Eagle Bancorp, Inc. Announces Net Income of $35.5 Million for the Fourth Quarter and $142.9 Million for the Full Year of 2019
BETHESDA, Md., Jan. 15, 2020 (GLOBE NEWSWIRE) — Eagle Bancorp, Inc. (the “Company”) (NASDAQ:EGBN), the parent company of EagleBank, today announced quarterly net income of $35.5 million for the three months ended December 31, 2019, a 12% decrease as compared to $40.3 million net income for the three months ended December 31, 2018.
For the year ended December 31, 2019, the Company’s net income was $142.9 million, a 6% decrease as compared to $152.3 million for the year ended December 31, 2018.Net income for the three months ended December 31, 2019 was $1.06 per basic and diluted common share as compared to $1.17 per basic and diluted common share for the same period in 2018, a 9% decrease in earnings per share for the fourth quarter of 2019 versus 2018.For the full year 2019, net income was $4.18 per basic and diluted common share as compared to $4.44 per basic common share and $4.42 per diluted common share for 2018, a 6% decrease in basic and 5% decrease in diluted earnings per share for the full year of 2019 as compared to 2018.“Notwithstanding the negative impact that declining interest rates in the second half of 2019 and a flat yield curve are having on our revenues and net interest margin, we are pleased to report a continued trend of both average loan and deposit growth, together with continuing solid asset quality and favorable operating leverage. Additionally, our capital base remains very strong, with ratios well in excess of the requirements for well capitalized status,” noted Susan G. Riel, President and Chief Executive Officer of Eagle Bancorp, Inc. Ms. Riel added that “While period end loan balances in the fourth quarter 2019 were flat as compared to September 30, 2019, average loans increased 0.5% over the third quarter of 2019 and were 9% higher in the fourth quarter of 2019 as compared to the fourth quarter of 2018. In the fourth quarter of 2019 the funding of construction loans tapered off as expected and we experienced higher loan payoffs. These payoffs (which accounted for about 40% of the full year of 2019 payoffs) were expected and reflected in part the successful completion of projects. Funding of C&I loans improved during the quarter and the loan pipeline remained strong. For the full year of 2019, loan balances increased 8% while average loans increased 10% over 2018, close to planned levels.”Ms. Riel added, “Deposit activity in the fourth quarter 2019 was very fluid as period end balances declined by about 2% as compared to September 30, 2019, however, average deposit balances increased a strong 5% in the fourth quarter 2019 over the third quarter in 2019. We have many large depositor clients whose balances fluctuate regularly and can impact overall deposit levels at a point in time. We focus more on growing average balances, which more directly relate to revenue. For the fourth quarter of 2019, average deposits were 11% higher as compared to the fourth quarter in 2018. For the full year 2019, deposit balances increased by 4%, while average deposit balances increased a strong 12%.”Total revenue (net interest income plus noninterest income) for the fourth quarter of 2019 was $87.4 million, as compared to $87.8 million for the fourth quarter of 2018 and $87.3 for the third quarter in 2019. For the year 2019, total revenue was $349.7 million, as compared to $339.6 million for the year of 2018, a 3% increase.Ms. Riel further commented, “For the fourth quarter of 2019, as noted, we experienced very strong growth of average deposits as compared to minimal loan growth, resulting in significantly higher average liquidity. This higher average liquidity ($739 million for the fourth quarter of 2019 vs. $306 million normalized average for the first three quarters of 2019) contributed to a decline in the net interest margin to 3.49% for the fourth quarter from 3.72% in the third quarter of 2019. The higher liquidity position in the fourth quarter resulted in an average loan to deposit ratio of 98% as compared to 102% for the third quarter of 2019. Also contributing to the decreased net interest margin for the fourth quarter was a 21 basis point decline in the yield on the loan portfolio to 5.18% versus 5.39% for the third quarter 2019, largely due to the sharp decline in the one month average LIBOR interest rate in the fourth quarter (down 39 basis points to 1.79%). Approximately 40% of the Bank’s loan balances are on notes indexed to this LIBOR rate.” Ms. Riel added, “While we were able to realize declines in our cost of funds as market rates declined in the fourth quarter of 2019 (13 basis points from 1.28% to 1.15%), the variable rate nature of our loan portfolio has resulted in a sharper decline in asset yields than in the cost of funds. Importantly, our credit quality remained very strong in the fourth quarter as the level of nonperforming assets was 0.56% of total assets at December 31, 2019 and the annualized level of net charge offs to average loans was 0.13%.” Ms. Riel added, “The Company’s operating efficiency, another key driver of our financial performance, remained favorable.” For the fourth quarter in 2019, the efficiency ratio was 39.7%, as compared to 36.1% in the fourth quarter of 2018, and was 40.0% for the full year 2019, which is inclusive of elevated legal costs as discussed below.Combining all operating factors for the fourth quarter 2019, the Company achieved a return on average assets of 1.49%, a return on average common equity of 11.78%, and a return on average tangible common equity ratio of 12.91%, while sustaining strong capital levels.For the full year 2019 over 2018, average deposit growth was 12%, average loan growth was 10%, revenue growth was 3% and noninterest expense growth was 10%. The net interest margin for 2019 was 3.77% as compared to 4.10% for the year 2018. While lower, we believe our net interest margin for 2019 remains above peer banking companies. Period end to period end, loan growth in 2019 was 8% and deposit growth was 4%.Comparing asset yields and cost of funds for the full year of 2019 to the full year 2018, loan yields were down 9 basis points (from 5.54% to 5.45%), yields on earning assets were also down 9 basis points (from 5.09% to 5.00%) and the cost of funds was up 24 basis points (from 0.99% to 1.23%). Importantly, our funding costs, while up in 2019 over 2018, continue to benefit from the substantial level of average noninterest deposits as a percentage of average total deposits of 30.6% in 2019. Having a significant portion of the loan portfolio with variable and adjustable rates in a declining rate environment (specifically the latter half of 2019) has been the major factor in compressing the net interest margin and negatively impacting revenue growth in the third and fourth quarters. Ms. Riel added, “We expect that further lowering of deposit interest rates in 2020 together with more stable short term market rates will take some pressure off of further margin declines.” The return on average assets (“ROAA”) was 1.61% for the year 2019 as compared to 1.91% for the year ended December 31, 2018. The annualized return on average common equity (“ROACE”) was 12.20% for the full year 2019 as compared to 14.89% for the year ended December 31, 2018. The annualized return on average tangible common equity (“ROATCE”) was 13.40% for the full year 2019 as compared to 16.63% for the year ended December 31, 2018.Asset quality measures remained solid in the fourth quarter of 2019. At December 31, 2019, the Company’s nonperforming loans amounted to $48.7 million (0.65% of total loans) as compared to $57.7 million (0.76% of total loans) at September 30, 2019 and $16.3 million (0.23% of total loans) at December 31, 2018. Nonperforming assets amounted to $50.2 million (0.56% of total assets) at December 31, 2019 compared to $59.1 million (0.66% of total assets) at September 30, 2019 and $17.7 million (0.21% of total assets) at December 31, 2018. For 2019, the Company recorded net charge-offs of $9.4 million (0.13% of average loans), as compared to net charge-offs of $3.5 million (0.05% of average loans) for 2018.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 and believes, based on its loan portfolio risk analysis, that its December 31, 2019 allowance for credit losses, at 0.98% of total loans (excluding loans held for sale), is adequate to absorb probable credit losses within the loan portfolio as of the end of the year. The allowance for credit losses was 0.98% of total loans at September 30, 2019 and 1.00% at December 31, 2018. The allowance for credit losses represented 151% of nonperforming loans at December 31, 2019.Total assets at December 31, 2019 were $8.99 billion, relatively flat as compared to $9.00 billion at September 30, 2019, and increased 7% as compared to $8.39 billion at December 31, 2018. Total loans (excluding loans held for sale) were $7.54 billion at December 31, 2019, relatively flat as compared to $7.56 billion at September 30, 2019, and an 8% increase as compared to $6.99 billion at December 31, 2018. Loans held for sale amounted to $56.7 million at December 31, 2019 as compared to $52.2 million at September 30, 2019, a 9% increase, and $19.3 million at December 31, 2018, a 195% increase. The investment portfolio totaled $843.4 million at December 31, 2019, a 19% increase from $708.5 million at September 30, 2019. As compared to December 31, 2018, the investment portfolio at December 31, 2019 increased by $59.2 million or 8%.Total deposits at December 31, 2019 were $7.22 billion, as compared to deposits of $7.40 billion at September 30, 2019, a 2% decline, and deposits of $6.97 billion at December 31, 2018, a 4% increase. Total borrowed funds (excluding customer repurchase agreements) were $467.7 million at December 31, 2019, $317.6 million at September 30, 2019 and $217.3 million at December 31, 2018.Total shareholders’ equity at December 31, 2019 increased 0.5%, to $1.19 billion, compared to $1.18 billion at September 30, 2019, and increased 7%, from $1.11 billion at December 31, 2018. Growth in retained earnings has enhanced the Company’s capital position well in excess of regulatory requirements for well capitalized status. The total risk based capital ratio was 16.20% at December 31, 2019, as compared to 16.08% at both September 30, 2019, and December 31, 2018. In addition, the tangible common equity ratio was 12.22% at December 31, 2019, compared to 12.13% at September 30, 2019 and 12.11% at December 31, 2018.On August 9, 2019, the Company announced a Share Repurchase Plan which authorized share repurchases up to 5% of outstanding shares (1,715,547) until expiration on December 31, 2019. Through December 31, 2019, the Company has repurchased 1,304,500 shares at a weighted average price of $42.06 per share. On December 18, 2019, the Company announced a new Share Repurchase Plan which authorized share repurchases up to approximately 5% of outstanding shares (1,641,000) until expiration on December 31, 2020.The Company announced a regular quarterly cash dividend on December 16, 2019 of $0.22 per share to shareholders of record on January 15, 2020 and payable January 31, 2020.Analysis of the three months ended December 31, 2019 compared to December 31, 2018Net interest income decreased 1% for the three months ended December 31, 2019 over the same period in 2018 ($80.7 million versus $81.7 million), resulting from a 48 basis point reduction of the net interest margin offset by growth in average earning assets of 12%. The net interest margin was 3.49% for the three months ended December 31, 2019, as compared to 3.97% for the three months ended December 31, 2018. The Company believes its net interest margin remains favorable compared to peer banking companies and that its disciplined approach to managing the loan portfolio to a 5.18% yield for the fourth quarter of 2019 has been a significant factor in its overall profitability.The provision for credit losses was $2.9 million for the three months ended December 31, 2019 as compared to $2.6 million for the three months ended December 31, 2018. The higher provisioning in the fourth quarter of 2019, as compared to the fourth quarter of 2018, is primarily due to higher net charge-offs. Net charge-offs of $3.0 million in the fourth quarter of 2019 represented an annualized 0.16% of average loans, excluding loans held for sale, as compared to net charge-offs of $844 thousand, or an annualized 0.05% of average loans, excluding loans held for sale, in the fourth quarter of 2018. Net charge-offs in the fourth quarter of 2019 were attributable to Commercial & Industrial loans ($3.0 million).Noninterest income for the three months ended December 31, 2019 increased to $6.7 million from $6.1 million for the three months ended December 31, 2018, due substantially to $1.3 million higher gains on sale of residential mortgage loans offset by $373 thousand lower service charges on deposits. The residential mortgage unit had higher sales and resulting gains on the sale of these loans in the fourth quarter of 2019 (gains of $2.5 million for the fourth quarter of 2019 versus $1.2 million for the same period in 2018). Residential mortgage loans closed were $228 million for the fourth quarter in 2019 versus $91 million for the fourth quarter of 2018. The FHA business unit generated income of $395 thousand on the origination, securitization, servicing and sale of FHA Multifamily-Backed GNMA securities in the fourth quarter of 2019 compared to $507 thousand for the same period in 2018. The SBA business unit generated $138 thousand in revenue during the fourth quarter of 2019 from sales of the guaranteed portion on SBA loans compared to $167 thousand for the same period in 2018. The efficiency ratio, which measures the ratio of noninterest expense to total revenue, was 39.71% for the fourth quarter of 2019, as compared to 36.09% for the fourth quarter of 2018. Noninterest expenses totaled $34.7 million for the three months ended December 31, 2019, as compared to $31.7 million for the three months ended December 31, 2018. Salaries and employee benefits expenses increased $3.5 million in the fourth quarter of 2019 as compared to the fourth quarter of 2018. This was attributable to a $3.2 million increase resulting from additional staffing, merit increases, and incentives. Legal, accounting, and professional fees increased by $1.7 million as discussed below. Other expenses decreased $1.1 million due primarily to lower broker fees.The effective income tax rate was higher (28.8%) for the fourth quarter 2019 as compared to 24.7% for the same period in 2018 due primarily to a decrease in federal tax credits, an increase in nondeductible expenses, and adjustments related to the completion of the 2018 tax returns.Analysis of the year ended December 31, 2019 compared to December 31, 2018Net interest income increased 2% for the year ended December 31, 2019 over the same period in 2018 ($324.0 million versus $317.0 million), resulting from growth in average earning assets of 11%. The net interest margin was 3.77% for the year ended December 31, 2019 as compared to 4.10% for the same period in 2018. 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 5.45% for the full year of 2019 has been a significant factor in its overall profitability. Additionally, the percentage of average noninterest bearing deposits to total deposits was 30.6% for the full year of 2019 versus 33.4% for the same period in 2018.The provision for credit losses was $13.1 million for the year ended December 31, 2019 as compared to $8.7 million for the year ended December 31, 2018. The higher provisioning during 2019, as compared to 2018, is due to higher net charge-offs. Net charge-offs of $9.4 million during 2019 represented an annualized 0.13% of average loans, excluding loans held for sale, as compared to $3.5 million or an annualized 0.05% of average loans, excluding loans held for sale, in 2018. Net charge-offs during 2019 were attributable primarily to commercial real estate ($5.0 million) and commercial loans ($4.5 million).Noninterest income for the year ended December 31, 2019 was $25.7 million as compared to $22.6 million for the year ended December 31, 2018, a 14% increase due to $2.7 million higher gains on sale of residential mortgage loans, $1.4 million higher gain on sale of investment securities, offset by $767 thousand lower service charges on deposits. The residential mortgage unit had $8.2 million of gains on the sale of loans for the full year of 2019 versus $5.4 million for the same period in 2018 resulting from higher loan originations and subsequent loan sales. Residential mortgage loans closed were $698 million for the full year 2019 versus $424 million for the full year 2018. The FHA business unit generated income of $501 thousand on the origination, securitization, servicing and sale of FHA Multifamily-Backed GNMA securities for the full year 2019 compared to $357 thousand for the same period in 2018. The SBA business unit generated $309 thousand in revenue from sales of the guaranteed portion on SBA loans for the full year 2019 compared to $540 thousand for the same period in 2018.Noninterest expenses totaled $139.9 million for the year ended December 31, 2019, as compared to $126.7 million for the year ended December 31, 2018, a 10% increase. Salaries and employee benefits increased by $12.1 million due primarily to $8.2 million of nonrecurring charges related to acceleration of share based compensation expenses associated with the retirement of our former Chairman and Chief Executive Officer and the resignation of certain directors. In addition, $4.0 million of the increase resulted from additional staffing, merit increases, and incentives. Legal, accounting and professional fees increased by $2.5 million as discussed below. For 2019, the efficiency ratio was 39.99% as compared to 37.31% for the same period in 2018.Legal, accounting and professional fees and expenses for the three months ended December 31, 2019 increased to $4.1 million from $2.5 million for the same period in 2018, a 68% increase. Legal, accounting and professional fees and expenses for the year ended December 31, 2019 increased to $12.2 million from $9.7 million in 2018, a 25% increase. The increased expenses for both the quarter-to-date and year-to-date 2019 periods were primarily associated with government agencies investigations previously disclosed in the second quarter 2019 earnings press release. The Company expects to continue to incur elevated levels of legal and professional fees and expenses in 2020 as it continues to cooperate with these investigations. Other than these increased costs, we do not believe at this time that the resolution of these investigations will be materially adverse to the Company. As a result of these ongoing investigations, there have been no regulatory restrictions placed on the Company’s ability to fully engage in its banking business as presently conducted. We are, however, unable to predict the duration, scope or outcome of these investigations.The effective income tax rate for the year ended 2019 was higher at 27.4% as compared to 25.4% due primarily to a decrease in federal tax credits, an increase in nondeductible expenses, and adjustments related to the completion of the 2018 tax returns.The financial information which follows provides more detail on the Company’s financial performance for the three and twelve months ended December 31, 2019 as compared to the three and twelve months ended December 31, 2018 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, 2018 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 fourth quarter and year end 2019 financial results on Thursday, January 16, 2020 at 10:00 a.m. eastern time. The public is invited to listen to this conference call by dialing 1.877.303.6220, conference ID Code is 2188459, 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 January 30, 2020.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, 2018 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
For the year ended December 31, 2019, the Company’s net income was $142.9 million, a 6% decrease as compared to $152.3 million for the year ended December 31, 2018.Net income for the three months ended December 31, 2019 was $1.06 per basic and diluted common share as compared to $1.17 per basic and diluted common share for the same period in 2018, a 9% decrease in earnings per share for the fourth quarter of 2019 versus 2018.For the full year 2019, net income was $4.18 per basic and diluted common share as compared to $4.44 per basic common share and $4.42 per diluted common share for 2018, a 6% decrease in basic and 5% decrease in diluted earnings per share for the full year of 2019 as compared to 2018.“Notwithstanding the negative impact that declining interest rates in the second half of 2019 and a flat yield curve are having on our revenues and net interest margin, we are pleased to report a continued trend of both average loan and deposit growth, together with continuing solid asset quality and favorable operating leverage. Additionally, our capital base remains very strong, with ratios well in excess of the requirements for well capitalized status,” noted Susan G. Riel, President and Chief Executive Officer of Eagle Bancorp, Inc. Ms. Riel added that “While period end loan balances in the fourth quarter 2019 were flat as compared to September 30, 2019, average loans increased 0.5% over the third quarter of 2019 and were 9% higher in the fourth quarter of 2019 as compared to the fourth quarter of 2018. In the fourth quarter of 2019 the funding of construction loans tapered off as expected and we experienced higher loan payoffs. These payoffs (which accounted for about 40% of the full year of 2019 payoffs) were expected and reflected in part the successful completion of projects. Funding of C&I loans improved during the quarter and the loan pipeline remained strong. For the full year of 2019, loan balances increased 8% while average loans increased 10% over 2018, close to planned levels.”Ms. Riel added, “Deposit activity in the fourth quarter 2019 was very fluid as period end balances declined by about 2% as compared to September 30, 2019, however, average deposit balances increased a strong 5% in the fourth quarter 2019 over the third quarter in 2019. We have many large depositor clients whose balances fluctuate regularly and can impact overall deposit levels at a point in time. We focus more on growing average balances, which more directly relate to revenue. For the fourth quarter of 2019, average deposits were 11% higher as compared to the fourth quarter in 2018. For the full year 2019, deposit balances increased by 4%, while average deposit balances increased a strong 12%.”Total revenue (net interest income plus noninterest income) for the fourth quarter of 2019 was $87.4 million, as compared to $87.8 million for the fourth quarter of 2018 and $87.3 for the third quarter in 2019. For the year 2019, total revenue was $349.7 million, as compared to $339.6 million for the year of 2018, a 3% increase.Ms. Riel further commented, “For the fourth quarter of 2019, as noted, we experienced very strong growth of average deposits as compared to minimal loan growth, resulting in significantly higher average liquidity. This higher average liquidity ($739 million for the fourth quarter of 2019 vs. $306 million normalized average for the first three quarters of 2019) contributed to a decline in the net interest margin to 3.49% for the fourth quarter from 3.72% in the third quarter of 2019. The higher liquidity position in the fourth quarter resulted in an average loan to deposit ratio of 98% as compared to 102% for the third quarter of 2019. Also contributing to the decreased net interest margin for the fourth quarter was a 21 basis point decline in the yield on the loan portfolio to 5.18% versus 5.39% for the third quarter 2019, largely due to the sharp decline in the one month average LIBOR interest rate in the fourth quarter (down 39 basis points to 1.79%). Approximately 40% of the Bank’s loan balances are on notes indexed to this LIBOR rate.” Ms. Riel added, “While we were able to realize declines in our cost of funds as market rates declined in the fourth quarter of 2019 (13 basis points from 1.28% to 1.15%), the variable rate nature of our loan portfolio has resulted in a sharper decline in asset yields than in the cost of funds. Importantly, our credit quality remained very strong in the fourth quarter as the level of nonperforming assets was 0.56% of total assets at December 31, 2019 and the annualized level of net charge offs to average loans was 0.13%.” Ms. Riel added, “The Company’s operating efficiency, another key driver of our financial performance, remained favorable.” For the fourth quarter in 2019, the efficiency ratio was 39.7%, as compared to 36.1% in the fourth quarter of 2018, and was 40.0% for the full year 2019, which is inclusive of elevated legal costs as discussed below.Combining all operating factors for the fourth quarter 2019, the Company achieved a return on average assets of 1.49%, a return on average common equity of 11.78%, and a return on average tangible common equity ratio of 12.91%, while sustaining strong capital levels.For the full year 2019 over 2018, average deposit growth was 12%, average loan growth was 10%, revenue growth was 3% and noninterest expense growth was 10%. The net interest margin for 2019 was 3.77% as compared to 4.10% for the year 2018. While lower, we believe our net interest margin for 2019 remains above peer banking companies. Period end to period end, loan growth in 2019 was 8% and deposit growth was 4%.Comparing asset yields and cost of funds for the full year of 2019 to the full year 2018, loan yields were down 9 basis points (from 5.54% to 5.45%), yields on earning assets were also down 9 basis points (from 5.09% to 5.00%) and the cost of funds was up 24 basis points (from 0.99% to 1.23%). Importantly, our funding costs, while up in 2019 over 2018, continue to benefit from the substantial level of average noninterest deposits as a percentage of average total deposits of 30.6% in 2019. Having a significant portion of the loan portfolio with variable and adjustable rates in a declining rate environment (specifically the latter half of 2019) has been the major factor in compressing the net interest margin and negatively impacting revenue growth in the third and fourth quarters. Ms. Riel added, “We expect that further lowering of deposit interest rates in 2020 together with more stable short term market rates will take some pressure off of further margin declines.” The return on average assets (“ROAA”) was 1.61% for the year 2019 as compared to 1.91% for the year ended December 31, 2018. The annualized return on average common equity (“ROACE”) was 12.20% for the full year 2019 as compared to 14.89% for the year ended December 31, 2018. The annualized return on average tangible common equity (“ROATCE”) was 13.40% for the full year 2019 as compared to 16.63% for the year ended December 31, 2018.Asset quality measures remained solid in the fourth quarter of 2019. At December 31, 2019, the Company’s nonperforming loans amounted to $48.7 million (0.65% of total loans) as compared to $57.7 million (0.76% of total loans) at September 30, 2019 and $16.3 million (0.23% of total loans) at December 31, 2018. Nonperforming assets amounted to $50.2 million (0.56% of total assets) at December 31, 2019 compared to $59.1 million (0.66% of total assets) at September 30, 2019 and $17.7 million (0.21% of total assets) at December 31, 2018. For 2019, the Company recorded net charge-offs of $9.4 million (0.13% of average loans), as compared to net charge-offs of $3.5 million (0.05% of average loans) for 2018.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 and believes, based on its loan portfolio risk analysis, that its December 31, 2019 allowance for credit losses, at 0.98% of total loans (excluding loans held for sale), is adequate to absorb probable credit losses within the loan portfolio as of the end of the year. The allowance for credit losses was 0.98% of total loans at September 30, 2019 and 1.00% at December 31, 2018. The allowance for credit losses represented 151% of nonperforming loans at December 31, 2019.Total assets at December 31, 2019 were $8.99 billion, relatively flat as compared to $9.00 billion at September 30, 2019, and increased 7% as compared to $8.39 billion at December 31, 2018. Total loans (excluding loans held for sale) were $7.54 billion at December 31, 2019, relatively flat as compared to $7.56 billion at September 30, 2019, and an 8% increase as compared to $6.99 billion at December 31, 2018. Loans held for sale amounted to $56.7 million at December 31, 2019 as compared to $52.2 million at September 30, 2019, a 9% increase, and $19.3 million at December 31, 2018, a 195% increase. The investment portfolio totaled $843.4 million at December 31, 2019, a 19% increase from $708.5 million at September 30, 2019. As compared to December 31, 2018, the investment portfolio at December 31, 2019 increased by $59.2 million or 8%.Total deposits at December 31, 2019 were $7.22 billion, as compared to deposits of $7.40 billion at September 30, 2019, a 2% decline, and deposits of $6.97 billion at December 31, 2018, a 4% increase. Total borrowed funds (excluding customer repurchase agreements) were $467.7 million at December 31, 2019, $317.6 million at September 30, 2019 and $217.3 million at December 31, 2018.Total shareholders’ equity at December 31, 2019 increased 0.5%, to $1.19 billion, compared to $1.18 billion at September 30, 2019, and increased 7%, from $1.11 billion at December 31, 2018. Growth in retained earnings has enhanced the Company’s capital position well in excess of regulatory requirements for well capitalized status. The total risk based capital ratio was 16.20% at December 31, 2019, as compared to 16.08% at both September 30, 2019, and December 31, 2018. In addition, the tangible common equity ratio was 12.22% at December 31, 2019, compared to 12.13% at September 30, 2019 and 12.11% at December 31, 2018.On August 9, 2019, the Company announced a Share Repurchase Plan which authorized share repurchases up to 5% of outstanding shares (1,715,547) until expiration on December 31, 2019. Through December 31, 2019, the Company has repurchased 1,304,500 shares at a weighted average price of $42.06 per share. On December 18, 2019, the Company announced a new Share Repurchase Plan which authorized share repurchases up to approximately 5% of outstanding shares (1,641,000) until expiration on December 31, 2020.The Company announced a regular quarterly cash dividend on December 16, 2019 of $0.22 per share to shareholders of record on January 15, 2020 and payable January 31, 2020.Analysis of the three months ended December 31, 2019 compared to December 31, 2018Net interest income decreased 1% for the three months ended December 31, 2019 over the same period in 2018 ($80.7 million versus $81.7 million), resulting from a 48 basis point reduction of the net interest margin offset by growth in average earning assets of 12%. The net interest margin was 3.49% for the three months ended December 31, 2019, as compared to 3.97% for the three months ended December 31, 2018. The Company believes its net interest margin remains favorable compared to peer banking companies and that its disciplined approach to managing the loan portfolio to a 5.18% yield for the fourth quarter of 2019 has been a significant factor in its overall profitability.The provision for credit losses was $2.9 million for the three months ended December 31, 2019 as compared to $2.6 million for the three months ended December 31, 2018. The higher provisioning in the fourth quarter of 2019, as compared to the fourth quarter of 2018, is primarily due to higher net charge-offs. Net charge-offs of $3.0 million in the fourth quarter of 2019 represented an annualized 0.16% of average loans, excluding loans held for sale, as compared to net charge-offs of $844 thousand, or an annualized 0.05% of average loans, excluding loans held for sale, in the fourth quarter of 2018. Net charge-offs in the fourth quarter of 2019 were attributable to Commercial & Industrial loans ($3.0 million).Noninterest income for the three months ended December 31, 2019 increased to $6.7 million from $6.1 million for the three months ended December 31, 2018, due substantially to $1.3 million higher gains on sale of residential mortgage loans offset by $373 thousand lower service charges on deposits. The residential mortgage unit had higher sales and resulting gains on the sale of these loans in the fourth quarter of 2019 (gains of $2.5 million for the fourth quarter of 2019 versus $1.2 million for the same period in 2018). Residential mortgage loans closed were $228 million for the fourth quarter in 2019 versus $91 million for the fourth quarter of 2018. The FHA business unit generated income of $395 thousand on the origination, securitization, servicing and sale of FHA Multifamily-Backed GNMA securities in the fourth quarter of 2019 compared to $507 thousand for the same period in 2018. The SBA business unit generated $138 thousand in revenue during the fourth quarter of 2019 from sales of the guaranteed portion on SBA loans compared to $167 thousand for the same period in 2018. The efficiency ratio, which measures the ratio of noninterest expense to total revenue, was 39.71% for the fourth quarter of 2019, as compared to 36.09% for the fourth quarter of 2018. Noninterest expenses totaled $34.7 million for the three months ended December 31, 2019, as compared to $31.7 million for the three months ended December 31, 2018. Salaries and employee benefits expenses increased $3.5 million in the fourth quarter of 2019 as compared to the fourth quarter of 2018. This was attributable to a $3.2 million increase resulting from additional staffing, merit increases, and incentives. Legal, accounting, and professional fees increased by $1.7 million as discussed below. Other expenses decreased $1.1 million due primarily to lower broker fees.The effective income tax rate was higher (28.8%) for the fourth quarter 2019 as compared to 24.7% for the same period in 2018 due primarily to a decrease in federal tax credits, an increase in nondeductible expenses, and adjustments related to the completion of the 2018 tax returns.Analysis of the year ended December 31, 2019 compared to December 31, 2018Net interest income increased 2% for the year ended December 31, 2019 over the same period in 2018 ($324.0 million versus $317.0 million), resulting from growth in average earning assets of 11%. The net interest margin was 3.77% for the year ended December 31, 2019 as compared to 4.10% for the same period in 2018. 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 5.45% for the full year of 2019 has been a significant factor in its overall profitability. Additionally, the percentage of average noninterest bearing deposits to total deposits was 30.6% for the full year of 2019 versus 33.4% for the same period in 2018.The provision for credit losses was $13.1 million for the year ended December 31, 2019 as compared to $8.7 million for the year ended December 31, 2018. The higher provisioning during 2019, as compared to 2018, is due to higher net charge-offs. Net charge-offs of $9.4 million during 2019 represented an annualized 0.13% of average loans, excluding loans held for sale, as compared to $3.5 million or an annualized 0.05% of average loans, excluding loans held for sale, in 2018. Net charge-offs during 2019 were attributable primarily to commercial real estate ($5.0 million) and commercial loans ($4.5 million).Noninterest income for the year ended December 31, 2019 was $25.7 million as compared to $22.6 million for the year ended December 31, 2018, a 14% increase due to $2.7 million higher gains on sale of residential mortgage loans, $1.4 million higher gain on sale of investment securities, offset by $767 thousand lower service charges on deposits. The residential mortgage unit had $8.2 million of gains on the sale of loans for the full year of 2019 versus $5.4 million for the same period in 2018 resulting from higher loan originations and subsequent loan sales. Residential mortgage loans closed were $698 million for the full year 2019 versus $424 million for the full year 2018. The FHA business unit generated income of $501 thousand on the origination, securitization, servicing and sale of FHA Multifamily-Backed GNMA securities for the full year 2019 compared to $357 thousand for the same period in 2018. The SBA business unit generated $309 thousand in revenue from sales of the guaranteed portion on SBA loans for the full year 2019 compared to $540 thousand for the same period in 2018.Noninterest expenses totaled $139.9 million for the year ended December 31, 2019, as compared to $126.7 million for the year ended December 31, 2018, a 10% increase. Salaries and employee benefits increased by $12.1 million due primarily to $8.2 million of nonrecurring charges related to acceleration of share based compensation expenses associated with the retirement of our former Chairman and Chief Executive Officer and the resignation of certain directors. In addition, $4.0 million of the increase resulted from additional staffing, merit increases, and incentives. Legal, accounting and professional fees increased by $2.5 million as discussed below. For 2019, the efficiency ratio was 39.99% as compared to 37.31% for the same period in 2018.Legal, accounting and professional fees and expenses for the three months ended December 31, 2019 increased to $4.1 million from $2.5 million for the same period in 2018, a 68% increase. Legal, accounting and professional fees and expenses for the year ended December 31, 2019 increased to $12.2 million from $9.7 million in 2018, a 25% increase. The increased expenses for both the quarter-to-date and year-to-date 2019 periods were primarily associated with government agencies investigations previously disclosed in the second quarter 2019 earnings press release. The Company expects to continue to incur elevated levels of legal and professional fees and expenses in 2020 as it continues to cooperate with these investigations. Other than these increased costs, we do not believe at this time that the resolution of these investigations will be materially adverse to the Company. As a result of these ongoing investigations, there have been no regulatory restrictions placed on the Company’s ability to fully engage in its banking business as presently conducted. We are, however, unable to predict the duration, scope or outcome of these investigations.The effective income tax rate for the year ended 2019 was higher at 27.4% as compared to 25.4% due primarily to a decrease in federal tax credits, an increase in nondeductible expenses, and adjustments related to the completion of the 2018 tax returns.The financial information which follows provides more detail on the Company’s financial performance for the three and twelve months ended December 31, 2019 as compared to the three and twelve months ended December 31, 2018 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, 2018 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 fourth quarter and year end 2019 financial results on Thursday, January 16, 2020 at 10:00 a.m. eastern time. The public is invited to listen to this conference call by dialing 1.877.303.6220, conference ID Code is 2188459, 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 January 30, 2020.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, 2018 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