Eagle Bancorp, Inc. Announces Another Quarter of Record Earnings With Third Quarter 2017 Net Income Up 22% Over 2016

BETHESDA, Md., Oct. 18, 2017 (GLOBE NEWSWIRE) -- Eagle Bancorp, Inc. (the “Company”) (NASDAQ:EGBN), the parent company of EagleBank, today announced record quarterly net income of $29.9 million for the three months ended September 30, 2017, a 22% increase over the $24.5 million net income for the three months ended September 30, 2016. Net income per basic common share for the three months ended September 30, 2017 was $0.87 compared to $0.73 for the same period in 2016, a 19% increase. Net income per diluted common share for the three months ended September 30, 2017 was $0.87 compared to $0.72 for the same period in 2016, a 21% increase.

For the nine months ended September 30, 2017, the Company’s net income was $84.7 million, an 18% increase over the $72.0 million for the same period in 2016. Net income per basic common share for the nine months ended September 30, 2017 was $2.48 compared to $2.14 for the same period in 2016, a 16% increase. Net income per diluted common share for the nine months ended September 30, 2017 was $2.47 compared to $2.11 for the same period in 2016, a 17% increase.

“We are very pleased to report a continued quarterly trend of balanced and consistently strong financial performance,” noted Ronald D. Paul, Chairman and Chief Executive Officer of Eagle Bancorp, Inc. “Our net income has increased for 35 consecutive quarters dating back to the first quarter of 2009. We are proud that this performance has been the result of a combination of balance sheet growth, revenue growth, solid asset quality, and improved operating leverage. Both the FHA Multifamily lending division and the Small Business Administration (“SBA”) lending division added additional revenue during the third quarter. As a result, we are very pleased to report continued growth in earnings and earnings per share.”

The Company’s financial performance for the three and nine months ended September 30, 2017 as compared to the same periods in September 30, 2016 was highlighted by:

• growth in total revenue of 11% for the third quarter of 2017 and 8% for the first nine months of 2017 over 2016;
• a stable and strong net interest margin (“NIM”) of 4.14% for the three and nine months ended September 30, 2017;
• improvement in the efficiency ratio to 37.49% for the third quarter in 2017 and 38.86% for the first nine months of 2017;
• a year-to-date annualized net charge-off ratio to average loans of 0.02%;
• further improvement in non-performing assets from an already favorable position;
• growth in average total loans of 11% over the prior year;
• growth in average total deposits of 9% over the prior year; and
• noninterest income contribution from our FHA Multifamily lending division.

Mr. Paul added, “At a time when the net interest margin of banks is being challenged by the low interest rate environment, the Company remains committed to cost management measures and strong productivity.” The strong third quarter earnings resulted in an annualized return on average assets (“ROAA”) of 1.66% and an annualized return on average common equity (“ROACE”) of 12.86%.

For the first nine months of 2017, total loans grew 7% over December 31, 2016, and averaged 11% higher in the first nine months of 2017 as compared to the first nine months of 2016. Loan growth has moderated in the third quarter due to a portfolio sale of $37.0 million in residential mortgages out of the loan portfolio, being more selective in new credit opportunities, and higher levels of loan payoffs as projects continue to perform well and are refinanced with third-party lenders. At September 30, 2017, total deposits were 4% higher than deposits at December 31, 2016, while average deposits were 9% higher for the first nine months of 2017 compared with the first nine months of 2016.

The NIM was 4.14% for the third quarter of 2017 which was just two basis points lower than the second quarter of 2017. Mr. Paul noted, “We believe that our NIM remains favorable to peer banks. Importantly, we have been able to continue to expand loan yields which were 5.19% for the third quarter, up five basis points from the second quarter and up 11 basis points from the third quarter in 2016. By achieving better loan yields, which is in part due to having a high percentage of variable rate loans, we are doing well in offsetting a higher cost of funds. Funding costs, although up four basis points from the second quarter, have benefitted from the substantial average mix of noninterest deposits of 32.4% for the third quarter. The Company’s focus 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 2017 was $78.7 million, 11% above the $71.1 million of total revenue earned for the third quarter of 2016 and 3% higher than the $76.7 million of revenue earned in the second quarter of 2017. For the nine month period ended September 30, total revenue was $228.4 million for 2017, as compared to $211.4 million in 2016, an 8% increase.  

The primary driver of the Company’s revenue growth for the third quarter of 2017 as compared to the third quarter in 2016 was its net interest income growth of 11% ($71.9 million versus $64.7 million). Noninterest income (excluding investment gains) increased by 6% in the third quarter of 2017 over 2016, due substantially to income of $780 thousand on the origination, securitization, servicing and sale of FHA Multifamily-Backed Government National Mortgage Association (“GNMA”) securities offset by lower sales of residential mortgage loans and the resulting gains on the sale of these loans. The portfolio sale of $37.0 million in residential mortgages out of the loan portfolio resulted in $168 thousand in revenue during the third quarter of 2017. There was no income related to portfolio sales of residential mortgages out of the loan portfolio during the third quarter of 2016. The sale of the guaranteed portion on SBA loans resulted in $390 thousand in revenue during the third quarter of 2017 compared to $101 thousand for the same period in 2016.

The Company continues to benefit from strong asset quality as measures remained solid at September 30, 2017. Net charge-offs (annualized) were 0.00% of average loans for the third quarter of 2017, as compared to 0.14% of average loans for the third quarter of 2016. At September 30, 2017, the Company’s nonperforming loans amounted to $16.6 million (0.27% of total loans) as compared to $22.3 million (0.41% of total loans) at September 30, 2016 and $17.9 million (0.31% of total loans) at December 31, 2016. Nonperforming assets amounted to $18.0 million (0.24% of total assets) at September 30, 2017 compared to $27.5 million (0.41% of total assets) at September 30, 2016 and $20.6 million (0.30% of total assets) at December 31, 2016.

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 1.03% of total loans (excluding loans held for sale) at September 30, 2017, is adequate to absorb potential credit losses within the loan portfolio at that date. The allowance for credit losses was 1.04% at September 30, 2016 and December 31, 2016. The allowance for credit losses at September 30, 2017 represented 379% of nonperforming loans, as compared to 255% at September 30, 2016 and 330% at December 31, 2016.

“The Company’s productivity continued to improve in the third quarter,” noted Mr. Paul. The efficiency ratio of 37.49% in the third quarter of 2017 reflects management’s ongoing efforts to maintain superior operating leverage. The annualized level of noninterest expenses as a percentage of average assets has declined to 1.66% in the third quarter of 2017 as compared to 1.78% in the third quarter of 2016. A relatively stable staff, capacity utilization, branch rationalization, a low level of problem assets, and leveraging of other fixed costs have been the major reasons 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 retaining an infrastructure to remain competitive, support our growth initiatives and manage risk.”

Total assets at September 30, 2017 were $7.39 billion, a 9% increase as compared to $6.76 billion at September 30, 2016, and a 7% increase as compared to $6.89 billion at December 31, 2016. Total loans (excluding loans held for sale) were $6.08 billion at September 30, 2017, an 11% increase as compared to $5.48 billion at September 30, 2016, and a 7% increase as compared to $5.68 billion at December 31, 2016. Loans held for sale amounted to $26.0 million at September 30, 2017 as compared to $78.1 million at September 30, 2016, a 67% decrease, and $51.6 million at December 31, 2016, a 50% decrease. The investment portfolio totaled $556.0 million at September 30, 2017, a 29% increase from the $430.7 million balance at September 30, 2016. As compared to December 31, 2016, the investment portfolio at September 30, 2017 increased by $17.9 million or 3%.

Total deposits at September 30, 2017 were $5.91 billion, compared to deposits of $5.56 billion at September 30, 2016, a 6% increase, and deposits of $5.72 billion at December 31, 2016, a 4% increase. Total borrowed funds (excluding customer repurchase agreements) were $416.8 million at September 30, 2017, $266.4 million at September 30, 2016, and $216.5 million at December 31, 2016. 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, 2017 increased 15%, to $934.0 million, compared to $815.6 million at September 30, 2016, and increased 11% from $842.8 million at December 31, 2016. The Company’s capital position remains substantially in excess of regulatory requirements for well capitalized status, with a total risk based capital ratio of 15.30% at September 30, 2017, as compared to 15.05% at September 30, 2016, and 14.89% at December 31, 2016. In addition, the tangible common equity ratio was 11.35% at September 30, 2017, compared to 10.64% at September 30, 2016 and 10.84% at December 31, 2016.

Analysis of the three months ended September 30, 2017 compared to September 30, 2016

For the three months ended September 30, 2017, the Company reported an annualized ROAA of 1.66% as compared to 1.50% for the three months ended September 30, 2016. The annualized ROACE for the three months ended September 30, 2017 was 12.86%, as compared to 12.04% for the three months ended September 30, 2016. 

Net interest income increased 11% for the three months ended September 30, 2017 over the same period in 2016 ($71.9 million versus $64.7 million), resulting from growth in average earning assets of 10% and a three basis point expansion of the net interest margin. The net interest margin was 4.14% for the three months ended September 30, 2017, as compared to 4.11% for the three months ended September 30, 2016. The Company believes its net interest margin remains favorable compared to peer banking companies and that its disciplined approach to managing the loan portfolio yield to 5.19% for the third quarter of 2017 has been a significant factor in its overall profitability.

The provision for credit losses was $1.9 million for the three months ended September 30, 2017 as compared to $2.3 million for the three months ended September 30, 2016. The lower provisioning in the third quarter of 2017, as compared to the third quarter of 2016, is primarily due to lower net charge-offs and to overall improved asset quality. Net charge-offs of $2 thousand in the third quarter of 2017 represented an annualized 0.00% of average loans, excluding loans held for sale, as compared to $2.0 million, or an annualized 0.14% of average loans, excluding loans held for sale, in the third quarter of 2016. Net charge-offs in the third quarter of 2017 were attributable primarily to net charge-offs in commercial and industrial loans ($114 thousand) offset by net recoveries in construction - commercial and residential ($106 thousand).

Noninterest income for the three months ended September 30, 2017 increased to $6.8 million from $6.4 million for the three months ended September 30, 2016, due substantially to income of $780 thousand on the origination, securitization, servicing and sale of FHA Multifamily-Backed GNMA securities in the third quarter of 2017, offset by lower sales of residential mortgage loans and the resulting gains on the sale of these loans (gain of $1.8 million for the third quarter of 2017 versus $2.9 million for the same period in 2016). There was no income related to FHA Multifamily-Backed GNMA securities in the third quarter of 2016. The portfolio sale of $37.0 million in residential mortgages out of the loan portfolio resulted in $168 thousand in revenue during the third quarter of 2017. There was no income related to portfolio sales of residential mortgages out of the loan portfolio during the third quarter of 2016. The sale of the guaranteed portion on SBA loans resulted in $390 thousand in revenue during the third quarter of 2017 compared to $101 thousand for the same period in 2016. Residential mortgage loans closed were $135 million for the third quarter in 2017 versus $276 million for the third quarter of 2016. Excluding gains on sales of investment securities, noninterest income was $6.8 million in the third quarter of 2017 as compared to $6.4 million for the third quarter of 2016, an increase of 6%.     

The efficiency ratio, which measures the ratio of noninterest expense to total revenue, was 37.49% for the third quarter of 2017, as compared to 40.54% for the third quarter of 2016. Noninterest expenses totaled $29.5 million for the three months ended September 30, 2017, as compared to $28.8 million for the three months ended September 30, 2016, a 2% increase. Legal, accounting, and professional fees decreased by $469 thousand primarily due to general bank consulting projects. FDIC insurance premiums increased by $300 thousand primarily due to a larger assessment base.  Salaries and benefits expenses decreased $225 thousand due primarily to a decrease in employee benefit costs due to the prior year acceleration of restricted stock awards, offset by merit increases.

The effective tax rate was 36.8% for the third quarter 2017 as compared to 38.7% for the same period in 2016 due primarily to new tax credit investments in the third quarter of 2017 and a lower state tax apportionment factor in the current year. 

Analysis of the nine months ended September 30, 2017 compared to September 30, 2016

For the nine months ended September 30, 2017, the Company reported an annualized ROAA of 1.63% as compared to 1.54% for the nine months ended September 30, 2016. The annualized ROACE for the nine months ended September 30, 2017 was 12.71%, as compared to 12.27% for the nine months ended September 30, 2016. The higher ratios are due to increased earnings.

Net interest income increased 9% for the nine months ended September 30, 2017 over the same period in 2016 ($208.5 million versus $191.1 million), resulting from growth in average earning assets of 12%. The net interest margin was 4.14% for the nine months ended September 30, 2017 as compared to 4.23% for the same period in 2016. The Company believes its net interest margin remains favorable compared to peer banking companies and that its disciplined approach to managing the loan portfolio yield to 5.15% for the first nine months in 2017 has been a significant factor in its overall profitability. Additionally, the percentage of average noninterest bearing deposits to total deposits was 32% for the first nine months in 2017 versus 30% for the same period in 2016.

The provision for credit losses was $4.9 million for the nine months ended September 30, 2017 as compared to $9.2 million for the nine months ended September 30, 2016. The lower provisioning in the first nine months of 2017, as compared to the first nine months of 2016, is due to a combination of lower net-charge-offs, lower loan growth, as net loans increased $406.3 million during the first nine months of 2017, as compared to an increase of $483.6 million during the same period in 2016, and to overall improved asset quality. Net charge-offs of $991 thousand in the first nine months of 2017 represented an annualized 0.02% of average loans, excluding loans held for sale, as compared to $5.0 million or an annualized 0.13% of average loans, excluding loans held for sale, in the first nine months of 2016. Net charge-offs in the first nine months of 2017 were attributable primarily to commercial real estate loans.

Noninterest income for the nine months ended September 30, 2017 was $19.9 million as compared to $20.3 million for the nine months ended September 30, 2016, a 2% decrease.  This was primarily due to fewer sales of SBA and residential mortgage loans resulting in a $785 thousand and $939 thousand decreased gain on the sale of these loans, respectively, and a $581 thousand decreased gain on sale of securities, offset by revenue associated with the origination, securitization, servicing, and sale of FHA Multifamily-Backed GNMA securities of $1.5 million and a $338 thousand increase in service charges on deposits. The portfolio sale of $37.0 million in residential mortgages out of the loan portfolio resulted in $168 thousand in revenue during the nine months ended September 30, 2017. There was no income related to portfolio sales of residential mortgages out of the loan portfolio for the same period of 2016. Excluding investment securities net gains, total noninterest income was $19.3 million for the nine months ended September 30, 2017, as compared to $19.1 million for the same period in 2016, a 1% increase.

Noninterest expenses totaled $88.7 million for the nine months ended September 30, 2017, as compared to $85.2 million for the nine months ended September 30, 2016, a 4% increase. Cost increases for salaries and benefits were $1.3 million, due primarily to increased merit and incentive compensation, offset by a decrease in employee benefit costs due to the prior year acceleration of restricted stock awards. Marketing and advertising increased by $322 thousand due to costs associated with digital and print advertising and sponsorships. Data processing increased by $341 thousand due primarily to increased vendor fees associated with higher volumes and rates. Legal, accounting and professional fees increased by $694 thousand primarily due to enhanced IT risk management and general bank consulting projects. Other expenses increased $799 thousand primarily due to higher broker fees. For the first nine months of 2017, the efficiency ratio was 38.86% as compared to 40.32% for the same period in 2016.

The financial information which follows provides more detail on the Company’s financial performance for the three and nine months ended September 30, 2017 as compared to the three and nine months ended September 30, 2016 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, 2016 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-one branch offices, located in Montgomery County, 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 2017 financial results on Thursday, October 19, 2017 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 87543459, 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 2, 2017.

Forward-looking Statements: This press release contains forward-looking statements within the meaning of the Securities and 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, 2016 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 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