After the close, Eagle Bancorp (EGBN) reported Q4 earnings of $1.06 per share. That’s one penny below estimates. It’s also down from $1.17 per share from one year ago.
For all of 2019, Eagle made $4.18 per share. That’s down from $4.44 per year in 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%.