Eagle Bancorp(US:EGBN)2021-02-28 16:00Part I Business Eagle Bancorp, Inc. operates EagleBank, a community bank focused on relationship banking for businesses in the Washington, D.C. metro area, with a significant commercial real estate loan concentration - Eagle Bancorp, Inc. is the holding company for EagleBank, a Maryland-chartered commercial bank operating 20 offices across Suburban Maryland, the District of Columbia, and Northern Virginia910 - The Bank's business model is centered on providing personalized, relationship-based banking services as an alternative to larger super-regional institutions in its market11 Loan Portfolio Composition (as of December 31, 2020) | Loan Category | Percentage of Portfolio | | :--- | :--- | | Commercial Real Estate (Non-owner occupied) & Construction | 58% | | Commercial & Industrial (C&I) | 19% | | Commercial Real Estate (Owner occupied) & Construction | 15% | | Paycheck Protection Program (PPP) | 6% | | Consumer (Home Equity, Residential Mortgage, etc.) | 2% | - The company participated in the Paycheck Protection Program (PPP) in 2020, a federal lending program administered through the SBA to support small businesses during the COVID-19 pandemic18 - As of December 31, 2020, the company employed 515 full and part-time employees, with women representing 59% and racial and ethnic minorities representing 61% of the workforce6668 - The company and the bank are subject to comprehensive regulation and supervision by the Federal Reserve Board and the State of Maryland Office of Financial Regulation, covering aspects like capital adequacy, lending, and deposit activities7683 Risk Factors The company faces significant risks from the COVID-19 pandemic, high commercial real estate loan concentration, liquidity, increasing regulatory scrutiny, and cybersecurity threats - The COVID-19 pandemic poses a significant risk, adversely affecting customer creditworthiness, loan quality, and operational stability, with the Accommodation and Food Service industry (10% of the loan portfolio) particularly impacted138140 - A substantial portion of the loan portfolio (85% secured by real estate) is concentrated in commercial real estate within the Washington, D.C. metropolitan area, creating a greater risk of defaults if the regional real estate market or economy deteriorates165 - The company faces liquidity risk, as its largest funding source is customer deposits; a significant withdrawal of uninsured deposits (which were $3.3 billion, or 36% of total deposits, at year-end) could force reliance on more expensive funding sources160161 - As the company's assets approach and exceed $10 billion, it may become subject to additional and more stringent regulation and supervision by the Consumer Financial Protection Bureau (CFPB), which could increase compliance costs196 - The company is exposed to cybersecurity risks, including attacks on its systems or those of its vendors, which could lead to financial losses, remediation costs, and reputational damage220221 - The adoption of the Current Expected Credit Loss (CECL) accounting standard on January 1, 2020, introduces more volatility to the allowance for credit losses, as it requires estimating lifetime expected losses based on inherently subjective and complex forecasts215217 Unresolved Staff Comments The company has no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments229 Properties The company operates 30 leased facilities, including its principal office in Bethesda, Maryland, across the Washington, D.C. metropolitan area - The company operates out of 30 leased facilities, including its principal office in Bethesda, Maryland, and various branch and operating locations in Washington, D.C., Suburban Maryland, and Northern Virginia229 Legal Proceedings The company is involved in routine legal proceedings, which management does not expect to have a material financial impact - The company is involved in various legal proceedings in the ordinary course of business but does not expect them to have a material financial impact231232 Mine Safety Disclosures This item is not applicable to the company - Not applicable233 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, declared $0.88 per share in dividends in 2020, and repurchased 458,069 shares in Q4 2020 - The company's common stock is listed on the Nasdaq Capital Market under the symbol 'EGBN', with 31,783,355 shares outstanding as of February 1, 2021235 - In 2020, the company declared aggregate cash dividends of $0.88 per share, totaling $28.3 million236 Issuer Repurchases of Common Stock (Q4 2020) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | October 2020 | — | n/a | | November 2020 | 371,300 | $37.46 | | December 2020 | 86,769 | $38.51 | | Total Q4 | 458,069 | $37.66 | - A new share repurchase program was authorized on December 16, 2020, for up to 1,588,848 shares, effective from January 1, 2021, through December 31, 2021242 Selected Financial Data In 2020, total assets grew to $11.1 billion and deposits to $9.2 billion, while net income decreased to $132.2 million due to higher credit loss provisions Selected Historical Financial Data (2018-2020) | (in thousands) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Balance Sheet Data | | | | | Total Assets | $11,117,802 | $8,988,719 | $8,389,137 | | Loans | $7,760,212 | $7,545,748 | $6,991,447 | | Deposits | $9,189,203 | $7,224,391 | $6,974,285 | | Total Shareholders' Equity | $1,240,892 | $1,190,681 | $1,108,941 | | Income Statement Data | | | | | Net Interest Income | $321,562 | $324,045 | $316,993 | | Provision for Credit Losses | $45,571 | $13,091 | $8,660 | | Net Income | $132,217 | $142,943 | $152,276 | Key Performance Ratios (2018-2020) | Ratio | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net Interest Margin | 3.19% | 3.77% | 4.10% | | Efficiency Ratio | 39.25% | 39.99% | 37.31% | | Return on Average Assets | 1.28% | 1.61% | 1.91% | | Return on Average Common Equity | 10.98% | 12.20% | 14.89% | | Net Charge-offs to Average Loans | 0.26% | 0.13% | 0.05% | - The company uses non-GAAP financial measures such as tangible common equity, tangible book value per common share, and efficiency ratio, which management believes are useful for investors in analyzing performance250257 Management's Discussion and Analysis of Financial Condition and Results of Operations 2020 financial performance was impacted by COVID-19 and CECL adoption, resulting in decreased net income to $132.2 million despite significant asset and deposit growth - The COVID-19 pandemic led to unprecedented economic disruption, prompting the company to implement loan modification programs, participate in the PPP, and adapt business practices278279282 Key Financial Results (2020 vs. 2019) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net Income | $132.2M | $142.9M | | Diluted EPS | $4.09 | $4.18 | | Net Interest Margin | 3.19% | 3.77% | | Provision for Credit Losses | $45.6M | $13.1M | | Noninterest Income | $45.7M | $25.7M | | Total Assets (Year-End) | $11.1B | $9.0B | - The adoption of the CECL accounting standard on January 1, 2020, required an initial $10.6 million increase to the Allowance for Credit Losses (ACL) and contributed to higher provision expense throughout the year291337 - Nonperforming assets increased to $65.9 million (0.59% of total assets) at year-end 2020, up from $50.2 million (0.56% of total assets) at year-end 2019408 - The company's capital position remained strong, with a Total risk-based capital ratio of 17.04% at December 31, 2020, well in excess of regulatory requirements for a well-capitalized institution367 Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate risk, managed by ALCO, showing a moderately asset-sensitive position with a 1.6% projected net interest income increase from a 100 bps rate rise - The company's primary market risk is interest rate risk, which is managed by the Asset/Liability Committee (ALCO) through established policies and regular monitoring511 Interest Rate Sensitivity Analysis (as of December 31, 2020) | Change in Interest Rates (bps) | % Change in Net Interest Income (12 months) | % Change in Net Income (12 months) | % Change in Market Value of Portfolio Equity | | :--- | :--- | :--- | :--- | | +200 | +5.0% | +8.5% | +4.7% | | +100 | +1.6% | +2.8% | +2.8% | | -100 | -1.6% | -2.6% | -11.3% | - At December 31, 2020, the company had a positive cumulative interest rate sensitivity gap of $352 million (3% of total assets) within one year, indicating a moderately asset-sensitive balance sheet536 - The company uses interest rate swaps to manage interest rate risk, with one $100.0 million notional swap outstanding at year-end 2020, designated as a cash flow hedge against variable rate deposits519 Financial Statements and Supplementary Data This section presents the consolidated financial statements and an unqualified auditor's opinion, highlighting CECL adoption as a critical audit matter due to significant judgments - The independent registered public accounting firm, Dixon Hughes Goodman LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of the company's internal control over financial reporting as of December 31, 2020546561 - The auditor identified the Allowance for Credit Losses as a critical audit matter due to significant management judgment required in determining historical loss experience, forecasting future economic conditions, and applying qualitative adjustments following CECL adoption553557 - The company adopted ASC Topic 326 (CECL) on January 1, 2020, resulting in a $10.6 million increase to the allowance for credit losses on loans and a $4.1 million increase to the reserve for unfunded commitments, recorded as a cumulative-effect adjustment to retained earnings548673 Consolidated Balance Sheet Highlights (December 31, 2020 vs 2019) | (in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Total Assets | $11,117,802 | $8,988,719 | | Loans, net | $7,650,633 | $7,472,090 | | Total Deposits | $9,189,203 | $7,224,391 | | Total Shareholders' Equity | $1,240,892 | $1,190,681 | Consolidated Income Statement Highlights (2020 vs 2019) | (in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Net Interest Income | $321,562 | $324,045 | | Provision for Credit Losses | $45,571 | $13,091 | | Noninterest Income | $45,696 | $25,699 | | Net Income | $132,217 | $142,943 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting principles, disclosures, or auditing scope - There were no changes in or disagreements with accountants on accounting and financial disclosures917 Controls and Procedures Management concluded disclosure controls were effective as of December 31, 2020, following full remediation of a 2019 material weakness in the control environment - Management concluded that as of December 31, 2020, the company's disclosure controls and procedures were effective919 - A material weakness in internal control over financial reporting identified as of December 31, 2019, was fully remediated by December 31, 2020918928 - Remediation actions included splitting Chairman/CEO roles, restructuring the Board, hiring a new Chief Legal Officer, enhancing ethics programs, and strengthening related party transaction policies929 - The independent registered public accounting firm, Dixon Hughes Goodman LLP, issued an unqualified report on the effectiveness of the company's internal control over financial reporting as of December 31, 2020926 Other Information No other information is reported under this item - None932 Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement - Information for this item is incorporated by reference from the company's 2021 Proxy Statement933 Executive Compensation Information on executive compensation is incorporated by reference from the 2021 Proxy Statement - Information for this item is incorporated by reference from the company's 2021 Proxy Statement934 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership of beneficial owners and management is incorporated by reference from the 2021 Proxy Statement - Information for this item is incorporated by reference from the company's 2021 Proxy Statement935 Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2021 Proxy Statement - Information for this item is incorporated by reference from the company's 2021 Proxy Statement936 Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the 2021 Proxy Statement - Information for this item is incorporated by reference from the company's 2021 Proxy Statement937 Part IV Exhibits and Financial Statement Schedules This section details the financial statements, schedules, and exhibits filed with the Form 10-K, including an extensive list of corporate governance and material contracts - This section includes the consolidated financial statements and the report of the independent registered public accounting firm, Dixon Hughes Goodman LLP939 - A list of exhibits filed with the report is provided, including the Certificate of Incorporation, Bylaws, indentures related to subordinated notes, various employment and compensation agreements, and required certifications940