Eagle
Bancorp, Inc.
Consolidated
Average Balances, Interest Yields And Rates (Unaudited)
(dollars in thousands)
|
|
Three Months Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
Average
Balance
|
|
|
Interest
|
|
|
Average Yield/Rate
|
|
|
Average Balance
|
|
|
Interest
|
|
|
Average Yield/Rate
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits with other banks and other short-term investments
|
|
$
|
301,020
|
|
|
$
|
1,666
|
|
|
|
2.24
|
%
|
|
$
|
282,440
|
|
|
$
|
981
|
|
|
|
1.41
|
%
|
Loans held for sale (1)
|
|
|
17,919
|
|
|
|
200
|
|
|
|
4.46
|
%
|
|
|
24,960
|
|
|
|
274
|
|
|
|
4.39
|
%
|
Loans (1) (2)
|
|
|
7,038,472
|
|
|
|
97,621
|
|
|
|
5.62
|
%
|
|
|
6,433,730
|
|
|
|
84,156
|
|
|
|
5.30
|
%
|
Investment securities available for sale (2)
|
|
|
810,550
|
|
|
|
5,598
|
|
|
|
2.80
|
%
|
|
|
614,064
|
|
|
|
3,592
|
|
|
|
2.37
|
%
|
Federal funds sold
|
|
|
17,750
|
|
|
|
49
|
|
|
|
1.12
|
%
|
|
|
18,341
|
|
|
|
46
|
|
|
|
1.02
|
%
|
Total interest earning assets
|
|
|
8,185,711
|
|
|
|
105,134
|
|
|
|
5.21
|
%
|
|
|
7,373,535
|
|
|
|
89,049
|
|
|
|
4.90
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest earning assets
|
|
|
339,420
|
|
|
|
|
|
|
|
|
|
|
|
289,333
|
|
|
|
|
|
|
|
|
|
Less: allowance for credit losses
|
|
|
69,451
|
|
|
|
|
|
|
|
|
|
|
|
65,383
|
|
|
|
|
|
|
|
|
|
Total noninterest earning assets
|
|
|
269,969
|
|
|
|
|
|
|
|
|
|
|
|
223,950
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
8,455,680
|
|
|
|
|
|
|
|
|
|
|
$
|
7,597,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing transaction
|
|
$
|
590,853
|
|
|
$
|
1,181
|
|
|
|
0.81
|
%
|
|
$
|
372,893
|
|
|
$
|
464
|
|
|
|
0.50
|
%
|
Savings and money market
|
|
|
2,792,552
|
|
|
|
11,963
|
|
|
|
1.74
|
%
|
|
|
2,769,722
|
|
|
|
5,664
|
|
|
|
0.83
|
%
|
Time deposits
|
|
|
1,330,939
|
|
|
|
7,756
|
|
|
|
2.36
|
%
|
|
|
888,083
|
|
|
|
3,001
|
|
|
|
1.37
|
%
|
Total interest bearing deposits
|
|
|
4,714,344
|
|
|
|
20,900
|
|
|
|
1.80
|
%
|
|
|
4,030,698
|
|
|
|
9,129
|
|
|
|
0.92
|
%
|
Customer repurchase agreements
|
|
|
27,793
|
|
|
|
98
|
|
|
|
1.43
|
%
|
|
|
68,043
|
|
|
|
50
|
|
|
|
0.30
|
%
|
Other short-term borrowings
|
|
|
21,059
|
|
|
|
140
|
|
|
|
2.66
|
%
|
|
|
238,356
|
|
|
|
1,111
|
|
|
|
1.86
|
%
|
Long-term borrowings
|
|
|
217,357
|
|
|
|
2,979
|
|
|
|
5.48
|
%
|
|
|
216,970
|
|
|
|
2,979
|
|
|
|
5.49
|
%
|
Total interest bearing liabilities
|
|
|
4,980,553
|
|
|
|
24,117
|
|
|
|
1.96
|
%
|
|
|
4,554,067
|
|
|
|
13,269
|
|
|
|
1.18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing demand
|
|
|
2,273,124
|
|
|
|
|
|
|
|
|
|
|
|
2,032,319
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
73,134
|
|
|
|
|
|
|
|
|
|
|
|
44,514
|
|
|
|
|
|
|
|
|
|
Total noninterest bearing liabilities
|
|
|
2,346,258
|
|
|
|
|
|
|
|
|
|
|
|
2,076,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity
|
|
|
1,128,869
|
|
|
|
|
|
|
|
|
|
|
|
966,585
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
$
|
8,455,680
|
|
|
|
|
|
|
|
|
|
|
$
|
7,597,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
81,017
|
|
|
|
|
|
|
|
|
|
|
$
|
75,780
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
|
|
3.25
|
%
|
|
|
|
|
|
|
|
|
|
|
3.72
|
%
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
4.02
|
%
|
|
|
|
|
|
|
|
|
|
|
4.17
|
%
|
Cost of funds
|
|
|
|
|
|
|
|
|
|
|
1.19
|
%
|
|
|
|
|
|
|
|
|
|
|
0.73
|
%
|
|
(1)
|
Loans placed on nonaccrual status are included in average
balances. Net loan fees and late charges included in interest income on loans totaled $4.1 million and $4.7 million for the three
months ended March 31, 2019 and 2018, respectively.
|
|
(2)
|
Interest and fees on loans and investments exclude tax
equivalent adjustments.
|
Provision
for Credit Losses
The
provision for credit losses represents the amount of expense charged to current earnings to fund the allowance for credit losses.
The amount of the allowance for credit losses is based on many factors which reflect management’s assessment of the risk
in the loan portfolio. Those factors include historical losses, economic conditions and trends, the value and adequacy of collateral,
volume and mix of the portfolio, performance of the portfolio, and internal loan processes of the Company and Bank.
Management
has developed a comprehensive analytical process to monitor the adequacy of the allowance for credit losses. The process and guidelines
were developed utilizing, among other factors, the guidance from federal banking regulatory agencies. The results of this process,
in combination with conclusions of the Bank’s outside loan review consultant, support management’s assessment as to
the adequacy of the allowance at the balance sheet date. Please refer to the discussion under the caption “Critical Accounting
Policies” contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 for an overview
of the methodology management employs on a quarterly basis to assess the adequacy of the allowance and the provisions charged
to expense. Also, refer to the table at page 44 which reflects activity in the allowance for credit losses.
During
the three months ended March 31, 2019, the allowance for credit losses reflected $3.4 million in provision for credit losses and
$3.4 million in net charge-offs during the period. During the three months ended December 31, 2018, the allowance for credit losses
reflected $2.6 million in provision for credit losses and $844 thousand in net charge-offs during the period. The provision for
credit losses was $3.4 million for the three months ended March 31, 2019 as compared to $2.0 million for the same period in 2018.
Net charge-offs of $3.4 million in the first quarter of 2019 represented an annualized 0.19% of average loans, excluding loans
held for sale, as compared to $920 thousand, or an annualized 0.06% of average loans, excluding loans held for sale, in the first
quarter of 2018.
As
part of its comprehensive loan review process, the Bank’s Board of Directors and Loan Committee or Credit Review Committee
carefully evaluate loans which are past-due 30 days or more. The Committees make a thorough assessment of the conditions and circumstances
surrounding each delinquent loan. The Bank’s loan policy requires that loans be placed on nonaccrual if they are ninety
days past-due, unless they are well secured and in the process of collection. Additionally, Credit Administration specifically
analyzes the status of development and construction projects, sales activities and utilization of interest reserves in order to
carefully and prudently assess potential increased levels of risk requiring additional reserves.
The
maintenance of a high quality loan portfolio, with an adequate allowance for possible credit losses, will continue to be a primary
management objective for the Company.
The
following table sets forth activity in the allowance for credit losses for the periods indicated.
|
|
Three Months Ended March 31,
|
|
(dollars in thousands)
|
|
2019
|
|
|
2018
|
|
Balance at beginning of period
|
|
$
|
69,944
|
|
|
$
|
64,758
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
4
|
|
|
|
853
|
|
Income producing - commercial real estate
|
|
|
3,496
|
|
|
|
121
|
|
Owner occupied - commercial real estate
|
|
|
—
|
|
|
|
132
|
|
Real estate mortgage - residential
|
|
|
—
|
|
|
|
—
|
|
Construction - commercial and residential
|
|
|
—
|
|
|
|
—
|
|
Construction - C&I (owner occupied)
|
|
|
—
|
|
|
|
—
|
|
Home equity
|
|
|
—
|
|
|
|
—
|
|
Other consumer
|
|
|
—
|
|
|
|
—
|
|
Total charge-offs
|
|
|
3,500
|
|
|
|
1,106
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
130
|
|
|
|
3
|
|
Income producing - commercial real estate
|
|
|
—
|
|
|
|
—
|
|
Owner occupied - commercial real estate
|
|
|
—
|
|
|
|
1
|
|
Real estate mortgage - residential
|
|
|
1
|
|
|
|
2
|
|
Construction - commercial and residential
|
|
|
—
|
|
|
|
60
|
|
Construction - C&I (owner occupied)
|
|
|
—
|
|
|
|
—
|
|
Home equity
|
|
|
—
|
|
|
|
117
|
|
Other consumer
|
|
|
8
|
|
|
|
3
|
|
Total recoveries
|
|
|
139
|
|
|
|
186
|
|
Net charge-offs
|
|
|
3,361
|
|
|
|
920
|
|
Provision for Credit Losses
|
|
|
3,360
|
|
|
|
1,969
|
|
Balance at end of period
|
|
$
|
69,943
|
|
|
$
|
65,807
|
|
|
|
|
|
|
|
|
|
|
Annualized ratio of net charge-offs during the period to average loans outstanding during the period
|
|
|
0.19
|
%
|
|
|
0.06
|
%
|
The
following table reflects the allocation of the allowance for credit losses at the dates indicated. The allocation of the allowance
to each category is not necessarily indicative of future losses or charge-offs and does not restrict the use of the allowance
to absorb losses in any category.
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
(dollars in thousands)
|
|
|
Amount
|
|
|
|
%(1)
|
|
|
|
Amount
|
|
|
|
%(1)
|
|
Commercial
|
|
$
|
17,195
|
|
|
|
21
|
%
|
|
$
|
15,857
|
|
|
|
22
|
%
|
Income producing - commercial real estate
|
|
|
26,765
|
|
|
|
47
|
%
|
|
|
28,034
|
|
|
|
46
|
%
|
Owner occupied - commercial real estate
|
|
|
5,980
|
|
|
|
14
|
%
|
|
|
6,242
|
|
|
|
13
|
%
|
Real estate mortgage - residential
|
|
|
681
|
|
|
|
1
|
%
|
|
|
965
|
|
|
|
2
|
%
|
Construction - commercial and residential
|
|
|
17,389
|
|
|
|
15
|
%
|
|
|
17,484
|
|
|
|
15
|
%
|
Construction - C&I (owner occupied)
|
|
|
1,080
|
|
|
|
1
|
%
|
|
|
691
|
|
|
|
1
|
%
|
Home equity
|
|
|
605
|
|
|
|
1
|
%
|
|
|
599
|
|
|
|
1
|
%
|
Other consumer
|
|
|
248
|
|
|
|
—
|
|
|
|
72
|
|
|
|
—
|
|
Total allowance
|
|
$
|
69,943
|
|
|
|
100
|
%
|
|
$
|
69,944
|
|
|
|
100
|
%
|
(1) Represents the percent of loans in each category to total loans.
|
|
|
|
|
Nonperforming
Assets
As
shown in the table below, the Company’s level of nonperforming assets, which is comprised of loans delinquent 90 days or
more, nonaccrual loans, which includes the nonperforming portion of TDRs, and OREO, totaled $41.7 million at March 31, 2019 representing
0.50% of total assets ($22.6 million or 0.27% of assets excluding recurring costs), as compared to $17.7 million of nonperforming
assets, or 0.21% of total assets, at December 31, 2018. The increase in nonperforming loans at March 31, 2019, was substantially
attributable to one residential condominium project sold at foreclosure to a third party during the first quarter of 2019. The
foreclosure sale was ratified by the Court on April 8, 2019 and there is a 30 day closing requirement. Consistent with GAAP, the
transaction remained in nonperforming loans as of March 31, 2019. The carrying value of the nonperforming loan at the end of the
first quarter was $17.5 million, equal to the purchase price at foreclosure. No additional loss from this transaction is anticipated.
Nonperforming loans increased significantly as a result of the residential condominium loan discussed above. Further increases
included a $1.5 million loan characterized as nonperforming at March 31, 2019 which was paid in full shortly following the end
of the first quarter. Excluding the $19.0 million of loan balances discussed above, nonperforming loans at March 31, 2019 would
have been $22.6 million (0.27% of total assets).
The
Company had no accruing loans 90 days or more past due at March 31, 2019 or December 31, 2018. Management remains attentive to
early signs of deterioration in borrowers’ financial conditions and to taking the appropriate action to mitigate risk. Furthermore,
the Company is diligent in placing loans on nonaccrual status and believes, based on its loan portfolio risk analysis, that its
allowance for credit losses, at 0.98% of total loans at March 31, 2019, is adequate to absorb potential credit losses within the
loan portfolio at that date.
Included
in nonperforming assets are loans that the Company considers to be impaired. Impaired loans are defined as those as to which we
believe it is probable that we will not collect all amounts due according to the contractual terms of the loan agreement, as well
as those loans whose terms have been modified in a TDR that have not shown a period of performance as required under applicable
accounting standards. Valuation allowances for those loans determined to be impaired are evaluated in accordance with ASC Topic
310—”
Receivables,
” and updated quarterly. For collateral dependent impaired loans, the carrying amount
of the loan is determined by current appraised value less estimated costs to sell the underlying collateral, which may be adjusted
downward under certain circumstances for actual events and/or changes in market conditions. For example, current average actual
selling prices less average actual closing costs on an impaired multi-unit real estate project may indicate the need for an adjustment
in the appraised valuation of the project, which in turn could increase the associated ASC Topic 310 specific reserve for the
loan. Generally, all appraisals associated with impaired loans are updated on a not less than annual basis.
Loans
are considered to have been modified in a TDR when, due to a borrower’s financial difficulties, the Company makes unilateral
concessions to the borrower that it would not otherwise consider. Concessions could include interest rate reductions, principal
or interest forgiveness, forbearance, and other actions intended to minimize economic loss and to avoid foreclosure or repossession
of collateral. Alternatively, management, from time-to-time and in the ordinary course of business, implements renewals, modifications,
extensions, and/or changes in terms of loans to borrowers who have the ability to repay on reasonable market-based terms, as circumstances
may warrant. Such modifications are not considered to be TDRs as the accommodation of a borrower’s request does not rise
to the level of a concession if the modified transaction is at market rates and terms and/or the borrower is not experiencing
financial difficulty. For example: (1) adverse weather conditions may create a short term cash flow issue for an otherwise profitable
retail business which suggests a temporary interest only period on an amortizing loan; (2) there may be delays in absorption on
a real estate project which reasonably suggests extension of the loan maturity at market terms; or (3) there may be maturing loans
to borrowers with demonstrated repayment ability who are not in a position at the time of maturity to obtain alternate long-term
financing. The determination of whether a restructured loan is a TDR requires consideration of all of the facts and circumstances
surrounding the change in terms, and the exercise of prudent business judgment. The Company had thirteen TDR’s at March
31, 2019 totaling approximately $26.7 million. Ten of these loans totaling approximately $26.2 million are performing under their
modified terms. During 2019, there were no performing TDR loans that defaulted on their modified terms, as compared to the three
months ended March 31, 2018, there was one default on a $121 thousand restructured loan which was charged off. A default is considered
to have occurred once the TDR is past due 90 days or more or it has been placed on nonaccrual. 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.
For the three months ended March 31, 2019, there was one loan totaling $2.3 million modified in a TDR, as compared to the three
months ended March 31, 2018 which had no loans modified in a TDR.
Total
nonperforming loans amounted to $40.3 million at March 31, 2019 (0.56% of total loans) compared to $16.3 million at December 31,
2018 (0.23% of total loans). The increase in the ratio of nonperforming loans to total loans at March 31, 2019 as compared to
December 31, 2018 was substantially attributable to one residential condominium project sold at foreclosure to a third party during
the first quarter of 2019. The foreclosure sale was ratified by the Court on April 8, 2019 and there is a 30 day closing requirement.
Consistent with GAAP, the transaction remained in nonperforming loans as of March 31, 2019. The carrying value of the nonperforming
loan at the end of the first quarter was $17.5 million, equal to the purchase price at foreclosure. No additional loss from this
transaction is anticipated. Nonperforming loans increased significantly as a result of the residential condominium loan discussed
above. Further increases included a $1.5 million loan characterized as nonperforming at March 31, 2019 which was paid in full
shortly following the end of the first quarter. Excluding the $19.0 million of loan balances discussed above, nonperforming loans
at March 31, 2019 would have been $21.3 million (0.30% of total loans).
Included
in nonperforming assets at March 31, 2019 and December 31, 2018 was $1.4 million of OREO, consisting of one foreclosed property.
The Company had one foreclosed property with a net carrying value of $1.4 million at March 31, 2018. OREO properties are carried
at fair value less estimated costs to sell. It is the Company’s policy to obtain third party appraisals prior to foreclosure,
and to obtain updated third party appraisals on OREO properties generally not less frequently than annually. Generally, the Company
would obtain updated appraisals or evaluations where it has reason to believe, based upon market indications (such as comparable
sales, legitimate offers below carrying value, broker indications and similar factors), that the current appraisal does not accurately
reflect current value. There were no sales of OREO property during the first three months of 2019 and 2018.
The
following table shows the amounts of nonperforming assets at the dates indicated.
|
|
March 31,
|
|
|
December 31,
|
|
(dollars in thousands)
|
|
2019
|
|
|
2018
|
|
Nonaccrual Loans:
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
9,763
|
|
|
$
|
7,115
|
|
Income producing - commercial real estate
|
|
|
19,821
|
|
|
|
1,766
|
|
Owner occupied - commercial real estate
|
|
|
1,516
|
|
|
|
2,368
|
|
Real estate mortgage - residential
|
|
|
5,644
|
|
|
|
1,510
|
|
Construction - commercial and residential
|
|
|
3,030
|
|
|
|
3,031
|
|
Construction - C&I (owner occupied)
|
|
|
—
|
|
|
|
—
|
|
Home equity
|
|
|
487
|
|
|
|
487
|
|
Other consumer
|
|
|
—
|
|
|
|
—
|
|
Accrual loans-past due 90 days
|
|
|
—
|
|
|
|
—
|
|
Total nonperforming loans (1)
|
|
|
40,261
|
|
|
|
16,277
|
|
Other real estate owned
|
|
|
1,394
|
|
|
|
1,394
|
|
Total nonperforming assets
|
|
$
|
41,655
|
|
|
$
|
17,671
|
|
|
|
|
|
|
|
|
|
|
Coverage ratio, allowance for credit losses to total nonperforming loans
|
|
|
173.72
|
%
|
|
|
429.72
|
%
|
Ratio of nonperforming loans to total loans
|
|
|
0.56
|
%
|
|
|
0.23
|
%
|
Ratio of nonperforming assets to total assets
|
|
|
0.50
|
%
|
|
|
0.21
|
%
|
|
(1)
|
Nonaccrual
loans reported in the table above include loans that migrated from performing troubled
debt restructuring. There were no loans that migrated from a performing TDRs during the
three months ended March 31, 2019, as compared to the three months ended March 31, 2018
where there was one loan totaling $786 thousand that migrated from performing TDRs.
|
Significant
variation in the amount of nonperforming loans may occur from period to period because the amount of nonperforming loans depends
largely on the condition of a relatively small number of individual credits and borrowers relative to the total loan portfolio.
At
March 31, 2019, there were $57.1 million of performing loans considered potential problem loans, defined as loans that are not
included in the 90 day past due, nonaccrual or restructured categories, but for which known information about possible credit
problems causes management to be uncertain as to the ability of the borrowers to comply with the present loan repayment terms,
which may in the future result in disclosure in the past due, nonaccrual or restructured loan categories. Potential problem loans
decreased to $57.1 million at March 31, 2019 from $102.7 million at December 31, 2018 due primarily to two commercial real estate
secured relationships migrating to nonperforming loans during the quarter. The Company has taken a conservative posture with respect
to risk rating its loan portfolio. Based upon their status as potential problem loans, these loans receive heightened scrutiny
and ongoing intensive risk management. Additionally, the Company’s loan loss allowance methodology incorporates increased
reserve factors for certain loans considered potential problem loans as compared to the general portfolio. See “Provision
for Credit Losses” for a description of the allowance methodology.
Noninterest
Income
Total
noninterest income includes service charges on deposits, gain on sale of loans, gain on sale of investment securities, income
from BOLI and other income.
Total
noninterest income for the three months ended March 31, 2019 increased to $6.3 million from $5.3 million for the three months
ended March 31, 2018, a 19% increase, due substantially to higher net investment gains in the first quarter of 2019 as compared
to 2018. Net investment gains were $912 thousand for the three months ended March 31, 2019 compared to $42 thousand for the same
period in 2018 primarily due to $829 thousand of noninterest income recognized during March 2019 on interest rate swap terminations.
Residential mortgage loans closed were $93 million for the first quarter of 2019 versus $100 million for the first quarter of
2018. As a result of lower volume, gains on the sale of residential mortgage loans were lower during the first quarter of 2019
compared to the same period in 2018 ($1.3 million versus $1.4 million). Gains on sales of FHA multifamily loans in the first quarter
of 2019 were $55 thousand versus $48 thousand in the first quarter of 2018.
Servicing
agreements relating to the Ginnie Mae mortgage-backed securities program require the Company to advance funds to make scheduled
payments of principal, interest, taxes and insurance, if such payments have not been received from the borrowers. The Company
will generally recover funds advanced pursuant to these arrangements under the FHA insurance and guarantee program. However, in
the interim, the Company must absorb the cost of the funds it advances during the time the advance is outstanding. The Company
must also bear the costs of attempting to collect on delinquent and defaulted mortgage loans. In addition, if a defaulted loan
is not cured, the mortgage loan would be canceled as part of the foreclosure proceedings and the Company would not receive any
future servicing income with respect to that loan. At March 31, 2019, the Company had no funds advanced outstanding under FHA
mortgage loan servicing agreements. To the extent the mortgage loans underlying the Company’s servicing portfolio experience
delinquencies, the Company would be required to dedicate cash resources to comply with its obligation to advance funds as well
as incur additional administrative costs related to increases in collection efforts.
Service
charges on deposit accounts increased by $80 thousand, or 5%, from $1.6 million for the three months ended March 31, 2018 to $1.7
million for the same period in 2019. The increase for the three month period was primarily related to increased transaction volume.
The
Company originates residential mortgage loans and utilizes both “mandatory delivery” and “best efforts”
forward loan sale commitments to sell those loans, servicing released. Sales of residential mortgage loans yielded gains of $1.3
million for the three months ended March 31, 2019 compared to $1.4 million in the same period in 2018. Loans sold are subject
to repurchase in circumstances where documentation is deficient or the underlying loan becomes delinquent or pays off within a
specified period following loan funding and sale. The Bank considers these potential recourse provisions to be a minimal risk,
but has established a reserve under generally accepted accounting principles for possible repurchases. There were no repurchases
due to fraud by the borrower during the three months ended March 31, 2019. The reserve amounted to $46 thousand at March 31, 2019
and is included in other liabilities on the Consolidated Balance Sheets. The Bank does not originate “sub-prime” loans
and has no exposure to this market segment.
The
Company is an originator of SBA loans and its practice is to sell the guaranteed portion of those loans at a premium. Income from
this source was $108 thousand for the three months ended March 31, 2019 compared to $169 thousand for the same period in 2018.
Activity in SBA loan sales to secondary markets can vary widely from quarter to quarter.
Other
income totaled $1.9 million for the three months ended March 31, 2019 as compared to $1.8 million for the same period in 2018,
an increase of 5%. ATM fees decreased to $312 thousand for the three months ended March 31, 2019 from $356 thousand for the same
period in 2018, a decrease of 12%. Noninterest fee income totaled $474 thousand for the three months ended March 31, 2019 an increase
of $32 thousand, or 7%, over the total for the same period in 2018.
Net
investment gains were $912 thousand for the three months ended March 31, 2019 compared to $42 thousand for the same period in
2018.
Noninterest
Expense
Total
noninterest expense includes salaries and employee benefits, premises and equipment expenses, marketing and advertising, data
processing, FDIC insurance, and other expenses.
Total
noninterest expenses totaled $38.3 million for the three months ended March 31, 2019, as compared to $31.1 million for the three
months ended March 31, 2018, a 23% increase. Excluding $6.2 million of nonrecurring salaries and benefit costs defined above,
noninterest expenses were $32.2 million for the first quarter in 2019, a 3% increase over noninterest expenses in the first quarter
of 2018.
Salaries
and employee benefits were $23.6 million ($17.5 million excluding nonrecurring costs) for the three months ended March 31, 2019,
as compared to $16.9 million for the same period in 2018, a 40% increase (4% increase excluding nonrecurring costs). The remaining
increase was due primarily to increased staff and merit increases. At March 31, 2019, the Company’s full time equivalent
staff numbered 480, as compared to 470 at December 31, 2018, and 474 at March 31, 2018.
Premises
and equipment expenses amounted to $3.9 million for both the three month periods ended March 31, 2019 and 2017, a 2% decrease.
For the three months ended March 31, 2019, the Company recognized $124 thousand of sublease revenue as compared to $133 thousand
for the same period in 2018. Sublease revenue is accounted for as a reduction to premises and equipment expenses.
Marketing
and advertising expenses increased to $1.1 million for the three months ended March 31, 2019 from $937 thousand for the same period
in 2018, a 23% increase, primarily due to print and digital advertising and sponsorships.
Data
processing expense increased to $2.4 million for the three months ended March 31, 2019 from $2.3 million for the same period in
2018, a 3% increase.
Legal,
accounting and professional fees decreased to $1.7 million for the three months ended March 31, 2019 from $3.0 million for the
same period in 2018, a 43% decrease. The decrease in expense for the three month period was due substantially to higher expenses
during the first quarter of 2018 for independent consulting and professional services associated with the internet event late
in 2017.
FDIC
insurance increased to $1.1 million for the three months ended March 31, 2019 from $675 thousand for the same period in 2018,
a 65% increase. The increase for the three month period was primarily due to a higher assessment base resulting from growth in
total assets.
Other
expenses increased to $4.5 million for the three months ended March 31, 2019 from $3.4 million for the same period in 2018, an
increase of 30%, due primarily to higher broker fees ($660 thousand). The major components of cost in this category include broker
fees, franchise taxes, core deposit intangible amortization, and insurance expense.
The
efficiency ratio, which measures the ratio of noninterest expense to total revenue, was 43.87% for the first quarter of 2019,
(36.82% excluding the $6.2 million of nonrecurring costs defined above) as compared to 38.38% for the first quarter of 2018. As
a percentage of average assets, total noninterest expense (annualized) was 1.81% (1.52% excluding the $6.2 million of nonrecurring
costs defined above) for the three months ended March 31, 2019 as compared to 1.64% for the same period in 2018.
Income
Tax Expense
The
Company’s ratio of income tax expense to pre-tax income (“effective tax rate”) increased to 26.1% for the three
months ended March 31, 2019, as compared to 25.6% for the same period in 2018. The higher effective tax rate for the three months
ended March 31, 2019, was due primarily to a decrease in federal tax credits and an increase in nondeductible expenses. Excluding
the $6.2 million of nonrecurring costs, the effective tax rate for the first quarter of 2019 was 25.7%.
FINANCIAL
CONDITION
Summary
Total
assets were $8.39 billion at both March 31, 2019 and December 31, 2018. Total loans (excluding loans held for sale) were $7.17
billion at March 31, 2019, a 3% increase as compared to $6.99 billion at December 31, 2018. In accordance with the new accounting
standard (ASC 842) adopted as of January 1, 2019, a right of use lease asset was recorded in the first quarter of 2019 for $29.6
million. See Note 6 for additional detail.
Loans
held for sale amounted to $20.3 million at March 31, 2019 as compared to $19.3 million at December 31, 2018, a 5% increase. The
investment portfolio totaled $772.2 million at March 31, 2019, a 2% decrease from the $784.1 million balance at December 31, 2018.
Total
deposits at March 31, 2019 were $6.68 billion compared to $6.97 billion at December 31, 2018, a 4% decrease. Total borrowed funds
(excluding customer repurchase agreements) were $467.4 million at March 31, 2019, of which $250.0 million were FHLB advances,
and $217.3 million at December 31, 2018. FHLB advances outstanding totaling $250.0 million as of March 31, 2019 will mature in
March 2020 but can be repaid at anytime. We continue to work on expanding the breadth and depth of our existing customer relationships
while we pursue new relationships. The deposit decline in the first quarter of 2019 was deemed seasonal.
Total
shareholders’ equity at March 31, 2019 was $1.15 billion, a 4% increase from $1.11 billion at December 31, 2018. The increase
in shareholders’ equity at March 31, 2019 compared to the year end 2018 was primarily the result of growth in retained earnings.
The Company’s capital position remains substantially in excess of regulatory requirements for well capitalized status, with
a total risk based capital ratio of 16.22% at March 31, 2019, as compared to 16.07% at December 31, 2018. In addition, the tangible
common equity ratio was 12.59% at March 31, 2019, compared to 12.11% at December 31, 2018. Tangible book value per share was $30.20
at March 31, 2019, a 4% increase over $29.17 at December 31, 2018.
Under
the capital rules applicable to the Company and Bank, in order to be considered well-capitalized, the Bank must have a common
equity Tier 1 risk based capital (“CET1”) ratio of 6.5%, a Tier 1 risk-based ratio of 8.0%, a total risk-based capital
ratio of 10.0% and a leverage ratio of 5.0%. The Company and the Bank meet all these requirements, and satisfy the requirement
to maintain the fully phased in capital conservation buffer of 2.5% of common equity tier 1 capital for capital adequacy purposes.
Failure to maintain the required capital conservation buffer would limit the ability of the Company and the Bank to pay dividends,
repurchase shares or pay discretionary bonuses.
Loans,
net of amortized deferred fees and costs, at March 31, 2019 and December 31, 2018 by major category are summarized below.
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
(dollars in thousands)
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
Commercial
|
|
$
|
1,510,835
|
|
|
|
21
|
%
|
|
$
|
1,553,112
|
|
|
|
22
|
%
|
Income producing - commercial real estate
|
|
|
3,370,692
|
|
|
|
47
|
%
|
|
|
3,256,900
|
|
|
|
46
|
%
|
Owner occupied - commercial real estate
|
|
|
990,372
|
|
|
|
14
|
%
|
|
|
887,814
|
|
|
|
13
|
%
|
Real estate mortgage - residential
|
|
|
101,860
|
|
|
|
1
|
%
|
|
|
106,418
|
|
|
|
2
|
%
|
Construction - commercial and residential
|
|
|
1,044,305
|
|
|
|
15
|
%
|
|
|
1,039,815
|
|
|
|
15
|
%
|
Construction - C&I (owner occupied)
|
|
|
64,845
|
|
|
|
1
|
%
|
|
|
57,797
|
|
|
|
1
|
%
|
Home equity
|
|
|
87,009
|
|
|
|
1
|
%
|
|
|
86,603
|
|
|
|
1
|
%
|
Other consumer
|
|
|
3,140
|
|
|
|
—
|
|
|
|
2,988
|
|
|
|
—
|
|
Total loans
|
|
|
7,173,058
|
|
|
|
100
|
%
|
|
|
6,991,447
|
|
|
|
100
|
%
|
Less: allowance for credit losses
|
|
|
(69,943
|
)
|
|
|
|
|
|
|
(69,944
|
)
|
|
|
|
|
Net loans
|
|
$
|
7,103,115
|
|
|
|
|
|
|
$
|
6,921,503
|
|
|
|
|
|
In
its lending activities, the Company seeks to develop and expand relationships with clients whose businesses and individual banking
needs will grow with the Bank. Superior customer service, local decision making, and accelerated turnaround time from application
to closing have been significant factors in growing the loan portfolio, and meeting the lending needs in the markets served, while
maintaining sound asset quality.
Loans
outstanding reached $7.17 billion at March 31, 2019, an increase of $181.6 million, or 3%, as compared to $6.99 billion at December
31, 2018. Loan growth during the three months ended March 31, 2019 was predominantly in the income producing – commercial
real estate and owner occupied – commercial real estate loan categories. Despite an increased level of in-market competition
for business, the Bank continued to experience organic loan growth across the portfolio. Notwithstanding increased supply of units,
multi-family commercial real estate leasing in the Bank’s market area has held up well, particularly for well-located close-in
projects. While as a general comment there has been some softening in the suburban office leasing market, in certain well located
pockets and submarkets, the sector has evidenced some positive absorption. Overall, commercial real estate values have generally
held up well with price escalation in prime pockets, but we continue to be cautious of the cap rates at which some assets are
trading and we are being careful with valuations as a result. The housing market has remained stable to increasing, with well-located,
Metro accessible properties garnering a premium.
Deposits
and Other Borrowings
The
principal sources of funds for the Bank are core deposits, consisting of demand deposits, money market accounts, NOW accounts,
savings accounts and certificates of deposit. The deposit base includes transaction accounts, time and savings accounts and accounts
which customers use for cash management and which provide the Bank with a source of fee income and cross-marketing opportunities,
as well as an attractive source of lower cost funds. To meet funding needs during periods of high loan demand and seasonal variations
in core deposits, the Bank utilizes alternative funding sources such as secured borrowings from the FHLB, federal funds purchased
lines of credit from correspondent banks and brokered deposits from regional and national brokerage firms and Promontory Interfinancial
Network, LLC (“Promontory”).
For
the three months ended March 31, 2019, noninterest bearing deposits increased $112.1 million as compared to December 31, 2018,
while interest bearing deposits decreased by $403.4 million during the same period. Deposit growth tends to be seasonally lower
in the first quarter of each year.
From
time to time, when appropriate in order to fund strong loan demand, the Bank accepts brokered time deposits, generally in denominations
of less than $250 thousand, from national brokerage networks, including Promontory. Additionally, the Bank participates in the
Certificates of Deposit Account Registry Service (“CDARS”) and the Insured Cash Sweep product (“ICS”),
which provides for reciprocal (“two-way”) transactions among banks facilitated by Promontory for the purpose of maximizing
FDIC insurance. The Bank also is able to obtain one-way CDARS deposits and participates in Promontory’s Insured Network
Deposit (“IND”). At March 31, 2019, total deposits included $1.28 billion of brokered deposits (excluding the CDARS
and ICS two-way), which represented 19% of total deposits. At December 31, 2018, total brokered deposits (excluding the CDARS
and ICS two-way) were $1.36 billion, or 20% of total deposits. The CDARS and ICS two-way component represented $489.6 million,
or 7% of total deposits and $391.7 million or 6% of total deposits at March 31, 2019 and December 31, 2018, respectively. These
sources are believed by the Company to represent a reliable and cost efficient alternative funding source for the Bank. However,
to the extent that the condition or reputation of the Company or Bank deteriorates, or to the extent that there are significant
changes in market interest rates which the Company and Bank do not elect to match, we may experience an outflow of brokered deposits.
In that event we would be required to obtain alternate sources for funding.
At
March 31, 2019 the Company had $2.22 billion in noninterest bearing demand deposits, representing 33% of total deposits, compared
to $2.10 billion of noninterest bearing demand deposits at December 31, 2018, or 30% of total deposits. Average noninterest bearing
deposits were 33% of total deposits for the first three months of 2019 and 34% for the first three months of 2018. The Bank also
offers business NOW accounts and business savings accounts to accommodate those customers who may have excess short term cash
to deploy in interest earning assets.
As
an enhancement to the basic noninterest bearing demand deposit account, the Company offers a sweep account, or “customer
repurchase agreement,” allowing qualifying businesses to earn interest on short-term excess funds which are not suited for
either a certificate of deposit or a money market account. The balances in these accounts were $26.4 million at March 31, 2019
compared to $30.4 million at December 31, 2018. Customer repurchase agreements are not deposits and are not insured by the FDIC,
but are collateralized by U.S. agency securities and/or U.S. agency backed mortgage backed securities. These accounts are particularly
suitable to businesses with significant fluctuation in the levels of cash flows. Attorney and title company escrow accounts are
examples of accounts which can benefit from this product, as are customers who may require collateral for deposits in excess of
FDIC insurance limits but do not qualify for other pledging arrangements. This program requires the Company to maintain a sufficient
investment securities level to accommodate the fluctuations in balances which may occur in these accounts.
At
March 31, 2019 the Company had $1.36 billion in time deposits. Time deposits increased by $35.7 million from year end December
31, 2018. The Bank raises and renews time deposits through its branch network, for its public funds customers, and through brokered
CDs to meet the needs of its community of savers and as part of its interest rate risk management and liquidity planning.
The
Company had no outstanding balances under its federal funds lines of credit provided by correspondent banks (which are unsecured)
at March 31, 2019 and December 31, 2018. The Bank had $250.0 million in short-term borrowings outstanding under its credit facility
from the FHLB at March 31, 2019. The Bank did not have short-term borrowings outstanding at December 31, 2018. Outstanding FHLB
advances are secured by collateral consisting of a blanket lien on qualifying loans in the Bank’s commercial mortgage, residential
mortgage and home equity loan portfolios.
Long-term
borrowings outstanding at March 31, 2019 included the Company’s August 5, 2014 issuance of $70.0 million of subordinated
notes, due September 1, 2024 and the Company’s July 26, 2016 issuance of $150.0 million of subordinated notes, due August
1, 2026. For additional information on the subordinated notes, please refer to Note 10 to the Consolidated Financial Statements
included in this report.
Liquidity
Management
Liquidity
is a measure of the Company’s and Bank’s ability to meet loan demand and to satisfy depositor withdrawal requirements
in an orderly manner. The Bank’s primary sources of liquidity consist of cash and cash balances due from correspondent banks,
excess reserves at the Federal Reserve, loan repayments, federal funds sold and other short-term investments, maturities and sales
of investment securities, income from operations and new core deposits into the Bank. The Bank’s investment portfolio of
debt securities is held in an available-for-sale status which allows for flexibility, subject to holdings held as collateral for
customer repurchase agreements, and public funds, to generate cash from sales as needed to meet ongoing loan demand. These sources
of liquidity are considered primary and are supplemented by the ability of the Company and Bank to borrow funds or issue brokered
deposits, which are termed secondary sources of liquidity and which are substantial. Additionally, the Bank can purchase up to
$172.5 million in federal funds on an unsecured basis from its correspondents, against which there was no amount outstanding at
March 31, 2019, and can obtain unsecured funds under one-way CDARS and ICS brokered deposits in the amount of $1.26 billion, against
which there was $26.4 million outstanding at March 31, 2019. The Bank also has a commitment from Promontory to place up to $700.0
million of brokered deposits from its IND program in amounts requested by the Bank, as compared to an actual balance of $447.1
million at March 31, 2019. At March 31, 2019 the Bank was also eligible to make advances from the FHLB up to $1.5 billion based
on collateral at the FHLB, of which there was $250 million outstanding at March 31, 2019. 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 $687.0 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.
The
loss of deposits, through disintermediation, is one of the greater risks to liquidity. Disintermediation occurs most commonly
when rates rise and depositors withdraw deposits seeking higher rates in alternative savings and investment sources than the Bank
may offer. The Bank was founded under a philosophy of relationship banking and, therefore, believes that it has less of an exposure
to disintermediation and resultant liquidity concerns than do many banks. The Bank makes competitive deposit interest rate comparisons
weekly and feels its interest rate offerings are competitive. There is, however, a risk that some deposits would be lost if rates
were to increase and the Bank elected not to remain competitive with its deposit rates. Under those conditions, the Bank believes
that it is well positioned to use other sources of funds such as FHLB borrowings, brokered deposits, repurchase agreements and
correspondent banks’ lines of credit to offset a decline in deposits in the short run. Over the long-term, an adjustment
in assets and change in business emphasis could compensate for a potential loss of deposits. The Bank also maintains a marketable
investment portfolio to provide flexibility in the event of significant liquidity needs. The Asset Liability Committee of the
Bank’s Board of Directors (“ALCO”) has adopted policy guidelines which emphasize the importance of core deposits,
adequate asset liquidity and a contingency funding plan.
At
March 31, 2019, under the Bank’s liquidity formula, it had $4.40 billion of primary and secondary liquidity sources. The
amount is deemed adequate to meet current and projected funding needs.
Commitments
and Contractual Obligations
Loan
commitments outstanding and lines and letters of credit at March 31, 2019 are as follows:
(dollars in thousands)
|
|
2019
|
|
Unfunded loan commitments
|
|
$
|
2,203,579
|
|
Unfunded lines of credit
|
|
|
96,849
|
|
Letters of credit
|
|
|
76,940
|
|
Total
|
|
$
|
2,377,368
|
|
Unfunded
loan commitments are agreements whereby the Bank has made a commitment and the borrower has accepted the commitment to lend to
a customer as long as there is satisfaction of the terms or conditions established in the contract. Commitments generally have
fixed expiration dates or other termination clauses and may require payment of a fee before the commitment period is extended.
In many instances, borrowers are required to meet performance milestones in order to draw on a commitment as is the case in construction
loans, or to have a required level of collateral in order to draw on a commitment, as is the case in asset based lending credit
facilities. Since commitments may expire without being drawn, the total commitment amount does not necessarily represent future
cash requirements. As of March 31, 2019, unfunded loan commitments included $72.6 million related to interest rate lock commitments
on residential mortgage loans and were of a short-term nature.
Unfunded
lines of credit are agreements to lend to a customer as long as there is no violation of the terms or conditions established in
the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.
Since commitments may expire without being drawn, the total commitment amount does not necessarily represent future cash requirements.
Letters
of credit include standby and commercial letters of credit. Standby letters of credit are conditional commitments issued by the
Bank to guarantee the performance by the Bank’s customer to a third party. Standby letters of credit generally become payable
upon the failure of the customer to perform according to the terms of the underlying contract with the third party. Standby letters
of credit are generally not drawn. Commercial letters of credit are issued specifically to facilitate commerce and typically result
in the commitment being drawn when the underlying transaction is consummated between the customer and a third party. The contractual
amount of these letters of credit represents the maximum potential future payments guaranteed by the Bank. The Bank has recourse
against the customer for any amount it is required to pay to a third party under a letter of credit, and holds cash and or other
collateral on those standby letters of credit for which collateral is deemed necessary.
Asset/Liability
Management and Quantitative and Qualitative Disclosures about Market Risk
A
fundamental risk in banking is exposure to market risk, or interest rate risk, since a bank’s net income is largely dependent
on net interest income. The Bank’s ALCO formulates and monitors the management of interest rate risk through policies and
guidelines established by it and the full Board of Directors and through review of detailed reports discussed quarterly. In its
consideration of risk limits, the ALCO considers the impact on earnings and capital, the level and direction of interest rates,
liquidity, local economic conditions, outside threats and other factors. Banking is generally a business of managing the maturity
and re-pricing mismatch inherent in its asset and liability cash flows and to provide net interest income growth consistent with
the Company’s profit objectives.
During
the three months ended March 31, 2019, as compared to the same period in 2018, the Company was able to increase its net interest
income by 7%, produce a net interest margin of 4.02%, and continue to manage its overall interest rate risk position.
The
Company, through its ALCO and ongoing financial management practices, monitors the interest rate environment in which it operates
and adjusts the rates and maturities of its assets and liabilities to remain competitive and to achieve its overall financial
objectives subject to established risk limits. In the current and expected future interest rate environment, the Company has been
maintaining its investment portfolio to manage the balance between yield and prepayment risk in its portfolio of mortgage backed
securities should interest rates remain at current levels. Further, the Company has been managing the investment portfolio to
mitigate extension risk and related declines in market values in that same portfolio should interest rates increase. Additionally,
the Company has limited call risk in its U.S. agency investment portfolio. During the three months ended March 31, 2019, the average
investment portfolio balances increased as compared to balances at March 31, 2018. The cash received from deposit growth along
with cash flows from the investment portfolio were deployed into loans and the purchase of replacement investments.
The
percentage mix of municipal securities was 6% of total investments at March 31, 2019 and 10% at March 31, 2018, the portion of
the portfolio invested in mortgage backed securities increased to 72% at March 31, 2019 from 62% at March 31, 2018, as the Company
sought additional investments that produced monthly cash flows. The portion of the portfolio invested in U.S. agency investments
was 20% at March 31, 2019 and 26% at March 31, 2018. Shorter duration floating rate corporate bonds were 1% of total investments
at both March 31, 2019 and March 31, 2018, and SBA bonds, which are included in mortgage backed securities, were 10% of total
investments at March 31, 2019 and 7% at March 31, 2018. Over the past 12 months, as a result of generally lower interest rates,
mortgage prepayment speeds increased and the duration of the investment portfolio decreased to 3.3 years at March 31, 2019 from
3.8 years at March 31, 2018.
The
re-pricing duration of the loan portfolio was 18 months at March 31, 2019 versus 17 months at December 31, 2018, with fixed rate
loans amounting to 39% and 33% of total loans at March 31, 2019 and March 31, 2018, respectively. Variable and adjustable rate
loans comprised 61% and 67% of total loans at March 31, 2019 and March 31, 2018, respectively. Variable rate loans are generally
indexed to either the one month LIBOR interest rate, or the Wall Street Journal prime interest rate, while adjustable rate loans
are indexed primarily to the five year U.S. Treasury interest rate.
The
duration of the deposit portfolio increased to 27 months at March 31, 2019 from 22 months at March 31, 2018. The change since
March 31, 2018 was due substantially to a change in the mix and duration of money market deposits as market interest rates increased.
Additionally, the Bank maintained a higher percentage of fixed rate time deposits at quarter end than was the case in March 31,
2018.
The
Company has continued its emphasis on funding loans in its marketplace, and has been able to achieve favorable loan pricing, although
competition for new loans persists. A disciplined approach to loan pricing, with variable and adjustable rate loans comprising
61% of total loans (at March 31, 2019), has resulted in a loan portfolio yield of 5.62% for the three months ended March 31, 2019
as compared to 5.30% for the same period in 2018. Variable and adjustable rate loans provide additional income opportunities should
interest rates rise from current levels.
The
net unrealized loss before income tax on the investment portfolio was $2.3 million at March 31, 2019 as compared to a net unrealized
loss before tax of $9.5 million at December 31, 2018. The decrease in the net unrealized loss on the investment portfolio at March
31, 2019 as compared to December 31, 2018 was due primarily to lower interest rates at March 31, 2019. At March 31, 2019, the
net unrealized loss position represented -0.3% of the investment portfolio’s book value.
There
can be no assurance that the Company will be able to successfully achieve its optimal asset liability mix, as a result of competitive
pressures, customer preferences and the inability to perfectly forecast future interest rates and movements.
One
of the tools used by the Company to manage its interest rate risk is a static GAP analysis presented below. The Company also employs
an earnings simulation model on a quarterly basis to monitor its interest rate sensitivity and risk and to model its balance sheet
cash flows and the related income statement effects in different interest rate scenarios. The model utilizes current balance sheet
data and attributes and is adjusted for assumptions as to investment maturities (including prepayments), loan prepayments, interest
rates, and the level of noninterest income and noninterest expense. The data is then subjected to a “shock test” which
assumes a simultaneous change in interest rates up 100, 200, 300, and 400 basis points or down 100 and 200, along the entire yield
curve, but not below zero. The results are analyzed as to the impact on net interest income, net income and the market equity
over the next twelve and twenty-four month periods from March 31, 2019. In addition to analysis of simultaneous changes in interest
rates along the yield curve, changes based on interest rate “ramps” is also performed. This analysis represents the
impact of a more gradual change in interest rates, as well as yield curve shape changes.
For
the analysis presented below, at March 31, 2019, the simulation assumes a 50 basis point change in interest rates on money market
and interest bearing transaction deposits for each 100 basis point change in market interest rates in a decreasing interest rate
shock scenario with a floor of 10 basis points, and assumes a 70 basis point change in interest rates on money market and interest
bearing transaction deposits for each 100 basis point change in market interest rates in an increasing interest rate shock scenario.
As
quantified in the table below, the Company’s analysis at March 31, 2019 shows a moderate effect on net interest income (over
the next 12 months) as well as a moderate effect on the economic value of equity when interest rates are shocked both down 100
and 200 basis points and up 100, 200, 300, and 400 basis points. This moderate impact is due substantially to the significant
level of variable rate and re-priceable assets and liabilities and related shorter relative durations. The re-pricing duration
of the investment portfolio at March 31, 2019 is 3.3 years, the loan portfolio 1.5 years, the interest bearing deposit portfolio
2.3 years, and the borrowed funds portfolio 1.3 years.
The
following table reflects the result of simulation analysis on the March 31, 2019 asset and liabilities balances:
Change in interest rates (basis points)
|
|
Percentage
change in net interest income
|
|
Percentage
change in net income
|
|
Percentage
change in market value of portfolio equity
|
|
|
|
|
|
|
|
+400
|
|
+17.2%
|
|
+29.9%
|
|
+3.5%
|
+300
|
|
+12.9%
|
|
+22.4%
|
|
+3.0%
|
+200
|
|
+8.7%
|
|
+15.0%
|
|
+2.4%
|
+100
|
|
+4.4%
|
|
+7.6%
|
|
+1.4%
|
0
|
|
—
|
|
—
|
|
—
|
-100
|
|
-4.1%
|
|
-7.1%
|
|
-3.3%
|
-200
|
|
-5.5%
|
|
-9.7%
|
|
-7.7%
|
|
|
|
|
|
|
|
The
results of simulation are within the policy limits adopted by the Company. For net interest income, the Company has adopted a
policy limit of -10% for a 100 basis point change, -12% for a 200 basis point change, -18% for a 300 basis point change and -24%
for a 400 basis point change. For the market value of equity, the Company has adopted a policy limit of -12% for a 100 basis point
change, -15% for a 200 basis point change, -25% for a 300 basis point change and -30% for a 400 basis point change. The changes
in net interest income, net income and the economic value of equity in both a higher and lower interest rate shock scenario at
March 31, 2019 are not considered to be excessive. The positive impact of +4.4% in net interest income and +7.6% in net income
given a 100 basis point increase in market interest rates reflects in large measure the impact of variable rate loans and fed
funds sold repricing counteracting the repricing of interest bearing deposits and floating rate FHLB advances.
In
the first quarter of 2019, the Company continued to manage its interest rate sensitivity position to moderate levels of risk,
as indicated in the simulation results above. The interest rate risk position at March 31, 2019 was similar to the interest rate
risk position at December 31, 2018.
Certain
shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and
liabilities may have similar maturities or repricing periods, they may react in different degrees to changes in market interest
rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate
mortgage loans, have features that limit changes in interest rates on a short-term basis and over the life of the loan. Further,
in the event of a change in interest rates, prepayment and early withdrawal levels could deviate significantly from those assumed
in calculating the tables. Finally, the ability of many borrowers to service their debt may decrease in the event of a significant
interest rate increase.
During
the first quarter of 2019, average market interest rates decreased across the yield curve. Overall, there was a flattening of
the yield curve as compared to the first quarter of 2018 with rate decreases being generally more significant at the longer end
of the yield curve.
As
compared to the first quarter of 2018, the average two-year U.S. Treasury rate increased by 33 basis points from 2.16% to 2.49%,
the average five year U.S. Treasury rate decreased by 7 basis points from 2.53% to 2.46% and the average ten year U.S. Treasury
rate decreased by 11 basis points from 2.76% to 2.65%. The Company’s net interest margin was 4.02% for the first quarter
of 2019 and 4.17% 2018. The Company believes that the net interest margin in the most recent quarter as compared to 2018’s
first quarter has been consistent with its risk analysis at December 31, 2018.
GAP
Position
Banks
and other financial institutions earnings are significantly dependent upon net interest income, which is the difference between
interest earned on earning assets and interest expense on interest bearing liabilities. This revenue represented 93% of the Company’s
revenue for both the first quarter of 2019 and 2018.
In
falling interest rate environments, net interest income is maximized with longer term, higher yielding assets being funded by
lower yielding short-term funds, or what is referred to as a negative mismatch or GAP. Conversely, in a rising interest rate environment,
net interest income is maximized with shorter term, higher yielding assets being funded by longer-term liabilities or what is
referred to as a positive mismatch or GAP.
The
GAP position, which is a measure of the difference in maturity and repricing volume between assets and liabilities, is a means
of monitoring the sensitivity of a financial institution to changes in interest rates. The chart below provides an indication
of the sensitivity of the Company to changes in interest rates. A negative GAP indicates the degree to which the volume of repriceable
liabilities exceeds repriceable assets in given time periods.
At
March 31, 2019, the Company had a positive GAP position of approximately $427 million or 5% of total assets out to three months
and a positive cumulative GAP position of $337 million or 4% of total assets out to 12 months; as compared to a positive GAP position
of approximately $604 million or 7% of total assets out to three months and a positive cumulative GAP position of $417 million
or 5% of total assets out to 12 months at December 31, 2018. The change in the positive GAP position at March 31, 2019, as compared
to December 31, 2018, was due to an decrease in cash and cash equivalents, as surge deposits from December 31, 2018 ran off and
the Company booked new loans. The change in the GAP position at March 31, 2019 as compared to December 31, 2018 is not deemed
material to the Company’s overall interest rate risk position, which relies more heavily on simulation analysis which captures
the full optionality within the balance sheet. The current position is within guideline limits established by the ALCO. While
management believes that this overall position creates a reasonable balance in managing its interest rate risk and maximizing
its net interest margin within plan objectives, there can be no assurance as to actual results.
Management
has carefully considered its strategy to maximize interest income by reviewing interest rate levels, economic indicators and call
features within its investment portfolio, as well as interest rate floors within its loan portfolio. These factors have been discussed
with the ALCO and management believes that current strategies are appropriate to current economic and interest rate trends.
If
interest rates increase by 100 basis points, the Company’s net interest income and net interest margin are expected to increase
modestly due to the impact of significant volumes of variable rate assets together with the assumption of an increase in money
market interest rates by 70% of the change in market interest rates.
If
interest rates decline by 100 basis points, the Company’s net interest income and margin are expected to decline modestly
as the impact of lower market rates on a large amount of liquid assets more than offsets the ability to lower interest rates on
interest bearing liabilities.
Because
competitive market behavior does not necessarily track the trend of interest rates but at times moves ahead of financial market
influences, the change in the cost of liabilities may be different than anticipated by the GAP model. If this were to occur, the
effects of a declining interest rate environment may not be in accordance with management’s expectations.
GAP Analysis
March 31, 2019
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repricible in:
|
|
0-3 months
|
|
|
4-12 months
|
|
|
13-36 months
|
|
|
37-60 months
|
|
|
Over 60 months
|
|
|
Total Rate Sensitive
|
|
|
Non Sensitive
|
|
|
Total
|
|
RATE SENSITIVE ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
$
|
123,370
|
|
|
$
|
101,201
|
|
|
$
|
175,575
|
|
|
$
|
165,281
|
|
|
$
|
241,797
|
|
|
$
|
807,224
|
|
|
|
|
|
|
|
|
|
Loans (1)(2)
|
|
|
3,867,214
|
|
|
|
596,688
|
|
|
|
1,092,334
|
|
|
|
927,023
|
|
|
|
710,067
|
|
|
|
7,193,326
|
|
|
|
|
|
|
|
|
|
Fed funds and other short-term investments
|
|
|
115,273
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
115,273
|
|
|
|
|
|
|
|
|
|
Other earning assets
|
|
|
73,865
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
73,865
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,179,722
|
|
|
$
|
697,889
|
|
|
$
|
1,267,909
|
|
|
$
|
1,092,304
|
|
|
$
|
951,864
|
|
|
$
|
8,189,688
|
|
|
$
|
198,718
|
|
|
$
|
8,388,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RATE SENSITIVE LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing demand
|
|
$
|
85,341
|
|
|
$
|
236,247
|
|
|
$
|
506,173
|
|
|
$
|
366,181
|
|
|
$
|
1,022,328
|
|
|
$
|
2,216,270
|
|
|
|
|
|
|
|
|
|
Interest bearing transaction
|
|
|
588,326
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
588,326
|
|
|
|
|
|
|
|
|
|
Savings and money market
|
|
|
2,515,269
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,515,269
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
|
386,987
|
|
|
|
552,140
|
|
|
|
384,118
|
|
|
|
36,665
|
|
|
|
3,144
|
|
|
|
1,363,054
|
|
|
|
|
|
|
|
|
|
Customer repurchase agreements and fed funds purchased
|
|
|
26,418
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,418
|
|
|
|
|
|
|
|
|
|
Other borrowings
|
|
|
250,000
|
|
|
|
—
|
|
|
|
148,064
|
|
|
|
—
|
|
|
|
69,330
|
|
|
|
467,394
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,852,341
|
|
|
$
|
788,387
|
|
|
$
|
1,038,355
|
|
|
$
|
402,846
|
|
|
$
|
1,094,802
|
|
|
$
|
7,176,731
|
|
|
$
|
63,187
|
|
|
$
|
7,239,918
|
|
GAP
|
|
$
|
327,381
|
|
|
$
|
(90,498
|
)
|
|
$
|
229,554
|
|
|
$
|
689,458
|
|
|
$
|
(142,938
|
)
|
|
$
|
1,012,957
|
|
|
|
|
|
|
|
|
|
Cumulative GAP
|
|
$
|
327,381
|
|
|
$
|
236,883
|
|
|
$
|
466,437
|
|
|
$
|
1,155,895
|
|
|
$
|
1,012,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative gap as percent of total assets
|
|
|
3.90
|
%
|
|
|
2.82
|
%
|
|
|
5.56
|
%
|
|
|
13.78
|
%
|
|
|
12.08
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OFF BALANCE-SHEET:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps - LIBOR based
|
|
$
|
100,000
|
|
|
$
|
—
|
|
|
$
|
(100,000
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps - Fed Funds based
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
100,000
|
|
|
$
|
—
|
|
|
$
|
(100,000
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
GAP
|
|
$
|
427,381
|
|
|
$
|
(90,498
|
)
|
|
$
|
129,554
|
|
|
$
|
689,458
|
|
|
$
|
(142,938
|
)
|
|
$
|
1,012,957
|
|
|
|
|
|
|
|
|
|
Cumulative GAP
|
|
$
|
427,381
|
|
|
$
|
336,883
|
|
|
$
|
466,437
|
|
|
$
|
1,155,895
|
|
|
$
|
1,012,957
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Cumulative gap as percent of total assets
|
|
|
5.09
|
%
|
|
|
4.02
|
%
|
|
|
5.56
|
%
|
|
|
13.78
|
%
|
|
|
12.08
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes loans held for sale
(2) Nonaccrual loans are included in the over 60 months category
Capital
Resources and Adequacy
The
assessment of capital adequacy depends on a number of factors such as asset quality and mix, liquidity, earnings performance,
changing competitive conditions and economic forces, stress testing, regulatory measures and policy, as well as the overall level
of growth and complexity of the balance sheet. The adequacy of the Company’s current and future capital needs is monitored
by management on an ongoing basis. Management seeks to maintain a capital structure that will assure an adequate level of capital
to support anticipated asset growth and to absorb potential losses.
The
federal banking regulators have issued guidance for those institutions which are deemed to have concentrations in commercial real
estate lending. Pursuant to the supervisory criteria contained in the guidance for identifying institutions with a potential commercial
real estate concentration risk, institutions which have (1) total reported loans for construction, land development, and other
land acquisitions which represent 100% or more of an institution’s total risk-based capital; or (2) total commercial real
estate loans representing 300% or more of the institution’s total risk-based capital and the institution’s commercial
real estate loan portfolio has increased 50% or more during the prior 36 months are identified as having potential commercial
real estate concentration risk. Institutions which are deemed to have concentrations in commercial real estate lending are expected
to employ heightened levels of risk management with respect to their commercial real estate portfolios, and may be required to
hold higher levels of capital. The Company, like many community banks, has a concentration in commercial real estate loans, and
the Company has experienced growth in its commercial real estate portfolio in recent years. At March 31, 2019, non-owner-occupied
commercial real estate loans (including construction, land, and land development loans) represent 329% of total risk based capital.
Construction, land and land development loans represent 122% of total risk based capital. Management has extensive experience
in commercial real estate lending, and has implemented and continues to maintain heightened risk management procedures, and strong
underwriting criteria with respect to its commercial real estate portfolio. Loan monitoring practices include but are not limited
to periodic stress testing analysis to evaluate changes to cash flows, owing to interest rate increases and declines in net operating
income. Nevertheless, we may be required to maintain higher levels of capital as a result of our commercial real estate concentrations,
which could require us to obtain additional capital, and may adversely affect shareholder returns. The Company has an extensive
Capital Plan and Policy, which includes pro-forma projections including stress testing within which the Board of Directors has
established internal minimum targets for regulatory capital ratios that are in excess of well capitalized ratios.
The
Company and the Bank are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy
guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet
items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments
by regulators about components, risk weightings, and other factors and the regulators can lower classifications in certain cases.
Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the financial
statements.
The
prompt corrective action regulations provide five categories, including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial
condition. If a bank is only adequately capitalized, regulatory approval is required to, among other things, accept, renew or
roll-over brokered deposits. If a bank is undercapitalized, capital distributions and growth and expansion are limited, and plans
for capital restoration are required.
The
Board of Governors of the Federal Reserve Board and the FDIC have adopted rules (the “Basel III Rules”) implementing
the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (commonly known as Basel III). Under the
Basel III rules, the Company and Bank are required to maintain, inclusive of the capital conservation buffer of 2.5%, a minimum
CET1 ratio of 7.0%; a minimum ratio of Tier 1 capital to risk-weighted assets of 8.5% a minimum total capital to risk-weighted
assets ratio of 10.5% and requires a minimum leverage ratio of 4.0%.
The
actual capital amounts and ratios for the Company and Bank as of March 31, 2019 and December 31, 2018 are presented in the table
below.
|
|
Company
|
|
|
Bank
|
|
|
Minimum
|
|
|
To Be Well Capitalized
Under Prompt
|
|
|
|
Actual
|
|
|
Actual
|
|
|
Required For Capital
|
|
|
Corrective Action
|
|
(dollars in thousands)
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Adequacy Purposes
|
|
|
Regulations*
|
|
As of March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CET1 capital (to risk weighted aseets)
|
|
$
|
1,043,435
|
|
|
|
12.68
|
%
|
|
$
|
1,185,503
|
|
|
|
14.42
|
%
|
|
|
7.000
|
%
|
|
|
6.5
|
%
|
Total capital (to risk weighted assets)
|
|
|
1,333,424
|
|
|
|
16.21
|
%
|
|
|
1,255,492
|
|
|
|
15.27
|
%
|
|
|
10.500
|
%
|
|
|
10.0
|
%
|
Tier 1 capital (to risk weighted assets)
|
|
|
1,043,435
|
|
|
|
12.68
|
%
|
|
|
1,185,503
|
|
|
|
14.42
|
%
|
|
|
8.500
|
%
|
|
|
8.0
|
%
|
Tier 1 capital (to average assets)
|
|
|
1,043,435
|
|
|
|
12.48
|
%
|
|
|
1,185,503
|
|
|
|
14.19
|
%
|
|
|
4.000
|
%
|
|
|
5.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CET1 capital (to risk weighted aseets)
|
|
$
|
1,007,438
|
|
|
|
12.49
|
%
|
|
$
|
1,147,151
|
|
|
|
14.23
|
%
|
|
|
6.375
|
%
|
|
|
6.5
|
%
|
Total capital (to risk weighted assets)
|
|
|
1,297,427
|
|
|
|
16.08
|
%
|
|
|
1,217,140
|
|
|
|
15.10
|
%
|
|
|
9.875
|
%
|
|
|
10.0
|
%
|
Tier 1 capital (to risk weighted assets)
|
|
|
1,007,438
|
|
|
|
12.49
|
%
|
|
|
1,147,151
|
|
|
|
14.23
|
%
|
|
|
7.875
|
%
|
|
|
8.0
|
%
|
Tier 1 capital (to average assets)
|
|
|
1,007,438
|
|
|
|
12.10
|
%
|
|
|
1,147,151
|
|
|
|
13.78
|
%
|
|
|
5.000
|
%
|
|
|
5.0
|
%
|
* Applies to Bank only
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 March 31, 2019 the Bank could
pay dividends to the parent to the extent of its earnings so long as it maintained required capital ratios.
Use
of Non-GAAP Financial Measures
The
Company considers the following non-GAAP measurements useful for investors, regulators, management and others to evaluate capital
adequacy and to compare against other financial institutions. The tables below provide a reconciliation of these non-GAAP financial
measures with financial measures defined by GAAP.
Tangible
common equity to tangible assets (the “tangible common equity ratio”) and tangible book value per common share are
non-GAAP financial measures derived from GAAP-based amounts. The Company calculates the tangible common equity ratio by excluding
the balance of intangible assets from common shareholders’ equity and dividing by tangible assets. The Company calculates
tangible book value per common share by dividing tangible common equity by common shares outstanding, as compared to book value
per common share, which the Company calculates by dividing common shareholders’ equity by common shares outstanding. The
Company calculates return on average tangible common equity by dividing annualized year to date net income by tangible common
equity. The Company considers this information important to shareholders as tangible equity is a measure that is consistent with
the calculation of capital for bank regulatory purposes, which excludes intangible assets from the calculation of risk based ratios.
GAAP Reconciliation (Unaudited)
(dollars in thousands except per share data)
|
|
Three Months Ended
|
|
|
Twelve Months Ended
|
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Common shareholders’ equity
|
|
$
|
1,148,488
|
|
|
$
|
1,108,941
|
|
Less: Intangible assets
|
|
|
(105,466
|
)
|
|
|
(105,766
|
)
|
Tangible common equity
|
|
$
|
1,043,022
|
|
|
$
|
1,003,175
|
|
|
|
|
|
|
|
|
|
|
Book value per common share
|
|
$
|
33.25
|
|
|
$
|
32.25
|
|
Less: Intangible book value per common share
|
|
|
(3.05
|
)
|
|
|
(3.08
|
)
|
Tangible book value per common share
|
|
$
|
30.20
|
|
|
$
|
29.17
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
8,388,406
|
|
|
$
|
8,389,137
|
|
Less: Intangible assets
|
|
|
(105,466
|
)
|
|
|
(105,766
|
)
|
Tangible assets
|
|
$
|
8,282,940
|
|
|
$
|
8,283,371
|
|
Tangible common equity ratio
|
|
|
12.59
|
%
|
|
|
12.11
|
%
|
|
|
|
|
|
|
|
|
|
Average common shareholders’ equity
|
|
$
|
1,128,869
|
|
|
$
|
1,022,642
|
|
Less: Average intangible assets
|
|
|
(105,581
|
)
|
|
|
(106,806
|
)
|
Average tangible common equity
|
|
$
|
1,023,288
|
|
|
$
|
915,836
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
33,750
|
|
|
$
|
152,276
|
|
Average tangible common equity
|
|
$
|
1,023,288
|
|
|
$
|
915,836
|
|
Annualized Return on Average Tangible Common Equity
|
|
|
13.38
|
%
|
|
|
16.63
|
%
|
Eagle Bancorp, Inc.
|
|
|
|
|
|
|
|
|
|
GAAP Reconciliation (Unaudited)
|
|
|
|
|
|
|
|
|
|
(dollars in thousands except per share data)
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
|
|
GAAP
|
|
|
Change
|
|
|
Non-GAAP
|
|
Noninterest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
23,644
|
|
|
|
(6,153
|
)
|
|
|
17,491
|
|
Total noninterest expense
|
|
|
38,304
|
|
|
|
(6,153
|
)
|
|
|
32,151
|
|
Income Before Income Tax Expense
|
|
|
45,645
|
|
|
|
6,153
|
|
|
|
51,798
|
|
Income Tax Expense
|
|
|
11,895
|
|
|
|
1,404
|
|
|
|
13,299
|
|
Net Income
|
|
$
|
33,749
|
|
|
$
|
4,749
|
|
|
$
|
38,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.98
|
|
|
$
|
0.14
|
|
|
$
|
1.12
|
|
Diluted
|
|
$
|
0.98
|
|
|
$
|
0.13
|
|
|
$
|
1.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per common share at period end
|
|
$
|
33.25
|
|
|
|
|
|
|
$
|
33.39
|
|
Tangible book value per common share at period end
|
|
$
|
30.20
|
|
|
|
|
|
|
$
|
30.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Ratios (annualized)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets
|
|
|
1.62
|
%
|
|
|
|
|
|
|
1.85
|
%
|
Return on average common equity
|
|
|
12.12
|
%
|
|
|
|
|
|
|
13.84
|
%
|
Return on average tangible common equity
|
|
|
13.38
|
%
|
|
|
|
|
|
|
15.26
|
%
|
Efficiency ratio
|
|
|
43.87
|
%
|
|
|
|
|
|
|
36.82
|
%
|
Effective tax rate
|
|
|
26.06
|
%
|
|
|
|
|
|
|
25.67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Ratios
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity to total assets
|
|
|
13.69
|
%
|
|
|
|
|
|
|
13.75
|
%
|
Tier 1 capital (to average assets)
|
|
|
12.49
|
%
|
|
|
|
|
|
|
12.55
|
%
|
Tier 1 risk based capital ratio
|
|
|
11.69
|
%
|
|
|
|
|
|
|
11.69
|
%
|
Total capital (to risk weighted assets)
|
|
|
16.22
|
%
|
|
|
|
|
|
|
16.27
|
%
|
Common equity tier 1 capital (to risk weighted assets)
|
|
|
12.69
|
%
|
|
|
|
|
|
|
12.75
|
%
|
Tangible common equity ratio
|
|
|
12.59
|
%
|
|
|
|
|
|
|
12.65
|
%
|
Non Interest Expense as a % of average assets
|
|
|
1.81
|
%
|
|
|
|
|
|
|
1.52
|
%
|
Allowance for credit losses to total nonperforming loans (4)
|
|
|
173.72
|
%
|
|
|
|
|
|
|
329.15
|
%
|
Nonperforming loans to total loans (4)
|
|
|
0.56
|
%
|
|
|
|
|
|
|
0.30
|
%
|