Eagle Bancorp(EGBN) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents Eagle Bancorp, Inc.'s unaudited consolidated financial statements for Q1 2022, including balance sheets, income statements, and cash flow data with detailed notes Consolidated Balance Sheets Total assets decreased to $11.23 billion as of March 31, 2022, driven by reductions in interest-bearing deposits, total liabilities, and shareholders' equity Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $11,227,223 | $11,847,310 | | Loans, net | $7,042,302 | $6,990,633 | | Investment securities (AFS & HTM) | $2,929,032 | $2,623,408 | | Total deposits | $9,586,259 | $9,981,540 | | Total Liabilities | $9,947,669 | $10,496,535 | | Total Shareholders' Equity | $1,279,554 | $1,350,775 | Consolidated Statements of Income Net income increased to $45.7 million for Q1 2022, primarily due to a significant decrease in noninterest expense, despite declines in net interest and noninterest income Statement of Income Summary (in thousands, except per share data) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net Interest Income | $80,452 | $82,651 | | Reversal of Credit Losses | ($2,787) | ($2,350) | | Total noninterest income | $7,453 | $10,587 | | Total noninterest expense | $31,012 | $37,987 | | Net Income | $45,744 | $43,469 | | Diluted EPS | $1.42 | $1.36 | Consolidated Statements of Comprehensive (Loss) Income The company reported a comprehensive loss of $61.7 million for Q1 2022, primarily due to a $107.5 million other comprehensive loss from unrealized losses on securities Comprehensive (Loss) Income (in thousands) | Component | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net Income | $45,744 | $43,469 | | Other comprehensive loss | ($107,482) | ($17,498) | | Comprehensive (Loss) Income | ($61,738) | $25,971 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity decreased by $71.2 million in Q1 2022 to $1.28 billion, primarily due to a $107.5 million other comprehensive loss offsetting net income and dividends Q1 2022 Changes in Shareholders' Equity (in thousands) | Component | Amount | | :--- | :--- | | Balance January 1, 2022 | $1,350,775 | | Net Income | $45,744 | | Other comprehensive loss, net of tax | ($107,482) | | Cash dividends declared ($0.40 per share) | ($12,665) | | Other (Stock comp, etc.) | $3,182 | | Balance March 31, 2022 | $1,279,554 | Consolidated Statements of Cash Flows Cash and cash equivalents decreased by $991.8 million in Q1 2022, driven by significant outflows from investing and financing activities, despite positive cash flow from operations Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $60,852 | $11,257 | | Net Cash Used in Investing Activities | ($497,728) | ($2,162) | | Net Cash Used in Financing Activities | ($554,964) | ($54,879) | | Net Decrease in Cash and Cash Equivalents | ($991,840) | ($45,784) | Notes to Consolidated Financial Statements This section details accounting policies and financial data, including the transfer of $1.1 billion in securities, loan portfolio specifics, and updates on legal contingencies and D&O insurance - In Q1 2022, the company transferred $1.1 billion of securities from available-for-sale (AFS) to held-to-maturity (HTM), including residential mortgage-backed securities, municipal bonds, and corporate bonds. The related unrealized loss of $66.2 million remained in other comprehensive loss to be amortized over the securities' remaining lives[72] - The Allowance for Credit Losses (ACL) on loans decreased from $75.0 million at year-end 2021 to $71.5 million at March 31, 2022, reflecting a $3.0 million reversal of provision for credit losses during the quarter[81][94] - The company is in discussions with the SEC and Federal Reserve Board staff regarding potential resolutions of ongoing investigations. It warns that its Directors and Officers (D&O) insurance policies, which cover legal defense costs, may be exhausted as early as the second quarter of 2022[178][179][180] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q1 2022 financial performance, highlighting a 5.2% net income increase to $45.7 million driven by reduced noninterest expenses, alongside details on financial condition, capital ratios, and market risk Results of Operations Net income increased to $45.7 million in Q1 2022, primarily due to an 18% decrease in noninterest expense, despite declines in net interest income and noninterest income Q1 2022 vs Q1 2021 Performance | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net Income | $45.7 million | $43.5 million | | Net Interest Income | $80.5 million | $82.7 million | | Net Interest Margin | 2.65% | 2.98% | | Noninterest Income | $7.5 million | $10.6 million | | Noninterest Expense | $31.0 million | $38.0 million | | Efficiency Ratio | 35.28% | 40.74% | - Noninterest expense decreased significantly due to a $5.0 million accrual reduction related to stock-based compensation and deferred compensation for the former CEO, as the company believes related claims are now time-barred[254] - The company recorded a reversal of credit losses on loans of $3.0 million in Q1 2022, compared to a $2.3 million reversal in Q1 2021, primarily due to improvements in the economic environment and asset quality[223] Financial Condition Total assets decreased to $11.2 billion as of March 31, 2022, while loans remained stable and deposits declined, leading to a $71.2 million decrease in shareholders' equity despite strong capital ratios Financial Condition Highlights | Metric | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $11.2 billion | $11.8 billion | | Total Loans | $7.1 billion | $7.1 billion | | Total Deposits | $9.6 billion | $10.0 billion | | Shareholders' Equity | $1.3 billion | $1.4 billion | | Tangible Book Value Per Share | $36.64 | $38.97 | - The company's capital ratios remain strong, with a Common Equity Tier 1 (CET1) ratio of 14.74% and a Total Risk-Based Capital ratio of 15.86%, both well above regulatory requirements[268][335] - The company's concentration in construction, land development, and other land acquisition loans was 110% of total risk-based capital, exceeding the 100% regulatory threshold for potential concentration risk, requiring heightened risk management[328] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to Item 2 for market risk disclosures, indicating the company is asset-sensitive with projected net interest income increases in rising rate scenarios, managed through simulation models and gap analysis - The company's market risk disclosures are detailed in the 'Asset/Liability Management and Quantitative and Qualitative Disclosure about Market Risk' section of the MD&A (Item 2)[345] Interest Rate Sensitivity Analysis (Next 12 Months) | Change in Interest Rates (bps) | % Change in Net Interest Income | % Change in Net Income | | :--- | :--- | :--- | | +400 | 14.5% | 21.8% | | +200 | 6.2% | 9.3% | | +100 | 1.9% | 3.0% | | -100 | (0.3)% | (0.4)% | Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer, Executive Chairman, and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period[345] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[346] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 11 for details on material pending legal proceedings, including ongoing investigations and the potential exhaustion of D&O insurance coverage - For details on material legal proceedings, the report refers to Note 11 of the Notes to Consolidated Financial Statements[350] Item 1A. Risk Factors The company reports no material changes to the risk factors previously disclosed in its 2021 Annual Report on Form 10-K - There have been no material changes to the company's risk factors from those disclosed in the 2021 Annual Report on Form 10-K[351] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds A new share repurchase program for up to 1.6 million common shares was authorized for 2022, though no shares were repurchased during Q1 2022 - A new share repurchase program for 1.6 million shares was authorized for 2022[352] - No shares were repurchased during the three months ended March 31, 2022[352] Item 6. Exhibits This section lists exhibits filed with the quarterly report, including CEO and CFO certifications and interactive data files (XBRL) for financial statements - The exhibits filed include certifications from Susan G. Riel (CEO), Norman R. Pozez (Executive Chairman), and Charles D. Levingston (CFO), as well as Inline XBRL data files[354] Signatures - The report was duly signed on May 10, 2022, by Susan G. Riel, President and Chief Executive Officer, and Charles D. Levingston, Executive Vice President and Chief Financial Officer[357]