EAGLE BANCORP INC 10-K

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF COMMON EQUITY Market for Common Stock. The Company’s common stock is listed for trading on the Nasdaq Capital Market under the symbol “EGBN.” Over the twelve month period ended December 31, 2020, the average daily trading volume amounted to approximately 166,811 shares, a decrease from approximately 236,138 shares over the twelve month period ended December 31, 2019. No assurance can be given that a more active trading market will develop or can be maintained. As of February 1, 2021, there were 31,783,355 shares of common stock outstanding, held by approximately 587 shareholders of record. Based on the most recent mailings, the Company believes beneficial shareholders number approximately 8,639. As of February 1, 2021, our directors and executive officers own approximately 2% of our outstanding shares of common stock. Dividends. The Company commenced the payment of a regular quarterly dividend, in the amount of $0.22 per share, in the second quarter of 2019. The Company declared aggregate cash dividends of $0.88 per share, or $28.3 million, during 2020. The payment of a cash dividend on common stock will depend largely upon the ability of the Bank, the Company’s principal operating business, to declare and pay dividends to the Company. Payment of dividends on the common stock will also depend upon the Bank’s earnings, financial condition, and need for funds, as well as governmental policies and regulations applicable to the Company and the Bank. The payment of dividends in any period does not mean that the Company will continue to pay dividends at the current level, or at all. Regulations of the Federal Reserve Board and Maryland law place limits on the amount of dividends the Bank may pay to the Company without prior approval. Prior regulatory approval is required to pay dividends which exceed the Bank’s net profits for the current year plus its retained net profits for the preceding two calendar years, less required transfers to surplus. Under Maryland law, dividends may only be paid out of retained earnings. State and federal bank regulatory agencies also have authority to prohibit a bank from paying dividends if such payment is deemed to be an unsafe or unsound practice, and the Federal Reserve Board has the same authority over bank holding companies. At December 31, 2020 the Bank could pay dividends to the Company to the extent of its earnings so long as it maintained required capital ratios. The Federal Reserve Board has established requirements with respect to the maintenance of appropriate levels of capital by registered bank holding companies. Compliance with such standards, as presently in effect, or as they may be amended from time to time, could possibly limit the amount of dividends that the Company may pay in the future. In 1985, the Federal Reserve Board issued a policy statement on the payment of cash dividends by bank holding companies. In the statement, the Federal Reserve Board expressed its view that a holding company experiencing earnings weaknesses should not pay cash dividends exceeding its net income, or which could only be funded in ways that weaken the holding company’s financial health, such as by borrowing. As a depository institution, the deposits of which are insured by the FDIC, the Bank may not pay dividends or distribute any of its capital assets while it remains in default on any assessment due the FDIC. The Bank currently is not in default under any of its obligations to the FDIC. 37 Table o f Contents Issuer Repurchase of Common Stock. Period Total Number of Shares Purchased (3)(4) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plan or Program Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) (2) October 1-31, 2020 — n/a n/a 458,069 November 1-30, 2020 371,300 37.46 371,300 86,769 December 1-31, 2020 86,769 38.51 86,769 — Total 458,069 37.66 458,069 — (1) In August 2019, the Company’s Board of Directors authorized the purchase of up to 1,715,547 shares of the Company’s common stock from the date of approval of the plan through December 31, 2019, subject to earlier termination by the Board of Directors. The program was announced by a press release dated August 9, 2019 and a Form 8-K filed on August 9, 2019. On December 18, 2019, the Company’s Board of Directors extended and expanded the program, authorizing the purchase of up to an aggregate of 1,641,000 shares of the Company’s common stock (inclusive of shares remaining under the initial authorization), through December 31, 2020, subject to earlier termination by the Board of Directors (as extended, the “Repurchase Program”). The extension of the program was announced by a press release dated December 18, 2019 and a Form 8-K filed on December 18, 2019. Under the Repurchase Program, the Company may acquire its common stock in the open market or in privately negotiated transactions, including 10b5-1 plans. The Repurchase Program may be modified, suspended or terminated by the Board of Directors at any time without notice. We suspended our share repurchase program during the first quarter of 2020, but the suspension was lifted in the third quarter of 2020. We did not repurchase any shares during the second and third quarters of 2020. (2) On December 16, 2020, the Company's Board of Directors adopted a new share repurchase program to take effect starting January 1, 2021, after the expiration of the previous repurchase program on December 31, 2020. The Board of Directors authorized the repurchase of 1,588,848 shares of common stock, or approximately 5% of the Company's outstanding shares of common stock, under the new repurchase program, which will expire on December 31, 2021, subject to earlier termination of the program by the Board of Directors. The program was announced by a press release dated December 17, 2020 and a Form 8-K filed on December 17, 2020. (3) Inclusive of shares remaining available for purchase under the “Repurchase Program”. (4) Includes shares of the Company’s common stock acquired by the Company in connection with satisfaction of tax withholding obligations on vested restricted shares or restricted share units and certain forfeitures and terminations of employment-related awards and for potential re-issuance to certain employees under equity incentive plans. See Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters for “Securities Authorized for Issuance Under Equity Compensation Plans.” 38 Table o f Contents Stock Price Performance. The following table compares the cumulative total return on a hypothetical investment of $100 in the Company’s common stock on December 31, 2015 through December 31, 2020, with the hypothetical cumulative total return on the Nasdaq Stock Market Index (U.S. Companies) and the KBW Regional Banking Index for the comparable period, including reinvestment of dividends. The KBW Regional Banking Index seeks to reflect the performance of publicly traded companies that do business as regional banks or thrifts listed on all U.S. stock markets. Eagle Bancorp, Inc. Period Ending Index 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 Eagle Bancorp, Inc. 100.00 120.76 114.72 96.51 97.25 84.81 Nasdaq Composite Index 100.00 108.87 141.13 137.12 187.44 271.64 KBW Nasdaq Regional Banking Index 100.00 139.02 141.45 116.70 144.49 131.91 ITEM 6. SELECTED FINANCIAL DATA The following table shows selected historical consolidated financial data for the Company. It should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operation” section and the Consolidated Financial Statements and Notes thereto included elsewhere in this report. Use of Non-GAAP Financial Measures The information set forth below contains certain financial information determined by methods other than in accordance with GAAP. These non-GAAP financial measures are “tangible common equity,” “tangible book value per common share,” “efficiency ratio,” and “return on average common equity.” Management uses these non-GAAP measures in its analysis of our performance because it believes these measures are used as a measure of our performance by investors. 39 Table o f Contents These disclosures should not be considered in isolation or as a substitute for results determined in accordance with GAAP, and are not necessarily comparable to non-GAAP performance measures which may be presented by other bank holding companies. Management compensates for these limitations by providing detailed reconciliations between GAAP information and the non-GAAP financial measures. A reconciliation table is set forth below following the selected historical consolidated financial data. Years Ended December 31, (dollars in thousands except per share data) 2020 2019 2018 2017 2016 Balance Sheets - Period End Securities $ 1,151,083 $ 843,363 $ 784,139 $ 589,268 $ 538,108 Loans held for sale 88,205 56,707 19,254 25,096 51,629 Loans 7,760,212 7,545,748 6,991,447 6,411,528 5,677,893 Allowance for credit losses 109,579 73,658 69,944 64,758 59,074 Intangible assets, net 105,114 104,739 105,766 107,212 107,419 Total assets 11,117,802 8,988,719 8,389,137 7,479,029 6,890,096 Deposits 9,189,203 7,224,391 6,974,285 5,853,984 5,716,114 Borrowings 568,077 498,667 247,709 618,466 285,390 Total liabilities 9,876,910 7,798,038 7,280,196 6,528,591 6,047,297 Total shareholders’ equity 1,240,892 1,190,681 1,108,941 950,438 842,799 Tangible common equity (1) 1,135,778 1,085,942 1,003,175 843,226 735,380 Statements of Income Interest income $ 389,986 $ 429,630 $ 393,286 $ 324,034 $ 285,805 Interest expense 68,424 105,585 76,293 40,147 27,640 Provision for credit losses 45,571 13,091 8,660 8,971 11,331 Noninterest income 45,696 25,699 22,586 29,372 27,284 Noninterest expense 144,162 139,862 126,711 118,552 115,016 Income before taxes 176,145 196,791 204,208 185,736 159,102 Income tax expense (2) 43,928 53,848 51,932 85,504 61,395 Net income (2) 132,217 142,943 152,276 100,232 97,707 Cash dividends declared 28,330 22,332 — — — Net income available to common shareholders (2) 132,217 142,943 152,276 100,232 97,707 Total Revenue (3) 435,682 349,744 339,579 313,259 285,449 40 Table o f Contents Years Ended December 31, (dollars in thousands except per share data) 2020 2019 2018 2017 2016 Per Common Share Data Net income, basic (2) $ 4.09 $ 4.18 $ 4.44 $ 2.94 $ 2.91 Net income, diluted (2) 4.09 4.18 4.42 2.92 2.86 Dividends declared 0.88 0.66 — — — Book value (2) 39.05 35.82 32.25 27.80 24.77 Tangible book value (2) (4) 35.74 32.67 29.17 24.67 21.61 Common shares outstanding 31,779,663 33,241,496 34,387,919 34,185,163 34,023,850 Weighted average common shares outstanding, basic 32,334,201 34,178,804 34,306,336 34,138,536 33,587,254 Weighted average common shares outstanding, diluted 32,362,556 34,210,646 34,443,040 34,320,639 34,181,616 Ratios Net interest margin 3.19 % 3.77 % 4.10 % 4.15 % 4.16 % Efficiency ratio (5) 39.25 % 39.99 % 37.31 % 37.84 % 40.29 % Return on average assets (2) 1.28 % 1.61 % 1.91 % 1.41 % 1.52 % Return on average common equity (2) 10.98 % 12.20 % 14.89 % 11.06 % 12.27 % Return on average tangible common equity (2) 12.03 % 13.40 % 16.63 % 12.54 % 14.19 % CET1 capital (to risk weighted assets) 13.49 % 12.87 % 12.49 % 11.23 % 10.80 % Total capital (to risk weighted assets) 17.04 % 16.20 % 16.08 % 15.02 % 14.89 % Tier 1 capital (to risk weighted assets) 13.49 % 12.87 % 12.49 % 11.23 % 10.80 % Tier 1 capital (to average assets) 10.31 % 11.62 % 12.10 % 11.45 % 10.72 % Tangible common equity ratio 10.31 % 12.22 % 12.11 % 11.44 % 10.84 % Dividend payout ratio 21.59 % 15.79 % — — — Asset Quality Nonperforming assets and loans 90+ past due $ 65,930 $ 50,216 $ 17,671 $ 14,632 $ 20,569 Nonperforming assets and loans 90+ past due to total assets 0.59 % 0.56 % 0.21 % 0.20 % 0.30 % Nonperforming loans to total loans 0.79 % 0.65 % 0.23 % 0.21 % 0.31 % Allowance for credit losses to loans 1.41 % 0.98 % 1.00 % 1.01 % 1.04 % Allowance for credit losses to nonperforming loans 179.80 % 151.16 % 429.72 % 489.20 % 330.49 % Net charge-offs $ 20,097 $ 9,377 $ 3,475 $ 3,286 $ 4,945 Net charge-offs to average loans 0.26 % 0.13 % 0.05 % 0.06 % 0.09 % (1) Tangible common equity, a non-GAAP financial measure, is defined as total common shareholders’ equity reduced by goodwill and other intangible assets. (2) The reported figure for 2017 includes one-time charges to reduce the carrying value of net deferred tax assets by $14.6 million, required as a result of the reduction in corporate income tax rates to 21% in the 2017 Tax Act. As the magnitude of the net deferred tax asset revaluation distorts the operational results of the Company, we present in the GAAP reconciliation below this table that show the effect of the net deferred tax asset revaluation during the year ended December 31, 2017. We believe the information below is important to enable shareholders and other interested parties to assess the core operational performance of the Company. (3) Total revenue calculated as net interest income plus noninterest income (4) Tangible book value per common share, a non-GAAP financial measure, is defined as tangible common shareholders’ equity divided by total common shares outstanding. (5) Computed by dividing noninterest expense by the sum of net interest income and noninterest income. 41 Table o f Contents The following table details our Non-GAAP to GAAP reconciliation for the years 2016 through 2020. Non-GAAP Reconciliation Years Ended December 31, (dollars in thousands except per share data) 2020 2019 2018 2017 2016 Common shareholders’ equity $ 1,240,891 $ 1,190,681 $ 1,108,941 $ 950,438 $ 842,799 Less: Intangible assets (105,114) (104,739) (105,766) (107,212) (107,419) Tangible common equity $ 1,135,777 $ 1,085,942 $ 1,003,175 $ 843,226 $ 735,380 Book value per common share $ 39.05 $ 35.82 $ 32.25 $ 27.80 $ 24.77 Less: Intangible book value per common share (3.31) (3.15) (3.08) (3.13) (3.16) Tangible book value per common share $ 35.74 $ 32.67 $ 29.17 $ 24.67 $ 21.61 Total assets $ 11,117,802 $ 8,988,719 $ 8,389,137 $ 7,479,029 $ 6,890,096 Less: Intangible assets (105,114) (104,739) (105,766) (107,212) (107,419) Tangible assets $ 11,012,688 $ 8,883,980 $ 8,283,371 $ 7,371,817 $ 6,782,677 Tangible common equity ratio 10.31 % 12.22 % 12.11 % 11.44 % 10.84 % Average common shareholders’ equity $ 1,204,341 $ 1,172,051 $ 1,022,642 $ 906,169 $ 796,400 Less: Average intangible assets (104,903) (105,167) (106,806) (107,117) (107,207) Average tangible common equity $ 1,099,438 $ 1,066,884 $ 915,836 $ 799,052 $ 689,193 Net Income $ 132,217 $ 142,943 $ 152,276 $ 100,232 $ 97,707 Average tangible common equity $ 1,099,438 $ 1,066,884 $ 915,836 $ 799,052 $ 689,193 Return on Average Tangible Common Equity 12.03 % 13.40 % 16.63 % 12.54 % 14.18 % The below table shows 2017 without deferred tax asset revaluation. Year Ended December 31, 2017 (1) (dollars in thousands except per share data) GAAP Change Non-GAAP Income Statements: Income tax expense 85,504 (14,588) 70,916 Net income $ 100,232 (14,588) $ 114,820 Earnings Per Common Share Basic $ 2.94 $ 0.43 $ 3.36 Diluted $ 2.92 $ 0.42 $ 3.35 Performance Ratios: Return on average assets 1.41 % 1.62 % Return on average common equity 11.06 % 12.67 % (1) Presented here only. Not included in the Selected Financial Data table above. 42 Table o f Contents As of December 31, 2017 GAAP Change Non-GAAP Assets Deferred income taxes 28,770 14,588 43,358 Total Assets $ 7,479,029 $ 14,588 $ 7,493,617 Shareholders’ Equity Retained earnings 431,544 14,588 446,132 Total Shareholders’ Equity 950,438 14,588 965,026 Total Liabilities and Shareholders’ Equity $ 7,479,029 14,588 $ 7,493,617