Eagle Bancorp, Inc. Announces Another Quarter of Record Earnings With Third Quarter 2018 Net Income up 30% Over 2017 and Assets Exceeding $8.0 Billion

Globe Newswire 17-Oct-2018 4:15 PM

BETHESDA, Md., Oct. 17, 2018 (GLOBE NEWSWIRE) -- Eagle Bancorp, Inc. (the "Company") (NASDAQ:EGBN), the parent company of EagleBank, today announced record quarterly net income of $38.9 million for the three months ended September 30, 2018, a 30% increase over the $29.9 million net income for the three months ended September 30, 2017. Net income per basic common share for the three months ended September 30, 2018 was $1.14 compared to $0.87 for the same period in 2017, a 31% increase. Net income per diluted common share for the three months ended September 30, 2018 was $1.13 compared to $0.87 for the same period in 2017, a 30% increase.

For the nine months ended September 30, 2018, the Company's net income was $112.0 million, a 32% increase over the $84.7 million net income for the same period in 2017. Net income per basic common share for the nine months ended September 30, 2018 was $3.26 compared to $2.48 for the same period in 2017, a 31% increase. Net income per diluted common share for the nine months ended September 30, 2018 was $3.25 compared to $2.47 for the same period in 2017, a 32% increase.

"We are very pleased to report a continued quarterly trend of both loan and deposit growth, together with increased total revenue, low levels of problem assets, favorable operating leverage and a very strong capital base" noted Ronald D. Paul, Chairman and Chief Executive Officer of Eagle Bancorp, Inc. Mr. Paul added that "period end loan growth in the quarter was 2.9%, and average loans were 12% higher in the third quarter 2018 as compared to the third quarter in 2017. Period end deposit growth was 1.7% in the third quarter and average deposits were 11% higher in the third quarter of 2018 as compared to the same period in 2017. Total revenue for the third quarter of 2018 increased 4% over the second quarter of 2018, was 10% higher for the third quarter of 2018 over 2017, and 10% higher for the first nine months of 2018 over the same period in 2017."

The net interest margin in the third quarter 2018 was 4.14% as compared to 4.15% in the second quarter 2018 and 4.14% for the third quarter in 2017. Mr. Paul added, "At a time when the net interest margin of banks is being challenged by a relatively flat yield curve and increasing cost of funds, the Company remains committed to maintaining efficiency and growing the loan portfolio with continuing attention to loan quality and risk reward balance sheet management measures. Further, an increase in the mix of average liquidity and average investments in the third quarter contributed to the one basis point decline in the net interest margin ("NIM") over the second quarter 2018.

Third quarter earnings resulted in an annualized return on average assets ("ROAA") of 1.93%, an annualized return on average common equity ("ROACE") of 14.85%, and an annualized return on average tangible common equity ("ROATCE") of 16.54%.

For the first nine months of 2018, total loans grew 7% over December 31, 2017, and average loans were 12% higher in the first nine months of 2018 as compared to the first nine months of 2017. At September 30, 2018, total deposits were 9% higher than deposits at December 31, 2017, while average deposits were 10% higher for the first nine months of 2018 compared with the first nine months of 2017.

Comparing asset yields and cost of funds in the third quarter in 2018 to the third quarter in 2017, loan yields were up 50 basis points (from 5.19% to 5.69%), yields on earning assets were up 47 basis points (from 4.74% to 5.21%) and the cost of funds was up 47 basis points (from 0.60% to 1.07%). The NIM was 4.14% for both quarters ending September 30, 2018 and 2017.  Mr. Paul noted, "We believe that our net interest margin remains favorable to peer banks. Importantly, our funding costs, while up 11 basis points in the third quarter 2018 over the second quarter 2018, continue to benefit from the substantial average mix of noninterest deposits of 33.7% for the third quarter, versus 32.4% for the third quarter in 2017. Additionally, the significant portion of the loan portfolio being variable and adjustable rate in a rising rate environment tends to mitigate the effects of higher cost of funds. The Company's attention continues to be on all the factors that contribute to earnings per share growth, as opposed to dependence on any one factor."

Total revenue (net interest income plus noninterest income) for the third quarter of 2018 was $86.9 million, 10% above the $78.7 million of total revenue earned for the third quarter of 2017 and 4% higher than the $83.8 million of revenue in the second quarter of 2018. For the nine month periods ended September 30, total revenue was $251.8 million for 2018, as compared to $228.4 million in 2017, a 10% increase.  

The primary driver of the Company's revenue growth for the third quarter of 2018 as compared to the third quarter in 2017 was its net interest income growth of 13% ($81.3 million versus $71.9 million). Noninterest income (excluding investment gains) decreased by 17% in the third quarter of 2018 over 2017 ($5.6 million versus $6.8 million) due substantially to lower sales of residential mortgage loans and the resulting gains and lower revenue from the FHA Multifamily business unit.

The Company continues to benefit from strong asset quality as measures remained solid at September 30, 2018. For the third quarter of 2018, net credit losses (annualized) were 0.05% of average loans, as compared to 0.00% for the third quarter of 2017. At September 30, 2018, the Company's nonperforming loans amounted to $15.1 million (0.22% of total loans) as compared to $16.6 million (0.27% of total loans) at September 30, 2017 and $13.2 million (0.21% of total loans) at December 31, 2017. Nonperforming assets amounted to $16.5 million (0.20% of total assets) at September 30, 2018 compared to $18.0 million (0.24% of total assets) at September 30, 2017 and $14.6 million (0.20% of total assets) at December 31, 2017.

Management continues to remain attentive to any signs of deterioration in borrowers' financial conditions and is proactive in taking the appropriate steps to mitigate risk. Furthermore, the Company is diligent in placing loans on nonaccrual status when appropriate and believes, based on its loan portfolio risk analysis, that its allowance for credit losses, at 1.00% of total loans (excluding loans held for sale) at September 30, 2018, is adequate to absorb potential credit losses within the loan portfolio at that date. The allowance for credit losses was 1.03% at September 30, 2017 and 1.01% at December 31, 2017. The allowance for credit losses at September 30, 2018 represented 452% of nonperforming loans, as compared to 379% at September 30, 2017 and 489% at December 31, 2017.

"Productivity continued to be favorable in the third quarter," noted Mr. Paul. The efficiency ratio of 36.37% was achieved by managing the increase in noninterest expenses to 7% for the third quarter of 2018 versus the same quarter in 2017 as compared to a 10% increase in total revenue for same periods. In addition, the maintenance of a well located and limited branch network has significantly contributed to the Company's efficiency. As of June 30, 2018, average deposits per branch totaled $319 million compared to $135 million deposits per branch among our peers. The annualized ratio of noninterest expenses as a percentage of average assets was 1.58% in the third quarter of 2018 as compared to 1.66% in the third quarter of 2017. A well trained and knowledgeable staff, strict attention to personnel increases, a focus on process improvement including strong third party vendor relationships, and a continuing low level of problem assets, have been other major factors for improved operating leverage. Additionally, the Company continues to invest in IT systems and resources, including its online client services. Mr. Paul further noted, "Our goal is to improve operating performance without inhibiting growth or negatively impacting our ability to service our customers. We will continue to maintain strict oversight of expenses, while focusing our spending on advancing infrastructure that keeps us competitive and supports our growth initiatives while prudently managing risk."

Total assets at September 30, 2018 were $8.06 billion, a 9% increase as compared to $7.39 billion at September 30, 2017, and an 8% increase as compared to $7.48 billion at December 31, 2017. Total loans (excluding loans held for sale) were $6.84 billion at September 30, 2018, a 12% increase as compared to $6.08 billion at September 30, 2017, and a 7% increase as compared to $6.41 billion at December 31, 2017. Loans held for sale amounted to $18.7 million at September 30, 2018 as compared to $26.0 million at September 30, 2017, a 28% decrease, and $25.1 million at December 31, 2017, a 25% decrease. The investment portfolio totaled $722.7 million at September 30, 2018, a 30% increase from the $556.0 million balance at September 30, 2017. As compared to December 31, 2017, the investment portfolio at September 30, 2018 increased by $133.4 million or 23%.

Total deposits at September 30, 2018 were $6.37 billion, compared to deposits of $5.91 billion at September 30, 2017, an 8% increase, and deposits of $5.85 billion at December 31, 2017, a 9% increase. Total borrowed funds (excluding customer repurchase agreements) were $542.2 million at September 30, 2018, $416.8 million at September 30, 2017, and $541.9 million at December 31, 2017. We continue to work on expanding the breadth and depth of our existing relationships while we pursue building new relationships.

Total shareholders' equity at September 30, 2018 increased 14%, to $1.06 billion, compared to $934.0 million at September 30, 2017, and increased 12% from $950.4 million at December 31, 2017. The Company's capital position remains substantially in excess of regulatory requirements for well capitalized status, with a total risk based capital ratio of 15.74% at September 30, 2018, as compared to 15.30% at September 30, 2017, and 15.02% at December 31, 2017. In addition, the tangible common equity ratio was 12.01% at September 30, 2018, compared to 11.35% at September 30, 2017 and 11.44% at December 31, 2017. Furthermore, Kroll Bond Rating Agency reaffirmed our BBB+ senior unsecured debt rating (A- at the Bank level) based on our strong capital position, continued robust earnings, best-in-class efficiency, and a history of solid credit quality.

Analysis of the three months ended September 30, 2018 compared to September 30, 2017

For the three months ended September 30, 2018, the Company reported an annualized ROAA of 1.93% as compared to 1.66% for the three months ended September 30, 2017. The annualized ROACE for the three months ended September 30, 2018 was 14.85% as compared to 12.86% for the three months ended September 30, 2017. The annualized ROATCE for the three months ended September 30, 2018 was 16.54% as compared to 14.55% for the three months ended September 30, 2017.

Net interest income increased 13% for the three months ended September 30, 2018 over the same period in 2017 ($81.3 million versus $71.9 million), resulting from growth in average earning assets of 13%. The net interest margin was 4.14% for both the three months ended September 30, 2018 and 2017. The Company believes its current net interest margin remains favorable compared to peer banking companies and that its disciplined approach to managing the loan portfolio yield to 5.69% for the third quarter of 2018 as compared to 5.19% for the same period in 2017 has been a significant factor in its overall profitability.

The provision for credit losses was $2.4 million for the three months ended September 30, 2018 as compared to $1.9 million for the three months ended September 30, 2017. Net charge-offs of $862 thousand in the third quarter of 2018 represented an annualized 0.05% of average loans, excluding loans held for sale, as compared to $2 thousand, or an annualized 0.00% of average loans, excluding loans held for sale, in the third quarter of 2017. Net charge-offs in the third quarter of 2018 were attributable primarily to commercial loans ($1.1 million) offset by a net recovery in commercial real estate loans ($254 thousand).

Noninterest income for the three months ended September 30, 2018 decreased to $5.6 million from $6.8 million for the three months ended September 30, 2017, a 17% decrease, due substantially to lower gains on the sale of residential mortgage loans ($1.4 million versus $1.8 million) resulting from lower volume as compared to 2017, and minimal revenue associated with the origination, securitization, servicing, and sale of FHA Multifamily-Backed GNMA securities as compared to $780 thousand during the third quarter of 2017. Residential mortgage loans closed were $107 million for the third quarter of 2018 versus $135 million for the same period in 2017.

The efficiency ratio, which measures the ratio of noninterest expense to total revenue, was 36.37% for the third quarter of 2018, as compared to 37.49% for the third quarter of 2017. Noninterest expenses totaled $31.6 million for the three months ended September 30, 2018, as compared to $29.5 million for the three months ended September 30, 2017, a 7% increase. Salaries and employee benefits increased $252 thousand due to a larger staff and merit increases partially offset by lower incentive compensation accruals. Marketing and advertising costs increased $459 thousand due primarily to print and digital advertising. Data processing expense increased by $404 thousand due primarily to the costs of software and infrastructure investments. Legal, accounting and professional fees increased $890 thousand due substantially to advisory services associated with enhancing our risk management systems including corporate governance as we approach $10 billion in assets.

Analysis of the nine months ended September 30, 2018 compared to September 30, 2017

For the nine months ended September 30, 2018, the Company reported an annualized ROAA of 1.92% as compared to 1.63% for the nine months ended September 30, 2017. The annualized ROACE for the nine months ended September 30, 2018 was 14.92% as compared to 12.71% for the nine months ended September 30, 2017. The annualized ROATCE for the nine months ended September 30, 2018 was 16.70% as compared to 14.44% for the nine months ended September 30, 2017.

Net interest income increased 13% for the nine months ended September 30, 2018 over the same period in 2017 ($235.3 million versus $208.5 million), resulting from growth in average earning assets of 13%. The net interest margin was 4.15% for the nine months ended September 30, 2018 and 4.14% for the same period in 2017. The Company believes its current net interest margin remains favorable compared to peer banking companies and that its disciplined approach to managing the loan portfolio yield to 5.51% for the first nine months of 2018 (as compared to 5.15% for the same period in 2017) has been a significant factor in its overall profitability.

The provision for credit losses was $6.1 million for the nine months ended September 30, 2018 as compared to $4.9 million for the nine months ended September 30, 2017. The higher provisioning for the nine months ended September 30, 2018, as compared to the same period in 2017, is due primarily to higher net charge-offs. Net charge-offs of $2.6 million for the nine months ended September 30, 2018 represented an annualized 0.05% of average loans, excluding loans held for sale, as compared to $991 thousand, or an annualized 0.02% of average loans, excluding loans held for sale, in the first nine months of 2017. Net charge-offs in the first nine months of 2018 were attributable primarily to commercial loans ($2.4 million).

Noninterest income for the nine months ended September 30, 2018 decreased to $16.5 million from $19.9 million for the nine months ended September 30, 2017, a 17% decrease, due substantially to lower gains on the sale of residential mortgage loans ($4.3 million versus $6.1 million) resulting from lower volume as compared to 2017, and minimal revenue associated with the origination, securitization, servicing, and sale of FHA Multifamily-Backed GNMA securities for the nine months ended September 30, 2018 versus $1.5 million for the same period in 2017. Residential mortgage loans closed were $334 million for the nine months ended September 30, 2018 versus $473 million for the same period in 2017.

Noninterest expenses totaled $95.0 million for the nine months ended September 30, 2018, as compared to $88.7 million for the nine months ended September 30, 2017, a 7% increase. Cost increases for salaries and benefits for the nine months ended September 30, 2018 were $1.4 million, due primarily to increased staff and merit increases. Marketing and advertising costs increased $546 thousand due primarily to print and digital advertising. Data processing expense increased by $1.1 million due primarily to the costs of software and infrastructure investments. Legal, accounting and professional fees increased $3.7 million due substantially to both first and second quarter due diligence costs from independent consultants associated with the internet event late in 2017 as well as costs to enhance risk management systems, including corporate governance as we approach $10 billion in assets. Other expenses decreased $1.1 million for the nine months ended September 30, 2018 compared to the same period in 2017, due primarily to a $361 thousand net loss on the sale of OREO in the first quarter of 2017 and a $377 thousand decrease in costs associated with problem loans. For the first nine months of 2018, the efficiency ratio was 37.74% as compared to 38.86% for the same period in 2017.

The financial information which follows provides more detail on the Company's financial performance for the three and nine months ended September 30, 2018 as compared to the three and nine months ended September 30, 2017 as well as providing eight quarters of trend data. Persons wishing additional information should refer to the Company's Form 10-K for the year ended December 31, 2017 and other reports filed with the Securities and Exchange Commission (the "SEC").

About Eagle Bancorp: The Company is the holding company for EagleBank, which commenced operations in 1998. The Bank is headquartered in Bethesda, Maryland, and operates through twenty branch offices, located in Suburban Maryland, Washington, D.C. and Northern Virginia. The Company focuses on building relationships with businesses, professionals and individuals in its marketplace.

Conference Call: Eagle Bancorp will host a conference call to discuss its third quarter 2018 financial results on Thursday, October 18, 2018 at 10:00 a.m. eastern daylight time. The public is invited to listen to this conference call by dialing 1.877.303.6220, conference ID Code is 6596785, or by accessing the call on the Company's website, www.EagleBankCorp.com. A replay of the conference call will be available on the Company's website through November 1, 2018.

Forward-looking Statements: This press release contains forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended, including statements of goals, intentions, and expectations as to future trends, plans, events or results of Company operations and policies and regarding general economic conditions. In some cases, forward-looking statements can be identified by use of words such as "may," "will," "anticipates," "believes," "expects," "plans," "estimates," "potential," "continue," "should," and similar words or phrases. These statements are based upon current and anticipated economic conditions, nationally and in the Company's market, interest rates and interest rate policy, competitive factors, and other conditions which by their nature, are not susceptible to accurate forecast and are subject to significant uncertainty. Because of these uncertainties and the assumptions on which this discussion and the forward-looking statements are based, actual future operations and results in the future may differ materially from those indicated herein. For details on factors that could affect these expectations, see the risk factors and other cautionary language included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017 and in other periodic and current reports filed with the SEC. Readers are cautioned against placing undue reliance on any such forward-looking statements. The Company's past results are not necessarily indicative of future performance.

(1) Tangible common equity to tangible assets (the "tangible common equity ratio") and tangible book value per common share are non-GAAP financial measures derived from GAAP based amounts. The Company calculates the tangible common equity ratio by excluding the balance of intangible assets from common shareholders' equity and dividing by tangible assets. The Company calculates tangible book value per common share by dividing tangible common equity by common shares outstanding, as compared to book value per common share, which the Company calculates by dividing common shareholders' equity by common shares outstanding. The Company calculates return on average tangible common equity by dividing annualized year to date net income by tangible common equity. The Company considers this information important to shareholders as tangible equity is a measure that is consistent with the calculation of capital for bank regulatory purposes, which excludes intangible assets from the calculation of risk based ratios and as such is useful for investors, regulators, management and others to evaluate capital adequacy and to compare against other financial institutions. The table below provides a reconciliation of these non-GAAP financial measures with financial measures defined by GAAP.

(2) Computed by dividing noninterest expense by the sum of net interest income and noninterest income.

(3) Excludes loans held for sale.

EAGLE BANCORP, INC.
CONTACT:
Michael T. Flynn
301.986.1800