96,366)
Financing activities:
Net increase in deposits	228,654		646,196
Net decrease in in retail repurchase agreements and federal funds purchased	(10,302)		(353,839)

Repayment of FHLB advances	—		(279,075)
Proceeds from issuance of subordinated debt	200,000		—

Proceeds from issuance of common stock	800		2,072
Stock tendered for payment of withholding taxes	(629)		(205)

Dividends paid	(15,446)		(15,182)
Net cash provided by/ (used in) financing activities	403,077		(33)
Net increase/ (decrease) in cash and cash equivalents	132,806		(68,382)
Cash and cash equivalents at beginning of period	420,020		297,003
Cash and cash equivalents at end of period	$	552,826	$	228,621

Supplemental disclosures:
Interest payments	$	5,784	$	11,533
Income tax payments	—		22,276

The accompanying notes are an integral part of these statements

SANDY SPRING BANCORP, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Sandy Spring Bancorp, Inc. ("Bancorp" or, together with its subsidiaries, the "Company"), a Maryland corporation, is the bank holding company for Sandy Spring Bank (the “Bank”). Independent and community-oriented, the Bank offers a broad range of commercial banking, retail banking, mortgage services and trust services throughout central Maryland, Northern Virginia, and the greater Washington, D.C. market. The Bank also offers a comprehensive menu of insurance and wealth management services through its subsidiaries, Sandy Spring Insurance Corporation (“Sandy Spring Insurance”), West Financial Services, Inc. (“West Financial”) and Rembert Pendleton Jackson (“RPJ”).

Basis of Presentation

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”), prevailing practices within the financial services industry for interim financial information and Rule 10-01 of Regulation S-X. Accordingly, the interim financial statements do not include all of the information and notes required for complete financial statements. The following summary of significant accounting policies of the Company is presented to assist the reader in understanding the financial and other data presented in this report. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for any future periods or for the year ending December 31, 2022. In the opinion of management, all adjustments necessary for a fair presentation of the results of the interim periods have been included. The Company has evaluated subsequent events through the date of the issuance of its financial statements.

These statements should be read in conjunction with the financial statements and accompanying notes included in the Company’s 2021 Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on February 18, 2022. There have been no significant changes to any of the Company’s accounting policies as disclosed in the 2021 Annual Report on Form 10-K.

Principles of Consolidation

The unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiary, Sandy Spring Bank, and its subsidiaries, Sandy Spring Insurance, West Financial and RPJ. Consolidation has resulted in the elimination of all intercompany accounts and transactions. See Note 17 for more information on the Company’s segments and consolidation.

Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, in addition to affecting the reported amounts of revenues earned and expenses incurred during the reporting period. Actual results could differ from those estimates. Estimates that could change significantly relate to the provision for credit losses and the related allowance, potential impairment of goodwill or other intangible assets, valuation of investment securities and the determination of whether available-for-sale debt securities with fair values less than amortized costs are impaired and require an allowance for credit losses, valuation of other real estate owned, valuation of share based compensation, the assessment that a liability should be recognized with respect to any matters under litigation, the calculation of current and deferred income taxes, and the actuarial projections related to pension expense and the related liability.

Cash Flows

For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks, federal funds sold and interest-bearing deposits with banks (items with stated original maturity of three months or less).

Revenue from Contracts with Customers

The Company’s revenue includes net interest income on financial instruments and non-interest income. Specific categories of revenue are presented in the Condensed Consolidated Statements of Income. Most of the Company’s revenue is not within the scope of Accounting Standard Codification (“ASC”) 606 – Revenue from Contracts with Customers. For revenue within the scope of ASC 606, the Company provides services to customers and has related performance obligations. The revenue from such services is recognized upon satisfaction of all contractual performance obligations. The following discusses key revenue streams within the scope of this revenue recognition guidance.

Wealth Management Income

West Financial and RPJ provide comprehensive investment management and financial planning services. Wealth management income is comprised of income for providing trust, estate and investment management services. Trust services include acting as a trustee for corporate or personal trusts. Investment management services include investment management, record-keeping and reporting of security portfolios. Fees for these services are recognized based on a contractually-agreed fixed percentage applied to net assets under management at the end of each reporting period. The Company does not charge/recognize any performance-based fees.

Insurance Agency Commissions

Sandy Spring Insurance performs the function of an insurance intermediary by introducing the policyholder and insurer and is compensated by a commission fee for placement of an insurance policy. Sandy Spring Insurance does not provide any captive management services or any claim handling services. Commission fees are set as a percentage of the premium for the insurance policy for which Sandy Spring Insurance is a producer. Sandy Spring Insurance recognizes revenue when the insurance policy has been contractually agreed to by the insurer and policyholder (at transaction date).

Service Charges on Deposit Accounts

Service charges on deposit accounts are earned on depository accounts for consumer and commercial account holders and include fees for account and overdraft services. Account services include fees for event-driven services and periodic account maintenance activities. An obligation for event-driven services is satisfied at the time of the event when service is delivered and revenue recognized as earned. Obligation for maintenance activities is satisfied over the course of each month and revenue is recognized at month end. The overdraft services obligation is satisfied at the time of the overdraft and revenue is recognized as earned.

Loan Financing Receivables

The Company’s financing receivables consist primarily of loans that are stated at their principal balance outstanding, net of any unearned income, acquisition fair value marks and deferred loan origination fees and costs. Interest income on loans is accrued at the contractual rate based on the principal balance outstanding. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

Loans are considered past due or delinquent when the principal or interest due in accordance with the contractual terms of the loan agreement or any portion thereof remains unpaid after the due date of the scheduled payment. Immaterial shortfalls in payment amounts do not necessarily result in a loan being considered delinquent or past due. If any payments are past due and subsequent payments are resumed without payment of the delinquent amount, the loan shall continue to be considered past due. Whenever any loan is reported delinquent on a principal or interest payment or portion thereof, the amount reported as delinquent is the outstanding principal balance of the loan.

Loans, except for consumer installment loans, are placed into non-accrual status when any portion of the loan principal or interest becomes 90 days past due. Management may determine that certain circumstances warrant earlier discontinuance of interest accruals on specific loans if an evaluation of other relevant factors (such as bankruptcy, interruption of cash flows, etc.) indicates collection of amounts contractually due is unlikely. These loans are considered, collectively, to be non-performing loans. Consumer installment loans that are not secured by real estate are not placed on non-accrual, but are charged down to their net realizable value when they are four months past due. Loans designated as non-accrual have all previously accrued but unpaid interest reversed. Interest income is not recognized on non-accrual loans. All payments received on non-accrual loans are applied using a cost-recovery method to reduce the outstanding principal balance until the loan returns to accrual status. Loans may be returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Loans considered to be TDRs are loans that have their terms restructured (e.g., interest rates, loan maturity date, payment and amortization period, etc.) in circumstances that provide payment relief to a borrower experiencing financial difficulty. All restructured collateral-dependent loans are individually assessed for allowance for credit losses and may either be in accruing or non-accruing status. Non-accruing restructured loans may return to accruing status provided doubt has been removed concerning the collectability of principal and interest as evidenced by a sufficient period of payment performance in accordance with the restructured terms. Loans may be removed from the restructured category if the borrower is no longer experiencing financial difficulty, a re-underwriting event took place, and the revised loan terms of the subsequent restructuring agreement are considered to be consistent with terms that can be obtained in the market for loans with comparable credit risk.

Allowance for Credit Losses

The allowance for credit losses (“allowance” or “ACL”) represents an amount which, in management's judgment, reflects the lifetime expected losses that may be sustained on outstanding loans at the balance sheet date based on the evaluation of the size

and current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions and prepayment experience. The allowance is measured and recorded upon the initial recognition of a financial asset. The allowance is reduced by charge-offs, net of recoveries of previous losses, and is increased or decreased by a provision or credit for credit losses, which is recorded as a current period expense.

Determination of the appropriateness of the allowance is inherently complex and requires the use of significant and highly subjective estimates. The reasonableness of the allowance is reviewed periodically by the Risk Committee of the Board of Directors and formally approved quarterly by that same committee of the Board.

The Company’s methodology for estimating the allowance includes: (1) a collective quantified reserve that reflects the Company’s historical default and loss experience adjusted for expected economic conditions throughout a reasonable and supportable period and the Company’s prepayment and curtailment rates; (2) collective qualitative factors that consider the expected impact of certain factors not fully captured in the collective quantified reserve, including concentrations of the loan portfolio, expected changes to the economic forecasts, large relationships, early delinquencies, and factors related to credit administration, including, among others, loan-to-value ratios, borrowers’ risk rating and credit score migrations; and (3) individual allowances on collateral-dependent loans where borrowers are experiencing financial difficulty or when the Company determines that the foreclosure is probable. The Company excludes accrued interest from the measurement of the allowance as the Company has a non-accrual policy to reverse any accrued, uncollected interest income as loans are moved to non-accrual status.

Loans are pooled into segments based on the similar risk characteristics of the underlying borrowers, in addition to consideration of collateral type, industry and business purpose of the loans. Portfolio segments used to estimate the allowance are the same as portfolio segments used for general credit risk management purposes. Refer to Note 5 for more details on the Company’s portfolio segments.

The Company applies two calculation methodologies to estimate the collective quantified component of the allowance: discounted cash flows method and weighted average remaining life method. Allowance estimates on commercial acquisition, development and construction (“AD&C”) and residential construction segments are based on the weighted average remaining life method. Allowance estimates on all other portfolio segments are based on the discounted cash flows method. Segments utilizing the discounted cash flows method are further sub-segmented into risk level pools, determined either by risk rating for commercial loans or Beacon Scores ranges for residential and consumer loans. To better manage risk and reasonably determine the sufficiency of reserves, this segregation allows the Company to monitor the allowance component applicable to higher risk loans separate from the remainder of the portfolio. Collective calculation methodologies utilize the Company’s historical default and loss experience adjusted for future economic forecasts. The reasonable and supportable forecast period represents a two-year economic outlook for the applicable economic variables. Following the end of the reasonable and supportable forecast period expected losses revert back to the historical mean over the next two years on a straight-line basis. Economic variables that have the most significant impact on the allowance include: unemployment rate, house price index and business bankruptcies. Contractual loan level cash flows within the discounted cash flows methodology are adjusted for the Company’s historical prepayment and curtailment rate experience.

The individual reserve assessment is applied to collateral dependent loans where borrowers are experiencing financial difficulty or when the Company determines that a foreclosure is probable. The determination of the fair value of the collateral depends on whether a repayment of the loan is expected to be from the sale or the operation of the collateral. When a repayment is expected from the operation of the collateral, the Company uses the present value of expected cash flows from the operation of the collateral as the fair value. When the repayment of the loan is expected from the sale of the collateral the fair value of the collateral is based on an observable market price or the collateral’s appraised value, less estimated costs to sell. Third party appraisals used in the individual reserve assessment are conducted at least annually with underlying assumptions that are reviewed by management. Third party appraisals may be obtained on a more frequent basis if deemed necessary. Internal evaluations of collateral value are conducted quarterly to ensure any further deterioration of the collateral value is recognized on a timely basis. During the individual reserve assessment, management also considers the potential future changes in the value of the collateral over the remainder of the loan’s remaining life. The Company may receive updated appraisals which contradict the preliminary determination of fair value used to establish an individual allowance on a loan. In these instances the individual allowance is adjusted to reflect the Company’s evaluation of the updated appraised fair value. In the event a loss was previously confirmed and the loan was charged down to the estimated fair value based on a previous appraisal, the balance of partially charged-off loans are not subsequently increased, but could be further decreased depending on the direction of the change in fair value. Payments on fully or partially charged-off loans are accounted for under the cost-recovery method. Under this method, all payments received are applied on a cash basis to reduce the entire outstanding principal balance, then to recognize a recovery of all previously charged-off amounts before any interest income may be recognized. Based on the individual reserve assessment, if the Company determines that the fair value of the collateral is less than the amortized cost

basis of the loan, an individual allowance will be established measured as the difference between the fair value of the collateral (less costs to sell) and the amortized cost basis of the loan. Once a loss has been confirmed, the loan is charged-down to its estimated fair value.

Large groups of smaller non-accrual homogeneous loans are not individually evaluated for allowance and include residential permanent and construction mortgages and consumer installment loans. These portfolios are reserved for on a collective basis using historical loss rates of similar loans over the weighted average life of each pool.

The Company reviews its unfunded commitments to determine if they are unconditionally cancellable by the Company. If the unfunded commitment is determined to not be unconditionally cancellable by the Company, a reserve for unfunded commitments is established. The reserve for unfunded commitments considers both the likelihood that the funding will occur and an estimate of expected credit losses over the life of the commitment.

Management believes it uses relevant information available to make determinations about the allowance and that it has established the existing allowance in accordance with GAAP. However, the determination of the allowance requires significant judgment, and estimates of expected lifetime losses in the loan portfolio can vary significantly from the amounts actually observed. While management uses available information to recognize expected losses, future additions to the allowance may be necessary based on changes in the loans comprising the portfolio, changes in the current and forecasted economic conditions, changes to the interest rate environment which may directly impact prepayment and curtailment rate assumptions, and changes in the financial condition of borrowers.

Held-to-maturity debt securities

Debt securities that are purchased with the positive intent and ability to be held until their maturity are classified as held-to-maturity (“HTM”). HTM debt securities are recorded at cost adjusted for amortization of premiums and accretion of discounts. Transfers of debt securities from available-for-sale ("AFS") category to HTM category are made at fair value as of the transfer date. The unrealized gain or loss at the date of transfer continues to be reported in accumulated other comprehensive income and in the carrying amount of the HTM securities. Both amounts are amortized over the remaining life of the security as a yield adjustment in interest income and effectively offset each other.

Leases

The Company determines if an arrangement is a lease at inception. All of the Company’s leases are currently classified as operating leases and are included in other assets and other liabilities on the Company’s Condensed Consolidated Statements of Condition. Periodic operating lease costs are recorded in occupancy expenses of premises on the Company's Condensed Consolidated Statements of Income.

Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease arrangements. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of the expected future lease payments over the remaining lease term. In determining the present value of future lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date. The operating ROU assets are adjusted for any lease payments made at or before the lease commencement date, initial direct costs, any lease incentives received and, for acquired leases, any favorable or unfavorable fair value adjustments. The present value of the lease liability may include the impact of options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options provided in the lease terms. Lease expense is recognized on a straight-line basis over the expected lease term. Lease agreements that include lease and non-lease components, such as common area maintenance charges, are accounted for separately.

Pending Accounting Pronouncements

In March 2020, the FASB released Accounting Standards Update (“ASU”) 2020-04 - Reference Rate Reform (Topic 848), which provides optional guidance to ease the accounting burden in accounting for, or recognizing the effects from, reference rate reform on financial reporting. The new standard is a result of LIBOR likely being discontinued as an available benchmark rate. The standard is elective and provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, or other transactions that reference LIBOR, or another reference rate expected to be discontinued. The amendments in the update are effective for all entities between March 12, 2020 and December 31, 2022, and can be adopted at any time during this period. The Company has not yet fully adopted this standard. A cross-functional working group has been established to guide the Company’s transition from LIBOR to alternative reference rates. The Company has identified its products that are either directly or indirectly influenced by LIBOR and has implemented enhanced fallback language to facilitate the transition to alternative reference rates. The Company is evaluating existing platforms and systems and preparing

to offer new rates. The Company stopped originating any new loans referencing LIBOR during 2021. Currently, the Company does not expect that the adoption of this standard will have a material impact on its Consolidated Financial Statements.

In March 2022, the FASB issued ASU 2022-02, which eliminates the accounting guidance on troubled debt restructurings (“TDR”) and amends the guidance on “vintage disclosures” to require disclosure of current period gross charge-offs by year of origination. The ASU also adds enhanced disclosures for creditors with respect to loan refinancing and restructurings for borrowers experiencing financial difficulty. The objective of the disclosures is to provide information about the type and magnitude of modifications and the degree of their success in mitigating potential credit losses. For entities that have adopted the guidance in ASC 326, the amendments are effective for fiscal years beginning after December 15, 2022, and interim periods therein. Early adoption of the amendments is permitted for entities that have adopted ASC 326, including adoption in an interim period. An entity may elect to early adopt the amendments related to TDRs separately from the amendments related to vintage disclosures. The Company is in process of reviewing the enhanced modification disclosure requirements.

NOTE 2 – INVESTMENTS

Investments available-for-sale and held-to-maturity

During the first quarter ended March 31, 2022, the Company transferred certain debt securities from available-for-sale to held-to-maturity. The total amortized cost of debt securities transferred was $305.6 million with the associated fair value of $289.4 million and unrealized losses of $16.2 million at the date of transfer. All of these investments are either issued by a direct governmental entity or a government-sponsored entity and have no historical evidence supporting expected credit losses. Therefore, the Company has estimated these losses at zero and will monitor this assumption in the future for any economic or governmental policies that could affect this assumption.

The amortized cost and estimated fair values of investments available-for-sale and held-to-maturity at the dates indicated are presented in the following table:


	March 31, 2022								December 31, 2021
(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available-for-sale debt securities:
U.S. treasuries and government agencies	$	109,364	$	26	$	(3,892)	$	105,498	$	68,487	$	202	$	(150)	$	68,539
State and municipal	347,877		274		(26,298)		321,853		323,286		6,561		(3,445)		326,402
Mortgage-backed and asset-backed	869,089		304		(36,799)		832,594		1,074,577		8,203		(11,825)		1,070,955




Total available-for-sale debt securities	$	1,326,330	$	604	$	(66,989)	$	1,259,945	$	1,466,350	$	14,966	$	(15,420)	$	1,465,896
Held-to-maturity debt securities:


Mortgage-backed and asset-backed	285,339		—		(9,505)		275,834		—		—		—		—
Total held-to-maturity debt securities	$	285,339	$	—	$	(9,505)	$	275,834	$	—	$	—	$	—	$	—
Total debt securities	$	1,611,669	$	604	$	(76,494)	$	1,535,779	$	1,466,350	$	14,966	$	(15,420)	$	1,465,896

Any unrealized losses in the U.S. treasuries and government agencies, state and municipal, mortgage-backed and asset-backed available-for-sale debt securities at March 31, 2022 are due to changes in interest rates and not credit-related events. As such, no allowance for credit losses is required at March 31, 2022. Unrealized losses on available-for-sale debt securities are expected to recover over time as these securities approach maturity. The Company does not intend to sell, nor is it more likely than not it will be required to sell, these securities and has sufficient liquidity to hold these securities for an adequate period of time, which may be maturity, to allow for any anticipated recovery in fair value.

The available-for-sale and held-to-maturity mortgage-backed securities portfolio at March 31, 2022 is composed entirely of either the most senior tranches of GNMA, FNMA or FHLMC collateralized mortgage obligations ($422.7 million), GNMA, FNMA or FHLMC mortgage-backed securities ($636.7 million) or SBA asset-backed securities ($49.0 million).

Gross unrealized losses and fair value by length of time that the individual available-for-sale debt securities have been in an unrealized loss position at the dates indicated are presented in the following tables:


	March 31, 2022
	Number of Securities	Less Than 12 Months				12 Months or More				Total
(Dollars in thousands)		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. treasuries and government agencies	9	$	89,548	$	3,892	$	—	$	—	$	89,548	$	3,892
State and municipal	114	225,812		18,281		36,982		8,017		262,794		26,298
Mortgage-backed and asset-backed	244	783,283		35,867		13,669		932		796,952		36,799

Total	367	$	1,098,643	$	58,040	$	50,651	$	8,949	$	1,149,294	$	66,989


	December 31, 2021
	Number of Securities	Less Than 12 Months				12 Months or More				Total
(Dollars in thousands)		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. treasuries and government agencies	5	$	49,695	$	150	$	—	$	—	$	49,695	$	150
State and municipal	32	63,206		2,288		21,740		1,157		84,946		3,445
Mortgage-backed and asset-backed	104	665,813		10,145		37,857		1,680		703,670		11,825

Total	141	$	778,714	$	12,583	$	59,597	$	2,837	$	838,311	$	15,420

The Company has allocated mortgage-backed securities into the four maturity groupings reflected in the following tables using the expected average life of the individual securities based on statistics provided by independent third party industry sources. Expected maturities will differ from contractual maturities as borrowers may have the right to prepay obligations with or without prepayment penalties.

The estimated fair values and amortized costs of available-for-sale and held-to-maturity debt securities by contractual maturity at the dates indicated are provided in the following tables.


	March 31, 2022				December 31, 2021
(In thousands)	Fair Value		Amortized Cost		Fair Value		Amortized Cost
Available-for-sale debt securities
U.S. treasuries and government agencies:
One year or less	$	8,991	$	8,997	$	12,029	$	11,995
One to five years	96,507		100,367		56,510		56,492
Five to ten years	—		—		—		—
After ten years	—		—		—		—
State and municipal:
One year or less	12,421		12,358		12,821		12,709
One to five years	53,025		53,539		27,408		26,637
Five to ten years	39,651		41,698		42,960		42,661
After ten years	216,756		240,282		243,213		241,279
Mortgage-backed and asset-backed:
One year or less	10,263		10,283		9,272		9,239
One to five years	8,095		8,212		14,752		14,575
Five to ten years	336,206		351,404		388,918		390,569
After ten years	478,030		499,190		658,013		660,194










Total available-for-sale debt securities	$	1,259,945	$	1,326,330	$	1,465,896	$	1,466,350


	March 31, 2022				December 31, 2021
(In thousands)	Fair Value		Amortized Cost		Fair Value		Amortized Cost
Held-to-maturity debt securities










Mortgage-backed and asset-backed:
One year or less	$	—	$	—	$	—	$	—
One to five years	—		—		—		—
Five to ten years	42,043		43,004		—		—
After ten years	233,791		242,335		—		—
Total held-to-maturity debt securities	$	275,834	$	285,339	$	—	$	—

At March 31, 2022 and December 31, 2021, available-for-sale and held-to-maturity debt securities with a book value of $541.3 million and $531.6 million, respectively, were pledged as collateral for certain government deposits and for other purposes as required or permitted by law. The outstanding balance of no single issuer, except for U.S. Agencies securities, exceeded ten percent of stockholders' equity at March 31, 2022 and December 31, 2021.

Equity securities

Other equity securities at the dates indicated are presented in the following table:


(In thousands)	March 31, 2022		December 31, 2021
Federal Reserve Bank stock	$	34,187	$	34,097
Federal Home Loan Bank of Atlanta stock	6,293		6,392
Marketable equity securities	677		677
Total equity securities	$	41,157	$	41,166

NOTE 3 – LOANS

Outstanding loan balances at March 31, 2022 and December 31, 2021, are net of unearned income, including net deferred loan fees of $11.7 million and $14.3 million, respectively. Net deferred loan fees at March 31, 2022 and December 31, 2021, includes $1.8 million and $4.6 million, respectively, related to the loans originated under the Paycheck Protection Program (“PPP”).

The loan portfolio segment balances at the dates indicated are presented in the following table:


(In thousands)	March 31, 2022		December 31, 2021
Commercial real estate:
Commercial investor real estate	$	4,388,275	$	4,141,346
Commercial owner-occupied real estate	1,692,253		1,690,881
Commercial AD&C	1,089,331		1,088,094
Commercial business	1,349,602		1,481,834
Total commercial loans	8,519,461		8,402,155
Residential real estate:
Residential mortgage	1,000,697		937,570
Residential construction	204,259		197,652
Consumer	419,911		429,714
Total residential and consumer loans	1,624,867		1,564,936
Total loans	$	10,144,328	$	9,967,091

Portfolio Segments

The Company currently manages its credit products and the respective exposure to credit losses (credit risk) by the following specific portfolio segments (classes) which are levels at which the Company develops and documents its systematic methodology to determine the allowance for credit losses attributable to each respective portfolio segment. These segments are:

•Commercial investor real estate loans - Commercial investor real estate loans consist of loans secured by nonowner-occupied properties where an established banking relationship exists and involves investment properties for warehouse, retail, and office space with a history of occupancy and cash flow. This commercial investor real estate

category contains mortgage loans to the developers and owners of commercial real estate where the borrower intends to operate or sell the property at a profit and use the income stream or proceeds from the sale(s) to repay the loan.

•Commercial owner-occupied real estate loans - Commercial owner-occupied real estate loans consist of commercial mortgage loans secured by owner occupied properties where an established banking relationship exists and involves a variety of property types to conduct the borrower’s operations. The decision to extend a loan is based upon the borrower’s financial health and the ability of the borrower and the business to repay. The primary source of repayment for this type of loan is the cash flow from the operations of the business.

•Commercial acquisition, development and construction loans - Commercial acquisition, development and construction loans are intended to finance the construction of commercial properties and include loans for the acquisition and development of land. Construction loans represent a higher degree of risk than permanent real estate loans and may be affected by a variety of additional factors such as the borrower’s ability to control costs and adhere to time schedules and the risk that constructed units may not be absorbed by the market within the anticipated time frame or at the anticipated price. The loan commitment on these loans often includes an interest reserve that allows the lender to periodically advance loan funds to pay interest charges on the outstanding balance of the loan.

•Commercial business loans - Commercial loans are made to provide funds for equipment and general corporate needs. Repayment of a loan primarily comes from the funds obtained from the operation of the borrower’s business. Commercial loans also include lines of credit that are utilized to finance a borrower’s short-term credit needs and/or to finance a percentage of eligible receivables and inventory. Loans issued under the PPP are also included in this category, a substantial portion of which are expected to be forgiven by the Small Business Administration pursuant to the CARES Act.

•Residential mortgage loans - The residential mortgage loans category contains permanent mortgage loans principally to consumers secured by residential real estate. Residential real estate loans are evaluated for the adequacy of repayment sources at the time of approval, based upon measures including credit scores, debt-to-income ratios, and collateral values. Loans may be either conforming or non-conforming.

•Residential construction loans - The Company makes residential construction loans generally to provide interim financing on residential property during the construction period. Borrowers are typically individuals who will ultimately occupy the single-family dwelling. Loan funds are disbursed periodically as pre-specified stages of completion are attained based upon site inspections.

•Consumer loans - This category of loans includes primarily home equity loans and lines, installment loans, personal lines of credit, and other loans. The home equity category consists mainly of revolving lines of credit to consumers which are secured by residential real estate. These loans are typically secured with second mortgages on the homes. Other consumer loans include installment loans used by customers to purchase automobiles, boats and recreational vehicles.

NOTE 4 – CREDIT QUALITY ASSESSMENT

Allowance for Credit Losses

Summary information on the allowance for credit loss activity for the period indicated is provided in the following table:


	Three Months Ended March 31,
(In thousands)	2022		2021
Balance at beginning of period	$	109,145	$	165,367



Provision/ (credit) for credit losses	1,635		(34,708)
Loan charge-offs	(306)		(743)
Loan recoveries	114		445
Net charge-offs	(192)		(298)
Balance at period end	$	110,588	$	130,361

The following table provides summary information regarding collateral dependent loans individually evaluated for credit loss at the dates indicated:


(In thousands)	March 31, 2022		December 31, 2021
Collateral dependent loans individually evaluated for credit loss with an allowance	$	10,153	$	9,510
Collateral dependent loans individually evaluated for credit loss without an allowance	21,620		24,024
Total individually evaluated collateral dependent loans	$	31,773	$	33,534

Allowance for credit losses related to loans evaluated individually	$	6,654	$	6,593
Allowance for credit losses related to loans evaluated collectively	103,934		102,552
Total allowance for credit losses	$	110,588	$	109,145

The following tables provide information on the activity in the allowance for credit losses by the respective loan portfolio segment for the period indicated:


	For the Three Months Ended March 31, 2022
	Commercial Real Estate												Residential Real Estate
(Dollars in thousands)	Commercial Investor R/E			Commercial Owner- Occupied R/E			Commercial AD&C			Commercial Business			Residential Mortgage			Residential Construction			Consumer			Total
Balance at beginning of period	$	45,289		$	11,687		$	20,322		$	23,170		$	5,384		$	1,048		$	2,245		$	109,145
Provision/ (credit) for credit losses	5,505			(827)			(1,863)			(1,288)			458			(159)			(191)			1,635
Charge-offs	—			—			—			(118)			(132)			—			(56)			(306)
Recoveries	19			—			—			7			12			—			76			114
Net recoveries (charge-offs)	19			—			—			(111)			(120)			—			20			(192)
Balance at end of period	$	50,813		$	10,860		$	18,459		$	21,771		$	5,722		$	889		$	2,074		$	110,588

Total loans	$	4,388,275		$	1,692,253		$	1,089,331		$	1,349,602		$	1,000,697		$	204,259		$	419,911		$	10,144,328
Allowance for credit losses to total loans ratio	1.16		%	0.64		%	1.69		%	1.61		%	0.57		%	0.44		%	0.49		%	1.09		%

Average loans	$	4,220,246		$	1,683,557		$	1,102,660		$	1,372,755		$	964,056		$	197,366		$	424,859		$	9,965,499
Annualized net charge-offs/ (recoveries) to average loans	—		%	—		%	—		%	0.03		%	0.05		%	—		%	(0.02)		%	0.01		%

Balance of loans individually evaluated for credit loss	$	11,743		$	8,083		$	1,081		$	8,982		$	1,536		$	—		$	348		$	31,773
Allowance related to loans evaluated individually	$	181		$	94		$	504		$	5,875		$	—		$	—		$	—		$	6,654
Individual allowance to loans evaluated individually ratio	1.54		%	1.16		%	46.62		%	65.41		%	—		%	—		%	—		%	20.94		%

Balance of loans collectively evaluated for credit loss	$	4,376,532		$	1,684,170		$	1,088,250		$	1,340,620		$	999,161		$	204,259		$	419,563		$	10,112,555
Allowance related to loans evaluated collectively	$	50,632		$	10,766		$	17,955		$	15,896		$	5,722		$	889		$	2,074		$	103,934
Collective allowance to loans evaluated collectively ratio	1.16		%	0.64		%	1.65		%	1.19		%	0.57		%	0.44		%	0.49		%	1.03		%


	For the Year Ended December 31, 2021
	Commercial Real Estate												Residential Real Estate
(Dollars in thousands)	Commercial Investor R/E			Commercial Owner- Occupied R/E			Commercial AD&C			Commercial Business			Residential Mortgage			Residential Construction			Consumer			Total
Balance at beginning of period	$	57,404		$	20,061		$	22,157		$	46,806		$	11,295		$	1,502		$	6,142		$	165,367



Provision for credit losses	(6,598)			(8,238)			172			(20,132)			(6,321)			(459)			(3,980)			(45,556)
Charge-offs	(5,802)			(136)			(2,007)			(4,069)			—			—			(299)			(12,313)
Recoveries	285			—			—			565			410			5			382			1,647
Net recoveries (charge-offs)	(5,517)			(136)			(2,007)			(3,504)			410			5			83			(10,666)
Balance at end of period	$	45,289		$	11,687		$	20,322		$	23,170		$	5,384		$	1,048		$	2,245		$	109,145

Total loans	$	4,141,346		$	1,690,881		$	1,088,094		$	1,481,834		$	937,570		$	197,652		$	429,714		$	9,967,091
Allowance for credit losses to total loans ratio	1.09		%	0.69		%	1.87		%	1.56		%	0.57		%	0.53		%	0.52		%	1.10		%

Average loans	$	3,689,769		$	1,661,015		$	1,110,420		$	1,952,537		$	979,754		$	178,171		$	463,200		$	10,034,866
Net charge-offs/ (recoveries) to average loans	0.15		%	0.01		%	0.18		%	0.18		%	(0.04)		%	—		%	(0.02)		%	0.11		%

Balance of loans individually evaluated for credit loss	$	12,489		$	9,306		$	650		$	9,033		$	1,704		$	—		$	352		$	33,534
Allowance related to loans evaluated individually	$	213		$	79		$	504		$	5,797		$	—		$	—		$	—		$	6,593
Individual allowance to loans evaluated individually ratio	1.71		%	0.85		%	77.54		%	64.18		%	—		%	—		%	—		%	19.66		%

Balance of loans collectively evaluated for credit loss	$	4,128,857		$	1,681,575		$	1,087,444		$	1,472,801		$	935,866		$	197,652		$	429,362		$	9,933,557
Allowance related to loans evaluated collectively	$	45,076		$	11,608		$	19,818		$	17,373		$	5,384		$	1,048		$	2,245		$	102,552
Collective allowance to loans evaluated collectively ratio	1.09		%	0.69		%	1.82		%	1.18		%	0.58		%	0.53		%	0.52		%	1.03		%

The following tables present collateral dependent loans individually evaluated for credit loss with the associated allowances for credit losses by the applicable portfolio segment and for the periods indicated:


	March 31, 2022
	Commercial Real Estate								Residential Real Estate
(In thousands)	Commercial Investor R/E		Commercial Owner- Occupied R/E		Commercial AD&C		Commercial Business		Residential Mortgage		Residential Construction		Consumer		Total
Loans individually evaluated for credit loss with an allowance:
Non-accruing	$	553	$	491	$	1,081	$	4,943	$	—	$	—	$	—	$	7,068
Restructured accruing	—		—		—		625		—		—		—		625
Restructured non-accruing	336		—		—		2,124		—		—		—		2,460
Balance	$	889	$	491	$	1,081	$	7,692	$	—	$	—	$	—	$	10,153

Allowance	$	181	$	94	$	504	$	5,875	$	—	$	—	$	—	$	6,654

Loans individually evaluated for credit loss without an allowance:
Non-accruing	$	3,163	$	3,377	$	—	$	413	$	—	$	—	$	—	$	6,953
Restructured accruing	—		—		—		—		1,536		—		—		1,536
Restructured non-accruing	7,691		4,215		—		877		—		—		348		13,131
Balance	$	10,854	$	7,592	$	—	$	1,290	$	1,536	$	—	$	348	$	21,620

Total individually evaluated loans:
Non-accruing	$	3,716	$	3,868	$	1,081	$	5,356	$	—	$	—	$	—	$	14,021
Restructured accruing	—		—		—		625		1,536		—		—		2,161
Restructured non-accruing	8,027		4,215		—		3,001		—		—		348		15,591
Balance	$	11,743	$	8,083	$	1,081	$	8,982	$	1,536	$	—	$	348	$	31,773

Total unpaid contractual principal balance	$	12,290	$	9,925	$	1,126	$	10,593	$	1,982	$	—	$	364	$	36,280


	December 31, 2021
	Commercial Real Estate								Residential Real Estate
(In thousands)	Commercial Investor R/E		Commercial Owner- Occupied R/E		Commercial AD&C		Commercial Business		Residential Mortgage		Residential Construction		Consumer		Total
Loans individually evaluated for credit loss with an allowance:
Non-accruing	$	808	$	79	$	650	$	4,849	$	—	$	—	$	—	$	6,386
Restructured accruing	—		—		—		613		—		—		—		613
Restructured non-accruing	336		—		—		2,175		—		—		—		2,511
Balance	$	1,144	$	79	$	650	$	7,637	$	—	$	—	$	—	$	9,510

Allowance	$	213	$	79	$	504	$	5,797	$	—	$	—	$	—	$	6,593

Loans individually evaluated for credit loss without an allowance:
Non-accruing	$	3,498	$	4,775	$	—	$	434	$	—	$	—	$	—	$	8,707
Restructured accruing	—		—		—		—		1,554		—		—		1,554
Restructured non-accruing	7,847		4,452		—		962		150		—		352		13,763
Balance	$	11,345	$	9,227	$	—	$	1,396	$	1,704	$	—	$	352	$	24,024

Total individually evaluated loans:
Non-accruing	$	4,306	$	4,854	$	650	$	5,283	$	—	$	—	$	—	$	15,093
Restructured accruing	—		—		—		613		1,554		—		—		2,167
Restructured non-accruing	8,183		4,452		—		3,137		150		—		352		16,274
Balance	$	12,489	$	9,306	$	650	$	9,033	$	1,704	$	—	$	352	$	33,534

Total unpaid contractual principal balance	$	12,857	$	11,132	$	695	$	10,573	$	2,778	$	—	$	364	$	38,399

The following tables present average principal balance of total non-accrual loans and contractual interest due on non-accrual loans for the periods indicated below:


	For the Three Months Ended March 31, 2022
	Commercial Real Estate								Residential Real Estate
(In thousands)	Commercial Investor R/E		Commercial Owner- Occupied R/E		Commercial AD&C		Commercial Business		Residential Mortgage		Residential Construction		Consumer		Total
Average non-accrual loans for the period	$	12,116	$	8,695	$	866	$	8,389	$	8,295	$	53	$	6,566	$	44,980
Contractual interest income due on non- accrual loans during the period	$	317	$	150	$	93	$	170	$	94	$	1	$	85	$	910


	For the Year Ended December 31, 2021
	Commercial Real Estate								Residential Real Estate
(In thousands)	Commercial Investor R/E		Commercial Owner- Occupied R/E		Commercial AD&C		Commercial Business		Residential Mortgage		Residential Construction		Consumer		Total
Average non-accrual loans for the period	$	31,590	$	9,444	$	9,236	$	12,678	$	9,439	$	36	$	7,369	$	79,792
Contractual interest income due on non- accrual loans during the period	$	2,169	$	555	$	597	$	1,096	$	271	$	2	$	402	$	5,092

There was no interest income recognized on non-accrual loans during the three months ended March 31, 2022. See Note 1 for additional information on the Company's policies for non-accrual loans. Loans designated as non-accrual have all previously accrued but unpaid interest reversed from interest income. During the three months ended March 31, 2022 new loans placed on non-accrual status totaled $1.5 million and the related amount of reversed uncollected accrued interest was insignificant.

Credit Quality

The following section provides information on the credit quality of the loan portfolio for the periods indicated below:


	For the Three Months Ended March 31, 2022
	Commercial Real Estate								Residential Real Estate
(In thousands)	Commercial Investor R/E		Commercial Owner- Occupied R/E		Commercial AD&C		Commercial Business		Residential Mortgage		Residential Construction		Consumer		Total
Analysis of non-accrual loan activity:
Balance at beginning of period	$	12,489	$	9,306	$	650	$	8,420	$	8,441	$	55	$	6,725	$	46,086
Loans placed on non-accrual	—		—		—		595		851		—		57		1,503
Non-accrual balances transferred to OREO	—		—		—		—		—		—		—		—
Non-accrual balances charged-off	—		—		—		(118)		(132)		—		(15)		(265)
Net payments or draws	(746)		(1,223)		431		(540)		(471)		(4)		(234)		(2,787)
Non-accrual loans brought current	—		—		—		—		(541)		—		(127)		(668)
Balance at end of period	$	11,743	$	8,083	$	1,081	$	8,357	$	8,148	$	51	$	6,406	$	43,869


	For the Year Ended December 31, 2021
	Commercial Real Estate								Residential Real Estate
(In thousands)	Commercial Investor R/E		Commercial Owner- Occupied R/E		Commercial AD&C		Commercial Business		Residential Mortgage		Residential Construction		Consumer		Total
Analysis of non-accrual loan activity:
Balance at beginning of period	$	45,227	$	11,561	$	15,044	$	22,933	$	10,212	$	—	$	7,384	$	112,361

Loans placed on non-accrual	699		3,676		49		1,339		695		62		1,626		8,146
Non-accrual balances transferred to OREO	—		(257)		—		—		—		—		—		(257)
Non-accrual balances charged-off	(5,803)		(136)		(2,007)		(3,547)		—		—		(100)		(11,593)
Net payments or draws	(26,813)		(5,538)		(12,436)		(12,305)		(2,406)		(7)		(1,725)		(61,230)
Non-accrual loans brought current	(821)		—		—		—		(60)		—		(460)		(1,341)
Balance at end of period	$	12,489	$	9,306	$	650	$	8,420	$	8,441	$	55	$	6,725	$	46,086


	March 31, 2022
	Commercial Real Estate								Residential Real Estate
(In thousands)	Commercial Investor R/E		Commercial Owner- Occupied R/E		Commercial AD&C		Commercial Business		Residential Mortgage		Residential Construction		Consumer		Total
Performing loans:
Current	$	4,374,107	$	1,680,971	$	1,081,248	$	1,339,424	$	983,787	$	203,655	$	411,772	$	10,074,964
30-59 days	2,425		377		3,236		1,191		5,331		553		1,577		14,690
60-89 days	—		2,822		3,766		5		1,599		—		156		8,348
Total performing loans	4,376,532		1,684,170		1,088,250		1,340,620		990,717		204,208		413,505		10,098,002
Non-performing loans:
Non-accrual loans	11,743		8,083		1,081		8,357		8,148		51		6,406		43,869
Loans greater than 90 days past due	—		—		—		—		296		—		—		296
Restructured loans	—		—		—		625		1,536		—		—		2,161
Total non-performing loans	11,743		8,083		1,081		8,982		9,980		51		6,406		46,326
Total loans	$	4,388,275	$	1,692,253	$	1,089,331	$	1,349,602	$	1,000,697	$	204,259	$	419,911	$	10,144,328


	December 31, 2021
	Commercial Real Estate								Residential Real Estate
(In thousands)	Commercial Investor R/E		Commercial Owner- Occupied R/E		Commercial AD&C		Commercial Business		Residential Mortgage		Residential Construction		Consumer		Total
Performing loans:
Current	$	4,127,009	$	1,680,635	$	1,085,642	$	1,471,669	$	919,199	$	197,597	$	419,558	$	9,901,309
30-59 days	1,656		86		1,802		753		5,157		—		3,021		12,475
60-89 days	192		854		—		379		2,662		—		410		4,497
Total performing loans	4,128,857		1,681,575		1,087,444		1,472,801		927,018		197,597		422,989		9,918,281
Non-performing loans:
Non-accrual loans	12,489		9,306		650		8,420		8,441		55		6,725		46,086
Loans greater than 90 days past due	—		—		—		—		557		—		—		557
Restructured loans	—		—		—		613		1,554		—		—		2,167
Total non-performing loans	12,489		9,306		650		9,033		10,552		55		6,725		48,810
Total loans	$	4,141,346	$	1,690,881	$	1,088,094	$	1,481,834	$	937,570	$	197,652	$	429,714	$	9,967,091

The credit quality indicators for commercial loans are developed through review of individual borrowers on an ongoing basis. Each borrower is evaluated at least annually with more frequent evaluation of more severely criticized loans. The indicators represent the rating for loans as of the date presented is based on the most recent credit review performed. These credit quality indicators are defined as follows:

Pass - A pass rated credit is not adversely classified because it does not display any of the characteristics for adverse classification.

Special mention – A special mention credit has potential weaknesses that deserve management’s close attention. If uncorrected, such weaknesses may result in deterioration of the repayment prospects or collateral position at some future date. Special mention assets are not adversely classified and do not warrant adverse classification.

Substandard – A substandard loan is inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard generally have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. These loans are characterized by the distinct possibility of loss if the deficiencies are not corrected.

Doubtful – A loan that is classified as doubtful has all the weaknesses inherent in a loan classified as substandard with added characteristics that the weaknesses make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions and values.

Loss – Loans classified as a loss are considered uncollectible and of such little value that their continuing to be carried as a loan is not warranted. This classification is not necessarily equivalent to no potential for recovery or salvage value, but rather that it is not appropriate to defer a full write-off even though partial recovery may be effected in the future.

The following table provides information about credit quality indicators by the year of origination as of March 31, 2022:


	March 31, 2022
	Term Loans by Origination Year												Revolving
(In thousands)	2022		2021		2020		2019		2018		Prior		Loans		Total
Commercial Investor R/E:
Pass	$	384,736	$	1,349,176	$	729,504	$	601,556	$	346,334	$	927,482	$	14,687	$	4,353,475
Special Mention	—		4,736		506		96		589		7,019		—		12,946
Substandard	—		792		336		2,256		8,406		10,064		—		21,854
Doubtful	—		—		—		—		—		—		—		—
Total	$	384,736	$	1,354,704	$	730,346	$	603,908	$	355,329	$	944,565	$	14,687	$	4,388,275
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial Owner-Occupied R/E:
Pass	$	120,495	$	351,408	$	240,259	$	302,230	$	166,269	$	480,409	$	899	$	1,661,969
Special Mention	917		—		932		470		2,643		9,554		—		14,516
Substandard	—		1,928		913		8,083		2,254		2,590		—		15,768
Doubtful	—		—		—		—		—		—		—		—
Total	$	121,412	$	353,336	$	242,104	$	310,783	$	171,166	$	492,553	$	899	$	1,692,253
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial AD&C:
Pass	$	86,642	$	475,981	$	183,536	$	96,660	$	62,776	$	13,887	$	164,794	$	1,084,276
Special Mention	912		2,073		—		—		—		—		989		3,974
Substandard	—		780		—		301		—		—		—		1,081
Doubtful	—		—		—		—		—		—		—		—
Total	$	87,554	$	478,834	$	183,536	$	96,961	$	62,776	$	13,887	$	165,783	$	1,089,331
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial Business:
Pass	$	76,700	$	299,668	$	135,911	$	128,342	$	91,993	$	97,581	$	485,438	$	1,315,633
Special Mention	32		408		1,840		6,727		1,563		747		8,273		19,590
Substandard	15		3,670		2,702		3,020		678		2,831		1,463		14,379
Doubtful	—		—		—		—		—		—		—		—
Total	$	76,747	$	303,746	$	140,453	$	138,089	$	94,234	$	101,159	$	495,174	$	1,349,602
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	118	$	—	$	—	$	118

Residential Mortgage:
Beacon score:
660-850	$	93,493	$	251,932	$	166,024	$	45,753	$	58,950	$	306,194	$	—	$	922,346
600-659	206		4,497		2,977		4,361		4,812		23,340		—		40,193
540-599	242		1,982		1,141		1,439		4,736		7,966		—		17,506
less than 540	2,854		1,554		3,486		1,234		1,246		10,278		—		20,652
Total	$	96,795	$	259,965	$	173,628	$	52,787	$	69,744	$	347,778	$	—	$	1,000,697
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	132	$	—	$	132

Residential Construction:
Beacon score:
660-850	$	20,890	$	134,821	$	36,510	$	6,167	$	1,346	$	1,160	$	—	$	200,894
600-659	—		1,110		—		—		—		—		—		1,110
540-599	—		—		—		—		—		—		—		—
less than 540	333		1,922		—		—		—		—		—		2,255
Total	$	21,223	$	137,853	$	36,510	$	6,167	$	1,346	$	1,160	$	—	$	204,259
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer:
Beacon score:
660-850	$	789	$	2,825	$	1,226	$	2,317	$	2,541	$	26,724	$	343,402	$	379,824
600-659	106		392		58		109		418		5,189		14,630		20,902
540-599	2		207		2		641		232		2,941		4,457		8,482
less than 540	51		81		56		169		616		3,011		6,719		10,703
Total	$	948	$	3,505	$	1,342	$	3,236	$	3,807	$	37,865	$	369,208	$	419,911
Current period gross charge-offs	$	—	$	5	$	—	$	—	$	—	$	—	$	51	$	56

Total loans	$	789,415	$	2,891,943	$	1,507,919	$	1,211,931	$	758,402	$	1,938,967	$	1,045,751	$	10,144,328

The following table provides information about credit quality indicators by the year of origination as of December 31, 2021:


	December 31, 2021
	Term Loans by Origination Year												Revolving
(In thousands)	2021		2020		2019		2018		2017		Prior		Loans		Total
Commercial Investor R/E:
Pass	$	1,391,969	$	748,236	$	616,761	$	357,640	$	328,327	$	633,913	$	19,239	$	4,096,085
Special Mention	2,210		510		4,646		596		2,204		10,438		—		20,604
Substandard	807		336		4,308		8,568		10,064		574		—		24,657
Doubtful	—		—		—		—		—		—		—		—
Total	$	1,394,986	$	749,082	$	625,715	$	366,804	$	340,595	$	644,925	$	19,239	$	4,141,346
Current period gross charge-offs	$	—	$	—	$	—	$	903	$	3,975	$	924	$	—	$	5,802

Commercial Owner-Occupied R/E:
Pass	$	360,169	$	254,350	$	319,348	$	178,416	$	172,354	$	363,685	$	1,149	$	1,649,471
Special Mention	156		1,476		4,388		9,035		4,456		9,106		—		28,617
Substandard	1,968		1,800		4,028		2,265		354		2,378		—		12,793
Doubtful	—		—		—		—		—		—		—		—
Total	$	362,293	$	257,626	$	327,764	$	189,716	$	177,164	$	375,169	$	1,149	$	1,690,881
Current period gross charge-offs	$	—	$	—	$	—	$	136	$	—	$	—	$	—	$	136

Commercial AD&C:
Pass	$	454,207	$	226,332	$	148,260	$	87,934	$	13,938	$	—	$	152,896	$	1,083,567
Special Mention	2,888		—		—		—		—		—		989		3,877
Substandard	349		—		301		—		—		—		—		650
Doubtful	—		—		—		—		—		—		—		—
Total	$	457,444	$	226,332	$	148,561	$	87,934	$	13,938	$	—	$	153,885	$	1,088,094
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	2,007	$	—	$	—	$	2,007

Commercial Business:
Pass	$	403,871	$	165,194	$	137,069	$	96,800	$	55,100	$	53,764	$	533,893	$	1,445,691
Special Mention	220		1,998		7,030		1,701		548		577		9,212		21,286
Substandard	3,777		3,262		2,609		797		811		2,065		1,536		14,857
Doubtful	—		—		—		—		—		—		—		—
Total	$	407,868	$	170,454	$	146,708	$	99,298	$	56,459	$	56,406	$	544,641	$	1,481,834
Current period gross charge-offs	$	—	$	—	$	88	$	1,674	$	46	$	2,236	$	25	$	4,069

Residential Mortgage:
Beacon score:
660-850	$	246,612	$	165,623	$	46,925	$	65,865	$	102,628	$	223,420	$	—	$	851,073
600-659	11,102		3,285		3,583		4,255		4,645		20,052		—		46,922
540-599	1,472		1,864		2,162		4,522		1,599		8,201		—		19,820
less than 540	452		4,293		1,575		1,829		2,079		9,527		—		19,755
Total	$	259,638	$	175,065	$	54,245	$	76,471	$	110,951	$	261,200	$	—	$	937,570
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Residential Construction:
Beacon score:
660-850	$	134,335	$	45,890	$	8,063	$	2,078	$	1,347	$	1,160	$	—	$	192,873
600-659	1,922		—		650		—		—		—		—		2,572
540-599	—		—		—		—		—		462		—		462
less than 540	1,745		—		—		—		—		—		—		1,745
Total	$	138,002	$	45,890	$	8,713	$	2,078	$	1,347	$	1,622	$	—	$	197,652
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer:
Beacon score:
660-850	$	3,179	$	1,393	$	3,130	$	3,060	$	1,648	$	26,156	$	350,466	$	389,032
600-659	352		123		324		716		430		4,906		14,119		20,970
540-599	58		8		311		160		89		2,809		4,926		8,361
less than 540	88		58		536		544		98		3,101		6,926		11,351
Total	$	3,677	$	1,582	$	4,301	$	4,480	$	2,265	$	36,972	$	376,437	$	429,714
Current period gross charge-offs	$	—	$	—	$	7	$	2	$	—	$	106	$	184	$	299

Total loans	$	3,023,908	$	1,626,031	$	1,316,007	$	826,781	$	702,719	$	1,376,294	$	1,095,351	$	9,967,091

The following table provides the amounts of the restructured loans at the date of restructuring for specific segments of the loan portfolio during the period indicated:


	For the Three Months Ended March 31, 2022
	Commercial Real Estate
(In thousands)	Commercial Investor R/E		Commercial Owner- Occupied R/E		Commercial AD&C		Commercial Business		All Other Loans		Total
Troubled debt restructurings:
Restructured accruing	$	—	$	—	$	—	$	32	$	—	$	32
Restructured non-accruing	—		—		—		—		—		—
Balance	$	—	$	—	$	—	$	32	$	—	$	32

Individual allowance	$	—	$	—	$	—	$	—	$	—	$	—

Restructured and subsequently defaulted	$	—	$	—	$	—	$	—	$	—	$	—


	For the Year Ended December 31, 2021
	Commercial Real Estate
(In thousands)	Commercial Investor R/E		Commercial Owner- Occupied R/E		Commercial AD&C		Commercial Business		All Other Loans		Total
Troubled debt restructurings:
Restructured accruing	$	—	$	—	$	—	$	—	$	—	$	—
Restructured non-accruing	9,594		3,157		—		1,824		—		14,575
Balance	$	9,594	$	3,157	$	—	$	1,824	$	—	$	14,575

Individual allowance	$	—	$	—	$	—	$	461	$	—	$	461

Restructured and subsequently defaulted	$	—	$	—	$	—	$	—	$	—	$	—

During the three months ended March 31, 2022, the Company restructured $32,000 in loans that were designated as TDRs. TDR loans are subject to periodic credit reviews to determine the necessity and appropriateness of an individual credit loss allowance based on the collectability of the recorded investment in the TDR loan. Loans restructured as TDRs during the three months ended March 31, 2022 had no individual reserves. For the year ended December 31, 2021, the Company restructured $14.6 million in loans. Loans restructured as TDRs during 2021 had individual reserves of $0.5 million at December 31, 2021. During both the three months ended March 31, 2022 and for the year ended December 31, 2021 TDR modifications consisted principally of interest rate concessions, and did not result in the reduction of the recorded investment in the associated loan balances. The commitments to lend additional funds on loans that have been restructured at March 31, 2022 and December 31, 2021 were not significant.

Other Real Estate Owned

Other real estate owned ("OREO") totaled $1.0 million both at March 31, 2022 and December 31, 2021. There were no consumer mortgage loans secured by residential real estate property for which formal foreclosure proceedings were in process as of March 31, 2022.

NOTE 5 – GOODWILL AND OTHER INTANGIBLE ASSETS

The amount of goodwill by reportable segment is presented in the following table:


(In thousands)	Community Banking		Insurance		Investment Management		Total
Balances at December 31, 2021	$	331,688	$	6,788	$	31,747	$	370,223

No Activity	—		—		—		—
Balances at March 31, 2022	$	331,688	$	6,788	$	31,747	$	370,223

The gross carrying amounts and accumulated amortization of intangible assets and goodwill are presented at the dates indicated in the following table:


	March 31, 2022						Weighted Average Remaining Life	December 31, 2021						Weighted Average Remaining Life
(Dollars in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount			Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortizing intangible assets:
Core deposit intangibles	$	29,038	$	(13,678)	$	15,360	7.2 years	$	29,038	$	(12,624)	$	16,414	7.4 years
Other identifiable intangibles	13,906		(4,854)		9,052		9.5 years	13,906		(4,400)		9,506		9.7 years
Total amortizing intangible assets	$	42,944	$	(18,532)	$	24,412		$	42,944	$	(17,024)	$	25,920

Goodwill	$	370,223			$	370,223		$	370,223			$	370,223

The following table presents the estimated future amortization expense for amortizing intangible assets within the years ending December 31:


(In thousands)	Amount
Remaining 2022	$	4,336
2023	5,089
2024	4,333
2025	3,567
2026	2,732
Thereafter	4,355
Total amortizing intangible assets	$	24,412

NOTE 6 – DEPOSITS

The following table presents the composition of deposits at the dates indicated:


(In thousands)	March 31, 2022		December 31, 2021
Noninterest-bearing deposits	$	4,039,797	$	3,779,630
Interest-bearing deposits:
Demand	1,410,183		1,604,714
Money market savings	3,478,143		3,415,663
Regular savings	562,092		533,862


Time deposits of less than $250,000	996,864		910,464
Time deposits of $250,000 or more	365,715		380,398
Total interest-bearing deposits	6,812,997		6,845,101
Total deposits	$	10,852,794	$	10,624,731

NOTE 7 – BORROWINGS

Subordinated Debt

On March 15, 2022, the Company completed an offering of $200.0 million aggregate principal amount Fixed to Floating Rate Subordinated Notes due in 2032. The notes bear a fixed interest rate of 3.875% per year through March 29, 2027. Commencing on March 30, 2027, the notes will bear interest at a floating rate per annum equal to the benchmark rate (which is expected to be the three-month SOFR rate) plus a spread of 196.5 basis points, payable quarterly in arrears. The Company is still in process of finalizing the debt issuance costs. As of March 31, 2022, the total amount of debt issuance costs incurred was $2.7 million,

which are being amortized through the contractual life of the debt. The entire amount of the subordinated debt is considered Tier 2 capital under current regulatory guidelines.

On November 5, 2019, the Company completed an offering of $175.0 million aggregate principal amount Fixed to Floating Rate Subordinated Notes due in 2029. The notes bear a fixed interest rate of 4.25% per year through November 14, 2024. Beginning November 15, 2024, the interest rate will become a floating rate equal to three month LIBOR, or an alternative benchmark rate as determined pursuant to the terms of the indenture for the notes in the event LIBOR has been discontinued by November 15, 2024, plus 262 basis points through the remaining maturity or early redemption date of the notes. The interest will be paid in arrears semi-annually during the fixed rate period and quarterly during the floating rate period. The Company incurred $2.9 million of debt issuance costs which are being amortized through the contractual life of the debt. The entire amount of the subordinated debt is considered Tier 2 capital under current regulatory guidelines.

In conjunction with the acquisition of WashingtonFirst Bankshares, Inc. ("WashingtonFirst") in 2018, the Company assumed $25.0 million in subordinated debt with an associated purchase premium at acquisition of $2.2 million. The premium was amortized over the contractual life of the obligation. The subordinated debt had a maturity of 10 years, maturing on October 15, 2025, and was non-callable through October 15, 2020. The subordinated debt held a fixed interest rate of 6.00% per annum through October 5, 2020 at which point the rate became variable at the three-month LIBOR plus 457 basis points payable quarterly. On July 15, 2021, the Company redeemed the entire outstanding principal balance of the WashingtonFirst subordinated debt.

In conjunction with the acquisition of Revere Bank ("Revere") in 2020, the Company assumed $31.0 million in subordinated debt with an associated purchase premium at acquisition of $0.2 million, which was amortized through the call date. The subordinated debt had a 10-year term, maturing on September 30, 2026, and was non-callable until September 30, 2021. The subordinated debt had a fixed interest rate of 5.625% per annum, payable semi-annually, through March 31, 2022 at which point the interest rate reset quarterly to an amount equal to three month LIBOR plus 441 basis points. On September 30, 2021, the Company redeemed the entire outstanding principal balance of the Revere subordinated debt.

The following table provides information on subordinated debt as of the date indicated:


(In thousands)	March 31, 2022		December 31, 2021
Fixed to floating rate sub debt, 3.875%	$	200,000	$	—
Fixed to floating rate sub debt, 4.25%	175,000		175,000


Total Sub debt	375,000		175,000


Less: Debt issuance costs	(4,998)		(2,288)




Long-term borrowings	$	370,002	$	172,712

Other Borrowings

At March 31, 2022 and December 31, 2021, the Company had $130.8 million and $141.1 million, respectively, of outstanding retail repurchase agreements. The Company had no outstanding federal funds purchased at both March 31, 2022 and December 31, 2021.

At March 31, 2022, the Company had an available line of credit with the FHLB under which its borrowings are limited to $3.8 billion based on pledged collateral at prevailing market interest rates, with no outstanding borrowings against it at March 31, 2022. At December 31, 2021, lines of credit with the FHLB totaled $3.9 billion based on pledged collateral with no outstanding borrowings.

Under a blanket lien, the Company has pledged qualifying residential mortgage loans amounting to $883.6 million, commercial real estate loans amounting to $3.2 billion, home equity lines of credit (“HELOC”) amounting to $216.7 million, and multifamily loans amounting to $399.4 million at March 31, 2022, as collateral under the borrowing agreement with the FHLB. At December 31, 2021, the Company had pledged collateral of qualifying mortgage loans of $829.1 million, commercial real estate loans of $3.1 billion, HELOC loans of $224.4 million, and multifamily loans of $333.4 million under the FHLB borrowing agreement.

The Company also had secured lines of credit available from the Federal Reserve Bank and correspondent banks of $684.4 million and $509.4 million at March 31, 2022 and December 31, 2021, respectively, collateralized by loans, with no borrowings outstanding at the end of either period. In addition, the Company had unsecured lines of credit with correspondent banks of $1.3 billion both at March 31, 2022 and December 31, 2021, with no borrowings outstanding at either date.

NOTE 8 – STOCKHOLDERS' EQUITY

On March 30, 2022, the Company's board of directors authorized a stock repurchase plan that permits the repurchase of up to $50.0 million of the Company's common stock. No common shares were repurchased under the approved repurchase plan during quarter ended March 31, 2022.

During 2021, the Company completed its previously authorized stock repurchase plan with the repurchase of all 2,350,000 shares of common stock at an average price of $45.65 per share for a total cost of $107.3 million.

NOTE 9 – SHARE BASED COMPENSATION

At March 31, 2022, the Company had two share based compensation plans in existence, the 2005 Omnibus Stock Plan (“Omnibus Stock Plan”) and the 2015 Omnibus Incentive Plan (“Omnibus Incentive Plan”). The Omnibus Stock Plan expired during the second quarter of 2015 but has outstanding options that may still be exercised. The Omnibus Incentive Plan is described in the following paragraph.

The Company’s Omnibus Incentive Plan was approved on May 6, 2015 and provides for the granting of incentive stock options, non-qualifying stock options, stock appreciation rights, restricted stock grants, restricted stock units and performance share units to selected directors and employees on a periodic basis at the discretion of the Company’s Board of Directors. The Omnibus Incentive Plan authorizes the issuance of up to 1,500,000 shares of common stock, of which 637,489 are available for issuance at March 31, 2022, has a term of 10 years, and is administered by a committee of at least three directors appointed by the Board of Directors. Options granted under the plan have an exercise price which may not be less than 100% of the fair market value of the common stock on the date of the grant and must be exercised within seven or 10 years from the date of grant depending on the terms of the grant agreement. The exercise price of stock options must be paid for in full in cash or shares of common stock, or a combination of both. The board committee has the discretion when making a grant of stock options to impose restrictions on the shares to be purchased upon the exercise of such options. The Company generally issues authorized but previously unissued shares to satisfy option exercises.

The dividend yield is based on estimated future dividend yields. The risk-free rate for periods within the contractual term of the share option is based on the U.S. Treasury yield curve in effect at the time of the grant. Expected volatilities are generally based on historical volatilities. The expected term of share options granted is generally derived from historical experience.

Compensation expense is recognized on a straight-line basis over the vesting period of the respective stock option, restricted stock, restricted stock unit grant or performance share units. The Company recognized compensation expense of $1.5 million and $0.9 million for the three months ended March 31, 2022 and 2021, respectively, related to the awards of restricted stock award grants, restricted stock unit grants and performance share unit grants. There was no unrecognized compensation cost related to stock options as of March 31, 2022. The total of unrecognized compensation cost related to restricted stock awards, restricted stock unit grants, and performance share unit grants was approximately $13.4 million as of March 31, 2022. That cost is expected to be recognized over a weighted average period of approximately 2.45 years.

During the three months ended March 31, 2022, the Company granted 155,121 restricted stock units and performance share units, of which 45,567 units are subject to achievement of certain performance conditions measured over a three-year performance period and 109,554 restricted stock units are subject to a three year vesting schedule. The Company did not grant any stock options under the Omnibus Incentive Plan during the three months ended March 31, 2022.

A summary of the activity for the Company’s restricted stock, restricted stock units and performance share units for the period indicated is presented in the following table:


	Number of Common Shares/Units	Weighted Average Grant-Date Fair Value
Non-vested at January 1, 2022	390,520	$	32.67
Granted	155,121	$	45.39
Vested	(36,472)	$	31.80
Forfeited/ cancelled	(1,125)	$	37.57
Non-vested at March 31, 2022	508,044	$	36.28

A summary of share option activity for the period indicated is reflected in the following table:


	Number of Common Shares	Weighted Average Exercise Share Price		Weighted Average Contractual Remaining Life (Years)	Aggregate Intrinsic Value (in thousands)
Balance at January 1, 2022	159,741	$	17.18	2.4 years	$	5,264
Granted	—	$	—

Exercised	(8,897)	$	21.95		$	221
Forfeited	—	$	—
Expired	—	$	—
Balance at March 31, 2022	150,844	$	16.89	2.3 years	$	4,316

Exercisable at March 31, 2022	150,844	$	16.89	2.3 years	$	4,316

NOTE 10 – PENSION PLAN

Defined Benefit Pension Plan

The Company has a qualified, noncontributory, defined benefit pension plan (the “Plan”). Benefits after January 1, 2005, are based on the benefit earned as of December 31, 2004, plus benefits earned in future years of service based on the employee’s compensation during each such year. All benefit accruals for employees were frozen as of December 31, 2007 based on past service and thus salary increases and additional years of service after such date no longer affect the defined benefit provided by the Plan, although additional vesting may continue to occur.

The Company's funding policy is to contribute amounts to the Plan sufficient to meet the minimum funding requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended. In addition, the Company contributes additional amounts as it deems appropriate based on benefits attributed to service prior to the date of the Plan freeze. The Plan invests primarily in a diversified portfolio of managed fixed income and equity funds.

On March 30, 2022, the Board of Directors approved the termination of the Plan to be effective as of June 30, 2022. Over the next several months, the Company intends to prepare and execute any necessary plan amendments regarding the Plan termination, prepare and file an Application for Determination for Terminating Plan with the Internal Revenue Service (“IRS”) for a determination as to the tax-qualified status of the Plan at the time of termination, and prepare and file appropriate notices and documents related to the Plan’s termination and wind-down with the Pension Benefit Guaranty Corporation (“PBGC”).

After receiving approval from the IRS and the PBGC, which is expected to be in 2023, the Company will make an additional cash contribution, if necessary, in order to fully fund the Plan on a plan termination basis, followed by the purchase of annuity contracts to transfer its remaining liabilities under the Plan. The actual amount of this cash contribution, if any, will depend upon the nature and timing of participant settlements, as well as prevailing market conditions. In addition, the Company expects to recognize a non-cash pension settlement charge upon settlement of the obligations of the Plan.

All participants who are not already receiving annuities will be given the opportunity to elect a lump sum payout. Benefit obligations of participants who do not elect a lump sum or who are being paid in an annuity form will be transferred under an annuity contract from a highly-rated insurance company that will pay and administer future benefit payments. There will be no change in the benefit earned by Plan participants as a result of these actions. The Plan termination is subject to regulatory approvals and the Company has the right to change the effective date of the Plan termination or to revoke its decision to terminate the Plan, but it has no intent to do so.

The components of net periodic benefit cost for the periods indicated are presented in the following table:


	Three Months Ended March 31,
(In thousands)	2022		2021
Interest cost on projected benefit obligation	$	325	$	318
Expected return on plan assets	(353)		(312)
Recognized net actuarial loss	196		227

Net periodic benefit cost	$	168	$	233

The decision as to whether or not to make a plan contribution and the amount of any such contribution is dependent on a number of factors. Such factors include the investment performance of Plan assets in the current economy and, since the Plan is currently frozen, the remaining investment horizon of the Plan. The Company did not make any contribution to the Plan during the three months ended March 31, 2022. Management continues to monitor the funding level of the Plan and may make additional contributions as necessary during 2022.

NOTE 11 – NET INCOME PER COMMON SHARE

The calculation of net income per common share for the periods indicated is presented in the following table:


	Three Months Ended March 31,
(Dollars and amounts in thousands, except per share data)	2022		2021
Net income	$	43,935	$	75,464
Distributed and undistributed earnings allocated to participating securities	(268)		(640)
Net income attributable to common shareholders	$	43,667	$	74,824

Total weighted average outstanding shares	45,424		47,530
Less: Weighted average participating securities	(282)		(411)
Basic weighted average common shares	45,142		47,119
Dilutive weighted average common stock equivalents	191		296
Diluted weighted average common shares	45,333		47,415

Basic net income per common share	$	0.97	$	1.59
Diluted net income per common share	$	0.96	$	1.58

Anti-dilutive shares	—		3

NOTE 12 – ACCUMULATED OTHER COMPREHENSIVE LOSS

Comprehensive income/ (loss) is defined as net income/ (loss) plus transactions and other occurrences that are the result of non-owner changes in equity. For Condensed Consolidated Financial Statements presented for the Company, non-owner changes in equity are comprised of unrealized gains or losses on investments available-for-sale and held-to-maturity, and any minimum pension liability adjustments.

During the quarter ended March 31, 2022, the Company transferred certain debt securities from available-for-sale to held-to-maturity. The total amortized cost of debt securities transferred was $305.6 million with the associated after tax unrealized loss $12.1 million at the date of transfer. This after tax unrealized loss continues to be reported in accumulated other comprehensive income and is amortized over the remaining lives of debt securities as a yield adjustment.

The following table presents the activity in net accumulated other comprehensive income/ (loss) and the components of the activity for the periods indicated:


(In thousands)	Unrealized Gains/(Losses) on Debt Securities Available-for-Sale		Defined Benefit Pension Plan		Unrealized Losses on Debt Securities Transferred from Available-for-Sale to Held-to-Maturity		Total
Balance at January 1, 2022	$	(336)	$	(8,203)	$	—	$	(8,539)
Other comprehensive loss before reclassification from accumulated other comprehensive income, net of tax	(49,026)		—		(12,083)		(61,109)
Reclassifications from accumulated other comprehensive income to earnings, net of tax	(6)		146		237		377
Current period change in other comprehensive income, net of tax	(49,032)		146		(11,846)		(60,732)
Balance at March 31, 2022	$	(49,368)	$	(8,057)	$	(11,846)	$	(69,271)


(In thousands)	Unrealized Gains/ (Losses) on Debt Securities Available-for-Sale		Defined Benefit Pension Plan		Total
Balance at January 1, 2021	$	28,175	$	(9,470)	$	18,705
Other comprehensive income before reclassification, net of tax	(21,478)		—		(21,478)
Reclassifications from accumulated other comprehensive income, net of tax	(43)		164		121
Current period change in other comprehensive income, net of tax	(21,521)		164		(21,357)
Balance at March 31, 2021	$	6,654	$	(9,306)	$	(2,652)

The following table provides the information on the reclassification adjustments out of accumulated other comprehensive income/ (loss) for the periods indicated:


	Three Months Ended March 31,
(In thousands)	2022		2021
Unrealized gains on available-for-sale debt securities:
Affected line item in the Statements of Income:
Investment securities gains	$	8	$	58
Income before taxes	8		58
Tax expense	(2)		(15)
Net income	$	6	$	43

Amortization of unrealized losses on debt securities transferred from available-for-sale to held-to-maturity:
Affected line item in the Statements of Income:
Interest and dividends on investment securities (1)	$	319	$	—
Income before taxes	319		—
Tax expense	(82)		—
Net income	$	237	$	—

Amortization of defined benefit pension plan items:
Affected line item in the Statements of Income:
Recognized actuarial loss (2)	$	(196)	$	(227)

Loss before taxes	(196)		(227)
Tax benefit	50		63
Net loss	$	(146)	$	(164)

(1)Amortization of unrealized losses on held-to-maturity debt securities is fully offset by accretion of a discount on held-to-maturity debt securities with no overall impact on net income and yield.

(2)This amount is included in the computation of net periodic benefit cost. See Note 10 for additional information on the pension plan.

NOTE 13 – LEASES

The Company leases real estate properties for its network of bank branches, financial centers and corporate offices. All of the Company’s leases are currently classified as operating. Most lease agreements include one or more options to renew, with renewal terms that can extend the original lease term from one to twenty years or more. The Company does not sublease any of its leased real estate properties.

The following table provides information regarding the Company's leases as of the dates indicated:


	Three Months Ended March 31,
		2022		2021
Components of lease expense:
Operating lease cost (resulting from lease payments)		$	2,765	$	3,151




Supplemental cash flow information related to leases:
Operating cash flows from operating leases		$	2,939	$	3,280
ROU assets obtained in the exchange for lease liabilities due to:
New leases		$	—	$	803
Acquisitions		$	—	$	—

		March 31, 2022		December 31, 2021
Supplemental balance sheet information related to leases:
Operating lease ROU assets		$	56,569	$	57,872
Operating lease liabilities		$	65,664	$	67,138

Other information related to leases:
Weighted average remaining lease term of operating leases	8.8 years	9.0 years
Weighted average discount rate of operating leases		2.92%		2.92%

At March 31, 2022, the maturities of the Company’s operating lease liabilities were as follows:


(In thousands)	Amount
Maturity:
Remaining 2022	$	8,683
2023	11,678
2024	9,793
2025	7,976
2026	7,147
Thereafter	30,646
Total undiscounted lease payments	75,923
Less: Present value discount	(10,259)
Lease liability	$	65,664

At March 31, 2022, the Company had no operating leases that have not yet commenced operations. The Company does not have any lease arrangements with any of its related parties as of March 31, 2022.

NOTE 14 – DERIVATIVES

The Company has entered into interest rate swaps (“swaps”) to facilitate customer transactions and meet their financing needs. These swaps qualify as derivatives, but are not designated as hedging instruments. Interest rate swap contracts involve the risk of dealing with counterparties and their ability to meet contractual terms. When the fair value of a derivative instrument contract is positive, this generally indicates that the counterparty or customer owes the Company and results in credit risk to the Company. When the fair value of a derivative instrument contract is negative, the Company owes the customer or counterparty and, therefore, has no credit risk. The notional value of the swaps outstanding was $392.7 million as of March 31, 2022 compared to $396.3 million as of December 31, 2021. The fair values of swap positions net to zero to minimize the potential impact on the Company’s Condensed Consolidated Financial Statements. Fair values of the swaps are carried as both gross assets and gross liabilities in other assets and other liabilities, respectively, in the Condensed Consolidated Statements of Condition. The associated net gains and losses on the swaps are recorded in Other income in the Condensed Consolidated Statements of Income.

NOTE 15 – LITIGATION

The Company and its subsidiaries are subject in the ordinary course of business to various pending or threatened legal proceedings in which claims for monetary damages are asserted. After consultation with legal counsel, management does not anticipate that the ultimate liability, if any, arising out of these legal matters will have a material adverse effect on the Company's financial condition, operating results or liquidity.

NOTE 16 – FAIR VALUE

GAAP provides entities the option to measure eligible financial assets, financial liabilities and commitments at fair value (i.e. the fair value option), on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other accounting standards. The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability or upon entering into a commitment. Subsequent changes in fair value must be recorded in earnings. The Company applies the fair value option on residential mortgage loans held for sale. The fair value option on residential mortgage loans held for sale allows the recognition of gains on the sale of mortgage loans to more accurately reflect the timing and economics of the transaction.

The standard for fair value measurement establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below.

Basis of Fair Value Measurement:

Level 1- Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2- Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3- Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

Changes to interest rates may result in changes in the cash flows due to prepayments or extinguishments. Accordingly, changes to interest rates could result in higher or lower measurements of the fair values.

Assets and Liabilities

Residential mortgage loans held for sale

Residential mortgage loans held for sale are valued based on quotations from the secondary market for similar instruments and are classified as Level 2 in the fair value hierarchy.

Investments available-for-sale and held-to-maturity

U.S. treasuries and government agencies securities and mortgage-backed and asset-backed securities

Valuations are based on active market data and use of evaluated broker pricing models that vary based by asset class and includes available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary models, descriptive terms, and databases coupled with extensive quality control programs. Quality control evaluation processes use available market, credit and deal level information to support the evaluation of the security. Additionally, proprietary models and pricing systems, mathematical tools, actual transacted prices, integration of market developments and experienced evaluators are used to determine the value of a security based on a hierarchy of market information regarding a security or securities with similar characteristics. The Company does not adjust the quoted price for such securities. Such instruments are classified within Level 2 in the fair value hierarchy.

State and municipal securities

The Company primarily uses prices obtained from third-party pricing services to determine the fair value of securities. The Company independently evaluates and corroborates the fair value received from pricing services through various methods and techniques, including references to dealer or other market quotes, by reviewing valuations of comparable instruments, and by comparing the prices realized on the sale of similar securities. Such securities are classified within Level 2 in the fair value hierarchy.

Interest rate swap agreements

Interest rate swap agreements are measured by alternative pricing sources using a discounted cash flow method that incorporates current market interest rates. Based on the complex nature of interest rate swap agreements, the markets these instruments trade in are not as efficient and are less liquid than that of the more mature Level 1 markets. These characteristics classify interest rate swap agreements as Level 2 in the fair value hierarchy.

Assets Measured at Fair Value on a Recurring Basis

The following tables set forth the Company’s financial assets and liabilities at the dates indicated that were accounted for or disclosed at fair value. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:


	March 31, 2022
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(In thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Assets:
Residential mortgage loans held for sale (1)	$	—	$	17,537	$	—	$	17,537
Available-for-sale debt securities:
U.S. treasuries and government agencies	—		105,498		—		105,498
State and municipal	—		321,853		—		321,853
Mortgage-backed and asset-backed	—		832,594		—		832,594

Total available-for-sale debt securities	—		1,259,945		—		1,259,945
Held-to-maturity debt securities:


Mortgage-backed and asset-backed	—		275,834		—		275,834
Total held-to-maturity debt securities	—		275,834		—		275,834
Interest rate swap agreements	—		8,239		—		8,239
Total assets	$	—	$	1,561,555	$	—	$	1,561,555

Liabilities:
Interest rate swap agreements	$	—	$	(8,239)	$	—	$	(8,239)
Total liabilities	$	—	$	(8,239)	$	—	$	(8,239)

(1) The outstanding principal balance for residential loans held for sale as of March 31, 2022 was $17.5 million.


	December 31, 2021
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(In thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Assets:
Residential mortgage loans held for sale (1)	$	—	$	39,409	$	—	$	39,409
Investments available-for-sale:
U.S. treasuries and government agencies	—		68,539		—		68,539
State and municipal	—		326,402		—		326,402
Mortgage-backed and asset-backed	—		1,070,955		—		1,070,955




Total investments available-for-sale	—		1,465,896		—		1,465,896
Interest rate swap agreements	—		5,880		—		5,880
Total assets	$	—	$	1,511,185	$	—	$	1,511,185

Liabilities:
Interest rate swap agreements	$	—	$	(5,880)	$	—	$	(5,880)
Total liabilities	$	—	$	(5,880)	$	—	$	(5,880)

(1) The outstanding principal balance for residential loans held for sale as of December 31, 2021 was $38.2 million.

Assets Measured at Fair Value on a Nonrecurring Basis

The following tables set forth the Company’s financial assets subject to fair value adjustments on a nonrecurring basis at the date indicated that are valued at the lower of cost or market. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:


	March 31, 2022
(In thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Total Losses
Loans (1)	$	—	$	—	$	331	$	331	$	(1,023)
Other real estate owned	—		—		1,034		1,034		(81)
Total	$	—	$	—	$	1,365	$	1,365	$	(1,104)

(1) Amounts represent the fair value of collateral for collateral dependent non-accrual loans allocated to the allowance for credit losses. Fair values are determined using actual market prices (Level 2), independent third party valuations and borrower records, discounted as appropriate (Level 3).


	December 31, 2021
(In thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Total Losses
Loans (1)	$	—	$	—	$	404	$	404	$	(1,353)
Other real estate owned	—		—		1,034		1,034		(81)
Total	$	—	$	—	$	1,438	$	1,438	$	(1,434)

At March 31, 2022, loans totaling $31.8 million were written down to fair value of $25.1 million as a result of individual credit loss allowances of $6.7 million associated with the collateral dependent loans. Loans totaling $33.5 million were written down to fair value of $26.9 million at December 31, 2021 as a result of individual credit loss allowances of $6.6 million associated with the collateral dependent loans.

Fair value of the collateral dependent loans is measured based on the loan’s observable market price or the fair value of the collateral (less estimated selling costs). Collateral may be real estate and/or business assets such as equipment, inventory and/or accounts receivable. The value of business equipment, inventory and accounts receivable collateral is based on net book value on the business’ financial statements and, if necessary, discounted based on management’s review and analysis. Appraised and reported values may be discounted based on management’s historical experience, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s business. Collateral dependent loans are reviewed and evaluated on at least a quarterly basis for additional individual reserve and adjusted accordingly, based on the factors identified above.

OREO is adjusted to fair value upon acquisition of the real estate collateral. Subsequently, OREO is carried at the lower of carrying value or fair value. The estimated fair value for OREO included in Level 3 is determined by independent market based appraisals and other available market information, less costs to sell, that may be reduced further based on market expectations or an executed sales agreement. If the fair value of the collateral deteriorates subsequent to initial recognition, the Company records the OREO as a nonrecurring Level 3 adjustment. Valuation techniques are consistent with those techniques applied in prior periods.

Fair Value of Financial Instruments

The Company discloses fair value information, based on the exit price notion, of financial instruments that are not measured at fair value in the financial statements. 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 a quoted market price, if one exists.

Quoted market prices, where available, are shown as estimates of fair market values. Because no quoted market prices are available for a significant portion of the Company's financial instruments, the fair value of such instruments has been derived based on the amount and timing of future cash flows and estimated discount rates based on observable inputs (“Level 2”) or unobservable inputs (“Level 3”).

Present value techniques used in estimating the fair value of many of the Company's financial instruments are significantly affected by the assumptions used. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate cash settlement of the instrument. Additionally, the accompanying estimates of fair values are only representative of the fair values of the individual financial assets and liabilities, and should not be considered an indication of the fair value of the Company. Management utilizes internal models used in asset liability management to determine the fair values disclosed below.

The carrying amounts and fair values of the Company’s financial instruments at the dates indicated are presented in the following tables:


					Fair Value Measurements
	March 31, 2022				Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(In thousands)	Carrying Amount		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	552,826	$	552,826	$	552,826	$	—	$	—
Residential mortgage loans held for sale	17,537		17,537		—		17,537		—
Available-for-sale debt securities	1,259,945		1,259,945		—		1,259,945		—
Held-to-maturity debt securities	285,339		275,834		—		275,834		—
Equity securities	41,157		41,157		41,157		—		—
Loans, net of allowance	10,033,740		10,110,642		—		—		10,110,642
Interest rate swap agreements	8,239		8,239		—		8,239		—
Accrued interest receivable	33,528		33,528		33,528		—		—
Bank owned life insurance	148,323		148,323		—		148,323		—

Financial liabilities:
Time deposits	$	1,362,579	$	1,353,092	$	—	$	1,353,092	$	—
Other deposits	9,490,215		9,490,215		9,490,215		—		—
Securities sold under retail repurchase agreements and
federal funds purchased	130,784		130,784		—		130,784		—

Subordinated debt	370,002		313,553		—		—		313,553
Interest rate swap agreements	8,239		8,239		—		8,239		—
Accrued interest payable	3,598		3,598		3,598		—		—


					Fair Value Measurements
	December 31, 2021				Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(In thousands)	Carrying Amount		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	420,020	$	420,020	$	420,020	$	—	$	—
Residential mortgage loans held for sale	39,409		39,409		—		39,409		—
Investments available-for-sale	1,465,896		1,465,896		—		1,465,896		—
Equity securities	41,166		41,166		41,166		—		—
Loans, net of allowance	9,857,946		9,964,924		—		—		9,964,924
Interest rate swap agreements	5,880		5,880		—		5,880		—
Accrued interest receivable	34,349		34,349		34,349		—		—
Bank owned life insurance	147,528		147,528		—		147,528		—

Financial liabilities:
Time deposits	$	1,290,862	$	1,292,598	$	—	$	1,292,598	$	—
Other deposits	9,333,869		9,333,869		9,333,869		—		—
Securities sold under retail repurchase agreements and
federal funds purchased	141,086		141,086		—		141,086		—

Subordinated debt	172,712		175,780		—		—		175,780
Interest rate swap agreements	5,880		5,880		—		5,880		—
Accrued interest payable	1,516		1,516		1,516		—		—

NOTE 17 - SEGMENT REPORTING

Currently, the Company conducts business in three operating segments - Community Banking, Insurance, and Investment Management. Each of the operating segments is a strategic business unit that offers different products and services. The Insurance and Investment Management segments were businesses that were acquired in separate transactions where management of the acquired business was retained. The accounting policies of the segments are the same as those of the Company. However, the segment data reflects inter-segment transactions and balances.

The Community Banking segment is conducted through the Bank and involves delivering a broad range of financial products and services, including various loan and deposit products, to both individuals and businesses. Parent company income and assets are included in the Community Banking segment, as the majority of parent company functions are related to this segment. Major revenue sources include net interest income, gains on sales of mortgage loans, trust income fees, and service charges on deposit accounts. Expenses include personnel, occupancy, marketing, equipment, and other expenses. Non-cash charges associated with amortization of intangibles were $1.1 million and $1.2 million for the three months ended March 31, 2022 and 2021, respectively.

The Insurance segment is conducted through Sandy Spring Insurance Corporation, a subsidiary of the Bank. Sandy Spring Insurance Corporation operates Sandy Spring Insurance, a general insurance agency located in Annapolis, Maryland, and Neff and Associates, located in Ocean City, Maryland. Major sources of revenue are insurance commissions from commercial lines, personal lines, and medical liability lines. Expenses include personnel, occupancy, support charges, and other expenses. Non-cash charges associated with amortization of intangibles were immaterial for the three months ended March 31, 2022 and 2021.

The Investment Management segment is conducted through West Financial and RPJ, subsidiaries of the Bank. These asset management and financial planning firms, located in McLean, Virginia and Falls Church, Virginia, respectively, provide comprehensive investment management and financial planning to individuals, families, small businesses and associations, including cash flow analysis, investment review, tax planning, retirement planning, insurance analysis and estate planning. West Financial and RPJ had approximately $3.9 billion in combined assets under management as of March 31, 2022. Major revenue sources include non-interest income earned on the above services. Expenses include personnel, occupancy, support charges, and other expenses. Non-cash charges associated with amortization of intangibles were $0.4 million and $0.5 million for the three months ended March 31, 2022 and 2021, respectively.

Information for the operating segments and reconciliation of the information to the Condensed Consolidated Financial Statements for the periods indicated are presented in the following tables:


	Three Months Ended March 31, 2022
(In thousands)	Community Banking		Insurance		Investment Management		Inter-Segment Elimination		Total
Interest income	$	106,037	$	—	$	2	$	(3)	$	106,036
Interest expense	4,588		—		—		(3)		4,585
Provision/ (credit) for credit losses	1,635		—		—		—		1,635
Non-interest income	15,055		2,120		5,728		(2,308)		20,595
Non-interest expense	57,379		1,476		3,528		(236)		62,147
Income/(loss) before income taxes	57,490		644		2,202		(2,072)		58,264
Income tax expense/ (benefit)	13,555		180		594		—		14,329
Net income/ (loss)	$	43,935	$	464	$	1,608	$	(2,072)	$	43,935

Assets	$	12,967,935	$	9,871	$	58,401	$	(68,791)	$	12,967,416


	Three Months Ended March 31, 2021
(In thousands)	Community Banking		Insurance		Investment Management		Inter-Segment Elimination		Total
Interest income	$	114,261	$	1	$	2	$	(3)	$	114,261
Interest expense	9,664		—		—		(3)		9,661
Provision for credit losses	(34,708)		—		—		—		(34,708)
Non-interest income	21,725		2,151		5,207		(217)		28,866
Non-interest expense	63,695		1,487		3,208		(217)		68,173
Income/ (loss) before income taxes	97,335		665		2,001		—		100,001
Income tax expense/ (benefit)	23,838		183		516		—		24,537
Net income/ (loss)	$	73,497	$	482	$	1,485	$	—	$	75,464

Assets	$	12,878,311	$	11,504	$	56,688	$	(73,137)	$	12,873,366

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This report, as well as other periodic reports filed with the Securities and Exchange Commission, and written or oral communications made from time to time by or on behalf of Sandy Spring Bancorp, Inc. and its subsidiaries (the “Company”), may contain statements relating to future events or future results of the Company that are considered “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “estimate,” “intend” and “potential,” or words of similar meaning, or future or conditional verbs such as “should,” “could,” or “may.” Forward-looking statements include statements of our goals, intentions and expectations; statements regarding our business plans, prospects, growth and operating strategies; statements regarding the quality of our loan and investment portfolios; and estimates of our risks and future costs and benefits.

Forward-looking statements reflect our expectation or prediction of future conditions, events or results based on information currently available. These forward-looking statements are subject to significant risks and uncertainties that may cause actual results to differ materially from those in such statements. These principal risks and uncertainties include, but are not limited to, the risks identified in Item 1A of the Company’s 2021 Annual Report on Form 10-K, Item 1A of Part II of this report and the following:

•risks, uncertainties and other factors relating to the COVID-19 pandemic, including the length of time that the pandemic continues, the effectiveness and acceptance of vaccination programs, the imposition of restrictions on business operations and/or travel; the effect of the pandemic on the general economy and on the businesses of our borrowers and their ability to make payments on their obligations; the remedial actions and stimulus measures adopted by federal, state and local governments, and the inability of employees to work due to illness, quarantine, or government mandates;

•the impacts related to or resulting from Russia's military action in Ukraine, including the broader impacts to financial markets and the global macroeconomic and geopolitical environments;

•general business and economic conditions, including higher inflation and its impacts, nationally or in the markets that the Company serves could adversely affect, among other things, real estate prices, unemployment levels, the ability of businesses to remain viable and consumer and business confidence, which could lead to decreases in the demand for loans, deposits and other financial services that we provide and increases in loan delinquencies and defaults;

•changes or volatility in the capital markets and interest rates may adversely impact the value of securities, loans, deposits and other financial instruments and the interest rate sensitivity of our balance sheet as well as our liquidity;

•our liquidity requirements could be adversely affected by changes in our assets and liabilities;

•our investment securities portfolio is subject to credit risk, market risk, and liquidity risk, as well as changes in the estimates we use to value certain of the securities in our portfolio;

•the effect of legislative or regulatory developments including changes in laws concerning taxes, banking, securities, insurance and other aspects of the financial services industry;

•acquisition risks, including potential deposit attrition, higher than expected costs, customer loss, business disruption and the inability to realize benefits and costs savings from, and limit any unexpected liabilities associated with, any business combinations;

•competitive factors among financial services companies, including product and pricing pressures and our ability to attract, develop and retain qualified banking professionals;

•the effect of changes in accounting policies and practices, as may be adopted by the Financial Accounting Standards Board, the Securities and Exchange Commission, the Public Company Accounting Oversight Board and other regulatory agencies; and

•the effect of fiscal and governmental policies of the United States federal government.

Forward-looking statements speak only as of the date of this report. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date of this report or to reflect the occurrence of unanticipated events except as required by federal securities laws.

The Company

Sandy Spring Bancorp, Inc. is the bank holding company for Sandy Spring Bank (the “Bank”). The Company is a community banking organization that focuses its lending and other services on businesses and consumers in the local market area. At March 31, 2022, the Company had $13.0 billion in total assets, compared to $12.6 billion at December 31, 2021. The Bancorp is registered as a bank holding company pursuant to the Bank Holding Company Act of 1956, as amended and is subject to supervision and regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”).

The Bank is an independent and community-oriented bank that offers a broad range of commercial banking, retail banking, mortgage and trust services throughout central Maryland, Northern Virginia, and the greater Washington, D.C. market. Through its subsidiaries, Sandy Spring Insurance Corporation ("SSIC"), West Financial Services, Inc. ("West") and SSB Wealth Management, Inc. (d/b/a Rembert Pendleton and Jackson, "RPJ”), the Bank also offers a variety of comprehensive insurance and wealth management services. The Bank is a state chartered bank subject to supervision and regulation by the Federal Reserve and the State of Maryland. Deposit accounts of the Bank are insured by the Deposit Insurance Fund administered by the Federal Deposit Insurance Corporation (the “FDIC”) to the maximum amount permitted by law. The Bank is a member of the Federal Reserve System and is an Equal Housing Lender. The Company, the Bank, and its other subsidiaries are Affirmative Action/Equal Opportunity Employers.

Current Quarter Financial Overview

The Company recorded net income of $43.9 million ($0.96 per diluted common share) in the current quarter compared to net income of $75.5 million ($1.58 per diluted common share) for the first quarter of 2021 and net income of $45.4 million ($0.99 per diluted common share) for the fourth quarter of 2021. Compared to the first quarter of the prior year, exclusive of the significant swing in the provision for credit losses, the current quarter reflected a decline in both net interest income and non-interest income, which exceeded the reduction in non-interest expense. The provision for credit losses for the current quarter was $1.6 million compared to a credit of $34.7 million for the first quarter of 2021 and a charge of $1.6 million for the fourth quarter of 2021.

Current quarter core earnings were $45.1 million ($0.99 per diluted common share), compared to $83.5 million ($1.76 per diluted common share) for the quarter ended March 31, 2021 and $46.6 million ($1.02 per diluted common share) for the quarter ended December 31, 2021. The decline in core earnings reflects the shift from a significant credit to the provision in the prior year's results to the current year's charge to the provision. Core earnings are determined by excluding the after-tax impact of merger and acquisition expense, the loss on FHLB redemptions, amortization of intangibles and investment securities gains.

The current quarter reflects the following:

•At March 31, 2022, total assets were $13.0 billion, a 1% increase compared to $12.9 billion at March 31, 2021. During the previous twelve months, liquidity resulting from deposit growth and PPP loan forgiveness was utilized to fund the growth in the loan and investment securities portfolio, which occurred primarily in the previous two quarters.

•Year-over-year deposits grew 2%, driven by 7% growth in noninterest-bearing deposits, reflecting the impact of the PPP program forgiveness and the growth in transaction relationships, while interest-bearing deposits declined as a result of the decline in time deposits.

•During the current quarter, an offering of $200 million aggregate principal amount fixed to floating rate subordinated notes due in 2032 was completed. The entire amount of the debt is considered Tier 2 capital under current regulatory guidelines.

•For the first quarter of 2022, the net interest margin was 3.49%, compared to 3.56% for the same quarter of 2021, and 3.51% for the fourth quarter of 2021. Excluding the amortization of the fair value marks derived from the previous acquisitions, the current quarter’s net interest margin remained at 3.49%, compared to 3.46% for first quarter of 2021, and 3.52% for the fourth quarter of 2021.

•The provision for credit losses was $1.6 million for the current quarter compared to the prior year quarter’s credit to the provision of $34.7 million. The provision for the current quarter is a reflection of the growth in the loan portfolio, coupled with the potential impact of recessionary pressures which exceeded the benefit to the provision derived from continuing improvement in forecasted macroeconomic indicators.

•Non-interest income decreased $8.3 million or 29% for the first quarter of 2022, compared to the prior year quarter. This decrease is the result of a decline in income from mortgage banking activities, which exceeded the growth in wealth management income, growth in service charges on deposit accounts and growth in bank card fees. In addition, other non-interest income declined compared to the prior year primarily as a result of a decrease in credit related fees.

•Non-interest expense for the current quarter decreased $6.0 million or 9% compared to the prior year quarter. The prior year's non-interest expense included a $9.1 million loss from the redemption of FHLB borrowings and was the main driver of the quarter over quarter decline. Excluding the loss on the redemption, non-interest expense increased 5% compared to the prior year quarter driven by an increase in compensation cost, predominantly benefit costs.

•Return on average assets (“ROA”) for the quarter ended March 31, 2022 was 1.42% and return on average tangible common equity (“ROTCE”) was 16.04% compared to 1.41% and 16.07%, respectively, for the fourth quarter of 2021. On a non-GAAP basis, the current quarter's core ROA was 1.45% and core ROTCE was 16.45% compared to core ROA of 1.44% and core ROTCE of 16.49% for the fourth quarter of 2021.

•For the first quarter of 2022, the GAAP efficiency ratio was 50.92% compared to 51.08% for the first quarter of 2021, and 51.75% for the fourth quarter of 2021. The non-GAAP efficiency ratio for the first quarter of 2022 was 49.34% compared to 42.65% for the prior year quarter, and 50.17% for the fourth quarter of 2021. The combination of a decline in non-interest income and an increase in non-interest expense drove the higher non-GAAP efficiency ratio compared to prior year quarter.

•On March 30, 2022, the Company's board of directors authorized a stock repurchase plan that permits the repurchase of up to $50.0 million in shares of common stock. No shares of common stock were repurchased under this plan during the quarter.

Summary of First Quarter Results

Balance Sheet and Credit Quality

Total assets grew 1% to $13.0 billion at March 31, 2022, as compared to $12.9 billion at March 31, 2021. During this period, total loans declined by 3% to $10.1 billion at March 31, 2022, compared to $10.4 billion at March 31, 2021 driven by the $1.2 billion year-over-year reduction in PPP loans. Excluding the impact of PPP loan forgiveness, total commercial loans grew by $983.2 million or 13% during the past twelve months. During this period, the Company generated commercial gross loan production of $3.8 billion, of which $2.5 billion was funded, offsetting $1.5 billion in commercial loan run-off. During the first quarter of 2022, funded commercial loan production increased 90% to $545.4 million compared to $287.7 million for the same quarter of the prior year. Over the previous twelve months, growth in the commercial portfolio, excluding PPP loans, occurred in all commercial portfolios led by the $735.9 million or 20% growth in the investor owned commercial portfolio. Year-over-year the consumer loan portfolio declined 15% due to the run-off of home equity loan and line products, a result of the refinancing activity in the residential mortgage markets.

During the past twelve months, deposits increased 2%, driven by 7% growth in noninterest-bearing deposits reflecting the impact of the PPP program forgiveness and the growth in transaction relationships, while interest-bearing deposits declined 1% as a result of the $312.6 million in attrition of rate advantaged time deposits. Savings and money market categories experienced year-over-year growth in excess of 3%.

The tangible common equity ratio decreased to 8.70% of tangible assets at March 31, 2022, compared to 8.90% at March 31, 2021 as a result of the $107.3 million repurchase of common shares during 2021 and the $66.6 million increase in the accumulated other comprehensive loss, coupled with the increase in tangible assets during the past year. At March 31, 2022, the Company had a total risk-based capital ratio of 16.77%, a common equity tier 1 risk-based capital ratio of 12.03%, a tier 1 risk-based capital ratio of 12.03%, and a tier 1 leverage ratio of 9.66%.

Non-performing loans include non-accrual loans, accruing loans 90 days or more past due and restructured loans. At March 31, 2022, the level of non-performing loans to total loans was 0.46% compared to 0.94% at March 31, 2021, and 0.49% at December 31, 2021. At March 31, 2022, non-performing loans totaled $46.3 million, compared to $98.7 million at March 31, 2021, and $48.8 million at December 31, 2021. Loans placed on non-accrual during the current quarter amounted to $1.5 million compared to $0.4 million for the prior year quarter and $0.5 million for the fourth quarter of 2021. Non-accrual loans at quarter end declined from the prior quarter due primarily to payoff activity. Loans greater than 90 days or more past due decreased from the prior quarter as a result of the extension of existing performing portfolio loans that were in process of being extended at the end of the prior quarter.

The Company recorded net charge-offs of $0.2 million for the first quarter of 2022, as compared to net charge-offs of $0.3 million for the first quarter of 2021 and net charge-offs of $0.4 million for the fourth quarter of 2021.

At March 31, 2022, the allowance for credit losses was $110.6 million or 1.09% of outstanding loans and 239% of non-performing loans, compared to $109.1 million or 1.10% of outstanding loans and 224% of non-performing loans at the end of the previous quarter. Excluding PPP loans, the allowance for credit losses to outstanding loans was 1.10% at March 31, 2022. The increase in the allowance during the current quarter compared to the previous quarter was the result of the growth in the loan portfolio during the quarter, net of the impact of continued improvement in forecasted economic metrics, in addition to the update to various metrics applied in the determination of the allowance for credit losses, which included management's consideration of the potential impact of recessionary pressures.

Quarterly Results of Operations

The Company recorded net income of $43.9 million for the three months ended March 31, 2022, compared to net income of $75.5 million for the prior year quarter. The primary driver of the decline in earnings was the activity associated with the provision for credit losses as the prior year's results contained a significant credit to the allowance versus the current year's charge to the allowance. Exclusive of the impact of the provision for credit losses, compared to the first quarter of the prior year, the current quarter reflected a decline in both net interest income and non-interest income, which exceeded the reduction in non-interest expense.

For the first quarter of 2022, net interest income decreased $3.1 million or 3% compared to the first quarter of 2021, as an $8.2 million reduction in interest income was partially offset by a $5.1 million reduction in interest expense.

The provision for credit losses was $1.6 million for the first quarter of 2022 compared to a credit of $34.7 million for the first quarter of 2021. The provision for credit losses for the fourth quarter of 2021 was a charge of $1.6 million.

Non-interest income for the current quarter decreased by 29% or $8.3 million compared to the prior year quarter. Income from mortgage banking activities declined 77% and other non-interest income decreased 45% compared to the first quarter of 2021. These decreases were partially offset by 7% growth in wealth management income, 26% growth in service charges on deposit accounts and a 10% increase in bank card fees.

Non-interest expense decreased $6.0 million or 9% for the first quarter of 2022, compared to the prior year quarter. The prior year's non-interest expense included a $9.1 million loss from the redemption of FHLB borrowings that was the major cause of the quarter over quarter decline. Excluding the loss on the redemption, non-interest expense increased 5% compared to the prior year quarter driven by an increase in compensation, predominantly benefit costs. Overall, the increase reflects the net impact of the increases in compensation and benefit costs, and professional fees, partially offset by a decrease in occupancy expense and a reduction in FDIC insurance expense.

Results of Operations

For the Three Months Ended March 31, 2022 Compared to the Three Months Ended March 31, 2021

The Company realized net income of $43.9 million ($0.96 per diluted common share) for the first quarter of 2022, compared to net income of $75.5 million ($1.58 per diluted common share) for the first quarter of 2021 and $45.4 million ($0.99 per diluted common share) for the fourth quarter of 2021. The primary driver of the decline in quarterly earnings compared to the prior year quarter was the activity associated with the provision for credit losses as the prior year's results contained a significant credit to the provision versus the current year's charge to the provision. The provision for credit losses for the current quarter was $1.6 million compared to a credit of $34.7 million for the first quarter of 2021 and a charge of $1.6 million for the fourth quarter of 2021.

Exclusive of the impact of the provision for credit losses, compared to the first quarter of the prior year, the current quarter reflected both a decline in net interest income and non-interest income, which exceeded the reduction in non-interest expense. Pre-tax, pre-provision income was $59.9 million for the three months ended March 31, 2022 compared to $65.3 million for the prior year quarter and $61.7 million for the fourth quarter of 2021.

Current quarter core earnings were $45.1 million ($0.99 per diluted common share), compared to $83.5 million ($1.76 per diluted common share) for the quarter ended March 31, 2021 and $46.6 million ($1.02 per diluted common share) for the quarter ended December 31, 2021. Core earnings are determined by excluding the after-tax impact of merger and acquisition expense, the loss on FHLB redemptions, amortization of intangibles and investment securities gains.

Net Interest Income

For the first quarter of 2022, net interest income decreased $3.1 million or 3% compared to the first quarter of 2021, due to the impact of an $8.2 million reduction in interest income being partially offset by a $5.1 million reduction in interest expense. The decline in interest income was driven by a $7.7 million decline in interest and fees on PPP loans and a $1.8 million decline in interest income on residential mortgage loans. The decrease in interest expense was the result of the prior year's liquidation of FHLB borrowings, the run-off of $312.6 million in time deposits and lower interest expense associated with money market deposits.

The net interest margin for the first quarter of 2022 was 3.49% on $11.9 billion of average interest-earning assets as compared to 3.56% on $12.0 billion of average interest-earning assets for the same quarter of the prior year. Compared to the prior year's quarter, the average yield on interest-earning assets declined 23 basis points and was only partially offset by the 24 basis point

decline in the rate paid on interest-bearing liabilities resulting in the compression of the net interest margin. The decrease in yields and rates during the previous twelve months is a reflection of the decline in general market interest rates during the period. Excluding the amortization of the fair value marks derived from acquisitions, the current quarter's net interest margin remained at 3.49% compared to 3.46% for first quarter of 2021.

Average interest-earning assets decreased by 1% and average interest-bearing liabilities decreased by 7% in the first quarter of 2022 compared to the first quarter of 2021. The decrease in average interest-bearing liabilities was driven by the 52% decrease in average borrowings, primarily due to the prepayment of advances from the FHLB during 2021. Total average interest-bearing deposits decreased 2% as a result of the 24% decline in average core time deposits, partially offset by the 11% increase in noninterest-bearing deposits in the first quarter of 2022 compared to the same quarter of the prior year. The percentage of average noninterest-bearing deposits to total average deposits increased to 36% in the current quarter compared to 33% in the first quarter of 2021. The primary cause of the increase in average noninterest-bearing deposits was the PPP program forgiveness, in addition to the growth in core deposit relationships. At March 31, 2022 and 2021, average total loans comprised 84% and 86% of average interest-earning assets with an average yield of 4.06% and 4.22%, respectively. In addition, the average yield on investment securities decreased to 1.65% for the current quarter compared to 1.92% for the prior year quarter. These portfolio yield movements resulted in the decline in the overall average yield on interest-earning assets to 3.65% at March 31, 2022 from 3.88% at March 31, 2021. The impact of the decline in the yield on average interest-earning assets was partially mitigated by the 24 basis point decline in the average rate paid on average interest-bearing liabilities, as the average rate paid decreased from 0.50% for the first quarter of 2021 to 0.26% for the first quarter of 2022. During this period, the 14 basis point decline in the average rate paid on average interest-bearing deposits was the result of the decrease in average rates paid on money market savings and time deposits. Excluding the amortization of the fair value marks, the average rate paid on total average interest-bearing liabilities was 0.29%


Consolidated Average Balances, Yields and Rates
	Three Months Ended March 31,
	2022						2021
(Dollars in thousands and tax-equivalent)	Average Balances		Interest (1)		Annualized Average Yield/Rate		Average Balances		Interest (1)		Annualized Average Yield/Rate
Assets:
Commercial investor real estate loans	$	4,220,246	$	41,634	4.00	%	$	3,634,174	$	38,354	4.28	%
Commercial owner-occupied real estate loans	1,683,557		18,432		4.44		1,638,885		18,680		4.62
Commercial AD&C loans	1,102,660		10,593		3.90		1,049,597		10,396		4.02
Commercial business loans	1,372,755		16,354		4.83		2,291,097		24,794		4.39
Total commercial loans	8,379,218		87,013		4.21		8,613,753		92,224		4.34
Residential mortgage loans	964,056		7,774		3.23		1,066,714		9,544		3.58
Residential construction loans	197,366		1,557		3.20		179,925		1,606		3.62
Consumer loans	424,859		3,589		3.43		496,578		4,545		3.71
Total residential and consumer loans	1,586,281		12,920		3.28		1,743,217		15,695		3.62
Total loans (2)	9,965,499		99,933		4.06		10,356,970		107,919		4.22
Loans held for sale	17,594		198		4.50		82,263		537		2.61
Taxable securities	1,165,041		4,107		1.41		915,625		3,899		1.70
Tax-advantaged securities	452,574		2,551		2.26		491,830		2,840		2.31
Total investment securities (3)	1,617,615		6,658		1.65		1,407,455		6,739		1.92
Interest-bearing deposits with banks	258,273		113		0.18		182,095		46		0.10
Federal funds sold	822		—		0.21		641		—		0.09
Total interest-earning assets	11,859,803		106,902		3.65		12,029,424		115,241		3.88

Less: allowance for credit losses	(109,933)						(163,229)
Cash and due from banks	66,466						106,259
Premises and equipment, net	61,036						56,369
Other assets	698,717						772,716
Total assets	$	12,576,089					$	12,801,539

Liabilities and Stockholders' Equity:
Interest-bearing demand deposits	$	1,501,658	$	158	0.04	%	$	1,365,652	$	236	0.07	%
Regular savings deposits	546,893		19		0.01		444,296		56		0.05
Money market savings deposits	3,426,817		625		0.07		3,410,589		1,463		0.17
Time deposits	1,307,929		1,491		0.46		1,728,543		3,075		0.72
Total interest-bearing deposits	6,783,297		2,293		0.14		6,949,080		4,830		0.28
Federal funds purchased	45,444		15		0.13		41,656		10		0.10
Repurchase agreements	131,487		39		0.12		148,195		43		0.12
Advances from FHLB	—		—		—		376,984		2,276		2.45
Subordinated debentures	203,413		2,238		4.40		227,072		2,502		4.41
Total borrowings	380,344		2,292		2.44		793,907		4,831		2.47
Total interest-bearing liabilities	7,163,641		4,585		0.26		7,742,987		9,661		0.50

Noninterest-bearing demand deposits	3,758,732						3,394,110
Other liabilities	147,200						187,292
Stockholders' equity	1,506,516						1,477,150
Total liabilities and stockholders' equity	$	12,576,089					$	12,801,539

Tax-equivalent net interest income and spread			$	102,317	3.39	%			$	105,580	3.38	%
Less: tax-equivalent adjustment			866						980
Net interest income			$	101,451					$	104,600

Interest income/earning assets					3.65	%					3.88	%
Interest expense/earning assets					0.16						0.32
Net interest margin					3.49	%					3.56	%

(1)Tax-equivalent income has been adjusted using the combined marginal federal and state rate of 25.64% and 25.50% for 2022 and 2021, respectively. The annualized taxable-equivalent adjustments utilized in the above table to compute yields aggregated to $0.9 million and $1.0 million in 2022 and 2021, respectively.

(2)Non-accrual loans are included in the average balances.

(3)Investments available-for-sale are presented at amortized cost.

Effect of Volume and Rate Changes on Tax-Equivalent Net Interest Income

The following table analyzes the reasons for the changes from year-to-year in the principal elements that comprise tax-equivalent net interest income:


	2022 vs. 2021						2021 vs. 2020
	Increase Or (Decrease)		Due to Change In Average*:				Increase Or (Decrease)		Due to Change In Average*:
(Dollars in thousands and tax equivalent)			Volume		Rate				Volume		Rate
Interest income from earning assets:
Commercial investor real estate loans	$	3,280	$	5,903	$	(2,623)	$	13,089	$	15,019	$	(1,930)
Commercial owner-occupied real estate loans	(248)		497		(745)		3,474		3,940		(466)
Commercial AD&C loans	197		514		(317)		2,067		4,076		(2,009)
Commercial business loans	(8,440)		(10,729)		2,289		14,617		15,995		(1,378)
Residential mortgage loans	(1,770)		(878)		(892)		(1,197)		(670)		(527)
Residential construction loans	(49)		147		(196)		45		325		(280)
Consumer loans	(956)		(628)		(328)		(611)		317		(928)
Loans held for sale	(339)		(576)		237		246		318		(72)
Taxable securities	208		933		(725)		(2,423)		(351)		(2,072)
Tax-advantaged securities	(289)		(227)		(62)		1,103		1,778		(675)
Interest-bearing deposits with banks	67		23		44		(134)		129		(263)
Federal funds sold	—		—		—		(1)		—		(1)
Total tax-equivalent interest income	(8,339)		(5,021)		(3,318)		30,275		40,876		(10,601)

Interest expense on funding of earning assets:
Interest-bearing demand deposits	(78)		23		(101)		(461)		273		(734)
Regular savings deposits	(37)		11		(48)		(17)		21		(38)
Money market savings deposits	(838)		7		(845)		(3,187)		2,253		(5,440)
Time deposits	(1,584)		(638)		(946)		(5,023)		512		(5,535)
Federal funds purchased	5		1		4		(365)		(116)		(249)
Repurchase agreements	(4)		(4)		—		(162)		17		(179)
Advances from FHLB	(2,276)		(1,138)		(1,138)		(869)		(956)		87
Subordinated debentures	(264)		(258)		(6)		221		221		—
Total interest expense	(5,076)		(1,996)		(3,080)		(9,863)		2,225		(12,088)
Tax-equivalent net interest income	$	(3,263)	$	(3,025)	$	(238)	$	40,138	$	38,651	$	1,487

*Variances that are the combined effect of volume and rate, but cannot be separately identified, are allocated to the volume and rate variances based on their respective relative amounts.

Interest Income

Excluding interest and fees associated with the PPP loan program, the Company's total tax-equivalent interest income decreased 1% for the first quarter of 2022 compared to the prior year quarter. Interest and fees from the PPP loan program amounted to $3.2 million in the current quarter compared to $10.9 million in the prior year quarter. Average interest-earning assets declined 1% over the prior year quarter as average total loans declined 4% partially offset by the 15% increase in average investment securities. Excluding average PPP loan balances, average total loans grew 7% over the previous twelve months. Average mortgage loans decreased 7% as a result of portfolio run-offs and sales in the secondary market of the majority of loan originations during the past twelve months. Average consumer loans, principally home equity loans and lines, declined 14% as a result of refinancing activity during the year.

The average yield on interest-earning assets declined to 3.65% for the current quarter compared to 3.88% for the same period of the prior year. Average yields on loans and investment securities for the current quarter decreased by 16 and 27 basis points, respectively, compared to the prior year quarter, a reflection of the decline in general market interest rates during the previous twelve months. The yield on average loans for the current quarter included a reduction of two basis points from the amortization of the fair value premiums. The decrease in the yield on investments was driven primarily by the decrease in yields on taxable investments during the period. Excluding the amortization of fair value marks, the yield on interest-earning assets would have been 3.67%.

Interest Expense

Interest expense decreased 53% in the first quarter of 2022 compared to the first quarter of 2021. The decrease from period to period was attributable to the elimination of FHLB borrowings, a decline in general market rates over the previous twelve

months and the decrease of the amortization of the acquisition fair value marks on time deposits. The impact of these factors resulted in the average rate on interest-bearing liabilities for the current quarter declining to 0.26% from 0.50% as compared to the prior year quarter. The combined impact of the lower market rates and amortization of fair value marks on time deposits resulted in the 0.14% average rate paid on interest-bearing deposits for the current quarter compared to 0.28% for the same period of the prior year. The main driver in the 14 basis point decline in the average rate paid on interest-bearing deposits in the current quarter versus in the prior year quarter were the notable decreases in the rates paid on money market savings and time deposits. For the current quarter, the amortization of fair value marks on time deposits resulted in a reduction of the average rate paid on total average deposits of two basis points for the quarter versus nine basis points for last year's first quarter. Excluding the amortization of those fair value marks, the average rate paid on interest-bearing liabilities would have been 0.29% for the current quarter compared to 0.59% for the prior year quarter. The average rate paid also benefited from the growth in average noninterest-bearing deposits that increased to 36% of average deposits in the current quarter compared to 33% in the prior year’s first quarter.

Non-interest Income

Non-interest income amounts and trends are presented in the following table for the periods indicated:


	Three Months Ended March 31,				2022/2021		2022/2021
(Dollars in thousands)	2022		2021		$ Change		% Change
Securities gains	$	8	$	58	$	(50)	(86.2)	%
Service charges on deposit accounts	2,326		1,852		474		25.6
Mortgage banking activities	2,298		10,169		(7,871)		(77.4)
Wealth management income	9,337		8,730		607		7.0
Insurance agency commissions	2,115		2,153		(38)		(1.8)
Income from bank owned life insurance	795		680		115		16.9
Bank card fees	1,668		1,518		150		9.9
Other income	2,048		3,706		(1,658)		(44.7)
Total non-interest income	$	20,595	$	28,866	$	(8,271)	(28.7)

Total non-interest income decreased $8.3 million or 29% during the current quarter compared to the same quarter of the prior year, primarily the result of a decline in income from mortgage banking activities. Compared to the prior year quarter, increases occurred in wealth management income, service charges on deposit accounts and bank card fees while other non-interest income declined.

Further detail by type of non-interest income follows:

•Service charges on deposit accounts increased 26% in the first quarter of 2022, compared to the first quarter of 2021, reflecting the impact of increased transaction volume in the current year.

•Income from mortgage banking activities decreased by $7.9 million or 77% in the first quarter of 2022 as compared to the first quarter of 2021 reflecting the impact of reduced origination volume, the result of increasing mortgage lending rates during the current quarter compared to the prior year quarter.

•Wealth management income increased 7% for the first quarter of 2022, as compared to the first quarter of 2021 due to the growth in assets under management during the period. Overall total assets under management increased to $5.8 billion at March 31, 2022 compared to $5.4 billion at March 31, 2021. Trust service fees increased 3% compared to the first quarter of 2021 driven by investment management fee income. Excluding postmortem estate fees realized in the prior year quarter, trust service fees increased 9% in the current quarter compared to the prior year quarter.

•Income from bank owned life insurance increased by $0.1 million in the first quarter of 2022, compared to the first quarter of 2021, due to the addition of policies over the preceding 12 months.

•Bank card income increased 10% in the first quarter of 2022, compared to the first quarter of 2021, due to a rise in consumer transaction volume.

•Other non-interest income decreased $1.7 million or 45% in the first quarter of 2022, compared to the first quarter of 2021, primarily as a result of the decrease in credit related fees.

Non-interest Expense

Non-interest expense amounts and trends are presented in the following table for the periods indicated:


	Three Months Ended March 31,				2022/2021		2022/2021
(Dollars in thousands)	2022		2021		$ Change		% Change
Salaries and employee benefits	$	39,373	$	36,652	$	2,721	7.4	%
Occupancy expense of premises	5,034		5,487		(453)		(8.3)
Equipment expense	3,536		3,222		314		9.7
Marketing	1,193		1,212		(19)		(1.6)
Outside data services	2,419		2,283		136		6.0
FDIC insurance	984		1,492		(508)		(34.0)
Amortization of intangible assets	1,508		1,697		(189)		(11.1)
Merger and acquisition expense	—		45		(45)		(100.0)
Professional fees and services	2,017		1,731		286		16.5
Other expenses	6,083		14,352		(8,269)		(57.6)
Total non-interest expense	$	62,147	$	68,173	$	(6,026)	(8.8)

Total non-interest expense decreased $6.0 million or 9% for the first quarter of 2022, compared to the prior year quarter. The prior year's non-interest expense included a $9.1 million loss from the redemption of FHLB borrowings that was the primary driver of the quarter over quarter decline. Excluding the loss on the redemption, non-interest expense increased 5% compared to the prior year quarter driven by increases in compensation and benefit costs, equipment expense and professional fees that were partially offset by a significant reduction in FDIC insurance expense and lower occupancy cost. Further detail of significant changes in the levels of non-interest expense by category follows:

•Salaries and employee benefits, the largest component of non-interest expenses, increased 7% in the first quarter of 2022 compared to the same period of the prior year. While the compensation component increased 3%, benefit cost, driven by health care costs, FICA taxes and stock compensation costs, increased 21%.

•Occupancy and equipment expenses for the quarter decreased a combined 2% compared to the prior year quarter as a result of lower rental expense.

•Marketing expense decreased 2% compared to the prior year as a result of decreased advertising initiatives.

•FDIC insurance expense declined 34% as a result of the reduction in risk factors applied by the regulatory agency in the determination of the Company's premium.

•Professional fees and services increased 17% from the prior year quarter due primarily to consulting fees associated with specific strategic initiatives.

•Amortization of intangible assets decreased primarily as a result of the decline in the amortization expense for the core deposit intangible asset recognized from previous acquisitions.

•Other non-interest expense decreased 58% as the prior year quarter included the $9.1 million loss from the redemption of FHLB borrowings.

Income Taxes

The Company had income tax expense of $14.3 million in the first quarter of 2022, compared to income tax expense of $24.5 million in the first quarter of 2021. The resulting effective tax rate was 24.6% for the first quarter of 2022 compared to an effective tax rate of 24.5% for the first quarter of 2021.

Operating Expense Performance

Management views the GAAP efficiency ratio as an important financial measure of expense performance and cost management. The ratio expresses the level of non-interest expense as a percentage of total revenue (net interest income plus total non-interest income). Lower ratios indicate improved productivity.

Non-GAAP Financial Measures

The Company uses a traditional efficiency ratio that is a non-GAAP financial measure of operating expense control and efficiency of operations. Management believes that its traditional efficiency ratio better focuses attention on the operating performance of the Company over time than does a GAAP efficiency ratio and is highly useful in comparing period-to-period operating performance of the Company’s core business operations. It is used by management as part of its assessment of its performance in managing non-interest expense. However, this measure is supplemental, and is not a substitute for an analysis of

performance based on GAAP measures. The reader is cautioned that the non-GAAP efficiency ratio used by the Company may not be comparable to GAAP or non-GAAP efficiency ratios reported by other financial institutions.

In general, the efficiency ratio is non-interest expense as a percentage of net interest income plus non-interest income. Non-interest expense used in the calculation of the non-GAAP efficiency ratio excludes merger and acquisition expense, the amortization of intangibles, and other non-recurring expenses, such as early prepayment penalties on FHLB advances. Income for the non-GAAP efficiency ratio includes the favorable effect of tax-exempt income, and excludes securities gains and losses, which may vary widely from period to period without appreciably affecting operating expenses, and other non-recurring gains (if any). The measure is different from the GAAP efficiency ratio, which also is presented in this report. The GAAP measure is calculated using non-interest expense and income amounts as shown on the face of the Condensed Consolidated Statements of Income. The GAAP efficiency ratio in the first quarter of 2022 decreased to 50.92% compared to 51.08% for the first quarter of 2021. The GAAP and non-GAAP efficiency ratios are reconciled and provided in the following table. The non-GAAP efficiency ratio was 49.34% in the first quarter of 2022 compared to 42.65% in the first quarter of 2021. The change in the current year’s non-GAAP efficiency ratio compared to the prior year was the result of the 9% decline in non-GAAP revenue coupled with the 6% growth in non-GAAP non-interest expense.

In addition, the Company uses pre-tax, pre-provision income, as a measure of the level of certain recurring income before taxes. Management believes this provides financial statement users with a useful metric of the run-rate of revenues and expenses that is readily comparable to other financial institutions. This measure is calculated by adding/(subtracting) the provision (credit) for credit losses and the provision for income taxes back to/from net income. This metric decreased 8% for the current quarter compared to the prior year quarter as a result of the decline in net interest income and non-interest income which exceeded the decline in non-interest expense.

The Company has presented core earnings, core earnings per share, core return on average assets and core return on average tangible common equity in order to present metrics that are more comparable to prior periods to provide an indication of the core performance of the Company year over year. Core earnings reflect net income exclusive of merger and acquisition expense, amortization of intangible assets, loss on FHLB redemptions, and investment securities gains, in each case net of tax. The Company recorded net income of $43.9 million ($0.96 per diluted common share) in the current quarter compared to a net income of $75.5 million ($1.58 per diluted common share) for the first quarter of 2021. For the quarter ended March 31, 2022, core earnings were $45.1 million ($0.99 per diluted common share), compared to $83.5 million ($1.76 per diluted common share) for the quarter ended March 31, 2021. ROA was 1.42% for the three months ended March 31, 2022 compared to 2.39% for the prior year quarter. For the three months ended March 31, 2022, the non-GAAP core ROA was 1.45% compared to 2.65% for the prior year quarter. ROTCE was 16.04% for the quarter ended March 31, 2022 compared to 28.47% for the first quarter of 2021. The non-GAAP core ROTCE was 16.45% for the quarter ended March 31, 2022 compared to 31.50% for the prior year quarter.

GAAP and Non-GAAP Efficiency Ratios and Measures


	Three Months Ended March 31,
(Dollars in thousands)	2022			2021
Pre-tax pre-provision net income:
Net income	$	43,935		$	75,464
Plus/ (less) non-GAAP adjustments:
Income tax expense	14,329			24,537
Provision/ (credit) for credit losses	1,635			(34,708)
Pre-tax pre-provision net income	$	59,899		$	65,293

Efficiency ratio (GAAP):
Non-interest expense	$	62,147		$	68,173

Net interest income plus non-interest income	$	122,046		$	133,466

Efficiency ratio (GAAP)	50.92		%	51.08		%

Efficiency ratio (non-GAAP):
Non-interest expense	$	62,147		$	68,173
Less/ (plus) non-GAAP adjustments:
Amortization of intangible assets	1,508			1,697
Loss on FHLB redemption	—			9,117
Merger and acquisition expense	—			45
Non-interest expense - as adjusted	$	60,639		$	57,314

Net interest income plus non-interest income	$	122,046		$	133,466
Plus non-GAAP adjustment:
Tax-equivalent income	866			980
Less non-GAAP adjustment:
Securities gains	8			58

Net interest income plus non-interest income - as adjusted	$	122,904		$	134,388

Efficiency ratio (non-GAAP)	49.34		%	42.65		%

GAAP and Non-GAAP Performance Ratios


	Three Months Ended March 31,
(Dollars in thousands)	2022			2021
Core earnings (non-GAAP):
Net income (GAAP)	$	43,935		$	75,464
Plus/ (less) non-GAAP adjustments (net of tax):
Merger and acquisition expense	—			34
Amortization of intangible assets	1,121			1,264
Loss on FHLB redemption	—			6,792
Investment securities gains	(6)			(43)
Core earnings (non-GAAP)	$	45,050		$	83,511

Core earnings per common share (non-GAAP):
Weighted-average common shares outstanding - diluted (GAAP)	45,333,292			47,415,060



Earnings per diluted common share (GAAP)	$	0.96		$	1.58
Core earnings per diluted common share (non-GAAP)	$	0.99		$	1.76

Core return on average assets (non-GAAP):
Average assets (GAAP)	$	12,576,089		$	12,801,539



Return on average assets (GAAP)	1.42		%	2.39		%
Core return on average assets (non-GAAP)	1.45		%	2.65		%

Core return on average tangible common equity (non-GAAP):





Average total stockholders' equity (GAAP)	$	1,506,516		$	1,477,150
Average goodwill	(370,223)			(370,223)
Average other intangible assets, net	(25,368)			(31,896)
Average tangible common equity (non-GAAP)	$	1,110,925		$	1,075,031

Return on average tangible common equity (non-GAAP)	16.04		%	28.47		%
Core return on average tangible common equity (non-GAAP)	16.45		%	31.50		%

FINANCIAL CONDITION

Total assets grew 3% to $13.0 billion at March 31, 2022, as compared to $12.6 billion at December 31, 2021. During this period, total loans increased by 2% to $10.1 billion at March 31, 2022, compared to $10.0 billion at December 31, 2021. Excluding PPP loans, total loans at March 31, 2022 increased to $10.1 billion, as compared to $9.8 billion at December 31, 2021. Deposit growth was 2% during 2022, as noninterest-bearing deposits experienced growth of 7%, driven primarily by the impact of the PPP program forgiveness, and interest-bearing deposits remained stable. The growth in deposits resulted in the loan to deposit ratio declining to 93.5% at March 31, 2022 from 93.8% at December 31, 2021.

Analysis of Loans

A comparison of the loan portfolio at the dates indicated is presented in the following table:


	March 31, 2022				December 31, 2021				Period-to-Period Change
(Dollars in thousands)	Amount		%		Amount		%		Amount		%
Commercial real estate:
Commercial investor real estate	$	4,388,275	43.3	%	$	4,141,346	41.5	%	$	246,929	6.0	%
Commercial owner-occupied real estate	1,692,253		16.7		1,690,881		17.0		1,372		0.1
Commercial AD&C	1,089,331		10.7		1,088,094		10.9		1,237		0.1
Commercial business	1,349,602		13.3		1,481,834		14.9		(132,232)		(8.9)
Total commercial loans	8,519,461		84.0		8,402,155		84.3		117,306		1.4
Residential real estate:
Residential mortgage	1,000,697		9.9		937,570		9.4		63,127		6.7
Residential construction	204,259		2.0		197,652		2.0		6,607		3.3
Consumer	419,911		4.1		429,714		4.3		(9,803)		(2.3)
Total residential and consumer loans	1,624,867		16.0		1,564,936		15.7		59,931		3.8
Total loans	$	10,144,328	100.0	%	$	9,967,091	100.0	%	$	177,237	1.8

Total loans at March 31, 2022, excluding PPP loans, grew 3% to $10.1 billion compared to year-end 2021. Excluding the impact of the PPP loan forgiveness, total commercial loans grew by $224.9 million or 3% during the quarter. Funded commercial loan production during the first quarter was $545.4 million, an increase of 90% compared to $287.7 million for the same quarter of the prior year. The growth in the commercial portfolio, excluding PPP loans, occurred in all commercial real estate portfolios led by the $246.9 million or 6% growth in the investor owned commercial portfolio. The decline in commercial business loans was a reflection of a significant level of early pay-offs and PPP forgiveness, which offset production during the period. Residential mortgage loans grew during the period as the Company retained a portion of mortgage loan originations in the portfolio during the current year to offset the run-off that occurred in the prior year. Consumer loans decreased 2% as consumers liquidated their home equity lines and loans via the refinancing of existing mortgage loans or upon the purchase of another home.

Analysis of Investment Securities

The composition of investment securities at the periods indicated is presented in the following table:


	March 31, 2022				December 31, 2021				Period-to-Period Change
(Dollars in thousands)	Amount		%		Amount		%		Amount		%
Available-for-sale debt securities:
U.S. treasuries and government agencies	$	105,498	6.6	%	$	68,539	4.5	%	$	36,959	53.9	%
State and municipal	321,853		20.3		326,402		21.7		(4,549)		(1.4)
Mortgage-backed and asset-backed	832,594		52.5		1,070,955		71.1		(238,361)		(22.3)



Total available-for-sale debt securities	1,259,945		79.4		1,465,896		97.3		(205,951)		(14.0)

Held-to-maturity debt securities:


Mortgage-backed and asset-backed	285,339		18.0		—		—		285,339		N/M
Total held-to-maturity debt securities	285,339		18.0		—		—		285,339		N/M

Other equity:
Federal Reserve Bank stock	34,187		2.2		34,097		2.3		90		0.3
Federal Home Loan Bank of Atlanta stock	6,293		0.4		6,392		0.4		(99)		(1.5)
Other equity securities	677		—		677		—		—		—
Total other equity securities	41,157		2.6		41,166		2.7		(9)		—
Total securities	$	1,586,441	100.0	%	$	1,507,062	100.0	%	$	79,379	5.3

The investment portfolio consists primarily of U.S. Treasuries, U.S. Agency securities, U.S. Agency mortgage-backed securities, U.S. Agency collateralized mortgage obligations, asset-backed securities and state and municipal securities. The portfolio is monitored on a continuing basis with consideration given to interest rate trends and the structure of the yield curve and with a frequent assessment of economic projections and analysis. During the quarter ended March 31, 2022, the Company transferred certain debt securities from available-for-sale to held-to-maturity. The total amortized cost of debt securities transferred was $305.6 million with the associated fair value of $289.4 million and unrealized losses of $16.2 million at the date of transfer. The transfer occurred to lessen the impact on the Company's tangible common equity in contemplation of anticipated future increases in general market interest rates. At March 31, 2022, 97% of the investment portfolio was invested in Aaa/AAA or Aa/AA-rated securities. The duration of the portfolio is monitored to ensure the adequacy and ability to meet liquidity demands. The duration of the portfolio increased to 5.1 years at March 31, 2022 compared to 4.3 years at December 31, 2021 as a result of the recent increase in market interest rates. The portfolio possesses low credit risk and provides a source of liquidity necessary to meet loan and operational demands.

Other Earning Assets

Residential mortgage loans held for sale decreased to $17.5 million at March 31, 2022, compared to $39.4 million at December 31, 2021, as a result of a decrease in origination volume during the period. The Company continues to sell the majority of its mortgage loan production in the secondary market. The aggregate of interest-bearing deposits with banks and federal funds sold increased by $102.4 million at March 31, 2022 compared to December 31, 2021, primarily as a result of the cash received from the forgiveness of PPP loans.

Deposits

The composition of deposits for the periods indicated is presented in the following table:


	March 31, 2022				December 31, 2021				Period-to-Period Change
(Dollars in thousands)	Amount		%		Amount		%		Amount		%
Noninterest-bearing deposits	$	4,039,797	37.2	%	$	3,779,630	35.6	%	$	260,167	6.9	%
Interest-bearing deposits:
Demand	1,410,183		13.0		1,604,714		15.1		(194,531)		(12.1)
Money market savings	3,478,143		32.0		3,415,663		32.1		62,480		1.8
Regular savings	562,092		5.2		533,862		5.0		28,230		5.3
Time deposits of less than $250,000	996,864		9.2		910,464		8.6		86,400		9.5
Time deposits of $250,000 or more	365,715		3.4		380,398		3.6		(14,683)		(3.9)
Total interest-bearing deposits	6,812,997		62.8		6,845,101		64.4		(32,104)		(0.5)
Total deposits	$	10,852,794	100.0	%	$	10,624,731	100.0	%	$	228,063	2.1

Deposits and Borrowings

Total deposits increased by 2% to $10.9 billion at March 31, 2022 from $10.6 billion at December 31, 2021. This growth was primarily the result of PPP loan forgiveness and the impact on non-interest-bearing deposits and growth in time deposits. Non-interest-bearing deposits increased 7% while interest-bearing deposits remained stable. At March 31, 2022, interest-bearing deposits represented 63% of deposits with the remaining 37% in noninterest-bearing balances, compared to 64% and 36%, respectively, at December 31, 2021. The mix in interest-bearing deposits shifted during the period as the decline in interest-bearing demand deposits effectively offset the growth in the remaining interest-bearing deposit categories. The 12% decline in interest-bearing demand deposits occurred within commercial demand accounts as a result of the transfer to money market savings related to a large deposit relationship. Growth of time deposits from December 31, 2021 through March 31, 2022 was driven by a $138.6 million increase in brokered time deposits while core time deposits declined $57.7 million, a result of rate sensitive attrition precipitated by the low rate environment.

Capital Management

Management monitors historical and projected earnings, dividends, and asset growth, as well as risks associated with the various types of on and off-balance sheet assets and liabilities, in order to determine appropriate capital levels. Total stockholders' equity remained at $1.5 billion at March 31, 2022 compared to at December 31, 2021. During this period, the growth in retained earnings from net income was more than offset by the combination of the quarterly dividend distribution, coupled with the $60.7 million increase in the accumulated other comprehensive loss during the period, a result of the impact of increased market interest rates on the available-for-sale securities portfolio at March 31, 2022. The ratio of average equity to average assets was 11.98% for the three months ended March 31, 2022, as compared to 11.87% for the three months ended December 31, 2021.

Risk-Based Capital Ratios

Bank holding companies and banks are required to maintain capital ratios in accordance with guidelines adopted by the federal bank regulators. These guidelines are commonly known as risk-based capital guidelines. The actual regulatory ratios and required ratios for capital adequacy are summarized for the Company in the following table.


	Ratios at		Minimum Regulatory Requirements
	March 31, 2022	December 31, 2021
Tier 1 leverage	9.66%	9.26%	4.00%

Common equity tier 1 capital to risk-weighted assets	12.03%	11.91%	4.50%

Tier 1 capital to risk-weighted assets	12.03%	11.91%	6.00%

Total capital to risk-weighted assets	16.77%	14.59%	8.00%

As of March 31, 2022, the most recent notification from the Bank’s primary regulator categorized the Bank as a "well-capitalized" institution under the prompt corrective action rules of the Federal Deposit Insurance Act. Designation as a well-

capitalized institution under these regulations is not a recommendation or endorsement of the Company or the Bank by federal bank regulators.

The minimum capital level requirements applicable to the Company and the Bank are: (1) a common equity Tier 1 capital ratio of 4.5%; (2) a Tier 1 capital ratio of 6%; (3) a total capital ratio of 8%; and (4) a Tier 1 leverage ratio of 4%. The rules also establish a “capital conservation buffer” of 2.5% above the regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital. An institution would be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses to executive officers if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.

The increases in the Company's capital ratios at March 31, 2022 from December 31, 2021 were driven by a combination of the year-to-date net income and the issuance of $200 million in Tier 2 qualifying subordinated notes during March 2022. This debt issuance provided increased capacity for greater real estate lending and participation in the Company's stock repurchase program. During 2020, the Company elected to apply the provisions of the CECL deferral transition in the determination of its risk-based capital ratios. At March 31, 2022, the impact of the application of this deferral transition provided an additional $9.1 million in Tier 1 capital and resulted in raising the common equity Tier 1 ratio by nine basis points.

Tangible Common Equity

Tangible common equity, tangible assets, and tangible book value per share are non-GAAP financial measures calculated using GAAP amounts. Tangible common equity and tangible assets exclude the balances of goodwill and other intangible assets. Management believes that this non-GAAP financial measure provides information to investors that may be useful in understanding our financial condition. Because not all companies use the same calculation of tangible common equity and tangible assets, this presentation may not be comparable to other similarly titled measures calculated by other companies.

Tangible common equity remained at $1.1 billion for March 31, 2022 as compared to December 31, 2021. At March 31, 2022, the ratio of tangible common equity to tangible assets has decreased to 8.70% compared to 9.21% at December 31, 2021. The decrease in the tangible common equity ratio ("TCE ratio") was caused by the 3% decline in tangible common equity during the first three months of 2022, the result of the $60.7 million increase in the accumulated other comprehensive loss and the 3% growth in tangible assets.

A reconciliation of total stockholders’ equity to tangible common equity and total assets to tangible assets along with tangible book value per share, book value per share and related non-GAAP tangible common equity ratio are provided in the following table:

Tangible Common Equity Ratio – Non-GAAP


(Dollars in thousands, except per share data)	March 31, 2022			December 31, 2021
Tangible common equity ratio:
Total stockholders' equity	$	1,488,910		$	1,519,679
Goodwill	(370,223)			(370,223)
Other intangible assets, net	(24,412)			(25,920)
Tangible common equity	$	1,094,275		$	1,123,536

Total assets	$	12,967,416		$	12,590,726
Goodwill	(370,223)			(370,223)
Other intangible assets, net	(24,412)			(25,920)
Tangible assets	$	12,572,781		$	12,194,583

Outstanding common shares	45,162,908			45,118,930

Tangible common equity ratio	8.70		%	9.21		%
Tangible book value per common share	$	24.23		$	24.90
Book value per common share	$	32.97		$	33.68

Credit Risk

The fundamental lending business of the Company is based on understanding, measuring and controlling the credit risk inherent in the loan portfolio. The Company’s loan portfolio is subject to varying degrees of credit risk. Credit risk entails both general risks, which are inherent in the process of lending, and risk specific to individual borrowers. The Company’s credit risk is mitigated through portfolio diversification, which limits exposure to any single customer, industry or collateral type. Typically, each consumer and residential lending product has a generally predictable level of credit losses based on historical loss experience. Residential mortgage and home equity loans and lines generally have the lowest credit loss experience. Loans secured by personal property, such as auto loans, generally experience medium credit losse7s. Unsecured loan products, such as personal revolving credit, have the highest credit loss experience and, for that reason, the Company has chosen not to engage in a significant amount of this type of lending. Credit risk in commercial lending can vary significantly, as losses as a percentage of outstanding loans can shift widely during economic cycles and are particularly sensitive to changing economic conditions. Generally, improving economic conditions result in improved operating results on the part of commercial customers, enhancing their ability to meet their particular debt service requirements. Improvements, if any, in operating cash flows can be offset by the impact of rising interest rates that may occur during improved economic times. Inconsistent economic conditions may have an adverse effect on the operating results of commercial customers, reducing their ability to meet debt service obligations.

To control and manage credit risk, management has a credit process in place to reasonably ensure that credit standards are maintained along with an in-house loan administration, accompanied by oversight and review procedures. The primary purpose of loan underwriting is the evaluation of specific lending risks and involves the analysis of the borrower’s ability to service the debt as well as the assessment of the value of the underlying collateral. Oversight and review procedures include monitoring the credit quality of the portfolio, providing early identification of potential problem credits and proactive management of problem credits.

The Company recognizes a lending relationship as non-performing when either the loan becomes 90 days delinquent or as a result of factors, such as bankruptcy, interruption of cash flows, etc., considered at the monthly credit committee meeting. Classification as a non-accrual loan is based on a determination that the Company may not collect all principal and/or interest payments according to contractual terms. When a loan is placed on non-accrual status all accrued but unpaid interest is reversed from interest income. Typically, all payments received on non-accrual loans are first applied to the remaining principal balance of the loans. Any additional recoveries are credited to the allowance up to the amount of all previous charge-offs.

The level of non-performing loans to total loans decreased to 0.46% at March 31, 2022 compared to 0.49% at December 31, 2021. Non-performing loans were $46.3 million at March 31, 2022 compared to $48.8 million at December 31, 2021. Loans placed on non-accrual during the current quarter amounted to $1.5 million compared to $0.4 million for the prior year quarter and $0.5 million for the fourth quarter of 2021. Loans greater than 90 days or more were $0.3 million compared to $0.4 million for the prior year quarter.

While the diversification of the lending portfolio among different commercial, residential and consumer product lines along with different market conditions of the D.C. suburbs, Northern Virginia and Baltimore metropolitan area has mitigated some of the risks in the portfolio, local economic conditions and levels of non-performing loans may continue to be influenced by the conditions being experienced in various business sectors of the economy on both a regional and national level. As noted, risks, uncertainties and various other factors related to the COVID-19 pandemic includes the impact on the economy and the businesses of our borrowers and their ability to remit contractual payments on their obligations to the Company in a timely manner. The current ability to predict the outcome or impact of the remedial actions and stimulus measures adopted by the government on the economic well-being of the Company's borrowers and the manifestations of all these factors including the future performance aspect of the credit portfolio remains uncertain.

The Company’s methodology for evaluating whether a loan shall be placed on non-accrual status begins with risk-rating credits on an individual basis and includes consideration of the borrower’s overall financial condition, payment record and available cash resources that may include the sufficiency of collateral value and, in a select few cases, verifiable support from financial guarantors. In measuring a specific allowance, the Company looks primarily to the value of the collateral (adjusted for estimated costs to sell) or projected cash flows generated by the operation of the collateral as the primary sources of repayment of the loan. The Company may consider the existence of guarantees and the financial strength and wherewithal of the guarantors involved in any loan relationship. Guarantees may be considered as a source of repayment based on the guarantor’s financial condition and payment capacity. Accordingly, absent a verifiable payment capacity, a guarantee alone would not be sufficient to avoid classifying the loan as non-accrual.

Management has established a credit process that dictates that structured procedures be performed to monitor these loans between the receipt of an original appraisal and the updated appraisal. These procedures include the following:

•An internal evaluation is updated periodically to include borrower financial statements and/or cash flow projections.

•The borrower may be contacted for a meeting to discuss an updated or revised action plan which may include a request for additional collateral.

•Re-verification of the documentation supporting the Company’s position with respect to the collateral securing the loan.

•At the monthly credit committee meeting the loan may be downgraded and a specific allowance may be decided upon in advance of the receipt of the appraisal.

•Upon receipt of the updated appraisal (or based on an updated internal financial evaluation) the loan balance is compared to the appraisal and a specific allowance is decided upon for the particular loan, typically for the amount of the difference between the appraised value (adjusted for estimated costs to sell) and the loan balance.

•Evaluation of whether adverse changes in the value of the collateral are expected over the remainder of the loan’s expected life.

•The Company will individually assess the allowance for credit losses based on the fair value of the collateral for any collateral dependent loans where the borrower is experiencing financial difficulty or when the Company determines that the foreclosure is probable. The Company will charge-off the excess of the loan amount over the fair value of the collateral adjusted for the estimated selling costs.

Loans considered to be troubled debt restructurings (“TDRs”) are loans that have their terms restructured (e.g., interest rates, loan maturity date, payment and amortization period, etc.) in circumstances that provide payment relief to a borrower experiencing financial difficulty. All restructured collateral-dependent loans are individually assessed for allowance for credit losses and may either be in accruing or non-accruing status. Non-accruing restructured loans may return to accruing status provided doubt has been removed concerning the collectability of principal and interest as evidenced by a sufficient period of payment performance in accordance with the restructured terms. Loans may be removed from the restructured category if the borrower is no longer experiencing financial difficulty, a re-underwriting event took place and the revised loan terms of the subsequent restructuring agreement are considered to be consistent with terms that can be obtained in the credit market for loans with comparable risk.

The Company may extend the maturity of a performing or current loan that may have some inherent weakness associated with the loan. However, the Company generally follows a policy of not extending maturities on non-performing loans under existing terms. Maturity date extensions only occur under revised terms that clearly place the Company in a position to increase the likelihood of or assure full collection of the loan under the contractual terms and/or terms at the time of the extension that may eliminate or mitigate the inherent weakness in the loan. These terms may incorporate, but are not limited to additional assignment of collateral, significant balance curtailments/liquidations and assignments of additional project cash flows. Guarantees may be a consideration in the extension of loan maturities. As a general matter, the Company does not view the extension of a loan to be a satisfactory approach to resolving non-performing credits. On an exception basis, certain performing loans that have displayed some inherent weakness in the underlying collateral values, an inability to comply with certain loan covenants which are not affecting the performance of the credit or other identified weakness may be extended.

The Company typically sells a substantial portion of its fixed-rate residential mortgage originations in the secondary mortgage market. Concurrent with such sales, the Company is required to make customary representations and warranties to the purchasers about the mortgage loans and the manner in which they were originated. The related sale agreements grant the purchasers recourse back to the Company, which could require the Company to repurchase loans or to share in any losses incurred by the purchasers. This recourse exposure typically extends for a period of six to twelve months after the sale of the loan although the time frame for repurchase requests can extend for an indefinite period. Such transactions could be due to a number of causes including borrower fraud or early payment default. The Company has seen a very limited number of repurchase and indemnity demands from purchasers for such events and routinely monitors its exposure in this regard. The Company maintains a liability of $0.5 million for probable losses due to repurchases.

The Company periodically engages in whole loan sale transactions of its residential mortgage loans as a part its interest rate risk management strategy. There were no whole loan sales of mortgage loans from the portfolio during the current year.

Mortgage loan servicing rights are accounted for at amortized cost and are monitored for impairment on an ongoing basis. The amortized cost of the Company's mortgage loan servicing rights remained at $0.4 million at March 31, 2022 compared to December 31, 2021.

Analysis of Credit Risk

The following table presents information with respect to non-performing assets and 90-day delinquencies as of the periods indicated:


(Dollars in thousands)	March 31, 2022			December 31, 2021
Non-accrual loans:
Commercial real estate:
Commercial investor real estate	$	11,743		$	12,489
Commercial owner-occupied real estate	8,083			9,306
Commercial AD&C	1,081			650
Commercial business	8,357			8,420
Residential real estate:
Residential mortgage	8,148			8,441
Residential construction	51			55
Consumer	6,406			6,725
Total non-accrual loans	43,869			46,086

Loans 90 days past due:
Commercial real estate:
Commercial investor real estate	—			—
Commercial owner-occupied real estate	—			—
Commercial AD&C	—			—
Commercial business	—			—
Residential real estate:
Residential mortgage	296			557
Residential construction	—			—
Consumer	—			—
Total 90 days past due loans	296			557

Restructured loans (accruing)	2,161			2,167
Total non-performing loans	46,326			48,810
Other real estate owned, net	1,034			1,034
Total non-performing assets	$	47,360		$	49,844

Non-accrual loans to total loans	0.43		%	0.46		%
Non-performing loans to total loans	0.46		%	0.49		%
Non-performing assets to total assets	0.37		%	0.40		%
Allowance for credit losses to non-accrual loans	252.09		%	236.83		%
Allowance for credit losses to non-performing loans	238.72		%	223.61		%

Allowance for Credit Losses

The allowance for credit losses represents management’s estimate of the portion of the Company’s loans’ amortized cost basis not expected to be collected over the loans’ contractual life. As a part of the credit oversight and review process, the Company maintains an allowance for credit losses (the “allowance”). The following allowance section should be read in conjunction with “Allowance for Credit Losses” section in Note 1 – Significant Accounting Policies in the Notes to the Condensed Consolidated Financial Statements. The Company excludes accrued interest from the measurement of the allowance as the Company has a non-accrual policy to reverse any accrued, uncollected interest income when loans are placed on non-accrual status.

The appropriateness of the allowance is determined through ongoing evaluation of the credit portfolio, and involves consideration of a number of factors. Determination of the allowance is inherently subjective and requires significant estimates, including consideration of current conditions and future economic forecasts, which may be susceptible to significant volatility. The forecasted economic metrics with the greatest impact were the expected future unemployment rate, the expected level of business bankruptcies and, to a lesser degree, the house price index. In addition to these metrics, management has included the potential impact of recent recessionary pressures among the qualitative factors applied in the determination of the allowance.

Expected losses can vary significantly from the amounts actually observed. Loans deemed uncollectible are charged off against the allowance, while recoveries are credited to the allowance when received. Management adjusts the level of the allowance through the provision for credit losses in the Condensed Consolidated Statement of Income.

The provision for credit losses for the three months ended March 31, 2022 was $1.6 million as compared to a credit of $34.7 million for the same period in 2021. For the three months ended March 31, 2022, the provision for credit losses, compared to the prior year's credit to the provision, reflects the impact of the growth of the loan portfolio and the consideration of a potential recession, both of which exceeded the benefit to the provision derived from continued improvement in forecasted macroeconomic metrics. The credit to the provision for credit losses for the same period in 2021 predominantly reflected the results of the impact of the improved economic forecasts during the period. The portion of the $34.7 million credit to provision directly attributable to the significant improvement in the economic forecast amounted to a credit of approximately $41.9 million. The remainder of the changes to the provision reflected the impact of changes in interest rates, existing terms, qualitative factors, individual reserves, portfolio composition and portfolio maturities.

At March 31, 2022, the allowance for credit losses was $110.6 million as compared to $109.1 million at December 31, 2021. The allowance for credit losses as a percent of total loans was 1.09% and 1.10% at March 31, 2022 and December 31, 2021, respectively. The allowance for credit losses represented 239% of non-performing loans at March 31, 2022 as compared to 224% at December 31, 2021. The allowance attributable to the commercial portfolio represented 1.20% of total commercial loans while the portion attributable to total combined consumer and mortgage loans was 0.53%. With respect to the total commercial portion of the allowance, 20% of this portion is allocated to the commercial business loan portfolio, resulting in the ratio of the allowance for commercial business loans to total commercial business loans of 1.61%. The ratio of the allowance attributable to ADC loans was 1.69% at the end of the current quarter. Excluding the PPP loans, which do not have an associated allowance, the allowance for credit losses as percentage of total loans outstanding would be 1.10%.

The current methodology for assessing the appropriate allowance includes: (1) a collective quantified reserve that reflects the Company’s historical default and loss experience adjusted for expected economic conditions over a reasonable and supportable forecast period and the Company’s prepayment and curtailment rates, (2) collective qualitative factors that consider concentrations of the loan portfolio, expected changes to the economic forecasts, large lending relationships, early delinquencies, and factors related to credit administration, including, among others, loan-to-value ratios, borrowers’ risk rating and credit score migrations, and (3) individual allowances on collateral-dependent loans where borrowers are experiencing financial difficulty or where the Company determined that foreclosure is probable. Under the current methodology, the impact of the utilization of the historical default and loss experience results in 52% of the total allowance being attributable to the historical performance of the portfolio while 48% of the allowance is attributable to the collective qualitative factors applied to determine the allowance.

The quantified collective portion of the allowance is determined by pooling loans into segments based on the similar risk characteristics of the underlying borrowers, in addition to consideration of collateral type, industry and business purpose of the loans. The Company selected two collective methodologies, the discounted cash flows and weighted average remaining life methodologies. Segments utilizing the discounted cash flow method are further sub-segmented based on the risk level (determined either by risk ratings or Beacon Scores). Collective calculation methodologies use the Company’s historical default and loss experience adjusted for future economic forecasts. The reasonable and supportable forecast period represents a two year economic outlook for the applicable economic variables. Following the end of the reasonable and supportable forecast period expected losses revert back to the historical mean over the next two years on a straight-line basis.

Economic variables which have the most significant impact on the allowance include:

•unemployment rate;

•number of business bankruptcies; and

•house price index.

The collective quantified component of the allowance is supplemented by a qualitative component to address various risk characteristics of the Company’s loan portfolio including:

•trends in early delinquencies;

•changes in the risk profile related to large loans in the portfolio;

•concentrations of loans to specific industry segments;

•expected changes in economic conditions;

•changes in the Company’s credit administration and loan portfolio management processes; and

•the quality of the Company’s credit risk identification processes.

The individual reserve assessment is applied to collateral dependent loans where borrowers are experiencing financial difficulty or when the Company determined that foreclosure is probable. The determination of the fair value of the collateral depends on whether a repayment of the loan is expected to be from the sale or the operation of the collateral. When repayment is expected from the operation of the collateral, the Company uses the present value of expected cash flows from the operation of the collateral as the fair value. When repayment of the loan is expected from the sale of the collateral the fair value of the collateral is based on an observable market price or the appraised value less estimated cost to sell. During the individual reserve assessment, management also considers the potential future changes in the value of the collateral over the remainder of the loan’s life. The balance of collateral-dependent loans individually assessed for the allowance was $31.8 million, with individual allowances of $6.7 million against those loans at March 31, 2022.

If an updated appraisal is received subsequent to the preliminary determination of an individual allowance or partial charge-off, and it is less than the initial appraisal used in the initial assessment, an additional individual allowance or charge-off is taken on the related credit. Partially charged-off loans are not written back up based on updated appraisals and always remain on non-accrual with any and all subsequent payments first applied to the remaining balance of the loan as principal reductions. No interest income is recognized on loans that have been partially charged-off.

A current appraisal on large loans is usually obtained if the appraisal on file is more than 12 months old and there has been a material change in market conditions, zoning, physical use or the adequacy of the collateral based on an internal evaluation. The Company’s policy is to strictly adhere to regulatory appraisal standards. If an appraisal is ordered, no more than a 30 day turnaround is requested from the appraiser, who is selected by Credit Administration from an approved appraiser list. After receipt of the updated appraisal, the assigned credit officer will recommend to the Chief Credit Officer whether an individual allowance or a charge-off should be taken. The Chief Credit Officer has the authority to approve an individual allowance or charge-off between monthly credit committee meetings to ensure that there are no significant time lapses during this process. The Company's borrowers are concentrated in nine counties in Maryland, three counties in Virginia and in Washington D.C. Excluding the PPP loans, commercial and residential mortgages, including home equity loans and lines, represented 86% and 87% of total loans at March 31, 2022 and at December 31, 2021, respectively. Certain loan terms may create concentrations of credit risk and increase the Company’s exposure to loss. These include terms that permit the deferral of principal payments or payments that are smaller than normal interest accruals (negative amortization); loans with high loan-to-value ratios; loans, such as option adjustable-rate mortgages, that may expose the borrower to future increases in repayments that are in excess of increases that would result solely from increases in market interest rates; and interest-only loans. The Company does not make loans that provide for negative amortization or option adjustable-rate mortgages.

The following table presents an allocation of the allowance for credit losses by portfolio as of each period end. The allowance is allocated in the following table to various loan categories based on the methodology used to estimate credit losses; however, the allocation does not restrict the usage of the allowance for any specific loan category.


(In thousands)	March 31, 2022				December 31, 2021
Commercial real estate:	Amount		% of loans to total loans		Amount		% of loans to total loans
Commercial investor real estate	$	50,813	43.3	%	$	45,289	41.5	%
Commercial owner-occupied real estate	10,860		16.7		11,687		17.0
Commercial AD&C	18,459		10.7		20,322		10.9
Commercial business	21,771		13.3		23,170		14.9
Total commercial	101,903		84.0		100,468		84.3
Residential real estate:
Residential mortgage	5,722		9.9		5,384		9.4
Residential construction	889		2.0		1,048		2.0
Consumer	2,074		4.1		2,245		4.3
Total residential and consumer	8,685		16.0		8,677		15.7
Total allowance	$	110,588	100.0	%	$	109,145	100.0	%

Summary of Loan Credit Loss Experience

The following table presents the activity in the allowance for credit losses for the periods indicated:


	Three Months Ended			Year Ended
(Dollars in thousands)	March 31, 2022			December 31, 2021
Balance, January 1	$	109,145		$	165,367



Provision/ (credit) for credit losses	1,635			(45,556)
Loan charge-offs:
Commercial real estate:
Commercial investor real estate	—			(5,802)
Commercial owner-occupied real estate	—			(136)
Commercial AD&C	—			(2,007)
Commercial business	(118)			(4,069)
Residential real estate:
Residential mortgage	(132)			—
Residential construction	—			—
Consumer	(56)			(299)
Total charge-offs	(306)			(12,313)
Loan recoveries:
Commercial real estate:
Commercial investor real estate	19			285
Commercial owner-occupied real estate	—			—
Commercial AD&C	—			—
Commercial business	7			565
Residential real estate:
Residential mortgage	12			410
Residential construction	—			5
Consumer	76			382
Total recoveries	114			1,647
Net charge-offs	(192)			(10,666)
Balance, period end	$	110,588		$	109,145

Annualized net charge-offs to average loans	0.01		%	0.11		%
Allowance for credit losses to loans	1.09		%	1.10		%

Market Risk Management

The Company's net income is largely dependent on its net interest income. Net interest income is susceptible to interest rate risk to the extent that interest-bearing liabilities mature or re-price on a different basis than interest-earning assets. When interest-bearing liabilities mature or re-price more quickly than interest-earning assets in a given period, a significant increase in market rates of interest could adversely affect net interest income. Similarly, when interest-earning assets mature or re-price more quickly than interest-bearing liabilities, falling interest rates could result in a decrease in net interest income. Net interest income is also affected by changes in the portion of interest-earning assets that are funded by interest-bearing liabilities rather than by other sources of funds, such as noninterest-bearing deposits and stockholders' equity.

The Company’s interest rate risk management goals are (1) to increase net interest income at a growth rate consistent with the growth rate of total assets, and (2) to minimize fluctuations in net interest income as a percentage of interest-earning assets. Management attempts to achieve these goals by balancing, within policy limits, the volume of floating-rate liabilities with a similar volume of floating-rate assets; by keeping the average maturity of fixed-rate asset and liability contracts reasonably matched; by maintaining a pool of administered core deposits; and by adjusting pricing rates to market conditions on a continuing basis.

The Company’s board of directors has established a comprehensive interest rate risk management policy, which is administered by management’s Asset Liability Management Committee (“ALCO”). The policy establishes limits on risk, which are quantitative measures of the percentage change in net interest income (a measure of net interest income or “NII” at risk) and the fair value of equity capital (a measure of economic value of equity or “EVE” at risk) resulting from a hypothetical change in U.S. Treasury interest rates for maturities from one day to thirty years. The Company measures the potential adverse impacts

that changing interest rates may have on its short-term earnings, long-term value, and liquidity by employing simulation analysis through the use of computer modeling. The simulation model captures optionality factors such as call features and interest rate caps and floors embedded in investment and loan portfolio contracts. As with any method of gauging interest rate risk, there are certain shortcomings inherent in the interest rate modeling methodology used by the Company. When interest rates change, actual movements in different categories of interest-earning assets and interest-bearing liabilities, loan prepayments, and withdrawals of time and other deposits, may deviate significantly from assumptions used in the model. As an example, certain types of money market deposit accounts are assumed to reprice at 40 to 100% of the interest rate change in each of the up rate shock scenarios even though this is not a contractual requirement. As a practical matter, management would likely lag the impact of any upward movement in market rates on these accounts as a mechanism to manage the Company's net interest margin. Finally, the methodology does not measure or reflect the impact that higher rates may have on adjustable-rate loan customers’ ability to service their debts, or the impact of rate changes on demand for loan and deposit products.

The Company prepares a current base case and multiple alternative simulations at least once per quarter and reports the analysis to the board of directors. In addition, more frequent forecasts are produced when interest rates are particularly uncertain or when other business conditions so dictate.

The statement of condition is subject to quarterly testing for eight alternative interest rate shock possibilities to indicate the inherent interest rate risk. Average interest rates are shocked by +/- 100, 200, 300, and 400 basis points (“bp”), although the Company may elect not to use particular scenarios that it determines are impractical in a current rate environment. It is management’s goal to structure the statement of condition so that net interest income at risk over a twelve-month period and the economic value of equity at risk do not exceed policy guidelines at the various interest rate shock levels.

The Company augments its quarterly interest rate shock analysis with alternative external interest rate scenarios on a monthly basis. These alternative interest rate scenarios may include non-parallel rate ramps and non-parallel yield curve twists. If a measure of risk produced by the alternative simulations of the entire statement of condition violates policy guidelines, ALCO is required to develop a plan to restore the measure of risk to a level that complies with policy limits within two quarters.

Measures of net interest income at risk produced by simulation analysis are indicators of an institution’s short-term performance in alternative rate environments. These measures are typically based upon a relatively brief period, usually one year. They do not necessarily indicate the long-term prospects or economic value of the institution.


Estimated Changes in Net Interest Income
Change in Interest Rates:	+ 400 bp	+ 300 bp	+ 200 bp	+ 100 bp	- 100 bp	- 200 bp	-300 bp	-400 bp
Policy Limit	23.50%	17.50%	15.00%	10.00%	10.00%	15.00%	17.50%	23.50%
March 31, 2022	11.55%	8.85%	6.03%	2.96%	N/A	N/A	N/A	N/A
December 31, 2021	8.61%	6.53%	4.80%	2.16%	N/A	N/A	N/A	N/A

As reflected in the table above, the measures of net interest income at risk at March 31, 2022 rose in every rising interest rate change scenario compared to December 31, 2021. As the table indicates, in a rising interest rate environment, net interest income sensitivity increased compared to December 31, 2021. The change in the net interest income at risk is the result of an increase in asset sensitivity due to an increase in interest-bearing deposits with banks and asset reallocations as a result of increases in subordinated debentures, brokered deposits and checking deposits during the period. At March 31, 2022, all measures remained well within prescribed policy limits.

The measures of equity value at risk indicate the ongoing economic value of the Company by considering the effects of changes in interest rates on all of the Company’s cash flows, and by discounting the cash flows to estimate the present value of assets and liabilities. The difference between these discounted values of the assets and liabilities is the economic value of equity, which, in theory, approximates the fair value of the Company’s net assets.


Estimated Changes in Economic Value of Equity
Change in Interest Rates:	+ 400 bp	+ 300 bp	+ 200 bp	+ 100 bp	- 100 bp	- 200 bp	-300 bp	-400 bp
Policy Limit	35.00%	25.00%	20.00%	10.00%	10.00%	20.00%	25.00%	35.00%
March 31, 2022	(11.99%)	(8.07%)	(4.54%)	(1.52%)	N/A	N/A	N/A	N/A
December 31, 2021	(10.29%)	(6.18%)	(2.16%)	0.05%	N/A	N/A	N/A	N/A

Overall, the measure of the economic value of equity ("EVE") at risk increased in all of the rising rate scenarios from December 31, 2021 to March 31, 2022. The increase in the risk associated with EVE during the period was primarily the result of reduced asset market values driven by the increase in the interest rate environment during the current quarter. The impact on the increasing risk was partially offset by the additional subordinated debt issued in the first quarter of 2022.

Liquidity Management

Liquidity is measured by a financial institution's ability to raise funds through loan repayments, maturing investments, deposit growth, borrowed funds, capital and the sale of highly marketable assets such as investment securities and residential mortgage loans. In assessing liquidity, management considers operating requirements, the seasonality of deposit flows, investment, loan and deposit maturities and calls, expected funding of loans and deposit withdrawals, and the market values of available-for-sale investments, so that sufficient funds are available on short notice to meet obligations as they arise and to ensure that the Company is able to pursue new business opportunities. The Company's liquidity position, considering both internal and external sources available, exceeded anticipated short-term and long-term needs at March 31, 2022.

Liquidity is measured using an approach designed to take into account core deposits, in addition to factors already discussed above. Management considers core deposits, defined to include all deposits other than brokered and outsourced deposits and certain time deposits of $250 thousand or more, to be a relatively stable funding source. Core deposits equaled 84% of total interest-earning assets at March 31, 2022. The Company’s growth and mortgage banking activities are also additional considerations when evaluating liquidity requirements. Also considered are changes in the liquidity of the investment portfolio due to fluctuations in interest rates. Under this approach, implemented by the Funding and Liquidity Subcommittee of ALCO under formal policy guidelines, the Company’s liquidity position is measured weekly, looking forward at thirty day intervals from thirty (30) to three hundred sixty (360) days. The measurement is based upon the projection of funds sold or purchased position, along with ratios and trends developed to measure dependence on purchased funds and core growth. At March 31, 2022, the Company’s liquidity and funds availability provides it with flexibility in funding loan demand and other liquidity demands.

The Company also has external sources of funds available that can be drawn upon when required. The main sources of external liquidity are available lines of credit with the FHLB and the Federal Reserve Bank. The line of credit with the FHLB totaled $3.8 billion, all of which was available for borrowing based on pledged collateral, with no outstanding borrowings against it as of March 31, 2022. The secured lines of credit at the Federal Reserve Bank and correspondent banks totaled $684.4 million, all of which was available for borrowing based on pledged collateral, with no borrowings against it as of March 31, 2022. In addition, the Company had unsecured lines of credit with correspondent banks of $1.3 billion at March 31, 2022. At March 31, 2022, there were no outstanding borrowings against these lines of credit. Based upon its liquidity analysis, including external sources of liquidity available, management believes the liquidity position was appropriate at March 31, 2022.

The parent company (“Bancorp”) is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, Bancorp is responsible for paying any dividends declared to its common shareholders and interest and principal on outstanding debt. Bancorp’s primary source of income is dividends received from the Bank. The amount of dividends that the Bank may declare and pay to Bancorp in any calendar year, without the receipt of prior approval from the Federal Reserve Bank, cannot exceed net income for that year to date period plus retained net income (as defined) for the preceding two calendar years. Based on this requirement, as of March 31, 2022, the Bank could have declared a dividend of up to $82.4 million to Bancorp. At March 31, 2022, Bancorp had liquid assets of $120.5 million.

Arrangements to fund credit products or guarantee financing take the form of loan commitments (including lines of credit on revolving credit structures) and letters of credit. Approvals for these arrangements are obtained in the same manner as loans. Generally, cash flows, collateral value and risk assessment are considered when determining the amount and structure of credit arrangements.

Commitments to extend credit in the form of consumer, commercial real estate and business at the dates indicated were as follows:


(In thousands)	March 31, 2022		December 31, 2021
Commercial real estate development and construction	$	684,336	$	621,725
Residential real estate-development and construction	810,736		885,806
Real estate-residential mortgage	39,899		54,072
Lines of credit, principally home equity and business lines	2,185,356		2,096,874
Standby letters of credit	71,764		70,642
Total commitments to extend credit and available credit lines	$	3,792,091	$	3,729,119

Commitments to extend credit are agreements to provide financing to a customer with the provision that there are no violations of any condition established in the agreement. Commitments generally have interest rates determined by current market rates, expiration dates or other termination clauses and may require payment of a fee. Lines of credit typically represent unused portions of lines of credit that were provided and remain available as long as customers comply with the requisite contractual conditions. Commitments to extend credit are evaluated, processed and/or renewed regularly on a case by case basis, as part of the credit management process. The total commitment amount or line of credit amounts do not necessarily represent future cash requirements, as it is highly unlikely that all customers would draw on their lines of credit in full at one time.

As of March 31, 2022, the total reserve for unfunded commitments was $0.1 million and is accounted for in other liabilities in the Condensed Consolidated Statements of Financial Condition. See Note 1 – Significant Accounting Policies in the Notes to the Condensed Consolidated Financial Statements for more information on the accounting policy for the allowance for unfunded commitments.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See “Financial Condition - Market Risk Management” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, above, which is incorporated herein by reference.

Item 4. CONTROLS AND PROCEDURES

The Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated as of the last day of the period covered by this report, the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15 under the Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective. There were no changes in the Company’s internal controls over financial reporting (as defined in Rule 13a-15 under the Securities Act of 1934) during the three months ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

In the normal course of business, the Company becomes involved in litigation arising from the banking, financial and other activities it conducts. Management, after consultation with legal counsel, does not anticipate that the ultimate liability, if any, arising from these matters will have a material effect on the Company’s financial condition, operating results or liquidity.

Item 1A. Risk Factors

There have been no material changes in the risk factors as discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

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

Item 3. Defaults Upon Senior Securities – None

Item 4. Mine Safety Disclosures – Not applicable

Item 5. Other Information - None

Item 6. Exhibits


Exhibit 31(a)						Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)
Exhibit 31(b)						Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)
Exhibit 32(a)						Certification of Chief Executive Officer pursuant to 18 U.S. Section 1350
Exhibit 32(b)						Certification of Chief Financial Officer pursuant to 18 U.S. Section 1350
Exhibit 101.SCH						XBRL Taxonomy Extension Schema Document
Exhibit 101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.DEF						XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 101.LAB						XBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document
Exhibit 104						Cover Page Interactive Data File (embedded within the Inline XBRL document)

Signatures

Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this quarterly report to be signed on its behalf by the undersigned, thereunto duly authorized.

SANDY SPRING BANCORP, INC.

(Registrant)

By: /s/ Daniel J. Schrider

Daniel J. Schrider

President and Chief Executive Officer

Date: May 6, 2022

By: /s/ Philip J. Mantua

Philip J. Mantua

Executive Vice President and Chief Financial Officer

Date: May 6, 2022