10q10k10q10k.net

What changed in EAGLE BANCORP INC's 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of EAGLE BANCORP INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+769 added−731 removedSource: 10-K (2024-02-29) vs 10-K (2023-03-01)

Top changes in EAGLE BANCORP INC's 2023 10-K

769 paragraphs added · 731 removed · 474 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

134 edited+38 added−47 removed114 unchanged
Biggest changeThe Bank emphasizes providing commercial banking services to sole proprietors, small and medium-sized businesses, partnerships, corporations, non-profit organizations and associations and investors living and working in and near the Bank’s primary service area. A full range of retail banking services are offered to accommodate the individual needs of both corporate customers as well as the community the Bank serves.
Biggest changeThe Company made the decision to cease originating residential real estate mortgage loans given the challenged nature of the business and the uncertainty of maintaining or increasing the volume or percentage of revenue or net income that has previously been produced by the residential mortgage business. 4 Table of Contents The Bank emphasizes providing commercial banking services to sole proprietors, small and medium-sized businesses, partnerships, corporations, non-profit organizations and associations and investors living and working in and near the Bank’s primary service area.
The Company’s assets also include equity investments in the form of common stock of two local banking companies. These are categorized as Other Assets and not accounted for in the Fixed Income Securities tables.
The Company’s securities also include equity investments in the form of common stock of two local banking companies. These equity investments are categorized as Other Assets and not accounted for in the Fixed Income Securities tables.
Additionally, monthly ALCO meetings may include reports and analysis of outside firms to enhance the Committee’s knowledge and understanding of various financial matters. Various other bank employees attend monthly committee meetings to build their understanding of all financial matters. A weekly conference call is scheduled to bring added attention primarily to shorter term cash flow estimates and interest rate matters.
Additionally, ALCO meetings may include reports and analysis of outside firms to enhance the Committee’s knowledge and understanding of various financial matters. Various other bank employees attend monthly committee meetings to build their understanding of all financial matters. A weekly conference call is scheduled to bring added attention primarily to shorter term cash flow estimates and interest rate matters.
The Community Reinvestment Act (“CRA”) requires that, in connection with examinations of insured depository institutions within their respective jurisdictions, the federal banking agencies evaluate the record of each financial institution in meeting the needs of its local community, including low- and moderate-income neighborhoods. The Bank’s record of performance under the CRA is publicly available.
Community Reinvestment Act. The Community Reinvestment Act (“CRA”) requires that, in connection with examinations of insured depository institutions within their respective jurisdictions, the federal banking agencies evaluate the record of each financial institution in meeting the needs of its local community, including low- and moderate-income neighborhoods. The Bank’s record of performance under the CRA is publicly available.
The following provisions are considered to be of greatest significance to the Company: • Expanded the authority of the FRB to examine bank holding companies and their subsidiaries, including insured depository institutions. 17 Table of Contents • Required a bank holding company to be well capitalized and well managed to receive approval of an interstate bank acquisition. • Provided mortgage reform provisions regarding a customer’s ability to pay and making more loans subject to provisions for higher-cost loans and new disclosures. • Created the Consumer Financial Protection Bureau ("CFPB"), which has rulemaking authority for a wide range of consumer protection laws that apply to all banks and has broad powers to supervise and enforce consumer protection laws. • Created the Financial Stability Oversight Council with authority to identify institutions and practices that might pose a systemic risk. • Introduced additional corporate governance and executive compensation requirements on companies subject to the Securities Exchange Act of 1934, as amended ("Exchange Act"). • Permitted FDIC-insured banks to pay interest on business demand deposits. • Adopted Section 13 of the BHC Act, commonly referred to as the Volcker Rule, which restricts the ability of institutions and their holding companies and affiliates to make proprietary investments in securities, to invest in certain covered nonpublic investment vehicles and to extend credit to such vehicles. • Codified the requirement that holding companies and other companies that directly or indirectly control an insured depository institution serve as a source of financial strength. • Made permanent the $250 thousand limit for federal deposit insurance. • Permitted national and state banks to establish interstate branches to the same extent as the branch host state allows establishment of in-state branches.
The following provisions are considered to be of greatest significance to the Company: • Expanded the authority of the FRB to examine bank holding companies and their subsidiaries, including insured depository institutions. • Required a bank holding company to be well capitalized and well managed to receive approval of an interstate bank acquisition. • Provided mortgage reform provisions regarding a customer’s ability to pay and making more loans subject to provisions for higher-cost loans and new disclosures. • Created the Consumer Financial Protection Bureau ("CFPB"), which has rulemaking authority for a wide range of consumer protection laws that apply to all banks and has broad powers to supervise and enforce consumer protection laws. • Created the Financial Stability Oversight Council with authority to identify institutions and practices that might pose a systemic risk. • Introduced additional corporate governance and executive compensation requirements on companies subject to the Securities Exchange Act of 1934, as amended ("Exchange Act"). • Permitted FDIC-insured banks to pay interest on business demand deposits. • Adopted Section 13 of the BHC Act, commonly referred to as the Volcker Rule, which restricts the ability of institutions and their holding companies and affiliates to make proprietary investments in securities, to invest in certain covered nonpublic investment vehicles and to extend credit to such vehicles. • Codified the requirement that holding companies and other companies that directly or indirectly control an insured depository institution serve as a source of financial strength. • Made permanent the $250 thousand limit for federal deposit insurance. • Permitted national and state banks to establish interstate branches to the same extent as the branch host state allows establishment of in-state branches.
We strive to build and maintain a high-performing culture and be an “employer of choice” by creating a work environment that attracts and retains outstanding, engaged employees who embody our company mantra of “Relationships FIRST.” The Board of Directors oversees the strategic management of our human capital resources. The Human Resources Department’s day-to-day responsibility is managing our human capital resources.
We strive to build and maintain a high-performing culture and be an “employer of choice” by creating a work environment that attracts and retains outstanding, engaged employees who embody our company mantra of “Relationships FIRST.” The Board oversees the strategic management of our human capital resources. The Human Resources Department’s day-to-day responsibility is managing our human capital resources.
The Economic Growth, Regulatory Relief, and Consumer Protection Act ("2018 Act") includes provisions revising Dodd-Frank Act provisions, that among other things: (i) exempt banks with less than $10 billion in assets from the ability-to-repay requirements for certain qualified residential mortgage loans; (ii) exempt certain transactions valued at less than $400,000 in rural areas from appraisal requirements; (iii) exempt banks and credit unions that originate fewer than 500 open-end and 500 closed-end mortgages from the expanded data disclosures required under the Home Mortgage Disclosure Act ("HMDA"); (iv) amend the SAFE Mortgage Licensing Act by providing registered mortgage loan originators in good standing with 120 days of transitional authority to originate loans when moving from a federal depository institution to a non-depository institution or across state lines; (v) require the CFPB to clarify how TILA-RESPA Integrated Disclosure applies to mortgage assumption transactions and construction-to-permanent home loans as well as outline certain liabilities related to model disclosure use; (vi) revise treatment of HVCRE exposures; and (vii) create the simplified Community Bank Leverage Capital Ratio.
The Economic Growth, Regulatory Relief, and Consumer Protection Act ("2018 Act") includes provisions revising Dodd-Frank Act provisions, that among other things: (i) exempt banks with less than $10 billion in assets from the ability-to-repay requirements for certain qualified residential mortgage loans; (ii) exempt certain transactions valued at less than $400,000 in rural areas from appraisal requirements; (iii) exempt banks and credit unions that originate fewer than 500 open-end and 500 closed-end mortgages from the expanded data disclosures required under the Home Mortgage Disclosure Act ("HMDA"); (iv) amend the SAFE Mortgage Licensing Act by providing registered mortgage loan originators in good standing with 120 days of transitional authority to originate loans when moving from a federal depository institution to a non-depository institution or across state lines; (v) require the CFPB to clarify how TILA-RESPA Integrated Disclosure applies to mortgage assumption transactions and construction-to-permanent home loans as well as outline certain liabilities related to model disclosure use; (vi) revise treatment of high volatility CRE ("HVCRE") exposures; and (vii) create the simplified Community Bank Leverage Capital Ratio.
The general terms and underwriting standards for each type of commercial real estate and construction loan are incorporated into the Bank’s lending policies. These policies are analyzed periodically by management, and the policies are reviewed and re-approved annually by either the Board of Directors or a designated committee thereof.
The general terms and underwriting standards for each type of commercial real estate and construction loan are incorporated into the Bank’s lending policies. These policies are analyzed periodically by management, and the policies are reviewed and re-approved periodically by either the Board of Directors (the "Board") or a designated committee thereof.
Additionally, under Section 11(c)(5) of the FDIA, a conservator or receiver may be appointed for an institution where: (i) an institution’s obligations exceed its assets; (ii) there is substantial dissipation of the institution’s assets or earnings as a result of any violation of law or any unsafe or unsound practice; (iii) the institution is in an unsafe or unsound condition; (iv) there is a willful violation of a cease-and-desist order; (v) the institution is unable to pay its obligations in the ordinary course of business; (vi) losses or threatened losses deplete all or substantially all of an institution’s capital, and there is no reasonable prospect of becoming “adequately capitalized” without assistance; (vii) there is any violation of law or unsafe or unsound practice or condition that is likely to cause insolvency or substantial dissipation of assets or earnings, weaken the institution’s condition or otherwise seriously prejudice the interests of depositors or the insurance fund; (viii) an institution ceases to be insured; (ix) the institution is undercapitalized and has no reasonable prospect that it will become adequately capitalized, fails to become adequately capitalized when required to do so or fails to submit or materially implement a capital restoration plan; or (x) the institution is critically undercapitalized or otherwise has substantially insufficient capital.
Additionally, under Section 11(c)(5) of the FDIA, a conservator or receiver may be appointed for an institution where: (i) an institution’s obligations exceed its assets; (ii) there is substantial dissipation of the institution’s assets or earnings as a result of any violation of law or any unsafe or unsound practice; (iii) the institution is in an unsafe or unsound condition; (iv) 16 Table of Contents there is a willful violation of a cease-and-desist order; (v) the institution is unable to pay its obligations in the ordinary course of business; (vi) losses or threatened losses deplete all or substantially all of an institution’s capital, and there is no reasonable prospect of becoming “adequately capitalized” without assistance; (vii) there is any violation of law or unsafe or unsound practice or condition that is likely to cause insolvency or substantial dissipation of assets or earnings, weaken the institution’s condition or otherwise seriously prejudice the interests of depositors or the insurance fund; (viii) an institution ceases to be insured; (ix) the institution is undercapitalized and has no reasonable prospect that it will become adequately capitalized, fails to become adequately capitalized when required to do so or fails to submit or materially implement a capital restoration plan; or (x) the institution is critically undercapitalized or otherwise has substantially insufficient capital.
The Company and Bank have formalized an asset and liability management process and have a standing ALCO consisting of senior management overseen by the Board of Directors. The ALCO operates under established policies and practices and a Committee Charter, which practices are updated and re-approved annually.
The Company and Bank have formalized an asset and liability management process and have a standing ALCO consisting of senior management overseen by the Board. The ALCO operates under established policies and practices and a Committee Charter, which practices are updated and re-approved annually.
The changes resulting from the Dodd-Frank Act and CFPB rulemakings and enforcement policies may impact the profitability of our business activities, limit our ability to make, or the desirability of making, certain types of loans, including non-qualified mortgage loans, require us to change our business practices, impose upon us more stringent capital, liquidity and leverage ratio requirements or otherwise adversely affect our business or profitability.
The changes resulting from the Dodd-Frank Act and CFPB rule making and enforcement policies may impact the profitability of our business activities, limit our ability to make, or the desirability of making, certain types of loans, including non-qualified mortgage loans, require us to change our business practices, impose upon us more stringent capital, liquidity and leverage ratio requirements or otherwise adversely affect our business or profitability.
Real estate also serves as collateral for loans made for other purposes, resulting in 81% of all loans being secured or partially secured by real estate. These loans are underwritten to mitigate lending risks typical of this type of loan such as declines in real estate values, changes in borrower cash flow and general economic conditions.
Real estate also serves as collateral for loans made for other purposes, resulting in 82% of all loans being secured or partially secured by real estate. These loans are underwritten to mitigate lending risks typical of this type of loan such as declines in real estate values, changes in borrower cash flow and general economic conditions.
The county is also home to public sector employees such as the Loudoun County Schools, County of Loudoun, U.S. Department of Homeland Security and the Postal Service. Effective July 1, 2015, the Bank entered into a multi-faceted support agreement with George Mason University (“George Mason”), the Commonwealth of Virginia’s largest public research university.
The county is also home to public sector employees such as the Loudoun County Schools, County of Loudoun, U.S. Department of Homeland Security and the Postal Service. Effective July 1, 2015, the Bank entered into a multi-faceted support agreement with George Mason University ("George Mason"), the Commonwealth of Virginia’s largest public research university.
The laws and regulations governing the Bank generally have been promulgated to protect depositors and the DIF and not for the purpose of protecting shareholders. Commercial banks, savings and loan associations and credit unions are generally able to engage in interstate banking or acquisition activities. As a result, banks in the Washington, D.C.
The laws and regulations governing the Bank generally have been promulgated to protect depositors and the DIF and not for the purpose of protecting shareholders or other investors. Commercial banks, savings and loan associations and credit unions are generally able to engage in interstate banking or acquisition activities. As a result, banks in the Washington, D.C.
BUSINESS In this report, unless otherwise expressly stated or the context otherwise requires, the terms “we,” “us,” the “Company,” “Eagle” and “our” refer to Eagle Bancorp, Inc. and our subsidiaries on a combined basis, except in the description of any of our securities, in which case these terms refer solely to Eagle Bancorp, Inc. and not to any of our subsidiaries.
BUSINESS In this report, unless otherwise expressly stated or the context otherwise requires, the terms “we,” “us,” the “Company,” “Eagle” and “our” refer to Eagle Bancorp, Inc. and our subsidiaries on a consolidated basis, except in the description of any of our securities, in which case these terms refer solely to Eagle Bancorp, Inc. and not to any of our subsidiaries.
The Bank also has five lending centers and utilizes various digital capabilities, including remote deposit services and mobile banking services. The Bank maintains its physical presence via branches and lending centers consistent with its strategic plan. The Bank has three active direct subsidiaries: Bethesda Leasing, LLC, Eagle Insurance Services, LLC and Landroval Municipal Finance, Inc.
The Bank also has four lending centers and utilizes various digital capabilities, including remote deposit services and mobile banking services. The Bank maintains its physical presence via branches and lending centers consistent with its strategic plan. The Bank has three active direct subsidiaries: Bethesda Leasing, LLC, Eagle Insurance Services, LLC and Landroval Municipal Finance, Inc.
Plans for mitigating inherent risks in managing loan assets include: carefully designing and enforcing loan policies and procedures, evaluating each borrower’s business plan during the underwriting process, identifying and monitoring primary and alternative sources for loan repayment and obtaining collateral to mitigate economic loss in the event of liquidation.
Plans for mitigating inherent risks in managing loan assets include: designing and enforcing loan policies and procedures to mitigate those risks, evaluating each borrower’s business plan during the underwriting process, identifying and monitoring primary and alternative sources for loan repayment and obtaining collateral to mitigate economic loss in the event of liquidation.
These services include (i) commercial loans for a variety of business purposes such as for working capital, equipment purchases, real estate lines of credit and government contract financing; (ii) asset based lending and accounts receivable financing (on a limited basis); (iii) construction and commercial real estate loans; (iv) business equipment financing; (v) consumer home equity lines of credit, personal lines of credit and term loans; (vi) consumer installment loans such as auto and personal loans; (vii) personal credit cards offered through an outside vendor; and (viii) residential mortgage loans.
These services include (i) commercial loans for a variety of business purposes such as for working capital, equipment purchases, real estate lines of credit and government contract financing; (ii) asset based lending and accounts receivable financing (on a limited basis); (iii) construction and commercial real estate loans; (iv) business equipment financing; (v) consumer home equity lines of credit, personal lines of credit and term loans; (vi) consumer installment loans such as auto and personal loans; and (vii) personal credit cards offered through an outside vendor.
Under the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act, commonly referred to as the “USA Patriot Act,” financial institutions are subject to prohibitions against specified financial transactions and account relationships, as well as enhanced due diligence standards intended to detect and prevent the use of the United States financial system for money laundering and terrorist financing activities.
Under the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act, commonly referred to as the "USA Patriot Act," financial institutions are subject to prohibitions against specified financial transactions and account relationships, as well as enhanced due diligence standards intended to detect and prevent the use of the United States financial system for money laundering and terrorist financing activities.
The preferred term is between 5 to 7 years, with amortization to a maximum of 25 years. Personal guarantees are generally received from the principals on commercial real estate loans, and only in instances where the loan-to-value is sufficiently low and the debt service coverage is sufficiently high is consideration given to either limiting or not requiring personal recourse.
The preferred term is between 5 to 7 years, with amortization to a maximum of 25 years. Personal guarantees are generally received from the principals on commercial real estate loans, and only in instances where the LTV is sufficiently low and the debt service coverage is sufficiently high is consideration given to either limiting or not requiring personal recourse.
The Bank’s consumer loan portfolio is a smaller portion of the loan portfolio and has historically been comprised generally of two loan types: (i) home equity loans and lines of credit that are structured with an interest only draw period followed either by a balloon maturity or a fully amortized repayment schedule; and (ii) first lien residential mortgage loans, although the Bank’s general practice is to sell conforming first trust loans on a servicing released basis to third party investors.
The Bank’s consumer loan portfolio is a smaller portion of the loan portfolio and has historically been comprised generally of two loan types: (i) home equity loans and lines of credit that are structured with an interest only draw period followed either by a balloon maturity or a fully amortized repayment schedule; and, historically, (ii) first lien residential mortgage loans with the intent to sell conforming first trust loans on a servicing released basis to third party investors.
The Bank typically requires a maximum loan to value of 80% and minimum debt service coverage of 1.0 to 1.15. Personal guarantees may be required but may be limited. In making real estate commercial mortgage loans, the Bank generally requires that interest rates adjust not less frequently than five years.
The Bank typically requires a maximum loan-to-value ("LTV") ratios of 80% and minimum debt service coverage ratios ("DSCRs") of 1.0 to 1.15. Personal guarantees may be required but may be limited. In making real estate commercial mortgage loans, the Bank generally requires that interest rates adjust not less frequently than five years.
Therefore, the Bank is subject to ongoing (rather than periodic) supervision, targeted examinations, more frequent loan portfolio reviews and 18 Table of Contents other enhanced supervision. In particular, the FRB and the FDIC focus on the soundness of the Bank’s risk management framework and capabilities, given the greater complexity and impact of the Bank’s risks as a larger institution.
Therefore, the Bank is subject to ongoing (rather than periodic) supervision, targeted examinations, more frequent loan portfolio reviews and other enhanced supervision. In particular, the FRB and the FDIC focus on the soundness of the Bank’s risk management framework and capabilities, given the greater complexity and impact of the Bank’s risks as a larger institution.
Consumers generally may prevent financial institutions from sharing personal financial information with nonaffiliated third parties except for third parties that market the institutions’ own products and services. Additionally, financial institutions generally may not disclose consumer account numbers to any nonaffiliated third party for use in telemarketing, direct mail marketing or other marketing through electronic mail to consumers. Community Reinvestment Act.
Consumers generally may prevent financial institutions from sharing personal financial information with nonaffiliated third parties except for third parties that market the institutions’ own products and services. Additionally, financial institutions generally may not disclose consumer account numbers to any nonaffiliated third party for use in telemarketing, direct mail marketing or other marketing through electronic mail to consumers.
The appropriate federal banking agency must provide the institution with written notice of approval or disapproval within 60 days after receiving a capital restoration plan, subject to extensions by the applicable agency. 16 Table of Contents An institution that is required to submit a capital restoration plan must concurrently submit a performance guaranty by each company that controls the institution.
The appropriate federal banking agency must provide the institution with written notice of approval or disapproval within 60 days after receiving a capital restoration plan, subject to extensions by the applicable agency. An institution that is required to submit a capital restoration plan must concurrently submit a performance guaranty by each company that controls the institution.
Eagle Bancorp, Inc. (the “Company”), headquartered in Bethesda, Maryland, was incorporated under the laws of the State of Maryland on October 28, 1997, to serve as the bank holding company for EagleBank (the “Bank”).
Eagle Bancorp, Inc. (the "Company"), headquartered in Bethesda, Maryland, was incorporated under the laws of the State of Maryland on October 28, 1997, to serve as the bank holding company for EagleBank (the "Bank").
In addition, the FDIC is authorized to conduct examinations of and require reporting by FDIC-insured institutions. The Dodd-Frank Act permanently increased the maximum deposit insurance amount for banks, savings institutions and credit unions to $250 thousand per depositor. The Dodd-Frank Act also broadened the base for calculating FDIC insurance 20 Table of Contents assessments.
In addition, the FDIC is authorized to conduct examinations of and require reporting by FDIC-insured institutions. The Dodd-Frank Act permanently increased the maximum deposit insurance amount for banks, savings institutions and credit unions to $250 thousand per depositor. The Dodd-Frank Act also broadened the base for calculating FDIC insurance assessments.
SBA loans other than PPP loans are subject to the same cash flow analyses as other commercial loans. SBA loans are subject to a maximum loan size established by the SBA as well as internal loan size guidelines. Refer to Note 4 to the Consolidated Financial Statements for additional information regarding loan origination and risk management.
SBA loans other than Paycheck Protection Program ("PPP") loans are subject to the same cash flow analyses as other commercial loans. SBA loans are subject to a maximum loan size established by the SBA as well as internal loan size guidelines. Refer to Note 4 to the Consolidated Financial Statements for additional information regarding loan origination and risk management.
The BHC Act and other federal laws subject bank holding companies to restrictions on the types of activities in which they may engage, and to a range of supervisory requirements and actions, including regulatory enforcement actions for violations of laws and regulations and unsafe and 12 Table of Contents unsound banking practices.
The BHC Act and other federal laws subject bank holding companies to restrictions on the types of activities in which they may engage, and to a range of supervisory requirements and actions, including regulatory enforcement actions for violations of laws and regulations and unsafe and unsound banking practices.
Failure to maintain such higher capital expectations could result in a lower composite regulatory rating, which would impact our deposit insurance premiums and could affect our ability to borrow and costs of borrowing and could result in additional or more severe enforcement actions.
Failure to maintain such higher capital in accordance with supervisory expectations could result in a lower composite regulatory rating, which would impact our deposit insurance premiums and could affect our ability to borrow and costs of borrowing and could result in additional or more severe enforcement actions.
Redemptions of equity in the form of preferred stock are generally subject to a prior approval requirement, and the capital conservation buffer requirement can also restrict the Company’s ability to engage in repurchases of its regulatory capital instruments as described below under “Capital Adequacy.” 13 Table of Contents As a Maryland corporation, the Company is subject to additional limitations and restrictions.
Redemptions of equity in the form of preferred stock are generally subject to a prior approval requirement, and the capital conservation buffer requirement can also restrict the Company’s ability to engage in repurchases of its regulatory capital instruments as described below under “Capital Adequacy.” As a Maryland corporation, the Company is subject to additional requirements, limitations and restrictions.
The federal government and its employees are a major factor in the economy and support a dynamic business community. These include law and accounting firms, trade and professional associations, information technology companies, international financial institutions, health and education organizations and research and management companies. Unemployment was 4.50% at November 2022 according to BLS.
The federal government and its employees are a major factor in the economy and support a dynamic business community. These include law and accounting firms, trade and professional associations, information technology companies, international financial institutions, health and education organizations and research and management companies. Unemployment was 4.8% at November 2023 according to BLS.
Commercial and industrial loans are made, with a substantial portion having variable and adjustable rates, and where the cash flow of the borrower(s) operating business is the principal source of debt service with a secondary emphasis on collateral.
Commercial and industrial loans are made, with a substantial portion having variable and adjustable rates, where the cash flow of the borrower's operating business is the principal source of debt service with a secondary emphasis on collateral.
As an institution with over $10 billion in total consolidated assets, the Bank became subject to increased regulation and supervision by the FRB and the FDIC in 2022. As of December 31, 2022, our total assets were $11.2 billion.
As an institution with over $10 billion in total consolidated assets, the Bank became subject to increased regulation and supervision by the FRB and the FDIC in 2022. As of December 31, 2023, our total assets were $11.7 billion.
Our lending activities are subject to a variety of borrower lending limits imposed by state and federal law. These limits will increase or decrease in response to increases or decreases in the Bank’s level of capital. At December 31, 2022, the Bank had a legal lending limit of $211.0 million.
Our lending activities are subject to a variety of borrower lending limits imposed by state and federal law. These limits will increase or decrease in response to increases or decreases in the Bank’s level of capital. At December 31, 2023, the Bank had a legal lending limit of $212.0 million.
The Company provides access to its Securities and Exchange Commission (“SEC”) filings through its web site at www.eaglebankcorp.com.
The Company provides access to its Securities and Exchange Commission ("SEC") filings through its web site at www.eaglebankcorp.com.
The Basel III framework, among other things, (i) introduced the concept of common equity tier one capital ("CET1"); (ii) required that most adjustments to regulatory capital measures be made to CET1 and not to the other components of capital; (iii) expanded the scope of the adjustments to capital that may be made as compared to existing regulations; and (iv) specified that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting specified requirements.
The Basel III framework, among other things, (i) introduced the concept of common equity tier one capital ("CET1"); (ii) required that most adjustments to regulatory capital measures be made to CET1 and not to the other components of capital; (iii) 14 Table of Contents expanded the scope of the adjustments to capital that may be made as compared to prior regulations; and (iv) specified that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting specified requirements.
The Basel III Rules require institutions to maintain: (i) a minimum ratio of CET1 to risk-weighted assets of 4.5% plus a “capital conservation buffer” of 2.5% or 7.0%; (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0% plus the capital conservation buffer or 8.5%; (iii) a minimum ratio of Total (Tier 1 plus Tier 2) capital to risk-weighted assets of 8.0% plus the capital conservation buffer or 10.5%; and (iv) a minimum leverage ratio of 4%, calculated as the ratio of Tier 1 capital to balance sheet exposures plus certain off-balance sheet exposures (computed as the average of the month-end ratios each month during a calendar quarter).
The Basel III Rules require institutions to maintain: (i) a minimum ratio of CET1 to risk-weighted assets of 4.5% plus a “capital conservation buffer” of 2.5% for an overall effective requirement of 7.0%; (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0% plus the capital conservation buffer for an overall effective requirement of 8.5%; (iii) a minimum ratio of Total (Tier 1 plus Tier 2) capital to risk-weighted assets of 8.0% plus the capital conservation buffer for an overall effective requirement of 10.5%; and (iv) a minimum leverage ratio of 4%, calculated as the ratio of Tier 1 capital to balance sheet exposures plus certain off-balance sheet exposures (computed as the average of the month-end ratios each month during a calendar quarter).
The agreement provides for significant educational support, and a strategic alliance including the Bank obtaining the naming rights to a multi-purpose sports and entertainment venue formerly known as the Patriot Center, now known as “EagleBank Arena” in Fairfax, Virginia for up to a 20-year term.
The agreement provides for significant educational support, and a strategic alliance including the Bank obtaining the naming rights to a multi-purpose sports and entertainment venue formerly known as the Patriot Center, now known as "EagleBank Arena" in Fairfax, Virginia for up to a 20-year term.
The Bank is a Maryland chartered commercial bank and a member of the Federal Reserve and a state member bank, whose accounts are insured by the DIF of the FDIC up to the maximum legal limits of the FDIC.
The Bank is a Maryland chartered commercial bank and a member of the Federal Reserve and a state member bank, whose accounts are insured by the Deposit Insurance Fund ("DIF") of the FDIC up to the maximum legal limits of the FDIC.
The GLB Act enumerates certain activities that are deemed financial in nature, such as underwriting insurance or acting as an insurance principal, agent or broker, underwriting, dealing in or making markets in securities and engaging in merchant banking under certain restrictions.
The GLB Act enumerates certain activities 12 Table of Contents that are deemed financial in nature, such as underwriting insurance or acting as an insurance principal, agent or broker, underwriting, dealing in or making markets in securities and engaging in merchant banking under certain restrictions.
Construction, land and land development loans represented 62% of consolidated risk based capital as of December 31, 2022. 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.
Construction, land and land development loans represented 77.52% of consolidated risk based capital as of December 31, 2023. 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.
In 2016, the Financial Accounting Standards Board ("FASB") issued the current and expected credit losses model (“CECL”), which became applicable to us on January 1, 2020.
In 2016, the Financial Accounting Standards Board ("FASB") issued the current expected credit losses model ("CECL"), which became applicable to us on January 1, 2020.
The investment securities portfolio provides the following objectives: capital preservation, liquidity management, additional income to the Company and Bank in the form of interest and gain on sale opportunities, collateral to facilitate borrowing arrangements and assistance with meeting interest rate risk management objectives. The current Investment Policy limits the Bank to investments of high quality U.S.
The investment securities portfolio provides the following objectives: capital preservation, liquidity management, additional income to the Company and Bank in the form of interest, collateral to facilitate borrowing arrangements and assistance with meeting interest rate risk management objectives. The current Investment Policy primarily limits the Bank to investments of high quality U.S.
A subsidiary bank may not extend credit, lease or sell property or furnish any services or fix or vary the consideration for any of the foregoing on the condition that: (i) the customer obtain or provide some additional credit, property or services from or to such bank other than a loan, discount, deposit or trust service; (ii) the customer obtain or provide some additional credit, property or service from or to the Company or any other subsidiary of the Company; or (iii) the customer not obtain some other credit, property or service from competitors, except for reasonable requirements to assure the soundness of credit extended.
A subsidiary bank may not extend credit, lease or sell property or furnish any services or fix or vary the consideration for any of the foregoing on the condition that: (i) the customer obtain or provide some additional credit, property or services from or to such bank other than a loan, discount, deposit or trust service; (ii) the customer obtain or provide some additional credit, property or service from or to the Company or any other subsidiary of the Company; or (iii) the customer not obtain some other credit, property or service from competitors, except for reasonable requirements to assure the soundness of credit extended. 13 Table of Contents Branching and Interstate Banking .
On August 31, 2008, the Company acquired Fidelity & Trust Financial Corporation (“Fidelity”) and on October 31, 2014 acquired Virginia Heritage Bank (“Virginia Heritage”). Refer to Note 7 to the Consolidated Financial Statements for additional disclosure regarding intangible assets established incident to mergers and acquisitions. Description of Services.
On August 31, 2008, the Company acquired Fidelity & Trust Financial Corporation ("Fidelity") and on October 31, 2014 acquired Virginia Heritage Bank ("Virginia Heritage"). Refer to Note 7 to the Consolidated Financial Statements for additional disclosure regarding intangible assets established related to mergers and acquisitions. Description of Services.
As such, interest rate policies of the Board of Governors of the Federal Reserve System ("FRB") and general economic conditions, nationally and in the Bank’s primary market area, could have a significant impact on the Bank’s and the Company’s results of operations.
As such, interest rate policies of the Federal Reserve and general economic conditions, nationally and in the Bank’s primary market area, could have a significant impact on the Bank’s and the Company’s results of operations.
As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), enacted in July 2010, regulation of all financial firms was heightened, although new legislation in 2018 did amend some of the prior law and eased bank regulatory pressures, prompting some de novo activity but mostly driving further consolidation.
As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), enacted in July 2010, regulation of all financial firms was heightened, although new legislation in 2018 did amend some of the prior law, prompting some de novo activity but mostly driving further consolidation.
The Bank, a Maryland chartered commercial bank, which is a member of the Federal Reserve System ("Federal Reserve Board" or "Federal Reserve"), is the Company’s principal operating subsidiary. It commenced banking operations on July 20, 1998. The Bank currently operates sixteen branch offices: six in Suburban Maryland; five located in the District of Columbia; and five in Northern Virginia.
The Bank, a Maryland chartered commercial bank, which is a member of the Federal Reserve System ("Federal Reserve Board," "Federal Reserve" or "FRB"), is the Company’s principal operating subsidiary. It commenced banking operations on July 20, 1998. The Bank currently operates thirteen branch offices: six in Suburban Maryland; four located in the District of Columbia; and three in Northern Virginia.
Further, the greater capitalization of the larger institutions headquartered out-of-state allows for higher lending limits than the Bank, although the Bank’s current lending limit is quite favorable and able to accommodate the credit needs of most businesses in the Washington D.C. metropolitan area, which distinguishes it from most community banks in the market area.
Further, the greater capitalization of the larger institutions headquartered out-of-state allows for higher lending limits than the Bank, although we believe the Bank’s current lending limit is sufficient for our business and able to accommodate the credit needs of most businesses in the Washington D.C. metropolitan area, which distinguishes it from most community banks in the market area.
The Company originates multifamily Federal Housing Administration ("FHA") loans through the Department of Housing and Urban Development’s or HUD’s Multifamily Accelerated Program ("MAP").
The Company originates multifamily Federal Housing Administration ("FHA") loans through the Department of Housing and Urban Development’s Multifamily Accelerated Program.
The cumulative amount that is not recognized in regulatory capital will be phased in at 25% per year beginning January 1, 2022. We have elected to adopt the March 2020 interim final rule. Prompt Corrective Action .
The cumulative amount that is not recognized in regulatory capital will be phased in at 25% per year beginning January 1, 2022. We have elected to adopt the option provided in the March 2020 interim final rule. 15 Table of Contents Prompt Corrective Action .
The county is also home to several federal entities including the Central Intelligence Agency, Fort Belvoir and a major facility of the Smithsonian Institution. Arlington County, Virginia, has a population of 236,413 as of 2023. The county is made up of 26 square miles and is situated just west of Washington, D.C., directly across the Potomac River.
The county is also home to several federal entities including the Central Intelligence Agency, Fort Belvoir and a major facility of the Smithsonian Institution. Arlington County, Virginia, has an estimated population of 239,054 as of 2024. The county is made up of 26 square miles and is situated just west of Washington, D.C., directly across the Potomac River.
The SCRA requires a bank to cap the interest rate at 6% for any loan to a member of the military who goes on active duty after taking out the loan. It also limits the actions the bank can take when a service member is in foreclosure. The Bank fully complies with this rule. Affiliate Transactions .
The SCRA requires a bank to cap the interest rate at 6% for any loan to a member of the military who goes on active duty after taking out the loan. It also limits the actions the bank can take when a service member is in foreclosure.
The population is highly educated, with about 62.1% of residents over 25 years of age holding at least a bachelor’s degree as of 2023. Major companies headquartered in the county, which are also major employers, include Capital One Financial, DXC Technology, Gannett, General Dynamics, Hilton Hotels, Leidos, Sallie Mae and Inova Health Systems.
The population is highly educated, with an expected 63.9% of residents over 25 years of age holding at least a bachelor’s degree as of 2024. Major companies headquartered in the county, which are also major employers, include Capital One Financial, DXC Technology, Gannett, General Dynamics, Hilton Hotels, Leidos, Sallie Mae and Inova Health Systems.
The Company is also an active traditional commercial lender providing loans for a variety of purposes, including working capital, equipment and accounts receivable financing. Commercial loans meet reasonable underwriting standards, including appropriate collateral and cash flow necessary to support debt service. Personal guarantees are generally required, but may be limited.
The Company is also an active traditional commercial lender providing loans for a variety of purposes, including working capital, equipment and accounts receivable financing. The Company's underwriting standards address collateral and debt service cash flow. Personal guarantees are generally required, but may be limited.
Further, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. MARKET AREA Listed below are statistics on the primary geographic areas in which the Company operates published by the U.S. Census Bureau. The U.S.
Further, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. MARKET AREA 8 Table of Contents Listed below are statistics on the primary geographic areas in which the Company operates as published by the U.S. Census Bureau and the Federal Reserve Economic Data.
Risk-based capital requirements determine the adequacy of capital based on the risk inherent in various classes of assets and off-balance sheet items. The Dodd-Frank Act additionally requires capital requirements to be countercyclical so that the required amount of capital increases in times of economic expansion and decreases in times of economic contraction, consistent with safety and soundness.
Risk-based capital requirements assign different capital requirements to various classes of assets and off-balance sheet items based on standardized supervisory measures of risk. The Dodd-Frank Act additionally requires capital requirements to be countercyclical so that the required amount of capital increases in times of economic expansion and decreases in times of economic contraction, consistent with safety and soundness.
A portion of the ADC portfolio, both speculative and non-speculative, includes loan funded interest reserves at origination. ADC loans that provide for the use of interest reserves represented approximately 56.1% of the outstanding ADC loan portfolio at December 31, 2022.
A portion of the ADC portfolio, both speculative and non-speculative, includes loan funded interest reserves at origination. ADC loans that provide for the use of interest reserves represented approximately 57.6% of the outstanding ADC loan portfolio at December 31, 2023.
In general, borrowers will have a proven ability to build, lease, manage and/or sell a commercial or residential project and demonstrate satisfactory financial condition. Additionally, an equity contribution toward the project is generally required whether associated with acquisition or construction of a property.
In some cases, the Bank may accept a recorded junior trust position. In general, borrowers will have a proven ability to build, lease, manage and/or sell a commercial or residential project and demonstrate satisfactory financial condition. Additionally, an equity contribution toward the project is generally required whether associated with acquisition or construction of a property.
Loan policy standards are often stated in mandatory terms, such as “shall” or “must”, but these provisions are subject to exceptions. Policy requires that loan value not exceed a percentage of “market value” or “fair value” based upon appraisals or evaluations obtained in the ordinary course of the Bank’s underwriting practices.
Loan policy standards are often stated in mandatory terms, such as "shall" or "must," but these provisions are subject to exceptions. Policy requires that loan value not exceed a percentage of "market value" or "fair value" based upon appraisals or evaluations obtained in the ordinary course of the Bank’s underwriting practices.
As of December 31, 2022, non-owner-occupied commercial real estate loans (including construction, land and land development loans) represented 347.9% of consolidated risk based capital; however, growth in that segment over the past 36 months at 1.2% did not exceed the 50% threshold laid out in the regulatory guidance.
As of December 31, 2023, non-owner-occupied commercial real estate loans (including construction, land and land development loans) represented 350.4% of consolidated risk based capital; however, growth in that segment over the past 36 months at 7.0% did not exceed the 50% threshold laid out in the regulatory guidance.
The Company and Bank are separate and distinct legal entities, and the Company is an affiliate of the Bank. Federal laws strictly limit the ability of banks to engage in certain transactions with their affiliates.
The Bank fully complies with this rule. 20 Table of Contents Affiliate Transactions . The Company and Bank are separate and distinct legal entities, and the Company is an affiliate of the Bank. Federal laws strictly limit the ability of banks to engage in certain transactions with their affiliates.
Alexandria, Virginia is a city with an estimated population of 157,326 as of 2023. The city is made up of just over 15 square miles and sits on the west bank of the Potomac River just south of Arlington, Virginia. There are approximately 74,161 households with a median household income of $118,406 as of 2023.
Alexandria, Virginia is a city with an estimated population of 157,427 as of 2024. The city is made up of just over 15 square miles and sits on the west bank of the Potomac River just south of Arlington, Virginia. There are approximately 74,047 households with an estimated median household income of $109,357 as of 2024.
Economic Census, approximately 57.9% of the County’s residents in 2023 hold college or advanced degrees, placing 9 Table of Contents the population of Montgomery County among the most educated in the nation. Major areas of employment include a substantial technology sector, biotechnology, software development, a housing construction and renovation sector and legal, financial services, health care and professional services sectors.
The U.S. Economic Census anticipates 60.0% of the County’s residents in 2024 hold college or advanced degrees, placing the population of Montgomery County among the most educated in the nation. Major areas of employment include a substantial technology sector, biotechnology, software development, a housing construction and renovation sector and legal, financial services, health care and professional services sectors.
This is one of the lowest unemployment rates in the state of Virginia and compares very favorably to the U.S. rate of 3.40%. The population is highly educated, with about 75.3% of residents over 25 years of age holding at least a bachelor’s degree as of 2023.
This is one of the lowest unemployment rates in the state of Virginia and compares very favorably to the U.S. rate of 3.5%. The population is highly educated, with an expected 76.3% of residents over 25 years of age holding at least a bachelor’s degree in 2024.
As a result of a bank holding company's source of strength obligation, a bank holding company may be required to provide funds to a bank subsidiary in the form of subordinated capital or other instruments which qualify as capital under bank regulatory rules.
As a result of a bank holding company's source of strength obligation, a bank holding company may be required to provide funds to a bank subsidiary in the form of subordinated capital or other instruments which qualify as capital under bank regulatory rules, including at times that the bank holding company might otherwise determine not to provide support.
Certain reciprocal deposits of up to the lesser of $5 billion or 20% of an institution’s deposits are excluded from the definition of brokered deposits, where the institution is "well-capitalized" and has a composite rating of 1 or 2.
Certain reciprocal deposits of up to the lesser of $5 billion or 20% of an institution’s deposits are excluded from the definition of brokered deposits, where the institution is "well-capitalized" and has a composite rating of 1 or 2. As of December 31, 2023, brokered deposits represented approximately 29% of our total deposits.
Our state and federal regulators have the discretion to require us to maintain higher capital levels based upon our concentrations of loans, the risk of our lending or other activities, the performance of our loan and investment portfolios and other factors.
The capital ratios described above are the minimum levels that the federal banking agencies expect. Our state and federal regulators have the discretion to require us to maintain higher capital levels based upon our concentrations of loans, the risk of our lending or other activities, the performance of our loan and investment portfolios and other factors.
At December 31, 2022, owner occupied commercial real estate and construction – C&I (owner occupied) represented approximately 16% of the loan portfolio while non-owner occupied commercial real estate and real estate construction represented approximately 63% of the loan portfolio. The combined owner and non-owner occupied and commercial real estate loans represented approximately 80% of the loan portfolio.
At December 31, 2023, owner occupied commercial real estate and construction – commercial and industrial ("C&I") (owner occupied) represented approximately 17% of the loan portfolio while non-owner occupied commercial real estate and real estate construction represented approximately 63% of the loan portfolio. The combined owner and non-owner occupied and commercial real estate loans represented approximately 81% of the loan portfolio.
The county and city are among the most affluent in the country with median annual household income of $269,257 as of 2023, placing them 4th in the nation for counties with a population over 100,000. Unemployment was 2.50% in November of 2022 according to BLS.
The county and city are among the most affluent in the country with an estimated median annual household income of $282,714 in 2024, placing them 4th in the nation for counties with a population over 100,000. Unemployment was 2.5% in November of 2023 according to BLS.
The population is highly educated, with about 62.2% of residents over 25 years of age holding at least a 10 Table of Contents bachelor’s degree as of 2023. The major private employers in the county include United Airlines, Inc., Raytheon Company, Loudoun Hospital Center and Swissport U.S.A., Inc.
The population is highly educated, with an expected 64.3% of residents over 25 years of age holding at least a bachelor’s degree as of 2024. The major private employers in the county include United Airlines, Inc., Raytheon Company, Loudoun Hospital Center and Swissport U.S.A., Inc.
With a population of 6.4 million and projected annualized growth rate of 0.54% through 2028, the region is the 6th largest metropolitan area in the U.S. (U.S. Census Bureau 2020). Total employment in the region is approximately 3.3 million per the 2023 Bureau of Labor Statistics ("BLS") report.
With a population of 6.4 million and projected annualized growth rate of 0.01% through 2029, the region is the 6th largest metropolitan area in the U.S. (U.S. Census Bureau 2022). Total employment in the region is approximately 3.4 million per the 2024 Bureau of Labor Statistics ("BLS") report. The unemployment rate has decreased since 2022.
At December 31, 2022, the average loan size outstanding for Commercial Real Estate, or CRE, and Commercial and Industrial, or C&I, loans was $7.1 million and $895 thousand, respectively.
At December 31, 2023, the average loan size outstanding for Commercial Real Estate ("CRE") and C&I loans was $7.9 million and $976 thousand, respectively.
Census Bureau publishes the Economic Census annually to reflect the ever-changing geographic areas. The Census Bureau uses the economic census data to benchmark annual, quarterly, and monthly estimates. The 2023 Economic Census ("Economic Census") for all geographic areas was published in January 2023. The primary market area of the Bank is the Washington, D.C. metropolitan area.
The U.S. Census Bureau publishes the Economic Census every five years and uses the Economic Census data to benchmark annual, quarterly, and monthly estimates. The 2022 Economic Census ("Economic Census") for all geographic areas was published in January 2024. The primary market area of the Bank is the Washington, D.C. metropolitan area.
Updated appraisals for real estate secured loans are obtained as necessary and appropriate to borrower financial condition, project status, loan terms and market conditions. The Company’s loan portfolio includes acquisition, development and construction real estate loans including both investment and owner occupied projects. ADC loans amounted to $1.5 billion at December 31, 2022.
Updated appraisals for real estate secured loans are obtained based on factors relating to borrower financial condition, project status, loan terms and market conditions. The Company’s loan portfolio includes ADC real estate loans including both investment and owner occupied projects. ADC loans amounted to $1.6 billion at December 31, 2023.
As part of the underwriting process, debt service coverage ratios are stress tested assuming a 200 basis point increase in interest rates from their current levels. 7 Table of Contents Commercial permanent loans generally are underwritten with a term not greater than 10 years or the remaining useful life of the property, whichever is lower.
The DSCR is ordinarily at least 1.0 to 1.15. As part of the underwriting process, DSCRs are stress tested assuming a 200 basis point increase in interest rates from their current levels. Commercial permanent loans generally are underwritten with a term not greater than 10 years or the remaining useful life of the property, whichever is lower.
The growth of residents in the city is due partially to improvements in the city’s services and to the many housing options available, ranging from grand old apartment buildings to Federal era town homes to the most modern condominiums. As of 2023, the number of households had grown to 313,594 units.
The growth of residents in the city is due partially to improvements in the city’s services and to the many housing options available, ranging from grand old apartment buildings to Federal era town homes to the most modern condominiums. The number of households is expected to grow to an estimated 310,328 units in 2024.
When appropriate, an interest reserve provides an effective means of addressing the cash flow characteristics of a properly underwritten ADC loan. The Company does not significantly utilize interest reserves in other loan products.
When appropriate, an interest reserve provides an effective means of addressing the cash flow characteristics of a properly underwritten ADC loan. although as with all lending activities the Company remains exposed to credit risk. The Company does not significantly utilize interest reserves in other loan products.
There are approximately 110,094 households with a median household income of $131,529 as of November 2022, placing it 8th in the nation for counties with a population over 100,000. Significant private sector employers include Amazon, Deloitte, Lockheed Martin, Virginia Hospital Center and Marriott International, Inc. The unemployment rate was just 2.10% in November of 2022.
There are approximately 109,463 households with an estimated median household income of $134,727 for 2024, placing it 7th in the nation for counties with a population over 100,000. Significant private sector employers include Amazon, Deloitte, Lockheed Martin, Virginia Hospital Center and Marriott International, Inc. The unemployment rate was just 2.2% in November of 2023.

… 139 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

98 edited+84 added−65 removed94 unchanged
Biggest changeIn particular, markets, and therefore our business, may be affected by the level and volatility of interest rates, availability and market conditions of financing, unexpected changes in gross domestic product ("GDP"), economic growth or its sustainability, inflation, supply chain disruptions, consumer spending, employment levels, labor shortages, wage inflation, federal government shutdowns, developments related to the U.S. federal debt ceiling, energy prices, home prices, commercial property values, bankruptcies, fluctuations or other significant changes in both debt and equity capital markets and currencies, liquidity of financial markets and the availability and cost of capital and credit.
Biggest changeChanges in economic growth may result in unexpected changes in gross domestic product ("GDP"), fluctuations or other significant changes in both debt and equity capital markets and currencies, liquidity of financial markets and the availability and cost of capital and credit. Potential federal government shutdowns, and developments related to the U.S. federal debt ceiling may also have an economic impact.
Our ability to raise additional capital depends on conditions in the capital markets, economic conditions and a number of other factors, including investor perceptions regarding the banking industry, market conditions and governmental activities and on our financial condition and performance. Accordingly, we may be unable to raise additional capital if needed or on acceptable terms.
Our ability to raise additional financing depends on conditions in the capital markets, economic conditions and a number of other factors, including investor perceptions regarding the banking industry, market conditions and governmental activities and on our financial condition and performance. Accordingly, we may be unable to raise additional financing if needed or on acceptable terms.
Pursuant to our Amended Articles of Incorporation, the Company’s Board of Directors is authorized to issue up to one million shares of preferred stock, on such terms and with such powers, preferences, rights and provisions as it may determine and to divide the preferred stock into one or more classes or series.
Pursuant to our Amended Articles of Incorporation, the Company’s Board is authorized to issue up to one million shares of preferred stock, on such terms and with such powers, preferences, rights and provisions as it may determine and to divide the preferred stock into one or more classes or series.
Also, the Maryland General Corporation Law, as amended, contains several provisions that may make it more difficult for a third party to acquire control of the Company without the approval of its Board of Directors and may make it more difficult or expensive for a third party to acquire a majority of its outstanding common stock.
Also, the Maryland General Corporation Law, as amended, contains several provisions that may make it more difficult for a third party to acquire control of the Company without the approval of its Board and may make it more difficult or expensive for a third party to acquire a majority of its outstanding common stock.
The repayment of these loans often depends on the successful operation of a business or the sale or development of the underlying property and, as a result, is more likely to be adversely affected by adverse conditions in the real estate market or the economy in general.
The performance and repayment of these loans often depends on the successful operation of a business or the sale or development of the underlying property and, as a result, is more likely to be adversely affected by adverse conditions in the real estate market or the economy in general.
A substantial portion of our loans are secured by commercial real estate in the Washington, D.C. metropolitan area and substantially all of our loans are to borrowers in that area. We also have a significant amount of real estate construction loans and land related loans for residential and commercial developments.
A substantial portion of our loans are secured by commercial real estate in the Washington, D.C. metropolitan area and substantially all of our loans are to borrowers in that area. We also have a significant amount of real estate construction loans and land related loans for commercial developments.
The payment of dividends in any period and the adoption or implementation of a share repurchase program do not mean that the Company will continue to pay dividends at the current level, or at all, or that it will repurchase any additional shares of common stock.
The payment of dividends in any period and the adoption or implementation of a share repurchase program do not mean that the Company will continue to pay dividends at the current level, or at all, or that it will repurchase any shares of common stock.
With certain limited exceptions, federal regulations prohibit a person or company or a group of persons deemed to be “acting in concert” from, directly or indirectly, acquiring more than 10% (5% if the acquiror is a bank holding company) of any class of the Company’s voting stock or obtaining the ability to control in any manner the election of a majority of its directors or otherwise direct the management or policies of the Company without prior notice or application to and the approval of the Federal Reserve.
With certain limited exceptions, federal regulations prohibit a person or company or a group of persons deemed to be “acting in concert” from, directly or indirectly, acquiring more than 10% (5% if the acquirer is a bank holding company) of any class of the Company’s voting stock or obtaining the ability to control in any manner the election of a majority of its directors or otherwise direct the management or policies of the Company without prior notice or application to and the approval of the Federal Reserve.
In accordance with our Amended Articles of Incorporation, our Board of Directors may determine from time to time that we need to raise additional capital by issuing additional shares of our common stock or other securities.
In accordance with our Amended Articles of Incorporation, our Board may determine from time to time that we need to raise additional capital by issuing additional shares of our common stock or other securities.
These factors include the competitive effects of the proposal in the relevant geographic markets; the financial and managerial resources and 25 Table of Contents future prospects of the companies and banks involved in the transaction; the effect of the transaction on the financial stability of the United States; the organizations' compliance with anti-money laundering laws and regulations; the convenience and needs of the communities to be served; and the records of performance under the CRA of the insured depository institutions involved in the transaction.
These factors include the competitive effects of the proposal in the relevant geographic markets; the financial and managerial resources and 27 Table of Contents future prospects of the companies and banks involved in the transaction; the effect of the transaction on the financial stability of the United States; the organizations' compliance with anti-money laundering laws and regulations; the convenience and needs of the communities to be served; and the records of performance under the CRA of the insured depository institutions involved in the transaction.
In addition to those described in “Caution About Forward Looking Statements,” these factors include: • Actual or anticipated quarterly fluctuations in our operating results and financial condition; • Changes in financial estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to us or other financial institutions; • Reports in the press, internet or investment community generally or relating to our reputation or the financial services industry, whether or not those reports are based on accurate, complete or transparent information; • Uncertainties related to our regulatory relationships or status; • Strategic actions by us or our competitors, such as acquisitions, restructurings, dispositions or financings; • Fluctuations in the stock price and operating results of our competitors; • Future sales of our equity or equity-related securities; • Proposed or adopted regulatory changes or developments; • Domestic and international economic and political factors unrelated to our performance; • Actions of one or more investors in selling our common stock short; and • General market conditions and, in particular, developments related to market conditions for the financial services industry, inclusive of the potential adverse impact from: ◦ Terrorism, and current or anticipated military conflicts, including escalating military tensions between Russia and Ukraine and other geopolitical events; ◦ Catastrophic events, including natural disasters, and public health crises.
In addition to those described in “Caution About Forward Looking Statements,” these factors include: • Actual or anticipated quarterly fluctuations in our operating results and financial condition; • Changes in financial estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to us or other financial institutions; • Reports in the press, internet or investment community generally or relating to our reputation or the financial services industry, whether or not those reports are based on accurate, complete or transparent information; • Uncertainties related to our regulatory relationships or status; • Strategic actions by us or our competitors, such as acquisitions, restructurings, dispositions or financings; • Fluctuations in the stock price and operating results of our competitors, or the financial services industry; • Future sales of our equity or equity-related securities; • Proposed or adopted regulatory changes or developments; • Domestic and international economic and political factors unrelated to our performance; • Actions of one or more investors in selling our common stock short; and • General market conditions and, in particular, developments related to market conditions for the financial services industry, inclusive of the potential adverse impact from: ▪ Terrorism, and current or anticipated military conflicts and other geopolitical events; ▪ Catastrophic events, including natural disasters, and public health crises.
RISKS RELATED TO OUR BUSINESS AND ECONOMIC CONDITIONS Our business and results of operations may be adversely affected by the financial markets, fiscal, monetary, and regulatory policies and economic conditions. These factors could have a material adverse effect on our earnings, net interest margin, rate of growth, financial condition and stock price.
RISKS RELATED TO OUR BUSINESS AND ECONOMIC CONDITIONS Our business and results of operations may be adversely affected by the financial markets, fiscal, monetary, and regulatory policies and economic conditions. These factors could have a material adverse effect on our earnings, net interest margin, financial condition, rate of growth, liquidity levels, and stock price.
Net interest margin is affected by changes in market interest rates, because different types of assets and liabilities may react differently, and at different times, to market interest rate changes. When interest bearing liabilities mature or re-price more quickly than interest earning assets in a period, an increase in market rates of interest could reduce net interest income.
Net interest margin is affected by changes in market interest rates, because different types of assets and liabilities may react differently, and at different times, to market interest rate changes. When interest bearing liabilities mature or re-price more quickly than interest earning assets in a period, an increase in market rates of interest could reduce net interest income, possibly materially.
A breach or interruption of information security or cyber-related threats could negatively affect our earnings. We rely heavily on communications and information systems to conduct our business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan and other systems.
A breach or interruption of information security or cyber-related threats could negatively affect our business, financial condition or earnings. We rely heavily on communications and information systems to conduct our business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan and other systems.
Additionally, if we raise additional capital by making additional offerings of debt or preferred equity securities, upon liquidation of the Company, holders of our debt securities and 30 Table of Contents shares of preferred stock and lenders with respect to other borrowings will receive distributions of our available assets prior to the holders of our common stock.
Additionally, if we raise additional capital by making additional offerings of debt or preferred equity securities, upon liquidation of the Company, holders of our debt securities and shares of preferred stock and 31 Table of Contents lenders with respect to other borrowings will receive distributions of our available assets prior to the holders of our common stock.
Applicable federal and state laws, regulations, interpretations, enforcement policies and accounting principles have been subject to significant changes in recent years and may be subject to significant future changes. Future changes may have a material adverse effect on our business, financial condition and results of operations.
Applicable federal and state laws, regulations, regulatory guidance, interpretations, enforcement policies and accounting principles have been subject to significant changes in recent years and may be subject to significant future changes. Future changes may have a material adverse effect on our business, financial condition and results of operations.
Increased cyber risks in this context may include greater phishing, malware, and other cybersecurity attacks, vulnerability to disruptions of our information technology infrastructure and telecommunications systems for remote operations, increased risk of unauthorized dissemination of confidential information, limited ability to restore the systems in the event of a systems failure or interruption, greater risk of a security breach resulting in destruction or misuse of valuable information and potential impairment of our ability to perform critical functions, including wiring funds, all of which could expose us to risks of data or financial loss, litigation and liability and could seriously disrupt our operations and the operations of any impacted customers.
Increased cyber risks in this context may include greater phishing, malware, and other cybersecurity attacks, vulnerability to disruptions of our information technology infrastructure and telecommunications systems for remote operations, increased risk of unauthorized dissemination of confidential information, limited ability to restore the systems in the event of a systems failure or interruption, greater risk of a security breach resulting in destruction or misuse of sensitive, confidential, personal or proprietary information and potential impairment of our ability to perform critical functions, including wiring funds, all of which could expose us to risks of data or financial loss, litigation and liability and could seriously disrupt our operations and the operations of any impacted customers.
In general, cyber incidents can result from deliberate attacks or unintentional events. We have observed an increased level of attention in the industry focused on cyber-attacks that include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data or causing operational disruption.
In general, cyber incidents can result from deliberate attacks 34 Table of Contents or unintentional events. We have observed an increased level of attention in the industry focused on cyber-attacks that include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data or causing operational disruption.
Our profitability depends upon our continued ability to successfully compete with traditional and new financial services providers, some of which maintain a physical presence in our market areas and others of which maintain only a virtual presence. Many competitors have substantially greater resources than us, and some operate under less stringent regulatory environments.
Our profitability depends upon our continued ability to successfully compete with traditional and new financial services providers, some of which maintain a physical presence in our market areas and others of which maintain only 29 Table of Contents a virtual presence. Many competitors have substantially greater resources than us, and some operate under less stringent regulatory environments.
In some instances, we could be required to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements. Any such changes (while not anticipated) could adversely affect the Company’s and Bank’s capital, regulatory capital ratios, ability to make larger loans, earnings and performance metrics.
In some instances, we could be required to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements. Any such changes could adversely affect the Company’s and Bank’s capital, regulatory capital ratios, ability to make larger loans, earnings and performance metrics.
Our failure to comply with any applicable laws or regulations or regulatory policies and interpretations of such laws and regulations could result in sanctions by regulatory agencies, civil money penalties or damage to our reputation, all of which could have a material adverse effect on our business, financial condition and results of operations.
Our failure to comply with any applicable laws or regulations or regulatory policies and interpretations of such laws and regulations, or our failure to meet supervisory expectations, could result in sanctions by regulatory agencies, civil money penalties or damage to our reputation, all of which could have a material adverse effect on our business, financial condition and results of operations.
Our liquidity could be adversely affected by any inability to access the capital markets, illiquidity or volatility in the capital markets, the decrease in value of eligible collateral or increased collateral requirements (including as a result of credit concerns for short-term borrowing), changes to our relationships with our funding providers based on real or perceived changes in our risk profile, prolonged federal government shutdowns or changes in regulations.
Our liquidity could be adversely affected by any inability to access the debt or equity capital markets, liquidity or volatility in those capital markets, the decrease in value of eligible collateral or increased collateral requirements (including as a result of credit concerns for short-term borrowing), changes to our relationships with our funding providers based on real or perceived changes in our risk profile, prolonged federal government shutdowns or changes in regulations.
The laws and regulations applicable to the Company and Bank govern a variety of matters, including permissible types, amounts and terms of loans and investments they may make, the maximum interest rate that may be charged, the amount of reserves that must be held against deposits, the types of deposits that may be accepted and the rates that may be paid on such deposits, maintenance of adequate capital and liquidity, changes in control of the Company and Bank, transactions between the Bank and its affiliates, handling of nonpublic information, restrictions on distributions to shareholders through dividends or share repurchases, dividends and establishment of new offices.
The laws and regulations applicable to the Company and Bank govern a variety of matters, including permissible types, amounts and terms of loans and investments they may make, the maximum interest rate that may be charged, the types of deposits that may be accepted and the rates that may be paid on such deposits, maintenance of adequate capital and liquidity, changes in control of the Company and Bank, transactions between the Bank and its affiliates, handling of nonpublic information, restrictions on distributions to shareholders through dividends or share repurchases, dividends and establishment of new offices.
While these quantitative techniques and approaches improve our decision-making, they also create the possibility that faulty data, flawed quantitative approaches or poorly designed or implemented models could yield adverse or faulty outcomes and decisions, and could result in regulatory scrutiny.
While these quantitative techniques and approaches are intended to improve our decision-making, they also create the possibility that faulty data, flawed quantitative approaches or poorly designed or implemented models could yield adverse or faulty outcomes and decisions, and could result in regulatory scrutiny.
We have grown in the past several years through organic growth. We intend to seek further growth in the level of our assets and deposits within our existing footprint in the Washington, D.C. metropolitan area. We cannot provide any assurance that we will be able to grow at acceptable risk levels and upon acceptable terms.
We have grown in the past several years through organic growth. We intend to seek further growth in the level of our loans and deposits within our existing footprint in the Washington, D.C. metropolitan area. We cannot provide any assurance that we will be able to grow at acceptable risk levels and upon acceptable terms, or at all.
Damages to real estate underlying mortgage loans or real estate collateral and declines in economic conditions in geographic markets in which the Company’s customers operate may impact our customers’ ability to repay loans or maintain deposits due to climate change effects, which could increase our delinquency rates and average credit loss.
Damages to real estate underlying mortgage loans or real estate collateral and declines in economic conditions in geographic 30 Table of Contents markets in which the Company’s customers operate may impact our customers’ ability to repay loans or maintain deposits due to climate change effects, which could increase our delinquency rates and average credit loss.
Temporary layoffs, staffing freezes, salary reductions or furloughs of government employees or government contractors and other impacts from the cessation of stimulus or declining government spending, could have adverse impacts on other businesses in the Company’s market and the general economy of the greater Washington, D.C. metropolitan area and may indirectly lead to a loss of revenues by the Company’s customers, including vendors and lessors to the federal government and government contractors or to their employees, as well as a wide variety of commercial and retail businesses.
Temporary layoffs, staffing freezes, salary reductions or furloughs of government employees or government contractors and other impacts from declining government spending, lapses in appropriations, or changes in fiscal appropriations could have adverse impacts on other businesses in the Company’s market and the general economy of the greater Washington, D.C. metropolitan area and may indirectly lead to a loss of revenues by the Company’s customers, including vendors and lessors to the federal government and government contractors or to their employees, as well as a wide variety of commercial and retail businesses.
Under guidance adopted by the federal banking agencies, banks which have concentrations in construction, land development or commercial real estate loans (other than loans for majority owner occupied properties) would be expected to maintain higher levels of risk management policies and processes and, potentially, higher levels of capital.
Under guidance adopted by the federal banking agencies, banks that have concentrations in construction, land development or commercial real estate loans (other than loans for majority owner occupied properties) are expected to maintain higher levels of risk management policies and processes and, potentially, higher levels of capital.
We compete for loans and deposits' dollars with numerous regional and national banks, online divisions of out-of-market banks and other community banking institutions, as well as other kinds of financial institutions and enterprises, such as securities firms, insurance companies, savings associations, credit unions, mortgage brokers, private lenders and nontraditional competitors such as fintech companies and internet-based lenders, depositories and payment systems.
We compete in a highly-competitive market for loans and deposit dollars with numerous regional and national banks, online divisions of out-of-market banks and other community banking institutions, as well as other kinds of financial institutions and enterprises, such as securities firms, insurance companies, savings associations, credit unions, mortgage brokers, private lenders and nontraditional competitors such as fintech companies and internet-based lenders, depositories and payment systems.
Testing for impairment of goodwill is performed annually and involves the identification of the reporting unit and the estimation of fair value. The estimation of fair values involves a high degree of judgment and subjectivity in the assumptions used.
Testing for impairment of goodwill involves the identification of the reporting unit and the estimation of fair value. The estimation of fair values involves a high degree of judgment and subjectivity in the assumptions used.
Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards, including with respect to the Company’s involvement in certain industries or projects associated with causing or exacerbating climate change, may negatively affect the Company’s reputation and commercial relationships, which could adversely affect our business. Our operations rely significantly on certain external vendors.
Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards, including with respect to the Company’s involvement in certain industries or projects associated with causing or exacerbating climate change, may negatively affect the Company’s reputation and commercial relationships, which could adversely affect our business.
Although not currently anticipated, we may be required to maintain higher levels of capital than we would otherwise be expected to maintain as a result of our levels of construction, development and commercial real estate loans.
We may be required to maintain higher levels of capital than we would otherwise be expected to maintain as a result of our levels of construction, development and commercial real estate loans.
Additionally, if, for any reason, economic conditions in our market area deteriorate, or there is significant volatility or weakness in the economy or any significant sector of the area’s economy, our ability to develop our business relationships may be diminished, the quality and collectability of our loans may be adversely affected, the value of collateral may decline and loan demand may be reduced.
Additionally, if, for any reason, economic conditions in our market area deteriorate, commercial real estate values, in particular for offices, decline further, or there is significant volatility or weakness in the economy or any significant sector of the area’s economy, our ability to develop our business relationships may be diminished, the quality and collectability of our loans may be adversely affected, the value of collateral may decline and loan demand may be reduced.
The Company may incur in the future in connection with current ongoing and any potential future investigations and legal 31 Table of Contents proceedings, as they are dependent on various factors, many of which are outside of the Company’s control.
The Company has incurred and may incur in the future in connection with current ongoing and any potential future investigations and legal proceedings, as they are dependent on various factors, many of which are outside of the Company’s control.
Further, in such matters, it is inherently difficult to determine whether any loss is probable or whether it is possible to estimate the amount of any reasonably possible loss.
Further, in litigation and regulatory matters, it is inherently difficult to determine whether any loss is probable or whether it is possible to estimate the amount of any reasonably possible loss.
The Company accounts for goodwill and other intangible assets in accordance with generally accepted accounting principles (“GAAP”), which, in general, requires that goodwill not be amortized, but rather that it be tested for impairment at least annually at the reporting unit level.
The Company accounts for goodwill and other intangible assets in accordance with generally accepted accounting principles (“GAAP”), which, in general, requires that goodwill not be amortized, but rather that it be tested for impairment at least annually or upon the occurrence of a triggering event at the reporting unit level.
The differences in resources and regulations may make it harder for us to compete profitably, reduce the rates that we can earn on loans and investments, increase the rates we must offer on deposits and other funds and adversely affect our overall financial condition and earnings. The Bank has been very successful in developing customer relationships.
The differences in resources and regulations may make it harder for us to compete profitably, reduce the rates that we can earn on loans and investments, increase the rates we must offer on deposits and other funds and adversely affect our overall financial condition and earnings. The Bank has developed and aims to continue to develop new customer relationships.
As such, assuming a static balance sheet, we expect increases of approximately +9.9% and +16.4%, respectively, in projected net interest income and net income over a twelve month period resulting from an instantaneous 100 basis point increase in rates across the yield curve.
As such, the Company's analysis, assuming a static balance sheet, decreases of approximately (0.4)% and (0.9)%, respectively, in projected net interest income and net income over a twelve month period resulting from an instantaneous 100 basis point increase in rates across the yield curve.
Federal regulatory agencies may adopt changes to their regulations or change the manner in which existing regulations are applied. We cannot predict the substance or effect of future legislation or regulation or the application of laws and regulations to us.
Federal regulatory agencies may adopt changes to their regulations, change the manner in which existing regulations are applied or develop more stringent expectations for the banks they supervise. We cannot predict the substance or effect of future legislation or regulation or the application of laws and regulations to us.
Certain adverse consequences of the pandemic continue to materially affect the businesses of certain segments of our customer bases and of their customers, which impacts their creditworthiness, their ability to pay amounts owed to us and our ability to collect those amounts.
Certain adverse consequences of the pandemic, including lower office occupancy rates, continue to materially affect the businesses of certain segments of our customer base and of their customers, which impacts their creditworthiness, their ability to pay amounts owed to us and our ability to collect those amounts.
The Company has implemented internal processes to ensure compliance with this rule. Failure to keep up with the rapid technological changes in the financial services industry could have a material adverse effect on our competitive position and profitability. The financial services industry is undergoing rapid technological changes, with frequent introductions of new technology-driven products and services.
Failure to keep up with the rapid technological changes in the financial services industry could have a material adverse effect on our competitive position and profitability. The financial services industry is undergoing rapid technological changes, with frequent introductions of new technology-driven products and services.
Once the D&O Insurance Policies are exhausted (as is the case for our 2016/2017 D&O Policy), the Company will be responsible for paying the defense costs associated with those investigations and litigations (to include unpaid receivables from the insurance carriers) for itself and on behalf of any current and former officers and directors entitled to indemnification from the Company.
When the D&O Insurance Policies are exhausted, the Company is responsible for paying the defense costs associated with those investigations and litigations (to include unpaid receivables from the insurance carriers) for itself and on behalf of any current and former officers and directors entitled to indemnification from the Company.
Any failure to maintain effective controls, to timely implement any necessary improvement to our internal and disclosure controls or to effect remediation of any material weakness or significant deficiency could, among other things, result in losses from fraud or error, harm our reputation or cause investors to lose confidence in our reported financial information, all of which could have a material adverse effect on our results of operations, financial condition or stock price. 23 Table of Contents Management reviews and updates our systems of internal control and disclosure controls and procedures, as well as corporate governance policies and procedures, as appropriate.
Any failure to maintain effective controls, to timely implement any necessary improvement to our internal and disclosure controls or to effect remediation of any material weakness or significant deficiency could, among other things, result in losses from fraud or error, harm our reputation or cause investors to lose confidence in our reported financial information, all of which could have a material adverse effect on our results of operations, financial condition or stock price.
We rely upon independent appraisers to estimate the value of such real estate. Appraisals are only estimates of value and the independent appraisers may make mistakes of fact or judgment, which adversely affect the reliability of their appraisals. In addition, events occurring after the initial appraisal may cause the value of the real estate to increase or decrease.
In addition, the independent appraisers may make mistakes of fact or judgment, which adversely affect the reliability of their appraisals. In addition, events occurring after the initial appraisal may cause the value of the real estate to increase or decrease.
While we believe that our loan portfolio is well diversified in terms of borrowers and industries, these concentrations expose us to the risk that adverse developments in the real estate market or in the general economic conditions in the Washington, D.C. metropolitan area could increase the levels of nonperforming loans and charge-offs and reduce loan demand.
While we believe that our loan portfolio is well diversified in terms of borrowers and industries, these concentrations expose us to the risk that adverse developments in the real estate market or in the general economic conditions in the Washington, D.C. metropolitan area, and in particular the area’s office property market, could increase the levels of nonperforming loans, which could have an adverse impact on our provision for credit losses, loan charge-offs and overall loan demand.
We may seek to selectively expand our banking operations through limited de novo branching or opportunistic acquisition activities. We cannot be certain that any expansion activity, through de novo branching, acquisition of branches of another financial institution or a whole institution or the establishment or acquisition of nonbanking financial services companies, will prove profitable or will increase shareholder value.
We cannot be certain that any expansion activity, through de novo branching, acquisition of branches of another financial institution or a whole institution or the establishment or acquisition of nonbanking financial services companies, will prove profitable or will increase shareholder value.
The banking industry is highly regulated and supervised under federal and state laws and regulations that are intended primarily for the protection of depositors, customers, the public, the banking system as a whole or the FDIC DIF and not for the protection of our shareholders and creditors.
The banking industry is highly regulated and supervised under federal and state laws and regulations that are intended primarily for the protection of depositors, customers, the public, the banking industry as a whole, or the FDIC deposit insurance fund (“DIF”).
Our business requires the collection and retention of large volumes of customer data, including personally identifiable information ("PII") in various information systems that we maintain and in those maintained by third party service providers. We also maintain important internal company data such as PII about our employees and information relating to our operations.
Our business requires the collection and retention of large volumes of customer data, including personally identifiable information ("PII") in various information systems that we maintain and in those maintained by third party service providers.
The inability to achieve growth of income or assets or deposits and increases in operating expenses or nonperforming assets may have an adverse impact on the value of the common stock. We are subject to liquidity risk in our operations.
The inability to maintain or achieve growth of income or assets or deposits and increases in improvements of operating expenses or nonperforming assets may have an adverse impact on our results of operations, financial condition and the value of the common stock.
The results of our interest rate sensitivity simulation model depend upon a number of assumptions, which may not prove to be accurate. There can be no assurance that we will be able to successfully manage our interest rate risk.
The results of our interest rate sensitivity simulation model depend upon a number of assumptions, which may not prove to be accurate. There can be no assurance that we will be able to successfully manage our interest rate risk. Fluctuations in inflation rates may also have a number of adverse effects on the Bank and the Company.
Commercial, commercial real estate and construction loans tend to have larger balances than single family mortgages loans and other consumer loans. Because the loan portfolio contains a significant number of commercial and commercial real estate and construction loans with relatively large balances, the deterioration of one or a few of these loans may cause a significant increase in nonperforming assets.
The loan portfolio contains a significant number of commercial and commercial real estate and construction loans with relatively large balances. The deterioration of one or a few of these loans may cause a significant increase in nonperforming assets.
Conversely, assuming a static balance sheet, we expect decreases of approximately (4.7)% and (7.3)%, respectively, in projected net interest income and net income over a twelve month period resulting from an instantaneous 100 basis point decrease in rates across the yield curve.
Conversely, assuming a static balance sheet, we expect decreases of approximately 3.0% and 8.4%, respectively, in projected net interest income and net income over a twelve month period resulting from an instantaneous 100 basis point decrease in rates across the yield curve. In addition, if interest rates continue to rise or stay elevated, we may continue to experience deposit outflows.
Furthermore, we may not be able to ensure that customers and other third parties have appropriate controls in place to protect the 32 Table of Contents confidentiality of the information that they exchange with us, particularly where such information is transmitted by electronic means.
Furthermore, customers and other third parties may not have appropriate controls in place to protect the confidentiality of the information that they exchange with us, particularly where such information is transmitted by electronic means, which can expose us to risks and potential costs and liabilities.
Transitioning back and forth between a hybrid work model and a work from home model may increase our operational risks and introduce additional operational risks, including (i) risks related to our work productivity; (ii) increased spending on our business continuity efforts; (iii) increased strain on certain risk management practices, including, but not limited to, the effectiveness and accuracy of our models, given the potential lack of data inputs and comparable precedent; (iv) risks related to the effectiveness of our anti-money laundering and other compliance programs; (v) increased cybersecurity risk, particularly as technology in employees' homes may not be as robust as in our offices and could cause the networks, information systems, applications, and other tools available to employees to be more limited or less reliable than in our offices.
Operational risks that may have an adverse effect on our operations, include (i) risks related to our work productivity; (ii) increased spending on our business continuity efforts; (iii) increased strain on certain risk management practices, including, but not limited to, the effectiveness and accuracy of our models, given the potential lack of data inputs and comparable precedent; (iv) risks related to the effectiveness of our anti-money laundering and other compliance programs; (v) increased cybersecurity risk due to the current hybrid work model in which certain employees split time between working at the office and working remotely, as a result of the technology in the employees’ homes which may not be as robust as in our offices and could cause the networks, information systems, applications, and other tools available to employees to be more limited or less reliable than in our offices; and (vi) risks related to our efforts to provide banking services through digital channels.
Our customers and businesses in the Washington, D.C. metropolitan area in general may be adversely impacted as a result of changes in government spending. The Washington, D.C. metropolitan area is characterized by a significant number of businesses that are federal government contractors or subcontractors or which depend on such businesses for a significant portion of their revenues.
The Washington, D.C. metropolitan area is characterized by a significant number of businesses that are federal government contractors or subcontractors, or which depend on such businesses for a significant portion of their revenues.
Our operating income and net income depend to a great extent on our net interest margin, i.e., the difference between the interest yields we receive on loans, securities and other interest bearing assets and the interest rates we pay on interest bearing deposits and other liabilities.
Our liquidity, funding mix, competitive position, business, results of operations and financial condition depend to a great extent on our net interest margin, i.e., the difference between the interest yields we receive on loans, securities and other interest bearing assets and the interest rates we pay on interest bearing deposits and other liabilities.
We are subject to complex and evolving laws and regulations governing the privacy and protection of PII of individuals (including customers, employees and other third parties), as well as planning for responding to data security breaches.
We also maintain important internal company data such as PII about our employees and information relating to our operations. 33 Table of Contents We are subject to complex and evolving laws and regulations governing the privacy and protection of PII of individuals (including customers, employees and other third parties), as well as planning for responding to data security breaches.
Declines in the value of investment securities could result in losses that can reduce liquidity, capital and earnings. These risk factors include, but are not limited to, market conditions, instability in the credit markets, rating agency downgrades of the securities, lack of market pricing of the securities, defaults of the issuers of the securities and issuer impairments.
These factors include, but are not limited to, market conditions, instability in the credit markets, rating agency downgrades of the securities, lack of market pricing of the securities, defaults of the issuers of the securities and issuer impairments.
Of these loans, $1.0 billion, or 13.0% of portfolio loans, were land, land development and construction loans. An additional $1.5 billion, or 19.0% of portfolio loans, were commercial and industrial loans, which are generally not secured by real estate.
At December 31, 2023, 82% of our loans were secured or partially secured by real estate, primarily commercial real estate. Of these loans, $1.1 billion, or 14% of portfolio loans, were land, land development and construction loans. An additional $1.5 billion, or 18% of portfolio loans, were commercial and industrial loans, which are generally not secured by real estate.
Even as economic conditions may continue to improve in future quarters, there can be no assurance that we will be able to increase our total net loans or re-achieve similar loan growth numbers as compared to periods prior to COVID-19 (or re-achieve meaningful increase in loan growth at all) in the short-term or long-term.
Even if economic conditions continue to improve in future quarters, there can be no assurance that we will be able to increase our total net loans in the short-term or long-term. We may not be able to achieve meaningful growth in asset levels, loans or earnings in future years.
Climate change or government action and societal responses to climate change could adversely affect our results of operations. Climate change can increase the likelihood of the occurrence and severity of natural disasters and can also result in longer-term shifts in climate patterns such as extreme heat, sea level rise and more frequent and prolonged drought.
Climate change can increase the likelihood of the occurrence and severity of natural disasters and can also result in longer-term shifts in climate patterns such as extreme heat, sea level rise, more frequent and prolonged drought, stronger and more frequent storms and other instances of extreme weather.
We must obtain approval from our regulators before engaging in certain activities, and there is risk that such approvals may not be granted, either in a timely manner or at all.
The Company’s and the Bank’s regulators have also provided guidance on supervisory expectations relating to risk management and numerous other aspects of our activities. We must obtain approval from our regulators before engaging in certain activities, and there is risk that such approvals may not be granted, either in a timely manner or at all.
Secondarily, because of the complexity inherent in these approaches, misunderstanding or misuse of their outputs could similarly result in 34 Table of Contents suboptimal decision-making, which could have a material adverse effect on our business, financial condition, results of operations and share price.
Secondarily, because of the complexity inherent in these approaches, misunderstanding or misuse of their outputs could similarly result in suboptimal decision-making, which could have a material adverse effect on our business, financial condition, results of operations and share price. 35 Table of Contents GENERAL RISKS The price of our common stock may fluctuate significantly, which may make it difficult for investors to resell shares of common stock at a time or price they find attractive.
Various federal and state banking regulators and states have also enacted data breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement notification in the event of a security breach. Ensuring that our collection, use, transfer, storage and disposal of PII complies with all applicable laws and regulations can increase our costs.
Various federal and state banking regulators and states have also enacted data breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement notification in the event of a security breach.
If earnings do not meet our current estimates, if we incur unanticipated losses or expenses or if we grow faster than expected, we may need to obtain additional capital sooner than expected or we may be required to reduce our level of assets, reduce or suspend stock repurchases or dividends or reduce our rate of growth in order to maintain regulatory compliance.
If earnings do not meet our current estimates, if we incur unanticipated losses or expenses, if we grow faster than expected or if our capital position and capital planning do not meet supervisory expectations, we may need to obtain additional capital sooner than expected or we may be 25 Table of Contents required to reduce our level of assets or reduce or suspend dividends or stock repurchases (if restarted) or refrain from pursuing growth opportunities we may otherwise consider attractive.
As a result, despite the education, compliance training, supervision and oversight we exercise in these areas, individual loan officers intentionally trying to conceal improper activities could result in the Bank being strictly liable for restitution or damages to individual borrowers and to regulatory enforcement activity.
As a result, despite the education, compliance training, supervision and oversight we exercise in these areas, these compliance efforts could be unsuccessful or individual employees could engage in misconduct, potentially resulting in the Bank being strictly liable for restitution or damages to individual borrowers and subject to regulatory enforcement activity or damage to its reputation.
While we believe that our relationship banking model will enable us to keep a significant percentage of these new relationships, there can be no assurance that we will be able to do so, that we would be able to maintain favorable pricing, margins and asset quality or that we will be able to grow at the same rate we did when alternative financing was not widely available.
There can be no assurance that our relationship banking model will enable us to keep a significant percentage of new relationships or continue to develop new relationships, that we would be able to maintain appropriate levels in the pricing, margins and asset quality or that we will be able to continue to grow.
These rates are highly sensitive to many factors beyond our control, including competition, general economic conditions and monetary and fiscal policies of various governmental and regulatory authorities, including the FRB. 27 Table of Contents We attempt to manage our risk from changes in market interest rates by adjusting the rates, maturity, re-pricing, and balances of the different types of interest earning assets and interest bearing liabilities, but interest rate risk management techniques are not exact.
We attempt to manage our risk from changes in market interest rates by adjusting the rates, maturity, re-pricing, and balances of the different types of interest earning assets and interest bearing liabilities, but interest rate risk management techniques are not exact.
Importantly, regulatory capital requirements could increase from current levels, which could require us to raise additional capital or reduce our operations.
Additionally, regulatory capital requirements could increase from current levels, which could require us to raise additional capital or change the size or composition of our balance sheet.
As a result, a rapid increase or decrease in interest rates could have an adverse effect on our net interest margin and results of operations. At December 31, 2022, our cumulative net asset sensitive twelve month gap position was +7.98% of total assets.
As a result, a rapid increase or decrease in interest rates could have an adverse effect on our net interest margin and results of operations.
Any system of controls is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met.
Management reviews and updates our systems of internal control and disclosure controls and procedures, as well as corporate governance policies and procedures, from time to time. Any system of controls is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met.
If the third-party service providers continue to have limited capacities for a prolonged period or if additional limitations or potential disruptions in these services materialize, it may negatively affect our operations. • Strategic and Reputational Risk .
If the third-party service providers continue to have limited capacities for a prolonged period or if additional limitations or potential disruptions in these services materialize, it may negatively affect our operations. 23 Table of Contents Our inability to generate liquidity in a timely manner may adversely impact our ability to satisfy obligations associated with our financing, our operations and other components of our business.
We rely on business processes and branch activity that largely depend on people and technology, including access to information technology systems as well as information, applications, payment systems and other services provided by third parties. In 2022, the Bank operated primarily under a hybrid work model in which certain employees split time between working at the office and working remotely.
We rely on business processes and branch activity that largely depend on people and technology, including access to information technology systems as well as information, applications, payment systems and other services provided by third parties.
Our ability to retain and grow loans, deposits and fee income depends upon the business generation capabilities, reputation and relationship management skills of our bankers.
In light of macroeconomic factors, human capital management risks are an important component of the Company’s assessment of risk and its enterprise risk management system. Our ability to retain and grow loans, deposits and fee income depends upon the business generation capabilities, reputation and relationship management skills of our bankers.
Compliance with current and potential regulation, as well as regulatory scrutiny, may significantly increase our costs, impede the efficiency of our internal business processes, require us to increase regulatory capital and limit our ability to pursue business opportunities in an efficient manner by requiring us to expend significant time, effort and resources to ensure compliance and respond to any regulatory inquiries or investigations.
Compliance with current and potential regulation, as well as regulatory scrutiny, may significantly increase our costs, impede the efficiency of our internal business processes, require us to increase regulatory capital, to change the size or composition of our funding, loan portfolio or investment securities portfolio, or to limit our ability to pursue business opportunities.
Moreover, as our asset size, loan portfolio and earnings increase, it may become more difficult to achieve high rates of increase. Additionally, it may become more difficult to achieve improvements in our expense levels and efficiency ratio. We may not be able to maintain the relatively low levels of nonperforming assets that we have experienced to date.
Moreover, as our asset size, loan portfolio and earnings increase, it may become more difficult to maintain the levels and performance achieved and continue to grow in the future. Additionally, it may become more difficult to maintain or achieve improvements in our expense levels and efficiency ratio.
We are subject to comprehensive regulation under federal and state laws. These laws and regulations significantly affect and have the potential to restrict the scope of our existing businesses and limit our ability to pursue certain business opportunities, including the products and services we offer.
These laws and regulations significantly affect and have the potential to restrict the scope of our existing businesses and limit our ability to pursue certain business opportunities, including the products and services we offer. We may seek to selectively expand our banking operations through limited de novo branching or opportunistic acquisition activities.
While we maintain insurance coverage that may, subject to policy terms and conditions including significant self-insured 33 Table of Contents deductibles, cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses.
Cyber-attacks can originate from a variety of sources, including third parties affiliated with or sponsored by foreign governments or involved with organized crime or terrorist organizations. While we maintain insurance coverage that may, subject to policy terms and conditions including significant self-insured deductibles, cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses.
We also face an increased risk of litigation and governmental and regulatory scrutiny as a result of the lasting effects of the pandemic on market and economic conditions. We also face risks related to actions governmental authorities take in response to those conditions. • Evolution of the COVID-19 pandemic.
We also face an increased risk of litigation, governmental and regulatory scrutiny, and/or actions governmental authorities may take in response to those conditions.
Similarly, when interest earning assets mature or re-price more quickly than interest bearing liabilities, falling interest rates could reduce net interest income.
Similarly, when interest earning assets mature or re-price more quickly than interest bearing liabilities, falling interest rates could reduce net interest income, possibly materially. Fluctuations in interest rates have a direct impact on our credit spreads and the cost of our funding.

… 167 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

1 edited+0 added−0 removed2 unchanged
Biggest changeAs of December 31, 2022, the Company and its subsidiaries operated out of 20 different locations (some of which have multiple leases); which include our principal corporate office, branch offices, lending centers and an operations center in Washington, D.C., Suburban, Maryland and Northern Virginia metropolitan areas.
Biggest changeAs of December 31, 2023, the Company and its subsidiaries operated out of 17 different locations (some of which have multiple leases); which include our principal corporate office, branch offices, lending centers and an operations center in Washington, D.C., Suburban Maryland and Northern Virginia metropolitan areas.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

2 edited+0 added−0 removed1 unchanged
Biggest changeHowever, in light of the inherent uncertainties involved in such matters, ongoing legal expenses or an adverse outcome in one or more of these matters could 35 Table of Contents materially and adversely affect the Company’s financial condition and results of operations or cash flows in any particular reporting period, as well as its reputation. ITEM 4.
Biggest changeHowever, in light of the inherent 37 Table of Contents uncertainties involved in such matters, ongoing legal expenses or an adverse outcome in one or more of these matters could materially and adversely affect the Company’s financial condition and results of operations or cash flows in any particular reporting period, as well as its reputation. ITEM 4.
ITEM 3. LEGAL PROCEEDINGS As disclosed in Note 21 to the Consolidated Financial Statements, the Company and its subsidiaries are involved in various legal proceedings incidental to their business in the ordinary course, and the disclosure set forth in Note 21 relating to certain legal matters is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS As disclosed in Note 20 to the Consolidated Financial Statements, the Company and its subsidiaries are involved in various legal proceedings incidental to their business in the ordinary course, and the disclosure set forth in Note 20 relating to certain legal matters is incorporated herein by reference.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

12 edited+5 added−6 removed3 unchanged
Biggest changeRegulations 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.
Biggest changePrior 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.
At December 31, 2022 the Bank could pay dividends to the Company to the extent of its earnings so long as it maintained required capital ratios. The FRB has established requirements with respect to the maintenance of appropriate levels of capital by registered bank holding companies.
At December 31, 2023 the Bank could pay dividends to the Company to the extent of its earnings so long as it maintained required capital ratios. The FRB has established requirements with respect to the maintenance of appropriate levels of capital by registered bank holding companies.
The following table compares the cumulative total return on a hypothetical investment of $100 in the Company’s common stock from December 31, 2017 through December 31, 2022, with the hypothetical cumulative total return on the Nasdaq Stock Market Index (U.S. Companies), S&P 500 Index and the KBW Regional Banking Index for the comparable period, including reinvestment of dividends.
The following table compares the cumulative total return on a hypothetical investment of $100 in the Company’s common stock from December 31, 2018 through December 31, 2023, with the hypothetical cumulative total return on the Nasdaq Stock Market Index (U.S. Companies), S&P 500 Index and the KBW Regional Banking Index for the comparable period, including reinvestment of dividends.
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.
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. Issuer Repurchase of Common Stock.
As of February 1, 2023, our directors and executive officers own approximately 2% of our outstanding shares of common stock. Dividends. The Company pays a regular quarterly cash dividend. In 2022, the Company declared four cash dividends with an aggregate value of $1.75 per share, or $55.8 million.
As of February 9, 2024, our directors and executive officers own approximately 3% of our outstanding shares of common stock. Dividends. The Company pays a regular quarterly cash dividend. In 2023, the Company declared four cash dividends with an aggregate value of $1.80 per share, or $54.3 million.
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.
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.
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, 2022, the average daily trading volume amounted to approximately 167,619 shares, an increase from approximately 126,207 shares over the twelve month period ended December 31, 2021.
The Company’s common stock is listed for trading on the Nasdaq Capital Market under the symbol “EGBN.” Over the year ended December 31, 2023, the average daily trading volume amounted to approximately 302,118 shares, an increase from approximately 167,619 shares over the year ended December 31, 2022.
No assurance can be given that a more active trading market will develop or can be maintained. As of February 1, 2023, there were 31,346,903 shares of common stock outstanding, held by approximately 518 shareholders of record. Based on the most recent analysis, the Company believes beneficial shareholders number approximately 12,025.
No assurance can be given that a more active trading market will develop or can be maintained. As of February 9, 2024, there were 29,928,977 shares of common stock outstanding, held by approximately 493 shareholders of record. Based on the most recent analysis, the Company believes beneficial shareholders number approximately 18,405.
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 FRB issued a policy statement on the payment of cash dividends by 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.
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.
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 Board of Directors authorized the repurchase of 1,600,000 shares of common stock, or approximately 5% of the Company's outstanding shares of common stock, under the 2022 Repurchase Program, which expired on December 31, 2022.
On December 13, 2022, the Company's Board of Directors authorized a share repurchase program (the "2023 Repurchase Program") that took effect starting January 2, 2023 and authorized the repurchase of 1,600,000 shares of common stock, or approximately 5% of the Company's outstanding shares of common stock.
(5) Average price paid per share includes commission costs associated with the repurchases. See Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters for “Securities Authorized for Issuance Under Equity Compensation Plans.” 37 Table of Contents Stock Price Performance.
The Company fully utilized the 2023 Repurchase Program as of the second quarter of 2023. 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 of Contents Stock Price Performance.
Removed
In the statement, the FRB 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.
Added
The payment of dividends in any period does not mean that the Company will continue to pay dividends at the current level, or at any other level.
Removed
Issuer Repurchase of Common Stock. 36 Table of Contents Period Total Number of Shares Purchased (3)(4) Average Price Paid Per Share (5) 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) January 1, 2022 — n/a n/a 1,600,000 October 1 - 31, 2022 117,700 $44.47 117,700 1,482,300 November 1 - 30, 2022 228,000 $45.98 228,000 1,254,300 December 1-31, 2022 392,600 $44.24 392,600 861,700 Total 738,300 $44.82 738,300 861,700 (1) On December 28, 2021, the Company's Board of Directors authorized a new share repurchase program (the "2022 Repurchase Program") to take effect starting January 1, 2022, after the expiration of the previous repurchase program on December 31, 2021.
Added
Regulations of the Board of Governors of the Federal Reserve System ("Federal Reserve Board" or "Federal Reserve") and Maryland law place limits on the amount of dividends the Bank may pay to the Company without prior approval.
Removed
(2) On December 13, 2022, the Company's Board of Directors authorized a new share repurchase program (the "2023 Repurchase Program") to take effect starting January 2, 2023, after the expiration of the previous repurchase program on December 31, 2022.
Added
The FRB has issued guidance regarding the situations in which a bank holding company should consider eliminating, reducing, or deferring its dividends, including if the net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; the prospective rate of earnings retention is not consistent with capital needs and the bank holding company’s overall current and prospective financial condition; or the bank holding company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
Removed
The Board of Directors authorized the repurchase of 1,600,000 shares of common stock, or approximately 5% of the Company's outstanding shares of common stock, under the 2023 Repurchase Program, which will expire on December 31, 2023, subject to earlier termination of the program by the Board of Directors.
Added
The Company did not repurchase any shares of its common stock during the fourth quarter of 2023.
Removed
(3) Inclusive of shares remaining available for purchase under the 2022 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.
Added
Years Ended December 31, 2018 2019 2020 2021 2022 2023 Eagle Bancorp, Inc. 100.00 100.76 87.87 126.98 99.16 72.41 Nasdaq Composite Index 100.00 136.69 198.10 242.03 163.28 236.17 S&P 500 Index 100.00 131.49 155.68 200.37 164.08 207.21 KBW Nasdaq Regional Banking Index 100.00 123.81 113.03 154.45 143.75 143.17
Removed
Period Ending Index 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 Eagle Bancorp, Inc. 100.00 84.13 84.77 73.92 106.83 83.42 Nasdaq Composite Index 100.00 97.16 132.81 192.47 235.15 158.65 S&P 500 Index 100.00 95.62 125.72 148.85 191.58 156.88 KBW Nasdaq Regional Banking Index 100.00 82.50 102.15 93.25 127.42 118.59 ITEM 6. [RESERVED]

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

198 edited+151 added−133 removed71 unchanged
Biggest changeYears Ended December 31, 2022 2021 2020 Balance Sheets - Period End Securities - available for sale $ 1,598,666 $ 2,623,408 $ 1,151,083 Securities - held to maturity 1,093,374 — — Loans held for sale 6,734 47,218 88,205 Loans 7,635,632 7,065,598 7,760,212 Allowance for credit losses (74,444) (74,965) (109,579) Intangible assets, net 104,233 104,255 104,307 Total assets 11,150,854 11,847,310 11,117,802 Deposits 8,713,182 9,981,540 9,189,203 Borrowings 1,044,795 369,670 568,077 Total liabilities 9,922,533 10,496,535 9,876,910 Total shareholders’ equity 1,228,321 1,350,775 1,240,892 Tangible common equity (1) 1,124,088 1,246,520 1,135,778 Statements of Income Interest income $ 424,613 $ 364,496 $ 389,986 Interest expense 91,746 39,982 68,424 Provision (reversal) for credit losses 266 (20,821) 45,571 Noninterest income 23,654 40,385 45,696 Noninterest expense 165,098 149,165 144,162 Income before taxes 189,680 237,674 176,145 Income tax expense 48,750 60,983 43,928 Net income 140,930 176,691 132,217 Cash dividends declared 55,776 44,691 28,330 Total revenue (2) 356,521 364,899 367,258 43 Table of Contents Years Ended December 31, (dollars in thousands except per share data) 2022 2021 2020 Per Common Share Data Net income, basic $ 4.40 $ 5.53 $ 4.09 Net income, diluted 4.39 5.52 4.09 Dividends declared 1.75 1.40 0.88 Book value 39.18 42.28 39.05 Tangible book value (3) 35.86 38.97 35.74 Common shares outstanding 31,346,903 31,950,092 31,779,663 Weighted average common shares outstanding, basic 32,004,251 31,935,824 32,334,201 Weighted average common shares outstanding, diluted 32,078,070 32,003,090 32,362,556 Ratios Net interest margin 2.93 % 2.81 % 3.19 % Efficiency ratio (4) 46.31 % 40.88 % 39.25 % Return on average assets 1.20 % 1.49 % 1.28 % Return on average common equity 10.99 % 13.54 % 10.98 % Return on average tangible common equity (1) 11.97 % 14.73 % 12.03 % CET1 capital (to risk weighted assets) 14.03 % 14.63 % 13.49 % Total capital (to risk weighted assets) 14.94 % 15.74 % 17.04 % Tier 1 capital (to risk weighted assets) 14.03 % 14.63 % 13.49 % Tier 1 capital (to average assets) 11.63 % 10.19 % 10.31 % Tangible common equity ratio 10.18 % 10.60 % 10.31 % Dividend payout ratio 39.58 % 25.29 % 21.59 % Asset Quality Nonperforming assets and loans 90+ past due $ 8,430 $ 30,843 $ 65,930 Nonperforming assets and loans 90+ past due to total assets 0.08 % 0.26 % 0.59 % Nonperforming loans to total loans 0.08 % 0.41 % 0.79 % Allowance for credit losses to loans 0.97 % 1.06 % 1.41 % Allowance for credit losses to nonperforming loans 1,150.96 % 256.66 % 179.80 % Net charge-offs $ 624 $ 13,339 $ 20,097 Net charge-offs to average loans 0.01 % 0.18 % 0.26 % (1) Tangible common equity and return on average tangible common equity are non-GAAP financial measures.
Biggest change(dollars in thousands) December 31, 2023 December 31, 2022 Consolidated Balance Sheets: Securities - available for sale $ 1,506,388 $ 1,598,666 Securities - held to maturity 1,015,737 1,093,374 Loans held for sale — 6,734 Loans 7,968,695 7,635,632 Allowance for credit losses (85,940) (74,444) Goodwill and intangible assets, net 104,925 104,233 Total assets 11,664,538 11,150,854 Deposits 8,808,039 8,713,182 Borrowings 1,369,918 1,044,795 Total liabilities 10,390,255 9,922,533 Total shareholders’ equity 1,274,283 1,228,321 Tangible common equity (1) 1,169,358 1,124,088 Years Ended December 31, (dollars in thousands) 2023 2022 2021 Consolidated Statements of Income: Interest income $ 625,327 $ 424,613 $ 364,496 Interest expense 334,781 91,746 39,982 Provision for (reversal of) credit losses 31,536 266 (20,821) Noninterest income 21,536 23,654 40,385 Noninterest expense 153,293 165,098 149,165 Income before taxes 127,520 189,680 237,674 Income tax expense 26,986 48,750 60,983 Net income 100,534 140,930 176,691 Cash dividends declared 54,293 55,776 44,691 Total revenue (2) 312,082 356,521 364,899 45 Table of Contents Years Ended December 31, (dollars in thousands except per share data) 2023 2022 2021 Per Common Share Data: Net income, basic $ 3.31 $ 4.40 $ 5.53 Net income, diluted 3.31 4.39 5.52 Dividends declared 1.80 1.75 1.40 Book value 42.58 39.18 42.28 Tangible book value (3) 39.08 35.86 38.97 Common shares outstanding 29,925,612 31,346,903 31,950,092 Weighted average common shares outstanding, basic 30,345,504 32,004,251 31,935,824 Weighted average common shares outstanding, diluted 30,393,100 32,078,070 32,003,090 Ratios: Net interest margin 2.53 % 2.93 % 2.81 % Efficiency ratio (4) 49.12 % 46.31 % 40.88 % Return on average assets 0.84 % 1.20 % 1.49 % Return on average common equity 8.11 % 10.99 % 13.54 % Return on average tangible common equity (1) 8.85 % 11.97 % 14.73 % CET1 capital (to risk weighted assets) 13.90 % 14.03 % 14.63 % Total capital (to risk weighted assets) 14.79 % 14.94 % 15.74 % Tier 1 capital (to risk weighted assets) 13.90 % 14.03 % 14.63 % Tier 1 capital (to average assets) 10.73 % 11.63 % 10.19 % Tangible common equity ratio 10.12 % 10.18 % 10.60 % Dividend payout ratio 54.00 % 39.58 % 25.29 % (dollars in thousands) December 31, 2023 December 31, 2022 Asset Quality: Nonperforming assets and loans 90+ past due $ 66,632 $ 8,430 Nonperforming assets and loans 90+ past due to total assets 0.57 % 0.08 % Nonperforming loans to total loans 0.82 % 0.08 % Allowance for credit losses to loans 1.08 % 0.97 % Allowance for credit losses to nonperforming loans 131.16 % 1,150.96 % Years Ended December 31, (dollars in thousands) 2023 2022 2021 Asset Quality Activity: Net charge-offs $ 18,850 $ 624 $ 13,339 Net charge-offs to average loans 0.24 % 0.01 % 0.18 % (1) Tangible common equity and return on average tangible common equity are non-GAAP financial measures.
The federal banking regulators have issued guidance for those institutions, which are deemed to have concentrations in commercial real estate lending.
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.
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.
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.
Forward looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements and are typically identified with words such as “may,” “will,” “can,” “anticipates,” “believes,” “expects,” “plans,” “estimates,” “potential,” “assume," "probable," "possible," "continue,” “should,” “could,” “would,” “strive," "seeks,” "deem," "projections," "forecast," "consider," "indicative," "uncertainty," "likely," "unlikely," ""likelihood," "unknown," "attributable," "depends," "intends," "generally," "feel," "typically," "judgment," "subjective" and similar words or phrases.
Forward looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements and are typically identified with words such as “may,” “will,” “can,” “anticipates,” “believes,” “expects,” “plans,” "outlook," “estimates,” “potential,” “assume," "probable," "possible," "continue,” “should,” “could,” “would,” “strive," "seeks,” "deem," "projections," "forecast," "consider," "indicative," "uncertainty," "likely," "unlikely," ""likelihood," "unknown," "attributable," "depends," "intends," "generally," "feel," "typically," "judgment," "subjective" and similar words or phrases.
(4) The Bank has the option of terminating the George Mason agreement at the end of contract years 10 and 15 (that is, effective June 30, 2025 or June 30, 2030).
(4) The Bank has the option of terminating the George Mason University ("George Mason") agreement at the end of contract years 10 and 15 (that is, effective June 30, 2025 or June 30, 2030).
Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Form 10-K for the fiscal year ended December 31, 2021.
Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Form 10-K for the fiscal year ended December 31, 2022.
In 2022, as rising rates led to deposit disintermediation reducing our liquidity levels, and loan balances increased, the Company reduced these short-term investments to rebalance the earning assets mix. The Bank did not hold any time deposits at December 31, 2022 or December 31, 2021.
In 2023, as rising rates led to deposit disintermediation reducing our liquidity levels, and loan balances increased, the Company reduced these short-term investments to rebalance the earning assets mix. The Bank did not hold any time deposits at December 31, 2023 or December 31, 2022.
From time to time, when appropriate in order to fund strong loan demand or account for increased deposit outflow, the Bank accepts brokered time deposits, generally in denominations of less than $250 thousand, from a regional brokerage firm and other national brokerage networks, including IntraFi.
From time to time, when appropriate in order to fund strong loan demand or account for increased deposit outflow, the Bank accepts brokered time deposits, generally in denominations of less than $250 thousand, from a regional brokerage firm and other national brokerage networks, including IntraFi Network, LLC ("IntraFi").
Certain policies, including those identified below for the year ended December 31, 2022, inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported.
Certain policies, including those identified below for the year ended December 31, 2023, inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported.
An industry for this purpose is defined as a group of businesses that are engaged in similar activities and have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. Certain directors and executive officers have had loan transactions with the Company.
An industry for this purpose is defined as a group of businesses that are engaged in similar activities and have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. 59 Table of Contents Certain directors and executive officers have had loan transactions with the Company.
As a result of FRB actions related to Fed Funds interest rate increases, overall yields and rates increased in 2022 as compared to 2021, as variable rate loans adjusted upwards and an increased number of loans moved off their rate floors.
As a result of FRB actions related to Fed Funds interest rate increases, overall yields and rates increased in 2023 as compared to 2022, as variable rate loans adjusted upwards and an increased number of loans moved off their rate floors.
Refer to Note 4 to the Consolidated Financial Statements for further detail regarding related party loans. 60 Table of Contents Loan Maturity The following table sets forth the time to contractual maturity of the loan portfolio as of December 31, 2022.
Refer to Note 4 to the Consolidated Financial Statements for further detail regarding related party loans. 60 Table of Contents Loan Maturity The following table sets forth the time to contractual maturity of the loan portfolio as of December 31, 2023.
See Note 11 to the Consolidated Financial Statements for additional information regarding the maturities of time deposits and the Average Balances Table in the “Net Interest Income and Net Interest Margin” section for the average rates paid on interest-bearing deposits.
See Note 10 to the Consolidated Financial Statements for additional information regarding the maturities of time deposits and the Average Balances Table in the “Net Interest Income and Net Interest Margin” section for the average rates paid on interest-bearing deposits.
The amount of such losses will vary depending upon the risk characteristics of the loan portfolio as affected by economic conditions such as changes in interest rates, the financial performance of borrowers and regional unemployment rates, which management estimates by using a national forecast and estimating a regional adjustment based on historical differences between the two.
The amount of such losses will vary depending upon the risk characteristics of the loan portfolio as affected by economic conditions 42 Table of Contents such as changes in interest rates, the financial performance of borrowers and regional unemployment rates, which management estimates by using a national forecast and estimating a regional adjustment based on historical differences between the two.
For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date.
For collateral dependent financial 64 Table of Contents assets where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date.
To meet funding needs during periods of high loan demand and seasonal variations in core deposits, the Bank regularly 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.
To meet funding needs during periods of high loan demand and seasonal variations in core deposits, the Bank regularly utilizes 67 Table of Contents 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.
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 available-for-sale investment securities, income from operations and new core deposits into the Bank.
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.
Interest rates do not necessarily move in the same direction or to the same extent as the price of goods or services. NEW AUTHORITATIVE ACCOUNTING GUIDANCE Refer to Note 1 to the Consolidated Financial Statements for New Authoritative Accounting Guidance and their expected impact on the Company’s Financial Statements. 72 Table of Contents
Interest rates do not necessarily move in the same direction or to the same extent as the price of goods or services. 75 Table of Contents NEW AUTHORITATIVE ACCOUNTING GUIDANCE Refer to Note 1 to the Consolidated Financial Statements for New Authoritative Accounting Guidance and their expected impact on the Company’s Financial Statements. 76 Table of Contents
The combination of federal funds sold, interest bearing deposits with other banks and loans held for sale represented 11% and 23% of average earning assets for 2022 and 2021, respectively, as lower levels of on-balance sheet liquidity existed throughout 2022. The decrease was driven by the decline in deposits due to a significant increase in short term interest rates.
The combination of federal funds sold, interest bearing deposits with other banks and loans held for sale represented 9% and 11% of average earning assets for 2023 and 2022, respectively, as lower levels of on-balance sheet liquidity existed throughout 2023. The decrease was driven by the decline in deposits due to a significant increase in short term interest rates.
The ACL may be zero if the fair value of the 64 Table of Contents collateral at the measurement date exceeds the amortized cost basis of the financial asset. Generally, all appraisals associated with individually assessed loans are updated on a not less than annual basis.
The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset. Generally, all appraisals associated with individually assessed loans are updated on a not less than annual basis.
The following factors, among others, could cause our financial performance to differ materially from that expressed in such forward looking statements: • Changes in the general economic, political, social and health conditions, including the macroeconomic and other challenges and uncertainties resulting from the effects of the COVID-19 pandemic; • The timely development of competitive new products and services and the acceptance of these products and services by new and existing customers; • The willingness of customers to substitute competitors’ products and services for our products and services; • Our management of liquidity risks in our operations, including, but not limited to, risks related to customer deposits, deposits in excess of the FDIC insurance coverage limits, access to capital markets and securities and market values; • The effect of acquisitions we may make, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions; • Our management of risks inherent in our real estate loan portfolio, and the risk of a prolonged downturn in the real estate market, which could impair the value of, and our ability to sell, properties which stand as collateral for loans we make; • Our decision to cease originating residential mortgages (See Note 26 of the Consolidated Financial Statements for further details); • The growth and profitability of noninterest or fee income being less than expected; • Changes in the level of our nonperforming assets and charge-offs; • Changes in consumer spending and savings habits; • The impact of climate change or government action and societal responses to climate change; • Difficulty recruiting or retaining successful bankers, executive officers or other key personnel; • Changing bank regulatory conditions, policies or programs, whether arising as new legislation or regulatory initiatives, that could lead to restrictions on activities of banks generally, or our subsidiary bank in particular, more restrictive regulatory capital requirements, increased costs, including deposit insurance premiums, regulation or prohibition of certain income producing activities or changes in the secondary market for loans and other products; • The impact of changes in financial services policies, laws and regulations, including laws, regulations and policies concerning taxes, banking, securities and insurance and the application thereof by regulatory bodies; • The effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board, inflation, interest rate, market and monetary fluctuations; • Results of examinations of us by our regulators, including the possibility that our regulators may, among other things, require us to increase our allowance for credit losses, to write-down assets or to hold more capital; • The effects or impact of any litigation, regulatory proceeding, including enforcement proceedings and any possibly resulting fines, judgments, expenses or restrictions on our business activities; • Unanticipated regulatory or judicial proceedings; • The effect of changes in accounting policies and practices, as may be adopted from time-to-time by bank regulatory agencies, the SEC, the Public Company Accounting Oversight Board ("PCAOB") or the FASB; 39 Table of Contents • Cybersecurity breaches, threats, and cyber-fraud that cause the Bank to sustain financial losses; • Technological and social media changes; • Our management of risks inherent in the use of statistical and quantitative data and modeling; • The strength of the United States economy, in general, and the strength of the local economies in which we conduct operations; • Geopolitical conditions, including acts or threats of terrorism, actions taken by the United States or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the United States and abroad; and • The factors discussed under the caption “Risk Factors” in this report.
The following factors, among others, could cause our financial performance to differ materially from that expressed in such forward looking statements: • Changes in the general economic, political, social and health conditions, including the macroeconomic and other challenges and uncertainties resulting from the effects of pandemics and natural disasters; • The timely development of competitive new products and services and the acceptance of these products and services by new and existing customers; • The willingness of customers to substitute competitors’ products and services for our products and services; • Our management of liquidity risks in our operations, including, but not limited to, risks related to customer deposits, deposits in excess of the Federal Deposit Insurance Corporation ("FDIC") insurance coverage limits, access to capital markets and securities and market values; • The effect of acquisitions we may make, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions; • Our management of risks inherent in our real estate loan portfolio, and the risk of a prolonged downturn in the real estate market, which could impair the value of, and our ability to sell, properties which stand as collateral for loans we make; • Our decision to cease originating residential mortgages; • The growth and profitability of noninterest or fee income being less than expected; • Changes in the level of our nonperforming assets and charge-offs; • Changes in consumer spending and savings habits; • The impact of climate change or government action and societal responses to climate change; • Difficulty recruiting or retaining successful bankers, executive officers or other key personnel; • Changing bank regulatory conditions, policies or programs, whether arising as new legislation or regulatory initiatives, that could lead to restrictions on activities of banks generally, or our subsidiary bank in particular, more restrictive regulatory capital requirements, increased costs, including deposit insurance premiums, regulation or prohibition of certain income producing activities or changes in the secondary market for loans and other products; 40 Table of Contents • The impact of changes in financial services policies, laws and regulations, including laws, regulations and policies concerning taxes, banking, securities and insurance and the application thereof by regulatory bodies; • The effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System ("Federal Reserve Board," "Federal Reserve" or "FRB"), inflation, interest rate, market and monetary fluctuations; • Results of examinations of us by our regulators, including the possibility that our regulators may, among other things, require us to increase our allowance for credit losses, to write-down assets, to hold more capital or to incur costs to remediate supervisory findings; • The effects or impact of any litigation, regulatory proceeding, including enforcement proceedings and any possibly resulting fines, judgments, expenses or restrictions on our business activities; • Unanticipated regulatory or judicial proceedings; • The effect of changes in accounting policies and practices, as may be adopted from time-to-time by bank regulatory agencies, the SEC, the Public Company Accounting Oversight Board ("PCAOB") or the Financial Accounting Standards Board ("FASB"); • Cybersecurity breaches, threats, and cyber-fraud that cause the Bank to sustain financial losses; • Technological and social media changes; • Our management of risks inherent in the use of statistical and quantitative data and modeling; • The strength of the United States economy, in general, and the strength of the local economies in which we conduct operations; • Geopolitical conditions, including acts or threats of terrorism, actions taken by the United States or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the United States and abroad; and • The factors discussed under the caption “Risk Factors” in this report.
For example, the effects of the COVID-19 pandemic and related hybrid or fully remote working environment had negatively impacted the performance outlook in the central business district office commercial real estate segment of our loan portfolio, which informed our CECL economic forecast and continued to adversely impact our loss reserve as of December 31, 2022.
For example, the effects of the COVID-19 pandemic and related hybrid or fully remote working environment has negatively impacted the performance outlook in the central business district office commercial real estate segment of our loan portfolio, which informed our CECL economic forecast and continued to adversely impact our loss reserve as of December 31, 2023.
Loan Portfolio In its lending activities, the Company seeks to develop and expand relationships with clients whose business and individual banking needs will grow with the Bank.
Loan Portfolio 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.
The Company’s primary subsidiary is the Bank, and the Company’s other direct and indirect active subsidiaries are Bethesda Leasing, LLC, Eagle Insurance Services, LLC and Landroval Municipal Finance, Inc. 38 Table of Contents This discussion and analysis should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this report.
The Company’s primary subsidiary is the Bank, and the Company’s other direct and indirect active subsidiaries are Bethesda Leasing, LLC, Eagle Insurance Services, LLC and Landroval Municipal Finance, Inc. This discussion and analysis should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this report.
(2) Borrowed funds include customer repurchase agreements and other short-term and long-term borrowings. (3) The Bank has outstanding obligations under its current core data processing contract that expire in June 2024 and one other vendor arrangement that relates to network infrastructure and data center services that expires in December 2024.
(2) Borrowed funds include customer repurchase agreements and other borrowings. (3) The Bank has outstanding obligations under its current core data processing contract that expire in June 2029 and one other vendor arrangement that relates to network infrastructure and data center services that expires in December 2024.
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.
The Company, like many community banks, has in commercial real estate loans, and the Company has experienced growth in its commercial real estate portfolio in recent years.
We will not update the forward looking statements to reflect actual results or changes in the factors affecting the forward looking statements. GENERAL The Company is a growth-oriented, one-bank holding company headquartered in Bethesda, Maryland, which is currently celebrating twenty-four years of successful operations.
We will not update the forward looking statements to reflect actual results or changes in the factors affecting the forward looking statements. GENERAL The Company is a one-bank holding company headquartered in Bethesda, Maryland, which is currently celebrating twenty-five years of successful operations.
The standard replaced the “incurred loss” approach with a “current expected credit loss” approach known as CECL, which requires an estimate of the credit losses expected over the life of an exposure (or 41 Table of Contents pool of exposures).
The standard replaced the “incurred loss” approach with a “current expected credit loss” approach known as CECL, which requires an estimate of the credit losses expected over the life of an exposure (or pool of exposures).
The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held varies as specified above and is required in instances which the Company deems necessary. At December 31, 2022, approximately 60.8% of the dollar amount of standby letters of credit was collateralized.
The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held varies as specified above and is required in instances which the Company deems necessary. At December 31, 2023, approximately 71% of the dollar amount of standby letters of credit was collateralized.
This facility, which amounts to approximately $607.0 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.
This facility, which amounts to approximately $601.5 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.
Real estate also serves as collateral for loans made for other purposes, resulting in 81% of loans being secured or partially secured by real estate. The following table shows the trends in the composition of the loan portfolio over the past three years.
Real estate also serves as collateral for loans made for other purposes, resulting in 82% of loans being secured or partially secured by real estate. The following table shows the trends in the composition of the loan portfolio over the past two years.
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.
Nevertheless, as our commercial real estate concentration fluctuates each quarter, 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 information contained in this section should be read together with the December 31, 2022 audited Consolidated Financial Statements and the accompanying Notes included in Item 8 Financial Statements And Supplementary Data of this Form 10-K. 42 Table of Contents This section of this Form 10-K generally discusses 2022 items and year-to-year comparisons between 2022 and 2021.
The information contained in this section should be read together with the December 31, 2023 audited Consolidated Financial Statements and the accompanying Notes included in Item 8 Financial Statements And Supplementary Data of this Form 10-K. This section of this Form 10-K generally discusses 2023 items and year-to-year comparisons between 2023 and 2022.
The majority of 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.
Approximately 60% of the Company'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.
Individually assessed 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 has not shown a period of performance as required under applicable accounting standards.
Individually assessed 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 loan restructuring to a borrower experiencing financial difficulties that has not shown a period of performance as required under applicable accounting standards.
Assumptions related to loan term and amortization are made to arrive at the initial recorded value, which is included in intangible assets, net, on the Consolidated Balance Sheet. For 2022, excess servicing fees of $67 thousand were recorded and $89 thousand was amortized as a reduction of actual service fees collected, which is a component of other income.
Assumptions related to loan term and amortization are made to arrive at the initial recorded value, which is included in intangible assets, net, on the Consolidated Balance Sheet. For 2023, no excess servicing fees were recorded and $28 thousand was amortized as a reduction of actual service fees collected, which is a component of other income.
Additionally, the Bank can purchase up to $155.0 million in federal funds on an unsecured basis from its correspondents, against which there were no amounts outstanding at December 31, 2022 and can borrow unsecured funds under one-way CDARS and ICS brokered deposits in the amount of $1.8 billion, against which there was $67 million outstanding at December 31, 2022.
Additionally, the Bank can purchase up to $155.0 million in federal funds on an unsecured basis from its correspondents, against which there were no amounts outstanding at December 31, 2023 and can borrow unsecured funds under one-way CDARS and ICS brokered deposits in the amount of $1.7 billion, against which there was $94 million outstanding at December 31, 2023.
The Bank currently has a total of sixteen branch offices (six in Suburban Maryland, five in Washington, D.C. and five in Northern Virginia), a principal corporate office, five lending centers (two are co-located with branches and one co-located in the principal corporate office) and one operations center.
The Bank currently has a total of thirteen branch offices (six in Suburban Maryland, four in Washington, D.C. and three in Northern Virginia), a principal corporate office, four lending centers (two are co-located with branches and one co-located in the principal corporate office) and one operations center.
Intangible Assets The Company recognizes a servicing asset for the computed value of servicing fees on the sales of multifamily FHA loans, the guaranteed portion of SBA loans and other loans sold with retained servicing which is in excess of the normal servicing fees.
Intangible Assets The Company recognizes a servicing asset for the computed value of servicing fees on the sales of multifamily FHA loans, the guaranteed portion of Small Business Administration ("SBA") loans and other loans sold with retained servicing 66 Table of Contents which is in excess of the normal servicing fees.
The amount of collateral obtained is based on management’s credit evaluation of the borrower. Collateral obtained varies and may include certificates of deposit, accounts receivable, inventory, property and equipment, residential and commercial real estate. Standby letters of credit are conditional commitments issued by the Company which guarantee the performance of a customer to a third party.
Collateral obtained varies and may include certificates of deposit, accounts receivable, inventory, property and equipment, residential and commercial real estate. Standby letters of credit are conditional commitments issued by the Company which guarantee the performance of a customer to a third party.
At December 31, 2022, the Company had no concentrations of loans in any one industry exceeding 10% of its total loan portfolio.
At December 31, 2023, the Company had no concentrations of loans with any one borrower in any one industry exceeding 10% of its total loan portfolio.
For 2022, the efficiency ratio (ratio of noninterest expenses to total revenue) was 46.31% as compared to 40.88% for 2021. Refer to the “Use of Non-GAAP Financial Measures” section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.
For 2023, the efficiency ratio (ratio of noninterest expenses to total revenue) was 49.12% as compared to 46.31% for 2022. Refer to the “Use of Non-GAAP Financial Measures” section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.
The Credit Administration department specifically analyzes the status of development and construction projects, including sales activities and utilization of interest reserves in order to carefully and prudently assess potential increased levels of risk which may require additional reserves. At December 31, 2022 and 2021, the Company had $6.5 million and $29.2 million, respectively, of loans classified as nonperforming.
The Credit Administration department analyzes the status of development and construction projects, including sales activities and utilization of interest reserves in order to c assess potential increased levels of risk which may require additional reserves. At December 31, 2023 and 2022, the Company had $65.5 million and $6.5 million, respectively, of loans classified as nonperforming.
The transferred securities had unrealized losses of $66.2 million, and, as of December 31, 2022, $59.1 million remains in accumulated other comprehensive loss and will be amortized ratably over the remaining lives of the securities through accumulated other comprehensive loss.
The transferred securities had unrealized losses of $66.2 million, and, as of December 31, 2023, $51.7 million remains in accumulated other comprehensive loss and will be amortized ratably over the remaining lives of the securities through accumulated other comprehensive loss.
Government and its agencies, whose securities owned by the Company had a book or fair value exceeding 10% of the Company’s shareholders’ equity. 57 Table of Contents The following tables provides information, on an amortized cost basis, for AFS and HTM portfolios regarding the expected maturity and weighted-average yield of the investment portfolio at December 31, 2022.
Government, U.S. agencies and U.S. Government-sponsored enterprises, whose securities owned by the Company had a book or fair value exceeding 10% of the Company’s shareholders’ equity. The following tables provides information, on an amortized cost basis, for AFS and HTM portfolios regarding the expected maturity and weighted-average yield of the investment portfolio at December 31, 2023.
The Company’s and Bank’s capital ratios at December 31, 2022 and December 31, 2021 are shown in Note 22 to the Consolidated Financial Statements.
The Company’s and Bank’s capital ratios at December 31, 2023 and December 31, 2022 are shown in Note 21 to the Consolidated Financial Statements.
At December 31, 2022, the Company had $3.2 billion in noninterest bearing demand deposits, representing 36% of total deposits. This compared to $3.3 billion of noninterest bearing demand deposits at December 31, 2021, or 33% of total deposits.
At December 31, 2023, the Company had $2.3 billion in noninterest bearing demand deposits, representing 26% of total deposits compared to $3.2 billion of noninterest bearing demand deposits at December 31, 2022, or 36% of total deposits.
Average total deposits for the year ended December 31, 2022 were $10.1 billion, as compared to $9.9 billion for the same period in 2021, a 2% increase. Time deposits were $783.5 million at December 31, 2022, which was 9% of deposits. This was an increase from $729.1 million at December 31, 2021, which was 7% of deposits.
Average total deposits for the year ended December 31, 2023 were $8.9 billion, as compared to $10.1 billion for the same period in 2022, a 12% decrease. Time deposits were $2.2 billion at December 31, 2023, which was 25% of deposits. This was an increase from $783.5 million at December 31, 2022, which was 9% of deposits.
The Bank’s loan policy requires that loans be placed on nonaccrual if they are 90 days past-due, unless they are well secured and in the process of collection.
The Bank’s loan policy requires that loans be placed on nonaccrual if they are 90 days past due or if their collection is deemed to be doubtful, unless they are well secured and in the process of collection.
In particular, the Company individually evaluates loans on nonaccrual and those identified as TDRs, though it may individually evaluate other loans or groups of loans as well if it determines they no longer share similar risk with their assigned segment.
In particular, the Company individually evaluates loans on nonaccrual and those identified as loan restructurings to borrowers experiencing financial difficulties, though it may individually evaluate other loans or groups of loans as well if it determines they no longer share similar risk with their assigned segment.
However, because the Bank focuses on relationship banking, and 67 Table of Contents its marketplace demographics are favorable, its historical experience has been that large time deposits have not been more volatile or significantly more expensive than smaller denomination certificates.
Time deposits of $250 thousand or more can be more volatile and more expensive than time deposits of less than $250 thousand. However, because the Bank focuses on relationship banking, and its marketplace demographics are favorable, its historical experience has been that large time deposits have not been more volatile or significantly more expensive than smaller denomination certificates.
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 or a difficulty with obtaining them in the future.
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, or if aggregate funding available to banks change due to changes in the marketplace, we may experience an outflow of brokered deposits or difficulty with obtaining them in the future.
The balances in these accounts were $35.1 million at December 31, 2022 compared to $23.9 million at December 31, 2021. 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.
The balances in these accounts were $30.6 million at December 31, 2023 compared to $35.1 million at December 31, 2022. 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 MBS.
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, but the use of such sources may negatively impact our net interest margin and our earnings and there can be no assurance that they will be adequate to meet our liquidity needs.
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, but the use of such sources may negatively impact our net interest margin and our earnings.
The drivers of the change are detailed in the "Net Interest Income and Net Interest Margin" section below. The provision for credit losses in 2022 was $266 thousand as compared to a reversal of $20.8 million in 2021. For information on the components and drivers of these changes see "Provision for Credit Losses" section below.
The drivers of the change are detailed in the "Net Interest Income and Net Interest Margin" section below. The provision for credit losses in 2023 was $31.5 million as compared to $266 thousand in 2022. For information on the components and drivers of these changes see "Provision for Credit Losses" section below.
The AFS portfolio is comprised of U.S. treasury bonds (2.9% of AFS securities), U.S. agency securities (41.9% of AFS securities) with an average duration of 3.8 years, seasoned mortgage-backed securities that are 100% agency issued (51.3% of AFS securities for residential mortgage-backed and 3.1% for commercial mortgage-backed) which have an average expected life of 4.6 years with contractual maturities of the underlying mortgages of up to thirty years, municipal bonds (0.6% of AFS securities) which have an average duration of 6.6 years and corporate bonds (0.1% of AFS securities) which have an average duration of 0 years.
The AFS portfolio comprises U.S. treasury bonds (3.2% of AFS securities), U.S. agency securities (44.6% of AFS securities) with an average duration of 3.1 years, seasoned MBS that are 100% agency issued (48.3% of AFS securities for residential mortgage-backed and 3.3% for commercial mortgage-backed), which have an average duration of 3.4 years with contractual maturities of the underlying mortgages of up to thirty years, municipal bonds (0.6% of AFS securities), which have an average duration of 6.8 years, and corporate bonds (0.1% of AFS securities), which have an average duration of 6.1 years.
As a result of our January 1, 2020 adoption of FASB's Accounting Standard Codification ("ASC") 326, Measurement of Credit Losses on Financial Instruments , and its related amendments, our methodology for estimating these credit losses changed significantly from years prior to 2020.
On January 1, 2020, when the Company adopted FASB's Accounting Standard Codification ("ASC") 326, Measurement of Credit Losses on Financial Instruments , and its related amendments, our methodology for estimating these credit losses changed significantly from years prior to 2020.
The most significant portion of revenue (i.e., net interest income plus noninterest income) is net interest income, which increased to $332.9 million for 2022 compared to $324.5 million for 2021.
The most significant portion of revenue (i.e., net interest income plus noninterest income) is net interest income, which decreased to $290.5 million for 2023 compared to $332.9 million for 2022.
The capital rules require a CET1 ratio of 4.5% and a capital conservation buffer of 2.5% of risk-weighted assets, effectively resulting in a minimum CET1 ratio of 7.0%; a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, or 8.5% with the fully phased in capital conservation buffer; a minimum total capital to risk-weighted assets ratio of 10.5% with the fully phased-in capital conservation buffer; and a minimum leverage ratio of 4.0%.
Under the Basel III Rules, the Company and Bank are required to maintain a CET1 ratio of 4.5% and a capital conservation buffer of 2.5% of risk-weighted assets, effectively resulting in a minimum CET1 ratio of 7.0%; a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, or 8.5% with the fully phased in capital conservation buffer; a minimum total capital to risk-weighted assets ratio of 10.5% with the fully phased-in capital conservation buffer; and a minimum leverage ratio of 4.0%.
In addition, the tangible common equity ratio was 10.18% at December 31, 2022, compared to 10.60% at December 31, 2021. The ratio of common equity to total assets was 11.02% at December 31, 2022 as compared to 11.40% at December 31, 2021.
In addition, the tangible common equity ratio was 10.12% at December 31, 2023, compared to 10.18% at December 31, 2022. The ratio of common equity to total assets was 10.92% at December 31, 2023 as compared to 11.02% at December 31, 2022.
Included in nonperforming assets at December 31, 2022 is OREO of $2.0 million, consisting of 4 foreclosed properties. Included in nonperforming assets at December 31, 2021 was OREO of $1.6 million, consisting of three foreclosed properties. OREO properties are carried at fair value less estimated costs to sell.
Included in nonperforming assets at December 31, 2023 is OREO of $1.1 million, consisting of 2 foreclosed properties. Included in nonperforming assets at December 31, 2022 was OREO of $2.0 million, consisting of 4 foreclosed properties. OREO properties are carried at the lower of cost or at fair value less estimated costs to sell.
The Bank had $979.5 million and $1.7 billion of IND brokered deposits as of December 31, 2022 and 2021, respectively.
The Bank had $786.5 million and $1.1 billion of IND brokered deposits as of December 31, 2023 and 2022, respectively.
Additionally, the Bank obtains certificates of deposits from the Washington, D.C. metropolitan area. 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.
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.
Furthermore, the Company is diligent in placing loans on nonaccrual status and believes, based on its loan portfolio risk analysis, that its ACL at 0.97% of total loans at December 31, 2022, is adequate to absorb expected credit losses.
The Company believes it is diligent in placing loans on nonaccrual status and believes, based on its loan portfolio risk analysis that its ACL at 1.08% of total loans at December 31, 2023, is adequate to absorb expected credit losses within the loan portfolio at that date.
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.
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 December 31, 2023, there were $335.8 million of Substandard loans.
The cost of funds represents interest expense on deposits, customer repurchase agreements and other borrowings, which consist of federal funds purchased, advances from the FHLB and subordinated notes. Noninterest bearing 46 Table of Contents deposits and capital are other components representing funding sources.
The cost of funds represents interest expense on deposits, customer repurchase agreements and other borrowings, which consist primarily of federal funds purchased, advances from the Federal Home Loan Bank of Atlanta ("FHLB") and Bank Term Funding Program ("BTFP") and subordinated notes. Noninterest bearing deposits and capital are other components representing funding sources.
The Bank has a large portion of its loan portfolio related to real estate, with 79% consisting of commercial real estate and real estate construction loans. When "owner occupied commercial real estate" and "construction–C&I (owner occupied)" are excluded, the percentage of total loans represented by commercial real estate decreases to 63%.
The Bank has a large portion of its loan portfolio related to real estate, with 80% consisting of commercial real estate and real estate construction loans. Other than "owner occupied commercial real estate" and "construction–C&I (owner occupied)", the percentage of remaining total loans represented by commercial real estate is 63%.
Bank owned life insurance at December 31, 2022 amounted to $111.0 million, as compared to $108.8 million at December 31, 2021 . Refer to Note 19 to Consolidated Financial Statements for further detail.
Bank owned life insurance at December 31, 2023 amounted to $112.9 million, as compared to $111.0 million at December 31, 2022. Refer to Note 18 to Consolidated Financial Statements for further detail.
Employment climbed throughout 2022 as the U.S. unemployment rate ended the year at 3.4%, down from 3.9% at the end of 2021. Longer-term U.S. interest rates increased in 2022, with the ten year U.S. Treasury rate averaging 2.95% in 2022 as compared to 1.45% in 2021.
The employment climbed throughout 2023 as the U.S. unemployment rate ended the year at 3.7%, up from 3.4% at the end of 2022. 41 Table of Contents Longer-term U.S. interest rates increased in 2023, with the ten year U.S. Treasury rate averaging 3.96% in 2023 as compared to 2.95% in 2022.
The Company had no accruing loans 90 days or more past due at December 31, 2022 or December 31, 2021. Management remains attentive to early signs of deterioration in borrowers’ financial conditions and to taking the appropriate action to mitigate risk.
The increase is primarily due to the increase in nonperforming loans discussed below. The Company had no accruing loans 90 days or more past due at December 31, 2023 or December 31, 2022. Management prioritizes remaining attentive to early signs of deterioration in borrowers’ financial conditions and to taking action to mitigate risk.
(2) Interest and fees on loans and investments exclude tax equivalent adjustments. 48 Table of Contents The rate/volume table below presents the composition of the change in net interest income for the periods indicated, as allocated between the change in net interest income due to changes in the volume of average earning assets and interest bearing liabilities and the changes in net interest income due to changes in interest rates.
The rate/volume table below presents the composition of the change in net interest income for the periods indicated, as allocated between the change in net interest income due to changes in the volume of average earning assets and interest bearing liabilities and the changes in net interest income due to changes in interest rates.
At December 31, 2022, the balance of excess servicing fees was $65 thousand. For 2021, excess servicing fees of $130 thousand were recorded and $182 thousand was amortized as a 66 Table of Contents reduction of actual service fees collected, which is a component of other income. At December 31, 2021, the balance of excess servicing fees was $87 thousand.
At December 31, 2023, the balance of excess servicing fees was $37 thousand. For 2022, excess servicing fees of $67 thousand were recorded and $89 thousand was amortized as a reduction of actual service fees collected, which is a component of other income. At December 31, 2022, the balance of excess servicing fees was $65 thousand.
Construction, land and land development loans represented 62% of consolidated 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.
Construction, land and land development loans represented 111% of consolidated risk based capital. Management has extensive experience in commercial real estate lending and has implemented and continues to maintain risk management procedures and underwriting criteria with respect to its commercial real estate portfolio designed to address the risks inherent in that asset class.
There is, however, a risk that the cost of funds will increase significantly as the Bank competes for deposits or that some deposits would be lost if rates were to increase and the Bank elected not to remain competitive with its deposit rates.
The Bank makes competitive deposit interest rate comparisons weekly and makes adjustments from time to time to ensure its interest rate offerings are competitive. 73 Table of Contents There is, however, a risk that the cost of funds will increase significantly as the Bank competes for deposits or that some deposits would be lost if rates were to increase and the Bank elected not to remain competitive with its deposit rates.
Carrying assets and liabilities at fair value inherently results in more financial statement volatility. Allowance for Credit Losses and Provision for Unfunded Commitments A consequence of lending activities is that we may incur credit losses, so we record an ACL with respect to loan receivables and a reserve for unfunded commitments (“RUC”) as estimates of those losses.
Allowance for Credit Losses and Provision for Unfunded Commitments A consequence of lending activities is that we may incur credit losses, so we record an allowance for credit losses ("ACL") with respect to loan receivables and a reserve for unfunded commitments (“RUC”) as estimates of those losses.
No such penalty fees were incurred in 2021. The major components of other expenses include broker fees, franchise tax, insurance expenses and director compensation. Other expenses were $14.4 million for 2022 as compared to $12.6 million for 2021, an increase of 14%. The increase in 2022, as compared to 2021, was primarily due to director compensation and insurance expenses.
The amount of penalty fees was reported as noninterest expense for 2022. No such penalty fees were incurred in 2023. The major components of other expenses include broker fees, franchise tax, insurance expenses and director compensation. Other expenses were $15.5 million for 2023 as compared to $14.4 million for 2022, an increase of 8%.
The CET1 risk based capital ratio was 14.03% at December 31, 2022, as compared to 14.63% at December 31, 2021. The tier 1 leverage ratio was 11.63% at December 31, 2022, as compared to 10.19% at December 31, 2021.
The common equity tier one capital ("CET1") risk based capital ratio was 13.90% at December 31, 2023, as compared to 14.03% at December 31, 2022. The tier 1 leverage ratio was 10.73% at December 31, 2023, as compared to 11.63% at December 31, 2022.
Additionally, at December 31, 2022, the Company’s full time equivalent staff numbered 496, as compared to 507 at December 31, 2021. Premises and equipment expenses were $13.2 million for 2022 as compared to $14.9 million for 2021, a decrease of 11%.
At December 31, 2023 and 2022, the Company’s full time equivalent staff numbered 452 and 496, respectively. Premises and equipment expenses were $12.6 million for 2023 as compared to $13.2 million for 2022, a decrease of 5%.
The investment portfolio is managed to achieve goals related to liquidity, income, interest rate risk management and to provide collateral for customer repurchase agreements and other borrowing relationships. The decrease in AFS in 2022 was primarily due to securities being transferred into HTM.
The investment portfolio is managed to achieve goals related to liquidity, income, interest rate risk management and to provide collateral for customer repurchase agreements and other borrowing relationships.

… 402 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

29 edited+17 added−6 removed20 unchanged
Biggest changeThe Company experienced a total deposit decrease of $1.3 billion for the year ended December 31, 2022 as compared to a total loan increase of $570.0 million for the same period. This decrease in deposits was primarily the result of rate increases from the Federal Reserve and the related deposit disintermediation associated with those higher rates.
Biggest changeThe duration of the deposit portfolio decreased to 28 months at December 31, 2023 from 29 months at December 31, 2022. The Company experienced a total deposit increase of $94.9 million for the year ended December 31, 2023 as compared to a total loan increase of $333.1 million for the same period.
SOFR, LIBOR, Fed Funds), hedging activities we might take and changing product spreads that could mitigate any potential beneficial or adverse impact of changes in interest rates.
SOFR, Fed Funds), hedging activities we might take and changing product spreads that could mitigate any potential beneficial or adverse impact of changes in interest rates.
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. Further discussion of the limitations of this analysis are listed below and in Item 1A. Risk Factors.
The model utilizes current balance sheet data and attributes and is adjusted for assumptions as to investment maturities (including prepayments), loan prepayments, interest rates, deposit decay rates, and the level of noninterest income and noninterest expense. Further discussion of the limitations of this analysis are listed below and in Item 1A. Risk Factors.
ALCO reviews each of the above interest rate sensitivity analyses along with several different interest rate scenarios as part of its responsibility to provide a satisfactory, consistent level of profitability within the framework of established liquidity, loan, investment, borrowing and capital policies. 75 Table of Contents
ALCO reviews each of the above interest rate sensitivity analyses along with several different interest rate scenarios as part of its responsibility to provide a satisfactory, consistent level of profitability within the framework of established liquidity, loan, investment, borrowing and capital policies. 80 Table of Contents
The Company believes that the change in the net interest spread for the full year 2022 has been consistent with its risk analysis at December 31, 2021 when accounting for balance sheet volume and mix changes.
The Company believes that the change in the net interest spread for the full year 2023 has been consistent with its risk analysis at December 31, 2022 when accounting for balance sheet volume and mix changes.
Finally, the ability of many borrowers to service their debt may decrease in the event of a significant interest rate increase. While an instantaneous parallel shift in interest rates was used in this analysis to provide an estimate of exposure under these scenarios, we believe that a non-immediate parallel shifts in interest rates would have a more modest impact.
Finally, the ability of many borrowers to service their debt may decrease in the event of a significant interest rate increase. 79 Table of Contents While an instantaneous parallel shift in interest rates was used in this analysis to provide an estimate of exposure under these scenarios, we believe that a non-immediate parallel shifts in interest rates would have a more modest impact.
Banking is generally a business of managing the maturity and repricing mismatch inherent in its asset and liability cash flows and providing net interest income growth consistent with the Company’s profit objectives.
Banking is generally a business of managing the maturity and repricing mismatch inherent in its asset and liability cash flows to provide net interest income growth consistent with the Company’s profit objectives.
As quantified in the table below, the Company’s analysis at December 31, 2022 shows an increasingly significant effect on net interest income over the next 12 months, as well as an increasingly significant effect on the economic value of equity when interest rates are shocked down 100, 200 and 300 basis points and up 100, 200, 300 and 400 basis points.
As quantified in the table below, the Company’s analysis at December 31, 2023 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 down 100, 200 and 300 basis points and up 100, 200, 300 and 400 basis points.
Variable rate loans are generally indexed to either the one-month London Interbank Offered Rate (“LIBOR”) with fallback language to reference the Secured Overnight Funding Rate ("SOFR") or the Wall Street Journal prime interest rate, while adjustable rate loans are indexed primarily to the five year U.S. Treasury interest rate.
Variable rate loans are generally indexed to either the one-month London Interbank Offered Rate (“LIBOR”) (prior to the June 30, 2023 LIBOR cessation date), with fallback language to reference the Secured Overnight Funding Rate ("SOFR"), 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 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 monthly by ALCO and quarterly by the Board.
The Bank’s ALCO formulates and monitors the management of interest rate risk through policies and guidelines established by it and overseen by the Audit Committee and the full Board and through review of detailed reports discussed quarterly.
At December 31, 2022, the Company had a portfolio of 3.1 billion of variable and adjustable rate loans that were subject to interest rate floors with a weighted average rate of 7.08%.
At December 31, 2023, the Company had a portfolio of $3.0 billion of variable and adjustable rate loans that were subject to interest rate floors with a weighted average rate of 7.99%.
The following table reflects the result of the simulation analysis on the December 31, 2022 asset and liability 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 33.6 57.0 6.7 +300 25.7 43.0 5.6 +200 17.8 29.2 4.2 +100 9.9 16.4 2.5 — — — — (100) (4.7) (7.3) (3.5) (200) (11.4) (18.1) (8.9) (300) (17.7) (28.0) (17.2) 74 Table of Contents The results of the simulation are within the relevant policy limits adopted by the Company for percentage change in net interest income.
The following table reflects the result of the simulation analysis on the December 31, 2023 asset and liability 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 (1.1)% (2.7)% (6.1)% +300 (0.7)% (1.7)% (4.1)% +200 (0.6)% (1.4)% (2.5)% +100 (0.4)% (0.9)% (1.0)% — — — — (100) 3.0% 8.4% 0.3% (200) 6.9% 19.1% (1.0)% (300) 11.0% 30.5% (4.7)% The results of the simulation are within the relevant policy limits adopted by the Company for percentage change in net interest income.
Through its modeling, the Company makes certain estimates that may vary from actual results. There can be no assurance that the Company will be able to successfully achieve its optimal asset liability mix, given competitive pressures, customer preferences and the inability to forecast future interest rates and movements with complete accuracy.
There can be no assurance that the Company will be able to successfully achieve its optimal asset liability mix, given competitive pressures, customer preferences and the inability to forecast future interest rates and movements with complete accuracy.
The impact of +9.9% in net interest income and +16.4% in net income given a 100 basis point increase in market interest rates at December 31, 2022 compares to +4.7% in net interest income and +8.1% in net income for the same period in 2021 and reflects in large measure the floor rate discussion above.
The impact of (0.4)% in net interest income and (0.9)% in net income given a 100 basis point increase in market interest rates at December 31, 2023 compares to 9.9% in net interest income and 16.4% in net income for the same period in 2022 and reflects in large measure the beta factor discussion above.
On an annual basis, the Company back-tests the actual change in its net interest spread against expected change and actual market interest rate movements and other factors impacting actual as compared to projected results. The loan portfolio increased, most significantly, towards the end of 2022.
On an annual basis, the Company back-tests the actual change in its net interest spread against expected change and actual market interest rate movements and other factors impacting actual as compared to projected results.
Interest rate floors on certain of the Company's variable and adjustable rate loans may provide asset yield protection in a low-interest rate environment; however, they are also expected to delay the impact of increases to market rates on interest income until such floors have been exceeded.
Interest rate floors on certain of the Company's variable and adjustable rate loans may provide asset yield protection in a low-interest rate environment; however, they are also expected to delay the impact of increases to market rates on interest income until such floors have been exceeded, although this is not relevant for the current rate environment with most variable rate loans well above their floor rate.
For the analysis presented below, at December 31, 2022, the simulation assumes a 70 basis point change in interest rates on interest bearing 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 interest bearing deposits for each 100 basis point change in market interest rates in an increasing interest rate shock scenario.
At December 31, 2022, the Company assumed a 70 basis point change in interest rates on interest bearing deposits for each 100 basis point change in market interest rates, with a floor of 10 basis points and 0 basis points on decreasing and increasing rate shock scenarios, respectively.
The repricing duration on loans was 13 months at December 31, 2022 and 18 months at December 31, 2021, with fixed-rate loans amounting to 38% of total loans at December 31, 2022 and 43% at December 31, 2021. Variable and adjustable rate loans comprised 62% of total loans at December 31, 2022 and 57% for 2021.
The re-pricing duration on the loan portfolio was 12 months at December 31, 2023 and 13 months at December 31, 2022, with fixed-rate loans amounting to 38% of total loans at December 31, 2023 and 2022. Variable and adjustable rate loans comprised 62% of total loans at December 31, 2023 and 2022.
The decline was due primarily to an increase in the rate on funding costs, of which lower average liquidity was a factor in ultimately reducing the net interest spread.
In that environment, the Company's result for net interest spread in 2023 was 1.28% compared to 2.33% for the year of 2022. The decline in the net interest spread was due primarily to an increase in the rate on funding costs, of which lower average liquidity was a factor in ultimately reducing the net interest spread.
During 2022, average market interest rates were markedly higher and resulted in an inverted yield curve. As compared to the year 2021, the average two year U.S. Treasury rate in 2022 increased by 273 basis points from 0.26% to 2.99%. The average five year U.S.
During 2023, average market interest rates were increased across the yield curve as compared to the 2022 year end. As compared to the year 2022, the average two year U.S. Treasury rate in 2023 increased by 159 basis points from 2.99% to 4.58%. The average five year U.S.
This is why the weighted average rate of the Company's variable rate loans increased by approximately 293 basis points from December 31, 2021 to December 31, 2022 in connection with the 425 basis points in Fed Funds rate hikes caused by actions taken by the FRB.
The weighted average rate of the Company's variable rate loans increased by approximately 85 basis points from December 31, 2022 to December 31, 2023 in connection with the increase in 100 basis points for the same period in Fed Funds rate hikes caused by actions taken by the Federal Reserve Bank.
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.
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.
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 December 31, 2022.
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 December 31, 2023. In addition to analysis of simultaneous changes in interest rates along the yield curve, an analysis of changes based on interest rate “ramps” is also performed.
These derivatives are not designated as hedges, are not speculative and have a notional value of $25.9 million as of December 31, 2022. The changes in fair value for these contracts are recognized directly in earnings. The duration of the deposit portfolio decreased to 29 months at December 31, 2022 from 41 months at December 31, 2021.
These derivatives are not designated as hedges, are not speculative and have an asset position with a notional value of $49.5 million as of December 31, 2023. The changes in fair value for these contracts are recognized directly in earnings.
In a normal rising interest rate environment, the Company expects its interest income on variable and adjustable rate loans to increase and the interest expense on its deposit liabilities to increase based on our funding needs, market conditions and certain contractual obligations.
The model's prediction is the result of increases in both interest income on variable and adjustable rate loans and interest expense on its deposit liabilities, based on our funding needs, market conditions and certain contractual obligations but with no changes in the mix of assets or liabilities or the spreads we are able to earn.
This impact is due substantially to the significant level of variable rate and repriceable assets and liabilities and related shorter asset and liability durations.
This moderate impact is due substantially to the significant level of variable rate and repriceable assets and liabilities and related shorter relative durations. The repricing duration of the investment portfolio at December 31, 2023 is 4.4 years, the loan portfolio 1.0 years, the interest bearing deposit portfolio 1.2 years, and the borrowed funds portfolio 0.3 years.
At December 31, 2022, only $241 million of loans held by the Company were earning interest at their floor rate, largely because these loans have not reached their initial adjustment date yet.
At December 31, 2023, only $183.9 million of loans held by the Company were earning interest at their floor rate, as compared to $241.0 million at December 31, 2022. The majority of those loans are expected to reset at rates higher than their floor at their next rate reset date. The loan portfolio increased throughout 2023.
Additionally, the Company’s cost of interest increased by 91 basis points across its interest-bearing deposits, which comprise 63.84% of its total deposits, at December 31, 2022. 73 Table of Contents Management relies on the use of models in order to measure the expected future impact on interest income of various interest rate environments, as described above.
Management relies on the use of models in order to measure the expected future impact on interest income of various interest rate environments, as described above. Through its modeling, the Company makes certain estimates that may vary from actual results.
Treasury rate increased by 214 basis points from 0.86% to 3.00% while the average ten year U.S. Treasury rate increased by 152 basis points from 1.43% to 2.95%. In that environment, the Company's result for net interest spread in 2022 was 2.33% compared to 2.59% for the year of 2021.
Treasury rate increased by 106 basis points from 3.00% to 4.06% while the average ten year U.S. Treasury rate increased by 101 basis points from 2.95% to 3.96%. The Company’s cost of interest bearing deposits increased by 96 basis points across its interest-bearing deposits, which comprise 74% of its total deposits, at December 31, 2023.
Removed
The majority of loans with floors repriced above those floor levels in 2022, increasing the impact of rising rates on interest income when modeling positive interest rate shocks at December 31, 2022.
Added
During the year ended December 31, 2023, the Company was able to produce a net interest margin of 2.53% as compared to 2.93% during the same period in 2022 and continues to manage its overall interest rate risk position.
Removed
This is what the Bank experienced in the first half of 2022 when the first 150 basis points of rate hikes earlier in the year did not exceed the majority of loans' floor rates.
Added
Although the Company has experienced net interest margin compression during the year ended December 31, 2023, the Company's interest rate risk modeling shows net interest margin expansion in an increasing rate environment.
Removed
In addition to analysis of immediate parallel shifts in interest rates along the yield curve, changes based on interest rate “ramps” is also performed and reviewed by ALCO, but is not herein disclosed. Such analysis represents the impact of a more gradual change in interest rates, as well as yield curve shape changes.
Added
The model also assumes a stable interest rate environment after the programmed rate change, allowing assets and liabilities to reprice at their schedule in a stable environment, which may be quite different than real world conditions.
Removed
At the end of 2022, the variable rate loans with floors do not have to overcome their floor rate before their yield adjusts and the income increase is immediate, as opposed to the end of 2021, where a 100 basis point increase would not have moved that subset of loans off their floors, muting the impact of the rate increase on income.
Added
The few remaining loans that were still tied to LIBOR based rates on June 30, 2023 were transitioned to their appropriate fallback rate on July 3, 2023. 77 Table of Contents In the current and expected future interest rate environment, the Company has been maintaining its investment portfolio with the goal of managing the balance between yield and risk in its portfolio of MBS.
Removed
Generally speaking, the loss of Economic Value of Equity ("EVE") in a lower interest rate environment is due to lower values of core deposits more than offsetting the gains in loan and investment values; while the gain of economic value of portfolio equity in a higher interest rate environment is due to higher value of core deposits more than offsetting lower values of fixed rate loans and investments.
Added
Further, the Company has been principally collecting cash flows from the investment portfolio to provide liquidity. Additionally, the Company has limited call risk in its U.S. agency investment portfolio. At December 31, 2023, the amortized cost less allowance of the investment portfolio decreased by $213.2 million, or 7.4%, as compared to the balance at December 31, 2022.
Removed
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.
Added
The percentage mix of municipal securities was 5% of total investments at December 31, 2023 and 2022. The portion of the portfolio invested in MBS was 61% and 63% at December 31, 2023 and 2022. The portion of the portfolio invested in U.S. agency investments was 27% at December 31, 2023 and 25% at December 31, 2022.
Added
Corporate bonds made up 5% of total investments at December 31, 2023 and 2022. U.S. treasury bonds were 2% of total investments at December 31, 2023 and 2022. The duration of the investment portfolio decreased to 4.4 years at December 31, 2023 from 4.8 years at December 31, 2022.
Added
At December 31, 2023, $79.3 million of corporate bonds were subordinated debt from other financial institutions. Corporate bonds generally, and subordinated debt in particular, pose credit risk such that if any of these issuers were to enter bankruptcy or insolvency proceedings, we could experience losses that may be material to operating results and our financial condition.
Added
We may also experience increases in provisions for credit losses, adversely affecting our net income, if the creditworthiness of the issuers declines, whether due to idiosyncratic factors, economic conditions generally or otherwise.
Added
The shortfall was funded by increased borrowings, primarily with BTFP borrowings during the year ended December 31, 2023. The funding mix has continued to change throughout the year ended December 31, 2023. Deposits at year end were $8.8 billion and $8.7 billion at December 31, 2023 and 2022, respectively.
Added
The increase was primarily attributable to a $1.4 billion increase in interest bearing time deposits, offset by a $871.7 million reduction in noninterest bearing deposits and a $326.7 million reduction in savings and money market accounts as a result of an increase of disintermediation driven primarily by an increase in interest rates.
Added
The growth in interest bearing deposits was driven by the increased utilization of brokered deposits, particularly brokered time deposits, during the year ended December 31, 2023, as discussed in "Deposits and Other Borrowings" above. Additionally, the Company’s cost of interest increased by 269 basis points across its interest-bearing deposits, which comprise 74.12% of its total deposits, at December 31, 2022.
Added
The net unrealized loss before income tax on the investment securities available-for-sale portfolio was $162.0 million and $205.3 million at December 31, 2023 and 2022, respectively. At December 31, 2023, the net unrealized loss position represented 9.72% of the investment portfolio's book value.
Added
Such analysis represents the impact of a more gradual change in interest rates, as well as yield curve shape changes. 78 Table of Contents For the analysis presented below, at December 31, 2023, the simulation assumes a 100 basis point change in interest rates on interest bearing 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 100 basis point change in interest rates on interest bearing deposits for each 100 basis point change in market interest rates in an increasing interest rate shock scenario.
Added
The Bank does have deposits with contractual terms which means these deposits will change 100 basis points for every 100 basis points change in market rates. Thus, the overall measure of the correlation between deposit costs and market rate changes is modeled at 100%.
Added
At the end of 2023 compared in the end of 2022, increasing rates do not lead to increased income because we model that rate increases pass through to our borrowers basis point for basis point as opposed to the prior year where our model suggested rising rates would not be fully passed on to depositors.
Added
The changes in net interest income, net income and the economic value of equity in higher interest rate shock scenarios at December 31, 2023 are not believed to be excessive. Certain shortcomings are inherent in the method of analysis presented in the foregoing table.

Other EGBN 10-K year-over-year comparisons