SANDY SPRING BANCORP INC - Quarter Report: 2020 June (Form 10-Q)

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 June 30, 2020

☐ 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 August 5, 2020

Common stock, $1.00 par value – 47,011,617 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 at
	June 30, 2020 and December 31, 2019	4

	Condensed Consolidated Statements of Income/ (Loss) - Unaudited for the Three and Six
	Months Ended June 30, 2020 and 2019	5

	Condensed Consolidated Statements of Comprehensive Income/ (Loss) – Unaudited for
	the Three and Six Months Ended June 30, 2020 and 2019	6

	Condensed Consolidated Statements of Cash Flows – Unaudited for the Six
	Months Ended June 30, 2020 and 2019	7

	Condensed Consolidated Statements of Changes in Stockholders’ Equity – Unaudited for the
	Three and Six Months Ended June 30, 2020 and 2019	8

	Notes to Condensed Consolidated Financial Statements	10

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
	FINANCIAL CONDITION AND RESULTS OF OPERATIONS	40

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
	ABOUT MARKET RISK	74

Item 4. CONTROLS AND PROCEDURES		74

PART II - OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS		75

Item 1A. RISK FACTORS		75

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		76

Item 3. DEFAULTS UPON SENIOR SECURITIES		76

Item 4. MINE SAFETY DISCLOSURES		76

Item 5. OTHER INFORMATION		76

Item 6. EXHIBITS		76

SIGNATURES		77

Forward-Looking Statements

This Quarterly Report on Form 10-Q, 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 2019 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 imposition of shelter in place orders and restrictions on 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;

 general business and economic conditions nationally or in the markets that the Company serves could adversely affect, among other things, real estate prices, unemployment levels, 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 integration 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.

Part I

Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SANDY SPRING BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CONDITION – UNAUDITED

			June 30,		December 31,
(Dollars in thousands)			2020		2019
Assets:
	Cash and due from banks		$	224,037	$	82,469
	Federal funds sold			401		208
	Interest-bearing deposits with banks			610,285		63,426
		Cash and cash equivalents		834,723		146,103
	Residential mortgage loans held for sale (at fair value)			68,765		53,701
	Investments available-for-sale (at fair value)			1,355,799		1,073,333
	Other equity securities			68,853		51,803
	Total loans			10,343,043		6,705,232
		Less: allowance for credit losses		(163,481)		(56,132)
	Net loans			10,179,562		6,649,100
	Premises and equipment, net			59,391		58,615
	Other real estate owned			1,389		1,482
	Accrued interest receivable			48,109		23,282
	Goodwill			370,547		347,149
	Other intangible assets, net			36,143		7,841
	Other assets			267,166		216,593
Total assets			$	13,290,447	$	8,629,002

Liabilities:
	Noninterest-bearing deposits		$	3,434,038	$	1,892,052
	Interest-bearing deposits			6,642,796		4,548,267
		Total deposits		10,076,834		6,440,319
	Securities sold under retail repurchase agreements and federal funds purchased			988,605		213,605
	Advances from FHLB			451,844		513,777
	Subordinated debt			230,301		209,406
		Total borrowings		1,670,750		936,788
	Accrued interest payable and other liabilities			152,770		118,921
		Total liabilities		11,900,354		7,496,028

Stockholders' equity:
	Common stock -- par value $ 1.00 ; shares authorized 100,000,000; shares issued and outstanding
	47,001,022 and 34,970,370 at June 30, 2020 and December 31, 2019, respectively.			47,001		34,970
	Additional paid in capital			843,876		586,622
	Retained earnings			484,392		515,714
	Accumulated other comprehensive income/ (loss)			14,824		(4,332)
		Total stockholders' equity		1,390,093		1,132,974
Total liabilities and stockholders' equity			$	13,290,447	$	8,629,002



The accompanying notes are an integral part of these statements

SANDY SPRING BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME/ (LOSS) – UNAUDITED

				Three Months Ended				Six Months Ended
				June 30,				June 30,
(Dollars in thousands, except per share data)				2020		2019		2020		2019
Interest income:
	Interest and fees on loans			$	106,279	$	79,464	$	182,161	$	159,861
	Interest on loans held for sale				405		381		696		573
	Interest on deposits with banks				155		428		335		622
	Interest and dividends on investment securities:
		Taxable			6,650		5,396		12,782		11,081
		Exempt from federal income taxes			1,438		1,544		2,810		3,254
	Interest on federal funds sold				-		1		1		6
			Total interest income		114,927		87,214		198,785		175,397
Interest expense:
Interest on deposits					12,284		16,146		25,802		30,626
Interest on retail repurchase agreements and federal funds purchased					600		290		1,180		688
Interest on advances from FHLB					(2,123)		4,103		1,022		10,167
Interest on subordinated debt					2,652		490		4,933		981
			Total interest expense		13,413		21,029		32,937		42,462
Net interest income					101,514		66,185		165,848		132,935
Provision for credit losses					58,686		1,633		83,155		1,505
			Net interest income after provision for credit losses		42,828		64,552		82,693		131,430
Non-interest income:
	Investment securities gains				212		5		381		5
	Service charges on deposit accounts				1,223		2,442		3,476		4,749
	Mortgage banking activities				8,426		3,270		11,459		6,133
	Wealth management income				7,604		5,539		14,570		10,775
	Insurance agency commissions				1,188		1,265		3,317		3,165
	Income from bank owned life insurance				809		654		1,454		1,843
	Bank card fees				1,257		1,467		2,577		2,719
	Other income				2,205		1,914		3,858		4,136
			Total non-interest income		22,924		16,556		41,092		33,525
Non-interest expense:
	Salaries and employee benefits				34,297		25,489		62,350		51,465
	Occupancy expense of premises				5,991		4,760		10,572		9,991
	Equipment expense				3,219		2,712		5,970		5,288
	Marketing				729		887		1,918		1,830
	Outside data services				2,169		1,962		3,751		3,740
	FDIC insurance				1,378		1,084		1,860		2,220
	Amortization of intangible assets				1,998		483		2,598		974
	Merger and acquisition expense				22,454		-		23,908		-
	Professional fees and services				1,840		1,634		3,666		2,879
	Other expenses				11,363		4,876		16,591		9,692
			Total non-interest expense		85,438		43,887		133,184		88,079
Income/ (loss) before income taxes					(19,686)		37,221		(9,399)		76,876
Income tax expense/ (benefit)					(5,348)		8,945		(5,048)		18,283
			Net income/ (loss)	$	(14,338)	$	28,276	$	(4,351)	$	58,593

Per share information:
Basic net income/ (loss) per share				$	(0.31)	$	0.79	$	(0.11)	$	1.64
Diluted net income/ (loss) per share				$	(0.31)	$	0.79	$	(0.11)	$	1.63
Dividends declared per share				$	0.30	$	0.30	$	0.60	$	0.58

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 June 30,				Six Months Ended June 30,
(In thousands)				2020		2019		2020		2019
Net income/ (loss)				$	(14,338)	$	28,276	$	(4,351)	$	58,593
	Other comprehensive income/ (loss):
	Investments available-for-sale:
		Net change in unrealized gains on investments available-for-sale			11,366		7,167		25,629		15,981
			Related income tax expense		(2,891)		(1,873)		(6,515)		(4,179)
		Net investment gains reclassified into earnings			(212)		(5)		(381)		(5)
			Related income tax expense		55		1		97		1
			Net effect on other comprehensive income for the period		8,318		5,290		18,830		11,798

	Defined benefit pension plan:
		Recognition of unrealized loss			218		265		437		530
			Related income tax benefit		(56)		(70)		(111)		(139)
			Net effect on other comprehensive income for the period		162		195		326		391
	Total other comprehensive income				8,480		5,485		19,156		12,189
Comprehensive income/ (loss)				$	(5,858)	$	33,761	$	14,805	$	70,782

The accompanying notes are an integral part of these statements

SANDY SPRING BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED

			Six Months Ended June 30,
(Dollars in thousands)			2020		2019
Operating activities:
Net income/ (loss)			$	(4,351)	$	58,593
Adjustments to reconcile net income/ (loss) to net cash provided by operating activities:
	Depreciation and amortization			9,309		6,724
	Provision for credit losses			83,155		1,505
	Share based compensation expense			1,792		1,473
	Tax benefits associated with share based compensation			140		57
	Deferred income tax expense/ (benefit)			(21,282)		1,795
	Origination of loans held for sale			(546,596)		(299,401)
	Proceeds from sales of loans held for sale			539,159		278,290
	Gains on sales of loans held for sale			(7,627)		(6,627)
	Losses on sales of other real estate owned			32		173
	Investment securities gains			(381)		(5)
	Net increase in accrued interest receivable			(17,176)		(1,540)
	Net increase in other assets			(4,456)		(4,880)
	Net increase/ (decrease) in accrued expenses and other liabilities			8,389		(6,126)
	Other – net			1,019		1,162
		Net cash provided by operating activities		41,126		31,193
Investing activities:
	(Purchases of)/ proceeds from other equity securities			(6,646)		18,699
	Purchases of investments available-for-sale			(393,286)		(15,919)
	Proceeds from sales of investment available-for-sale			112,301		-
	Proceeds from maturities, calls and principal payments of investments available-for-sale			201,671		66,887
	Net (increase)/ decrease in loans			(1,116,931)		19,979
	Proceeds from the sales of other real estate owned			60		324
	Cash paid for the acquisition of business activity of RPJ, net of cash acquired			(26,925)		-
	Cash acquired in the acquisition of business activity of Revere Bank, net of cash paid			80,466		-
	Expenditures for premises and equipment			(1,695)		(2,456)
		Net cash provided by/ (used in) investing activities		(1,150,985)		87,514
Financing activities:
	Net increase in deposits			1,314,093		474,869
	Net increase/ (decrease) in retail repurchase agreements and federal funds purchased			774,999		(176,825)
	Proceeds from advances from FHLB			400,000		2,123,000
	Repayment of advances from FHLB			(630,348)		(2,388,843)
	Retirement of subordinated debt			(10,310)		-
	Proceeds from issuance of common stock			932		746
	Stock tendered for payment of withholding taxes			(437)		(702)
	Repurchase of common stock			(25,702)		-
	Dividends paid			(24,748)		(20,757)
		Net cash provided by financing activities		1,798,479		11,488
Net increase in cash and cash equivalents				688,620		130,195
Cash and cash equivalents at beginning of period				146,103		101,481
Cash and cash equivalents at end of period			$	834,723	$	231,676

Supplemental disclosures:
	Interest payments		$	32,472	$	43,348
	Income tax payments			17,532		18,629
	Transfer from loans to other real estate owned			-		414

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

								Accumulated
				Additional				Other		Total
		Common		Paid-In		Retained		Comprehensive		Stockholders’
(Dollars in thousands, except per share data)		Stock		Capital		Earnings		Income/ (Loss)		Equity
Balances at April 1, 2020		$	34,165	$	562,891	$	512,934	$	6,344	$	1,116,334
	Net loss		-		-		(14,338)		-		(14,338)
	Other comprehensive income, net of tax		-		-		-		8,480		8,480
Common stock dividends - $0.30 per share			-		-		(14,204)		-		(14,204)
Stock compensation expense			-		1,038		-		-		1,038
Common stock issued pursuant to:
	Revere Bank acquisition - 12,768,949 shares		12,769		276,320		-		-		289,089
	Stock option plan - 2,625 shares		3		22		-		-		25
	Conversion of Revere stock options - 395,298 options		-		3,611		-		-		3,611
	Employee stock purchase plan - 20,198 shares		20		475		-		-		495
	Restricted stock, net - 44,578 shares		44		(481)		-		-		(437)
Balances at June 30, 2020		$	47,001	$	843,876	$	484,392	$	14,824	$	1,390,093

Balances at April 1, 2019		$	35,557	$	607,479	$	461,862	$	(9,050)	$	1,095,848
	Net income		-		-		28,276		-		28,276
	Other comprehensive income, net of tax		-		-		-		5,485		5,485
Common stock dividends - $0.30 per share			-		-		(10,749)		-		(10,749)
Stock compensation expense			-		783		-		-		783
Common stock issued pursuant to:
	Director's stock purchase plan - 867 shares		1		29		-		-		30
	Stock option plan - 4,142 shares		4		91		-		-		95
	Employee stock purchase plan - 10,004 shares		10		268		-		-		278
	Restricted stock, net - 42,830 shares		43		(644)		-		-		(601)
Balances at June 30, 2019		$	35,615	$	608,006	$	479,389	$	(3,565)	$	1,119,445


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

								Accumulated
				Additional				Other		Total
		Common		Paid-In		Retained		Comprehensive		Stockholders’
(Dollars in thousands, except per share data)		Stock		Capital		Earnings		Income/ (Loss)		Equity
Balances at January 1, 2020		$	34,970	$	586,622	$	515,714	$	(4,332)	$	1,132,974
	Net income/ (loss)		-		-		(4,351)		-		(4,351)
	Other comprehensive income, net of tax		-		-		-		19,156		19,156
Common stock dividends - $0.60 per share			-		-		(24,748)		-		(24,748)
Stock compensation expense			-		1,792		-		-		1,792
Common stock issued pursuant to:
	Revere Bank acquisition - 12,768,949 shares		12,769		276,320		-		-		289,089
	Stock option plan - 8,638 shares		9		138		-		-		147
	Conversion of Revere stock options - 395,298 options		-		3,611		-		-		3,611
	Employee stock purchase plan - 28,815 shares		29		756		-		-		785
	Restricted stock, net - 44,578 shares		44		(481)		-		-		(437)
Adoption of ASC 326 - Financial Instruments - Credit Losses			-		-		(2,223)		-		(2,223)
Repurchase of common stock - 820,328 shares			(820)		(24,882)		-		-		(25,702)
Balances at June 30, 2020		$	47,001	$	843,876	$	484,392	$	14,824	$	1,390,093

Balances at January 1, 2019		$	35,531	$	606,573	$	441,553	$	(15,754)	$	1,067,903
	Net income		-		-		58,593		-		58,593
	Other comprehensive income, net of tax		-		-		-		12,189		12,189
Common stock dividends - $0.58 per share			-		-		(20,757)		-		(20,757)
Stock compensation expense			-		1,473		-		-		1,473
Common stock issued pursuant to:
	Director's stock purchase plan - 867 shares		1		29		-		-		30
	Stock option plan - 10,897 shares		11		213		-		-		224
	Employee stock purchase plan - 17,666 shares		17		475		-		-		492
	Restricted stock, net - 54,789 shares		55		(757)		-		-		(702)
Balances at June 30, 2019		$	35,615	$	608,006	$	479,389	$	(3,565)	$	1,119,445


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. (the “Company” or “Sandy Spring”), a Maryland corporation, is the bank holding company for Sandy Spring Bank (the “Bank”). Independent and community-oriented, Sandy Spring Bank 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. Sandy Spring 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 and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for any future periods or for the year ending December 31, 2020. In the opinion of management, all adjustments necessary for a fair presentation of the results of the interim periods have been included. Certain reclassifications have been made to prior period amounts, as necessary, to conform to the current period presentation. 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 2019 Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on February 21, 2020. The Company adopted ASC 326 – Financial Instruments – Credit Losses during the first quarter of 2020. There have been no other significant changes to any of the Company’s accounting policies as disclosed in the 2019 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 18 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 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/ (Loss). 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 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, a subsidiary of the Bank, 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 and deferred fees and costs. Interest income on loans is accrued at the contractual rate based on the principal 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.

The Company has provided short term deferrals of loan principal and/or interest payments up to 180 days for customers who are affected by the COVID-19 pandemic. Customers receiving payment deferrals must meet certain criteria, such as being in good standing and not more than 30 days past due prior to the pandemic. In most cases, the deferred principal and/or interest amounts will be collected at the end of the life of the loan and will not accrue additional interest. The granting of a deferral of principal and/or interest under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act does not subject the loan to the past due, non-accrual, or troubled debt restructurings (“TDR”) policies described below. The following discussions of past due, non-accrual, and TDR policies remain valid for situations not covered by the CARES Act.

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. Payments received on non-accrual loans when doubt about the ultimate collectability of the principal no longer exists may have their interest payments recorded as interest income on a cash basis or using the cost-recovery method with all payments applied to reduce the outstanding principal 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 credit market for loans with comparable risk.

In accordance with provisions of the CARES Act and interagency guidance issued by the federal banking agencies, the Company does not classify COVID-19 short term loan modifications as TDRs, nor are the customers considered delinquent with regard to their delayed payments. Upon exiting the loan modification deferral program, the measurement of loan delinquency will resume where it was determined upon entry into the program.

Allowance for Credit Losses

The allowance for credit losses (“allowance” or “ACL”) represents an amount which, in management's judgment, is adequate to absorb 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 operating expense.

Determination of the adequacy 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 concentrations of the loan portfolio, expected changes to the economic forecasts, large relationships, early delinquencies, and factors related to credit administrations, 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 4 – Loans for more details on management’s discussion of 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 or Beacon Scores ranges. 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. At initial adoption of the accounting standard for current expected credit losses (“CECL”), management opted for the application of the reasonable and supportable forecast period of two years under stable economic conditions. During the first quarter of 2020, the reasonable and supportable forecast period was adjusted to one year, due to deteriorated economic conditions and the inherent uncertainty in the future economic outlook. 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 number of 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, 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.

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.

The adoption of CECL guidance did not result in a significant change to any other credit risk management and monitoring processes, including identification of past due or delinquent borrowers, non-accrual practices, assessment of troubled debt restructurings or charge-off policy.

Acquired Loans

Loans acquired in connection with acquisitions are recorded at their acquisition-date fair value. The allowance for credit losses related to the acquired loan portfolio is not carried over. Acquired loans are classified into two categories based on the credit risk characteristics of the underlying borrowers as either purchased credit deteriorated (“PCD”) loans, or loans with no evidence of credit deterioration (“non-PCD”).

PCD loans are defined as a loan or group of loans that have experienced more-than-insignificant credit deterioration since the origination date. The Company uses a combination of an individual and pooled review approaches to determine if acquired loans are PCD. At acquisition, the Company considers a number of factors to determine if an acquired loan or pool of loans has experienced more-than-insignificant credit deterioration. These factors include:

 loans classified as non-accrual,

 loans with risk rating of special mention or worse,

 loans with multiple risk rating downgrades since origination,

 loans with evidence of being 60 days or more past due,

 loans previously modified in a troubled debt restructuring,

 loans that received an interest only or payment deferral modification, and

 loans in industries that show evidence of additional risk due to economic conditions.

The initial allowance related to PCD loans that share similar risk characteristics is established using a pooled approach. The Company uses either a discounted cash flow or weighted average remaining life method to determine the required level of the allowance. PCD loans that were classified as non-accrual as of the acquisition date are assessed for allowance on an individual basis.

For PCD loans, an initial allowance is established on the acquisition date by grossing up the fair value of the loan, which represents an acquisition date amortized cost. Accordingly, no provision for credit losses is recognized on PCD loans at the acquisition date. Subsequent to the acquisition date, the initial allowance on PCD loans will increase or decrease based on future evaluations, with changes recognized in the provision for credit losses.

Non-PCD loans are pooled into segments together with originated loans that share similar risk characteristics and have an allowance established on the acquisition date, which is recognized in the current period provision for credit losses.

Determining the fair value of the acquired loans involves estimating the principal and interest payment cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. Management considers a number of factors in evaluating the acquisition-date fair value including the remaining life, interest rate profile, market interest rate environment, payment schedules, risk ratings, probability of default and loss given default, and estimated prepayment rates. For PCD loans, the non-credit discount or premium is allocated to individual loans as determined by the difference between the loan’s unpaid principal balance and amortized cost basis. The non-credit premium or discount is recognized into interest income on a level yield basis over the remaining expected life of the loan. For non-PCD loans, the fair value discount or premium is allocated to individual loans and recognized into interest income on a level yield basis over the remaining expected life of the loan.

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.

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 lease commencement date, initial direct costs, any lease incentives received and any favorable or unfavorable fair value adjustments on acquired leases. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. 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, 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. The Company has established a cross-functional working group to guide the Company’s transition from LIBOR and has begun efforts to transition to alternative rates consistent with industry timelines. The Company has identified its products that utilize 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 a new rates.

In December 2019, FASB released ASU 2019-12 - Income Taxes (Topic 740), which simplifies the accounting for income taxes by removing multiple exceptions to the general principals in Topic 740. The standard is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020. The Company is in the process of reviewing the impact of adopting this standard on the Company’s Condensed Consolidated Financial Statements.

Note 2 – Acquisition of revere bank

On April 1, 2020 (“Acquisition Date”), the Company completed the acquisition of Revere Bank (“Revere”), a Maryland chartered commercial bank, in accordance with the definitive agreement that was entered on September 23, 2019 by and among the Company, the Bank and Revere. In connection with the completion of the merger, former Revere shareholders received 1.05 shares of Sandy Spring common stock for each share of Revere common stock they held. Based on the $22.64 per share closing price of Sandy Spring common stock on March 31, 2020, and including the fair value of options converted or cashed-out, the total transaction value was approximately $293 million. Upon completion of the acquisition, Sandy Spring shareholders owned approximately 74 percent of the combined company, and former Revere shareholders owned approximately 26 percent.

As of March 31, 2020, Revere, headquartered in Rockville, MD, had more than $2.8 billion in assets and operated 11 full-service community banking offices throughout the Washington D.C. metropolitan region.

The acquisition of Revere was accounted for as a business combination using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration paid are recorded at estimated fair values on the Acquisition Date. The provisional amount of goodwill recognized as of the Acquisition Date was approximately $0.8 million. The Company will continue to keep the measurement period open for certain accounts, including loans, core deposit intangible, and deferred tax assets, where its review procedures of any updated information related to the transaction are ongoing. If considered necessary, additional adjustments to the fair value measurement of these accounts will be made until all information is finalized, the Company’s review procedures are complete, and the measurement period is closed. Any subsequent adjustments to the fair values of assets acquired and liabilities assumed, identifiable intangible assets, or other purchase accounting adjustments, as discussed above, will result in adjustments to goodwill within the first 12 months following the Acquisition Date. The goodwill is not expected to be deductible for tax purposes.

The consideration paid for Revere’s common equity and outstanding stock options and the provisional fair values of acquired identifiable assets and assumed identifiable liabilities as of the Acquisition Date were as follows:

(In thousands)			April 1, 2020
Purchase price:
Fair value of common shares issued (12,768,949 shares) based on Sandy Spring's share price of $22.64		$	289,089
Fair value of Revere stock options converted to Sandy Spring stock options			3,611
Cash paid for cashed-out Revere stock options			291
Cash for fractional shares			11
	Total purchase price	$	293,002

Identifiable assets:
Cash and cash equivalents		$	80,768
Investments available-for-sale			180,752
Loans			2,502,244
Premises and equipment			3,443
Accrued interest receivable			7,651
Core deposit intangible asset			18,360
Other assets			52,812
	Total identifiable assets	$	2,846,030

Identifiable liabilities:
Deposits		$	2,322,422
Borrowings			205,514
Other liabilities			25,931
	Total identifiable liabilities	$	2,553,867

Provisional fair value of net assets acquired including identifiable intangible assets			292,163
Provisional resulting goodwill		$	839

Note 3 – Investments

Investments available-for-sale

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

			June 30, 2020								December 31, 2019
					Gross		Gross		Estimated				Gross		Gross		Estimated
			Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
(In thousands)			Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
U.S. treasuries and government agencies			$	171,465	$	1,126	$	(4,519)	$	168,072	$	260,294	$	887	$	(2,686)	$	258,495
State and municipal				289,513		8,194		(127)		297,580		229,309		4,377		(37)		233,649
Mortgage-backed and asset-backed				852,063		26,021		(129)		877,955		568,373		3,268		(882)		570,759
Corporate debt				12,131		64		(3)		12,192		9,100		452		-		9,552
Trust preferred				-		-		-		-		310		-		-		310
	Total debt securities			1,325,172		35,405		(4,778)		1,355,799		1,067,386		8,984		(3,605)		1,072,765
Marketable equity securities				-		-		-		-		568		-		-		568
		Total investments available-for-sale	$	1,325,172	$	35,405	$	(4,778)	$	1,355,799	$	1,067,954	$	8,984	$	(3,605)	$	1,073,333

Any unrealized losses in the U.S. treasuries and government agencies, state and municipal, mortgage-backed and asset-backed investment securities at June 30, 2020 are due to changes in interest rates and not credit-related events. As such, no allowance for credit losses is required at June 30, 2020. Unrealized losses on investment securities are expected to recover over time as these securities approach maturity.

The mortgage-backed securities portfolio at June 30, 2020 is composed entirely of either the most senior tranches of GNMA, FNMA or FHLMC collateralized mortgage obligations ($309.2 million), GNMA, FNMA or FHLMC mortgage-backed securities ($498.8 million) or SBA asset-backed securities ($70.0 million). The Company does not intend to sell these securities and has sufficient liquidity to hold these securities for an adequate period of time to allow for any anticipated recovery in fair value.

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

		June 30, 2020
						Continuous Unrealized
		Number				Losses Existing for:				Total
		of				Less than		More than		Unrealized
(Dollars in thousands)		Securities		Fair Value		12 months		12 months		Losses
U.S. treasuries and government agencies			8	$	90,594	$	1,437	$	3,082	$	4,519
State and municipal			13		35,194		127		-		127
Mortgage-backed and asset-backed			29		29,634		93		36		129
Corporate debt			1		508		3		-		3
	Total		51	$	155,930	$	1,660	$	3,118	$	4,778

		December 31, 2019
						Continuous Unrealized
		Number				Losses Existing for:				Total
		of				Less than		More than		Unrealized
(Dollars in thousands)		Securities		Fair Value		12 months		12 months		Losses
U.S. treasuries and government agencies			12	$	151,132	$	2,211	$	475	$	2,686
State and municipal			3		7,227		37		-		37
Mortgage-backed and asset-backed			35		184,784		508		374		882
	Total		50	$	343,143	$	2,756	$	849	$	3,605

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

		June 30, 2020
		One Year		One to		Five to		After Ten
(In thousands)		or less		Five Years		Ten Years		Years		Total
U.S. treasuries and government agencies		$	52,841	$	18,052	$	-	$	97,179	$	168,072
State and municipal			27,442		56,893		59,014		154,231		297,580
Mortgage-backed and asset-backed			2		22,202		60,454		795,297		877,955
Corporate debt			-		-		12,192		-		12,192
	Total available-for-sale debt securities	$	80,285	$	97,147	$	131,660	$	1,046,707	$	1,355,799

		December 31, 2019
		One Year		One to		Five to		After Ten
(In thousands)		or less		Five Years		Ten Years		Years		Total
U.S. treasuries and government agencies		$	69,799	$	96,709	$	-	$	91,987	$	258,495
State and municipal			33,311		76,723		75,820		47,795		233,649
Mortgage-backed and asset-backed			852		7,125		55,226		507,556		570,759
Corporate debt			-		-		9,552		-		9,552
Trust preferred			-		-		-		310		310
	Total available-for-sale debt securities	$	103,962	$	180,557	$	140,598	$	647,648	$	1,072,765

At June 30, 2020 and December 31, 2019, investments available-for-sale with a book value of $484.4 million and $424.8 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 June 30, 2020 and December 31, 2019.

Equity securities

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

(In thousands)		June 30, 2020		December 31, 2019
Federal Reserve Bank stock		$	38,650	$	22,559
Federal Home Loan Bank of Atlanta stock			29,526		29,244
Marketable equity securities			677		-
	Total equity securities	$	68,853	$	51,803

Note 4 – LOANS

Outstanding loan balances at June 30, 2020 and December 31, 2019, are net of unearned income, including net deferred loan fees of $31.9 million and $1.8 million, respectively. Net deferred loan fees at June 30, 2020, includes $28.9 million 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)		June 30, 2020		December 31, 2019
Residential real estate:
	Residential mortgage	$	1,211,745	$	1,149,327
	Residential construction		169,050		146,279
Commercial real estate:
	Commercial owner-occupied real estate		1,601,803		1,288,677
	Commercial investor real estate		3,581,778		2,169,156
	Commercial AD&C		997,423		684,010
Commercial business			2,222,810		801,019
Consumer			558,434		466,764
	Total loans	$	10,343,043	$	6,705,232

The fair value of the financial assets acquired in the Revere acquisition included loans receivable with a gross amortized cost basis of $2.5 billion. Of the loans acquired, the Company identified $974.8 million of loans that were classified as PCD. An initial allowance for credit losses of $18.6 million was recorded through a gross up adjustment to fair values of PCD loans. A fair value premium related to other factors totaled $4.5 million and will amortize to interest income over the remaining life of each loan. Total fair value of PCD loans as of the Acquisition Date was $960.7 million. Of the PCD loans, $11.3 million were non-accruing at the time of acquisition. Refer to Note 1 for more details on factors considered in the PCD assessment.

Non-PCD loans totaled $1.5 billion and had a net fair value premium of $2.1 million, which will amortize to interest income over the remaining life of each loan. See Note 1 for more information on the Company’s accounting policy for acquired loans and Note 2 for more information on the Revere acquisition.

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 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.

 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 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 primary source of repayment for this type of loan is the cash flow from the business and is based upon the borrower’s financial health and the ability of the borrower and the business to repay.

 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.

 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.

 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.

Note 5 – CREDIT QUALITY ASSESSMENT

The Company completed implementation of the CECL standard during the first quarter of 2020. The new guidance requires additional disclosures and introduces certain changes to definitions previously used under allowance for loan losses guidance. Accordingly, the following sections present separate disclosures compliant with the new and the legacy disclosure requirements.

Allowance for Credit Losses

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

			Six Months Ended June 30,
(In thousands)			2020		2019
Balance at beginning of period			$	56,132	$	53,486
	Initial allowance on PCD loans at adoption of ASC 326			2,762		-
	Transition impact of adopting ASC 326			2,983		-
	Initial allowance on acquired Revere PCD loans			18,628		-
	Provision for credit losses			83,155		1,505
	Loan charge-offs			(1,039)		(1,197)
	Loan recoveries			860		230
		Net charge-offs		(179)		(967)
Balance at period end			$	163,481	$	54,024

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

(In thousands)		June 30, 2020		December 31, 2019
Collateral dependent loans individually evaluated for credit loss with an allowance		$	28,461	$	15,333
Collateral dependent loans individually evaluated for credit loss without an allowance			32,067		9,440
	Total individually evaluated collateral dependent loans	$	60,528	$	24,773

Allowance for credit losses related to loans evaluated individually		$	8,827	$	5,501
Allowance for credit losses related to loans evaluated collectively			154,654		50,631
	Total allowance for credit losses	$	163,481	$	56,132

The below section presents allowance for credit losses disclosures in line with the new CECL disclosure requirements.

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

		For the Six Months Ended June 30, 2020
				Commercial Real Estate								Residential Real Estate
								Commercial
		Commercial		Commercial		Commercial		Owner-				Residential		Residential
(Dollars in thousands)		Business		AD&C		Investor R/E		Occupied R/E		Consumer		Mortgage		Construction		Total
Balance at beginning of period		$	11,395	$	7,590	$	18,407	$	6,884	$	2,086	$	8,803	$	967	$	56,132
Initial allowance on PCD loans at adoption of ASC 326			1,549		-		1,114		-		99		-		-		2,762
Transition impact of adopting ASC 326			2,988		2,576		(3,125)		387		820		(388)		(275)		2,983
Initial allowance on acquired Revere PCD loans			6,289		1,248		7,973		2,782		87		243		6		18,628
Provision for credit losses			36,060		7,604		22,567		8,627		3,460		4,166		671		83,155
Charge-offs			(339)		-		-		-		(286)		(414)		-		(1,039)
Recoveries			694		-		4		-		93		66		3		860
	Net recoveries (charge-offs)		355		-		4		-		(193)		(348)		3		(179)
Balance at end of period		$	58,636	$	19,018	$	46,940	$	18,680	$	6,359	$	12,476	$	1,372	$	163,481

Total loans		$	2,222,810	$	997,423	$	3,581,778	$	1,601,803	$	558,434	$	1,211,745	$	169,050	$	10,343,043
Allowance for credit losses to total loans ratio			2.64%		1.91%		1.31%		1.17%		1.14%		1.03%		0.81%		1.58%

Balance of loans individually evaluated for credit loss		$	20,953	$	2,957	$	27,257	$	6,729	$	1,282	$	1,350	$	-	$	60,528
Allowance related to loans evaluated individually		$	5,488	$	635	$	2,573	$	32	$	99	$	-	$	-	$	8,827
Individual allowance to loans evaluated individually ratio			26.19%		21.47%		9.44%		0.48%		7.72%		-		-		14.58%

Balance of loans collectively evaluated for credit loss		$	2,201,857	$	994,466	$	3,554,521	$	1,595,074	$	557,152	$	1,210,395	$	169,050	$	10,282,515
Allowance related to loans evaluated collectively		$	53,148	$	18,383	$	44,367	$	18,648	$	6,260	$	12,476	$	1,372	$	154,654
Collective allowance to loans evaluated collectively ratio			2.41%		1.85%		1.25%		1.17%		1.12%		1.03%		0.81%		1.50%

The following table presents collateral dependent loans individually evaluated for credit loss with the associated allowances for credit losses by the applicable portfolio segment:

			June 30, 2020
					Commercial Real Estate								Residential Real Estate
									Commercial
					Commercial		Commercial		Owner-				Residential		Residential
(In thousands)			Commercial		AD&C		Investor R/E		Occupied R/E		Consumer		Mortgage		Construction		Total
Loans individually evaluated for credit loss with an allowance:

		Non-accruing	$	7,851	$	2,957	$	14,291	$	746	$	99	$	-	$	-	$	25,944
		Restructured accruing		570		-		-		-		-		-		-		570
		Restructured non-accruing		1,096		-		735		116		-		-		-		1,947
	Balance		$	9,517	$	2,957	$	15,026	$	862	$	99	$	-	$	-	$	28,461

	Allowance		$	5,488	$	635	$	2,573	$	32	$	99	$	-	$	-	$	8,827

Loans individually evaluated for credit loss without an allowance:

		Non-accruing	$	10,266	$	-	$	11,456	$	4,529	$	819	$	6	$	-	$	27,076
		Restructured accruing		137		-		775		-		-		1,071		-		1,983
		Restructured non-accruing		1,033		-		-		1,338		364		273		-		3,008
	Balance		$	11,436	$	-	$	12,231	$	5,867	$	1,183	$	1,350	$	-	$	32,067

Total individually evaluated loans:
		Non-accruing	$	18,117	$	2,957	$	25,747	$	5,275	$	918	$	6	$	-	$	53,020
		Restructured accruing		707		-		775		-		-		1,071		-		2,553
		Restructured non-accruing		2,129		-		735		1,454		364		273		-		4,955
	Balance		$	20,953	$	2,957	$	27,257	$	6,729	$	1,282	$	1,350	$	-	$	60,528

Total unpaid contractual principal balance
Total unpaid contractual principal balance			$	24,131	$	2,957	$	33,150	$	10,337	$	1,554	$	2,743	$	-	$	74,872

The following table presents average principal balance of total non-accrual loans, contractual interest due and interest income recognized on a cash basis on non-accrual loans for the periods indicated below:

	June 30, 2020
			Commercial Real Estate								Residential Real Estate
							Commercial
			Commercial		Commercial		Owner-					Residential		Residential
(In thousands)	Commercial		AD&C		Investor R/E		Occupied R/E		Consumer			Mortgage		Construction		Total
Average non-accrual loans for the period	$	14,023	$	1,538	$	20,744	$	4,984	$	6,165		$	12,221	$	-	$	59,675
Contractual interest income due on non-accrual loans during the period	$	570	$	37	$	984	$	238	$	214		$	348	$	-	$	2,391
Interest income on non-accrual loans recognized on a cash basis	$	75	$	-	$	279	$	82	$	83		$	163	$	-	$	682

Loans designated as non-accrual have all previously accrued but unpaid interest reversed from interest income. During the six months ended June 30, 2020 new loans placed on non-accrual status totaled $29.7 million and the related amount of reversed uncollected accrued interest was $0.3 million.

The below section presents historical allowance for loan losses disclosures in line with the legacy disclosure requirements.

The following table provides information on the activity in the allowance for loan losses by the respective loan portfolio segment for the period indicated:

		For the Year Ended December 31, 2019
				Commercial Real Estate								Residential Real Estate
								Commercial
		Commercial		Commercial		Commercial		Owner-				Residential		Residential
(Dollars in thousands)		Business		AD&C		Investor R/E		Occupied R/E		Consumer		Mortgage		Construction		Total
Balance at beginning of period		$	11,377	$	5,944	$	17,603	$	6,307	$	2,113	$	8,881	$	1,261	$	53,486
Provision (credit)			1,164		1,418		788		577		565		474		(302)		4,684
Charge-offs			(1,195)		-		-		-		(783)		(690)		-		(2,668)
Recoveries			49		228		16		-		191		138		8		630
	Net recoveries (charge-offs)		(1,146)		228		16		-		(592)		(552)		8		(2,038)
Balance at end of period		$	11,395	$	7,590	$	18,407	$	6,884	$	2,086	$	8,803	$	967	$	56,132

Total loans		$	801,019	$	684,010	$	2,169,156	$	1,288,677	$	466,764	$	1,149,327	$	146,279	$	6,705,232
Allowance for loan losses to total loans ratio			1.42%		1.11%		0.85%		0.53%		0.45%		0.77%		0.66%		0.84%

Balance of loans specifically evaluated for impairment		$	8,867	$	829	$	9,212	$	4,148		na.	$	1,717	$	-	$	24,773
Allowance for loans specifically evaluated for impairment		$	3,817	$	132	$	1,529	$	23		na.	$	-	$	-	$	5,501
Specific allowance to specific loans ratio			43.05%		15.92%		16.60%		0.55%		na.		-		-		22.21%

Balance of loans collectively evaluated		$	789,613	$	683,181	$	2,150,400	$	1,284,529	$	465,771	$	1,147,602	$	146,279	$	6,667,375
Allowance for loans collectively evaluated		$	7,578	$	7,458	$	16,878	$	6,861	$	2,086	$	8,803	$	967	$	50,631
Collective allowance to collective loans ratio			0.96%		1.09%		0.78%		0.53%		0.45%		0.77%		0.66%		0.76%

Balance of loans acquired with deteriorated credit quality		$	2,539	$	-	$	9,544	$	-	$	993	$	8	$	-	$	13,084
Allowance for loans acquired with deteriorated credit quality		$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Allowance to loan acquired with deteriorated credit quality ratio			-		-		-		-		-		-		-		-

The following tables present the recorded investment with respect to impaired loans, the associated allowance by the applicable portfolio segment and the unpaid contractual principal balance of the impaired loans:

			December 31, 2019
					Commercial Real Estate								Total Recorded
									Commercial		All		Investment in
					Commercial		Commercial		Owner-		Other		Impaired
(In thousands)			Commercial		AD&C		Investor R/E		Occupied R/E		Loans		Loans
Impaired loans with a specific allowance:
		Non-accruing	$	5,608	$	829	$	5,448	$	767	$	-	$	12,652
		Restructured accruing		266		-		-		-		-		266
		Restructured non-accruing		1,856		-		437		122		-		2,415
	Balance		$	7,730	$	829	$	5,885	$	889	$	-	$	15,333

	Allowance		$	3,817	$	132	$	1,529	$	23	$	-	$	5,501

Impaired loans without a specific allowance:
		Non-accruing	$	114	$	-	$	2,552	$	1,522	$	-	$	4,188
		Restructured accruing		151		-		775		-		1,444		2,370
		Restructured non-accruing		872		-		-		1,737		273		2,882
	Balance		$	1,137	$	-	$	3,327	$	3,259	$	1,717	$	9,440

Total impaired loans:
		Non-accruing	$	5,722	$	829	$	8,000	$	2,289	$	-	$	16,840
		Restructured accruing		417		-		775		-		1,444		2,636
		Restructured non-accruing		2,728		-		437		1,859		273		5,297
	Balance		$	8,867	$	829	$	9,212	$	4,148	$	1,717	$	24,773

Unpaid principal balance in total impaired loans			$	11,296	$	829	$	13,805	$	6,072	$	2,618	$	34,620


	December 31, 2019
			Commercial Real Estate								Total Recorded
							Commercial		All		Investment in
			Commercial		Commercial		Owner-		Other		Impaired
(In thousands)	Commercial		AD&C		Investor R/E		Occupied R/E		Loans		Loans
Average impaired loans for the period	$	7,781	$	2,052	$	7,565	$	4,390	$	1,577	$	23,365
Contractual interest income due on impaired loans during the period	$	648	$	127	$	786	$	258	$	128	$	1,947
Interest income on impaired loans recognized on a cash basis	$	221	$	-	$	49	$	187	$	8	$	465
Interest income on impaired loans recognized on an accrual basis	$	62	$	-	$	39	$	-	$	68	$	169

Credit Quality

The following section provides information on the credit quality of the loan portfolio under the new CECL disclosure requirements:

		June 30, 2020
				Commercial Real Estate								Residential Real Estate
								Commercial
				Commercial		Commercial		Owner-				Residential		Residential
(In thousands)		Commercial		AD&C		Investor R/E		Occupied R/E		Consumer		Mortgage		Construction		Total
Analysis of non-accrual loan activity:
	Balance at beginning of period	$	8,450	$	829	$	8,437	$	4,148	$	4,107	$	12,661	$	-	$	38,632
	PCD loans designated as non-accrual (1)		2,539		-		9,544		-		993		8		-		13,084
	Loans placed on non-accrual		10,988		2,128		8,974		3,426		3,248		894		-		29,658
	Non-accrual balances transferred to OREO		-		-		-		-		-		-		-		-
	Non-accrual balances charged-off		(335)		-		-		-		(56)		(346)		-		(737)
	Net payments or draws		(1,396)		-		(473)		(845)		(392)		(635)		-		(3,741)
	Non-accrual loans brought current		-		-		-		-		(100)		(858)		-		(958)
Balance at end of period		$	20,246	$	2,957	$	26,482	$	6,729	$	7,800	$	11,724	$	-	$	75,938
(1) Upon the adoption of the CECL standard, the Company transitioned from closed pool level accounting for PCI loans during the first quarter of 2020. Non-accrual loans are determined based on
the individual loan level and aggregated for reporting.

		June 30, 2020
				Commercial Real Estate								Residential Real Estate
								Commercial
				Commercial		Commercial		Owner-				Residential		Residential
(In thousands)		Commercial		AD&C		Investor R/E		Occupied R/E		Consumer		Mortgage		Construction		Total
Performing loans:
	Current	$	2,199,853	$	993,831	$	3,545,235	$	1,591,953	$	544,808	$	1,186,122	$	166,727	$	10,228,529
	30-59 days		1,871		635		5,040		2,606		4,354		11,361		1,295		27,162
	60-89 days		133		-		3,471		-		1,472		1,329		1,028		7,433
	Total performing loans		2,201,857		994,466		3,553,746		1,594,559		550,634		1,198,812		169,050		10,263,124
Non-performing loans:
	Non-accrual loans		20,246		2,957		26,482		6,729		7,800		11,724		-		75,938
	Loans greater than 90 days past due		-		-		775		515		-		138		-		1,428
	Restructured loans		707		-		775		-		-		1,071		-		2,553
	Total non-performing loans		20,953		2,957		28,032		7,244		7,800		12,933		-		79,919
	Total loans	$	2,222,810	$	997,423	$	3,581,778	$	1,601,803	$	558,434	$	1,211,745	$	169,050	$	10,343,043

The following table provides information about credit quality indicators by the year of origination:

		June 30, 2020
		Term Loans by Origination Year												Revolving
(In thousands)		2020		2019		2018		2017		2016		Prior		Loans		Total
	Commercial:
	Pass	$	1,153,740	$	209,016	$	161,601	$	105,160	$	48,788	$	96,078	$	411,354	$	2,185,737
	Special Mention		-		3,486		1,448		995		1,669		1,316		4,004		12,918
	Substandard		803		1,078		3,074		1,171		2,157		3,182		3,148		14,613
	Doubtful		120		1,107		1,075		128		1,387		2,144		3,581		9,542
	Total	$	1,154,663	$	214,687	$	167,198	$	107,454	$	54,001	$	102,720	$	422,087	$	2,222,810

	Commercial AD&C:
	Pass	$	299,178	$	298,554	$	203,852	$	96,783	$	14,003	$	4,711	$	74,572	$	991,653
	Special Mention		-		-		1,074		636		-		-		-		1,710
	Substandard		-		2,128		730		100		-		1,102		-		4,060
	Doubtful		-		-		-		-		-		-		-		-
	Total	$	299,178	$	300,682	$	205,656	$	97,519	$	14,003	$	5,813	$	74,572	$	997,423

	Commercial Investor R/E:
	Pass	$	463,624	$	806,877	$	485,477	$	517,520	$	522,261	$	720,158	$	17,957	$	3,533,874
	Special Mention		3,819		775		14,421		952		-		1,295		-		21,262
	Substandard		347		3,031		-		6,839		697		15,728		-		26,642
	Doubtful		-		-		-		-		-		-		-		-
	Total	$	467,790	$	810,683	$	499,898	$	525,311	$	522,958	$	737,181	$	17,957	$	3,581,778

	Commercial Owner-Occupied R/E:
	Pass	$	142,813	$	373,413	$	233,852	$	203,929	$	211,171	$	408,793	$	1,630	$	1,575,601
	Special Mention		1,140		2,124		2,823		3,854		1,321		5,971		-		17,233
	Substandard		-		978		601		465		397		6,239		-		8,680
	Doubtful		-		-		-		-		-		289		-		289
	Total	$	143,953	$	376,515	$	237,276	$	208,248	$	212,889	$	421,292	$	1,630	$	1,601,803

	Consumer:
	Beacon score:
	660-850	$	1,566	$	6,449	$	6,584	$	2,822	$	3,394	$	32,412	$	438,778	$	492,005
	600-659		320		519		171		167		981		7,594		20,773		30,525
	540-599		3		518		232		226		667		3,734		6,472		11,852
	less than 540		133		851		323		1,007		918		3,430		17,390		24,052
	Total	$	2,022	$	8,337	$	7,310	$	4,222	$	5,960	$	47,170	$	483,413	$	558,434

	Residential Mortgage:
	Beacon score:
	660-850	$	93,464	$	64,690	$	191,410	$	231,236	$	169,283	$	317,589	$	-	$	1,067,672
	600-659		1,619		12,324		12,827		13,561		10,103		25,926		-		76,360
	540-599		835		2,249		6,669		4,376		4,032		14,405		-		32,566
	less than 540		7,114		1,856		5,448		2,104		2,540		16,085		-		35,147
	Total	$	103,032	$	81,119	$	216,354	$	251,277	$	185,958	$	374,005	$	-	$	1,211,745

	Residential Construction:
	Beacon score:
	660-850	$	49,670	$	82,559	$	24,294	$	4,135	$	1,630	$	-	$	-	$	162,288
	600-659		798		536		-		-		-		-		-		1,334
	540-599		-		2,122		-		-		369		-		-		2,491
	less than 540		2,937		-		-		-		-		-		-		2,937
	Total	$	53,405	$	85,217	$	24,294	$	4,135	$	1,999	$	-	$	-	$	169,050

	Total loans	$	2,224,043	$	1,877,240	$	1,357,986	$	1,198,166	$	997,768	$	1,688,181	$	999,659	$	10,343,043

The following section provides historical information on the credit quality of the loan portfolio under the legacy disclosure requirements:

		December 31, 2019
				Commercial Real Estate								Residential Real Estate
								Commercial
				Commercial		Commercial		Owner-				Residential		Residential
(In thousands)		Commercial		AD&C		Investor R/E		Occupied R/E		Consumer		Mortgage		Construction		Total
Non-performing loans and assets:
	Non-accrual loans	$	8,450	$	829	$	8,437	$	4,148	$	4,107	$	12,661	$	-	$	38,632
	Loans 90 days past due		-		-		-		-		-		-		-		-
	Restructured loans		417		-		775		-		364		1,080		-		2,636
Total non-performing loans			8,867		829		9,212		4,148		4,471		13,741		-		41,268
	Other real estate owned		39		665		409		-		64		305		-		1,482
Total non-performing assets		$	8,906	$	1,494	$	9,621	$	4,148	$	4,535	$	14,046	$	-	$	42,750

			December 31, 2019
					Commercial Real Estate								Residential Real Estate
									Commercial
					Commercial		Commercial		Owner-				Residential		Residential
(In thousands)			Commercial		AD&C		Investor R/E		Occupied R/E		Consumer		Mortgage		Construction		Total
Past due loans:
	30-59 days		$	908	$	-	$	932	$	316	$	2,697	$	14,853	$	280	$	19,986
	60-89 days			370		-		-		-		1,517		4,541		1,334		7,762
	> 90 days			-		-		-		-		-		-		-		-
		Total past due		1,278		-		932		316		4,214		19,394		1,614		27,748
	Non-accrual loans			8,450		829		8,437		4,148		4,107		12,661		-		38,632
	Loans acquired with deteriorated credit quality			2,539		-		9,544		-		993		8		-		13,084
	Current loans			788,752		683,181		2,150,243		1,284,213		457,450		1,117,264		144,665		6,625,768
		Total loans	$	801,019	$	684,010	$	2,169,156	$	1,288,677	$	466,764	$	1,149,327	$	146,279	$	6,705,232

		December 31, 2019
				Commercial Real Estate
								Commercial
				Commercial		Commercial		Owner-
(In thousands)		Commercial		AD&C		Investor R/E		Occupied R/E		Total
	Pass	$	783,909	$	683,181	$	2,146,971	$	1,278,337	$	4,892,398
	Special Mention		2,487		-		3,189		2,284		7,960
	Substandard		14,623		829		18,996		8,056		42,504
	Doubtful		-		-		-		-		-
Total		$	801,019	$	684,010	$	2,169,156	$	1,288,677	$	4,942,862

			December 31, 2019
					Residential Real Estate
					Residential		Residential
(In thousands)			Consumer		Mortgage		Construction		Total
	Performing		$	462,293	$	1,135,586	$	146,279	$	1,744,158
	Non-performing:
		90 days past due		-		-		-		-
		Non-accruing		4,107		12,661		-		16,768
		Restructured loans		364		1,080		-		1,444
Total			$	466,764	$	1,149,327	$	146,279	$	1,762,370

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 Six Months Ended June 30, 2020
				Commercial Real Estate
								Commercial		All
				Commercial		Commercial		Owner-		Other
(In thousands)		Commercial		AD&C		Investor R/E		Occupied R/E		Loans		Total
Troubled debt restructurings:
	Restructured accruing	$	322	$	-	$	-	$	-	$	-	$	322
	Restructured non-accruing		-		-		347		760		-		1,107
Balance		$	322	$	-	$	347	$	760	$	-	$	1,429

Specific allowance		$	80	$	-	$	60	$	40	$	-	$	180

Restructured and subsequently defaulted		$	-	$	-	$	-	$	-	$	-	$	-

		For the Year Ended December 31, 2019
				Commercial Real Estate
								Commercial		All
				Commercial		Commercial		Owner-		Other
(In thousands)		Commercial		AD&C		Investor R/E		Occupied R/E		Loans		Total
Troubled debt restructurings:
	Restructured accruing	$	170	$	-	$	775	$	-	$	364	$	1,309
	Restructured non-accruing		261		-		789		-		-		1,050
Balance		$	431	$	-	$	1,564	$	-	$	364	$	2,359

Specific allowance		$	196	$	-	$	205	$	-	$	-	$	401

Restructured and subsequently defaulted		$	-	$	-	$	-	$	-	$	-	$	-

During the six months ended June 30, 2020, the Company restructured $1.4 million in loans that were designated as TDRs. TDRs are subject to periodic credit reviews to determine the necessity and adequacy of an individual loan loss allowance based on the collectability of the recorded investment in the restructured loan. Loans restructured as TDRs during the six months ended June 30, 2020 had individual reserves of $0.2 million. For the year ended December 31, 2019, the Company restructured $2.4 million in loans. Loans restructured as TDRs during 2019 had individual reserves of $0.4 million at December 31, 2019. During both the six months ended June 30, 2020 and for the year ended December 31, 2019 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 June 30, 2020 and December 31, 2019 were not significant.

Other Real Estate Owned

Other real estate owned totaled $1.4 million and $1.5 million at June 30, 2020 and December 31, 2019, respectively. There were noconsumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of June 30, 2020.

Note 6 – Goodwill and Other Intangible Assets

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

		June 30, 2020						Weighted		December 31, 2019						Weighted
		Gross				Net		Average		Gross				Net		Average
		Carrying		Accumulated		Carrying		Remaining		Carrying		Accumulated		Carrying		Remaining
(Dollars in thousands)		Amount		Amortization		Amount		Life		Amount		Amortization		Amount		Life
Amortizing intangible assets:
Core deposit intangibles		$	29,038	$	(5,399)	$	23,639	9.0	years	$	10,678	$	(3,689)	$	6,989	8.0	years
Other identifiable intangibles			13,906		(1,402)		12,504	11.2	years		1,478		(626)		852	9.7	years
	Total amortizing intangible assets	$	42,944	$	(6,801)	$	36,143			$	12,156	$	(4,315)	$	7,841

Goodwill		$	370,547			$	370,547			$	347,149			$	347,149

The table above reflects an additional $18.4 million in core deposit intangible asset related to the Revere acquisition that will amortize over 9.67 years.

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

		Community				Investment
(In thousands)		Banking		Insurance		Management		Total
Balance December 31, 2019	$	331,173	$	6,788	$	9,188	$	347,149
Acquisition of Rembert Pendleton Jackson		-		-		22,559		22,559
Acquisition of Revere Bank		839		-		-		839
Balance June 30, 2020	$	332,012	$	6,788	$	31,747	$	370,547

The table above includes the estimated amount of goodwill resulting from the Revere acquisition that was recorded as of June 30, 2020, and is subject to further revision. See Note 2 for additional information on the Revere acquisition.

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

(In thousands)		Amount
Remaining for 2020		$	3,622
2021			6,600
2022			5,845
2023			5,089
2024			4,333
Thereafter			10,654
	Total amortizing intangible assets	$	36,143

Note 7 – Deposits

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

(In thousands)				June 30, 2020		December 31, 2019
Noninterest-bearing deposits				$	3,434,038	$	1,892,052
Interest-bearing deposits:
	Demand				1,142,475		836,433
	Money market savings				2,945,990		1,839,593
	Regular savings				387,636		329,919
	Time deposits of less than $100,000				585,539		463,431
	Time deposits of $100,000 or more				1,581,156		1,078,891
		Total interest-bearing deposits			6,642,796		4,548,267
			Total deposits	$	10,076,834	$	6,440,319

The table above includes $2.3 billion of deposits added from the Revere acquisition, including approximately $752.4 million of certificates of deposit with a fair value premium adjustment of $14.7 million amortizing over a total life of 5 years.

Note 8 – BORROWINGS

Subordinated Debt

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., the Company assumed $25.0 million in subordinated debt with an associated purchase premium at acquisition of $2.2 million, which will be amortized over the contractual life of the obligation. The subordinated debt has a ten year term, maturing on October 15, 2025, is non-callable until October 15, 2020 and currently bears a fixed interest rate of 6.00% per annum, payable semi-annually. Beginning on October 5, 2020, the interest rate resets quarterly to an amount equal to 3 month LIBOR plus 467 basis points. The entire amount of the subordinated debt is considered Tier 2 capital under current regulatory guidelines.

Also in conjunction with the acquisition of WashingtonFirst Bankshares, Inc., the Company also assumed $10.3 million in callable junior subordinated debt securities with an associated purchase premiums at acquisition of $0.1 million that will amortize over the contractual life of the obligation. During the first quarter of 2020, the Company redeemed all $10.3 million of the outstanding principal balance of the callable junior subordinated debt securities.

In conjunction with the acquisition of Revere, the Company assumed $31.0 million in subordinated debt with an associated purchase premium at acquisition of $0.2 million, which will be amortized through the call date. The subordinated debt has a ten year term, maturing on September 30, 2026, is non-callable until September 30, 2021, and currently bears a fixed interest rate of 5.625% per annum, payable semi-annually. Beginning on October 1, 2021, the interest rate resets quarterly to an amount equal to 3 month LIBOR plus 441 basis points. The entire amount of the subordinated debt is considered Tier 2 capital under current regulatory guidelines.

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

(In thousands)		June 30, 2020		December 31, 2019
Subordinated debt		$	231,000	$	200,000
	Add: Purchase accounting premium		2,052		1,894
	Less: Debt issuance costs		(2,751)		(2,885)
Trust preferred capital notes			-		10,310
	Add: Purchase accounting premium		-		87
Total subordinated debt		$	230,301	$	209,406

Other Borrowings

At June 30, 2020 and December 31, 2019, the Company had $143.6 million and $138.6 million, respectively, of outstanding retail repurchase agreements. The Company did not have any outstanding federal funds purchased at June 30, 2020 and had $75million of outstanding federal funds purchased at December 31, 2019. At June 30, 2020 the Company had $845.0 million in Paycheck Protection Program Liquidity Facility borrowings outstanding, which were borrowed to facilitate funding for PPP loans issued during the period.

At June 30, 2020 and December 31, 2019, the Company had $451.8 million and $513.8 million, respectively, of advances from the Federal Home Loan Bank of Atlanta (“FHLB”). During the second quarter of 2020, the Company assumed $168.4 million of FHLB advances in connection with the acquisition of Revere, with a fair value premium of $5.8 million recorded at acquisition. During the quarter ended June 30, 2020, the Company prepaid $115.4 million of the acquired advances and recognized a prepayment penalty of $5.9 million, which is reflected in Other expenses in the Condensed Consolidated Statements of Income/ (Loss). Also in connection with the prepayment, the Company recognized the remaining unamortized fair value premium of $5.8 million on those prepaid advances, which is reflected in Interest on advances from FHLB in the Condensed Consolidated Statements of Income/ (Loss). The remaining $53.0 million of acquired Revere FHLB advances, which were not prepaid, matured during the quarter ended June 30, 2020.

At June 30, 2020, the Company had an available line of credit with the FHLB under which its borrowings are limited to $2.4 billion based on pledged collateral at prevailing market interest rates, with $451.8 million borrowed against it at June 30, 2020. At December 31, 2019, lines of credit totaled $2.4 billion based on pledged collateral with $513.8 million borrowed against the line. Under a blanket lien, the Company has pledged qualifying residential mortgage loans amounting to $993.4 million, commercial real estate loans amounting to $1.9 billion, home equity lines of credit (“HELOC”) amounting to $236.4 million, and multifamily loans amounting to $157.1 million at June 30, 2020, as collateral under the borrowing agreement with the FHLB. At December 31, 2019 the Company had pledged collateral of qualifying mortgage loans of $1.0 billion, commercial real estate loans of $1.9 billion, HELOC loans of $266.8 million, and multifamily loans of $109.7 million under the FHLB borrowing agreement. The Company also had lines of credit available from the Federal Reserve and correspondent banks of $383.5 million and $463.3 million at June 30, 2020 and December 31, 2019,

respectively, collateralized by loans. In addition, the Company had unsecured lines of credit with correspondent banks of $880.0 million and $730.0 million at June 30, 2020 and December 31, 2019, respectively. At June 30, 2020, the Company did not have any outstanding borrowings against these unsecured lines of credit.

Note 9 – Stockholders’ Equity

The Company’s Board of Directors approved a stock repurchase plan in December 2018 that permits the repurchase of up to 1,800,000 shares of common stock. For the six months ended June 30, 2020, the Company repurchased and retired 820,328 shares of its common stock at an average price of $31.33 per share. The Company did not repurchase shares during the three months ended June 30, 2020. Cumulatively under the program, as of June 30, 2020, the Company has repurchased and retired 1,488,519 common shares for the total cost of $50.0 million under the current repurchase plan.

On April 1, 2020, to facilitate the acquisition of Revere and as previously approved by the Company’s Board of Directors, the Company issued an additional 12,768,949 shares of the Company’s common stock at $22.64 per share. See to Note 2 for more information on the acquisition of Revere.

Note 10 – Share Based Compensation

At June 30, 2020, 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 906,405 are available for issuance at June 30, 2020, has a term of ten 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 to ten years from the date of grant. 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 $1.0 million and $0.7 million for the three months ended June 30, 2020 and 2019, respectively, and of $1.8 million and $1.4 million, for the six months ended June 30, 2020 and 2019, respectively, related to the awards of stock options, restricted stock grants, restricted stock unit grants and performance share unit grants. The total of unrecognized compensation cost related to stock options was not significant as of June 30, 2020, and is expected to be recognized within one year. The fair value of the options vested during the six months ended June 30, 2020 and 2019, was $0.1 million and $0.2 million, respectively. The total of unrecognized compensation cost related to restricted stock was approximately $10.2 million as of June 30, 2020. That cost is expected to be recognized over a weighted average period of approximately 3.0 years.

The Company granted a total of 64,829 restricted shares, restricted stock units and performance share units during the three months ended June 30, 2020, of which 4,694 units are subject to achievement of certain performance conditions measured over a three year performance period and 60,135 shares or units subject to a three- or five-year vesting schedule. During the six months ended June 30, 2020, the Company granted 246,015 restricted shares, restricted stock units and performance share units, of which 44,905 units are subject to achievement of certain performance conditions measured over a three year performance period and 201,110 shares or units subject to a three- or five-year vesting schedule. The Company did not grant any stock options during the six months ended June 30, 2020, however, the Company issued 395,298 stock options at a weighted average grant-date fair value of $9.14, due to a conversion of stock options held prior to the Acquisition Date by Revere employees. The fair value of the options issued were considered part of the consideration transferred and were therefore recorded as an adjustment to goodwill. See Note 2 for more information on the acquisition of Revere.

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

				Weighted
	Number	Weighted		Average	Aggregate
	of	Average		Contractual	Intrinsic
	Common	Exercise		Remaining	Value
	Shares	Share Price		Life (Years)	(in thousands)
Balance at January 1, 2020	65,279	$	31.34		$	485
Granted	-	$	-
Converted options from Revere acquisition	395,298	$	12.27
Exercised	(8,638)	$	17.00		$	104
Forfeited	(573)	$	39.31
Expired	(703)	$	28.26
Balance at June 30, 2020	450,663	$	14.88	3.4	$	4,930

Exercisable at June 30, 2020	445,707	$	14.62	3.4	$	4,930

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	Weighted
	of	Average
	Common	Grant-Date
	Shares/Units	Fair Value
Non-vested at January 1, 2020	226,502	$	35.43
Granted	246,015	$	25.82
Vested	(63,840)	$	34.34
Forfeited	(7,461)	$	46.90
Non-vested at June 30, 2020	401,216	$	29.50

Note 11 – 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.

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

		Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)		2020		2019		2020		2019
Interest cost on projected benefit obligation		$	359	$	402	$	719	$	804
Expected return on plan assets			(456)		(412)		(912)		(824)
Recognized net actuarial loss			219		265		437		530
	Net periodic benefit cost	$	122	$	255	$	244	$	510

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. After consideration of these factors, the Company has not made a contribution during the six months ended June 30, 2020. Management continues to monitor the funding level of the Plan and may make additional contributions as necessary during 2020.

Note 12 – Net Income/ (LOSS) per Common Share

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

			Three Months Ended June 30,				Six Months Ended June 30,
(Dollars and amounts in thousands, except per share data)			2020		2019		2020		2019
Net income/ (loss)			$	(14,338)	$	28,276	$	(4,351)	$	58,593

Basic:
Basic weighted average EPS shares				46,988		35,862		40,827		35,816

		Basic net income/ (loss) per share	$	(0.31)	$	0.79	$	(0.11)	$	1.64

Diluted:
Basic weighted average EPS shares				46,988		35,862		40,827		35,816
Dilutive common stock equivalents				-		28		-		50
	Dilutive EPS shares			46,988		35,890		40,827		35,866

		Diluted net income/ (loss) per share	$	(0.31)	$	0.79	$	(0.11)	$	1.63

Anti-dilutive shares				56		10		16		11

The calculation of diluted net income per share for the three and six months ended June 30, 2020, excludes 138,549 and 161,483, respectively, of potentially incremental common shares that are antidilutive due to the net loss for those periods.

NOTE 13 – ACCUMULATED OTHER COMPREHENSIVE INCOME/ (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 available-for-sale debt securities and any minimum pension liability adjustments.

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

	Unrealized Gains
	on Investments		Defined Benefit
(In thousands)	Available-for-Sale		Pension Plan		Total
Balance at January 1, 2020	$	4,000	$	(8,332)	$	(4,332)
Other comprehensive income before reclassification, net of tax		19,114		-		19,114
Reclassifications from accumulated other comprehensive income, net of tax		(284)		326		42
Current period change in other comprehensive income, net of tax		18,830		326		19,156
Balance at June 30, 2020	$	22,830	$	(8,006)	$	14,824

	Unrealized Gains/
	(Losses) on
	Investments		Defined Benefit
(In thousands)	Available-for-Sale		Pension Plan		Total
Balance at January 1, 2019	$	(6,630)	$	(9,124)	$	(15,754)
Other comprehensive income before reclassification, net of tax		11,802		-		11,802
Reclassifications from accumulated other comprehensive income, net of tax		(4)		391		387
Current period change in other comprehensive income, net of tax		11,798		391		12,189
Balance at June 30, 2019	$	5,168	$	(8,733)	$	(3,565)

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

				Six Months Ended June 30,
(In thousands)				2020		2019
Unrealized gains on investments available-for-sale:
	Affected line item in the Statements of Income/ (Loss):
	Investment securities gains			$	381	$	5
	Income before taxes				381		5
	Tax expense				(97)		(1)
	Net income			$	284	$	4

Amortization of defined benefit pension plan items:
	Affected line item in the Statements of Income/ (Loss):
		Recognized actuarial loss⁽¹⁾		$	(437)	$	(530)
			Loss before taxes		(437)		(530)
			Tax benefit		111		139
			Net loss	$	(326)	$	(391)
(1) This amount is included in the computation of net periodic benefit cost. See Note 11.

NOTE 14 – 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.

At June 30, 2020, ROU assets and lease liabilities totaled $70.2 million and $81.2 million, respectively. For the three and six months ended June 30, 2020, the Company recognized total operating lease expense in the amount of $3.4 million and $6.1 million, respectively, compared to $2.8 million and $5.7 million, respectively, for the three and six months ended June 30, 2019. Cash paid for amounts included in the measurement of lease liabilities for the three and six months ended June 30, 2020, was $3.3 million and $6.0 million, respectively, compared to $2.2 million and $4.3 million, respectively, for the three and six months ended June 30, 2019, and is included in net cash provided by operating activities in our Condensed Consolidated Statements of Cash Flows.

The Company added two locations from the acquisition of RPJ during the first quarter of 2020. The associated new ROU asset obtained in exchange for lease obligations totaled $0.3 million.

On April 1, 2020, in conjunction with the acquisition of Revere, the Company added 15 additional operating leases (at 12 locations), one of which is expected to commence operations in 2021. The associated new ROU asset of $7.4 million obtained in exchange for lease obligations of $8.7 million was recorded at the close of the acquisition. The ROU asset recorded at acquisition included $1.1 million for acquisition related unfavorable fair value marks and a tenant allowance of $0.2 million. During the current quarter, subsequent to and resulting from the acquisition, the Company determined that due to market overlap and other synergies, the Company would more-likely-than-not terminate seven of the acquired leases, comprising of six branch locations and one office space location, prior to the end of 2020. The decision resulted in an impairment charge of $2.3 million, which was recorded to merger and acquisition expense in the Condensed Consolidated Statements of Income/ (Loss). The Company estimated the fair value of the leases to be equal to the cash payments remaining between the impairment date and the anticipated abandonment date.

At June 30, 2020, the maturities of the Company’s operating lease liabilities were as follows:

(In thousands)	Amount
Maturity:
Remaining for 2020	$	6,701
2021		12,879
2022		11,361
2023		11,193
2024		9,113
Thereafter		44,407
Total undiscounted lease payments		95,654
Less: Present value discount		(14,439)
Lease Liability	$	81,215

At June 30, 2020, the weighted average remaining lease term was 9.6 years and the weighted average operating discount rate used to determine the operating lease liability was 3.07%.

The Company recognized a lease liability of $2.1 million and ROU asset of $1.4 million for one additional operating lease that has not yet commenced operations at June 30, 2020 and is expected to commence operations in 2021. This ROU asset includes approximately $0.2 million of tenant allowance for improvements to the space and $0.5 million for an acquisition related unfavorable fair value market adjustment. The Company does not have any lease arrangements with any of its related parties as of June 30, 2020.

Note 15 – 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 $234.7 million with a fair value of $10.8 million as of June 30, 2020 compared to $204.7 million with a fair value of $2.5 million as of December 31, 2019. The swap positions are offset to minimize the potential impact on the Company’s financial statements. Fair values of the swaps are carried as both gross assets and gross liabilities 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/ (Loss).

Note 16 – 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 17 – 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

Mortgage loans held for sale

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

Investments available-for-sale

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 conditions databases coupled with extensive quality control programs. Multiple quality control evaluation processes review available market, credit and deal level information to support the evaluation of the security. If there is a lack of objectively verifiable information available to support the valuation, the evaluation of the security is discontinued. 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 generally classified within Level 2 of the fair value hierarchy.

State and municipal securities

Proprietary valuation matrices are used for valuing all tax-exempt municipals that can incorporate changes in the municipal market as they occur. Market evaluation models include the ability to value bank qualified municipals and general market municipals that can be broken down further according to insurer, credit support, state of issuance and rating to incorporate additional spreads and municipal curves. Taxable municipals are valued using a third party model that incorporates a methodology that captures the trading nuances associated with these bonds. Such instruments are generally classified within Level 2 of the fair value hierarchy.

Interest rate swap agreements

Interest rate swap agreements are measured by alternative pricing sources with reasonable levels of price transparency in markets that are not active. 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 markets do however have comparable, observable inputs in which an alternative pricing source values these assets in order to arrive at a fair market value. These characteristics classify interest rate swap agreements as Level 2.

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:

			June 30, 2020
			Quoted Prices in				Significant
			Active Markets for		Significant Other		Unobservable
			Identical Assets		Observable Inputs		Inputs
(In thousands)			(Level 1)		(Level 2)		(Level 3)		Total
Assets:
	Residential mortgage loans held for sale		$	-	$	68,765	$	-	$	68,765
	Investments available-for-sale:
		U.S. treasuries and government agencies		-		168,072		-		168,072
		State and municipal		-		297,580		-		297,580
		Mortgage-backed and asset-backed		-		877,955		-		877,955
		Corporate debt		-		-		12,192		12,192
		Marketable equity securities		-		677		-		677
	Interest rate swap agreements			-		10,804		-		10,804

Liabilities:
	Interest rate swap agreements		$	-	$	(10,804)	$	-	$	(10,804)

			December 31, 2019
			Quoted Prices in				Significant
			Active Markets for		Significant Other		Unobservable
			Identical Assets		Observable Inputs		Inputs
(In thousands)			(Level 1)		(Level 2)		(Level 3)		Total
Assets:
	Residential mortgage loans held for sale		$	-	$	53,701	$	-	$	53,701
	Investments available-for-sale:
		U.S. treasuries and government agencies		-		258,495		-		258,495
		State and municipal		-		233,649		-		233,649
		Mortgage-backed and asset-backed		-		570,759		-		570,759
		Corporate debt		-		-		9,552		9,552
		Trust preferred		-		-		310		310
		Marketable equity securities		-		568		-		568
	Interest rate swap agreements			-		2,507		-		2,507

Liabilities:
	Interest rate swap agreements		$	-	$	(2,507)	$	-	$	(2,507)

The following table provides a change in the fair value of assets measured in the Condensed Consolidated Statements of Condition at fair value with significant unobservable inputs (Level 3) on a recurring basis for the period indicated:

			Significant
			Unobservable
			Inputs
(In thousands)			(Level 3)
Investments available-for-sale:
	Balance at January 1, 2020		$	9,862
		Additions of Level 3 assets		3,050
		Sales of Level 3 assets		(329)
		Total unrealized loss included in other comprehensive income/ (loss)		(391)
	Balance at June 30, 2020		$	12,192

Assets Measured at Fair Value on a Nonrecurring Basis

The following table sets 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:

		June 30, 2020
		Quoted Prices in		Significant
		Active Markets		Other		Significant
		for Identical		Observable		Unobservable
(In thousands)		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Total		Total Losses
Loans		$	-	$	-	$	6,636	$	6,636	$	(6,814)
Other real estate owned			-		-		1,671		1,671		(282)
	Total	$	-	$	-	$	8,307	$	8,307	$	(7,096)

		December 31, 2019
		Quoted Prices in		Significant
		Active Markets		Other		Significant
		for Identical		Observable		Unobservable
(In thousands)		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Total		Total Losses
Loans		$	-	$	-	$	6,886	$	6,886	$	(6,299)
Other real estate owned			-		-		1,482		1,482		(281)
	Total	$	-	$	-	$	8,368	$	8,368	$	(6,580)

At June 30, 2020, loans totaling $60.5 million were written down to fair value of $51.7 million as a result of individual credit loss allowances of $8.8 million associated with the collateral dependent loans. Loans totaling $24.8 million were written down to fair value of $19.3 million at December 31, 2019 as a result of individual credit loss allowances of $5.5 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.

Other real estate owned (“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
		June 30, 2020				Quoted Prices in
				Estimated		Active Markets for		Significant Other		Significant
		Carrying		Fair		Identical Assets		Observable Inputs		Unobservable Inputs
(In thousands)		Amount		Value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
	Other equity securities	$	68,853	$	68,853	$	-	$	68,853	$	-
	Loans, net of allowance		10,179,562		10,327,479		-		-		10,327,479
	Other assets (1)		125,477		125,477		-		125,477		-

Financial liabilities:
	Time deposits	$	2,166,695	$	2,194,176	$	-	$	2,194,176	$	-
	Securities sold under retail repurchase agreements and
	federal funds purchased		988,605		988,722		-		988,722		-
	Advances from FHLB		451,844		467,759		-		467,759		-
	Subordinated debentures		230,301		231,114		-		-		231,114

	(1) Includes bank owned life insurance products.

						Fair Value Measurements
		December 31, 2019				Quoted Prices in
				Estimated		Active Markets for		Significant Other		Significant
		Carrying		Fair		Identical Assets		Observable Inputs		Unobservable Inputs
(In thousands)		Amount		Value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
	Other equity securities	$	51,803	$	51,803	$	-	$	51,803	$	-
	Loans, net of allowance		6,649,100		6,628,054		-		-		6,628,054
	Other assets (1)		113,171		113,171		-		113,171		-

Financial liabilities:
	Time deposits	$	1,542,322	$	1,547,116	$	-	$	1,547,116	$	-
	Securities sold under retail repurchase agreements and
	federal funds purchased		213,605		213,605		-		213,605		-
	Advances from FHLB		513,777		520,729		-		520,729		-
	Subordinated debentures		209,406		200,864		-		-		200,864

	(1) Includes bank owned life insurance products.

Note 18 - 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 Sandy Spring 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 is related to this segment. Beginning on April 1, 2020, the Community Banking segment includes the impact from the Revere acquisition. 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 $1.3 million and $0.4 million for the three months ended June 30, 2020 and 2019, respectively, and were $1.7 million and $0.9 million for the six months ended June 30, 2020 and 2019, respectively.

The Insurance segment is conducted through Sandy Spring Insurance, a subsidiary of the Bank. Sandy Spring Insurance 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 not significant for the three and six months ended June 30, 2020 and 2019.

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 $2.9 billion in combined assets under management as of June 30, 2020. 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 $0.7 million and $0.9 million for the three and six months ended June 30, 2020, and were not significant for the same periods in the prior year.

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

	Three Months Ended June 30, 2020
	Community				Investment		Inter-Segment
(In thousands)	Banking		Insurance		Management		Elimination		Total
Interest income	$	114,929	$	1	$	-	$	(3)	$	114,927
Interest expense		13,416		-		-		(3)		13,413
Provision for credit losses		58,686		-		-		-		58,686
Non-interest income		19,253		1,198		2,693		(220)		22,924
Non-interest expense		82,410		1,275		1,973		(220)		85,438
Income/ (loss) before income taxes		(20,330)		(76)		720		-		(19,686)
Income tax expense/ (benefit)		(5,517)		(21)		190		-		(5,348)
Net income/ (loss)	$	(14,813)	$	(55)	$	530	$	-	$	(14,338)


Assets	$	13,281,483	$	10,537	$	55,319	$	(56,892)	$	13,290,447

	Three Months Ended June 30, 2019
	Community				Investment		Inter-Segment
(In thousands)	Banking		Insurance		Management		Elimination		Total
Interest income	$	87,214	$	1	$	3	$	(4)	$	87,214
Interest expense		21,033		-		-		(4)		21,029
Provision for credit losses		1,633		-		-		-		1,633
Non-interest income		12,856		1,269		2,597		(166)		16,556
Non-interest expense		40,859		1,304		1,890		(166)		43,887
Income/ (loss) before income taxes		36,545		(34)		710		-		37,221
Income tax expense/ (benefit)		8,769		(8)		184		-		8,945
Net income/ (loss)	$	27,776	$	(26)	$	526	$	-	$	28,276


Assets	$	8,398,263	$	11,552	$	20,253	$	(31,549)	$	8,398,519

	Six Months Ended June 30, 2020
	Community				Investment		Inter-Segment
(In thousands)	Banking		Insurance		Management		Elimination		Total
Interest income	$	198,786	$	4	$	2	$	(7)	$	198,785
Interest expense		32,944		-		-		(7)		32,937
Provision for credit losses		83,155		-		-		-		83,155
Non-interest income		33,230		3,327		4,959		(424)		41,092
Non-interest expense		127,065		2,739		3,804		(424)		133,184
Income/ (loss) before income taxes		(11,148)		592		1,157		-		(9,399)
Income tax expense/ (benefit)		(5,516)		164		304		-		(5,048)
Net income/ (loss)	$	(5,632)	$	428	$	853	$	-	$	(4,351)

Assets	$	13,281,483	$	10,537	$	55,319	$	(56,892)	$	13,290,447

	Six Months Ended June 30, 2019
	Community				Investment		Inter-Segment
(In thousands)	Banking		Insurance		Management		Elimination		Total
Interest income	$	175,397	$	2	$	5	$	(7)	$	175,397
Interest expense		42,469		-		-		(7)		42,462
Provision for credit losses		1,505		-		-		-		1,505
Non-interest income		25,563		3,173		5,122		(333)		33,525
Non-interest expense		82,070		2,724		3,618		(333)		88,079
Income before income taxes		74,916		451		1,509		-		76,876
Income tax expense		17,762		127		394		-		18,283
Net income	$	57,154	$	324	$	1,115	$	-	$	58,593

Assets	$	8,398,263	$	11,552	$	20,253	$	(31,549)	$	8,398,519

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

The Company

Sandy Spring Bancorp, Inc. (the “Company") 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 June 30, 2020, the Company had $13.3 billion in assets which increased during the current quarter by approximately $4.4 billion. The April 1, 2020 acquisition of Revere Bank (“Revere”) was responsible for $2.8 billion of this growth and participation in the Paycheck Protection Program (“PPP” or “PPP program”) was responsible for an additional $1.1 billion in asset growth. The Company, which began operating in 1988, is registered as a bank holding company pursuant to the Bank Holding Company Act of 1956, as amended. As such, the Company is subject to supervision and regulation by the Board of Governors of the Federal Reserve System (the "Federal Reserve").

The Bank traces its origin to 1868, making it among the oldest institutions in the region. Independent and community-oriented, Sandy Spring Bank 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, West Financial Services, Inc. and Rembert Pendleton and Jackson (”RPJ”), Sandy Spring 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. The Bank's deposit accounts 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.

Beginning in 2018, the Company has completed a series of strategic acquisitions in its market area. The Company completed the acquisition of Revere, headquartered in Rockville, Maryland on April 1, 2020 (“Acquisition Date”). The acquisition resulted in the addition of 11 banking offices and more than $2.8 billion in assets as of the Acquisition Date. At the Acquisition Date, Revere had loans of $2.5 billion and deposits of $2.3 billion. The all-stock transaction resulted in the issuance of 12.8 million common shares and was valued at approximately $293 million. In addition, on February 1, 2020 the Company acquired RPJ, a wealth advisory firm located in Falls Church, Virginia with approximately $1.5 billion in assets under management on the date the acquisition closed. During 2018, the Company completed the acquisition of WashingtonFirst Bankshares, Inc., the parent company for WashingtonFirst Bank (collectively referred to as “WashingtonFirst”). At the date of acquisition, WashingtonFirst had more than $2.1 billion in assets, loans of $1.7 billion and deposits of $1.6 billion. The all-stock transaction resulted in the issuance of 11.4 million common shares valued at approximately $447 million.

The results of operations from the Revere and RPJ acquisitions have been included in the consolidated results of operations from the date of the acquisitions. As a result of the growth, the statement of condition, interest and non-interest income and expense increased from the prior year’s quarter. Cost savings from the synergies resulting from the combination of the institutions are expected to be realized throughout 2020 and into 2021.

Current State and Response

The widespread outbreak of the novel coronavirus ("COVID-19" or “pandemic”) late in the first quarter of 2020 has profoundly affected, and will likely continue to adversely affect, the Company’s business, financial condition, and results of operations. This pandemic has resulted in negative impacts on economic and commercial activity and financial markets, both globally and within the United States. Within our market area, the governors of Maryland and Virginia and the mayor of the District of Columbia have issued directives that, among other things, advised residents to restrict their activities outside the home and permit them to conduct or participate in certain activities while observing specific guidelines and behaviors. Non-essential businesses continue to observe and modify their activities and behaviors to remain in compliance with the governmental directives while concurrently providing consumers with goods and services. These restrictions – and similar directives imposed across the United States to restrict the spread of COVID-19 – have resulted in significant business and operational disruptions, including business closures, supply chain disruptions, and layoffs and furloughs. Certain actions taken by U.S. or other governmental authorities, including the Federal Reserve, that are intended to ameliorate the macroeconomic effects of COVID-19 may cause additional harm to our business. Decreases in short-term interest rates, such as those announced by the Federal Reserve during the first fiscal quarter of 2020, have a negative impact on our results, as we have certain assets and liabilities that are sensitive to changes in interest rates. Management continually monitors developments, evaluates strategic and tactical initiatives and solutions and allocates the necessary resources to mitigate the

negative impact of this significant market disruption caused by the pandemic. For a description of the potential impacts of COVID-19 on the Company, see “Item 1A-Risk Factors.”

As an essential business, the Company has implemented business continuity plans and continues to provide financial services to clients. In response to COVID-19, the Company began implementing its business continuity plan in early March, which led to the implementation of numerous actions to address the health and safety of employees and clients and to assist clients that have been impacted by the pandemic. A substantial majority of non-branch employees continue to work remotely and clients are served at branches primarily through drive-thru facilities and limited lobby access. As area jurisdictions relax their stay at home orders, the Company is cautiously executing the first phase of its return to work plan.

The Company processed and approved over 5,100 PPP loans for a total of $1.1 billion at June 30, 2020 to assist borrowers in maintaining their payroll of an estimated 112,000 employees and cover applicable overhead. The Company funded the PPP loans with borrowings through the Federal Reserve’s Paycheck Protection Program Liquidity Facility (“PPPLF”). Loans under the PPP have an interest rate of 1.00% while the borrowings under the PPPLF bear interest at a rate of 0.35%. The Company received processing fees of approximately $34 million from the SBA that will be recognized over the life of the PPP loans.

As a further relief to qualified commercial, mortgage and consumer loan customers, the Company developed guidelines to provide for deferment of certain loan payments up to 180 days. From March through June 30, 2020, the Company granted approvals for payment modifications/deferrals on over 2,400 loans with an aggregate balance of $2.0 billion of which more than 1,500 loans with an aggregate balance of $1.5 billion were still in deferral as of June 30, 2020.

The Company made the decision to waive certain transaction fees, penalties on early certificate of deposit withdrawals and eliminate specific processing fees for business clients to ease their financial burden during the COVID-19 pandemic.

Current Quarter Financial Overview

As a result of a combination of merger and acquisition expense, the impact of the current economic forecast in the determination of the allowance for credit losses and the additional provision for credit losses associated with the acquisition of Revere, the Company recorded a $14.3 million net loss ($0.31 per share). The 2020 second quarter’s result compares to net income of $28.3 million ($0.79 per diluted share) for the second quarter of 2019 and $10.0 million ($0.28 per diluted share) for the first quarter of 2020.

Operating earnings on an after-tax basis for the current quarter, which exclude the impact of merger and acquisition expense, the provision for credit losses and the effects from the PPP program, were $42.0 million ($0.88 per diluted share), a 42% increase, compared to $29.5 million ($0.82 per diluted share) for the quarter ended June 30, 2019.

The current quarter’s results included $22.5 million for merger and acquisition expense related to the Revere acquisition. Additionally, earnings for the second quarter were negatively impacted by a $58.7 million provision for credit losses. Of this amount, approximately $33.8 million was related to the change in the current quarter’s economic forecast. In addition, as required by generally accepted accounting principles (“GAAP”), the initial allowance for credit losses on Revere’s acquired non-purchased credit deteriorated loans (“non-PCD” or “non-PCD loans”) was recognized through provision for credit losses in the amount of $17.5 million. Comparatively, the provision for credit losses for the first quarter of 2020 was $24.5 million. The Company’s participation in the PPP program and the associated funding program had a net positive impact of $4.1 million, net of tax, in the current quarter.

The second quarter’s results reflect the following events:

 Total assets at June 30, 2020, grew 58% to $13.3 billion compared to June 30, 2019, as a result of the Revere acquisition and participation in the PPP. Loans and deposits also each grew by 58%. Revere’s loans and deposits on the Acquisition Date were $2.5 billion and $2.3 billion, respectively. Additionally, the Company’s participation in the PPP resulted in the addition of $1.1 billion in commercial business loans during the second quarter of 2020.

 The net interest margin for the second quarter of 2020 was 3.47%, compared to 3.54% for the second quarter of 2019 and 3.29% for the first quarter of 2020. Excluding the impact of the amortization of the fair value marks derived from acquisitions, the current quarter’s net interest margin would have been 3.19%, compared to 3.49%

for the second quarter of 2019 and 3.27% for the first quarter of 2020.

 The provision for credit losses of $58.7 million for the second quarter reflected the change in economic forecast for the current quarter, resulting in an addition of $33.8 million, and the $17.5 million initial provision for credit losses on the acquired Revere non-PCD loans.

 Non-interest income increased 38% from the prior year quarter, driven by income from mortgage banking activities, which benefited from higher refinance activity, and growth in wealth management income as a result of the acquisition of RPJ in the first quarter of 2020.

 Non-interest expense grew 95% or $41.6 million from the prior year quarter. Excluding the impact of merger and acquisition expense and early prepayment of acquired FHLB advances, the year-over-year growth rate of in non-interest expense would have been 27%.

 Tangible book value per share declined by 4% to $20.61 at June 30, 2020 compared to $21.54 at June 30, 2019. During this period, the Company recorded additional goodwill and intangible assets in connection with the acquisitions of Revere and RPJ and, prior to the current quarter, repurchased $50 million of common stock.

Summary of Second Quarter Results

Balance Sheet and Credit Quality

Total assets grew 58% to $13.3 billion at June 30, 2020, as compared to $8.4 billion at June 30, 2019, primarily as a result of the acquisition of Revere during the current quarter. In addition, the Company’s participation in the PPP program had a further positive impact on the asset growth year-over-year. During this period, total loans grew by 58% to $10.3 billion at June 30, 2020, compared to $6.6 billion at June 30, 2019. Excluding PPP loans, total loans grew 42% to $9.3 billion at June 30, 2020. Commercial loans, excluding PPP loans, grew 58% or $2.7 billion while the remainder of the total loan portfolio grew 2%. The majority of the commercial loan growth was driven by the acquisition of Revere. The year-over-year decline in the mortgage loan portfolio resulted from mortgage loan refinance activity, driven by the low interest rate environment and the continued sale of the majority of new mortgage loan production. Consumer loans grew 14% due to the Revere acquisition. However, organic consumer loans experienced a 10% decline as borrowers eliminated their home equity borrowings through the refinancing of their associated mortgage loans. The investment portfolio grew to $1.4 billion at June 30, 2020 from $955.7 million at June 30, 2019 and remained level at 11% of total assets. The Company’s liquidity position continued to remain strong as a result of its operational cash flows, in addition to the available borrowing lines with the Federal Home Loan Bank of Atlanta (“FHLB”), the Federal Reserve Bank and other sources, and the size and composition of the available-for-sale investment portfolio. Deposit growth was 58% from June 30, 2020 to June 30, 2019, as noninterest-bearing deposits experienced growth of 70% and interest-bearing deposits grew 52%. This growth was driven by the combination of the Revere acquisition and the PPP program, as loan funds were placed into customer deposit accounts at the Bank. Stockholders’ equity grew 24% to $1.4 billion compared to June 30, 2019 due to the equity issuance associated with the Revere acquisition in addition to net earnings over the preceding twelve months. This growth occurred even as the Company repurchased $50 million in common stock and increased the dividend 7% during this period.

Tangible common equity increased to $968.6 million at June 30, 2020, compared to $767.0 million at June 30, 2019, as a result of the equity issuance associated with the Revere acquisition. The year-over-year change in tangible common equity also reflects the effects of the repurchase of $50 million of common stock, an increase in dividends beginning in the second quarter of 2019 and the increase in intangible assets and goodwill associated with the two acquisitions during the past twelve months. At June 30, 2020, the Company had a total risk-based capital ratio of 13.79%, a common equity tier 1 risk-based capital ratio of 10.23%, a tier 1 risk-based capital ratio of 10.23% and a tier 1 leverage ratio of 8.35%.

The level of non-performing loans to total loans increased to 0.77% at June 30, 2020, compared to 0.58% at June 30, 2019, and 0.80% at March 31, 2020. At June 30, 2020, non-performing loans totaled $79.9 million, compared to $37.7 million at June 30, 2019, and $54.0 million at March 31, 2020. Non-performing loans include accruing loans 90 days or more past due and restructured loans. The year-over-year growth in non-performing loans was driven by three major components: loans placed in non-accrual status, acquired Revere non-accrual loans, and loans previously accounted for as purchased credit impaired loans that have been designated as non-accrual loans as a result of the Company’s adoption of the accounting standard for expected credit losses at the beginning of the year. Loans placed on non-accrual during the current quarter amounted to $27.3 million compared to $3.4 million for the prior year quarter and $2.4 million for the first quarter of 2020. Acquired Revere non-accrual loans were $11.3 million. Excluding the impact of the acquisition of Revere, the current

quarter’s growth in non-accrual loans was primarily the result of three large relationships, none of which was the result of the COVID-19 pandemic.

The Company recorded net recoveries of $0.4 million for the second quarter of 2020 as compared to net charge-offs of $0.7 million and $0.5 million for the second quarter of 2019 and the first quarter of 2020, respectively.

The allowance for credit losses was $163.5 million or 1.58% of outstanding loans and 205% of non-performing loans at June 30, 2020, compared to $85.8 million or 1.28% of outstanding loans and 159% of non-performing loans at March 31, 2020. The acquisition of Revere’s PCD loans resulted in an increase to the allowance for credit losses of $18.6 million, which did not affect the current quarter’s provision expense. The remaining growth in the allowance was attributable to the provision for credit losses during the current quarter.

Quarterly Results of Operations

Net interest income for the second quarter of 2020 increased 53% compared to the second quarter of 2019, due to the acquisition of Revere. The PPP program and its associated funding contributed a net of $5.5 million to net interest income for the quarter. The net interest margin declined to 3.47% for the second quarter of 2020 compared to 3.54% for the second quarter of 2019. Excluding the net $8.3 million impact of the amortization of the fair value marks derived from acquisitions, the net interest margin would have been 3.19%. Included in the current quarter is the accelerated amortization of the $5.8 million purchase premium on FHLB advances as a result of the prepayment of those borrowings. The effect of the accelerated amortization accounts for approximately 20 basis points in the current quarter’s net interest margin.

The provision for credit losses was $58.7 million for the second quarter of 2020, compared to $1.7 million for the second quarter of 2019 and $24.5 million for the first quarter of 2020. The provision for credit losses during the quarter reflects the results of the impact of economic developments during the quarter ($33.8 million), the initial allowance required on non-purchased credit deteriorated loans ($17.5 million) and various qualitative adjustments to the allowance ($3.6 million). The change in the portfolio mix adjustments resulted in the remainder of provision increase for the period.

Non-interest income increased $6.4 million or 38% from the prior year quarter. Income from mortgage banking activities increased $5.2 million as a result of a high level of refinancing activity, while wealth management income increased $2.1 million as a result of the first quarter acquisition of RPJ. This growth more than compensated for the $1.4 million of the combined decline in service and bank card fees as compared to the prior year quarter as a result the decline in consumer activity and the decision to waive certain transaction fees to ease the burden of the pandemic on customers.

Non-interest expense grew 95% or $41.6 million from the prior year quarter. Merger and acquisition expense accounted for $22.5 million of the growth of non-interest expense. The non-interest expense growth also included $5.9 million in prepayment penalties from the liquidation of the acquired FHLB advances. Excluding the impact of these non-core expenses, the year-over-year growth rate would have been 27% as a result of the operational cost of the Revere and RPJ acquisitions, increased compensation expense related to the high level of mortgage loan originations and annual employee merit increases.

The GAAP efficiency ratio in the second quarter of 2020 was 68.66% compared to 53.04% for the second quarter of 2019, as non-interest expense increased due to merger and acquisition expense and the previously mentioned prepayment penalties on FHLB advances. The non-GAAP efficiency ratio was 43.85% for the current quarter as compared to 51.71% for the second quarter of 2019 and 54.76% for the first quarter of 2020. The decrease in the efficiency ratio (reflecting greater efficiency) from the second quarter of last year to the current year was the result of the rate of growth in non-GAAP revenue, at 50%, outpacing the non-GAAP non-interest expense growth of 27%.

Acquisition of Revere Bank

Revere was acquired on April 1, 2020 and had assets of $2.8 billion, loans of $2.5 billion and deposits of $2.3 billion. This acquisition resulted in the growth of the balance sheet, interest and non-interest income and expense from the prior year’s quarter. The Company identified $974.8 million of acquired loans that were classified as purchased credit deteriorated loans (“PCD” or “PCD loans”). An initial allowance for credit losses of $18.6 million was recorded through a gross up adjustment to fair values of PCD loans. A fair value premium related to other factors totaled $4.5 million and will amortize to interest income over the remaining life of each loan. As a result of these fair value marks, total fair value of PCD loans as of the Acquisition Date was $960.7 million. Of the PCD loans, $11.3 million were non-accruing at the time of acquisition. Refer to Note 1 for more details on factors considered in the PCD assessment. The amount of PCD loans was directly attributable to the current market conditions in the economy. Acquired loans that had not experienced a more-than-insignificant credit deterioration since origination totaled $1.5 billion. The Company recorded a net fair value premium of $2.1 million on

non-PCD loans, which will amortize to interest income over the remaining life of each loan. In addition, the acquired assets included a core deposit intangible asset valued at approximately $18.4 million. The determination of the fair value of interest-bearing liabilities resulted in a $20.8 million premium. The provisional amount of goodwill recognized as of the Acquisition Date was approximately $0.8 million.

The change in estimated goodwill from the time of announcement to the Acquisition Date is presented in the following table:

(In thousands)				Amount
Preliminary goodwill at transaction announcement				$	157,344
	Changes in consideration paid due to:
		Change in Sandy Spring share price			(151,614)
		Change in Revere shares			1,123
		Change in fair value of Revere options			(7,863)
		Cash paid for fractional shares			11
			Net change in consideration paid		(158,343)

	Changes in fair value of assets acquired due to:
		Cash and cash equivalents			(140,126)
		Investments available-for-sale			(1,944)
		Loans			139,873
		Fair value of loans			2,656
			Net change in loans		142,529
		Core deposit intangible asset			(4,370)
		Other assets			11,951
			Net change in assets		8,040

	Changes in fair value of liabilities assumed due to:
		Deposits			(29,739)
		Fair value of deposits			13,742
			Net change in deposits		(15,997)
		Advances from FHLB			19,973
		Fair value of advances from FHLB			2,820
			Net change in advances from FHLB		22,793
		Fair value of subordinated debt			449
		Other liabilities			2,633
			Net change in liabilities		9,878

	Net change in fair value of assets acquired and liabilities assumed				(1,838)
		Net change in preliminary goodwill			(156,505)
Provisional goodwill at transaction closing				$	839

Results of Operations

For the Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019

For the six months ended June 30, 2020, the Company recorded a $4.4 million net loss ($0.11 per share) as a result of the combination of merger and acquisition expense, the impact of the current economic forecast in the determination of the allowance for credit losses and the additional provision for credit losses associated with the Revere acquisition. The year-to-date 2020 result compares to net income of $58.6 million ($1.63 per diluted share) for the first six months of 2019.

The year-to-date pre-tax results included $23.9 million for merger and acquisition expense related to the 2020 acquisitions. Additionally, earnings were negatively impacted by an $83.2 million provision for credit losses. Of this amount, approximately $53.8 million was related to changes in the economic forecast during the first six months of 2020. In addition, as required by GAAP, the initial allowance for credit losses on Revere’s acquired non-purchased credit deteriorated loans was recognized through provision for credit losses in the amount of $17.5 million. The Company’s participation in the PPP and the associated funding program had a net positive impact of $5.5 million, year-to-date.

Operating earnings on an after-tax basis for the six months ended June 30, 2020, which exclude the impact of merger and acquisition expense, the provision for credit losses and the effects from the PPP program, were $71.3 million ($1.73 per diluted share), compared to $59.7 million ($1.66 per diluted share) for the six months ended June 30, 2019.

Net Interest Income

Net interest income for the first six months of 2020 was $165.8 million compared to $132.9 million for the first six months of 2019. On a tax-equivalent basis, net interest income for the first six months of 2020 was $168.3 million compared to $135.4 million for the first six months of 2019, a 24% increase driven primarily by the Revere acquisition. The growth in net interest income benefited from $8.7 million in net amortization of the fair value marks derived from acquisitions. The fair value marks resulted in a reduction in interest income of $0.1 million and a reduction of interest expense of $8.8 million. The majority of the decrease in interest expense was due to the impact of the $5.8 million in the accelerated premium amortization from the prepayment of the acquired FHLB advances. In addition to the impact of the amortization of the fair value marks on net interest income for the six months ended June 30, 2020, the PPP program generated interest income, net of its associated funding cost, of $5.5 million. Overall, year-to-date, interest income increased 13% while interest expense decreased 22%.

The following tables provide an analysis of net interest income performance that reflects a net interest margin that has declined to 3.39% for the first six months of 2020 compared to 3.58% for the first six months of 2019. Included in the current period is the accelerated amortization of the $5.8 million purchase premium on FHLB advances as a result of the prepayment of those borrowings. The positive effect of this accelerated amortization accounts for a 10 basis point benefit in the net interest margin for the six months ended June 30, 2020. Additionally, year-over-year, the average yield on earning assets declined 64 basis points while the average rate paid on interest-bearing liabilities declined 66 basis points resulting in margin compression. The current margin reflects the positive impact from the inclusion of the net $8.7 million amortization of the fair value marks derived from acquisitions. The exclusion of the impact of amortization of fair value marks and the net impact of the PPP program would have resulted in a net interest margin of 3.22%.

Consolidated Average Balances, Yields and Rates

	Six Months Ended June 30,
	2020						2019
					Annualized						Annualized
	Average		(1)		Average		Average		(1)		Average
(Dollars in thousands and tax-equivalent)	Balances		Interest		Yield/Rate		Balances		Interest		Yield/Rate
Assets:
Residential mortgage loans	$	1,174,176	$	22,000	3.75	%	$	1,237,241	$	23,759	3.84	%
Residential construction loans		154,122		3,252	4.24			181,864		3,836	4.25
Total mortgage loans		1,328,298		25,252	3.80			1,419,105		27,595	3.89
Commercial AD&C loans		814,372		19,215	4.74			681,271		20,148	5.96
Commercial investor real estate loans		2,825,672		63,691	4.53			1,962,799		50,086	5.15
Commercial owner occupied real estate loans		1,483,465		35,000	4.74			1,211,737		29,226	4.86
Commercial business loans		1,359,199		29,603	4.38			768,390		21,129	5.55
Total commercial loans		6,482,708		147,509	4.58			4,624,197		120,589	5.26
Consumer loans		520,524		10,497	4.06			510,411		12,665	5.00
Total loans (2)		8,331,530		183,258	4.42			6,553,713		160,849	4.94
Loans held for sale		44,171		696	3.15			27,537		573	4.17
Taxable securities		1,068,549		13,367	2.50			756,613		11,665	3.09
Tax-exempt securities (3)		220,286		3,561	3.23			231,161		4,132	3.57
Total investment securities (4)		1,288,835		16,928	2.63			987,774		15,797	3.20
Interest-bearing deposits with banks		293,001		335	0.23			53,543		622	2.34
Federal funds sold		338		1	0.53			624		6	1.97
Total interest-earning assets		9,957,875		201,218	4.06			7,623,191		177,847	4.70
Less: allowance for credit losses		(90,412)						(53,081)
Cash and due from banks		125,805						64,264
Premises and equipment, net		59,445						61,294
Other assets		747,127						580,933
Total assets	$	10,799,840					$	8,276,601

Liabilities and Stockholders' Equity:
Interest-bearing demand deposits	$	953,951		1,154	0.24	%	$	725,816		760	0.21	%
Regular savings deposits		349,155		146	0.08			332,138		211	0.13
Money market savings deposits		2,369,566		8,046	0.68			1,674,608		12,896	1.55
Time deposits		1,949,039		16,456	1.70			1,625,469		16,759	2.08
Total interest-bearing deposits		5,621,711		25,802	0.92			4,358,031		30,626	1.42
Other borrowings		475,386		1,180	0.50			164,043		688	0.85
Advances from FHLB		653,878		1,022	0.32			773,856		10,167	2.65
Subordinated debentures		218,508		4,933	4.52			37,394		981	5.25
Total borrowings		1,347,772		7,135	1.07			975,293		11,836	2.45
Total interest-bearing liabilities		6,969,483		32,937	0.95			5,333,324		42,462	1.61
Noninterest-bearing demand deposits		2,402,225						1,740,076
Other liabilities		167,834						116,945
Stockholders' equity		1,260,298						1,086,256
Total liabilities and stockholders' equity	$	10,799,840					$	8,276,601

Net interest income and spread				168,281	3.11	%				135,385	3.09	%
Less: tax-equivalent adjustment				2,433						2,450
Net interest income			$	165,848					$	132,935

Interest income/earning assets					4.06	%					4.70	%
Interest expense/earning assets					0.67						1.12
Net interest margin					3.39	%					3.58	%

(1) Tax-equivalent income has been adjusted using the combined marginal federal and state rate of 25.45% for both 2020 and 2019. The annualized taxable-equivalent
adjustments utilized in the above table to compute yields aggregated to $2.4 million and $2.5 million in 2020 and 2019, respectively.
(2) Non-accrual loans are included in the average balances.
(3) Includes investments that are exempt from federal and state taxes.
(4) Investments available-for-sale are presented at amortized cost.

Effect of Volume and Rate Changes on Net Interest Income

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

			2020 vs. 2019						2019 vs. 2018
			Increase						Increase
			Or		Due to Change In Average:*				Or		Due to Change In Average:*
(Dollars in thousands and tax equivalent)			(Decrease)		Volume		Rate		(Decrease)		Volume		Rate
Interest income from earning assets:
	Residential mortgage loans		$	(1,759)	$	(1,205)	$	(554)	$	3,964	$	3,075	$	889
	Residential construction loans			(584)		(575)		(9)		(207)		(540)		333
	Commercial AD&C loans			(933)		3,581		(4,514)		3,741		2,995		746
	Commercial investor real estate loans			13,605		20,181		(6,576)		3,997		150		3,847
	Commercial owner occupied real estate loans			5,774		6,504		(730)		4,659		3,566		1,093
	Commercial business loans			8,474		13,668		(5,194)		4,273		2,857		1,416
	Consumer loans			(2,168)		248		(2,416)		1,366		(536)		1,902
	Loans held for sale			123		287		(164)		(74)		(65)		(9)
	Taxable securities			1,702		4,198		(2,496)		1,116		(66)		1,182
	Tax exempt securities			(571)		(188)		(383)		(1,088)		(1,131)		43
	Interest-bearing deposits with banks			(287)		696		(983)		(249)		(514)		265
	Federal funds sold			(5)		(2)		(3)		(14)		(20)		6
Total interest income				23,371		47,393		(24,022)		21,484		9,771		11,713

Interest expense on funding of earning assets:
	Interest-bearing demand deposits			394		271		123		334		(10)		344
	Regular savings deposits			(65)		12		(77)		(184)		(70)		(114)
	Money market savings deposits			(4,850)		4,098		(8,948)		5,198		1,214		3,984
	Time deposits			(303)		3,045		(3,348)		9,468		2,915		6,553
	Other borrowings			492		874		(382)		472		33		439
	Advances from FHLB			(9,145)		(1,371)		(7,774)		(249)		(3,195)		2,946
	Subordinated debentures			3,952		4,106		(154)		31		(4)		35
Total interest expense				(9,525)		11,035		(20,560)		15,070		883		14,187
		Net interest income	$	32,896	$	36,358	$	(3,462)	$	6,414	$	8,888	$	(2,474)

* 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

The Company's total tax-equivalent interest income increased 13% for the first six months of 2020 compared to the prior year period. During this period, the yield on interest-earning assets decreased 64 basis points to 4.06%. The previous tables reflect that the increase in interest income has been driven predominantly by the 31% growth in average interest-earning assets as a result of the Revere acquisition and to a lesser extent, the loans associated with the PPP program. The income growth has occurred despite the overall decline in the associated interest rates over the previous twelve months driven by concerns over slowing growth and the impact of the pandemic.

During the first six months of 2020 the average loans outstanding increased 27% compared to the first six months of 2019. Essentially all the growth in the loan portfolio occurred due to the 40% increase in all categories of the commercial loan portfolio, with notable increases in investor real estate loans (44%) and commercial business loans (77%). Consumer loans remained level and the residential mortgage portfolio declined 6% during the same time period. The decrease in average residential mortgages was the direct result of the increased refinancing activity due to the decline in interest rates coupled with the continued sale of the majority of new originations. Compared to the prior year, the yield on average loans decreased 52 basis points. The average yield on total investment securities decreased 57 basis points as the average balance of the portfolio increased 30% for the first six months of 2020 compared to the first six months of 2019. This resulted in 7% growth in interest income from investment securities. Composition of the average investment portfolio shifted to 83% in taxable securities in the current period as compared to 77% for the prior year period. During the same period, the average yield for taxable securities decreased 59 basis points versus the average yield on tax-exempt securities, which decreased 34 basis points. The PPP program had a two basis point negative impact on the yield on interest-earning assets.

Interest Expense

For the first six months of 2020 interest expense decreased $9.5 million or 22% compared to the first six months of 2019. A significant portion of the decrease in interest expense was due to impact of the $5.8 million in the accelerated amortization of the fair value premium from the prepayment of the acquired FHLB advances. The fair value premium amortization on time deposits was responsible for an additional $2.8 million reduction in interest expense for the first six months of 2020. Excluding these items, interest expense decreased 2% compared to the prior year period, driven primarily by the decrease in interest expense on money market accounts as market rates have experienced a decline from the prior year. The cost of interest-bearing deposits, including the fair value amortization on time deposits, declined 50 basis points for the first six months of 2020 compared to the first six months of 2019. The 87 basis point decline in money market rates during this time period, in addition to the fair value amortization on time deposits, were the drivers in the decline in the total average rate paid on interest-bearing deposits. The exclusion of the amortization of the time deposit premium would result in a decline of 39 basis points in the average rate paid on interest-bearing deposits compared to the prior year. The time deposit amortization adjustment benefited the net interest margin by five basis points for the first six months of 2020.

The other significant portion of the decrease in interest expense, as previously discussed, was the $5.8 million the accelerated amortization from the prepayment of the acquired FHLB advances. The effect of the accelerated amortization accounts for a further 10 basis point benefit to the net interest margin for the first six months of 2020. The impact of the amortization of the fair value marks was a 25 basis point reduction in the rate paid on interest-bearing liabilities.

Non-interest Income

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

			Six Months Ended June 30,				2020/2019		2020/2019
(Dollars in thousands)			2020		2019		$ Change		% Change
	Securities gains		$	381	$	5	$	376	n/m	%
	Service charges on deposit accounts			3,476		4,749		(1,273)	(26.8)
	Mortgage banking activities			11,459		6,133		5,326	86.8
	Wealth management income			14,570		10,775		3,795	35.2
	Insurance agency commissions			3,317		3,165		152	4.8
	Income from bank owned life insurance			1,454		1,843		(389)	(21.1)
	Bank card fees			2,577		2,719		(142)	(5.2)
	Other income			3,858		4,136		(278)	(6.7)
		Total non-interest income	$	41,092	$	33,525	$	7,567	22.6

Total non-interest income increased $7.6 million or 23% for the first six months of 2020 to $41.1 million. The current period included $0.4 million in securities gains, while the prior year period included life insurance mortality proceeds of $0.6 million. Excluding the items, non-interest income increased 24% from the prior year. This increase was driven primarily by income from mortgage banking activities, which increased $5.3 million and to a lesser degree, wealth management income, which increased $3.8 million. These increases more than offset declines in deposit and bank card fees. Further detail by type of non-interest income follows:

 Service charges on deposit accounts decreased 27% in the first six months of 2020, compared to the first six months of 2019 due to the decline in consumer activity and the decision to waive certain transaction fees to ease the burden on customers.

 Income from mortgage banking activities increased 87% in the first six months of 2020, compared to the first six months of 2019. Origination volume as a result of refinancing activity, was responsible for the growth in mortgage banking income for the first six months of 2020. Sales of originated mortgage loans rose 94% during the current period compared to the same period for 2019.

 Wealth management income, comprised of income from trust and estate services and investment management fees earned by the Company’s investment management subsidiaries, increased 35% for the first six months of 2020 compared to the same period of the prior year. This $3.8 million growth was the direct result of the acquisition of RPJ on February 1 of the current year. Trust services fees increased 13% for the first six months of 2020 compared to the prior year period as a result of post-mortem estate management fees earned in the first quarter of 2020. Overall total assets under management increased to $4.5 billion at June 30, 2020 compared to $3.2 billion at June 30, 2019, primarily as a result of the RPJ acquisition.

 Insurance agency commissions increased 5% for the first six months of 2020 as compared to the first six months of 2019, driven by an increase in contingent fee income compared to the prior year.

 Bank-owned life insurance income decreased 21% for the first six months of 2020 as compared to the first six months of 2019, due primarily to the decline in insurance mortality proceeds compared to the prior year.

 Bank card fee income declined 5% during the first six months of 2020, compared to the first six months of 2019, as a result of diminished consumer transaction volume.

 Other non-interest income decreased by 7% during the first six months of 2020, compared to the first six months of 2019 as a result of a decline in miscellaneous income.

Non-interest Expense

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

		Six Months Ended June 30,				2020/2019		2020/2019
(Dollars in thousands)		2020		2019		$ Change		% Change
Salaries and employee benefits		$	62,350	$	51,465	$	10,885	21.2	%
Occupancy expense of premises			10,572		9,991		581	5.8
Equipment expense			5,970		5,288		682	12.9
Marketing			1,918		1,830		88	4.8
Outside data services			3,751		3,740		11	0.3
FDIC insurance			1,860		2,220		(360)	(16.2)
Amortization of intangible assets			2,598		974		1,624	166.7
Merger and acquisition expense			23,908		-		23,908	n/m
Professional fees and services			3,666		2,879		787	27.3
Other expenses			16,591		9,692		6,899	71.2
	Total non-interest expense	$	133,184	$	88,079	$	45,105	51.2

Non-interest expense increased 51% to $133.2 million in the first six months of 2020 compared to $88.1 million for first six months of 2019. This $45.1 million increase resulted from the following primary causes:

 Merger and acquisition expense of $23.9 million from the Revere and RPJ acquisitions;

 Increased incentive and merit compensation costs and the incremental operating costs resulting from the acquisitions; and

 Prepayment penalties of $5.9 million resulting from the liquidation of acquired FHLB advances.

Excluding merger and acquisition expense and the impact of the prepayment penalties from 2020, non-interest expense increased 17% over the prior year period. Further detail by category of non-interest expense follows:

 Salaries and employee benefits, the largest component of non-interest expense, increased 21% or $10.9 million in the first six months of 2020. Regular salaries represented $7.4 million of this increase, which was the result of the initial staffing cost associated with the 2020 acquisitions. The remainder of the increase was the result of incentives as a result of significantly increased mortgage loan production and bonus/overtime compensation earned as part of the implementation of the PPP program. As a result of the acquisitions, the average number of full-time equivalent employees increased to 1,163 in the first six months of 2020 compared to 920 in the first six months of 2019.

 Combined occupancy and equipment expenses increased 8% compared to the prior year as a result of increased cost associated with the additional branches and business offices from Revere.

 Outside data services and marketing expense reflected modest amount increases.

 FDIC insurance experienced a 16% decrease as a result of the additional capital contribution from the Company to the Bank associated with the Company’s issuance of subordinated debt late in 2019.

 Amortization of intangible assets increased primarily as a result of the amortization expense from the core deposit intangible asset recognized in the Revere transaction and to a lesser degree, the amortization of intangibles acquired from the RPJ acquisition.

 Professional fees and services grew 27% from the prior year as a result of costs associated with lending activity.

 Other expenses increased $6.8 million, primarily due to the $5.9 million in prepayment penalties incurred in the liquidation of acquired FHLB advances from Revere. The impact of penalties was offset by the accelerated amortization of the fair value marks on these borrowings and is reflected in the net interest income.

Income Taxes

The Company had an income tax benefit of $5.0 million in the first six months of 2020, compared to income tax expense of $18.3 million in the first six months of 2019 as a result of the impact of operations on pre-tax earnings. The resulting effective tax rates was a benefit rate of 53.7% for the first six months of 2020 compared to a tax rate of 23.8% for the first six months of 2019. The effective tax rate for the six months ended June 30, 2020 was the result of the impact of the amount of

tax-advantaged income in proportion to the net loss before taxes as compared to the prior year period. Additionally, recent changes to tax laws expand the time permitted to utilize previous net operating losses. The Company applied this change to the 2018 acquisition of WashingtonFirst to realize a tax benefit of $1.8 million for the current year.

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 also 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 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/ (Loss). The GAAP efficiency ratio for the first six months of 2020 was 64.36% compared to 52.91% for the first six months of 2019, as non-interest expense increased due to merger and acquisition expense and the previously mentioned prepayment penalties on FHLB advances. The GAAP and non-GAAP efficiency ratios are reconciled and provided in the following table. The non-GAAP efficiency ratio was 48.21% in the first six months of 2020 compared to 51.57% for the first six months of 2019. The improvement in the current year’s non-GAAP efficiency ratio compared to the prior year was the result of the 24% rate of growth in non-GAAP revenue which outpaced the 16% growth in the non-GAAP non-interest expense.

In addition, the Company uses pre-tax, pre-provision adjusted for merger expenses as a measure of the level of 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 the provision for credit losses, merger and acquisition expense and the provision for income taxes back to net income. This metric increased by 25% in the first six months of 2020 compared to the first six months of 2019 due primarily to the acquisition driven increase in net interest income and increases in mortgage banking and wealth management income which offset the increase in non-interest expense.

GAAP and Non-GAAP Efficiency Ratios

			Six Months Ended June 30,
(Dollars in thousands)			2020			2019
Pre-tax pre-provision pre-merger income:
Net income/ (loss)			$	(4,351)		$	58,593
	Plus non-GAAP adjustments:
		Merger expenses		23,908			-
		Income tax expense/ (benefit)		(5,048)			18,283
		Provision for credit losses		83,155			1,505
Pre-tax pre-provision pre-merger income			$	97,664		$	78,381

Efficiency ratio - GAAP basis:
Non-interest expense			$	133,184		$	88,079

Net interest income plus non-interest income			$	206,940		$	166,460

Efficiency ratio - GAAP basis				64.36	%		52.91	%

Efficiency ratio - Non-GAAP basis:
Non-interest expense			$	133,184		$	88,079
	Less non-GAAP adjustments:
		Amortization of intangible assets		2,598			974
		Loss on FHLB redemption		5,928			-
		Merger expenses		23,908			-
Non-interest expense - as adjusted			$	100,750		$	87,105

Net interest income plus non-interest income			$	206,940		$	166,460
	Plus non-GAAP adjustment:
		Tax-equivalent income		2,433			2,450
	Less non-GAAP adjustment:
		Securities gains		381			5
	Net interest income plus non-interest income - as adjusted		$	208,992		$	168,905

	Efficiency ratio - Non-GAAP basis			48.21	%		51.57	%

The Company has presented operating earnings, operating earnings per share, operating return on average assets, operating return on average tangible common equity and average tangible common equity to average tangible assets 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. Operating earnings reflect net income exclusive of the provision for credit losses, merger and acquisition expense and the income and expense associated with the PPP program, in each case net of tax. Weighted-average diluted shares outstanding are adjusted to add back shares, and participating securities, which are excluded from GAAP weighted average diluted shares due to a net loss during the current year. Adjusted average assets represents average assets to exclude PPP loans outstanding. Average tangible stockholders’ equity represents average stockholders’ equity adjusted for average accumulated other comprehensive income/ (loss), average goodwill, and average intangible assets, net.

GAAP and Non-GAAP Performance Ratios

		Six Months Ended June 30,
(Dollars in thousands)		2020			2019
Net income/ (loss) (GAAP)		$	(4,351)		$	58,593
	Plus non-GAAP adjustments:
	Provision for credit losses - net of tax		61,992			1,122
	Merger and acquisition expense - net of tax		17,823			-
	PPLF funding expense - net of tax		368			-
	Less non-GAAP adjustment:
	PPP interest income and deferred fees - net of tax		4,483			-
Operating earnings (non-GAAP)		$	71,349		$	59,715

Weighted-average shares outstanding - diluted (GAAP)			40,826,748			35,865,518
	Shares antidilutive due to net loss		504,266			-
Weighted-average shares outstanding - diluted (non-GAAP)			41,331,014			35,865,518

Earnings/ (loss) per diluted share (GAAP)		$	(0.11)		$	1.63
Operating earnings per diluted share (non-GAAP)		$	1.73		$	1.66

Average assets (GAAP)		$	10,799,840		$	8,276,601
	Average PPP loans		356,792			-
Adjusted average assets (non-GAAP)		$	10,443,048		$	8,276,601

Return on average assets (GAAP)			(0.08)	%		1.43	%
Operating return on adjusted average assets (non-GAAP)			1.37	%		1.45	%

Average assets (GAAP)		$	10,799,840		$	8,276,601
	Average goodwill		(360,549)			(347,149)
	Average other intangible assets, net		(22,074)			(9,367)
Average tangible assets (non-GAAP)		$	10,417,217		$	7,920,085

Average total stockholders' equity (GAAP)		$	1,260,298		$	1,086,256
	Average accumulated other comprehensive (income)/ loss		(5,528)			11,285
	Average goodwill		(360,549)			(347,149)
	Average other intangible assets, net		(22,074)			(9,367)
Average tangible common equity (non-GAAP)		$	872,147		$	741,025

Return on average tangible common equity (GAAP)			(1.00)	%		15.95	%
Operating return on average tangible common equity (non-GAAP)			16.45	%		16.25	%

Average tangible common equity to average tangible assets (non-GAAP)			8.37	%		9.36	%

Results of Operations

For the Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019

For the second quarter of 2020 the Company realized a net loss of $14.3 million ($0.31 per share) compared to net income of $28.3 million ($0.79 per diluted share) for the second quarter of 2019. The loss was the result of the combination of merger and acquisition expense, the impact of the current economic forecast in the determination of the allowance for credit losses and the additional provision for credit losses associated with the acquisition of Revere, which closed on April 1, 2020.

The current quarter’s results included $22.5 million for merger and acquisition expense related to the Revere acquisition. Additionally, earnings for the second quarter were negatively impacted by a $58.7 million provision for credit losses. Of this amount, approximately $33.8 million was related to the change in the current quarter’s economic forecast. In addition, as required by GAAP, the initial allowance for credit losses on Revere’s acquired non-PCD loans was recognized through the provision for credit losses in the amount of $17.5 million. Comparatively, the provision for credit losses for the first quarter of 2020 was $24.5 million. The Company’s participation in the PPP and the associated funding program had a net positive impact of $4.1 million, net of tax, in the current quarter.

For the current quarter, operating earnings on an after-tax basis, which excludes the impact of merger and acquisition expense, the provision for credit losses and the effects from the PPP program, were $42.0 million ($0.88 per diluted share), compared to $29.5 million ($0.82 per diluted share) for the quarter ended June 30, 2019.

Net Interest Income

Net interest income for the second quarter of 2020, increased 53% to $101.5 million compared to $66.2 million for the second quarter of 2019. On a tax-equivalent basis, net interest income for the second quarter of 2020 was $102.8 million compared to $67.4 million for the second quarter of 2019. The increase in net interest income was the result of the Revere acquisition. Additionally, growth in net interest income benefited from $8.3 million in net amortization of the fair value marks, which resulted in an $8.6 million reduction in interest expense. The majority of the decrease in interest expense was due to the $5.8 million in the accelerated amortization from the prepayment of the acquired FHLB advances. The implementation of the PPP program during the current quarter generated interest income, net of its associated funding cost, of $5.5 million. Overall, year-to-date, interest income increased 32% while interest expense decreased 36%.

The net interest margin for the current quarter was 3.47%, compared to the net interest margin for the second quarter of 2019 of 3.54%. Compared to the prior year’s quarter, the yield on $11.9 billion of average interest-earning assets declined to 3.92% compared to 4.65% on average interest-earning assets of $7.6 billion for the prior year quarter. Excluding the net $8.3 million impact of the amortization of the fair value marks derived from acquisitions, the net interest margin would have been 3.19%. Included in the current quarter is the accelerated amortization of the $5.8 million purchase premium on FHLB advances as a result of the prepayment of those borrowings. The positive effect of the accelerated amortization accounts for approximately 20 basis points in the current quarter’s net interest margin. The remaining fair value marks and the impact of the PPP program were responsible for an additional eight basis points.

Average interest-earning assets increased by 56% and average interest-bearing liabilities increased by 58% in the second quarter of 2020 compared to the second quarter of 2019. Average noninterest-bearing deposits increased 67% in the second quarter of 2020 as compared to the same quarter of the prior year. The percentage of average noninterest-bearing deposits to total deposits increased to 31% in the current quarter compared to 29% in the second quarter of 2019. The primary cause of these increases was the acquisition of Revere during the quarter and, to a lesser extent, the PPP program and its impact on commercial loans and noninterest-bearing deposits. At June 30, 2020, total average loans comprised 83% of average interest-earning assets with an average yield of 4.32%, as compared to 86% of average interest-earning assets at June 30, 2019 with an average yield of 4.90%. The average yield on investment securities decreased to 2.54% for the quarter ended June 30, 2020, from 3.17% at June 30, 2019. The decline in the overall average yield on earnings assets was driven by downward movement of market interest rates. The impact of the decline in the yield on average interest-earning assets was partially mitigated by the 95 basis point decline in the average rate paid on average interest-bearing liabilities as the rate paid decreased from 1.60% for the second quarter of 2019 to 0.65% for the second quarter of 2020. Similarly, the decline in the 71 basis point decline in the average rate paid on interest-bearing deposits was primarily the reduction in rates paid on money market savings deposits. While the general market rate decline also affected time deposit rates, the average rate paid on time deposits declined further as a result of amortization of their fair value mark. Excluding the amortization of all the fair value marks, the average rate paid on total average interest-bearing liabilities was 1.06%.

Consolidated Average Balances, Yields and Rates

	Three Months Ended June 30,
	2020						2019
					Annualized						Annualized
	Average		(1)		Average		Average		(1)		Average
(Dollars in thousands and tax-equivalent)	Balances		Interest		Yield/Rate		Balances		Interest		Yield/Rate
Assets:
Residential mortgage loans	$	1,208,566	$	11,259	3.73	%	$	1,244,086	$	11,971	3.85	%
Residential construction loans		162,978		1,691	4.17			174,095		1,873	4.32
Total mortgage loans		1,371,544		12,950	3.78			1,418,181		13,844	3.91
Commercial AD&C loans		969,251		10,886	4.52			686,282		10,268	6.00
Commercial investor real estate loans		3,448,882		38,426	4.48			1,960,919		24,357	4.98
Commercial owner occupied real estate loans		1,681,674		19,794	4.73			1,215,632		14,840	4.90
Commercial business loans		1,899,264		19,426	4.11			756,594		10,321	5.47
Total commercial loans		7,999,071		88,532	4.45			4,619,427		59,786	5.19
Consumer loans		575,734		5,341	3.73			505,235		6,335	5.03
Total loans (2)		9,946,349		106,823	4.32			6,542,843		79,965	4.90
Loans held for sale		53,312		405	3.04			37,121		381	4.11
Taxable securities		1,164,490		7,045	2.42			744,701		5,689	3.06
Tax-exempt securities (3)		234,096		1,824	3.12			220,162		1,959	3.56
Total investment securities (4)		1,398,586		8,869	2.54			964,863		7,648	3.17
Interest-bearing deposits with banks		522,469		155	0.12			73,793		428	2.32
Federal funds sold		416		-	0.10			620		1	0.60
Total interest-earning assets		11,921,132		116,252	3.92			7,619,240		88,423	4.65
Less: allowance for credit losses		(118,863)						(53,068)
Cash and due from banks		181,991						66,031
Premises and equipment, net		60,545						60,871
Other assets		858,351						601,809
Total assets	$	12,903,156					$	8,294,883

Liabilities and Stockholders' Equity:
Interest-bearing demand deposits	$	1,067,487		457	0.17	%	$	747,343		460	0.25	%
Regular savings deposits		367,191		73	0.08			332,796		118	0.14
Money market savings deposits		2,890,842		3,396	0.47			1,690,413		6,589	1.56
Time deposits		2,281,434		8,358	1.47			1,680,055		8,979	2.14
Total interest-bearing deposits		6,606,954		12,284	0.75			4,450,607		16,146	1.46
Other borrowings		713,965		600	0.34			157,499		290	0.74
Advances from FHLB		775,767		(2,123)	(1.08)			623,727		4,103	2.64
Subordinated debentures		230,223		2,652	4.61			37,376		490	5.25
Total borrowings		1,719,955		1,129	0.27			818,602		4,883	2.39
Total interest-bearing liabilities		8,326,909		13,413	0.65			5,269,209		21,029	1.60
Noninterest-bearing demand deposits		3,007,222						1,796,802
Other liabilities		178,481						129,794
Stockholders' equity		1,390,544						1,099,078
Total liabilities and stockholders' equity	$	12,903,156					$	8,294,883

Net interest income and spread				102,839	3.27	%				67,394	3.05	%
Less: tax-equivalent adjustment				1,325						1,209
Net interest income			$	101,514					$	66,185

Interest income/earning assets					3.92	%					4.65	%
Interest expense/earning assets					0.45						1.11
Net interest margin					3.47	%					3.54	%

(1) Tax-equivalent income has been adjusted using the combined marginal federal and state rate of 25.45% for both 2020 and 2019. The annualized taxable-equivalent
adjustments utilized in the above table to compute yields aggregated to $1.3 million and $1.2 million in 2020 and 2019, respectively.
(2) Non-accrual loans are included in the average balances.
(3) Includes investments that are exempt from federal and state taxes.
(4) Investments available-for-sale are presented at amortized cost.

Interest Income

The Company's total tax-equivalent interest income increased 31% for the second quarter of 2020 compared to the prior year quarter. The previous table reflects the growth in average interest-earning assets over the prior year quarter as average loans grew 52% and average investment securities grew 45%. Increases occurred in most categories of interest-earning assets from the Revere acquisition and, to a lesser extent, the PPP program. Mortgage loans decreased as a result of rate driven refinance and new loan origination activity and the continued sale of the majority of new mortgage loan production. The significant growth in the average balance in interest-bearing deposits with banks was the result of the loan funding under the PPP program being placed into customer deposit accounts at the Bank.

The average yield on interest-earning assets declined to 3.92% for the current quarter compared to 4.65% for the same period of the prior year. The average yields on loans and investment securities for the current quarter decreased by 58 and 63 basis points, respectively, compared to the prior year quarter as market rates declined during the period. The PPP program and amortization of the fair value premiums negatively impacted the current quarter’s yield on average loans by 7 and 1 basis point(s), respectively. The decrease in the yield on investments was driven by the decline in yields during the year and as proceeds from maturities and calls were reinvested in securities at the lower available rates. The combined decrease in the yield on loans and the investment portfolio resulted in the 73 basis point decline in the yield on interest-earning assets from period to period. Excluding the PPP program and the amortization of the fair value marks, the yield on interest-earning assets would have been 3.96%

Interest Expense

Interest expense decreased 36% in the second quarter of 2020 compared to the second quarter of 2019. The decrease from period to period was attributable to two major factors, the decline in general market rates that occurred over the previous twelve months and the impact of the amortization of the acquisition fair value marks. The main driver in the 71 basis point decline in the average rate paid on interest-bearing deposits were the notable decreases in the rates paid on money market savings and time deposits. The remaining decline in the average rate paid on deposits was due to the $2.8 million in amortization of fair value marks on time deposits for the current quarter. The other significant driver in the decline in interest expense was the impact of the accelerated amortization of the $5.8 million purchase premium on the acquired FHLB advances as a result of the prepayment of those advances. Excluding the accelerated amortization, the average rate paid on borrowings would have been 1.62%.

The combined impact of the general decline in market rates and amortization of fair value marks resulted in the 0.65% average rate paid on interest-bearing liabilities for the current quarter compared to 1.60% for the same period of the prior year. The average rate paid also benefited from the low funding cost of the PPP program and from the growth in noninterest-bearing deposits that grew to 31% of deposits in the current quarter compared to 28% in the prior year’s second quarter. The average rate paid on interest-bearing liabilities for the current quarter, after excluding the fair value amortization would have been 1.06%.

Non-interest Income

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

			Three Months Ended June 30,				2020/2019		2020/2019
(Dollars in thousands)			2020		2019		$ Change		% Change
	Securities gains		$	212	$	5	$	207	n/m	%
	Service charges on deposit accounts			1,223		2,442		(1,219)	(49.9)
	Mortgage banking activities			8,426		3,270		5,156	157.7
	Wealth management income			7,604		5,539		2,065	37.3
	Insurance agency commissions			1,188		1,265		(77)	(6.1)
	Income from bank owned life insurance			809		654		155	23.7
	Bank card fees			1,257		1,467		(210)	(14.3)
	Other income			2,205		1,914		291	15.2
		Total non-interest income	$	22,924	$	16,556	$	6,368	38.5

Total non-interest income increased 38% to $22.9 million for the second quarter of 2020 compared to $16.6 million for the second quarter of 2019. Excluding securities gains, the increase from the prior year quarter to the current year quarter was 37%. This $6.4 million increase was driven predominantly by the $5.2 million increase in income from mortgage banking activities and, to a lesser extent, the $2.1 million increase in wealth management income. These increases more than offset the decline in consumer based fees during the period. Further detail by type of non-interest income follows:

 Service charges on deposit accounts decreased 50% in the second quarter of 2020, compared to the second quarter of 2019, as the Company, in an effort to lessen the financial burden of the pandemic on clients, elected to waive or eliminate fees associated with deposit account activities.

 Income from mortgage banking activities increased by $5.2 million or 158% in the second quarter of 2020 as compared to the second quarter of 2019. The increased income from mortgage banking activities was attributable to the increased origination volume during the period as a result of refinancing activity. The Company sells the majority of its mortgage loan production for gains versus retaining them in the loan portfolio.

 Wealth management income increased 37% for the second quarter of 2020, as compared to the second quarter of 2019. This increase reflects the full quarter impact of the acquisition of RPJ which was acquired in February 2020. Overall total assets under management increased to $4.5 billion at June 30, 2020 compared to $3.2 billion at June 30, 2019.

 Income from bank owned life insurance increased by 24% or $0.2 million in the second quarter of 2020, compared to the second quarter of 2019, as a result of the additional policies from the Revere acquisition.

 Bank card income decreased 14% in the second quarter of 2020, compared to the second quarter of 2019 due to a decline in consumer transaction volume.

 Other non-interest income increased 15% in the second quarter of 2020, compared to the second quarter of 2019 as a result of increased fee income.

Non-interest Expense

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

		Three Months Ended June 30,				2020/2019		2020/2019
(Dollars in thousands)		2020		2019		$ Change		% Change
Salaries and employee benefits		$	34,297	$	25,489	$	8,808	34.6	%
Occupancy expense of premises			5,991		4,760		1,231	25.9
Equipment expense			3,219		2,712		507	18.7
Marketing			729		887		(158)	(17.8)
Outside data services			2,169		1,962		207	10.6
FDIC insurance			1,378		1,084		294	27.1
Amortization of intangible assets			1,998		483		1,515	313.7
Merger and acquisition expense			22,454		-		22,454	n/m
Professional fees and services			1,840		1,634		206	12.6
Other expenses			11,363		4,876		6,487	133.0
	Total non-interest expense	$	85,438	$	43,887	$	41,551	94.7

Non-interest expense totaled $85.4 million in the second quarter of 2020 compared to $43.9 million in the second quarter of 2019, a 95% increase. Merger and acquisition expense accounted for $22.5 million of the growth of non-interest expense. The non-interest expense growth also included $5.9 million in prepayment penalties from the liquidation of the acquired FHLB advances. These prepayment penalties offset the impact of the accelerated amortization noted previously in the discussion on net interest income. Excluding the impact of these non-core expenses, the year-over-year growth rate would have been 27%. Further detail by category of non-interest expense follows:

 Salaries and employee benefits, the largest component of non-interest expenses, increased 35% in the second quarter of 2020 compared to the same period of the prior year as a result of the additional initial staffing cost in salary and benefits associated with the 2020 acquisitions. The remainder of the increase was due to incentives resulting from significantly increased mortgage loan production and bonus/overtime compensation earned as part of the implementation of the PPP program. The average number of full-time equivalent employees rose to 1,159 in the second quarter of 2020 compared to 912 in the second quarter of 2019.

 Occupancy and equipment expenses for the quarter increased 23% compared to the prior year quarter as a result of the cost associated with the additional branches and business offices.

 Marketing expense decreased 18% as a result of decreased advertising initiatives.

 FDIC insurance expense increased 27% as a result of the asset growth from the Revere acquisition.

 Outside data service expense grew 11% driven by transaction-based services offered by the Bank.

 Professional fees and services increased 13% from the prior year quarter due to increased costs associated with credit management.

 Other expenses increased by $6.5 million, primarily due to the $5.9 million in prepayment penalties incurred in the liquidation of acquired FHLB advances from Revere. The impact of penalties was offset by the accelerated amortization of the fair value marks on these advances and is reflected in the net interest income.

Income Taxes

The Company had income tax benefit of $5.3 million in the second quarter of 2020, compared to income tax expense of $8.9 million in the second quarter of 2019. The resulting effective tax benefit rate was 27.2% for the second quarter of 2020 compared to an effective tax rate of 24.0% for the second quarter of 2019.

Operating Expense Performance

Non-GAAP Financial Measures

The Company also 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 expenses. 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 expenses as a percentage of net interest income plus non-interest income. Non-interest expenses used in the calculation of the non-GAAP efficiency ratio exclude 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 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/ (Loss). The GAAP efficiency ratio in the second quarter of 2020 was 68.66% compared to 53.04% for the second quarter of 2019, as non-interest expense increased due to merger and acquisition expense and the previously mentioned prepayment penalties on FHLB advances. The GAAP and non-GAAP efficiency ratios are reconciled and provided in the following table. The non-GAAP efficiency ratio was 43.85% in the second quarter of 2020 compared to 51.71% in the second quarter of 2019. The improvement in the current year’s non-GAAP efficiency ratio compared to the prior year, was the result of the 50% rate of growth in non-GAAP revenue which outpaced the 27% growth in the non-GAAP non-interest expense.

In addition to efficiency ratios, the Company uses pre-tax, pre-provision income, excluding merger and acquisition expense, as a measure of the level of recurring income before taxes. Management believes this provides financial statement users with a useful metric of the run-rate of revenues and expenses which is readily comparable to other financial institutions. This measure is calculated by adding the provision for credit losses, merger and acquisition expense and the provision for income taxes back to net income. This metric increased for the second quarter of 2020 compared to the second quarter of 2019 due to the growth in net revenues that significantly exceeded the growth in non-interest expense, excluding merger and acquisition expense.

GAAP and Non-GAAP Efficiency Ratios

			Three Months Ended June 30,
(Dollars in thousands)			2020			2019
Pre-tax pre-provision pre-merger income:
Net income/ (loss)			$	(14,338)		$	28,276
	Plus non-GAAP adjustments:
		Merger and acquisition expenses		22,454			-
		Income tax expense/ (benefit)		(5,348)			8,945
		Provision for credit losses		58,686			1,633
Pre-tax pre-provision pre-merger income			$	61,454		$	38,854

Efficiency ratio - GAAP basis:
Non-interest expense			$	85,438		$	43,887

Net interest income plus non-interest income			$	124,438		$	82,741

Efficiency ratio - GAAP basis				68.66	%		53.04	%

Efficiency ratio - Non-GAAP basis:
Non-interest expense			$	85,438		$	43,887
	Less non-GAAP adjustments:
		Amortization of intangible assets		1,998			483
		Loss on FHLB redemption		5,928			-
		Merger and acquisition expenses		22,454			-
Non-interest expense - as adjusted			$	55,058		$	43,404

Net interest income plus non-interest income			$	124,438		$	82,741
	Plus non-GAAP adjustment:
		Tax-equivalent income		1,325			1,209
	Less non-GAAP adjustment:
		Securities gains		212			5
	Net interest income plus non-interest income - as adjusted		$	125,551		$	83,945

	Efficiency ratio - Non-GAAP basis			43.85	%		51.71	%

The Company has presented operating earnings, operating earnings per share, operating return on average assets, operating return on average tangible common equity and average tangible common equity to average tangible assets in order to present metrics that are more comparable to prior periods to provide an indication of the core performance of the Company period over period. Operating earnings reflects net income exclusive of the provision for credit losses, merger and acquisition expense and the income and expense associated with the PPP program, in each case net of tax. Weighted-average diluted shares outstanding are adjusted to add back shares, and participating securities, which are excluded from GAAP weighted average diluted shares due to a net loss during the current year. Adjusted average assets represents average assets to exclude PPP loans outstanding. Average tangible stockholders’ equity represents average stockholders’ equity adjusted for average accumulated other comprehensive income/ (loss), average goodwill, and average intangible assets, net.

GAAP and Non-GAAP Performance Ratios

		Three Months Ended June 30,
(Dollars in thousands)		2020			2019
Net income/ (loss) (GAAP)		$	(14,338)		$	28,276
	Plus non-GAAP adjustments:
	Provision for credit losses - net of tax		43,750			1,217
	Merger and acquisition expense - net of tax		16,739			-
	PPLF funding expense - net of tax		368			-
	Less non-GAAP adjustment:
	PPP interest income and deferred fees - net of tax		4,483			-
Operating earnings (non-GAAP)		$	42,036		$	29,493

Weighted-average shares outstanding - diluted (GAAP)			46,988,351			35,890,437
	Shares antidilutive due to net loss		539,473			-
Weighted-average shares outstanding - diluted (non-GAAP)			47,527,824			35,890,437

Earnings/ (loss) per diluted share (GAAP)		$	(0.31)		$	0.79
Operating earnings per diluted share (non-GAAP)		$	0.88		$	0.82

Average assets (GAAP)		$	12,903,156		$	8,294,883
	Average PPP loans		713,584			-
Adjusted average assets (non-GAAP)		$	12,189,572		$	8,294,883

Return on average assets (GAAP)			(0.45)	%		1.37	%
Operating return on adjusted average assets (non-GAAP)			1.39	%		1.43	%

Average assets (GAAP)		$	12,903,156		$	8,294,883
	Average goodwill		(355,054)			(347,149)
	Average other intangible assets, net		(32,337)			(9,123)
Average tangible assets (non-GAAP)		$	12,515,765		$	7,938,611

Average total stockholders' equity (GAAP)		$	1,390,544		$	1,099,078
	Average accumulated other comprehensive (income)/ loss		(8,722)			8,244
	Average goodwill		(355,054)			(347,149)
	Average other intangible assets, net		(32,337)			(9,123)
Average tangible common equity (non-GAAP)		$	994,431		$	751,050

Return on average tangible common equity (GAAP)			(5.80)	%		15.10	%
Operating return on average tangible common equity (non-GAAP)			17.00	%		15.75	%

Average tangible common equity to average tangible assets (non-GAAP)			7.95	%		9.46	%

FINANCIAL CONDITION

The Company’s total assets grew to $13.3 billion or by 54% at June 30, 2020, as compared to $8.6 billion at December 31, 2019, primarily as a result of the acquisition of Revere during the current quarter. The Company’s participation in the PPP program contributed $1.1 billion to the overall $4.7 billion asset growth from the previous year end. Exclusive of PPP program, total asset growth was 42%. During this period, total loans grew by 54% to $10.3 billion at June 30, 2020, compared to $6.7 billion at December 31, 2019. The Revere acquisition resulted in $2.5 billion of the total loan growth during the period. Deposit growth, primarily from the Revere acquisition, was 56% from December 31, 2019 to June 30, 2020, as noninterest-bearing deposits experienced growth of 81% and interest-bearing deposits grew 46%. Additionally, the deposit growth was positively affected by the influx of funds from the PPP program as loan funds were placed in existing deposit accounts at the Bank. The growth in deposits resulted in the loan to deposit ratio improving to 102.64% at June 30, 2020 from 104.11% at December 31, 2019.

Loans

Excluding PPP loans, total loans grew 39% to $9.3 billion at June 30, 2020. Commercial loans, excluding PPP loans, grew 49% or $2.4 billion. The remainder of the loan portfolio grew 10% as the residential real estate portfolio grew 7% and the consumer loan portfolio grew 20%. The majority of the growth, exclusive of the PPP program, was driven by the acquisition of Revere. Organic consumer loans and residential real estate loans experienced 7% and 2% declines, respectively, as borrowers reduced their outstanding loans through the refinancing of their mortgage loans and paying off any associated home equity borrowings.

Analysis of Loans

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

		June 30, 2020				December 31, 2019				Period-to-Period Change
(Dollars in thousands)		Amount		%		Amount		%		Amount		%
Residential real estate:
	Residential mortgage	$	1,211,745	11.7	%	$	1,149,327	17.1	%	$	62,418	5.4	%
	Residential construction		169,050	1.6			146,279	2.2			22,771	15.6
Commercial real estate:
	Commercial owner occupied real estate		1,601,803	15.5			1,288,677	19.2			313,126	24.3
	Commercial investor real estate		3,581,778	34.6			2,169,156	32.4			1,412,622	65.1
	Commercial AD&C		997,423	9.6			684,010	10.2			313,413	45.8
Commercial business			2,222,810	21.5			801,019	11.9			1,421,791	177.5
Consumer			558,434	5.5			466,764	7.0			91,670	19.6
	Total loans	$	10,343,043	100.0	%	$	6,705,232	100.0	%	$	3,637,811	54.3

The following table presents the impact of the acquired Revere loan portfolio on the Company’s existing loan portfolio, by loan segment as of June 30, 2020:

	June 30, 2020
	Originated		Revere Acquired		Total
(In thousands)	Loans		Loans (1)		Loans
Residential real estate:
Residential mortgage	$	1,117,308	$	94,437	$	1,211,745
Residential construction		158,451		10,599		169,050
Commercial real estate:
Commercial owner occupied real estate		1,177,640		424,163		1,601,803
Commercial investor real estate		2,452,400		1,129,378		3,581,778
Commercial acquisition, development and construction		685,264		312,159		997,423
Commercial Business		1,838,003		384,807		2,222,810
Consumer		436,248		122,186		558,434
Total loans	$	7,865,314	$	2,477,729	$	10,343,043
(1) Revere acquired loans included $942.5 million of loans classified as PCD.

The following table discloses the impact of deferrals granted under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) on the loan portfolio by portfolio segment:

		June 30, 2020
		Loans with a										% of Total
		Deferral Granted				Other Outstanding Loans				Total Loans		Loans with
(Dollars in thousands)		Balance		%		Balance		%		Balance		a Deferral
Residential real estate:
	Residential mortgage	$	76,501	5.2	%	$	1,135,244	12.8	%	$	1,211,745	6.3	%
	Residential construction		4,699	0.3			164,351	1.8			169,050	2.8
Commercial real estate:
	Commercial owner-occupied real estate		262,884	18.0			1,338,919	15.1			1,601,803	16.4
	Commercial investor real estate		928,277	63.5			2,653,501	29.9			3,581,778	25.9
	Commercial AD&C		50,175	3.4			947,248	10.7			997,423	5.0
Commercial business			126,666	8.7			2,096,144	23.6			2,222,810	5.7
Consumer			12,543	0.9			545,891	6.1			558,434	2.2
	Total loans	$	1,461,745			$	8,881,298			$	10,343,043	14.1

The following table discloses the impact of deferrals granted and PPP loans issued under the CARES Act on the commercial loan portfolio by selected industry segment:

		June 30, 2020
		Loans with a				Other
(In thousands)		Deferral Granted		PPP Loans		Outstanding Loans		Total Loans
CRE Investment - Retail		$	322,359	$	759	$	743,187	$	1,066,305
CRE Investment - Office			90,120		318		612,024		702,462
CRE Investment - Multifamily			105,489		3,998		364,768		474,255
Hotels			253,611		8,477		128,009		390,097
Restaurants			31,087		73,238		122,186		226,511
All other industries			565,336		996,749		3,982,099		5,544,184
	Total Commercial Loans	$	1,368,002	$	1,083,539	$	5,952,273	$	8,403,814

Analysis of Investment Securities

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

			June 30, 2020				December 31, 2019				Period-to-Period Change
(Dollars in thousands)			Amount		%		Amount		%		Amount		%
Investments available-for-sale:
	U.S. treasuries and government agencies		$	168,072	11.8	%	$	258,495	23.0	%	$	(90,423)	(35.0)	%
	State and municipal			297,580	20.9			233,649	20.8			63,931	27.4
	Mortgage-backed and asset-backed			877,955	61.6			570,759	50.7			307,196	53.8
	Corporate debt			12,192	0.9			9,552	0.8			2,640	27.6
	Trust preferred			-	-			310	-			(310)	(100.0)
	Marketable equity securities			-	-			568	0.1			(568)	(100.0)
		Total available-for-sale securities		1,355,799	95.2			1,073,333	95.4			282,466	26.3

Other equity securities:
	Other equity securities			68,853	4.8			51,803	4.6			17,050	32.9
		Total other equity securities		68,853	4.8			51,803	4.6			17,050	32.9
Total securities			$	1,424,652	100.0	%	$	1,125,136	100.0	%	$	299,516	26.6

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. At June 30, 2020, 98% of the investment portfolio was invested in Aaa/AAA or Aa/AA-rated securities. The composition and size of the portfolio at June 30, 2020 shifted from U.S. Treasuries and U.S. government Agencies to mortgage-backed and municipal securities compared to the prior year-end to take advantage of investment spreads that occurred late in the first quarter as a result of the interest rate dislocation in the markets. The duration of the portfolio is monitored to ensure the adequacy and ability to meet liquidity demands. At June 30, 2020 the duration of the portfolio was 3.6 years compared to 3.5 years at December 31, 2019. The portfolio possesses low credit risk that could provide the liquidity necessary to meet loan and operational demands.

Other Earning Assets

Residential mortgage loans held for sale increased to $69 million at June 30, 2020, compared to $54 million at December 31, 2019 as a result of the increased volume of loan originations during the period and the decision to continue to sell the majority of the Company’s mortgage loan production. The aggregate of interest-bearing deposits with banks and federal funds sold increased by $547 million at June 30, 2020 compared to December 31, 2019 primarily as a result of funding from the PPP program that was placed into customer deposit accounts at the Bank combined with the modest commercial and consumer line drawdowns. The Company has maintained this higher liquidity position in light of the economic uncertainty driven by the COVID-19 pandemic.

Deposits

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

			June 30, 2020				December 31, 2019				Period-to-Period Change
(Dollars in thousands)			Amount		%		Amount		%		Amount		%
Noninterest-bearing deposits			$	3,434,038	34.1	%	$	1,892,052	29.4	%	$	1,541,986	81.5	%
Interest-bearing deposits:
	Demand			1,142,475	11.3			836,433	13.0			306,042	36.6
	Money market savings			2,945,990	29.2			1,839,593	28.5			1,106,397	60.1
	Regular savings			387,636	3.8			329,919	5.1			57,717	17.5
	Time deposits of less than $100,000			585,539	5.8			463,431	7.2			122,108	26.3
	Time deposits of $100,000 or more			1,581,156	15.8			1,078,891	16.8			502,265	46.6
		Total interest-bearing deposits		6,642,796	65.9			4,548,267	70.6			2,094,529	46.1
Total deposits			$	10,076,834	100.0	%	$	6,440,319	100.0	%	$	3,636,515	56.5

Deposits and Borrowings

Total deposits increased by 56% to $10.1 billion at June 30, 2020 from $6.4 billion at December 31, 2019. This acquisition driven increase resulted in noninterest-bearing deposits increasing 81% and interest-bearing deposits increasing 46%. A portion of the deposit growth is the result of the funds from the PPP program as loan funds were placed in deposit accounts at the Bank until utilized by the respective borrowers. At June 30, 2020, interest-bearing deposits represented 66% of deposits with the remaining 34% in noninterest-bearing balances, compared to 71% and 29%, respectively, at December 31, 2019. The mix of interest-bearing deposits remained relatively stable at June 30, 2020 compared December 31, 2019. Total borrowings increased 78% at June 30, 2020 compared to December 31, 2019, as a direct result of the funds borrowed under the PPPLF to fund the underlying PPP loans, in addition to $31 million of Revere’s debt as part of the acquisition.

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 was $1.4 billion at June 30, 2020 compared to $1.1 billion December 31, 2019. This increase in equity occurred due to the acquisition of Revere which resulted in the issuance of 12.8 million shares of common stock valued at $289 million. Prior to the acquisition of Revere, the Company repurchased $25.7 million of common stock during the current year. The ratio of average equity to average assets was 11.67% for the six months ended June 30, 2020, as compared to 13.12% for the first six months of 2019.

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.

			Minimum
	Ratios at		Regulatory
	June 30, 2020	December 31, 2019	Requirements
Total capital to risk-weighted assets	13.79%	14.85%	8.00%

Tier 1 capital to risk-weighted assets	10.23%	11.21%	6.00%

Common equity tier 1 capital	10.23%	11.06%	4.50%

Tier 1 leverage	8.35%	9.70%	4.00%

As of June 30, 2020, 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 main driver of the decline in the ratios at June 30, 2020 from December 31, 2019 was the impact that the Revere transaction had on total risk-based assets. Other contributors to the decline are the negative effects of diminished earnings as a result of the provision for credit losses and merger and acquisition expense, and the impact of the previously mentioned stock repurchase program. During the year, the Company elected to apply the provisions of the CECL deferral transition in the determination of its risk based capital ratios. At June 30, 2020, the impact of the application of this deferral transition provided an additional $21.7 million in Tier 1 capital and resulted in raising the common equity tier 1 ratio by 22 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 excludes the balances of goodwill, other intangible assets and accumulated other comprehensive income/ (loss) from total stockholders’ equity. Tangible assets excludes 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 totaled $968.6 million at June 30, 2020, compared to $782.3 million at December 31, 2019. At June 30, 2020, the ratio of tangible common equity to tangible assets has decreased to 7.52% compared to 9.46% at December 31, 2019. The decrease in tangible common equity was caused primarily by the growth of total assets due to the acquisition of Revere as tangible assets grew at 56% versus the 24% in tangible common equity. Secondary causes of the decline in the ratio were the repurchase of $25.7 million in common stock in the current year and the addition of $34.9 million in goodwill and intangibles from the Revere and RPJ acquisitions during 2020. Excluding the PPP loans from tangible assets, the ratio of tangible common equity to tangible assets was 8.19%.

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)		June 30, 2020			December 31, 2019
Tangible common equity ratio:
Total stockholders' equity		$	1,390,093		$	1,132,974
	Accumulated other comprehensive income/ (loss)		(14,824)			4,332
	Goodwill		(370,547)			(347,149)
	Other intangible assets, net		(36,143)			(7,841)
Tangible common equity		$	968,579		$	782,316

Total assets		$	13,290,447		$	8,629,002
	Goodwill		(370,547)			(347,149)
	Other intangible assets, net		(36,143)			(7,841)
Tangible assets		$	12,883,757		$	8,274,012

Tangible common equity ratio			7.52	%		9.46	%

Outstanding common shares			47,001,022			34,970,370

Tangible book value per share		$	20.61		$	22.37
Book value per share		$	29.58		$	32.40

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 losses. 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.

Loans acquired as a part of an acquisition transaction with evidence of more-than-insignificant credit deterioration since their origination as of the date of the acquisition (“purchased credit deteriorated” or “PCD” loans) are recorded at their initial fair values. The identification of loans that have experienced a more-than-insignificant deterioration in credit quality since their origination requires a judgment and assessment of a number of factors. For further discussion regarding the acquired loans, including PCD loans, refer to that section of Note 1—Significant Accounting Policies.

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 the monitoring of portfolio credit quality, early identification of potential problem credits and the 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 was 0.77% at June 30, 2020, compared to 0.80% at March 31, 2020 and 0.62% at December 31, 2019. At June 30, 2020, non-performing loans totaled $79.9 million, compared to $54.0 million at March 31, 2020, and $41.3 million at December 31, 2019. Non-performing loans include accruing loans 90 days or more past due and restructured loans. The growth in non-performing loans was driven by three major components: loans placed in non-accrual status, acquired Revere non-accrual loans, and loans previously accounted for as purchased credit impaired loans that have been designated as non-accrual loans as a result of the Company’s adoption of the accounting standard for expected credit losses at the beginning of the year. Loans placed on non-accrual during the year amounted to $29.7 million compared to $9.6 million for the prior year. Acquired Revere non-accrual loans were $11.3 million. Excluding the impact of the acquisition of Revere, the current year’s growth in non-accrual loans was primarily the result of three large relationships.

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 our 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 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.

In March 2020, the CARES Act was signed into law and provided financial institutions the option to temporarily suspend certain requirements under GAAP related to TDRs for a limited period of time during the COVID-19 pandemic. In April 2020, the federal regulatory agencies issued a joint statement that provided further guidance on loan modifications related to COVID-19. The CARES Act provides for extensions of up to 180 days in the delay of loan principal and/or interest payments for customers who are affected by the COVID-19 pandemic. These customers must meet certain criteria, such as they were in good standing and not more than 30 days past due prior to the pandemic, as well as other requirements noted in the regulatory agencies’ revised statement. Based on the guidance noted above, the Company does not classify the COVID-19 loan modifications as TDRs, nor are the customers considered past due with regards to their delayed payments. Upon exiting the loan modification deferral program, the measurement of loan delinquency will resume where it left off upon entry into the program.

In response to the COVID-19 pandemic, the Company developed a set of guidelines to provide relief to qualified commercial and mortgage/consumer loans customers. These guidelines, as permitted by the CARES Act, provide for deferment of certain loan payments of up to 180 days to provide relief to qualified commercial, mortgage and consumer loan customers. Initial deferrals of 90 days were granted to qualified customers with the option to request a second deferral for an additional 90 days. The Company granted initial approvals for payment deferrals on over 2,400 loans with an aggregate balance of $2.0 billion. At June 30, 2020, loans with payment accommodation amounted to $1.5 billion or 16% of the total non-PPP loan portfolio. Commercial loans comprised $1.4 billion or 93% of the total accommodations at June 30, 2020. At June 30, 2020, the amount of loans approved for a second deferral period amounted to $39 million. Applying the stipulated criteria, at June 30, 2020, the Company has approved and funded over 5,100 loans for a total of $1.1 billion in loans to businesses. Loans originated under the program are 100% guaranteed under the provisions of the CARES Act.

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 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 $0.6 million for possible 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 $0.8 million at both June 30, 2020 and December 31, 2019.

Analysis of Credit Risk

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

(Dollars in thousands)			June 30, 2020		December 31, 2019
Non-accrual loans:
Residential real estate:
	Residential mortgage		$	11,724	$	12,661
	Residential construction			-		-
Commercial real estate:
	Commercial investor real estate			26,482		8,437
	Commercial owner-occupied real estate			6,729		4,148
	Commercial AD&C			2,957		829
Commercial business				20,246		8,450
Consumer				7,800		4,107
		Total non-accrual loans		75,938		38,632

Loans 90 days past due:
Residential real estate:
	Residential mortgage			138		-
	Residential construction			-		-
Commercial real estate:
	Commercial investor real estate			515		-
	Commercial owner-occupied real estate			775		-
	Commercial AD&C			-		-
Commercial business				-		-
Consumer				-		-
	Total 90 days past due loans			1,428		-

Restructured loans (accruing)				2,553		2,636
	Total non-performing loans			79,919		41,268
Other real estate owned, net				1,389		1,482
	Total non-performing assets		$	81,308	$	42,750


Non-performing loans to total loans				0.77%		0.62%
Non-performing assets to total assets				0.61%		0.50%
Allowance for credit losses to non-performing loans				204.56%		136.02%

The following table discloses information on the credit quality of originated loans, acquired Revere loans and totals loans:

			June 30, 2020
		Originated		Revere Acquired		Total
(Dollars in thousands)		Loans		Loans		Loans
Performing loans:
Current		$	7,765,860	$	2,462,669	$	10,228,529
30-59 days			24,266		2,896		27,162
60-89 days			7,073		360		7,433
Total performing loans			7,797,199		2,465,925		10,263,124
Non-performing loans:
Non-accrual loans			64,134		11,804		75,938
Loans greater than 90 days past due			1,428		-		1,428
Restructured loans			2,553		-		2,553
Total non-performing loans			68,115		11,804		79,919
Total loans		$	7,865,314	$	2,477,729	$	10,343,043

	Non-performing loans to total loans		0.87%		0.48%		0.77%
	Allowance for credit losses to non-performing loans		167.98%		415.64%		204.56%

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”. 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 adequacy 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 amount of 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 provision for credit losses.

During the first quarter of 2020, the Company adopted ASC 326 “Financial Instruments – Credit Losses.” At the adoption date, the allowance for credit losses increased by $5.8 million or 10%. Included in this transition adjustment is the reclassification of $2.8 million to the allowance for credit losses of amounts related to the previously acquired impaired loans. The after-tax transition impact to retained earnings as a result of adopting the new standard was $2.2 million.

The provision for credit losses totaled $83.2 million for the six months ended June 30, 2020 compared to a provision of $1.5 million for the same period in the prior year. During the current year, the provision for credit losses was significantly impacted by the negative projected impact of COVID-19 on specific economic metrics used in the Company’s CECL model. The economic metrics with the greatest impact in order of magnitude were, the expected future unemployment rate, the expected level of business bankruptcies and to a lesser degree, the house price index. These expectations were based on the assessment of the impact on the Company’s market area caused by the economic disruption. The portion of the $83.2 million provision directly attributable to the significant deterioration in the economic forecast amounted to approximately $53.8 million. In addition, as required by GAAP, the initial allowance for credit losses on Revere’s acquired non-PCD loans was recognized through provision for credit losses in the amount of $17.5 million. The remainder of the provision reflects the impact of changes in interest rates, existing terms, qualitative factors, portfolio composition and portfolio maturities. The acquisition of Revere’s PCD loans resulted in an increase to the allowance for credit losses of $18.6 million, which did not affect the current quarter’s provision expense.

At June 30, 2020, the allowance for credit losses was $163.5 million as compared to $56.1 million at December 31, 2019. The allowance for credit losses as a percent of total loans was 1.58% and 0.84% at June 30, 2020 and December 31, 2019, respectively. The allowance for credit losses represented 205% of non-performing loans at June 30, 2020 as compared to 136% at December 31, 2019. The allowance attributable to the commercial portfolio represented 1.70% of total commercial loans while the portion attributable to total combined consumer and mortgage loans was 1.04%. With respect to the total commercial portion of the allowance, 41% 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 2.64%. A similar ratio with respect to AD&C loans was 1.91% 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 1.76% and the ratio of the allowance for commercial business loans to total commercial business loans would be 5.02%

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 90% of the total allowance being attributable to the historical performance of the portfolio while 10% of the allowance is attributable to the collective qualitative factors applied to determine the allowance. The methodology used under previous accounting guidance in prior periods was dependent to a large degree on the application of qualitative factors which resulted in 85% of the total allowance being attributable to those qualitative factors with the remaining portion of the prior period’s allowance being dependent on historical loss experience.

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. At initial adoption of CECL, management opted for the application of the reasonable and supportable forecast period of two years under stable economic conditions. However, under the current deteriorated economic conditions, the reasonable and supportable forecast period was adjusted during the first quarter’s determination of the allowance for credit losses to one year, due to the inherent uncertainty in the future economic outlook. Management has retained the one year forecast period in the current quarter’s estimate of the allowance for credit losses. Following the end of the reasonable and supportable forecast period expected losses revert back to 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 $60.5 million, with individual allowances of $8.8 million against those loans at June 30, 2020.

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 87% of total loans at both June 30, 2020 and December 31, 2019. 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.

Summary of Loan Credit Loss Experience

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

			Six Months Ended		Year Ended
(Dollars in thousands)			June 30, 2020		December 31, 2019
Balance, January 1			$	56,132	$	53,486
Initial allowance on PCD loans at adoption of ASC 326				2,762		-
Transition impact of adopting ASC 326				2,983		-
Initial allowance on acquired Revere PCD loans				18,628		-
Provision for credit losses				83,155		4,684
Loan charge-offs:
Residential real estate:
	Residential mortgage			(414)		(690)
	Residential construction			-		-
Commercial real estate:
	Commercial investor real estate			-		-
	Commercial owner-occupied real estate			-		-
	Commercial AD&C			-		-
Commercial business				(339)		(1,195)
Consumer				(286)		(783)
	Total charge-offs			(1,039)		(2,668)
Loan recoveries:
Residential real estate:
	Residential mortgage			66		138
	Residential construction			3		8
Commercial real estate:
	Commercial investor real estate			4		16
	Commercial owner-occupied real estate			-		-
	Commercial AD&C			-		228
Commercial business				694		49
Consumer				93		191
	Total recoveries			860		630
	Net charge-offs			(179)		(2,038)
		Balance, period end	$	163,481		56,132


Net charge-offs to average loans				0.00%		0.03%
Allowance for credit losses to loans				1.58%		0.84%

The following table discloses information on allowance for credit losses and allowance ratios for originated loans and Revere acquired non-PCD and PCD loans:

		June 30, 2020
						Revere acquired loans
		Originated Loans				Non-PCD				PCD				Total Loans
				Reserve				Reserve				Reserve				Reserve
(Dollars in thousands)		Allowance		Ratio		Allowance		Ratio		Allowance		Ratio		Allowance		Ratio
Residential real estate:
	Residential mortgage	$	11,409	1.02	%	$	835	1.01	%	$	232	2.04	%	$	12,476	1.03	%
	Residential construction		1,284	0.81			82	0.83			6	0.83			1,372	0.81
Commercial real estate:
	Commercial owner-occupied real estate		12,789	1.09			2,655	1.05			3,236	1.90			18,680	1.17
	Commercial investor real estate		30,054	1.23			7,435	1.14			9,451	1.99			46,940	1.31
	Commercial AD&C		13,237	1.93			4,294	1.85			1,487	1.85			19,018	1.91
Commercial business			40,757	2.22			8,567	4.49			9,312	4.80			58,636	2.64
Consumer			4,889	1.12			1,259	1.13			211	0.83			6,359	1.14
	Total loans	$	114,419	1.45		$	25,127	1.64		$	23,935	2.54		$	163,481	1.58

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 Bank’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 a 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%
June 30, 2020	7.46%	5.43%	3.56%	1.39%	N/A	N/A	N/A	N/A
December 31, 2019	11.26%	8.71%	6.06%	3.06%	(3.47%)	N/A	N/A	N/A

The impact of these various interest movements on net interest income are reflected in the preceding table. At June 30, 2020, further interest rate declines are improbable due to the low level of existing market rates. As reflected in the table, in a rising interest rate environment, net interest income sensitivity decreased compared to December 31, 2019. The change in the net interest income at risk resulted from decreased asset sensitivity due to the impact of repricing the acquired deposits and the timing associated with the repricing of variable rate loans. 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%
June 30, 2020	(7.17%)	(3.67%)	(0.07%)	1.27%	N/A	N/A	N/A	N/A
December 31, 2019	(9.13%)	(5.54%)	(2.34%)	(0.06%)	(0.95%)	N/A	N/A	N/A

Overall, the measure of the EVE at risk decreased in all rising rate scenarios from December 31, 2019 to June 30, 2020. The improvement in EVE in all rising rate scenarios is the result of the combination of longer durations of noninterest-bearing deposits while loan durations shortened with the inclusion of Revere’s portfolio and inclusion of the PPP program. Additionally, the inclusion of the related PPP funding facility substantially shortened the duration of borrowings.

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 June 30, 2020.

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 73% of total interest-earning assets at June 30, 2020. 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 June 30, 2020, 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 $2.4 billion, all of which was available for borrowing based on pledged collateral, with $452 million borrowed against it as of June 30, 2020. The secured lines of credit at the Federal Reserve Bank and correspondent banks totaled $383 million, all of which was available for borrowing based on pledged collateral, with no borrowings against it as of June 30, 2020. In addition, the Company had unsecured lines of credit with correspondent banks of $880 million at June 30, 2020. At June 30, 2020, there were no outstanding borrowings against these lines of credit. At June 30, 2020, the Company borrowed $845

million under the PPPLF. These funds are secured by guaranteed loans originated under the PPP program. Based upon its liquidity analysis, including external sources of liquidity available, management believes the liquidity position was appropriate at June 30, 2020.

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 June 30, 2020, the Bank could have declared a dividend of $115 million to Bancorp. At June 30, 2020, Bancorp had liquid assets of $48 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:

			June 30,	December 31,
(In thousands)		2020		2019
Commercial real estate development and construction		$	601,205	$	571,368
Residential real estate-development and construction			189,779		89,224
Real estate-residential mortgage			240,622		74,282
Lines of credit, principally home equity and business lines			2,056,300		1,400,038
Standby letters of credit			70,747		62,065
	Total commitments to extend credit and available credit lines	$	3,158,653	$	2,196,977

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.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See “Financial Condition - Market Risk and Interest Rate Sensitivity” 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 June 30, 2020 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

The information below updates, and should be read in conjunction with, the risk factors and information disclosed in our Form 10-K for the year ended December 31, 2019. Except as presented below, there have been no material changes in the risk factors as discussed in our Form 10-K.

The widespread outbreak of the novel coronavirus ("COVID-19") has adversely affected, and will likely continue to adversely affect, our business, financial condition, and results of operations. Moreover, the longer the pandemic persists, the more material the ultimate effects are likely to be.

The COVID-19 pandemic is negatively impacting economic and commercial activity and financial markets, both globally and within the United States. In our market area, the governors of Maryland and Virginia and the mayor of the District of Columbia issued orders that, among other things, required residents to stay in their homes and permitted them to leave only to conduct certain essential activities or to travel to work, closed all non-essential businesses to the general public, and closed certain businesses such as senior centers, restaurants, bars, fitness centers and shopping malls. These stay-at-home orders and travel restrictions – and similar orders imposed across the United States to restrict the spread of COVID-19 – resulted in significant business and operational disruptions, including business closures, supply chain disruptions, and mass layoffs and furloughs. Local jurisdictions have subsequently lifted stay-at-home orders and moved to phased reopening of businesses, although capacity restrictions and health and safety recommendations that encourage continued physical distancing and teleworking have limited the ability of businesses to return to pre-pandemic levels of activity.

We have implemented business continuity plans and continue to provide financial services to clients, while taking health and safety measures such as transitioning most in-person customer transactions to our drive-thru facilities and limiting access to the interior of our facilities, frequent cleaning of our facilities, and using a remote workforce where possible. Despite these safeguards, we may nonetheless experience business disruptions.

The COVID-19 pandemic has negatively affected our business and is likely to continue to do so. However, the extent to which COVID-19 will negatively affect our business is unknown and will depend on the geographic spread of the virus, the overall severity of the disease, the duration of the pandemic, the actions undertaken by national, state and local governments and health officials to contain the virus or treat its effects, and how quickly and to what extent economic conditions improve and normal business and operating conditions resume. The longer the pandemic persists, the more material the ultimate effects are likely to be.

The continued spread of COVID-19 and the efforts to contain the virus, including stay-at-home orders and travel restrictions, could:

 cause changes in consumer and business spending, borrowing and saving habits, which may affect the demand for loans and other products and services we offer, as well as the creditworthiness of potential and current borrowers;

 cause our borrowers to be unable to meet existing payment obligations, particularly those borrowers that may be disproportionately affected by business shut downs and travel restrictions, such as those operating in the travel, lodging, retail, and entertainment industries, resulting in increases in loan delinquencies, problem assets, and foreclosures;

 cause the value of collateral for loans, especially real estate, to decline in value;

 reduce the availability and productivity of our employees;

 require us to increase our allowance for credit losses;

 cause our vendors and counterparties to be unable to meet existing obligations to us;

 negatively impact the business and operations of third party service providers that perform critical services for our business;

 cause a material decrease in the market value of assets under management, which would have a negative impact on our wealth management revenues due to the fact that our wealth management fees are based on the market value of client assets;

 impede our ability to close mortgage loans, if appraisers and title companies are unable to perform their functions;

 cause the value of our securities portfolio to decline; and

 cause the net worth and liquidity of loan guarantors to decline, impairing their ability to honor commitments to us.

Any one or a combination of the above events could have a material, adverse effect on our business, financial condition, and results of operations.

Moreover, our success and profitability is substantially dependent upon the management skills of our executive officers, many of whom have held officer positions with us for many years. The unanticipated loss or unavailability of key employees due to COVID-19 could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.

Certain actions taken by U.S. or other governmental authorities, including the Federal Reserve, that are intended to ameliorate the macroeconomic effects of COVID-19 may cause additional harm to our business. Decreases in short-term interest rates, such as those announced by the Federal Reserve during the first fiscal quarter of 2020, have a negative impact on our results, as we have certain assets and liabilities that are sensitive to changes in interest rates.

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

In December 2018, the Company’s board of directors authorized the repurchase of up to 1,800,000 shares of common stock. For the six months ended June 30, 2020, the Company repurchased and retired 820,328 shares of its common stock at an average price of $31.33 per share. The Company did not repurchase shares during the three months ended June 30, 2020. Cumulatively under the program, as of June 30, 2020, the Company has repurchased and retired 1,488,519 shares of its common stock at an average price of $33.58 per share.

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.SCHXBRL Taxonomy Extension Schema Document

Exhibit 101.CALXBRL Taxonomy Extension Calculation Linkbase Document

Exhibit 101.DEFXBRL Taxonomy Extension Definition Linkbase Document

Exhibit 101.LABXBRL Taxonomy Extension Label Linkbase Document

Exhibit 101.PREXBRL Taxonomy Extension Presentation Linkbase Document

Exhibit 104Cover 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: August 7, 2020

By: /s/ Philip J. Mantua

Philip J. Mantua

Executive Vice President and Chief Financial Officer

Date: August 7, 2020