Eagle Bancorp(US:EGBN)2020-03-02 21:57Part I Business Eagle Bancorp, Inc. operates EagleBank, a D.C. metro area community bank focused on commercial real estate lending, subject to extensive regulation - Eagle Bancorp, Inc. is the holding company for EagleBank, operating 20 banking offices across Suburban Maryland, D.C., and Northern Virginia1213 - The loan portfolio is heavily concentrated in commercial real estate, with 78% in CRE loans and 85% of all loans secured by real estate at year-end 201925361 - The company is subject to extensive regulation by the Federal Reserve Board and Maryland Office of Financial Regulation, covering capital requirements, lending, and consumer protection697077 Loan Portfolio Composition (December 31, 2019) | Loan Category | Amount (in thousands) | % of Total | | :--- | :--- | :--- | | Commercial | $1,545,906 | 20% | | Income producing - commercial real estate | $3,702,747 | 50% | | Owner occupied - commercial real estate | $985,409 | 13% | | Real estate mortgage - residential | $104,221 | 1% | | Construction - commercial and residential | $1,035,754 | 14% | | Construction - C&I (owner occupied) | $89,490 | 1% | | Home equity & Other consumer | $82,221 | 1% | | Total Loans | $7,545,748 | 100% | Risk Factors The company faces market, operational, and regulatory risks, including stock price volatility, high CRE loan concentration, litigation, and cybersecurity threats - The company's stock price may fluctuate significantly due to factors such as operating results, analyst reports, strategic actions, and general market conditions, with short seller reports previously causing significant declines133136 - A substantial portion of the loan portfolio (85% at Dec 31, 2019) is secured by real estate, primarily commercial real estate in the Washington, D.C. area, exposing the company to local market risks175 - The adoption of the Current Expected Credit Loss (CECL) model, effective January 1, 2020, is expected to materially affect the allowance for credit losses and may create more volatility, with an anticipated one-time 10% to 20% increase in its reserve upon adoption152153 - The company is subject to litigation and regulatory actions, including ongoing investigations by securities and banking regulators and U.S. Attorney's offices, which could result in significant fines or restrictions184185 - Operations are increasingly conducted electronically, increasing risks related to cybersecurity, where a breach could result in remediation costs, regulatory penalties, litigation, and reputational damage210211212 Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None219 Properties The company operates from 30 leased facilities, including 20 branch offices and corporate centers across Suburban Maryland, Northern Virginia, and D.C - All properties from which the Company operates are leased, including 20 branch offices, executive offices, commercial lending centers, and residential lending centers as of December 31, 2019220224 Legal Proceedings The company is involved in a class-action lawsuit and ongoing regulatory investigations concerning internal controls, related-party loans, and former officer conduct - A putative class action lawsuit was filed against the Company in July 2019, alleging violations of the Securities Exchange Act of 1934 related to disclosures about internal controls and related party loans226227 - The Company has received document requests and subpoenas from securities and banking regulators and U.S. Attorney's offices, believed to relate to related party transactions, the retirement of former officers/directors, and relationships with a local public official228 Mine Safety Disclosures This item is not applicable to the company - Not applicable229 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq (EGBN), initiated a quarterly dividend, and authorized a share repurchase program for up to 1.64 million shares - The Company's common stock is listed on the Nasdaq Capital Market under the symbol "EGBN"231 - In the second quarter of 2019, the Company began paying a regular quarterly dividend of $0.22 per share, totaling $0.66 per share for the year232 Issuer Repurchases of Common Stock (Q4 2019) | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Publicly Announced Program | | :--- | :--- | :--- | :--- | | Oct 2019 | 160,707 | $44.52 | 141,000 | | Nov 2019 | 283,500 | $44.68 | 283,500 | | Dec 2019 | 57,800 | $44.30 | 57,800 | | Total | 502,007 | $44.59 | 482,300 | - On December 18, 2019, the Board extended and expanded the stock repurchase program, authorizing the purchase of up to 1,641,000 shares through December 31, 2020240 Selected Financial Data This section presents a five-year summary of key consolidated financial data, including balance sheet, income statement, per-share metrics, and performance ratios Selected Financial Data (2015-2019) | (in thousands) | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Assets | $8,988,719 | $8,389,137 | $7,479,029 | $6,890,096 | $6,075,577 | | Loans | $7,545,748 | $6,991,447 | $6,411,528 | $5,677,893 | $4,998,368 | | Deposits | $7,224,391 | $6,974,285 | $5,853,984 | $5,716,114 | $5,158,444 | | Total Shareholders' Equity | $1,190,681 | $1,108,941 | $950,438 | $842,799 | $738,601 | | Net Income | $142,943 | $152,276 | $100,232 | $97,707 | $84,167 | Selected Performance Ratios (2015-2019) | Ratio | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Net Interest Margin | 3.77% | 4.10% | 4.15% | 4.16% | 4.33% | | Efficiency Ratio | 39.99% | 37.31% | 37.84% | 40.29% | 42.49% | | Return on Average Assets | 1.61% | 1.91% | 1.41% | 1.52% | 1.49% | | Return on Average Common Equity | 12.20% | 14.89% | 11.06% | 12.27% | 12.32% | Management's Discussion and Analysis of Financial Condition and Results of Operations Net income decreased 6% to $142.9 million in 2019 due to margin compression and higher expenses, despite 7% asset growth to $8.99 billion and strong capital - Net income for 2019 was $142.9 million ($4.18 per diluted share), a 6% decrease from $152.3 million ($4.42 per diluted share) in 2018293296 - The net interest margin decreased by 33 basis points to 3.77% in 2019 from 4.10% in 2018, driven by a 43 basis point decrease in the net interest spread as the cost of interest-bearing liabilities increased299300301 - Noninterest expense increased 10% to $139.9 million in 2019, primarily due to $8.2 million in nonrecurring charges for accelerated share-based compensation related to executive retirements and a 25% increase in legal and professional fees associated with government investigations306336339 - Total assets grew 7% to $8.99 billion at year-end 2019, while total loans increased 8% to $7.55 billion, and the company's capital ratios remained well above regulatory requirements for "well capitalized" status344346 Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk through ALCO, showing moderate asset sensitivity with a projected 5.1% net interest income increase from a 100 bps rate hike - The company's Asset Liability Committee (ALCO) monitors and manages interest rate risk through established policies and regular reviews485 Interest Rate Sensitivity Analysis (as of Dec 31, 2019) | Change in Interest Rates (bps) | % Change in Net Interest Income (12 mo.) | % Change in Net Income (12 mo.) | | :--- | :--- | :--- | | +400 | +20.9% | +36.2% | | +200 | +10.4% | +18.0% | | +100 | +5.1% | +8.8% | | (100) | -3.2% | -5.6% | | (200) | -7.7% | -13.3% | - At December 31, 2019, the company had a positive cumulative GAP position of $243 million (3% of total assets) within 12 months, indicating that more assets than liabilities would reprice in a rising rate environment over that period510 Financial Statements and Supplementary Data This section contains audited 2019 financial statements, with an unqualified auditor opinion on financials but an adverse opinion on internal controls due to a material weakness - The independent auditor, Dixon Hughes Goodman LLP, issued an unqualified opinion on the consolidated financial statements, stating they present fairly, in all material respects, the financial position of the Company521 - The auditor issued an adverse opinion on the Company's internal control over financial reporting as of December 31, 2019, due to a material weakness related to "tone at the top" issues that contributed to a control environment insufficiently tailored to the culture of deference afforded to the former CEO543859 Consolidated Balance Sheet Highlights (in thousands) | | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Total Loans, net | $7,472,090 | $6,921,503 | | Total Assets | $8,988,719 | $8,389,137 | | Liabilities & Equity | | | | Total Deposits | $7,224,391 | $6,974,285 | | Total Liabilities | $7,798,038 | $7,280,196 | | Total Shareholders' Equity | $1,190,681 | $1,108,941 | Consolidated Statement of Operations Highlights (in thousands) | | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Net Interest Income | $324,045 | $316,993 | $283,887 | | Provision for Credit Losses | $13,091 | $8,660 | $8,971 | | Noninterest Income | $25,699 | $22,586 | $29,372 | | Noninterest Expense | $139,862 | $126,711 | $118,552 | | Net Income | $142,943 | $152,276 | $100,232 | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosures - None851 Controls and Procedures Management concluded disclosure controls were ineffective due to a material weakness from "tone at the top" issues related to the former CEO, impacting related-party loan and vendor contract reviews, with remediation efforts ongoing - Management concluded that due to a material weakness in internal control over financial reporting, the Company's disclosure controls and procedures were not effective as of December 31, 2019852 - The material weakness stemmed from "tone at the top" issues contributing to a control environment insufficiently tailored to the culture of deference for the former Chairman, President and CEO, manifesting in deficiencies related to communication, review of related party loans, and review of vendor contracts859 - Remediation efforts undertaken in 2019 include splitting the Chairman and CEO roles, restructuring the Board, hiring a new Chief Legal Officer, formalizing the ethics program, and enhancing policies for related party transactions and vendor contracts863 Other Information The company reports no other information for this item - None866 Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the company's 2020 definitive proxy statement - The information required by this item is incorporated by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 21, 2020868 Executive Compensation Executive compensation details, including director compensation, are incorporated by reference from the company's 2020 definitive proxy statement - The information required by this item is incorporated by reference from the Company's definitive Proxy Statement869 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section provides information on securities authorized for issuance under equity compensation plans, with further details incorporated from the 2020 proxy statement Equity Compensation Plan Information (as of Dec 31, 2019) | Plan Category | Securities to be Issued Upon Exercise (a) | Weighted-Average Exercise Price (b) | Securities Available for Future Issuance (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 6,589 | $19.99 | 1,059,207 | | Equity compensation plans not approved by security holders | 0 | $0 | 0 | | Total | 6,589 | $19.99 | 1,059,207 | Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the company's 2020 definitive proxy statement - The information required by this item is incorporated by reference from the Company's definitive Proxy Statement875 Principal Accountant Fees and Services Details on principal accountant fees and services are incorporated by reference from the company's 2020 definitive proxy statement - The information required by this item is incorporated by reference from the Company's definitive Proxy Statement876 Part IV Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K report, including key corporate documents and SEC certifications - This section lists all financial statements and exhibits filed with the annual report, with all financial statement schedules omitted as the required information is either inapplicable or included elsewhere in the report877