BETHESDA, Md., July 26, 2023 (GLOBE NEWSWIRE) -- Eagle Bancorp, Inc. (the "Company") ( EGBN), the parent company of EagleBank (the "Bank"), today announced net income of $28.7 million for the second quarter 2023, compared to net income of $24.2 million for the first quarter 2023 (the "prior quarter") and $15.7 million for the second quarter 2022 (the "year-ago quarter"). Net income (basic and diluted) was $0.94 per share for the second quarter 2023, compared to $0.78 per share for the prior quarter, and $0.49 per share for the year-ago quarter. Net income for the year-ago quarter included one-time costs related to the legal settlements associated with the previously disclosed government investigations.
The $4.5 million increase in earnings from the prior quarter was attributable to several items including income from a Small Business Investment Company ("SBIC") investment, an increase in swap fee income, lower noninterest expenses, a lower provision for credit losses and a lower provision for unfunded commitments. These improvements were partially offset by lower net interest income as the cost of funding outpaced the increase in yield on earning assets.
Second Quarter 2023 Highlights
- The Company declared a quarterly dividend of $0.45 per share.
- The Company repurchased 1,200,000 shares in the second quarter at an average price of $24.48 per share.
- Common equity and tangible common equity ratios at quarter-end were 11.05% and 10.21%1, respectively.
- Nonperforming assets as a percent of assets was 0.28%. Net charge-off for the quarter was $5.6 million, or 0.29%.
- The provision for credit losses was $5.2 million for the quarter, as compared to $6.2 million the prior quarter. The allowance for credit losses as a percent of total loans was 1.00% down from 1.01% a quarter ago.
- Loans at quarter-end were $7.8 billion, up $29 million from the prior quarter-end. This was the seventh consecutive quarterly increase.
- The funding mix changed as deposits at quarter-end were $7.7 billion, up $255 million from the prior quarter-end, and short-term borrowings were $1.8 billion, down $277 million from the prior quarter-end. The increase in deposits was primarily from growth in brokered time deposits and the decrease in borrowings was from repayment of Federal Home Loan Bank ("FHLB") borrowings.
- Total estimated uninsured deposits at June 30, 2023 were $2.3 billion, or 29.4% of deposits.
- The Company has implemented an expense reduction plan. In the second quarter, two branches were closed with an annual pre-tax cost savings in rental expense of $408 thousand. Early in the third quarter, the Company also implemented a reduction-in-force that along with identified cost savings is expected to generate cost savings of $2.4 million in the second half of 2023 plus an additional reduction of $5.8 million in 2024.
| (Dollars in thousands, except per share data) | As of or for the Three Months Ended | Percent Change | |||||||||||||||
| June 30, | March 31, | June 30, | Q2-23 | Q2-23 | |||||||||||||
| 2023 | 2023 | 2022 | vs. Q1-23 | vs. Q2-22 | |||||||||||||
| Earnings and Per Share Data | |||||||||||||||||
| Net Income / (Loss) | $28,692 | $24,234 | $15,696 | 18.4 | % | 82.8 | % | ||||||||||
| Adjusted Net Income2 | — | — | $38,570 | — | (25.6)% | ||||||||||||
| Earnings per share (diluted) | $0.94 | $0.78 | $0.49 | 20.6 | % | 91.9 | % | ||||||||||
| Adjusted earnings per share (diluted)2 | — | — | $1.20 | — | (21.6)% | ||||||||||||
| Dividend per share | $0.45 | $0.45 | $0.45 | — | — | ||||||||||||
| Return ratios | |||||||||||||||||
| Return on average assets | 0.96 | % | 0.86 | % | 0.54 | % | — | — | |||||||||
| Return on average common equity | 9.24 | % | 7.92 | % | 4.91 | % | — | — | |||||||||
| Return on average tangible common equity2 | 10.08 | % | 8.65 | % | 5.35 | % | — | — | |||||||||
| Net interest margin | 2.49 | % | 2.77 | % | 2.94 | % | — | — | |||||||||
| Efficiency ratio2 | 47.2 | % | 51.6 | % | 66.6 | % | — | — | |||||||||
| Balance Sheet | |||||||||||||||||
| Assets | $ | 11,035 | $ | 11,089 | $ | 10,942 | (0.5)% | 0.9 | % | ||||||||
| Loans | $ | 7,767 | $ | 7,738 | $ | 7,155 | 0.4 | % | 8.6 | % | |||||||
| Deposits | $ | 7,718 | $ | 7,463 | $ | 9,172 | 3.4 | % | (15.8)% | ||||||||
| Borrowings | $ | 1,907 | $ | 2,184 | $ | 350 | (12.7)% | 445.2 | % | ||||||||
| Book and Tangible Book | |||||||||||||||||
| Book value per share | $ | 40.78 | $ | 39.92 | $ | 39.05 | 2.2 | % | 4.4 | % | |||||||
| Tangible book per share2 | $ | 37.29 | $ | 36.57 | $ | 35.80 | 2.0 | % | 4.2 | % | |||||||
| Capital ratios | |||||||||||||||||
| Equity/assets | 11.05 | % | 11.20 | % | 11.45 | % | — | — | |||||||||
| Tangible equity/assets | 10.21 | % | 10.36 | % | 10.60 | % | — | — | |||||||||
| Total capital (to risk weighted assets) | 14.51 | % | 14.74 | % | 15.14 | % | — | — | |||||||||
| Asset quality | |||||||||||||||||
| Allowance for credit losses to total loans | 1.00 | % | 1.01 | % | 1.02 | % | — | — | |||||||||
| Nonperforming assets ("NPAs") to total assets | 0.28 | % | 0.08 | % | 0.19 | % | — | — | |||||||||
| Net charge-off to average loans (annualized) | 0.29 | % | 0.05 | % | (0.04)% | — | — | ||||||||||
CEO Commentary
Susan G. Riel, President and Chief Executive Officer of Eagle Bancorp, Inc. commented, "While earnings stabilized and were higher than the prior quarter, we remain committed to improving results for our shareholders. During the quarter, our deposits were up, borrowings decreased, and credit metrics continue to remain strong. And, while rising rates continued to put pressure on bank stocks, we used the opportunity to repurchase shares at a historically low price relative to book and tangible book values. Additionally, our regulatory capital ratios remain strong."
"We are also mindful of continuing to remain a highly efficient bank and in the first half of the year we took action to save costs by closing three branches3 and ceasing the origination of first lien residential mortgages as future prospects for sufficient returns were low. Early in the third quarter, we also made the difficult decision to implement a reduction-in-force along with a strategic review of operating expenses."
"We once again thank all of our employees for their commitment in serving the needs of our clients and communities. Additionally, we remain committed to a culture of respect, diversity and inclusion in both the workplace and the communities we serve."
Income Statement
- Net interest income was $71.8 million for the second quarter 2023, compared to $75.0 million for the prior quarter and $82.9 million for the year-ago quarter. The decrease in net interest income from the prior quarter was primarily driven by the impact of higher interest rates paid on deposits and the full impact of changes in the funding mix beginning late in the first quarter of 2023. These changes included a higher level of borrowings at rates higher than those of the deposits those borrowings replaced, as well as a shift in noninterest bearing deposit accounts to interest bearing deposit accounts. Although higher interest rates benefited loan yields as variable rate loans adjusted upward and new loans were added at current, higher rates, the increase to interest income was less than the increase in interest expense on average deposits and average borrowings.
- Net interest margin ("NIM") was 2.49% for the second quarter 2023, compared to 2.77% for the prior quarter and 2.94% for the year-ago quarter. The decrease in margin from the prior quarter was 28 basis points. The NIM contraction was based on the cost of funds increasing by 58 basis points, partially offset by the yield on earning assets increasing 27 basis points.
- The yield on the loan portfolio was 6.64% for the second quarter 2023, compared to 6.35% for the prior quarter and 4.51% for the year-ago quarter. The increase of 29 basis points from the prior quarter was from variable rate loans adjusting upward and from higher rates on newly originated loans.
- The yield on interest earning assets, which is inclusive of the yields on loans and securities, was 5.44% for the second quarter 2023 compared to 5.17% for the prior quarter and 3.39% for the year-ago quarter. The increase of 27 basis points from the prior quarter was from variable rate loans adjusting upward, higher rates on newly originated loans, and higher rates on short-term investments.
- The cost of funds was 3.20% for second quarter 2023, compared to 2.62% for the prior quarter and 0.49% for the year-ago quarter.4 The increase of 58 basis points from the prior quarter was primarily due to the impact of higher interest rates paid on deposits and the full impact of changes late in the first quarter of 2023 that included a higher level of borrowings at rates higher than those of the deposits the borrowings replaced along with a continued shift in noninterest bearing deposit accounts to interest bearing deposit accounts.
- Pre-provision net revenue ("PPNR"),5 a non-GAAP measure, was $42.4 million, or 1.43% of average assets for the second quarter 2023, up from $38.1 million and 1.35%, respectively. This increase from the prior quarter in both PPNR and PPNR as a percent of average assets was primarily attributable to the combined impact of the higher noninterest income and lower noninterest expense outpacing the decline in net interest income.
| (Dollars in thousands) | Three Months Ended | Percent Change | |||||||||||||||
| June 30, | March 31, | June 30, | Q2-23 | Q2-23 | |||||||||||||
| 2023 | 2023 | 2022 | vs. Q1-23 | vs. Q2-22 | |||||||||||||
| Net interest income | $ | 71,811 | $ | 75,024 | $ | 82,918 | (4.3)% | (13.4)% | |||||||||
| Noninterest income | 8,595 | 3,700 | 5,564 | 132.3 | % | 54.5 | % | ||||||||||
| Noninterest expense | (37,978 | ) | (40,584 | ) | (58,962 | ) | (6.4)% | (35.6)% | |||||||||
| PPNR (non-GAAP) | $ | 42,428 | $ | 38,140 | $ | 29,520 | 11.2 | % | 43.7 | % | |||||||
| Average Assets | $ | 11,960,111 | $ | 11,426,056 | $ | 11,701,679 | 4.7 | % | 2.2 | % | |||||||
| As a Percent of Average Assets | Basis Point Change | ||||||||||||||||
| Net interest income | 2.41 | % | 2.66 | % | 2.81 | % | (25) bps | (40) bps | |||||||||
| Noninterest income | 0.29 | % | 0.13 | % | 0.19 | % | 16 bps | 10 bps | |||||||||
| Noninterest expense | (1.27)% | (1.44)% | (2.00)% | 17 bps | 73 bps | ||||||||||||
| PPNR to Average Assets (non-GAAP) | 1.43 | % | 1.35 | % | 1.00 | % | 8 bps | 43 bps | |||||||||
- Provision for credit losses on loans was $5.2 million for the second quarter 2023, compared to $6.2 million for the prior quarter and $0.5 million for the year-ago quarter. The decrease in the second quarter 2023 provision over the prior quarter was primarily driven by a lower quantitative formula reserve partially offset by a higher reserve based on the qualitative and environmental ("Q&E") portion of the credit model. The decrease in quantitative reserves was primarily driven by improvements in local unemployment data. The increase in Q&E modeling was driven by a higher allowance for commercial real estate office properties partially offset by a lower allowance for accommodations and food services.
- Noninterest income was $8.6 million for the second quarter 2023, as compared to $3.7 million for the prior quarter and $5.6 million for the year-ago quarter. The primary driver for the increase in the second quarter 2023 from the prior quarter were income of $2.8 million from an SBIC fund and an increase in swap fee income of $959 thousand.
- Noninterest expense was $38.0 million for the second quarter 2023 compared to $40.6 million for the prior quarter and $59.0 million for the year-ago quarter. Noninterest expense was down $2.6 million from the prior quarter, primarily due to the prior quarter including higher compensation and legal expenses and was down $21.0 million from the year-ago quarter which included a large non-recurring expense related to legal settlements associated with the previously disclosed government investigations.
Notable changes from the prior quarter were as follows:
- Salaries and employee benefits were $22.0 million, down $2.2 million from the prior quarter. The decrease was primarily due to a reduction in the annual incentive bonus accrual and payroll taxes from the prior
