Trading activity in Eagle Bancorp stock (Nasdaq:EGBN) last Friday
was extreme and related to a very large short sale position and an
internet piece floated by someone who goes by the pseudonym
Aurelius Value, which pushed the closing stock price lower by more
than 24%. The Company issued a responding Press Release late Friday
evening (press release) which identified numerous misleading
statements and factual errors in the internet piece.
A short sale involves the selling of shares that
are not owned in the hopes of repurchasing those shares at a lower
price. The persons involved in the short sale, who hide behind the
anonymous name Aurelius Value, released a piece on the internet
last Friday claiming that Eagle has engaged in excessive amounts of
improper loans to insiders. By extension, the short seller argued
that the Company’s system of controls was lacking and that its
financial health is weaker than the market generally perceives. We
summarily reject the allegations.
We are the latest prey of the short seller, and
so are those of you who were shareholders prior to last Friday.
There is a long list of successful banks and other public companies
that this short seller has attacked recently in order to make a
fast buck. Companies that have been attacked have asserted that the
short seller and its cohorts have misrepresented the facts and are
attempting to illegally manipulate the market. It should not go
unnoted that in order to read the Aurelius piece, one must first
click on a disclaimer that says do not take anything in the piece
as being accurate and that the reader should not rely on what it
says.
It is against the law for a short seller to
manipulate the market by intentionally spreading false rumors about
a public company. All appropriate government authorities should act
swiftly and decisively against those who seek to profit by
disseminating false information in the marketplace. And readers
should be wary of any further releases by the short seller or its
cohorts as they are intent on continuing to manipulate the market
for their own financial gain.
If you research the name of the alleged
perpetrator, you will find no fingerprints: no list of directors,
officers, principals, or agents. Nothing. If you go to our website
www.EagleBankCorp.com or that of the SEC www.sec.gov, you will find
everything you need to know about us, and our management and Board,
to make informed investment decisions.
Eagle Bancorp stock is listed on Nasdaq. As
such, we report our activities and financial condition to the SEC.
Our bank is subject to annual examinations from the Federal Reserve
and the state. We certify our financial statements and our
financial controls. An independent public accounting firm audits us
annually, and is required to attest to our financial controls.
Board governance at Eagle is very detailed and
comprehensive. Board members are both in control of policies and
practices and receive detailed reporting on all aspects of Bank
activities. Regulation O loans to insiders must receive approval of
the Company Audit Committee and the full Board of the Bank.
The vast majority of the trading volume last
Friday occurred late afternoon and by end of the normal trading day
at 4:00 p.m. amounted to almost 5 million shares, as compared to
normal daily volume of about 140,000 shares. The release on the
internet just prior to a weekend seems particularly designed to
place particular pressure on the stock price.
We note that many details in the article derived
from papers filed by one side in pending litigation that involves a
bank executive’s independent investments. No evidence has yet been
submitted to the court, nor has any finding been made. And the
Company has moved to dismiss in its entirety the one case in which
it is a party because the case filings fail to even state a cause
of action under law.
In most banks, you will find that the making of
loans to insiders is not just present but desired. This is
especially the case at community banks, where directors bring in
those they know to the bank, whether as friends, business partners
or peers in the community. There are required disclosures of loans
to insiders (as defined in Regulation O), both in annual filings
with the Securities and Exchange Commission and in quarterly Bank
regulatory reports. The filings by the Company have always been
complete, receiving the attention of monthly Board meetings, the
Bank’s Compliance team, the internal Disclosure Controls Committee
and the Audit Committee of the Board. In addition, there are
external independent auditor reviews. In all such cases, the loans
are made on market-rate, not preferential, rates and terms. The
Bank treats insider and related party loans exactly the same as
borrowers who have no director or officer relationship with the
Bank.
On top of that, insider loan transactions
receive added scrutiny in annual regulatory examinations -- by both
the Federal Reserve, which is the Bank’s primary federal regulator,
and the State of Maryland, where the bank is chartered.
Furthermore, all insider loans receive scrutiny by the Bank’s Audit
and Compliance areas (so as to assure that terms and conditions are
not more favorable than for so called arms-length transactions).
Such loans must be approved by the Audit Committee and also must be
approved by the full Bank Board of Directors (those directors who
are not involved in the transaction). This goes beyond the normal
approval process by the applicable Board Committee for loans not
involving insiders.
Eagle’s portfolio of loans to insiders is part
of the Bank’s long successful history, and is not a recent change
in practice. Eagle has always been a business-oriented community
bank with significant commercial real estate lending. The vast
majority of board members have a deep understanding of the market
and the risk in this area. In fact, that significant background and
knowledge of effective underwriting, market conditions and market
participants has resulted in the Company experiencing low levels of
credit losses over the Bank’s entire 19 year history. We have been
an institution that has weathered the various business cycles
better than most (including during the 2007-2009 down cycle) and
that includes construction type lending.
Identifying well structured loan opportunities
and participating in the growth of the local community is what
community banks do. So long as lending relationships involving
Board Members and Executive Officers are underwritten well,
monitored, reported in accordance with disclosure requirements and
fall below regulatory limits, they are appropriate and encouraged.
Eagle’s public filings discuss in detail the risk elements of all
types of lending. The 19-year history of Eagle has demonstrated a
high degree of lending success, with a low level of credit
issues.
In fact, the stock market’s regard for Eagle and
its favorable stock price (absent the event of last Friday) is
predicated in part on the Company’s consistent and stable financial
performance over a long period and not any short-term positives or
negatives. This long-term performance includes lower credit losses
and better yields on the bank’s loan portfolio (as compared to area
and peer size banks), which negates the unfounded assertion
expressed by the short seller that the Bank is generally providing
“preferential loan rates” as a quid pro quo. It is not.
The Board of Directors at Eagle is quite strong
in both background and knowledge of the local real estate market
and its participants. The Board consists of the CEO, the COO and
independent directors; members have broad business knowledge and
success. The Board requires and receives significant reporting on
all areas of enterprise risk, most especially the quality of the
loan portfolio. Our internal controls are strong and all required
disclosures, including loans to insiders, have been
met.
The allegations intimated last Friday by the
short seller who calls himself or herself Aurelius Value that
Eagle’s pricing, underwriting, internal controls and/or its
disclosures are somehow lacking are totally unfounded.
Please do not allow anonymous fast buck artists
to rattle your confidence in us, and our systems, our controls, our
regulators, and our success.
Eagle Bancorp is accountable to shareholders and
customers. The short sellers behind the apparent libel and
defamation are not. The Board of Directors stand behind the
Company’s proven success and deserved reputation of integrity and
discipline.
About Eagle Bancorp, Inc. and EagleBankEagle
Bancorp, Inc. is the holding company for EagleBank, which commenced
operations in 1998. EagleBank is headquartered in Bethesda,
Maryland, and conducts full service commercial banking through 21
offices, located in Montgomery County, Maryland, Washington, D.C.
and Northern Virginia. EagleBank focuses on building relationships
with businesses, professionals and individuals in its
marketplace.
EagleBankCorp.com 301.986.1800
MD | VA | DC
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