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Note 2 - Mergers and Acquisitions
 12 Months Ended
Dec. 31, 2014
Business Combinations [Abstract]  
Business Combination Disclosure [Text Block]

Note 2 – Mergers and Acquisitions


On October 31, 2014, the Company completed its acquisition of Virginia Heritage, a banking institution based in FairFax County, Virginia. The acquisition of Virginia Heritage was effected through the merger (the “Merger”) of Virginia Heritage with and into EagleBank, in accordance with the Agreement and Plan of Reorganization (the “Merger Agreement”) among the Company, EagleBank and Virginia Heritage, dated June 9, 2014. Pursuant to the Merger Agreement, each share of Virginia Heritage common stock was converted into the right to receive 0.6632 shares of Company common stock and $7.50 in cash, plus cash in lieu of fractional shares. Outstanding options to acquire Virginia Heritage common stock were converted into fully vested options to purchase an aggregate of 401,497 shares of Company common stock. In connection with the Merger, the Company paid an aggregate of $45.4 million in cash to former shareholders of Virginia Heritage and issued 4,010,261 shares of Company common stock were issued. On the acquisition date, the estimated fair values of Virginia Heritage included $914 million in assets, $800 million in loans and $645 million in deposits. The acquisition was valued at $189 million Additionally, pursuant to the Merger Agreement, each of the 15,300 shares of Virginia Heritage’s Senior Non-Cumulative Perpetual Preferred Stock, Series A, $1,000 liquidation amount per share (“Virginia Heritage Series A Preferred Stock”), which was issued to the U.S. Treasury pursuant to the Small Business Lending Fund Program (“SBLF”), was exchanged for one share of a new series of the Company’s Senior Non-Cumulative Perpetual Preferred Stock, Series C, liquidation amount $1,000 per share (the “Series C Preferred Stock”), which ranks equally with and has substantially identical terms and conditions as the Company’s existing Senior Non-Cumulative Perpetual Preferred Stock, Series B, liquidation amount $1,000 per share (“Series B Preferred Stock”). The Series C Preferred Stock has a dividend rate of 1.00%. The assets acquired and liabilities assumed were accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their fair value as of October 31, 2014, based on management’s best estimates using the information available as of the merger date. The Company incurred $4.7 million of acquisition related expenses during the year ended December 31, 2014 related to the acquisition of Virginia Heritage, included within “Merger expenses” in the Consolidated Statements of Operations.


Virginia Heritage’s results of operations have been included in the Company’s consolidated statements of income and comprehensive income for the two months ended December 31, 2014. Based on a purchase price allocation, the Company recorded $102.3 million in goodwill and $4.6 million in core deposit intangibles as a result of the acquisition. These fair value estimates are provisional amounts, include third party valuations, and will continue to be reviewed by the Company. Goodwill is not amortized for book purposes; however, it is reviewed at least annually for impairment, and is not deductible for tax purposes.


Except for collateral dependent loans, the fair values for loans acquired from Virginia Heritage were estimated using cash flow projections based on the remaining maturity and repricing terms. Cash flows were adjusted by estimating future credit losses and the rate of prepayments. Projected monthly cash flows were then discounted to present value using a risk-adjusted market rate for similar loans. For collateral dependent loans with deteriorated credit quality, fair value was estimated by analyzing the value of the underlying collateral, assuming the fair values of the loans were derived from the eventual sale of the collateral. These values were discounted using market derived rates of return, with consideration given to the period of time and costs associated with the foreclosure and disposition of the collateral.


The acquired loan portfolio subject to purchased credit impairment accounting guidance (ASC 310-30) as well as those excluded from ASC 310-30 accounting as of October 31, 2014 is as follows: 


(dollars in thousands)

       
         

Accounted for under ASC 310-30:

       

Contractual principal balance at acquisition

  $ 4,448  

Contractual cash flows not expected to be collected (nonaccretable discount)

    1,191  

Expected cash flows at acquisition at acquisition

    3,257  

Interest component of expected cash flows (accretable discount)

    -  

Fair value at acquisition

  $ 3,257  
         

Excluded under ASC 310-30 accounting:

       

Unpaid principal balance

  $ 812,681  

Fair value discount

    11,618  

Fair value at acquisition

    801,063  

Total fair value at acquisition

  $ 804,320  

The core deposit intangible asset recognized is being amortized on an accelerated basis over the estimated life, currently expected to be 6 years.


Goodwill is not amortized for book purposes; however, it is reviewed at least annually for impairment and is not deductible for tax purposes.


The fair value of premises and equipment and other real estate owned was estimated using appraisals of like kind properties and assets. Premises, equipment and leasehold improvements will be amortized or depreciated over their estimated useful lives ranging from one to five years for equipment or over the life of the lease for leasehold improvements. Other real estate owned is not amortized and is carried at estimated fair value determined by the appraised value less costs to sell.


The fair value of retail demand and interest bearing deposit accounts was assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. The fair value of time deposits was estimated by discounting the contractual future cash flows using market rates offered for time deposits of similar remaining maturities. The fair value of borrowed funds was estimated by discounting the future cash flows using market rates for similar borrowings.


The following unaudited pro forma financial information presents the consolidated results of operations of the Company and Virginia Heritage as if the acquisition had occurred as of January 1, 2013 with pro forma adjustments to give effect of any changes in interest income due to the accretion of the discount (premium) associated with the fair value adjustments to acquired loans, any changes in interest expenses due to estimated premium amortization/discount accretion associated with the fair value adjustment to acquired time deposits and the amortization of the core deposit intangible that would have resulted had the deposits been acquired as of January 1, 2013.


   

For the years ended December 31,

 

(dollars in thousands)

 

2014

   

2013

 
                 
                 

Net interest income

  $ 206,721     $ 174,509  

Net income

    58,756       55,973  

Earnings per share:

               

Basic

  $  1.89     $  1.86  

Diluted

  $  1.82     $  1.81