Note 1Summary of Significant Accounting Policies
The Consolidated Financial Statements include the accounts of Eagle Bancorp, Inc. and its subsidiaries (the "Company"), EagleBank (the "Bank"), Eagle Commercial
Ventures, LLC ("ECV"), Eagle Insurance Services, LLC, and Bethesda Leasing, LLC, with all significant intercompany transactions eliminated. The investment in subsidiaries is
recorded on the Company's books (Parent Only) on the basis of its equity in the net assets of the subsidiary. The accounting and reporting policies of the Company conform to generally accepted
accounting principles in the United States of America
("GAAP") and to general practices in the banking industry. Certain reclassifications have been made to amounts previously reported to conform to the classification made in 2016. The following is a
summary of the more significant accounting policies.
Nature of Operations
The Company, through the Bank, conducts a full service community banking business, primarily in Northern Virginia, Montgomery County, Maryland,
and Washington, D.C. The primary financial services offered by the Bank include real estate, commercial and consumer lending, as well as traditional deposit and repurchase agreement products. The Bank
is also active in the origination and sale of residential mortgage loans and the origination of small business loans. The guaranteed portion of small business loans, guaranteed by the Small Business
Administration ("SBA"), is typically sold to third party investors in a transaction apart from the loan's origination. As of December 31, 2016, the Bank offers its products and services through
twenty one banking offices, five lending centers and various electronic capabilities, including remote deposit services and mobile banking services. Eagle Insurance Services, LLC, a subsidiary
of the Bank, offers access to insurance products and services through a referral program with a third party insurance broker. Eagle Commercial Ventures, LLC, a direct subsidiary of the Company,
provides subordinated financing for the acquisition, development and construction of real estate projects; these transactions involve higher levels of risk, together with commensurate higher returns.
Refer to Higher Risk LendingRevenue Recognition below.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts in the financial statements and accompanying notes. Actual results may differ from those estimates and such differences could be material to the financial statements.
Business Combinations
Business combinations are accounted for by applying the acquisition method in accordance with Accounting Standards Codification ("ASC") 805,
"
Business Combinations
". Under the
acquisition method, identifiable assets acquired and liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date are measured at their fair values as of that date,
and are recognized separately from goodwill. Results of operations of the acquired entities are included in the consolidated statement of income from the date of acquisition.
Refer
to Note 2 for information relating to the Company's acquisition of Virginia heritage Bank ("Virginia Heritage").
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Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 1Summary of Significant Accounting Policies (Continued)
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 other banks which have an original maturity of three months or less.
Loans Held for Sale
The Company regularly engages in sales of residential mortgage loans and the guaranteed portion of SBA loans originated by the Bank. The Company
has elected to carry loans held for sale at fair value. Fair value is derived from secondary market quotations for similar instruments. Gains and losses on sales of these loans are recorded as a
component of noninterest income in the Consolidated Statements of Operations.
The
Company's current practice is to sell residential mortgage loans on a servicing released basis, and, therefore, it has no intangible asset recorded for the value of such servicing as
of December 31, 2016 and December 31, 2015. The sale of the guaranteed portion of SBA loans on a servicing retained basis gives rise to an excess servicing asset, which is computed on a
loan by loan basis with the unamortized amount being included in intangible assets in the Consolidated Balance Sheets. This excess servicing asset is being amortized on a straight-line basis (with
adjustment for prepayments) as an offset to servicing fees collected and is included in other income in the Consolidated Statements of Operations.
The
Company enters into commitments to originate residential mortgage loans whereby the interest rate on the loan is determined prior to funding (i.e. interest rate lock
commitments). Such interest rate lock commitments on mortgage loans to be sold in the secondary market are considered to be derivatives. To protect against the price risk inherent in residential
mortgage loan commitments, the Company utilizes both "best efforts" and "mandatory delivery" forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would
result from the exercise of the derivative loan commitments. Under a "best efforts" contract, the Company commits to deliver an individual mortgage loan of a specified principal amount and quality to
an investor and the investor commits to a price that it will purchase the loan from the Company if the loan to the underlying borrower closes. The Company protects itself from changes in interest
rates through the use of best efforts forward delivery commitments, whereby the investor commits to purchase a loan at a price representing a premium on the day the borrower commits to an interest
rate with the intent that the buyer/investor has assumed the interest rate risk on the loan. As a result, the Bank is not generally exposed to losses on loans sold utilizing best efforts, nor will it
realize gains related to rate lock commitments due to changes in interest rates. The market values of interest rate lock commitments and best efforts contracts are not readily ascertainable with
precision because rate lock commitments and best efforts contracts are not actively traded. Because of the high correlation between rate lock commitments and best efforts contracts, no gain or loss
should occur on the interest rate lock commitments. Under a "mandatory delivery" contract, the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified
price on or before a specified date. If the Company fails to deliver the amount of mortgages necessary to fulfill the commitment by the specified date, it is obligated to pay the investor a "pair-off"
fee, based on then-current market prices, to compensate the investor for the shortfall. The Company manages the interest rate risk on interest rate lock commitments by entering into forward sale
contracts of mortgage-backed securities, whereby the Company obtains the right to deliver securities to investors in the future at a specified price.
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Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 1Summary of Significant Accounting Policies (Continued)
Such
contracts are accounted for as derivatives and are recorded at fair value in derivative assets or liabilities, carried on the Consolidated Balance Sheet within other assets or other liabilities
with changes in fair value recorded in other income within the Consolidated Statements of Operations. The period of time between issuance of a loan commitment to the customer and closing and sale of
the loan to an investor generally ranges from 30 to 90 days under current market conditions. The gross gains on loan sales are recognized based on new loan commitments with adjustment for price
and pair-off activity. Commission expenses on loans held for sale are recognized based on loans closed.
In
circumstances where the Company does not deliver the whole loan to an investor, but rather elects to retain the loan in its portfolio, the loan is transferred from held for sale to
loans at fair value at date of transfer.
Investment Securities
The Company has no securities classified as trading, or as held to maturity. Marketable equity securities and debt securities not classified as
held to maturity or trading are classified as available-for-sale. Securities available-for-sale are acquired as part of the Company's asset/liability management strategy and may be sold in response to
changes in interest rates, current market conditions, loan demand, changes in prepayment risk and other factors. Securities available-for-sale are carried at fair value, with unrealized gains or
losses being reported as accumulated other comprehensive income/(loss), a separate component of shareholders' equity, net of deferred income tax. Realized gains and losses, using the specific
identification method, are included as a separate component of noninterest income in the Consolidated Statements of Operations.
Premiums
and discounts on investment securities are amortized/accreted to the earlier of call or maturity based on expected lives, which lives are adjusted based on prepayment
assumptions and call optionality, if any. Declines in the fair value of individual available-for-sale securities below their cost that are other-than-temporary in nature result in write-downs of the
individual securities to their fair value. Factors affecting the determination of whether other-than-temporary impairment has occurred include a downgrading of the security by a rating agency, a
significant deterioration in the financial condition of the issuer, or a change in management's intent and ability to hold a security for a period of time sufficient to allow for any anticipated
recovery in fair value. Management systematically evaluates investment securities for other-than-temporary declines in fair value on a quarterly basis. This analysis requires management to consider
various factors, which include the: (1) duration and magnitude of the decline in value; (2) financial condition of the issuer or issuers; and (3) structure of the security.
The
entire amount of an impairment loss is recognized in earnings only when: (1) the Company intends to sell the security; or (2) it is more likely than not that the
Company will have to sell the security before recovery of its amortized cost basis; or (3) the Company does not expect to recover the entire amortized cost basis of the security. In all other
situations, only the portion of the impairment loss representing the credit loss must be recognized in earnings, with the remaining portion being recognized in shareholders' equity as comprehensive
income, net of deferred taxes.
Loans
Loans are stated at the principal amount outstanding, net of unamortized deferred costs and fees. Interest income on loans is accrued at the
contractual rate on the principal amount outstanding. It is the
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Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 1Summary of Significant Accounting Policies (Continued)
Company's
policy to discontinue the accrual of interest when circumstances indicate that collection is doubtful. Deferred fees and costs are being amortized on the interest method over the term of the
loan.
Management
considers loans impaired when, based on current information, it is probable that the Company will not collect all principal and interest payments according to contractual
terms. Loans are evaluated for impairment in accordance with the Company's portfolio monitoring and ongoing risk assessment procedures. Management considers the financial condition of the borrower,
cash flow of the borrower, payment status of the loan, and the value of the collateral, if any, securing the loan. Generally, impaired loans do not include large groups of smaller balance homogeneous
loans such as residential real estate and consumer type loans which are evaluated collectively for impairment and are generally placed on nonaccrual when the loan becomes 90 days past due as to
principal or interest. Loans specifically reviewed for impairment are not considered impaired during periods of "minimal delay" in payment (90 days or less) provided eventual collection of all
amounts due is expected. The impairment of a loan is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, or the fair value of the
collateral if repayment is expected to be provided solely by the collateral. In appropriate circumstances, interest income on impaired loans may be recognized on a cash basis.
Higher Risk LendingRevenue Recognition
The Company has occasionally made higher risk acquisition, development, and construction ("ADC") loans that entail higher risks than ADC loans
made following normal underwriting practices ("higher risk loan transactions"). These higher risk loan transactions are currently made through the Company's subsidiary, ECV. This activity is limited
as to individual transaction amount and total exposure amounts, based on capital levels, and is carefully monitored. The loans are carried on the balance sheet at amounts outstanding and meet the loan
classification requirements of the Accounting Standard Executive Committee ("AcSEC") guidance reprinted from the CPA Letter, Special Supplement, dated February 10, 1986 (also referred to as
Exhibit 1 to AcSEC Practice Bulletin No. 1). Additional interest earned on these higher risk loan transactions (as defined in the individual loan agreements) is recognized as realized
under the provisions contained in AcSEC's guidance reprinted from the CPA Letter, Special Supplement, dated February 10, 1986 (also referred to as Exhibit 1 to AcSEC Practice Bulletin
No.1) and Staff Accounting Bulletin No. 101 (Revenue Recognition in Financial Statements). Certain additional interest is included as a component of noninterest income. ECV recorded no
additional interest on higher risk loan transactions during 2016, 2015 or 2014 (although normal interest income was recorded) and had three higher risk loan transactions outstanding as of
December 31, 2016, as compared to four higher risk loan transactions outstanding as of December 31, 2015, amounting to $9.3 million and $9.2 million, respectively.
Allowance for Credit Losses
The allowance for credit losses represents an amount, which in management's judgment, is adequate to absorb probable losses on loans and other
extensions of credit that may become uncollectible. The adequacy of the allowance for credit losses is determined through careful and continuous review and evaluation of the loan portfolio and
involves the balancing of a number of factors to establish a prudent level of allowance. Among the factors considered in evaluating the adequacy of the allowance for credit losses are lending risks
associated with growth and entry into new markets, loss allocations for specific credits, the level of the allowance to nonperforming loans, historical loss experience, economic conditions,
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Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 1Summary of Significant Accounting Policies (Continued)
portfolio
trends and credit concentrations, changes in the size and character of the loan portfolio, and management's judgment with respect to current and expected economic conditions and their impact
on the existing loan portfolio. Allowances for impaired loans are generally determined based on collateral values. Loans or any portion thereof deemed uncollectible are charged against the allowance,
while recoveries are credited to the allowance. Management adjusts the level of the allowance through the provision for credit losses, which is recorded as a current period operating expense. The
allowance for credit losses consists of allocated and unallocated components.
The
components of the allowance for credit losses represent an estimation done pursuant to ASC Topic 450,
"Contingencies,"
or ASC
Topic 310,
"Receivables."
Specific allowances are established in cases where management has identified significant conditions or circumstances related
to a specific credit that management believes indicate the probability that a loss may be incurred. For potential problem credits for which specific allowance amounts have not been determined, the
Company establishes allowances according to the application of credit risk factors. These factors are set by management and approved by the appropriate Board committee to reflect its assessment of the
relative level of risk inherent in each risk grade. A third component of the allowance computation, termed a nonspecific or environmental factors allowance, is based upon management's evaluation of
various environmental conditions that are not directly measured in the determination of either the specific allowance or formula allowance. Such conditions include general economic and business
conditions affecting key lending areas, credit quality trends (including trends in delinquencies and nonperforming loans expected to result from existing conditions), loan volumes and concentrations,
specific industry conditions within portfolio categories, recent loss experience in particular loan categories, duration of the current business cycle, bank regulatory examination results, findings of
outside review consultants, and management's judgment with respect to various other conditions including credit administration and management and the quality of risk identification systems. Executive
management reviews these environmental conditions quarterly, and documents the rationale for all changes.
Management
believes that the allowance for credit losses is adequate; however, determination of the allowance is inherently subjective and requires significant estimates. While
management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. Evaluation of the potential effects of
these factors on estimated losses involves a high degree of uncertainty, including the strength and timing of economic cycles and concerns over the effects of a prolonged economic downturn in the
current cycle. In addition, various banking agencies, as an integral part of their examination process, and independent consultants engaged by the Bank, periodically review the Bank's loan portfolio
and allowance for credit losses. Such review may result in recognition of additions to the allowance based on their judgments of information available to them at the time of their examination. The
review of the adequacy of the Allowance for Credit Losses includes an assessment of the fair value adjustment for acquired loans in accordance with generally accepted accounting principles.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and amortization computed using the straight-line method for financial
reporting purposes. Premises and equipment are depreciated over the useful lives of the assets, which generally range from three to seven years for furniture, fixtures and equipment, three to five
years for computer software and hardware, and five to twenty years for
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Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 1Summary of Significant Accounting Policies (Continued)
building
improvements. Leasehold improvements are amortized over the terms of the respective leases, which may include renewal options where management has the positive intent to exercise such
options, or the estimated useful lives of the improvements, whichever is shorter. The costs of major renewals and betterments are capitalized, while the costs of ordinary maintenance and repairs are
expensed as incurred. These costs are included as a component of premises and equipment expenses on the Consolidated Statements of Operations.
Other Real Estate Owned (OREO)
Assets acquired through loan foreclosure are held for sale and are recorded at fair value less estimated selling costs when acquired,
establishing a new cost basis. The new basis is supported by appraisals that are generally no more than twelve months old. Costs after acquisition are generally expensed. If the fair value of the
asset declines, a write-down is recorded through noninterest expense. The valuation of foreclosed assets is subjective in nature and may be adjusted in the future because of changes in market
conditions or appraised values.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Other intangible assets represent
purchased assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights. Intangible assets that have finite lives, such as core deposit
intangibles, are amortized over their estimated useful lives and subject to periodic impairment testing. Intangible assets (other than goodwill) are amortized to expense using accelerated or
straight-line methods over their respective estimated useful lives.
Goodwill
is subject to impairment testing at the reporting unit level, which must be conducted at least annually. The Company performs impairment testing during the fourth quarter of
each year or when events or changes in circumstances indicate the assets might be impaired.
The
Company performs a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after
assessing updated qualitative factors, the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it does not have to perform the
two-step goodwill impairment test. Determining the fair value of a reporting unit under the first step of the goodwill impairment test and determining the fair value of individual assets and
liabilities of a reporting unit under the second step of the goodwill impairment test are judgmental and often involve the use of significant estimates and assumptions. Similarly, estimates and
assumptions are used in determining the fair value of other intangible assets. Estimates of fair value are primarily determined using discounted cash flows, market comparisons and recent transactions.
These approaches use significant estimates and assumptions including projected future cash flows, discount rates reflecting the market rate of return, projected growth rates and determination and
evaluation of appropriate market comparables. Based on the results of qualitative assessments of all reporting units, the Company concluded that no impairment existed at December 31, 2016.
However, future events could cause the Company to conclude that goodwill or other intangibles have become impaired, which would result in recording an impairment
loss. Any resulting impairment loss could have a material adverse impact on the Company's financial condition and results of operations.
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Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 1Summary of Significant Accounting Policies
Interest Rate Swap Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its
exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit
risk, primarily by managing the amount, sources, and duration of its assets and liabilities and through the use of derivative financial instruments. Specifically, the Company enters into derivative
financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by
interest rates. With the exception of forward commitment contracts discussed above under Loans Held for Sale, the Company's derivative financial instruments are used to manage differences in the
amount, timing, and duration of the Company's known or expected cash receipts and its known or expected cash payments principally related to certain variable rate deposits.
At
the inception of a derivative contract, the Company designates the derivative as one of three types based on the Company's intentions and belief as to likely effectiveness as a hedge.
These three types are (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment ("fair value hedge"), (2) a hedge of a forecasted transaction
or the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow hedge"), or (3) an instrument with no hedging designation ("stand-alone
derivative"). Regarding Interest Rate Swap Derivatives, the Company has no fair value hedges or stand-alone derivatives, only cash flow hedges. For a cash flow hedge, the gain or loss on the
derivative is reported in other comprehensive income (a Consolidated Balance Sheet component of shareholders' equity) and is reclassified into earnings in the same period(s) during which the hedged
transaction affects earnings (i.e. the period when cash flows are exchanged between counterparties). For both fair value and cash flow hedges, changes in the fair value of derivatives that are
not highly effective in hedging the changes in fair value or expected cash flows of the hedged item are recognized immediately in current earnings. Changes in the fair value of derivatives that do not
qualify for hedge accounting are reported currently in earnings, as noninterest income.
Net
cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged. Net cash settlements on
derivatives that do not qualify for hedge accounting are reported in noninterest income. Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being
hedged.
The
Company formally documents the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions at the
inception of the hedging relationship. This documentation includes linking fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or
forecasted transactions. The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting
changes in fair values or cash flows of the hedged items. The Company discontinues hedge accounting when it determines that the
derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative is settled or terminates, a hedged forecasted transaction is no longer
probable, a hedged firm commitment is no longer firm, or treatment of the derivative as a hedge is no longer appropriate or intended.
When
hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as noninterest income or expense. When a fair value hedge is discontinued, the
hedged asset or
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Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 1Summary of Significant Accounting Policies (Continued)
liability
is no longer adjusted for changes in fair value and the existing basis adjustment is amortized or accreted over the remaining life of the asset or liability. When a cash flow hedge is
discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the
same periods in which the hedged transactions will affect earnings. Please refer to Note 10 to the Consolidated Financial Statements for further detail.
Customer Repurchase Agreements
The Company enters into agreements under which it sells securities subject to an obligation to repurchase the same securities. Under these
arrangements, the Company may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Company to repurchase the assets. As a
result, securities sold under agreements to repurchase are accounted for as collateralized financing arrangements and not as a sale and subsequent repurchase of securities. The agreements are entered
into primarily as accommodations for large commercial deposit customers. The obligation to repurchase the securities is reflected as a liability in the Company's Consolidated Balance Sheets, while the
securities underlying the securities sold under agreements to repurchase remain in the respective assets accounts and are delivered to and held as collateral by third party trustees.
Marketing and Advertising
Marketing and advertising costs are generally expensed as incurred.
Income Taxes
The Company employs the asset and liability method of accounting for income taxes as required by ASC Topic 740, "
Income
Taxes
." Under this method, deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts and the tax basis of
existing assets and liabilities (i.e. temporary timing differences) and are measured at the enacted rates that will be in effect when these differences reverse. The Company utilizes statutory
requirements for its income tax accounting, and avoids risks associated with potentially problematic tax positions that may incur challenge upon audit, where an adverse outcome is more likely than
not. Therefore, no provisions are necessary for either uncertain tax positions nor accompanying potential tax penalties and interest for underpayments of income taxes in the Company's tax reserves. In
accordance with ASC Topic 740, the Company may establish a reserve against deferred tax assets in those cases where realization is less than certain, although no such reserves exist at
December 31, 2016 or December 31, 2015.
Transfer of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is
deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that
right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before
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Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 1Summary of Significant Accounting Policies (Continued)
their
maturity. In certain cases, the recourse to the Bank to repurchase assets may exist but is deemed immaterial based on the specific facts and circumstances.
Earnings per Common Share
Basic net income per common share is derived by dividing net income available to common shareholders by the weighted-average number of common
shares outstanding during the period measured. Diluted earnings per common share is computed by dividing net income available to common shareholders by the weighted-average number of common shares
outstanding during the period measured including the potential dilutive effects of common stock equivalents.
Stock-Based Compensation
In accordance with ASC Topic 718,
"Compensation,"
the Company records as compensation expense an
amount equal to the amortization (over the remaining service period) of the fair value of option and restricted stock awards computed at the date of grant. Compensation expense on variable stock
option grants (i.e. performance based grant) is recorded based on the probability of achievement of the goals underlying the performance grant. Refer to Note 17 for a description of
stock-based compensation awards, activity and expense for the years ended December 31, 2016, 2015 and 2014.
New Authoritative Accounting Guidance
ASU 2015-03,
"InterestImputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt
Issuance Costs"
simplifies the presentation of debt issuance costs by requiring that debt issuance costs be presented in the balance sheet as a direct deduction from the
carrying amount of debt liability, consistent with debt discounts or premiums. The Company adopted ASU 2015-03 effective fiscal year 2016, and applied its provisions retrospectively.
ASU
2016-01, "
Financial Instruments(Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial
Liabilities.
" ASU 2016-01 addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments by making targeted improvements to GAAP
as follows: (1) require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value
with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any,
plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer; (2) simplify the impairment assessment of
equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is
required to measure the investment at fair value; (3) eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public
business entities; (4) eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be
disclosed for financial instruments measured at amortized cost on the balance sheet; (5) require public business entities to use the exit price notion when measuring the fair value of financial
instruments for disclosure purposes; (6) require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a
change in the instrument-specific credit risk when the entity
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Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 1Summary of Significant Accounting Policies (Continued)
has
elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (7) require separate presentation of financial assets and financial
liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and
(8) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred
tax assets. ASU No. 2016-01 is effective for interim and annual reporting periods beginning after December 15, 2017. Early application is permitted as of the beginning of the fiscal year
of adoption only for provisions (3) and (6) above. Early adoption of the other provisions mentioned above is not permitted. The Company has performed a preliminary evaluation of the
provisions of ASU No. 2016-01. Based on this evaluation, the Company has determined that ASU No. 2016-01 is not expected to have a material impact on the Company's Consolidated
Financial Statements; however, the Company will continue to closely monitor developments and additional guidance.
ASU
2016-02,
"Leases (Topic 842)."
Under the new guidance, lessees will be required to recognize the following for all leases (with the
exception of short-term leases): (1) a lease liability, which is the present value of a lessee's obligation to make lease payments, and (2) a right-of-use asset, which is an asset that
represents the lessee's right to use, or control the use of, a specified asset for the lease term. Lessor accounting under the new guidance remains largely unchanged as it is substantially equivalent
to existing guidance for sales-type leases, direct financing leases, and operating leases. Leveraged leases have been eliminated, although lessors can continue to account for existing leveraged leases
using the current accounting guidance. Other limited changes were made to align lessor accounting with the
lessee accounting model and the new revenue recognition standard. All entities will classify leases to determine how to recognize lease-related revenue and expense. Quantitative and qualitative
disclosures will be required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The
intention is to require enough information to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity's leasing activities. ASU
2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. All entities are required to use a modified retrospective approach
for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. They have the option to use certain relief; full retrospective application
is prohibited. The Company is currently evaluating the provisions of ASU 2016-02 and will be closely monitoring developments and additional guidance to determine the potential impact the new
standard will have on the Company's Consolidated Financial Statements.
ASU
2016-09,
"Improvements to Employee Share-Based Payment Accounting (Topic 718)."
ASU 2016-09 includes provisions intended to
simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. Some of the key provisions of this new ASU include:
(1) companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital ("APIC"). Instead, they will record all excess tax benefits and tax
deficiencies as income tax expense or benefit in the income statement, and APIC pools will be eliminated. The guidance also eliminates the requirement that excess tax benefits be realized before
companies can recognize them. In addition, the guidance requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity;
(2) increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer's
statutory income tax withholding obligation. The new guidance will
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Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 1Summary of Significant Accounting Policies (Continued)
also
require an employer to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on its statement of
cash flows (current guidance did not specify how these cash flows should be classified); and (3) permit companies to make an accounting policy election for the impact of forfeitures on the
recognition of expense for share-based payment awards. Forfeitures can be estimated, as required today, or recognized when they occur. ASU No. 2016-09 is effective for interim and annual
reporting periods beginning after December 15, 2016. Early adoption is permitted, but all of the guidance must be adopted in the same period. The Company does not expect the provisions of ASU
No. 2016-09 to have a material impact on the Company's Consolidated Financial Statements.
ASU
2014-09,
"Revenue from Contracts with Customers (Topic 606)."
The amendments in ASU 2014-09 supersede the revenue recognition
requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. The general principle of the amendments require an entity to recognize revenue upon the transfer of promised goods
or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The
guidance sets forth a five step approach to be utilized for revenue recognition. As amended, the new guidance is effective for annual reporting periods beginning after December 15, 2017,
including interim periods within that reporting period. The Company is currently evaluating the provisions of ASU 2014-09 and will be closely monitoring developments and additional guidance to
determine the potential impact the new standard will have on the Company's Consolidated Financial Statements.
ASU
2016-13,
"Measurement of Credit Losses on Financial Instruments (Topic 326)."
This ASU significantly changes how entities will
measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. In issuing the standard, the FASB is responding to criticism that
today's guidance delays recognition of credit losses. The standard will replace today's "incurred loss" approach with an "expected loss" model. The new model, referred to as the current expected
credit loss ("CECL") model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit
exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. The CECL model does not apply to available-for-sale ("AFS")
debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances
rather than reductions in the amortized cost of the securities. As a result, entities will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over
time, as they do today. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity's
assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by
credit quality indicator, disaggregated by the year of origination. ASU No. 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early
adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Entities will apply the standard's provisions as a cumulative-effect adjustment to retained
earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company is currently evaluating the provisions of ASU
No. 2016-13 to determine the potential impact the new standard will have on the Company's Consolidated Financial Statements.
99
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 2Mergers and Acquisitions
On October 31, 2014, the Company completed its acquisition of Virginia Heritage Bank ("Virginia Heritage"), a banking institution based in Fairfax County, Virginia. The
acquisition of Virginia Heritage was effected through the merger (the "Merger") of Virginia Heritage with and into EagleBank, in accordance with the Agreement and Plan of Reorganization (the "Merger
Agreement") among the Company, EagleBank and Virginia Heritage, dated June 9, 2014. Pursuant to the Merger Agreement, each share of Virginia Heritage common stock was converted into the right
to receive 0.6632 shares of Company common stock and $7.50 in cash, plus cash in lieu of fractional shares. Outstanding options to acquire Virginia Heritage common stock were converted into fully
vested options to purchase an aggregate of 401,497 shares of Company common stock. In connection with the Merger, the Company paid an aggregate of $45.4 million in cash to former shareholders
of Virginia Heritage and issued 4,010,261 shares of Company common stock. On the acquisition date, the estimated fair values of Virginia Heritage included $914 million in assets,
$800 million in loans and $645 million in deposits. The acquisition was valued at $189 million Additionally, pursuant to the Merger Agreement, each of the 15,300 shares of
Virginia Heritage's Senior Non-Cumulative Perpetual Preferred Stock, Series A, $1,000 liquidation amount per share ("Virginia Heritage Series A Preferred Stock"), which was issued to the
U.S. Treasury pursuant to the Small Business Lending Fund Program ("SBLF"), was exchanged for one share of a new series of the Company's Senior Non-Cumulative Perpetual Preferred Stock,
Series C, liquidation amount $1,000 per share (the "Series C Preferred Stock"), which ranks equally with and has substantially identical terms and conditions as the Company's Senior
Non-Cumulative Perpetual Preferred Stock, Series B, liquidation amount $1,000 per share ("Series B Preferred Stock"). The Series C Preferred Stock has a dividend rate of 1.00%. On
November 2, 2015, the Company redeemed all Series B and Series C Preferred Stock as detailed in Note 13. The assets acquired and liabilities assumed were accounted for
under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their fair value as of October 31, 2014, based on management's best
estimates using the information available as of the merger date. The Company incurred $4.7 million of acquisition related expenses during the year ended December 31, 2014 related to the
acquisition of Virginia Heritage, included within "Merger expenses" in the Consolidated Statements of Operations.
Virginia
Heritage's results of operations have been included in the Company's consolidated statements of income and comprehensive income for the two months ended December 31,
2014. Based on a purchase price allocation, the Company recorded $102.3 million in goodwill and $4.6 million in core deposit intangibles as a result of the acquisition. Additionally, in
connection with the transaction, the Company recorded a fair value credit mark on the loan portfolio for approximately $12.5 million. Based
on allowable adjustments through October 31, 2015, the unidentified intangible (goodwill) was reduced by approximately $257 thousand. Goodwill is not amortized for book purposes;
however, it is reviewed at least annually for impairment, and is not deductible for tax purposes.
Except
for collateral dependent loans, the fair values for loans acquired from Virginia Heritage were estimated using cash flow projections based on the remaining maturity and repricing
terms. Cash flows were adjusted by estimating future credit losses and the rate of prepayments. Projected monthly cash flows were then discounted to present value using a risk-adjusted market rate for
similar loans. For collateral dependent loans with deteriorated credit quality, fair value was estimated by analyzing the value of the underlying collateral, assuming the fair values of the loans were
derived from the eventual sale of the collateral. These values were discounted using market derived rates of return, with consideration given to the period of time and costs associated with the
foreclosure and disposition of the collateral.
100
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 2Mergers and Acquisitions (Continued)
The
core deposit intangible asset recognized is being amortized on an accelerated basis over the remaining estimated life, currently expected to be 4 years.
The
fair value of premises and equipment and other real estate owned was estimated using appraisals of like kind properties and assets. Premises, equipment and leasehold improvements
will be amortized or depreciated over their estimated useful lives ranging from one to five years for equipment or over the life of the lease for leasehold improvements. Other real estate owned is not
amortized and is carried at estimated fair value determined by the appraised value less costs to sell.
The
fair value of retail demand and interest bearing deposit accounts was assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand.
The fair value of time deposits was estimated by discounting the contractual future cash flows using market rates offered for time deposits of similar remaining maturities. The fair value of borrowed
funds was estimated by discounting the future cash flows using market rates for similar borrowings.
Note 3Cash and Due from Banks
Regulation D of the Federal Reserve Act requires that banks maintain noninterest reserve balances with the Federal Reserve Bank based principally on the type and amount of their
deposits. During 2016, the Bank maintained balances at the Federal Reserve sufficient to meet reserve requirements, as well as significant excess reserves. Late in 2008, the Federal Reserve in
connection with the Emergency Economic Stabilization Act of 2008 began paying a nominal amount of interest on balances held, which interest on excess reserves was increased under provisions of the
Dodd Frank Wall Street Reform and Consumer Protection Act passed in July 2010.
Additionally,
the Bank maintains interest-bearing balances with the Federal Home Loan Bank of Atlanta and noninterest bearing balances with domestic correspondent banks as compensation
for services they provide to the Bank.
Note 4Investment Securities Available-for-Sale
Amortized cost and estimated fair value of securities available-for-sale are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair
Value
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
U. S. agency securities
|
|
$
|
107,425
|
|
$
|
519
|
|
$
|
1,802
|
|
$
|
106,142
|
|
Residential mortgage backed securities
|
|
|
329,606
|
|
|
324
|
|
|
3,691
|
|
|
326,239
|
|
Municipal bonds
|
|
|
94,607
|
|
|
1,723
|
|
|
400
|
|
|
95,930
|
|
Corporate bonds
|
|
|
9,508
|
|
|
82
|
|
|
11
|
|
|
9,579
|
|
Other equity investments
|
|
|
218
|
|
|
|
|
|
|
|
|
218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
541,364
|
|
$
|
2,648
|
|
$
|
5,904
|
|
$
|
538,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 4Investment Securities Available-for-Sale (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair
Value
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
U. S. agency securities
|
|
$
|
56,775
|
|
$
|
477
|
|
$
|
277
|
|
$
|
56,975
|
|
Residential mortgage backed securities
|
|
|
299,709
|
|
|
692
|
|
|
3,160
|
|
|
297,241
|
|
Municipal bonds
|
|
|
114,253
|
|
|
4,131
|
|
|
3
|
|
|
118,381
|
|
Corporate bonds
|
|
|
15,090
|
|
|
|
|
|
152
|
|
|
14,938
|
|
Other equity investments
|
|
|
307
|
|
|
27
|
|
|
|
|
|
334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
486,134
|
|
$
|
5,327
|
|
$
|
3,592
|
|
$
|
487,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
addition, at December 31, 2016 and December 31, 2015, the Company held $21.6 million and $16.9 million in equity securities in a combination of Federal
Reserve Bank ("FRB") and Federal Home Loan Bank ("FHLB") stocks, which are required to be held for regulatory purposes and which are not marketable, and therefore are carried at cost.
The
unrealized losses that exist are generally the result of changes in market interest rates and interest spread relationships since original purchases. The weighted average duration of
debt securities, which comprise 99.9% of total investment securities, is relatively short at 3.8 years. If quoted prices are not available, fair value is measured using independent pricing
models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security's credit rating, prepayment assumptions and other factors such as credit loss
assumptions. The Company does not believe that the investment securities that were in an unrealized loss position as of December 31, 2016 represent an other-than-temporary impairment. The
Company does not intend to sell the investments and it is more likely than not that the Company will not have to sell the securities before recovery of its amortized cost basis, which may be maturity.
Gross
unrealized losses and fair value by length of time that the individual available-for-sale securities have been in a continuous unrealized loss position as of December 31,
2016 and 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
12 Months or Greater
|
|
Total
|
|
December 31, 2016
|
|
Number of
Securities
|
|
Estimated
Fair Value
|
|
Unrealized
Losses
|
|
Estimated
Fair Value
|
|
Unrealized
Losses
|
|
Estimated
Fair Value
|
|
Unrealized
Losses
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. agency securities
|
|
|
27
|
|
$
|
88,991
|
|
$
|
1,764
|
|
$
|
3,768
|
|
$
|
38
|
|
$
|
92,759
|
|
$
|
1,802
|
|
Residential mortgage backed securities
|
|
|
112
|
|
|
232,347
|
|
|
3,110
|
|
|
19,402
|
|
|
581
|
|
|
251,749
|
|
|
3,691
|
|
Municipal bonds
|
|
|
16
|
|
|
34,743
|
|
|
400
|
|
|
|
|
|
|
|
|
34,743
|
|
|
400
|
|
Corporate bonds
|
|
|
2
|
|
|
4,998
|
|
|
11
|
|
|
|
|
|
|
|
|
4,998
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157
|
|
$
|
361,079
|
|
$
|
5,285
|
|
$
|
23,170
|
|
$
|
619
|
|
$
|
384,249
|
|
$
|
5,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 4Investment Securities Available-for-Sale (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
12 Months or Greater
|
|
Total
|
|
December 31, 2015
|
|
Number of
Securities
|
|
Estimated
Fair Value
|
|
Unrealized
Losses
|
|
Estimated
Fair Value
|
|
Unrealized
Losses
|
|
Estimated
Fair Value
|
|
Unrealized
Losses
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. agency securities
|
|
|
13
|
|
$
|
32,927
|
|
$
|
277
|
|
$
|
|
|
$
|
|
|
$
|
32,927
|
|
$
|
277
|
|
Residential mortgage backed securities
|
|
|
92
|
|
|
157,871
|
|
|
1,438
|
|
|
58,954
|
|
|
1,722
|
|
|
216,825
|
|
|
3,160
|
|
Municipal bonds
|
|
|
2
|
|
|
1,559
|
|
|
3
|
|
|
|
|
|
|
|
|
1,559
|
|
|
3
|
|
Corporate bonds
|
|
|
4
|
|
|
14,938
|
|
|
152
|
|
|
|
|
|
|
|
|
14,938
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111
|
|
$
|
207,295
|
|
$
|
1,870
|
|
$
|
58,954
|
|
$
|
1,722
|
|
$
|
266,249
|
|
$
|
3,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
amortized cost and estimated fair value of investments available-for-sale at December 31, 2016 and 2015 by contractual maturity are shown in the table below. Expected
maturities for residential mortgage backed securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment
penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
(dollars in thousands)
|
|
Amortized
Cost
|
|
Estimated
Fair Value
|
|
Amortized
Cost
|
|
Estimated
Fair Value
|
|
U. S. agency securities maturing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One year or less
|
|
$
|
83,885
|
|
$
|
82,548
|
|
$
|
31,436
|
|
$
|
31,361
|
|
After one year through five years
|
|
|
20,736
|
|
|
20,897
|
|
|
18,826
|
|
|
19,047
|
|
Five years through ten years
|
|
|
2,804
|
|
|
2,697
|
|
|
6,513
|
|
|
6,567
|
|
Residential mortgage backed securities
|
|
|
329,606
|
|
|
326,239
|
|
|
299,709
|
|
|
297,241
|
|
Municipal bonds maturing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One year or less
|
|
|
1,056
|
|
|
1,070
|
|
|
4,450
|
|
|
4,478
|
|
After one year through five years
|
|
|
45,808
|
|
|
46,865
|
|
|
41,213
|
|
|
43,720
|
|
Five years through ten years
|
|
|
46,668
|
|
|
46,839
|
|
|
66,001
|
|
|
67,398
|
|
After ten years
|
|
|
1,075
|
|
|
1,156
|
|
|
2,589
|
|
|
2,785
|
|
Corporate bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After one year through five years
|
|
|
8,008
|
|
|
8,079
|
|
|
15,090
|
|
|
14,938
|
|
After ten years
|
|
|
1,500
|
|
|
1,500
|
|
|
|
|
|
|
|
Other equity investments
|
|
|
218
|
|
|
218
|
|
|
307
|
|
|
334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
541,364
|
|
$
|
538,108
|
|
$
|
486,134
|
|
$
|
487,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
2016, gross realized gains on sales of investment securities were $1.4 million and gross realized losses on sales of investment securities were $188 thousand. In 2015,
gross realized gains on sales of investment securities were $2.7 million and gross realized losses on sales of investment securities were $475 thousand. In 2014, gross realized gains on
sales of investment securities were $298 thousand and gross realized losses on sales of investment securities were $276 thousand.
Proceeds
from sales and calls of investment securities for 2016, 2015 and 2014 were $94.3 million, $111.7 million, and $49.9 million, respectively.
103
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 4Investment Securities Available-for-Sale (Continued)
The carrying value of securities pledged as collateral for certain government deposits, securities sold under agreements to repurchase, and certain lines of credit with correspondent
banks at December 31, 2016 was $497.3 million, which is well in excess of required amounts in order to operationally provide significant reserve amounts for new business. As of
December 31, 2016 and December 31, 2015, there were no holdings of securities of any one issuer, other than the U.S. Government and U.S. agency securities, which exceeded ten percent of
shareholders' equity.
Note 5Loans and Allowance for Credit Losses
The Bank makes loans to customers primarily in the Washington, D.C. metropolitan area and surrounding communities. A substantial portion of the Bank's loan portfolio consists of loans to
businesses secured by real estate and other business assets.
Loans,
net of unamortized net deferred fees, at December 31, 2016 and 2015 are summarized by type as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
(dollars in thousands)
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Commercial
|
|
$
|
1,200,728
|
|
|
21
|
%
|
$
|
1,052,257
|
|
|
21
|
%
|
Income producingcommercial real estate
|
|
|
2,509,517
|
|
|
44
|
%
|
|
2,115,478
|
|
|
42
|
%
|
Owner occupiedcommercial real estate
|
|
|
640,870
|
|
|
12
|
%
|
|
498,103
|
|
|
10
|
%
|
Real estate mortgageresidential
|
|
|
152,748
|
|
|
3
|
%
|
|
147,365
|
|
|
3
|
%
|
Constructioncommercial and residential
|
|
|
932,531
|
|
|
16
|
%
|
|
985,607
|
|
|
20
|
%
|
ConstructionC&I (owner occupied)
|
|
|
126,038
|
|
|
2
|
%
|
|
79,769
|
|
|
2
|
%
|
Home equity
|
|
|
105,096
|
|
|
2
|
%
|
|
112,885
|
|
|
2
|
%
|
Other consumer
|
|
|
10,365
|
|
|
|
|
|
6,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
5,677,893
|
|
|
100
|
%
|
|
4,998,368
|
|
|
100
|
%
|
Less: Allowance for Credit Losses
|
|
|
(59,074
|
)
|
|
|
|
|
(52,687
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
$
|
5,618,819
|
|
|
|
|
$
|
4,945,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized
net deferred fees amounted to $22.3 million and $18.4 million at December 31, 2016 and 2015, of which $120 thousand and $144 thousand at
December 31, 2016 and 2015, respectively, represented net deferred costs on home equity loans.
Loans
acquired from Virginia Heritage totaled $804 million at fair value, comprised of $801 million of loans that were not considered impaired at the acquisition date and
$3.0 million of loans that were determined to be impaired at the time of acquisition. The impaired loans were accounted for in accordance with ASC Topic 310-30
"Accounting for Certain Loans or Debt Securities Acquired in
a Transfer"
("ASC 310-30"). Loans acquired in the Merger that were determined to be
purchased credit impaired loans were all considered collateral dependent loans. Therefore, estimated fair value calculations and projected cash flows included only return of principal and no interest
income.
104
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 5Loans and Allowance for Credit Losses (Continued)
The
Company sold the indirect consumer loan portfolio acquired in the Merger, amounting to approximately $80.3 million as of the time of sale. The sale of this non-strategic loan
class allowed the Company to deploy the funds into commercial and commercial real estate loans, its core competency, improve its yield on earning assets and reduce operating expenses. The estimated
loss of approximately $900 thousand was included as an adjustment to the intangibles established in the Merger. The transaction closed on July 24, 2015.
As
of December 31, 2016 and 2015, the Bank serviced $128.8 million and $78.8 million, respectively, of SBA loans and other loan participations, which are not
reflected as loan balances on the Consolidated Balance Sheets.
Loan Origination/Risk Management
The Company's goal is to mitigate risks in the event of unforeseen threats to the loan portfolio as a result of economic downturn or other
negative influences. Plans for mitigating inherent risks in managing loan assets include carefully enforcing loan policies and procedures, evaluating each borrower's business plan during the
underwriting process and throughout the loan term, identifying and monitoring primary and alternative sources for loan repayment, and obtaining collateral to mitigate economic loss in the event of
liquidation. Specific loan reserves are established based upon credit and/or collateral risks on an individual loan basis. A risk rating system is employed to proactively estimate loss exposure and
provide a measuring system for setting general and specific reserve allocations.
The
composition of the Company's loan portfolio is heavily weighted toward commercial real estate, both owner occupied and income producing real estate. At December 31, 2016,
owner occupied commercial real estate and constructionC&I (owner occupied) represent 14% of the loan portfolio. At December 31, 2016, non-owner occupied commercial real estate and
real estate construction represented approximately 60% of the loan portfolio. The combined owner occupied and commercial real estate loans represent 74% of the loan portfolio. These loans are
underwritten to mitigate lending risks typical of this type of loan such as declines in real estate values, changes in borrower cash flow and general economic conditions. The Bank typically requires a
maximum loan to value of 80% and minimum cash flow debt service coverage of 1.15 to 1.0. Personal guarantees are generally required, but may be limited. In making real estate commercial mortgage
loans, the Bank generally requires that interest rates adjust not less frequently than five years.
The
Company is also an active traditional commercial lender providing loans for a variety of purposes, including working capital, equipment and account receivable financing. This loan
category represents approximately 21% of the loan portfolio at December 31, 2016 and was generally variable or adjustable rate. Commercial loans meet reasonable underwriting standards,
including appropriate collateral and cash flow necessary to support debt service. Personal guarantees are generally required, but may be limited. SBA loans represent 2% of the commercial loan category
of loans. In originating SBA loans,
the Company assumes the risk of non-payment on the unguaranteed portion of the credit. The Company generally sells the guaranteed portion of the loan generating noninterest income from the gains on
sale, as well as servicing income on the portion participated. SBA loans are subject to the same cash flow analyses as other commercial loans. SBA loans are subject to a maximum loan size established
by the SBA.
Approximately
2% of the loan portfolio at December 31, 2016 consists of home equity loans and lines of credit and other consumer loans. These credits, while making up a small
portion of the loan portfolio,
105
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 5Loans and Allowance for Credit Losses (Continued)
demand
the same emphasis on underwriting and credit evaluation as other types of loans advanced by the Bank.
Approximately
3% of the loan portfolio consists of residential mortgage loans. The repricing duration of these loans was 22 months. These credits represent first liens on
residential property loans originated by the Bank. While the Bank's general practice is to originate and sell (servicing released) loans made by its Residential Lending department, from time to time
certain loan characteristics do not meet the requirements of third party investors and these loans are instead maintained in the Bank's portfolio until they are resold to another investor at a later
date or mature.
Loans
are secured primarily by duly recorded first deeds of trust or mortgages. In some cases, the Bank may accept a recorded junior trust position. In general, borrowers will have a
proven ability to build, lease, manage and/or sell a commercial or residential project and demonstrate satisfactory financial condition. Additionally, an equity contribution toward the project is
customarily required.
Construction
loans require that the financial condition and experience of the general contractor and major subcontractors be satisfactory to the Bank. Guaranteed, fixed price contracts
are required whenever appropriate, along with payment and performance bonds or completion bonds for larger scale projects.
Loans
intended for residential land acquisition, lot development and construction are made on the premise that the land: 1) is or will be developed for building sites for
residential structures, and; 2) will ultimately be utilized for construction or improvement of residential zoned real properties, including the creation of housing. Residential development and
construction loans will finance projects such as single family subdivisions, planned unit developments, townhouses, and condominiums. Residential land
acquisition, development and construction loans generally are underwritten with a maximum term of 36 months, including extensions approved at origination.
Commercial
land acquisition and construction loans are secured by real property where loan funds will be used to acquire land and to construct or improve appropriately zoned real
property for the creation of income producing or owner user commercial properties. Borrowers are generally required to put equity into each project at levels determined by the appropriate Loan
Committee. Commercial land acquisition and construction loans generally are underwritten with a maximum term of 24 months.
Substantially
all construction draw requests must be presented in writing on American Institute of Architects documents and certified either by the contractor, the borrower and/or the
borrower's architect. Each draw request shall also include the borrower's soft cost breakdown certified by the borrower or their Chief Financial Officer. Prior to an advance, the Bank or its
contractor inspects the project to determine that the work has been completed, to justify the draw requisition.
Commercial
permanent loans are secured by improved real property which is generating income in the normal course of operation. Debt service coverage, assuming stabilized occupancy, must
be satisfactory to support a permanent loan. The debt service coverage ratio is ordinarily at least 1.15 to 1.00. As part of the underwriting process, debt service coverage ratios are stress tested
assuming a 200 basis point increase in interest rates from their current levels.
Commercial
permanent loans generally are underwritten with a term not greater than 10 years or the remaining useful life of the property, whichever is lower. The preferred term is
between 5 to 7 years, with amortization to a maximum of 25 years.
106
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 5Loans and Allowance for Credit Losses (Continued)
The
Company's loan portfolio includes ADC real estate loans including both investment and owner occupied projects. ADC loans amounted to $1.06 billion at December 31, 2016.
A portion of the ADC portfolio, both speculative and non-speculative, includes loan funded interest reserves at origination. ADC loans containing loan funded interest reserves represent approximately
67% of the outstanding ADC loan portfolio at December 31, 2016. The decision to establish a loan-funded interest reserve is made upon origination of the ADC loan and is based upon a number of
factors considered during underwriting of the credit including: (1) the feasibility of the project; (2) the experience of the sponsor; (3) the creditworthiness of the borrower and
guarantors; (4) borrower equity contribution; and (5) the level of collateral protection. When appropriate, an interest reserve provides an effective means of addressing the cash flow
characteristics of a properly underwritten ADC loan. The Company does not significantly utilize interest reserves in other loan products. The Company recognizes that one of the risks inherent in the
use of interest reserves is the potential masking of underlying problems with the
project and/or the borrower's ability to repay the loan. In order to mitigate this inherent risk, the Company employs a series of reporting and monitoring mechanisms on all ADC loans, whether or not
an interest reserve is provided, including: (1) construction and development timelines which are monitored on an ongoing basis which track the progress of a given project to the timeline
projected at origination; (2) a construction loan administration department independent of the lending function; (3) third party independent construction loan inspection reports;
(4) monthly interest reserve monitoring reports detailing the balance of the interest reserves approved at origination and the days of interest carry represented by the reserve balances as
compared to the then current anticipated time to completion and/or sale of speculative projects; and (5) quarterly commercial real estate construction meetings among senior Company management,
which includes monitoring of current and projected real estate market conditions. If a project has not performed as expected, it is not the customary practice of the Company to increase loan funded
interest reserves.
From
time to time the Company may make loans for its own portfolio or through its higher risk loan affiliate, ECV. Such loans, which are made to finance projects (which may also be
financed at the Bank level), may have higher risk characteristics than loans made by the Bank, such as lower priority interests and/or higher loan to value ratios. The Company seeks an overall
financial return on these transactions commensurate with the risks and structure of each individual loan. Certain transactions may bear current interest at a rate with a significant premium to normal
market rates. Other loan transactions may carry a standard rate of current interest, but also earn additional interest based on a percentage of the profits of the underlying project or a fixed accrued
rate of interest.
107
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 5Loans and Allowance for Credit Losses (Continued)
The
following tables detail activity in the allowance for credit losses by portfolio segment for the years ended December 31, 2016 and 2015. Allocation of a portion of the
allowance to one category of loans does not preclude its availability to absorb losses in other categories.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Commercial
|
|
Income
Producing
Commercial
Real Estate
|
|
Owner
Occupied
Commercial
Real Estate
|
|
Real Estate
Mortgage
Residential
|
|
Construction
Commercial
and
Residential
|
|
Home
Equity
|
|
Other
Consumer
|
|
Total
|
|
For the Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
11,563
|
|
$
|
14,122
|
|
$
|
3,279
|
|
$
|
1,268
|
|
$
|
21,088
|
|
$
|
1,292
|
|
$
|
75
|
|
$
|
52,687
|
|
Loans charged-off
|
|
|
(3,745
|
)
|
|
(2,341
|
)
|
|
|
|
|
|
|
|
|
|
|
(217
|
)
|
|
(37
|
)
|
|
(6,340
|
)
|
Recoveries of loans previously charged-off
|
|
|
220
|
|
|
908
|
|
|
3
|
|
|
7
|
|
|
215
|
|
|
12
|
|
|
31
|
|
|
1,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans charged-off
|
|
|
(3,525
|
)
|
|
(1,433
|
)
|
|
3
|
|
|
7
|
|
|
215
|
|
|
(205
|
)
|
|
(6
|
)
|
|
(4,944
|
)
|
Provision for credit losses
|
|
|
6,662
|
|
|
8,416
|
|
|
728
|
|
|
9
|
|
|
(4,816
|
)
|
|
241
|
|
|
91
|
|
|
11,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
14,700
|
|
$
|
21,105
|
|
$
|
4,010
|
|
$
|
1,284
|
|
$
|
16,487
|
|
$
|
1,328
|
|
$
|
160
|
|
$
|
59,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
2,671
|
|
$
|
1,943
|
|
$
|
350
|
|
$
|
|
|
$
|
522
|
|
$
|
|
|
$
|
113
|
|
$
|
5,599
|
|
Collectively evaluated for impairment
|
|
|
12,029
|
|
|
19,162
|
|
|
3,660
|
|
|
1,284
|
|
|
15,965
|
|
|
1,328
|
|
|
47
|
|
|
53,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
14,700
|
|
$
|
21,105
|
|
$
|
4,010
|
|
$
|
1,284
|
|
$
|
16,487
|
|
$
|
1,328
|
|
$
|
160
|
|
$
|
59,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
13,222
|
|
$
|
11,442
|
|
$
|
2,954
|
|
$
|
1,259
|
|
$
|
15,625
|
|
$
|
1,469
|
|
$
|
104
|
|
$
|
46,075
|
|
Loans charged-off
|
|
|
(4,693
|
)
|
|
(651
|
)
|
|
|
|
|
|
|
|
(1,884
|
)
|
|
(1,142
|
)
|
|
(228
|
)
|
|
(8,598
|
)
|
Recoveries of loans previously charged-off
|
|
|
195
|
|
|
26
|
|
|
3
|
|
|
7
|
|
|
206
|
|
|
25
|
|
|
110
|
|
|
572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans charged-off
|
|
|
(4,498
|
)
|
|
(625
|
)
|
|
3
|
|
|
7
|
|
|
(1,678
|
)
|
|
(1,117
|
)
|
|
(118
|
)
|
|
(8,026
|
)
|
Provision for credit losses
|
|
|
2,839
|
|
|
3,305
|
|
|
322
|
|
|
2
|
|
|
7,141
|
|
|
940
|
|
|
89
|
|
|
14,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
11,563
|
|
$
|
14,122
|
|
$
|
3,279
|
|
$
|
1,268
|
|
$
|
21,088
|
|
$
|
1,292
|
|
$
|
75
|
|
$
|
52,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
3,478
|
|
$
|
1,033
|
|
$
|
400
|
|
$
|
|
|
$
|
950
|
|
$
|
38
|
|
$
|
3
|
|
$
|
5,902
|
|
Collectively evaluated for impairment
|
|
|
8,085
|
|
|
13,089
|
|
|
2,879
|
|
|
1,268
|
|
|
20,138
|
|
|
1,254
|
|
|
72
|
|
|
46,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
11,563
|
|
$
|
14,122
|
|
$
|
3,279
|
|
$
|
1,268
|
|
$
|
21,088
|
|
$
|
1,292
|
|
$
|
75
|
|
$
|
52,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 5Loans and Allowance for Credit Losses (Continued)
The
Company's recorded investments in loans as of December 31, 2016 and December 31, 2015 related to each balance in the allowance for loan losses by portfolio segment and
disaggregated on the basis of the Company's impairment methodology was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Commercial
|
|
Income
Producing
Commercial
Real Estate
|
|
Owner
occupied
Commercial
Real Estate
|
|
Real
Estate
Mortgage
Residential
|
|
Construction
Commercial
and
Residential
|
|
Home
Equity
|
|
Other
Consumer
|
|
Total
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded investment in loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
10,437
|
|
$
|
15,057
|
|
$
|
2,093
|
|
$
|
241
|
|
$
|
6,517
|
|
$
|
|
|
$
|
126
|
|
$
|
34,471
|
|
Collectively evaluated for impairment
|
|
|
1,190,291
|
|
|
2,494,460
|
|
|
638,777
|
|
|
152,507
|
|
|
1,052,052
|
|
|
105,096
|
|
|
10,239
|
|
|
5,643,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,200,728
|
|
$
|
2,509,517
|
|
$
|
640,870
|
|
$
|
152,748
|
|
$
|
1,058,569
|
|
$
|
105,096
|
|
$
|
10,365
|
|
$
|
5,677,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded investment in loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
13,008
|
|
$
|
6,118
|
|
$
|
1,753
|
|
$
|
|
|
$
|
10,454
|
|
$
|
161
|
|
$
|
22
|
|
$
|
31,516
|
|
Collectively evaluated for impairment
|
|
|
1,039,249
|
|
|
2,109,360
|
|
|
496,350
|
|
|
147,365
|
|
|
1,054,922
|
|
|
112,724
|
|
|
6,882
|
|
|
4,966,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,052,257
|
|
$
|
2,115,478
|
|
$
|
498,103
|
|
$
|
147,365
|
|
$
|
1,065,376
|
|
$
|
112,885
|
|
$
|
6,904
|
|
$
|
4,998,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2016, nonperforming loans acquired from Fidelity & Trust Financial Corporation ("Fidelity") and Virginia Heritage have a carrying value of
$491 thousand and $587 thousand, respectively, and an unpaid principal balance of $548 thousand and $1.6 million, respectively, and were evaluated separately in accordance
with ASC Topic 310-30,
"Loans and Debt Securities Acquired with Deteriorated Credit Quality
." The various impaired loans were recorded at estimated fair
value with any excess being charged-off or treated as a non-accretable discount. Subsequent downward adjustments to the valuation of impaired loans acquired will result in additional loan loss
provisions and related allowance for credit losses. Subsequent upward adjustments to the valuation of impaired loans acquired will result in accretable discounts. No adjustments have been made to the
fair value amounts of impaired loans subsequent to the allowable period of adjustment from the date of acquisition.
Credit Quality Indicators
The Company uses several credit quality indicators to manage credit risk in an ongoing manner. The Company's primary credit quality indicators
are to use an internal credit risk rating system that categorizes loans into pass, watch, special mention, or classified categories. Credit risk ratings are applied individually to those classes of
loans that have significant or unique credit characteristics that benefit from a case-by-case evaluation. These are typically loans to businesses or individuals in the classes which comprise the
commercial portfolio segment. Groups of loans that are underwritten and structured using standardized criteria and characteristics, such as statistical models (e.g., credit scoring or payment
performance), are typically risk rated and monitored collectively. These are typically loans to individuals in the classes which comprise the consumer portfolio segment.
109
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 5Loans and Allowance for Credit Losses (Continued)
The
following are the definitions of the Company's credit quality indicators:
|
|
|
Pass:
|
|
Loans in all classes that comprise the commercial and consumer portfolio segments that are not adversely rated, are contractually current as to principal and interest, and are otherwise in compliance with the contractual terms of the loan agreement.
Management believes that there is a low likelihood of loss related to those loans that are considered pass.
|
Watch:
|
|
Loan paying as agreed with generally acceptable asset quality; however the obligor's performance has not met expectations. Balance sheet and/or income statement has shown deterioration to the point that the obligor could not sustain any further
setbacks. Credit is expected to be strengthened through improved obligor performance and/or additional collateral within a reasonable period of time.
|
Special Mention:
|
|
Loans in the classes that comprise the commercial portfolio segment that have potential weaknesses that deserve management's close attention. If not addressed, these potential weaknesses may result in deterioration of the repayment prospects for the
loan. The special mention credit quality indicator is not used for classes of loans that comprise the consumer portfolio segment. Management believes that there is a moderate likelihood of some loss related to those loans that are considered special
mention.
|
Classified:
|
|
Classified (a) Substandard
Loans inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the company will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of
substandard loans, does not have to exist in individual loans classified substandard.
|
|
|
Classified (b) Doubtful
Loans that have all the weaknesses inherent in a loan classified substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of
currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors, which may work to the advantage and
strengthening of the assets, its classification as an estimated loss is deferred until its more exact status may be determined.
|
110
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 5Loans and Allowance for Credit Losses (Continued)
The
Company's credit quality indicators are updated generally on a quarterly basis, but no less frequently than annually. The following table presents by class and by credit quality
indicator, the recorded investment in the Company's loans and leases as of December 31, 2016 and 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Pass
|
|
Watch and
Special
Mention
|
|
Substandard
|
|
Doubtful
|
|
Total
Loans
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
1,160,185
|
|
$
|
30,106
|
|
$
|
10,437
|
|
$
|
|
|
$
|
1,200,728
|
|
Income producingcommercial real estate
|
|
|
2,489,407
|
|
|
5,053
|
|
|
15,057
|
|
|
|
|
|
2,509,517
|
|
Owner occupiedcommercial real estate
|
|
|
630,827
|
|
|
7,950
|
|
|
2,093
|
|
|
|
|
|
640,870
|
|
Real estate mortgageresidential
|
|
|
151,831
|
|
|
676
|
|
|
241
|
|
|
|
|
|
152,748
|
|
Constructioncommercial and residential
|
|
|
1,051,445
|
|
|
607
|
|
|
6,517
|
|
|
|
|
|
1,058,569
|
|
Home equity
|
|
|
103,484
|
|
|
1,612
|
|
|
|
|
|
|
|
|
105,096
|
|
Other consumer
|
|
|
10,237
|
|
|
2
|
|
|
126
|
|
|
|
|
|
10,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,597,416
|
|
$
|
46,006
|
|
$
|
34,471
|
|
$
|
|
|
$
|
5,677,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
1,021,427
|
|
$
|
17,822
|
|
$
|
13,008
|
|
$
|
|
|
$
|
1,052,257
|
|
Income producingcommercial real estate
|
|
|
2,096,032
|
|
|
13,328
|
|
|
6,118
|
|
|
|
|
|
2,115,478
|
|
Owner occupiedcommercial real estate
|
|
|
488,496
|
|
|
7,854
|
|
|
1,753
|
|
|
|
|
|
498,103
|
|
Real estate mortgageresidential
|
|
|
146,651
|
|
|
714
|
|
|
|
|
|
|
|
|
147,365
|
|
Constructioncommercial and residential
|
|
|
1,049,926
|
|
|
4,996
|
|
|
10,454
|
|
|
|
|
|
1,065,376
|
|
Home equity
|
|
|
110,870
|
|
|
1,854
|
|
|
161
|
|
|
|
|
|
112,885
|
|
Other consumer
|
|
|
6,877
|
|
|
5
|
|
|
22
|
|
|
|
|
|
6,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,920,279
|
|
$
|
46,573
|
|
$
|
31,516
|
|
$
|
|
|
$
|
4,998,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual and Past Due Loans
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due.
Loans are placed on nonaccrual status when, in management's opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans
may be placed on nonaccrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is
subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are
brought current and future payments are reasonably assured.
111
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 5Loans and Allowance for Credit Losses (Continued)
The
following table presents, by class of loan, information related to nonaccrual loans as of December 31, 2016 and 2015.
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
December 31,
2016
|
|
December 31,
2015
|
|
Commercial
|
|
$
|
2,490
|
|
$
|
4,940
|
|
Income producingcommercial real estate
|
|
|
10,539
|
|
|
5,961
|
|
Owner occupiedcommercial real estate
|
|
|
2,093
|
|
|
1,268
|
|
Real estate mortgageresidential
|
|
|
555
|
|
|
329
|
|
Constructioncommercial and residential
|
|
|
2,072
|
|
|
557
|
|
Home equity
|
|
|
|
|
|
161
|
|
Other consumer
|
|
|
126
|
|
|
23
|
|
|
|
|
|
|
|
|
|
Total nonaccrual loans(1)(2)
|
|
$
|
17,875
|
|
$
|
13,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Excludes
troubled debt restructurings ("TDRs") that were performing under their restructured terms totaling $3.5 million at December 31, 2016, and
$11.8 million at December 31, 2015.
-
(2)
-
Gross
interest income of $1.2 million would have been recorded in 2016 if nonaccrual loans shown above had been current and in accordance with their original
terms, while interest actually recorded on such loans was $48 thousand. See Note 1 to the Consolidated Financial Statements for a description of the Company's policy for placing loans on
nonaccrual status.
112
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 5Loans and Allowance for Credit Losses (Continued)
The
following table presents, by class of loan, an aging analysis and the recorded investments in loans past due as of December 31, 2016 and 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Loans
30-59 Days
Past Due
|
|
Loans
60-89 Days
Past Due
|
|
Loans
90 Days or
More Past Due
|
|
Total Past
Due Loans
|
|
Current
Loans
|
|
Total Recorded
Investment in
Loans
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
1,634
|
|
$
|
757
|
|
$
|
2,490
|
|
$
|
4,881
|
|
$
|
1,195,847
|
|
$
|
1,200,728
|
|
Income producingcommercial real estate
|
|
|
511
|
|
|
|
|
|
10,539
|
|
|
11,050
|
|
|
2,498,467
|
|
|
2,509,517
|
|
Owner occupiedcommercial real estate
|
|
|
3,987
|
|
|
3,328
|
|
|
2,093
|
|
|
9,408
|
|
|
631,462
|
|
|
640,870
|
|
Real estate mortgageresidential
|
|
|
1,015
|
|
|
163
|
|
|
555
|
|
|
1,733
|
|
|
151,015
|
|
|
152,748
|
|
Constructioncommercial and residential
|
|
|
360
|
|
|
1,342
|
|
|
2,072
|
|
|
3,774
|
|
|
1,054,795
|
|
|
1,058,569
|
|
Home equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105,096
|
|
|
105,096
|
|
Other consumer
|
|
|
101
|
|
|
9
|
|
|
126
|
|
|
236
|
|
|
10,129
|
|
|
10,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,608
|
|
$
|
5,599
|
|
$
|
17,875
|
|
$
|
31,082
|
|
$
|
5,646,811
|
|
$
|
5,677,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
4,130
|
|
$
|
1,364
|
|
$
|
4,940
|
|
$
|
10,434
|
|
$
|
1,041,823
|
|
$
|
1,052,257
|
|
Income producingcommercial real estate
|
|
|
2,841
|
|
|
|
|
|
5,961
|
|
|
8,802
|
|
|
2,106,676
|
|
|
2,115,478
|
|
Owner occupiedcommercial real estate
|
|
|
3,189
|
|
|
902
|
|
|
1,268
|
|
|
5,359
|
|
|
492,744
|
|
|
498,103
|
|
Real estate mortgageresidential
|
|
|
|
|
|
|
|
|
329
|
|
|
329
|
|
|
147,036
|
|
|
147,365
|
|
Constructioncommercial and residential
|
|
|
|
|
|
5,020
|
|
|
557
|
|
|
5,577
|
|
|
1,059,799
|
|
|
1,065,376
|
|
Home equity
|
|
|
|
|
|
77
|
|
|
161
|
|
|
238
|
|
|
112,647
|
|
|
112,885
|
|
Other consumer
|
|
|
56
|
|
|
60
|
|
|
23
|
|
|
139
|
|
|
6,765
|
|
|
6,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,216
|
|
$
|
7,423
|
|
$
|
13,239
|
|
$
|
30,878
|
|
$
|
4,967,490
|
|
$
|
4,998,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans
Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts
due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments.
Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. If a loan is impaired, a specific valuation allowance is allocated, if
necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan's existing rate or at the fair value of collateral if repayment is expected solely from
the collateral. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a
cash basis. Impaired loans, or portions thereof, are charged off when deemed uncollectible.
113
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 5Loans and Allowance for Credit Losses (Continued)
The following table presents, by class of loan, information related to impaired loans for the years ended December 31, 2016 and 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
Recorded
Investment
|
|
Interest Income
Recognized
|
|
|
|
Unpaid
Contractual
Principal
Balance
|
|
Recorded
Investment
With No
Allowance
|
|
Recorded
Investment
With
Allowance
|
|
|
|
|
|
(dollars in thousands)
|
|
Total
Recorded
Investment
|
|
Related
Allowance
|
|
Quarter
To Date
|
|
Year
To Date
|
|
Quarter
To Date
|
|
Year
To Date
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
8,296
|
|
$
|
2,532
|
|
$
|
3,095
|
|
$
|
5,627
|
|
$
|
2,671
|
|
$
|
12,620
|
|
$
|
12,755
|
|
$
|
79
|
|
$
|
191
|
|
Income producingcommercial real estate
|
|
|
14,936
|
|
|
5,048
|
|
|
9,888
|
|
|
14,936
|
|
|
1,943
|
|
|
16,742
|
|
|
17,533
|
|
|
54
|
|
|
198
|
|
Owner occupiedcommercial real estate
|
|
|
2,483
|
|
|
1,691
|
|
|
792
|
|
|
2,483
|
|
|
350
|
|
|
2,233
|
|
|
2,106
|
|
|
|
|
|
13
|
|
Real estate mortgageresidential
|
|
|
555
|
|
|
555
|
|
|
|
|
|
555
|
|
|
|
|
|
246
|
|
|
249
|
|
|
|
|
|
|
|
Constructioncommercial and residential
|
|
|
2,072
|
|
|
1,535
|
|
|
537
|
|
|
2,072
|
|
|
522
|
|
|
5,091
|
|
|
5,174
|
|
|
|
|
|
|
|
Home equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
|
|
|
89
|
|
|
|
|
|
|
|
Other consumer
|
|
|
126
|
|
|
|
|
|
126
|
|
|
126
|
|
|
113
|
|
|
42
|
|
|
32
|
|
|
2
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
28,468
|
|
$
|
11,361
|
|
$
|
14,438
|
|
$
|
25,799
|
|
$
|
5,599
|
|
$
|
37,052
|
|
$
|
37,938
|
|
$
|
135
|
|
$
|
406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
9,555
|
|
$
|
2,396
|
|
$
|
3,715
|
|
$
|
6,111
|
|
$
|
3,478
|
|
$
|
9,671
|
|
$
|
10,309
|
|
$
|
21
|
|
$
|
69
|
|
Income producingcommercial real estate
|
|
|
11,814
|
|
|
1,190
|
|
|
9,931
|
|
|
11,121
|
|
|
1,033
|
|
|
10,675
|
|
|
10,294
|
|
|
95
|
|
|
354
|
|
Owner occupiedcommercial real estate
|
|
|
1,753
|
|
|
946
|
|
|
807
|
|
|
1,753
|
|
|
400
|
|
|
1,772
|
|
|
1,810
|
|
|
|
|
|
|
|
Real estate mortgageresidential
|
|
|
329
|
|
|
329
|
|
|
|
|
|
329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructioncommercial and residential
|
|
|
5,577
|
|
|
|
|
|
5,577
|
|
|
5,577
|
|
|
950
|
|
|
8,031
|
|
|
7,594
|
|
|
(93
|
)
|
|
205
|
|
Home equity
|
|
|
161
|
|
|
116
|
|
|
45
|
|
|
161
|
|
|
38
|
|
|
411
|
|
|
650
|
|
|
|
|
|
|
|
Other consumer
|
|
|
23
|
|
|
20
|
|
|
3
|
|
|
23
|
|
|
3
|
|
|
47
|
|
|
31
|
|
|
(1
|
)
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
29,212
|
|
$
|
4,997
|
|
$
|
20,078
|
|
$
|
25,075
|
|
$
|
5,902
|
|
$
|
30,607
|
|
$
|
30,688
|
|
$
|
22
|
|
$
|
629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modifications
A modification of a loan constitutes a TDR when a borrower is experiencing financial difficulty and the modification constitutes a concession.
The Company offers various types of concessions when modifying a loan. Commercial and industrial loans modified in a TDR often involve temporary interest-only payments, term extensions, and converting
revolving credit lines to term loans. Additional collateral, a co-borrower, or a guarantor is often requested. Commercial mortgage and construction loans modified in a TDR often involve reducing the
interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or substituting or adding a new
borrower or guarantor. Construction loans modified in a TDR may also involve extending the interest-only payment period. As of December 31, 2016, all performing TDRs were categorized as
interest-only modifications.
Loans
modified in a TDR for the Company may have the financial effect of increasing the specific allowance associated with the loan. An allowance for impaired consumer and commercial
loans that have been modified in a TDR is measured based on the present value of expected future cash flows discounted
114
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 5Loans and Allowance for Credit Losses (Continued)
at
the loan's effective interest rate, the loan's observable market price, or the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent. Management
exercises significant judgment in developing these estimates.
The
following table presents, by class, the recorded investment of loans modified in TDRs held by the Company during the years ended December 31, 2016 and 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2016
|
|
(dollars in thousands)
|
|
Number of
Contracts
|
|
Commercial
|
|
Income
Producing
Commercial
Real Estate
|
|
Owner
Occupied
Commercial
Real Estate
|
|
Construction
Commercial
Real Estate
|
|
Total
|
|
Troubled debt restructings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured accruing
|
|
|
7
|
|
$
|
3,137
|
|
$
|
4,397
|
|
$
|
390
|
|
$
|
|
|
$
|
7,924
|
|
Restructured non-accruing
|
|
|
3
|
|
|
434
|
|
|
|
|
|
|
|
|
4,933
|
|
|
5,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10
|
|
$
|
3,571
|
|
$
|
4,397
|
|
$
|
390
|
|
$
|
4,933
|
|
$
|
13,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific allowance
|
|
|
|
|
$
|
855
|
|
$
|
920
|
|
$
|
|
|
$
|
|
|
$
|
1,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured and subsequently defaulted
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2015
|
|
(dollars in thousands)
|
|
Number of
Contracts
|
|
Commercial
|
|
Income
Producing
Commercial
Real Estate
|
|
Owner
Occupied
Commercial
Real Estate
|
|
Construction
Commercial
Real Estate
|
|
Total
|
|
Troubled debt restructings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured accruing
|
|
|
7
|
|
$
|
1,171
|
|
$
|
5,160
|
|
$
|
485
|
|
$
|
5,020
|
|
$
|
11,836
|
|
Restructured non-accruing
|
|
|
1
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
8
|
|
$
|
1,382
|
|
$
|
5,160
|
|
$
|
485
|
|
$
|
5,020
|
|
$
|
12,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific allowance
|
|
|
|
|
$
|
49
|
|
$
|
6
|
|
$
|
|
|
$
|
600
|
|
$
|
655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured and subsequently defaulted
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company had ten TDRs at December 31, 2016, totaling approximately $8.9 million, as compared to eight TDRs totaling approximately $12.1 million at
December 31, 2015. At December 31, 2016, seven of these TDR loans, totaling approximately $3.5 million, are performing under their modified terms. During 2016, there were four
loans modified in a TDR totaling approximately $2.2 million. There were four loans totaling approximately $1.9 million modified in a TDR during the year ended December 31, 2015.
During the year ended December 31, 2016, there were two performing TDR loans totaling approximately $5.2 million that experienced defaults on their modified terms, as compared to the
year ended December 31, 2015, which had no defaults on restructured loans. During 2016, these two previously performing TDRs were reclassified to nonperforming loans. A default is considered to
have occurred once the TDR is past due 90 days or more, or it has been placed on nonaccrual. There were no nonperforming
115
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 5Loans and Allowance for Credit Losses (Continued)
TDRs
reclassified to nonperforming loans during the year ended December 31, 2015. Commercial and consumer loans modified in a TDR are closely monitored for delinquency as an early indicator of
possible future default. If loans modified in a TDR subsequently default, the Company evaluates the loan for possible further impairment. The allowance may be increased, adjustments may be made in the
allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan.
The
criteria used to determine if a loan should be considered for charge off relates to its ultimate collectability includes the following:
-
-
All or a portion of the loan is deemed uncollectible;
-
-
Repayment is dependent upon secondary sources, such as liquidation of collateral, other assets, or judgment liens that may require an
indefinite time period to collect.
Loans
may be identified for charge off in whole or in part based upon an impairment analysis consistent with ASC 310. If all or a portion of a loan is deemed uncollectible, such amount
shall be charged off in the month in which the loan or portion thereof is determined to be uncollectible.
Loans
approved for non-accrual status, or charge off, should be managed by the Chief Credit Officer or as dictated by the Directors Loan Committee and/or Credit Review Committee. The
Chief Credit Officer is expected to position the loan in the best possible posture for recovery, including, among other actions, liquidating collateral, obtaining additional collateral, filing suit to
obtain judgment or restructuring of repayment terms. A review of charged off loans should be made on a monthly basis to assess the possibility of recovery from renewed collection efforts. All charged
off loans that are deemed to have the possibility of recovery, whether partial or full, shall be actively pursued. Charged off loans that are deemed uncollectible will be placed in an inactive file
with documentation supporting the suspension of further collection efforts.
In
the process of collecting problem loans the Bank may resort to the acquisition of collateral through foreclosure and repossession actions, or may accept the transfer of assets in
partial or full satisfaction of the debt. These actions may in turn result in the necessity of carrying real property or chattels as an asset of the Company pending sale.
For
purchased loans acquired that are not deemed impaired at acquisition, credit marks representing the principal losses expected over the life of the loans are a component of the
initial fair value. Subsequent to the purchase date, the methods utilized to estimate the required allowance for credit losses for these loans is similar to originated loans; however, the Company
records a provision for loan losses only when the required allowance exceeds any remaining credit mark. The remaining differences between the purchase price and the unpaid principal balance at the
date of acquisition are recorded in interest income over the life of the loans.
116
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 5Loans and Allowance for Credit Losses (Continued)
The
following table presents changes in the credit mark accretable yield, which includes income recognized from contractual interest cash flows, for the dates indicated.
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2016
|
|
2015
|
|
Balance at January 1,
|
|
$
|
(6,008
|
)
|
$
|
(10,298
|
)
|
Net reclassifications from nonaccretable yield
|
|
|
|
|
|
|
|
Accretion
|
|
|
1,564
|
|
|
4,290
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
|
|
$
|
(4,444
|
)
|
$
|
(6,008
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related Party Loans
Certain directors and executive officers have had loan transactions with the Company. Such loans were made in the ordinary course of business on
substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with outsiders. The following table summarizes changes in amounts of
loans outstanding, both direct and indirect, to those persons during 2016 and 2015.
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2016
|
|
2015
|
|
Balance at January 1,
|
|
$
|
29,949
|
|
$
|
17,082
|
|
Additions
|
|
|
31,158
|
|
|
23,578
|
|
Repayments
|
|
|
(8,537
|
)
|
|
(10,711
|
)
|
|
|
|
|
|
|
|
|
Balance at December 31,
|
|
$
|
52,570
|
|
$
|
29,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6Premises and Equipment
Premises and equipment include the following at December 31:
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2016
|
|
2015
|
|
Leasehold improvements
|
|
$
|
29,207
|
|
$
|
26,987
|
|
Furniture and equipment
|
|
|
26,994
|
|
|
22,217
|
|
Less accumulated depreciation and amortization
|
|
|
(35,540
|
)
|
|
(30,950
|
)
|
|
|
|
|
|
|
|
|
Total premises and equipment, net
|
|
$
|
20,661
|
|
$
|
18,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
depreciation and amortization expense for the years ended December 31, 2016, 2015 and 2014, was $5.0 million, $6.1 million and $4.6 million,
respectively.
The
Company leases banking and office space in 29 locations under non-cancelable lease arrangements accounted for as operating leases. The initial lease periods range from five to ten
years and provide for one or more five year renewal options. The leases in some cases provide for scheduled annual rent escalations and require that the Bank (lessee) pay certain operating expenses
applicable to the leased space. Rent expense applicable to operating leases amounted to $8.5 million for 2016, $8.5 million for 2015, and $7.5 million in 2014. The Company
subleased four leased premises during 2016, six leased premises during 2015, and two leased premises during 2013. The Company recorded $579 thousand,
117
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 6Premises and Equipment (Continued)
$435 thousand,
and $114 thousand of sublease income as a reduction of rent expense during 2016, 2015, and 2014, respectively.
At
December 31, 2016, future minimum lease payments under non-cancelable operating leases having an initial term in excess of one year are as follows:
|
|
|
|
|
Years ending December 31:
|
|
|
|
(dollars in thousands)
|
|
|
|
2017
|
|
$
|
8,016
|
|
2018
|
|
|
7,736
|
|
2019
|
|
|
7,464
|
|
2020
|
|
|
6,990
|
|
2021
|
|
|
6,069
|
|
Thereafter
|
|
|
16,179
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
52,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 7Intangible Assets
Intangible assets are included in the Consolidated Balance Sheets as a separate line item, net of accumulated amortization and consist of the following items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Gross
Intangible
Assets
|
|
Additions
|
|
Accumulated
Amortization
|
|
Net
Intangible
Assets
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill(1)
|
|
$
|
104,168
|
|
$
|
|
|
$
|
|
|
$
|
104,168
|
|
Core deposit(2)
|
|
|
7,070
|
|
|
|
|
|
(4,291
|
)
|
|
2,779
|
|
Excess servicing(3)
|
|
|
387
|
|
|
602
|
|
|
(517
|
)
|
|
472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
111,625
|
|
$
|
602
|
|
$
|
(4,808
|
)
|
$
|
107,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill(1)
|
|
$
|
104,425
|
|
$
|
(257
|
)
|
$
|
|
|
$
|
104,168
|
|
Core deposit(2)
|
|
|
7,070
|
|
|
|
|
|
(3,084
|
)
|
|
3,986
|
|
Excess servicing(3)
|
|
|
282
|
|
|
379
|
|
|
(273
|
)
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
111,777
|
|
$
|
122
|
|
$
|
(3,357
|
)
|
$
|
108,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
aggregate amortization expense was $1.7 million, $1.5 million, and $743 thousand for the years ended December 31, 2016, 2015 and 2014, respectively.
-
(1)
-
The
Company recorded an initial amount of unidentified intangible (goodwill) incident to the acquisition of Fidelity of approximately $360 thousand. Based on
allowable adjustments through August 31, 2009, the unidentified intangible (goodwill) amounted to approximately $2.2 million. The Company recorded an initial amount of unidentified
intangible (goodwill) incident to the acquisition of Virginia Heritage of approximately $102.3 million. Based on allowable adjustments through October 31, 2015, the unidentified
intangible (goodwill) was reduced by $257 thousand.
118
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 7Intangible Assets (Continued)
-
(2)
-
In
connection with the Fidelity and Virginia Heritage acquisitions, the Company made an allocation of the purchase price of $2.3 million and
$4.6 million, respectively, to the core deposit intangibles. These allocations were based on independent evaluations, and are included in intangible assets, net of accumulated amortization on
the Consolidated Balances Sheets. The amount of the core deposit intangible relating to the Fidelity acquisition at December 31, 2016 was $209 thousand, which is being amortized over its
remaining economic life through 2018 as a component of other noninterest expense. The amount of the core deposit intangible relating to the Virginia Heritage acquisition at December 31, 2016
was $2.6 million, which is being amortized over its remaining economic life through the year 2020 as a component of other noninterest expense. Amortization expense for core deposit intangibles
totaled $1.2 million for both the years ended December 31, 2016 and 2015. The unamortized assets at December 31, 2016 and 2015 were $2.8 million and $4.0 million,
respectively.
-
(3)
-
The
Company recognizes a servicing asset for the computed value of servicing fees on the sale of the guaranteed portion of SBA loans, which is in excess of a normal
servicing fee. Assumptions related to the loan term and amortization period are made to arrive at the initial recorded value.
The
future estimated annual amortization expense is presented below:
|
|
|
|
|
Years ending December 31:
|
|
|
|
(dollars in thousands)
|
|
|
|
2017
|
|
$
|
1,064
|
|
2018
|
|
|
957
|
|
2019
|
|
|
715
|
|
2020
|
|
|
43
|
|
|
|
|
|
|
Total
|
|
$
|
2,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 8Other Real Estate Owned
The activity within OREO for the years ended December 31, 2016 and 2015 is presented in the table below. There were no residential real estate loans in the process of foreclosure
as of December 31, 2016. For the year ended December 31, 2016 and 2015, proceeds on sales of OREO were $6.1 million and $5.5 million, respectively. For the year ended
December 31, 2016, the Company realized a net gain on sales of OREO of $682 thousand compared to a net loss on sales of OREO of $328 thousand for the year ended
December 31, 2015.
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
(dollars in thousands)
|
|
2016
|
|
2015
|
|
Balance beginning of period
|
|
$
|
5,852
|
|
$
|
13,224
|
|
Real estate acquired from borrowers
|
|
|
2,500
|
|
|
1,725
|
|
Valuation allowance
|
|
|
(200
|
)
|
|
(1,100
|
)
|
Properties sold
|
|
|
(5,458
|
)
|
|
(7,997
|
)
|
|
|
|
|
|
|
|
|
Balance end of period
|
|
$
|
2,694
|
|
$
|
5,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 9Mortgage Banking Derivatives
As part of its mortgage banking activities, the Bank enters into interest rate lock commitments, which are commitments to originate loans where the interest rate on the loan is
determined prior to funding and the customers have locked into that interest rate. The Bank then locks in the loan and interest rate with an investor and commits to deliver the loan if settlement
occurs ("best efforts") or commits to deliver the locked loan in a binding ("mandatory") delivery program with an investor. Certain loans under interest rate lock commitments are covered under forward
sales contracts of mortgage backed securities ("MBS"). Forward sales contracts of MBS are recorded at fair value with changes in fair
value recorded in noninterest income. Interest rate lock commitments and commitments to deliver loans to investors are considered derivatives. The market value of interest rate lock commitments and
best efforts contracts are not readily ascertainable with precision because they are not actively traded in stand-alone markets. The Bank determines the fair value of interest rate lock commitments
and delivery contracts by measuring the fair value of the underlying asset, which is impacted by current interest rates, taking into consideration the probability that the interest rate lock
commitments will close or will be funded.
Certain
additional risks arise from these forward delivery contracts in that the counterparties to the contracts may not be able to meet the terms of the contracts. The Bank does not
expect any counterparty to any MBS to fail to meet its obligation. Additional risks inherent in mandatory delivery programs include the risk that, if the Bank does not close the loans subject to
interest rate risk lock commitments, it will still be obligated to deliver MBS to the counterparty under the forward sales agreement. Should this be required, the Bank could incur significant costs in
acquiring replacement loans or MBS and such costs could have an adverse effect on mortgage banking operations.
The
fair value of the mortgage banking derivatives is recorded as a freestanding asset or liability with the change in value being recognized in current earnings during the period of
change.
At
December 31, 2016 the Bank had mortgage banking derivative financial instruments with a notional value of $34.2 million related to its forward contracts. The fair value
of these mortgage banking derivative instruments at December 31, 2016 was $114 thousand included in other assets and $55 thousand included in other liabilities. At
December 31, 2015 the Bank had mortgage banking derivative financial instruments with a notional value of $39.6 million related to its forward contracts. The fair value of these mortgage
banking derivative instruments at December 31, 2015 was $24 thousand included in other assets and $30 thousand included in other liabilities.
Included
in other noninterest income for the year ended December 31, 2016 and 2015 was a net loss of $199 thousand and a net loss of $155 thousand, respectively,
relating to mortgage banking derivative instruments. The amount included in other noninterest income for year ended December 31, 2016 and 2015 pertaining to its mortgage banking hedging
activities was a net realized gain of $730 thousand and a net realized gain of $202 thousand, respectively.
Note 10Interest Rate Swap Derivatives
The Company uses interest rate swap agreements to assist in its interest rate risk management. The Company's objective in using interest rate derivatives is to add stability to interest
expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company entered into forward starting interest rate swaps in April 2015 as part of its interest rate
risk management strategy intended to mitigate the potential risk of rising interest rates on the Bank's cost of funds. The notional amounts of the interest rate swaps do not represent amounts
exchanged by the counterparties, but rather, the notional
120
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 10Interest Rate Swap Derivatives (Continued)
amount
is used to determine, along with other terms of the derivative, the amounts to be exchanged between the counterparties. The interest rate swaps are designated as cash flow hedges and involve
the receipt of variable rate amounts from two counterparties in exchange for the Company making fixed payments beginning in April 2016. The Company's intent is to hedge its exposure to the variability
in potential future interest rate conditions on existing financial instruments.
As
of December 31, 2016 and December 31, 2015, the Company had three forward starting interest rate swap transactions outstanding that had an aggregate notional amount of
$250 million associated with the Company's variable rate deposits. The net unrealized loss before income tax on the swaps was $692 thousand at December 31, 2016 and
$1.4 million at December 31, 2015. The lesser unrealized loss at year end 2016 is due a decrease in expected spreads between short and longer term interest rates for the remaining term
of the interest rate swap.
For
derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of
earnings), net of tax, and
subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The
Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged
transactions. The Company recognized an immaterial amount in earnings due to hedge ineffectiveness during the year ended December 31, 2016. The Company did not recognize any hedge
ineffectiveness in earnings during the year ended December 31, 2015.
Amounts
reported in accumulated other comprehensive income related to derivatives will be reclassified to interest income/expense as interest payments are made/received on the Company's
variable-rate assets/liabilities. During the year ended December 31, 2016, the Company reclassified $2.3 million related to derivatives from accumulated other comprehensive income to
interest expense. During the year ended December 31, 2015, the Company did not have any reclassifications to interest expense. During the next twelve months, the Company estimates (based on
existing interest rates) that $1.9 million will be reclassified as an increase in interest expense.
The
Company is exposed to credit risk in the event of nonperformance by the interest rate swap counterparty. The Company minimizes this risk by entering into derivative contracts with
only large, stable financial institutions, and the Company has not experienced, and does not expect, any losses from counterparty nonperformance on the interest rate swaps. The Company monitors
counterparty risk in accordance with the provisions of ASC Topic 815,
"Derivatives and Hedging."
In addition, the interest rate swap agreements contain
language outlining collateral-pledging requirements for each counterparty. Collateral must be posted when the market value exceeds certain threshold limits.
The
interest rate swap agreements detail: the requirement that collateral be posted when the market value exceeds certain threshold limits associated with the secured party's exposure;
that if the Company defaults on any of its indebtedness (including default where repayment of the indebtedness has not been accelerated by the lender), then the Company could also be declared in
default on its derivative obligations; and that if the Company fails to maintain its status as a well/adequately capitalized institution then the counterparty could terminate the derivative positions
and the Company would be required to settle its obligations under the agreements.
121
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 10Interest Rate Swap Derivatives (Continued)
The
aggregate fair value of all derivative contracts with credit risk contingent features (i.e., those containing collateral posting or termination provisions based on our capital
status) that were in a net liability position totaled $692 thousand and $1.4 million as of December 31, 2016 and December 31, 2015, respectively. The Company has minimum
collateral posting thresholds with certain of its derivative counterparties and has posted collateral of $550 thousand against its obligations under these agreements for the year ended
December 31, 2016 compared to $2.9 million for the year ended December 31, 2015.
If the Company had breached any of these provisions at December 31, 2016 or December 31, 2015, it could have been required to settle its obligations under the agreements at the
termination value.
The
table below identifies the balance sheet category and fair values of the Company's derivative instruments (all of which are designated as cash flow hedges) as of December 31,
2016 and December 31, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Swap
Number
|
|
Notional
Amount
|
|
Fair
Value
|
|
Balance
Sheet
Category
|
|
Receive Rate
|
|
Pay
Rate
|
|
Maturity
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
(1)
|
|
$
|
75,000
|
|
$
|
(197
|
)
|
Other Liabilities
|
|
1 month USD-LIBOR-BBA w/ 1 day lookback +10 basis points
|
|
|
1.71
|
%
|
March 31, 2020
|
Interest rate swap
|
|
(2)
|
|
|
100,000
|
|
|
(514
|
)
|
Other Liabilities
|
|
Federal Funds Effective Rate +10 basis points
|
|
|
1.74
|
%
|
April 15, 2021
|
Interest rate swap
|
|
(3)
|
|
|
75,000
|
|
|
19
|
|
Other Liabilities
|
|
1 month USD-LIBOR-BBA w/ 1 day lookback +10 basis points
|
|
|
1.92
|
%
|
March 31, 2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
250,000
|
|
$
|
(692
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Swap
Number
|
|
Notional
Amount
|
|
Fair
Value
|
|
Balance
Sheet
Category
|
|
Receive Rate
|
|
Pay
Rate
|
|
Maturity
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
(1)
|
|
$
|
75,000
|
|
$
|
(368
|
)
|
Other Liabilities
|
|
1 month USD-LIBOR-BBA w/ 1 day lookback +10 basis points
|
|
|
1.71
|
%
|
March 31, 2020
|
Interest rate swap
|
|
(2)
|
|
|
100,000
|
|
|
(665
|
)
|
Other Liabilities
|
|
Federal Funds Effective Rate +10 basis points
|
|
|
1.74
|
%
|
April 15, 2021
|
Interest rate swap
|
|
(3)
|
|
|
75,000
|
|
|
(384
|
)
|
Other Liabilities
|
|
1 month USD-LIBOR-BBA w/ 1 day lookback +10 basis points
|
|
|
1.92
|
%
|
March 31, 2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
250,000
|
|
$
|
(1,417
|
)
|
|
|
|
|
|
|
|
|
The
table below presents the pre-tax net gains (losses) of the Company's cash flow hedges for the years ended December 31, 2016 and December 31, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
|
|
|
|
Effective Portion
|
|
Ineffective Portion
|
|
|
|
|
|
|
|
Reclassified from AOCI
into income
|
|
Recognized in Income
on Derivatives
|
|
(dollars in thousands)
|
|
Swap
Number
|
|
Amount of
Pre-tax gain (loss)
Recognized in OCI
|
|
Category
|
|
Amount of
Gain (Loss)
|
|
Category
|
|
Amount of
Gain (Loss)
|
|
Interest rate swap
|
|
(1)
|
|
$
|
(197
|
)
|
Interest Expense
|
|
$
|
(628
|
)
|
Other Expense
|
|
$
|
|
|
Interest rate swap
|
|
(2)
|
|
|
(514
|
)
|
Interest Expense
|
|
|
(880
|
)
|
Other Expense
|
|
|
|
|
Interest rate swap
|
|
(3)
|
|
|
19
|
|
Interest Expense
|
|
|
(747
|
)
|
Other Expense
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(692
|
)
|
|
|
$
|
(2,255
|
)
|
|
|
$
|
1
|
|
122
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 10Interest Rate Swap Derivatives (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
|
|
|
|
Effective Portion
|
|
Ineffective Portion
|
|
|
|
|
|
|
|
Reclassified from AOCI
into income
|
|
Recognized in Income
on Derivatives
|
|
(dollars in thousands)
|
|
Swap
Number
|
|
Amount of
Pre-tax gain (loss)
Recognized in OCI
|
|
Category
|
|
Amount of
Gain (Loss)
|
|
Category
|
|
Amount of
Gain (Loss)
|
|
Interest rate swap
|
|
(1)
|
|
$
|
(368
|
)
|
|
|
$
|
|
|
|
|
$
|
|
|
Interest rate swap
|
|
(2)
|
|
|
(665
|
)
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
(3)
|
|
|
(384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(1,417
|
)
|
|
|
$
|
|
|
|
|
$
|
|
|
Balance Sheet Offsetting
: Our interest rate swap derivatives are eligible for offset in the consolidated balance sheet and are subject
to master
netting arrangements. Our derivative transactions with counterparties are generally executed under International Swaps and Derivative Association ("ISDA") master agreements which include "right of
set-off" provisions. In such cases there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis. The Company
generally offsets such financial instruments for financial reporting purposes.
The
following table presents the liabilities subject to an enforceable master netting arrangement as of December 31, 2016 and December 31, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
|
|
Gross
Amounts
of
Recognized
Liabilities
|
|
Gross
Amounts
Offset
in the
Balance Sheet
|
|
Net Amounts
of Liabilities
presented in
the
Balance Sheet
|
|
Gross Amounts Not Offset in the Balance Sheet
|
|
Offsetting of Derivative Liabilities (dollars in thousands)
|
|
Financial
Instruments
|
|
Cash
Collateral
Posted
|
|
Net
Amount
|
|
Counterparty 1
|
|
$
|
514
|
|
$
|
(19
|
)
|
$
|
495
|
|
$
|
|
|
$
|
(380
|
)
|
$
|
115
|
|
Counterparty 2
|
|
|
197
|
|
|
|
|
|
197
|
|
|
|
|
|
(170
|
)
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
711
|
|
$
|
(19
|
)
|
$
|
692
|
|
$
|
|
|
$
|
(550
|
)
|
$
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
|
|
Gross
Amounts
of
Recognized
Liabilities
|
|
Gross
Amounts
Offset
in the
Balance Sheet
|
|
Net Amounts
of Liabilities
presented
in the
Balance Sheet
|
|
Gross Amounts Not Offset in the Balance Sheet
|
|
Offsetting of Derivative Liabilities (dollars in thousands)
|
|
Financial
Instruments
|
|
Cash
Collateral
Posted
|
|
Net
Amount
|
|
Counterparty 1
|
|
$
|
1,049
|
|
$
|
|
|
$
|
1,049
|
|
$
|
|
|
$
|
(2,170
|
)
|
$
|
(1,121
|
)
|
Counterparty 2
|
|
|
368
|
|
|
|
|
|
368
|
|
|
|
|
|
(740
|
)
|
|
(372
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,417
|
|
$
|
|
|
$
|
1,417
|
|
$
|
|
|
$
|
(2,910
|
)
|
$
|
(1,493
|
)
|
123
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 11Deposits
The following table provides information regarding the Bank's deposit composition at December 31, 2016, 2015 and 2014 as well as the average rate being paid on interest bearing
deposits at December 31, 2016, 2015 and 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(dollars in thousands)
|
|
Balance
|
|
Average
Rate
|
|
Balance
|
|
Average
Rate
|
|
Balance
|
|
Average
Rate
|
|
Noninterest bearing demand
|
|
$
|
1,775,684
|
|
|
|
|
$
|
1,405,067
|
|
|
|
|
$
|
1,175,799
|
|
|
|
|
Interest bearing transaction
|
|
|
289,122
|
|
|
0.16
|
%
|
|
178,797
|
|
|
0.16
|
%
|
|
143,628
|
|
|
0.13
|
%
|
Savings and money market
|
|
|
2,902,560
|
|
|
0.54
|
%
|
|
2,835,325
|
|
|
0.34
|
%
|
|
2,302,600
|
|
|
0.32
|
%
|
Time, $100,000 or more
|
|
|
464,842
|
|
|
0.95
|
%
|
|
406,570
|
|
|
0.77
|
%
|
|
393,132
|
|
|
0.68
|
%
|
Other time
|
|
|
283,906
|
|
|
0.86
|
%
|
|
332,685
|
|
|
0.74
|
%
|
|
295,609
|
|
|
0.70
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,716,114
|
|
|
|
|
$
|
5,158,444
|
|
|
|
|
$
|
4,310,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
remaining maturity of time deposits at December 31, 2016, 2015 and 2014 are as follows:
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2016
|
|
2015
|
|
2014
|
|
Three months or less
|
|
$
|
120,238
|
|
$
|
88,483
|
|
$
|
104,482
|
|
More than three months through six months
|
|
|
151,422
|
|
|
123,789
|
|
|
106,861
|
|
More than six months through twelve months
|
|
|
207,141
|
|
|
234,684
|
|
|
182,187
|
|
Over twelve months
|
|
|
269,947
|
|
|
292,299
|
|
|
295,211
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
748,748
|
|
$
|
739,255
|
|
$
|
688,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense on deposits for the years ended December 31, 2016, 2015 and 2014 is as follows:
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2016
|
|
2015
|
|
2014
|
|
Interest bearing transaction
|
|
$
|
646
|
|
$
|
291
|
|
$
|
178
|
|
Savings and money market
|
|
|
12,038
|
|
|
8,185
|
|
|
6,265
|
|
Time, $100,000 or more
|
|
|
6,487
|
|
|
5,019
|
|
|
2,830
|
|
Other time
|
|
|
77
|
|
|
848
|
|
|
365
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,248
|
|
$
|
14,343
|
|
$
|
9,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
Party Deposits totaled $57.5 million and $57.3 million at December 31, 2016 and 2015, respectively.
As
of December 31, 2016 and December 31, 2015, time deposit accounts in excess of $250 thousand totaled $241.3 million and $180.1 million,
respectively.
124
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 12Borrowings
Information relating to short-term and long-term borrowings is as follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(dollars in thousands)
|
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
Short-term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At Year-End:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer repurchase agreements and federal funds purchased
|
|
$
|
68,876
|
|
|
0.35
|
%
|
$
|
72,356
|
|
|
0.23
|
%
|
$
|
61,120
|
|
|
0.25
|
%
|
Federal Home Loan Bankcurrent portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
0.38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
68,876
|
|
|
|
|
$
|
72,356
|
|
|
|
|
$
|
161,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Daily Balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer repurchase agreements and federal funds purchased
|
|
$
|
77,833
|
|
|
0.21
|
%
|
$
|
59,141
|
|
|
0.22
|
%
|
$
|
63,490
|
|
|
0.23
|
%
|
Federal Home Loan Bankcurrent portion
|
|
|
29,376
|
|
|
2.45
|
%
|
|
27,659
|
|
|
0.31
|
%
|
|
7,288
|
|
|
0.42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
107,209
|
|
|
|
|
$
|
86,800
|
|
|
|
|
$
|
70,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Month-end Balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer repurchase agreements and federal funds purchased
|
|
$
|
136,689
|
|
|
0.16
|
%
|
$
|
73,696
|
|
|
0.21
|
%
|
$
|
80,471
|
|
|
0.28
|
%
|
Federal Home Loan Bankcurrent portion
|
|
|
100,000
|
|
|
0.94
|
%
|
|
140,000
|
|
|
0.20
|
%
|
|
100,000
|
|
|
0.38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
236,689
|
|
|
|
|
$
|
213,696
|
|
|
|
|
$
|
180,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At Year-End:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank
|
|
$
|
0
|
|
|
|
|
$
|
0
|
|
|
|
|
$
|
40,000
|
|
|
2.62
|
%
|
Subordinated Notes
|
|
|
220,000
|
|
|
5.42
|
%
|
|
70,000
|
|
|
5.75
|
%
|
|
79,300
|
|
|
6.40
|
%
|
United Bank Line of Credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
220,000
|
|
|
|
|
$
|
70,000
|
|
|
|
|
$
|
119,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Daily Balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank
|
|
$
|
0
|
|
|
|
|
$
|
8,329
|
|
|
2.25
|
%
|
$
|
39,205
|
|
|
2.00
|
%
|
Subordinated Notes
|
|
|
135,164
|
|
|
5.54
|
%
|
|
74,117
|
|
|
6.06
|
%
|
|
37,875
|
|
|
6.59
|
%
|
United Bank Line of Credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
135,164
|
|
|
|
|
$
|
82,446
|
|
|
|
|
$
|
77,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Month-end Balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank
|
|
$
|
0
|
|
|
|
|
$
|
40,000
|
|
|
0.37
|
%
|
$
|
122,500
|
|
|
0.68
|
%
|
Subordinated Notes
|
|
|
220,000
|
|
|
5.42
|
%
|
|
79,300
|
|
|
6.52
|
%
|
|
79,300
|
|
|
6.52
|
%
|
United Bank Line of Credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
220,000
|
|
|
|
|
$
|
119,300
|
|
|
|
|
$
|
201,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company offers its business customers a repurchase agreement sweep account in which it collateralizes these funds with U.S. agency and mortgage backed securities segregated in its
investment
125
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 12Borrowings (Continued)
portfolio
for this purpose. By entering into the agreement, the customer agrees to have the Bank repurchase the designated securities on the business day following the initial transaction in
consideration of the payment of interest at the rate prevailing on the day of the transaction.
The
Bank can purchase up to $137.5 million in federal funds on an unsecured basis from its correspondents, against which there were no amounts outstanding at December 31,
2016 and can borrow unsecured funds under one-way Certificates of Deposit Account Registry Service ("CDARS") and Insured Cash Sweep ("ICS") brokered deposits in the amount of $1.03 billion,
against which there was $19.9 million outstanding at December 31, 2016. The Bank also has a commitment at December 31, 2016 from Promontory to place up to $700.0 million of
brokered deposits from its Insured Network Deposit ("IND") program with the Bank, with an actual balance of $356.5 million outstanding at December 31, 2016. At December 31, 2016,
the Bank was also eligible to make advances from the FHLB up to $1.25 billion based on collateral at the FHLB, of which there were no amounts outstanding at December 31, 2016. The Bank
may enter into repurchase agreements as well as obtain additional borrowing capabilities from the FHLB provided adequate collateral exists to secure these lending relationships. The Bank also has a
back-up borrowing facility through the Discount Window at the
Federal Reserve Bank of Richmond ("Federal Reserve Bank"). This facility, which amounts to approximately $440.0 million, is collateralized with specific loan assets identified to the Federal
Reserve Bank. It is anticipated that, except for periodic testing, this facility would be utilized for contingency funding only.
During
2016, the Company renewed its Loan Agreement and related Stock Security Agreement and Promissory Note (the "credit facility") with a regional bank, pursuant to which the Company
may borrow, on a revolving basis, up to $50.0 million for working capital purposes, or to finance capital contributions to the Bank in whole and to ECV in part. This facility was originally
entered into in August 2008 and has been renegotiated over the past eight years to its current terms. The credit facility is secured by a first lien on a portion of the stock of the Bank, and bears
interest at a floating rate equal to the Wall Street Journal Prime Rate minus 0.25% with a floor interest rate of 3.50%. Interest is payable on a monthly basis. The term of the credit facility expires
on September 30, 2017. There were no amounts outstanding under this credit at December 31, 2016 or December 31, 2015.
On
August 5, 2014, the Company completed the sale of $70.0 million of its 5.75% subordinated notes, due September 1, 2024 (the "Notes"). The Notes were offered to
the public at par and qualify as Tier 2 capital for regulatory purposes to the fullest extent permitted under the Basel III Rule capital requirements. The net proceeds were approximately
$68.8 million, which includes $1.2 million in deferred financing costs which is being amortized over the life of the Notes.
During
2015, the Company redeemed the remaining balance of $9.3 million of subordinated notes, due 2021.
During
March 2015, the Company paid off its outstanding FHLB advances. A $1.1 million loss on the early extinguishment of debt was recorded in March of 2015 due to the early
payoff of FHLB advances. This decision was made in light of deposit growth in the quarter and expected benefits to the cost of funds going forward.
On
July 26, 2016, the Company completed the sale of $150.0 million of its 5.00% Fixed-to-Floating Rate Subordinated Notes, due August 1, 2026 (the "2026 Notes"). The
Notes were offered to the public at par. The notes qualify as Tier 2 capital for regulatory purposes to the fullest extent permitted under the
126
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 12Borrowings (Continued)
Basel
III Rule capital requirements. The net proceeds were approximately $147.35 million, which includes $2.6 million in deferred financing costs which is being amortized over the life
of the 2026 Notes.
Note 13Preferred Stock and Warrants
On November 2, 2015, the Company redeemed all of the 56,600 shares of the Series B Preferred Stock, and all of the 15,300 shares of the Company's Series C Preferred
Stock. The aggregate redemption price of the Series B Preferred Stock and Series C Preferred Stock was approximately $71.96 million, including dividends accrued but unpaid
through, but not including the redemption date.
On
December 27, 2016, 378,495 net shares of common stock were issued upon the exercise in full of the warrant for 423,977 shares originally issued in connection with the issuance
of the Series B Preferred Stock.
Note 14Income Taxes
Federal and state income tax expense consists of the following for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2016
|
|
2015
|
|
2014
|
|
Current federal income tax
|
|
$
|
53,290
|
|
$
|
46,758
|
|
$
|
32,384
|
|
Current state income tax
|
|
|
13,733
|
|
|
11,020
|
|
|
7,114
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
67,023
|
|
|
57,778
|
|
|
39,498
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred federal income tax benefit
|
|
|
(5,523
|
)
|
|
(6,642
|
)
|
|
(7,494
|
)
|
Deferred state income tax benefit
|
|
|
(105
|
)
|
|
(87
|
)
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(5,628
|
)
|
|
(6,729
|
)
|
|
(7,540
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
61,395
|
|
$
|
51,049
|
|
$
|
31,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary
timing differences between the amounts reported in the financial statements and the tax bases of assets and liabilities result in deferred taxes. Gross deferred tax assets and
liabilities, shown as the
127
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 14Income Taxes (Continued)
sum
of the appropriate tax effect for each significant type of temporary difference, is presented below for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2016
|
|
2015
|
|
2014
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses
|
|
$
|
23,738
|
|
$
|
21,191
|
|
$
|
18,544
|
|
Deferred loan fees and costs
|
|
|
10,728
|
|
|
9,724
|
|
|
10,337
|
|
Deferred rent
|
|
|
1,483
|
|
|
1,364
|
|
|
|
|
Stock-based compensation
|
|
|
3,037
|
|
|
2,068
|
|
|
1,714
|
|
Net operating loss
|
|
|
2,695
|
|
|
2,946
|
|
|
3,198
|
|
Unrealized loss on securities available-for-sale
|
|
|
1,303
|
|
|
|
|
|
|
|
Unrealized loss on interest rate swap derivatives
|
|
|
284
|
|
|
|
|
|
|
|
SERP
|
|
|
2,088
|
|
|
1,776
|
|
|
1,421
|
|
Premises and equipment
|
|
|
3,838
|
|
|
3,381
|
|
|
1,590
|
|
Other
|
|
|
477
|
|
|
383
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
49,671
|
|
|
42,833
|
|
|
36,875
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on securities available for sale
|
|
|
|
|
|
(694
|
)
|
|
(1,765
|
)
|
Excess servicing
|
|
|
(191
|
)
|
|
(157
|
)
|
|
(114
|
)
|
Deferred rent
|
|
|
|
|
|
|
|
|
(162
|
)
|
Intangible assets
|
|
|
(1,260
|
)
|
|
(1,671
|
)
|
|
(2,323
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(1,451
|
)
|
|
(2,522
|
)
|
|
(4,364
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax amount
|
|
$
|
48,220
|
|
$
|
40,311
|
|
$
|
32,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
reconciliation of the statutory federal income tax rate to the Company's effective income tax rate for the years ended December 31 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Statutory federal income tax rate
|
|
|
35.00
|
%
|
|
35.00
|
%
|
|
35.00
|
%
|
Increase (decrease) due to
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal income tax benefit
|
|
|
5.57
|
|
|
5.26
|
|
|
5.33
|
|
Tax exempt interest and dividend income
|
|
|
(0.98
|
)
|
|
(1.25
|
)
|
|
(2.28
|
)
|
Stock-based compensation expense
|
|
|
0.01
|
|
|
0.02
|
|
|
0.04
|
|
Other
|
|
|
(1.01
|
)
|
|
(1.28
|
)
|
|
(1.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rates
|
|
|
38.59
|
%
|
|
37.75
|
%
|
|
37.07
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
net operating loss carry forward acquired in conjunction with the Fidelity acquisition is subject to annual limits under Section 382 of the Internal Revenue Code of
$718 thousand and expires in 2027. The Company remains subject to examination for the years ending after December 31, 2012.
128
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 15Net Income per Common Share
The calculation of net income per common share for the years ended December 31 was as follows:
|
|
|
|
|
|
|
|
|
|
|
(dollars and shares in thousands, except per share data)
|
|
2016
|
|
2015
|
|
2014
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
97,707
|
|
$
|
83,566
|
|
$
|
53,644
|
|
Average common shares outstanding
|
|
|
33,587
|
|
|
32,836
|
|
|
26,684
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$
|
2.91
|
|
$
|
2.54
|
|
$
|
2.01
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
97,707
|
|
$
|
83,566
|
|
$
|
53,644
|
|
Average common shares outstanding
|
|
|
33,587
|
|
|
32,836
|
|
|
26,684
|
|
Adjustment for common share equivalents
|
|
|
594
|
|
|
643
|
|
|
867
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding-diluted
|
|
|
34,181
|
|
|
33,479
|
|
|
27,551
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share
|
|
$
|
2.86
|
|
$
|
2.50
|
|
$
|
1.95
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive shares
|
|
|
7
|
|
|
5
|
|
|
13
|
|
Note 16Related Party Transactions
The Bank leases office space from a limited liability company in which a trust for the benefit of an executive officer's children has a 51% interest. During the fourth quarter of 2015,
the Company entered into an agreement to lease office space for a second location with limited liability companies in which an executive officer indirectly owns a majority interest. The Company paid
$1.9 million, $1.6 million, and $1.3 million excluding certain pass-through expenses for the years ended December 31, 2016, 2015 and 2014, respectively.
A
director is a partner in the law firm which has provided, and continues to provide, legal services to the Company and its subsidiaries. During 2016, the Company and its subsidiaries
paid aggregate fees of $1.0 million to that firm. Under the Director's arrangement with his firm, he does not participate significantly in the profits or revenues resulting from the provision
of legal services to the Company and its subsidiaries.
Note 17Stock-Based Compensation
The Company maintains the 2016 Stock Plan ("2016 Plan"), the 2006 Stock Plan ("2006 Plan") and the 2011 Employee Stock Purchase Plan ("2011 ESPP").
In
connection with the acquisition of Fidelity, the Company assumed the Fidelity 2004 Long Term Incentive Plan and the 2005 Long Term Incentive Plan (the "Fidelity Plans").
In
connection with the acquisition of Virginia Heritage, the Company assumed the Virginia Heritage 2006 Stock Option Plan and the 2010 Long Term Incentive Plan (the "Virginia Heritage
Plans").
No
additional options may be granted under the 2006 Plan, the Fidelity Plans, or the Virginia Heritage Plans.
The
Company adopted the 2016 Plan upon approval by the shareholders at the 2016 Annual Meeting held on May 12, 2016. The 2016 Plan provides directors and selected employees of the
Bank, the Company,
129
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 17Stock-Based Compensation (Continued)
and
their affiliates with the opportunity to acquire shares of stock, through awards of options, time vested restricted stock, performance-based restricted stock and stock appreciation rights. Under
the 2016 Plan, 1,000,000 shares of common stock were initially reserved for issuance, of which 998,500 remain available for future awards at December 31, 2016.
For
awards that are service based, compensation expense is being recognized over the service (vesting) period based on fair value, which for stock option grants is computed using the
Black-Scholes model, and for restricted stock awards under the 2006 plan is based on the average of the high and low stock price of the Company's shares on the date of grant. For awards that are
performance-based, compensation expense is recorded based on the probability of achievement of the goals underlying the grant.
In
February 2016, the Company awarded 80,365 shares of time vested restricted stock to senior officers, and certain employees. The shares vest in three substantially equal installments
beginning on the first anniversary of the date of grant.
February
2016, the Company awarded senior officers a targeted number of 34,957 performance vested restricted stock units (PRSU's). Absent acceleration for defined events such as death,
disability and retirement, the vesting of PRSU's is 100% after three years with payouts based on threshold, target or maximum average performance targets over the three year period relative to a peer
index. The three performance metrics are average annual earnings per share growth, average annual total shareholder return and average annual return on average assets.
In
March 2016, the Company awarded 24,410 shares of time vested restricted stock to directors. The shares vest in three substantially equal installments beginning on the first
anniversary of the date of grant.
In
May 2016, the Company awarded incentive stock options to purchase 1,500 shares which have a ten-year term and vest in four equal installments beginning on the first anniversary of the
date of grant.
In
September 2016, the Company awarded incentive stock options to purchase 1,500 shares which have a ten-year term and vest in four equal installments beginning on the first anniversary
of the date of grant.
130
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 17Stock-Based Compensation (Continued)
Below
is a summary of stock option activity for the twelve months ended December 31, 2016, 2015 and 2014. The information excludes restricted stock awards.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
Shares
|
|
Weighted-
Average
Exercise Price
|
|
Shares
|
|
Weighted-
Average
Exercise Price
|
|
Shares
|
|
Weighted-
Average
Exercise Price
|
|
Beginning balance
|
|
|
298,740
|
|
$
|
9.97
|
|
|
759,683
|
|
$
|
11.36
|
|
|
503,834
|
|
$
|
10.41
|
|
Issued
|
|
|
3,000
|
|
|
49.49
|
|
|
5,000
|
|
|
46.50
|
|
|
21,000
|
|
|
32.77
|
|
Assumed from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Virginia Heritage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401,497
|
|
|
13.16
|
|
Exercised
|
|
|
(77,144
|
)
|
|
14.48
|
|
|
(443,912
|
)
|
|
12.03
|
|
|
(157,313
|
)
|
|
14.71
|
|
Forfeited
|
|
|
(1,100
|
)
|
|
15.48
|
|
|
(12,380
|
)
|
|
29.58
|
|
|
(8,110
|
)
|
|
33.06
|
|
Expired
|
|
|
(6,637
|
)
|
|
12.87
|
|
|
(9,651
|
)
|
|
18.19
|
|
|
(1,225
|
)
|
|
9.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
216,859
|
|
$
|
8.80
|
|
|
298,740
|
|
$
|
9.97
|
|
|
759,683
|
|
$
|
11.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following summarizes information about stock options outstanding at December 31, 2016. The information excludes restricted stock units and awards.
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
Outstanding
|
|
Weighted-Average
Exercise Price
|
|
Weighted-Average
Remaining
Contractual Life
|
|
Outstanding:
|
|
Range of Exercise Prices
|
|
$5.76 $10.72
|
|
|
154,535
|
|
$
|
5.76
|
|
|
2.02
|
|
$10.73 $15.45
|
|
|
47,886
|
|
|
10.83
|
|
|
1.49
|
|
$15.46 $20.01
|
|
|
447
|
|
|
16.66
|
|
|
6.22
|
|
$20.02 $49.91
|
|
|
13,991
|
|
|
35.12
|
|
|
7.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216,859
|
|
$
|
8.80
|
|
|
2.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
Exercisable
|
|
Weighted-Average
Exercise Price
|
|
Exercisable:
|
|
Range of Exercise Prices
|
|
$5.76 $10.72
|
|
|
102,488
|
|
$
|
5.76
|
|
$10.73 $15.45
|
|
|
47,886
|
|
|
10.83
|
|
$15.46 $20.01
|
|
|
447
|
|
|
16.66
|
|
$20.02 $49.91
|
|
|
4,921
|
|
|
23.83
|
|
|
|
|
|
|
|
|
|
|
|
|
155,742
|
|
$
|
7.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 17Stock-Based Compensation (Continued)
The
fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model with the assumptions as shown in the table below used for grants
during the years ended December 31, 2016, 2015 and 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Expected volatility
|
|
|
24.23
|
%
|
|
31.21
|
%
|
|
34.25
|
%
|
Weighted-Average volatility
|
|
|
24.23
|
%
|
|
31.21
|
%
|
|
34.25
|
%
|
Expected dividends
|
|
|
|
|
|
|
|
|
|
|
Expected term (in years)
|
|
|
7.0
|
|
|
7.0
|
|
|
9.4
|
|
Risk-free rate
|
|
|
1.37
|
%
|
|
1.64
|
%
|
|
2.26
|
%
|
Weighted-average fair value (grant date)
|
|
$
|
14.27
|
|
$
|
16.73
|
|
$
|
13.49
|
|
Weighted-average fair value (grant date) for Virginia Heritage Bank ("VHB") options assumed
|
|
|
n/a
|
|
|
n/a
|
|
$
|
24.89
|
|
The
expected lives are based on the "simplified" method allowed by ASC Topic 718
"Compensation,"
whereby the expected term is equal to the
midpoint between the vesting date and the end of the contractual term of the award.
The
total intrinsic value of outstanding stock options was $11.4 million and $12.2 million, respectively, at December 31, 2016 and 2015. The total fair value of
stock options vested was $66 thousand, $90 thousand and $10.1 million (including $10.0 million of assumed stock options issued under the Virginia Heritage Plans), for 2016,
2015 and 2014, respectively. Unrecognized stock-based compensation expense related to stock options totaled $128 thousand at December 31, 2016. At such date, the weighted-average period
over which this unrecognized expense was expected to be recognized was 2.74 years.
Cash
proceeds, tax benefits and intrinsic value related to total stock options exercised is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
(dollars in thousands)
|
|
2016
|
|
2015
|
|
2014
|
|
Proceeds from stock options exercised
|
|
$
|
955
|
|
$
|
5,176
|
|
$
|
2,313
|
|
Tax benefits realized from stock compensation
|
|
|
400
|
|
|
2,984
|
|
|
978
|
|
Intrinsic value of stock options exercised
|
|
|
2,824
|
|
|
11,042
|
|
|
3,184
|
|
The
Company has unvested restricted stock awards and PRSU grants of 296,192 shares under the 2006 Plan at December 31, 2016. Unrecognized stock based compensation expense related
to restricted stock awards totaled $4.8 million at December 31, 2016. At such date, the weighted-average period over
132
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 17Stock-Based Compensation (Continued)
which
this unrecognized expense was expected to be recognized was 1.81 years. The following table summarizes the unvested restricted stock awards at December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
2015
|
|
|
|
Shares
|
|
Weighted-
Average Grant
Date Fair Value
|
|
Shares
|
|
Weighted-
Average Grant
Date Fair Value
|
|
Unvested at beginning
|
|
|
369,093
|
|
$
|
24.43
|
|
|
509,336
|
|
$
|
21.58
|
|
Issued
|
|
|
139,732
|
|
|
45.45
|
|
|
78,070
|
|
|
36.06
|
|
Forfeited
|
|
|
(10,480
|
)
|
|
40.28
|
|
|
(8,490
|
)
|
|
33.57
|
|
Vested
|
|
|
(202,153
|
)
|
|
23.22
|
|
|
(209,823
|
)
|
|
21.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at end
|
|
|
296,192
|
|
$
|
34.61
|
|
|
369,093
|
|
$
|
24.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approved
by shareholders in May 2011, the 2011 ESPP reserved 550,000 shares of common stock (as adjusted for stock dividends) for issuance to employees. Whole shares are sold to
participants in the plan at 85% of the lower of the stock price at the beginning or end of each quarterly offering period. The 2011 ESPP is available to all eligible employees who have completed at
least one year of continuous employment, work at least 20 hours per week and at least five months a year. Participants may contribute a minimum of $10 per pay period to a maximum of $6,250 per
offering period or $25,000 annually (not to exceed more than 10% of compensation per pay period). At December 31, 2016, the 2011 ESPP had 416,543 shares remaining for issuance.
Included
in salaries and employee benefits in the accompanying Consolidated Statements of Operations, the Company recognized $6.9 million, $5.1 million and
$4.0 million in stock-based compensation expense for 2016, 2015 and 2014, respectively. Stock-based compensation expense is recognized ratably over the requisite service period for all awards.
Note 18Employee Benefit Plans
The Company has a qualified 401(k) Plan which covers all employees who have reached the age of 21 and have completed at least one month of service as defined by the Plan. The Company
makes contributions to the Plan based on a matching formula, which is annually reviewed. For the years 2016, 2015 and 2014, the Company recognized $1.1 million, $755 thousand, and
$833 thousand in expense, respectively. These amounts are included in salaries and employee benefits in the accompanying Consolidated Statements of Operations.
133
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 19Supplemental Executive Retirement Plan
The Bank has entered into Supplemental Executive Retirement and Death Benefit Agreements (the "SERP Agreements") with certain of the Bank's executive officers other than Mr. Paul,
which upon the executive's retirement, will provide for a stated monthly payment for such executive's lifetime subject to certain death benefits described below. The retirement benefit is computed as
a percentage of each executive's projected average base salary over the five years preceding retirement, assuming retirement at age 67. The SERP Agreements provide that (a) the benefits vest
ratably over six years of service to the Bank, with the executive receiving credit for years of service prior to entering into the SERP
Agreement (b) death, disability and change-in-control shall result in immediate vesting, and (c) the monthly amount will be reduced if retirement occurs earlier than age 67 for any
reason other than death, disability or change-in-control. The SERP Agreements further provide for a death benefit in the event the retired executive dies prior to receiving 180 monthly
installments, paid either in a lump sum payment or continued monthly installment payments, such that the executive's beneficiary has received payment(s) sufficient to equate to a cumulative
180 monthly installments.
The
SERP Agreements are unfunded arrangements maintained primarily to provide supplemental retirement benefits and comply with Section 409A of the Internal Revenue Code. The Bank
financed the retirement benefits by purchasing fixed annuity contracts with four insurance carriers in 2013 totaling $11.4 million that have been designed to provide a future source of funds
for the lifetime retirement benefits of the SERP Agreements. The primary impetus for utilizing fixed annuities is a substantial savings in compensation expenses for the Bank as opposed to a
traditional SERP Agreement. The annuity contracts accrued $46 thousand and $84 thousand respectively of income for the years ended December 31, 2016 and 2015, which is included in
other noninterest income on the Consolidated Statement of Operations. The cash surrender value of the annuity contracts is $11.9 million at December 31, 2016 and is included in other
assets on the Consolidated Balance Sheet. For the years ended December 31, 2016 and 2015, the Company recorded benefit expense accruals of $933 thousand and $953 thousand
respectively for this post retirement benefit.
Upon
death of a named executive, the annuity contract related to such executive terminates. The Bank has purchased additional bank owned life insurance contracts, which would effectively
finance payments (up to a 15 year certain amount) to the executives' named beneficiaries.
Note 20Financial Instruments with Off-Balance Sheet Risk
Various commitments to extend credit are made in the normal course of banking business. Letters of credit are also issued for the benefit of customers. These commitments are subject to
loan underwriting standards and geographic boundaries consistent with the Company's loans outstanding.
Commitments
to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
134
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 20Financial Instruments with Off-Balance Sheet Risk (Continued)
Loan
commitments outstanding and lines and letters of credit at December 31, 2016 and 2015 are as follows:
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2016
|
|
2015
|
|
Unfunded loan commitments
|
|
$
|
2,225,995
|
|
$
|
1,891,934
|
|
Unfunded lines of credit
|
|
|
94,375
|
|
|
112,159
|
|
Letters of credit
|
|
|
72,084
|
|
|
83,511
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,392,454
|
|
$
|
2,087,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Because
most of the Company's business activity is with customers located in the Washington, D.C., metropolitan area, a geographic concentration of credit risk exists within the loan
portfolio, the performance of which will be influenced by the economy of the region.
The
Bank maintains a reserve for the potential repurchase of residential mortgage loans, which amounted to $127 thousand at December 31, 2016 and $117 thousand at
December 31, 2015. These amounts are included in other liabilities in the accompanying Consolidated Balance Sheets. Changes in the balance of the reserve are a component of other expenses in
the accompanying Consolidated Statements of Operations. The reserve is available to absorb losses on the repurchase of loans sold related to document and other fraud, early payment default and early
payoff. Through December 31, 2016, no reserve charges have occurred related to fraud.
The
Company enters into interest rate lock commitments, which are commitments to originate loans whereby the interest rate on the loan is determined prior to funding and the customers
have locked into that interest rate. The residential mortgage division either locks in the loan and rate with an investor and commits to deliver the loan if settlement occurs under best efforts or
commits to deliver the locked loan in a binding mandatory delivery program with an investor. Certain loans under rate lock commitments are covered under forward sales contracts of mortgage backed
securities as a hedge of any interest rate risk. Forward sales contracts of mortgage backed securities are recorded at fair value with changes in fair value recorded in noninterest income. Interest
rate lock commitments and commitments to deliver loans to investors are considered derivatives. The market value of interest rate lock commitments and best efforts contracts are not readily
ascertainable with precision because they are not actively traded in stand-alone markets. The Company determines the fair value of rate lock commitments and delivery contracts by measuring the fair
value of the underlying asset, which is impacted by current interest rates while taking into consideration the probability that the rate lock commitments will close or will be funded. These
transactions are further detailed in Note 9 to the Consolidated Financial Statements.
Note 21Commitments and Contingent Liabilities
The Company has various financial obligations, including contractual obligations and commitments that may require future cash payments. Except for its loan commitments, as shown in
Note 20 to the
135
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 21Commitments and Contingent Liabilities (Continued)
Consolidated
Financial Statements, the following table shows details on these fixed and determinable obligations as of December 31, 2016 in the time period indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Within One
Year
|
|
One to
Three Years
|
|
Three to
Five Years
|
|
Over Five
Years
|
|
Total
|
|
Deposits without a stated maturity(1)
|
|
$
|
4,967,366
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
4,967,366
|
|
Time deposits(1)
|
|
|
478,801
|
|
|
239,055
|
|
|
30,892
|
|
|
|
|
|
748,748
|
|
Borrowed funds(2)
|
|
|
68,876
|
|
|
|
|
|
|
|
|
220,000
|
|
|
288,876
|
|
Operating lease obligations
|
|
|
8,016
|
|
|
15,200
|
|
|
13,059
|
|
|
16,179
|
|
|
52,454
|
|
Outside data processing(3)
|
|
|
5,048
|
|
|
9,606
|
|
|
2,619
|
|
|
|
|
|
17,273
|
|
George Mason sponsorship(4)
|
|
|
650
|
|
|
1,300
|
|
|
1,325
|
|
|
9,825
|
|
|
13,100
|
|
Non-Compete agreement(5)
|
|
|
1,005
|
|
|
251
|
|
|
|
|
|
|
|
|
1,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,529,762
|
|
$
|
265,412
|
|
$
|
47,895
|
|
$
|
246,004
|
|
$
|
6,089,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Excludes
accrued interest payable at December 31, 2016.
-
(2)
-
Borrowed
funds include customer repurchase agreements, and other short-term and long-term borrowings.
-
(3)
-
The
Bank has outstanding obligations under its current core data processing contract that expire in May 2020 and two other vendor arrangements that relate to network
infrastructure and data center services, one expires in July 2020 and the other expires in December 2018.
-
(4)
-
The
Bank has the option of terminating the George Mason agreement at the end of contract years 10 and 15 (that is, effective June 30, 2025 or June 30,
2030). Should the Bank elect to exercise its right to terminate the George Mason contract, contractual obligations would decrease $3.5 million and $3.6 million for the first option
period (years 11-15) and the second option period (16-20), respectively.
-
(5)
-
Non-compete
agreement with a retired Director.
In
the normal course of its business, the Company is involved in litigation arising from banking, financial, and other activities it conducts. Management, after consultation with legal
counsel, does not anticipate that the ultimate liability, if any, arising out of these matters will have a material effect on the Company's financial condition, operating results or liquidity.
Note 22Regulatory Matters
The Company and Bank are subject to various regulatory capital requirements administered by the
Federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific
capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and
classification are also subject to qualitative judgments by the regulators about components, risk weighting, and other factors.
136
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 22Regulatory Matters (Continued)
Quantitative
measures established by regulation to ensure capital adequacy require the Company and Bank to maintain amounts and ratios (set forth in the table below) of Total capital,
Tier 1 capital and CET1 (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined), referred to as the
Leverage Ratio. Management believes, as of December 31, 2016 and 2015, that the Company and Bank met all capital adequacy requirements to which they are subject.
The
actual capital amounts and ratios for the Company and Bank as of December 31, 2016 and 2015 are presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
Bank
|
|
|
|
|
|
|
|
Minimum
Required
For Capital
Adequacy
Purposes
|
|
To Be Well
Capitalized Under
Prompt Corrective
Action
Regulations*
|
|
|
|
Actual
|
|
Actual
|
|
(dollars in thousands)
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CET1 capital (to risk weighted aseets)
|
|
$
|
737,512
|
|
|
10.80
|
%
|
$
|
854,226
|
|
|
12.55
|
%
|
|
5.125
|
%
|
|
6.5
|
%
|
Total capital (to risk weighted assets)
|
|
|
1,016,712
|
|
|
14.89
|
%
|
|
913,100
|
|
|
13.41
|
%
|
|
8.625
|
%
|
|
10.0
|
%
|
Tier 1 capital (to risk weighted assets)
|
|
|
737,512
|
|
|
10.80
|
%
|
|
854,226
|
|
|
12.55
|
%
|
|
6.625
|
%
|
|
8.0
|
%
|
Tier 1 capital (to average assets)
|
|
|
737,512
|
|
|
10.72
|
%
|
|
854,226
|
|
|
12.44
|
%
|
|
5.000
|
%
|
|
5.0
|
%
|
As of December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CET1 capital (to risk weighted assets)
|
|
$
|
632,408
|
|
|
10.68
|
%
|
$
|
620,879
|
|
|
10.52
|
%
|
|
4.50
|
%
|
|
6.5
|
%
|
Total capital (to risk weighted assets)
|
|
|
755,212
|
|
|
12.75
|
%
|
|
673,442
|
|
|
11.41
|
%
|
|
8.00
|
%
|
|
10.0
|
%
|
Tier 1 capital (to risk weighted assets)
|
|
|
632,408
|
|
|
10.68
|
%
|
|
620,879
|
|
|
10.52
|
%
|
|
6.00
|
%
|
|
8.0
|
%
|
Tier 1 capital (to average assets)
|
|
|
632,408
|
|
|
10.90
|
%
|
|
620,879
|
|
|
10.74
|
%
|
|
4.00
|
%
|
|
5.0
|
%
|
Bank
and holding company regulations, as well as Maryland law, impose certain restrictions on dividend payments by the Bank, as well as restricting extensions of credit and transfers of
assets between the Bank and the Company. At December 31, 2016, the Bank could pay dividends to the parent to the extent of its earnings so long as it maintained required capital ratios.
137
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 23Other Comprehensive Income
The following table presents the components of other comprehensive income (loss) for the years ended December 31, 2016, 2015 and 2014.
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Before Tax
|
|
Tax Effect
|
|
Net of Tax
|
|
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss on securities available-for-sale
|
|
$
|
(3,800
|
)
|
$
|
(1,520
|
)
|
$
|
(2,280
|
)
|
Less: Reclassification adjustment for net gains included in net income
|
|
|
(1,194
|
)
|
|
(478
|
)
|
|
(716
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized loss
|
|
|
(4,994
|
)
|
|
(1,998
|
)
|
|
(2,996
|
)
|
Net unrealized loss on derivatives
|
|
|
(2,947
|
)
|
|
(2,018
|
)
|
|
(929
|
)
|
Less: Reclassification adjustment for losses included in net income
|
|
|
2,255
|
|
|
902
|
|
|
1,353
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized loss
|
|
|
(692
|
)
|
|
(1,116
|
)
|
|
424
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Loss
|
|
$
|
(5,686
|
)
|
$
|
(3,114
|
)
|
$
|
(2,572
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss on securities available-for-sale
|
|
$
|
(423
|
)
|
$
|
(169
|
)
|
$
|
(254
|
)
|
Less: Reclassification adjustment for net gains included in net income
|
|
|
(2,254
|
)
|
|
(902
|
)
|
|
(1,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized loss
|
|
|
(2,677
|
)
|
|
(1,071
|
)
|
|
(1,606
|
)
|
Net unrealized loss on derivatives
|
|
|
(1,417
|
)
|
|
(567
|
)
|
|
(850
|
)
|
Less: Reclassification adjustment for losses included in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized loss
|
|
|
(1,417
|
)
|
|
(567
|
)
|
|
(850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Loss
|
|
$
|
(4,094
|
)
|
$
|
(1,638
|
)
|
$
|
(2,456
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain on securities available-for-sale
|
|
$
|
9,965
|
|
$
|
3,986
|
|
$
|
5,979
|
|
Less: Reclassification adjustment for net gains included in net income
|
|
|
(22
|
)
|
|
(9
|
)
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized gain
|
|
|
9,943
|
|
|
3,977
|
|
|
5,966
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income
|
|
$
|
9,943
|
|
$
|
3,977
|
|
$
|
5,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 23Other Comprehensive Income (Continued)
The
following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax, for the years ended December 31, 2016, 2015 and 2014.
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Securities
Available
For Sale
|
|
Derivatives
|
|
Accumulated
Other
Comprehensive
(Loss)
Income
|
|
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Period
|
|
$
|
1,041
|
|
$
|
(850
|
)
|
$
|
191
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
(2,280
|
)
|
|
(934
|
)
|
|
(3,214
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
(716
|
)
|
|
1,358
|
|
|
642
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income (loss) during period
|
|
|
(2,996
|
)
|
|
424
|
|
|
(2,572
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at End of Period
|
|
$
|
(1,955
|
)
|
$
|
(426
|
)
|
$
|
(2,381
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Period
|
|
$
|
2,647
|
|
$
|
|
|
$
|
2,647
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
(254
|
)
|
|
(850
|
)
|
|
(1,104
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
(1,352
|
)
|
|
|
|
|
(1,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income (loss) during period
|
|
|
(1,606
|
)
|
|
(850
|
)
|
|
(2,456
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at End of Period
|
|
$
|
1,041
|
|
$
|
(850
|
)
|
$
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Period
|
|
$
|
(3,319
|
)
|
$
|
|
|
$
|
(3,319
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
5,979
|
|
|
|
|
|
5,979
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
(13
|
)
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income (loss) during period
|
|
|
5,966
|
|
|
|
|
|
5,966
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at End of Period
|
|
$
|
2,647
|
|
$
|
|
|
$
|
2,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table presents the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the years ended December 31, 2016, 2015 and 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Reclassified
from Accumulated
Other Comprehensive
(Loss) Income
|
|
|
|
|
Year Ended
December 31,
|
|
|
Details about Accumulated Other Comprehensive Income Components (dollars in thousands)
|
|
Affected Line Item in the Statement Where Net
Income is Presented
|
|
2016
|
|
2015
|
|
2014
|
Realized gain on sale of investment securities
|
|
$
|
1,194
|
|
$
|
2,254
|
|
$
|
22
|
|
Gain on sale of investment securities
|
Interest expense derivative deposits
|
|
|
(1,695
|
)
|
|
|
|
|
|
|
Interest expense on deposits
|
Interest expense derivative borrowings
|
|
|
(569
|
)
|
|
|
|
|
|
|
Interest expense on short-term borrowings
|
|
|
|
428
|
|
|
(902
|
)
|
|
(9
|
)
|
Tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Reclassifications for the Period
|
|
$
|
(642
|
)
|
$
|
1,352
|
|
$
|
13
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 24Fair Value Measurements
The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal
market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, the Company utilizes valuation techniques that are consistent with the
market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would
use in pricing an asset or liability. ASC Topic 820,
"Fair Value Measurements and Disclosures,"
establishes a fair value hierarchy for
valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as
follows:
|
|
|
|
|
Level 1
|
|
Quoted prices in active exchange markets for identical assets or liabilities; also includes certain U.S. Treasury and other U.S. Government and agency securities actively traded in over-the-counter markets.
|
|
Level 2
|
|
Observable inputs other than Level 1 including quoted prices for similar assets or liabilities, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data; also includes derivative
contracts whose value is determined using a pricing model with observable market inputs or can be derived principally from or corroborated by observable market data. This category generally includes certain U.S. Government and agency securities,
corporate debt securities, derivative instruments, and residential mortgage loans held for sale.
|
|
Level 3
|
|
Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of
fair value requires significant management judgment or estimation; also includes observable inputs for single dealer nonbinding quotes not corroborated by observable market data. This category generally includes certain private equity investments,
retained interests from securitizations, and certain collateralized debt obligations.
|
140
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 24Fair Value Measurements (Continued)
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis as of December 31,
2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Quoted Prices
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant Other
Unobservable
Inputs (Level 3)
|
|
Total
(Fair Value)
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. agency securities
|
|
$
|
|
|
$
|
106,142
|
|
$
|
|
|
$
|
106,142
|
|
Residential mortgage backed securities
|
|
|
|
|
|
326,239
|
|
|
|
|
|
326,239
|
|
Municipal bonds
|
|
|
|
|
|
95,930
|
|
|
|
|
|
95,930
|
|
Corporate bonds
|
|
|
|
|
|
8,079
|
|
|
1,500
|
|
|
9,579
|
|
Other equity investments
|
|
|
|
|
|
|
|
|
218
|
|
|
218
|
|
Loans held for sale
|
|
|
|
|
|
51,629
|
|
|
|
|
|
51,629
|
|
Mortgage banking derivatives
|
|
|
|
|
|
|
|
|
114
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value on a recurring basis as of December 31, 2016
|
|
$
|
|
|
$
|
588,019
|
|
$
|
1,832
|
|
$
|
589,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage banking derivatives
|
|
$
|
|
|
$
|
|
|
$
|
55
|
|
$
|
55
|
|
Interest rate swap derivatives
|
|
|
|
|
|
692
|
|
|
|
|
|
692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value on a recurring basis as of December 31, 2016
|
|
$
|
|
|
$
|
692
|
|
$
|
55
|
|
$
|
747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. agency securities
|
|
$
|
|
|
$
|
56,975
|
|
$
|
|
|
$
|
56,975
|
|
Residential mortgage backed securities
|
|
|
|
|
|
297,241
|
|
|
|
|
|
297,241
|
|
Municipal bonds
|
|
|
|
|
|
118,381
|
|
|
|
|
|
118,381
|
|
Corporate bonds
|
|
|
|
|
|
14,938
|
|
|
|
|
|
14,938
|
|
Other equity investments
|
|
|
115
|
|
|
|
|
|
219
|
|
|
334
|
|
Loans held for sale
|
|
|
|
|
|
47,492
|
|
|
|
|
|
47,492
|
|
Mortgage banking derivatives
|
|
|
|
|
|
|
|
|
24
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value on a recurring basis as of December 31, 2015
|
|
$
|
115
|
|
$
|
535,027
|
|
$
|
243
|
|
$
|
535,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage banking derivatives
|
|
$
|
|
|
$
|
|
|
$
|
30
|
|
$
|
30
|
|
Interest rate swap derivatives
|
|
|
|
|
|
1,417
|
|
|
|
|
|
1,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value on a recurring basis as of December 31, 2015
|
|
$
|
|
|
$
|
1,417
|
|
$
|
30
|
|
$
|
1,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 24Fair Value Measurements (Continued)
Investment Securities Available-for-Sale
Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if
available. If quoted prices are not available, fair value is measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows,
adjusted for the security's credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange such as the
New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include U.S. agency debt
securities, mortgage-backed securities issued by Government Sponsored Entities ("GSE's") and municipal bonds. Securities classified as Level 3 include securities in less liquid markets, the
carrying amounts approximate the fair value.
Loans held for sale
: The Company has elected to carry loans held for sale at fair value. Fair value is derived from secondary market
quotations for
similar instruments. Gains and losses on sales of these loans are recorded as a component of noninterest income in the Consolidated Statements of Operations. As such, the Company classifies loans
subjected to fair value adjustments as Level 2 valuation.
Interest rate swap derivatives:
These derivative instruments consist of forward starting interest rate swap agreements, which are
accounted for as
cash flow hedges. The Company's derivative position is classified within Level 2 of the fair value hierarchy and is valued using models generally accepted in the financial services industry and
that use actively quoted or observable market input values from external
market data providers and/or non-binding broker-dealer quotations. The fair value of the derivatives is determined using discounted cash flow models. These models' key assumptions include the
contractual terms of the respective contract along with significant observable inputs, including interest rates, yield curves, nonperformance risk and volatility. Derivative contracts are executed
with a Credit Support Annex, which is a bilateral ratings-sensitive agreement that requires collateral postings when the market value exceeds certain threshold limits. These agreements protect the
interests of the Company and its counterparties should either party suffer a credit rating deterioration.
142
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 24Fair Value Measurements (Continued)
The
following is a reconciliation of activity for assets and liabilities measured at fair value based on Significant Other Unobservable Inputs (Level 3):
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Investment
Securities
|
|
Mortgage
Banking
Derivatives
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Beginning balance at January 1, 2016
|
|
$
|
219
|
|
$
|
24
|
|
$
|
243
|
|
Realized gain (loss) included in earningsnet mortgage banking derivatives
|
|
|
|
|
|
90
|
|
|
90
|
|
Purchases of available-for-sale securities
|
|
|
1,500
|
|
|
|
|
|
1,500
|
|
Principal redemption
|
|
|
(1
|
)
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at December 31, 2016
|
|
$
|
1,718
|
|
$
|
114
|
|
$
|
1,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Beginning balance at January 1, 2016
|
|
$
|
|
|
$
|
30
|
|
$
|
30
|
|
Realized loss (gain) included in earningsnet mortgage banking derivatives
|
|
|
|
|
|
25
|
|
|
25
|
|
Principal redemption
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at December 31, 2016
|
|
$
|
|
|
$
|
55
|
|
$
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Other Equity
Investments
|
|
Mortgage
Banking
Derivatives
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Beginning balance at January 1, 2015
|
|
$
|
219
|
|
$
|
146
|
|
$
|
365
|
|
Realized (loss) gain included in earningsnet mortgage banking derivatives
|
|
|
|
|
|
(122
|
)
|
|
(122
|
)
|
Principal redemption
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at December 31, 2015
|
|
$
|
219
|
|
$
|
24
|
|
$
|
243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Beginning balance at January 1, 2015
|
|
$
|
|
|
$
|
250
|
|
$
|
250
|
|
Realized (gain) loss included in earningsnet mortgage banking derivatives
|
|
|
|
|
|
(220
|
)
|
|
(220
|
)
|
Principal redemption
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at December 31, 2015
|
|
$
|
|
|
$
|
30
|
|
$
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
classified as Level 3 include securities in less liquid markets, the carrying amount approximate the fair value. The securities consist of $1.5 million in
corporate bonds and equity investments in the form of common stock of two local banking companies which are not publicly traded, and for which the carrying amount approximates fair value.
The
Company relies on a third-party pricing service to value its mortgage banking derivative financial assets and liabilities, which the Company classifies as a Level 3 valuation.
The external valuation model to
143
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 24Fair Value Measurements (Continued)
estimate
the fair value of its interest rate lock commitments to originate residential mortgage loans held for sale includes grouping the interest rate lock commitments by interest rate and terms,
applying an estimated pull-through rate based on historical experience, and then multiplying by quoted investor prices determined to be reasonably applicable to the loan commitment groups based on
interest rate, terms, and rate lock expiration dates of the loan commitment groups. The Company also relies on an external valuation model to estimate the fair value of its forward commitments to sell
residential mortgage loans (i.e., an estimate of what the Company would receive or pay to terminate the forward delivery contract based on market prices for similar financial instruments),
which includes matching specific terms and maturities of the forward commitments against applicable investor pricing.
Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis
The Company measures certain assets at fair value on a nonrecurring basis and the following is a general description of the methods used to
value such assets.
Impaired loans
: The Company considers a loan impaired when it is probable that the Company will be unable to collect all amounts due
according to the
original contractual terms of the note agreement, including both principal and interest. Management has determined that nonaccrual loans and loans that have had their terms restructured in a troubled
debt restructuring meet this impaired loan definition. For individually evaluated impaired loans, the amount of impairment is based upon the present value of expected future cash flows discounted at
the loan's effective interest rate or the estimated fair value of the underlying collateral for collateral-dependent loans, which the Company classifies as a Level 3 valuation.
Other real estate owned
: Other real estate owned is initially recorded at fair value less estimated selling costs. Fair value is based
upon
independent market prices, appraised values of the collateral or management's estimation of the value of the collateral, which the Company classifies as a Level 3 valuation.
Assets
measured at fair value on a nonrecurring basis are included in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Quoted
Prices
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Other
Unobservable
Inputs
(Level 3)
|
|
Total
(Fair Value)
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
|
|
$
|
|
|
$
|
2,956
|
|
$
|
2,956
|
|
Income producingcommercial real estate
|
|
|
|
|
|
|
|
|
12,993
|
|
|
12,993
|
|
Owner occupiedcommercial real estate
|
|
|
|
|
|
|
|
|
2,133
|
|
|
2,133
|
|
Real estate mortgageresidential
|
|
|
|
|
|
|
|
|
555
|
|
|
555
|
|
Constructioncommercial and residential
|
|
|
|
|
|
|
|
|
1,550
|
|
|
1,550
|
|
Other consumer
|
|
|
|
|
|
|
|
|
13
|
|
|
13
|
|
Other real estate owned
|
|
|
|
|
|
|
|
|
2,694
|
|
|
2,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value on a nonrecurring basis as of December 31, 2016
|
|
$
|
|
|
$
|
|
|
$
|
22,894
|
|
$
|
22,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 24Fair Value Measurements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Quoted
Prices
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Other
Unobservable
Inputs
(Level 3)
|
|
Total
(Fair Value)
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
|
|
$
|
|
|
$
|
2,633
|
|
$
|
2,633
|
|
Income producingcommercial real estate
|
|
|
|
|
|
|
|
|
10,088
|
|
|
10,088
|
|
Owner occupiedcommercial real estate
|
|
|
|
|
|
|
|
|
1,353
|
|
|
1,353
|
|
Real estate mortgageresidential
|
|
|
|
|
|
|
|
|
329
|
|
|
329
|
|
Constructioncommercial and residential
|
|
|
|
|
|
|
|
|
4,627
|
|
|
4,627
|
|
Home equity
|
|
|
|
|
|
|
|
|
123
|
|
|
123
|
|
Other consumer
|
|
|
|
|
|
|
|
|
20
|
|
|
20
|
|
Other real estate owned
|
|
|
|
|
|
|
|
|
5,852
|
|
|
5,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value on a nonrecurring basis as of December 31, 2015
|
|
$
|
|
|
$
|
|
|
$
|
25,025
|
|
$
|
25,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
The Company does not record loans at fair value on a recurring basis; however, from time to time, a loan is considered impaired and an allowance
for loan loss is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan are considered impaired. Once
a loan is identified as individually impaired, management measures impairment in accordance with ASC Topic 310,
"Receivables."
The fair value of
impaired loans is estimated using one of several methods, including the collateral value, market value of similar debt, enterprise value, liquidation value, and discounted cash flows. Those impaired
loans not requiring a specific allowance represent loans for which the fair value of expected repayments or collateral exceed the recorded investment in such loans. At December 31, 2016,
substantially all of the totally impaired loans were evaluated based upon the fair value of the collateral. In accordance with ASC Topic 820, impaired loans where an allowance is established
based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the
Company records the loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised
value and there is no observable market price, the Company records the loan as nonrecurring Level 3.
Fair Value of Financial Instruments
The Company discloses fair value information about financial instruments for which it is practicable to estimate the value, whether or not such
financial instruments are recognized on the balance sheet. 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 quoted market price, if one exists.
145
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 24Fair Value Measurements (Continued)
Quoted
market prices, if available, are shown as estimates of fair value. Because no quoted market prices exist for a portion of the Company's financial instruments, the fair value of
such instruments has been derived based on management's assumptions with respect to future economic conditions, the amount and timing of future cash flows and estimated discount rates. Different
assumptions could significantly affect these estimates. Accordingly, the net realizable value could be materially different from the estimates presented below. In addition, the estimates are only
indicative of individual financial
instrument values and should not be considered an indication of the fair value of the Company taken as a whole.
The
following methods and assumptions were used to estimate the fair value of each category of financial instrument for which it is practicable to estimate value:
Cash due from banks and federal funds sold:
For cash and due from banks and federal funds sold the carrying amount approximates fair
value.
Interest bearing deposits with other banks:
For interest bearing deposits with other banks the carrying amount approximates fair value.
Investment securities:
For these instruments, fair values are based upon quoted prices, if available. If quoted prices are not
available, fair value
is measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security's credit rating, prepayment assumptions
and other factors such as credit loss assumptions.
Federal Reserve and Federal Home Loan Bank stock:
The carrying amount approximate the fair values at the reporting date.
Loans held for sale:
As the Company has elected the fair value option, the fair value of loans held for sale is the carrying value and
is based on
commitments outstanding from investors as well as what secondary markets are currently offering for portfolios with similar characteristics for residential mortgage loans held for sale since such
loans are typically committed to be sold (servicing released) at a profit.
Loans:
For variable rate loans that re-price on a scheduled basis, fair values are based on carrying values. The fair value of the
remaining loans
are estimated by discounting the estimated future cash
flows using the current interest rate at which similar loans would be made to borrowers with similar credit ratings and for the same remaining term.
Bank owned life insurance:
The fair value of bank owned life insurance is the current cash surrender value, which is the carrying value.
Annuity investment:
The fair value of the annuity investments is the carrying amount at the reporting date.
Mortgage banking derivatives:
The Company enters into interest rate lock commitments (IRLCs) with prospective residential mortgage
borrowers. These
commitments are carried at fair value based on the fair value of the underlying mortgage loans which are based on market data. These commitments are classified as Level 3 in the fair value
disclosures, as the valuations are based on market unobservable inputs. The Company hedges the risk of the overall change in the fair value of loan commitments to borrowers by selling forward
contracts on securities of GSEs. These forward settling contracts are classified as Level 3,
146
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 24Fair Value Measurements (Continued)
as
valuations are based on market unobservable inputs. See Note 9 to the Consolidated Financial Statements for additional detail.
Interest rate swap derivatives:
These derivative instruments consist of forward starting interest rate swap agreements, which are
accounted for as
cash flow hedges. The Company's derivative position is classified within Level 2 of the fair value hierarchy and is valued using models generally accepted in the financial services industry and
that use actively quoted or observable market input values from external market data providers and/or non-binding broker-dealer quotations. The fair value of the derivatives is determined using
discounted cash flow models. These models' key assumptions include the contractual terms of the respective contract along with significant observable inputs, including interest rates, yield curves,
nonperformance risk and volatility. Derivative contracts are executed with a Credit Support Annex, which is a bilateral ratings-sensitive agreement that requires collateral postings when the market
value exceeds certain threshold limits. These agreements protect the interests of the Company and its counterparties should either party suffer a credit rating deterioration.
Noninterest bearing deposits:
The fair value of these deposits is the amount payable on demand at the reporting date, since generally
accepted
accounting standards do not permit an assumption of core deposit value.
Interest bearing deposits:
The fair value of interest bearing transaction, savings, and money market deposits with no defined maturity
is the amount
payable on demand at the reporting date, since generally accepted accounting standards do not permit an assumption of core deposit value.
Certificates of deposit:
The fair value of certificates of deposit is estimated by discounting the future cash flows using the current
rates at which
similar deposits with remaining maturities would be accepted.
Customer repurchase agreements:
The carrying amount approximate the fair values at the reporting date.
Borrowings:
The carrying amount for variable rate borrowings approximate the fair values at the reporting date. The fair value of fixed
rate FHLB
advances and the subordinated notes are estimated by computing the discounted value of contractual cash flows payable at current interest rates for obligations with similar remaining terms. The fair
value of variable rate FHLB advances is estimated to be carrying value since these liabilities are based on a spread to a current pricing index.
Off-balance sheet items:
Management has reviewed the unfunded portion of commitments to extend credit, as well as standby and other
letters of
credit, and has determined that the fair value of such instruments is equal to the fee, if any, collected and unamortized for the commitment made.
147
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 24Fair Value Measurements (Continued)
The estimated fair values of the Company's financial instruments at December 31, 2016 and 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
(dollars in thousands)
|
|
Carrying Value
|
|
Fair Value
|
|
Quoted Prices in
Active Markets for
Identical Assets or
Liabilities
(Level 1)
|
|
Significant
Other Observable
Inputs (Level 2)
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
10,285
|
|
$
|
10,285
|
|
$
|
|
|
$
|
10,285
|
|
$
|
|
|
Federal funds sold
|
|
|
2,397
|
|
|
2,397
|
|
|
|
|
|
2,397
|
|
|
|
|
Interest bearing deposits with other banks
|
|
|
355,481
|
|
|
355,481
|
|
|
|
|
|
355,481
|
|
|
|
|
Investment securities
|
|
|
538,108
|
|
|
538,108
|
|
|
|
|
|
536,390
|
|
|
1,718
|
|
Federal Reserve and Federal Home Loan Bank stock
|
|
|
21,600
|
|
|
21,600
|
|
|
|
|
|
21,600
|
|
|
|
|
Loans held for sale
|
|
|
51,629
|
|
|
51,629
|
|
|
|
|
|
51,629
|
|
|
|
|
Loans
|
|
|
5,677,893
|
|
|
5,683,158
|
|
|
|
|
|
|
|
|
5,683,158
|
|
Bank owned life insurance
|
|
|
60,130
|
|
|
60,130
|
|
|
|
|
|
60,130
|
|
|
|
|
Annuity investment
|
|
|
11,929
|
|
|
11,929
|
|
|
|
|
|
11,929
|
|
|
|
|
Mortgage banking derivatives
|
|
|
114
|
|
|
114
|
|
|
|
|
|
|
|
|
114
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing deposits
|
|
|
1,775,684
|
|
|
1,775,684
|
|
|
|
|
|
1,775,684
|
|
|
|
|
Interest bearing deposits
|
|
|
3,191,682
|
|
|
3,191,682
|
|
|
|
|
|
3,191,682
|
|
|
|
|
Certificates of deposit
|
|
|
748,748
|
|
|
745,985
|
|
|
|
|
|
745,985
|
|
|
|
|
Customer repurchase agreements
|
|
|
68,876
|
|
|
68,876
|
|
|
|
|
|
68,876
|
|
|
|
|
Borrowings
|
|
|
216,514
|
|
|
203,657
|
|
|
|
|
|
203,657
|
|
|
|
|
Mortgage banking derivatives
|
|
|
55
|
|
|
55
|
|
|
|
|
|
|
|
|
55
|
|
Interst rate swap derivatives
|
|
|
692
|
|
|
692
|
|
|
|
|
|
692
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
10,270
|
|
$
|
10,270
|
|
$
|
|
|
$
|
10,270
|
|
$
|
|
|
Federal funds sold
|
|
|
3,791
|
|
|
3,791
|
|
|
|
|
|
3,791
|
|
|
|
|
Interest bearing deposits with other banks
|
|
|
284,302
|
|
|
284,302
|
|
|
|
|
|
284,302
|
|
|
|
|
Investment securities
|
|
|
487,869
|
|
|
487,869
|
|
|
115
|
|
|
487,535
|
|
|
219
|
|
Federal Reserve and Federal Home Loan Bank stock
|
|
|
16,903
|
|
|
16,903
|
|
|
|
|
|
16,903
|
|
|
|
|
Loans held for sale
|
|
|
47,492
|
|
|
47,492
|
|
|
|
|
|
47,492
|
|
|
|
|
Loans
|
|
|
4,998,368
|
|
|
5,000,717
|
|
|
|
|
|
|
|
|
5,000,717
|
|
Bank owned life insurance
|
|
|
58,682
|
|
|
58,682
|
|
|
|
|
|
58,682
|
|
|
|
|
Annuity investment
|
|
|
12,136
|
|
|
12,136
|
|
|
|
|
|
12,136
|
|
|
|
|
Mortgage banking derivatives
|
|
|
24
|
|
|
24
|
|
|
|
|
|
|
|
|
24
|
|
Interest rate swap derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing deposits
|
|
|
1,405,067
|
|
|
1,405,067
|
|
|
|
|
|
1,405,067
|
|
|
|
|
Interest bearing deposits
|
|
|
3,014,122
|
|
|
3,014,122
|
|
|
|
|
|
3,014,122
|
|
|
|
|
Certificates of deposit
|
|
|
739,255
|
|
|
736,973
|
|
|
|
|
|
736,973
|
|
|
|
|
Customer repurchase agreements
|
|
|
72,356
|
|
|
72,356
|
|
|
|
|
|
72,356
|
|
|
|
|
Borrowings
|
|
|
70,000
|
|
|
69,992
|
|
|
|
|
|
69,992
|
|
|
|
|
Mortgage banking derivatives
|
|
|
30
|
|
|
30
|
|
|
|
|
|
|
|
|
30
|
|
Interest rate swap derivatives
|
|
|
1,417
|
|
|
1,417
|
|
|
|
|
|
1,417
|
|
|
|
|
148
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 25Quarterly Results of Operations (unaudited)
The following table reports quarterly results of operations (unaudited) for 2016, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
(dollars in thousands except per share data)
|
|
Fourth
Quarter
|
|
Third
Quarter
|
|
Second
Quarter
|
|
First
Quarter
|
|
Total interest income
|
|
$
|
75,795
|
|
$
|
72,431
|
|
$
|
69,772
|
|
$
|
67,807
|
|
Total interest expense
|
|
|
8,771
|
|
|
7,703
|
|
|
5,950
|
|
|
5,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
67,024
|
|
|
64,728
|
|
|
63,822
|
|
|
62,591
|
|
Provision for credit losses
|
|
|
2,112
|
|
|
2,288
|
|
|
3,888
|
|
|
3,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for credit losses
|
|
|
64,912
|
|
|
62,440
|
|
|
59,934
|
|
|
59,548
|
|
Noninterest income
|
|
|
7,014
|
|
|
6,405
|
|
|
7,575
|
|
|
6,290
|
|
Noninterest expense
|
|
|
29,780
|
|
|
28,838
|
|
|
28,295
|
|
|
28,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
42,146
|
|
|
40,007
|
|
|
39,214
|
|
|
37,735
|
|
Income tax expense
|
|
|
16,429
|
|
|
15,484
|
|
|
15,069
|
|
|
14,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
25,717
|
|
|
24,523
|
|
|
24,145
|
|
|
23,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
25,717
|
|
$
|
24,523
|
|
$
|
24,145
|
|
$
|
23,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic(1)
|
|
$
|
0.76
|
|
$
|
0.73
|
|
$
|
0.72
|
|
$
|
0.70
|
|
Diluted(1)
|
|
$
|
0.75
|
|
$
|
0.72
|
|
$
|
0.71
|
|
$
|
0.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
(dollars in thousands except per share data)
|
|
Fourth
Quarter
|
|
Third
Quarter
|
|
Second
Quarter
|
|
First
Quarter
|
|
Total interest income
|
|
$
|
67,311
|
|
$
|
63,981
|
|
$
|
62,423
|
|
$
|
59,465
|
|
Total interest expense
|
|
|
4,735
|
|
|
4,896
|
|
|
4,873
|
|
|
4,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
62,576
|
|
|
59,085
|
|
|
57,550
|
|
|
54,731
|
|
Provision for credit losses
|
|
|
4,595
|
|
|
3,262
|
|
|
3,471
|
|
|
3,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for credit losses
|
|
|
57,981
|
|
|
55,823
|
|
|
54,079
|
|
|
51,421
|
|
Noninterest income
|
|
|
6,492
|
|
|
6,099
|
|
|
6,233
|
|
|
7,804
|
|
Noninterest expense
|
|
|
28,640
|
|
|
27,405
|
|
|
26,598
|
|
|
28,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
35,833
|
|
|
34,517
|
|
|
33,714
|
|
|
31,152
|
|
Income tax expense
|
|
|
13,485
|
|
|
13,054
|
|
|
12,776
|
|
|
11,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
22,348
|
|
|
21,463
|
|
|
20,938
|
|
|
19,418
|
|
Preferred stock dividends and discount accretion
|
|
|
62
|
|
|
180
|
|
|
179
|
|
|
180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
22,286
|
|
$
|
21,283
|
|
$
|
20,759
|
|
$
|
19,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic(1)
|
|
$
|
0.67
|
|
$
|
0.64
|
|
$
|
0.62
|
|
$
|
0.62
|
|
Diluted(1)
|
|
$
|
0.65
|
|
$
|
0.63
|
|
$
|
0.61
|
|
$
|
0.61
|
|
149
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 25Quarterly Results of Operations (unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
(dollars in thousands except per share data)
|
|
Fourth
Quarter
|
|
Third
Quarter
|
|
Second
Quarter
|
|
First
Quarter
|
|
Total interest income
|
|
$
|
56,091
|
|
$
|
47,886
|
|
$
|
44,759
|
|
$
|
42,837
|
|
Total interest expense
|
|
|
4,275
|
|
|
3,251
|
|
|
2,739
|
|
|
2,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
51,816
|
|
|
44,635
|
|
|
42,020
|
|
|
40,007
|
|
Provision for credit losses
|
|
|
3,700
|
|
|
2,111
|
|
|
3,134
|
|
|
1,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for credit losses
|
|
|
48,116
|
|
|
42,524
|
|
|
38,886
|
|
|
38,073
|
|
Noninterest income
|
|
|
5,310
|
|
|
4,761
|
|
|
3,811
|
|
|
4,463
|
|
Noninterest expense
|
|
|
29,352
|
|
|
25,143
|
|
|
22,135
|
|
|
23,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
24,074
|
|
|
22,142
|
|
|
20,562
|
|
|
19,438
|
|
Income tax expense
|
|
|
9,347
|
|
|
8,054
|
|
|
7,618
|
|
|
6,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
14,727
|
|
|
14,088
|
|
|
12,944
|
|
|
12,499
|
|
Preferred stock dividends and discount accretion
|
|
|
180
|
|
|
151
|
|
|
142
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
14,547
|
|
$
|
13,937
|
|
$
|
12,802
|
|
$
|
12,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic(1)
|
|
$
|
0.51
|
|
$
|
0.54
|
|
$
|
0.49
|
|
$
|
0.48
|
|
Diluted(1)
|
|
$
|
0.49
|
|
$
|
0.52
|
|
$
|
0.48
|
|
$
|
0.47
|
|
-
(1)
-
Earnings
per common share are calculated on a quarterly basis and may not be additive to the year to date amount.
150
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 26Parent Company Financial Information
Condensed financial information for Eagle Bancorp, Inc. (Parent Company only) is as follows:
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
December 31,
2016
|
|
December 31,
2015
|
|
Assets
|
|
|
|
|
|
|
|
Cash
|
|
$
|
86,561
|
|
$
|
65,692
|
|
Investment securities available for sale, at fair value
|
|
|
100
|
|
|
216
|
|
Investment in subsidiaries
|
|
|
973,530
|
|
|
740,804
|
|
Other assets
|
|
|
3,935
|
|
|
2,444
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,064,126
|
|
$
|
809,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Other liabilities
|
|
$
|
4,813
|
|
$
|
1,627
|
|
Long-term borrowings
|
|
|
216,514
|
|
|
68,928
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
221,327
|
|
|
70,555
|
|
|
|
|
|
|
|
|
|
Shareholders' Equity
|
|
|
|
|
|
|
|
Common stock
|
|
|
338
|
|
|
331
|
|
Warrant
|
|
|
|
|
|
946
|
|
Additional paid in capital
|
|
|
513,531
|
|
|
503,529
|
|
Retained earnings
|
|
|
331,311
|
|
|
233,604
|
|
Accumulated other comprehensive income (loss)
|
|
|
(2,381
|
)
|
|
191
|
|
|
|
|
|
|
|
|
|
Total Shareholders' Equity
|
|
|
842,799
|
|
|
738,601
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders' Equity
|
|
$
|
1,064,126
|
|
$
|
809,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 26Parent Company Financial Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
(dollars in thousands)
|
|
2016
|
|
2015
|
|
2014
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
Other interest and dividends
|
|
$
|
280
|
|
$
|
369
|
|
$
|
171
|
|
Gain on sale of investment securities
|
|
|
43
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Income
|
|
|
323
|
|
|
429
|
|
|
171
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
7,493
|
|
|
4,490
|
|
|
2,497
|
|
Legal and professional
|
|
|
131
|
|
|
101
|
|
|
108
|
|
Directors compensation
|
|
|
202
|
|
|
224
|
|
|
257
|
|
Other
|
|
|
1,083
|
|
|
1,212
|
|
|
1,086
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Expenses
|
|
|
8,909
|
|
|
6,027
|
|
|
3,948
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Before Income Tax (Benefit) and Equity in Undistributed Income of Subsidiaries
|
|
|
(8,586
|
)
|
|
(5,598
|
)
|
|
(3,777
|
)
|
Income Tax Benefit
|
|
|
(2,919
|
)
|
|
(2,208
|
)
|
|
(1,490
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loss Before Equity in Undistributed Income of Subsidiaries
|
|
|
(5,667
|
)
|
|
(3,390
|
)
|
|
(2,287
|
)
|
Equity in Undistributed Income of Subsidiaries
|
|
|
103,374
|
|
|
87,557
|
|
|
56,545
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
97,707
|
|
|
84,167
|
|
|
54,258
|
|
Preferred Stock Dividends and Discount Accretion
|
|
|
|
|
|
601
|
|
|
614
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Available to Common Shareholders
|
|
$
|
97,707
|
|
$
|
83,566
|
|
$
|
53,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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152
Table of Contents
Eagle Bancorp, Inc.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2016, 2015 and 2014: (Continued)
Note 26Parent Company Financial Information (Continued)
|
|
|
|
|
|
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|
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|
|
|
|
Years Ended December 31,
|
|
(dollars in thousands)
|
|
2016
|
|
2015
|
|
2014
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
97,707
|
|
$
|
84,167
|
|
$
|
54,258
|
|
Adjustments to reconcile net income to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed income of subsidiary
|
|
|
(103,374
|
)
|
|
(87,557
|
)
|
|
(56,545
|
)
|
Excess tax benefit on stock-based compensation
|
|
|
(400
|
)
|
|
(2,984
|
)
|
|
(978
|
)
|
Increase in other assets
|
|
|
(1,491
|
)
|
|
(785
|
)
|
|
(1,731
|
)
|
Increase (decrease) in other liabilities
|
|
|
3,186
|
|
|
(121
|
)
|
|
1,803
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) operating activities
|
|
|
(4,372
|
)
|
|
(7,280
|
)
|
|
(3,193
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of available-for-sale securities
|
|
|
135
|
|
|
84
|
|
|
|
|
Investment in subsidiary (net)
|
|
|
(124,636
|
)
|
|
(419
|
)
|
|
(203,782
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(124,501
|
)
|
|
(335
|
)
|
|
(203,782
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
|
|
|
94,633
|
|
|
144,093
|
|
Issuance of Series C Preferred Stock
|
|
|
|
|
|
|
|
|
15,300
|
|
Issuance in long-term borrowings
|
|
|
147,586
|
|
|
|
|
|
70,000
|
|
Redemption of Series B Preferred Stock
|
|
|
|
|
|
(56,600
|
)
|
|
|
|
Redemption of Series C Preferred Stock
|
|
|
|
|
|
(15,300
|
)
|
|
|
|
Decrease in long-term borrowings
|
|
|
|
|
|
(9,300
|
)
|
|
|
|
Proceeds from exercise of stock options
|
|
|
955
|
|
|
5,176
|
|
|
2,313
|
|
Preferred stock dividends
|
|
|
|
|
|
(600
|
)
|
|
(614
|
)
|
Excess tax benefit on stock-based compensation
|
|
|
400
|
|
|
2,984
|
|
|
978
|
|
Payment in lieu of fractional shares
|
|
|
|
|
|
(4
|
)
|
|
|
|
Proceeds from employee stock purchase plan
|
|
|
801
|
|
|
769
|
|
|
621
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
149,742
|
|
|
21,758
|
|
|
232,691
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase in Cash
|
|
|
20,869
|
|
|
14,143
|
|
|
25,716
|
|
Cash and Cash Equivalents at Beginning of Year
|
|
|
65,692
|
|
|
51,549
|
|
|
25,833
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Year
|
|
$
|
86,561
|
|
$
|
65,692
|
|
$
|
51,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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153
Table of Contents