Eagle Bancorp, Inc., 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"). The Company was formed
by a group of local businessmen and professionals with significant prior experience
in community banking in the Companys market area, together with an experienced
community bank senior management team. The Company has one direct non-banking
subsidiary, Eagle Commercial Ventures, LLC ("ECV"), which provides
subordinated financing for the acquisition, development and construction of
real estate projects.
The Bank, a Maryland chartered commercial bank, which is a member of the Federal
Reserve System, is the Companys principal operating subsidiary. It commenced
banking operations on July 20, 1998. The Bank operates twenty one banking offices:
seven in Montgomery County, Maryland; five located in the District of Columbia;
and nine in Northern Virginia. Refer to Properties on page 32 for a listing
of banking offices. The Bank may seek additional banking offices consistent
with its strategic plan, although there can be no assurance that the Bank will
establish any additional offices, or that any branch office will prove to be
profitable.
The Bank has two active direct subsidiaries: Bethesda Leasing, LLC and Eagle
Insurance Services, LLC. Bethesda Leasing, LLC holds title to and operates real
estate owned and acquired through foreclosure. Eagle Insurance Services, LLC
facilitates the placement of commercial and retail insurance products through
a referral arrangement with The Meltzer Group, a large well known insurance
brokerage within the Companys market area.
The Bank operates as a community bank alternative to the super-regional financial
institutions, which dominate its primary market area. The cornerstone of the
Banks philosophy is to provide superior, personalized service to its clients.
The Bank focuses on relationship banking, providing each client with a number
of services, familiarizing itself with, and addressing itself to, client needs
in a proactive, personalized fashion. Management believes that the Banks target
market segments, small and medium-sized for profit and non-profit businesses
and the consumer base working or living in and near the Banks market area,
demand the convenience and personal service that an independent locally based
financial institution such as the Bank can offer. It is these themes of convenience
and proactive personal service that form the basis for the Banks business development
strategies.
The Bank offers a full range of commercial banking services to its business
and professional clients, as well as complete consumer banking services to individuals
living or working in the service area. The Bank emphasizes providing commercial
banking services to sole proprietorships, small and medium-sized businesses,
partnerships, corporations, non-profit organizations and associations, and investors
living and working in and near the Banks 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. The Bank
also offers online banking, mobile banking and a remote deposit service, which
allows clients to facilitate and expedite deposit transactions through the use
of electronic devices.
The Bank provides a variety of commercial and consumer lending products to
small, medium and large-sized businesses and to individuals for various business
and personal purposes, including (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.
The Bank maintains a loan portfolio consisting primarily of traditional business
and real estate secured loans, with a substantial portion having variable and
adjustable rates, and where the cash flow of the borrower/borrowers business
is the principal source of debt service with a secondary emphasis on collateral.
Real estate loans are made generally for commercial purposes and are structured
using both variable and fixed rates and renegotiable rates which adjust in three
to five years, with maturities of five to ten years.
The Banks consumer loans portfolio is comprised generally of two loan types:
(i) home equity 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 Banks
general practice is to sell conforming first trust loans on a servicing released
basis to third party investors.
The Bank has also developed significant expertise and commitment as a Small
Business Administration ("SBA") lender and has been recognized as
a top originator of such loans in our market area.
The Bank is an approved SBA lender. As a preferred lender under the SBAs
Preferred Lender Program, the Bank can originate certain SBA loans in-house
without prior SBA approval. SBA loans are made through programs designed by
the federal government to assist the small business community in obtaining financing
from financial institutions that are given government guarantees as an incentive
to make the loans. Under certain circumstances, the Bank attempts to further
mitigate commercial term loan losses by using loan guarantee programs offered
by the SBA. SBA lending is subject to federal legislation that can affect the
availability and funding of the program. From time to time, this dependence
on legislative funding causes limitations and uncertainties with regard to the
continued funding of such programs, which could potentially have an adverse
financial impact on our business.
The direct lending activities in which the Bank engages carry the risk that
the borrowers will be unable to perform on their obligations. As such, interest
rate policies of the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board" or the "Federal Reserve") and general economic
conditions, nationally and in the Banks primary market area, could have a significant
impact on the Banks and the Companys results of operations. To the extent
that economic conditions deteriorate, business and individual borrowers may
be less able to meet their obligations to the Bank in full, in a timely manner,
resulting in decreased earnings or losses to the Bank. To the extent the Bank
makes fixed rate loans or variable rate loans with fixed rate floors, general
increases in interest rates will tend to reduce the Banks spread as the interest
rates the Bank must pay for deposits may increase while interest income may
be unchanged. Economic conditions may also adversely affect the value of property
pledged as security for loans.
The Banks goal is to mitigate risks in the event of unforeseen threats to
the loan portfolio as a result of economic downturn or other negative influences.
Plans for mitigating inherent risks in managing loan assets include: carefully
enforcing loan policies and procedures, evaluating each borrowers business
plan during the underwriting process and throughout the loan term, identifying
and monitoring primary and alternative sources for loan repayment, and obtaining
collateral to mitigate economic loss in the event of liquidation. Specific loan
reserves are established based upon credit and/or collateral risks on an individual
loan basis. A risk rating system is employed to proactively estimate loss exposure
and provide a measuring system for setting general and specific reserve allocations.
The Bank is also an active traditional commercial lender providing loans for
a variety of purposes, including cash flow, equipment, and account receivable
financing. This loan category represents approximately 21% of the Banks loan
portfolio at December 31, 2015 and is generally variable or adjustable rate.
Commercial loans meet reasonable underwriting standards, including appropriate
collateral, and cash flow necessary to support debt service. Personal guarantees
are generally required, but may be limited. SBA loans represent approximately
1% of commercial loans. In originating SBA loans, the Bank assumes the risk
of non-payment on the uninsured portion of the credit. The Bank generally sells
the insured portion of the loan generating noninterest income from the gains
on sale, as well as servicing income on the portion participated. SBA loans
are subject to the same cash flow analyses as other commercial loans. SBA loans
are subject to a maximum loan size established by the SBA.