Eagle Bancorp, Inc. Announces Net Income for Fourth Quarter 2020 of $38.9 Million or $1.21 Per Share

Total Assets Exceed $11 Billion

BETHESDA, Md., Jan. 27, 2021 (GLOBE NEWSWIRE) -- Eagle Bancorp, Inc. (the “Company”) (NASDAQ: EGBN), the parent company of EagleBank (the “Bank”), today announced quarterly net income of $38.9 million for the fourth quarter of 2020, a 10% increase, as compared to $35.5 million net income for the fourth quarter of 2019. Net income per basic and diluted common share for the fourth quarter of 2020 was $1.21 compared to $1.06 for the same period in 2019, a 14% increase.

For the full year 2020, the Company reported net income of $132.2 million ($4.08 per fully diluted share) as compared to $142.9 million in net income ($4.18 per fully diluted share) for the full year 2019. The 2020 results include the adoption of the current expected credit losses ("CECL") accounting standard effective January 1, 2020.

Fourth Quarter Key Metrics

• Income Statement
  • Net income of $38.9 million (2nd best quarterly earnings over the last eight quarters)
  • Revenue growth of 4% over fourth quarter 2019
  • Net interest margin of 2.98%
  • Return on average assets ("ROAA") of 1.39%
  • Return on average common equity ("ROACE") of 12.53%
  • Return on average tangible common equity ("ROATCE") of 13.69%1
  • Efficiency ratio of 38.34%

• Balance Sheet
  • Average assets of $11.1 billion
  • Book value per share of $39.05 (up 9% since the end of 2019)
  • Tangible book value per share of $35.74 (up 9.4% since the end of 2019)1
  • Total risk based capital ratio of 17.04%
  • Annualized net charge-off ratio to average loans of 0.28%
  • Nonperforming assets to total assets of 0.59%
  • Allowance for credit losses to total loans of 1.41%

Susan G. Riel, President and Chief Executive Officer of Eagle Bancorp, Inc., commented, "We ended a very challenging year with two strong quarters, which is a testament to the strength and resiliency of our franchise, our people and the market we serve. For the year, we generated net income of $132.2 million while provisioning $45.6 million to increase our allowance for credit losses as a response to the COVID-19 pandemic along with the adoption of CECL at the beginning of the year. Full year returns also remained strong with a ROAA of 1.28% and a ROATCE of 12.03%2. Recognition must also be given to our residential mortgage division which had a banner year in a low-rate environment generating gain on sale of loans of $21.8 million, more than two-and-a-half times the amount in 2019."

"2020 was also a year when our balance sheet grew by $2.1 billion, with deposits growing by almost $2 billion. The flow of deposits continued throughout the year, and given the COVID-19 pandemic could not be economically deployed into loans, creating excess liquidity. This liquidity was a significant factor that brought the net interest margin under 3% for the first time ever."

"In spite of all the headwinds, we continue to manage an efficient and well-capitalized bank. We remain a leader among our peers with an efficiency ratio of 38.34% and with total risk-based capital of 17.04% at year-end 2020, we are well situated for when loan growth resumes."

"We once again thank all of our employees for their commitment and diligence in serving client needs and following safe health practices. As we look toward the new year, we remain focused on strong and balanced operating performance. We will continue to proactively manage any credit concerns while delivering best-in-class service to our customers. We will continue to exercise prudent oversight of expenses, while retaining an infrastructure that is competitive, supports our growth initiatives, and proactively enhances our risk management systems as we position ourselves for future growth.”

Balance Sheet Highlights

• Total assets at December 31, 2020 were $11.1 billion, a 24% increase as compared to $9.0 billion at December 31, 2019, and a 10% increase as compared to $10.1 billion at September 30, 2020.
• Total loans (excluding loans held for sale) were $7.8 billion at December 31, 2020, a 3% increase as compared to $7.5 billion at December 31, 2019, and a 2% decrease as compared to $7.9 billion at September 30, 2020. Paycheck Protection Program ("PPP") loans represented $454.8 million of total loans at the end of the fourth quarter. Excluding PPP loans, the decrease in loan balance during the fourth quarter 2020 is mostly attributable to the successful completion of construction projects and the related construction loan payoffs.
• Loans held for sale amounted to $88.2 million at December 31, 2020 as compared to $56.7 million at December 31, 2019, a 56% increase, and $79.1 million at September 30, 2020, a 12% increase.
• Investment portfolio totaled $1.2 billion at December 31, 2020, a 36% increase from the $843.4 million balance at December 31, 2019, and 18% increase from $977.6 million at September 30, 2020. This was due primarily to the deployment of deposit inflows into higher yielding assets.
• Total deposits at December 31, 2020 were $9.2 billion, compared to deposits of $7.2 billion at December 31, 2019, a 27% increase, and a 12% increase compared to deposits of $8.2 billion at September 30, 2020. The increase in deposits was attributable to the continued inflow of deposits across noninterest bearing and money market categories.
• Total borrowed funds (excluding customer repurchase agreements) were $568.1 million at December 31, 2020, compared to $467.7 million at December 31, 2019, and $568.0 million at September 30, 2020.
• Total shareholders’ equity increased 4% to $1.24 billion at December 31, 2020 compared to $1.19 billion at December 31, 2019, and increased 1% from $1.22 billion at September 30, 2020. The increase in shareholders’ equity at December 31, 2020 compared to the same period in 2019 was primarily the result of growth in retained earnings partially offset by $61.4 million in stock repurchases, dividends declared of $28.3 million, by the day one CECL entry of $10.9 million net of taxes, and by a $12.5 million increase in other comprehensive income, net of taxes.In the fourth quarter of 2020, the Company completed repurchases under the Stock Repurchase Plan approved in August 2019. In December 2020, the Board of Directors approved a new stock repurchase plan of up to 1,588,848 shares, or approximately 5% of shares outstanding, which commenced January 1, 2021.

___________________1 A reconciliation of GAAP financial measures is provided in the tables that accompany this document.2 A reconciliation of GAAP financial measures is provided in the tables that accompany this document.

• Capital ratios remain substantially in excess of regulatory minimum requirements. Risk based capital ratios and common equity tier 1 were positively impacted by continued strong earnings and relatively little change in outstanding loans. The other three ratios of leverage, common equity and tangible common equity were adversely impacted by the strong asset growth driven largely by deposit inflows.

Income Statement Highlights (4th Quarter 2020 vs. 4th Quarter 2019)

• Net interest income was $81.4 million for the three months ended December 31, 2020 and $80.7 million for the same period in 2019. Overall, the increase in average earning assets of 19% was substantially offset by the reduction in net interest margin.
• Net interest margin was 2.98% for the three months ended December 31, 2020, as compared to 3.49% for the three months ended December 31, 2019, which reflects the impact of lower market interest rates and higher cash balances given strong deposit flows, partially offset by improved funding mix and lower funding costs. Additionally, the net interest margin was negatively impacted by approximately two basis points for the quarter due to lower rates on PPP loans (versus excluding PPP loans). Average liquidity for the fourth quarter of 2020 was $1.78 billion versus $739 million for the fourth quarter of 2019.
• Provision for credit losses was $4.9 million for the three months ended December 31, 2020 as compared to $2.9 million for the three months ended December 31, 2019. The higher provisioning in the fourth quarter of 2020, as compared to the fourth quarter of 2019, was primarily due to the impact of COVID-19 on our actual and expected future credit losses, as modeled under the new CECL accounting standard.
• Net charge-offs of $5.5 million in the fourth quarter of 2020 represented an annualized 0.28% of average loans, excluding loans held for sale, as compared to $3.0 million, or an annualized 0.16% of average loans, excluding loans held for sale, in the fourth quarter of 2019. Net charge-offs in the fourth quarter of 2020 were attributable primarily to a single restaurant credit of $4.1 million.
• Noninterest income for the three months ended December 31, 2020 increased to $9.9 million from $6.7 million for the three months ended December 31, 2019, a 47% increase. The increase was primarily due to a substantially higher gain on the sale of residential mortgage loans of $5.9 million for the fourth quarter of 2020 as compared to $2.5 million for the fourth quarter of 2019. Residential mortgage loans made in the fourth quarter of 2020 were made exclusively on a best efforts basis, whereas residential mortgage loans made in the fourth quarter of 2019 were made predominantly on a mandatory basis. Underlying these gains were residential mortgage loan locked commitments of $427.5 million for the fourth quarter of 2020 as compared to $203.2 million for the fourth quarter of 2019.
• Noninterest expenses totaled $35.0 million for the three months ended December 31, 2020, as compared to $34.7 million for the three months ended December 31, 2019, a 1% increase. The major items of note were legal and FDIC fees.
  • Legal, accounting and professional fees were $2.3 million in the fourth quarter of 2020, down from $4.1 million in the fourth quarter of 2019. Included in the $2.3 million are expenses of $1.1 million primarily associated with the previously disclosed and ongoing governmental investigations and class action lawsuit. Additionally, this $1.1 million is net of recognized receivables for expected insurance recoveries of legal expenditures where we believe recovery is probable pursuant to our D&O insurance policies. The Company does not include any offset for potential claims we may have in the future as to which recovery is impossible to predict at this time.
  • FDIC expenses were $2.4 million in fourth quarter of 2020, up from $879 thousand in the fourth quarter of 2019. The increase is primarily due to nonrecurring $633 thousand credit in 2019 and a higher assessment base in 2020 resulting from growth in total assets.

• Efficiency ratio was 38.34% for the fourth quarter of 2020,improved from 39.71% for the fourth quarter of 2019 as revenue exceeded the increase in noninterest expenses.
• Effective income tax rate for the fourth quarter of 2020 was 23.7% as compared to 28.8% for the fourth quarter of 2019. The decrease was due primarily to a decrease in nondeductible expenses, state taxes and adjustments related to the completion of the 2019 tax returns.  

Income Statement Highlights (Full Year 2020 vs. Full Year 2019)

• Net interest income was $321.6 million for the year ended December 31, 2020, versus $324.0 million for the year ended December 31, 2019. Overall, the increase in average earnings assets of 17% was offset by the reduction in net interest margin.
• Net interest margin was 3.19% for the year ended December 31, 2020, as compared to 3.77% for the year ended December 31, 2019. This decline was due to the sharply lower interest rate environment in 2020 as compared to 2019, and to substantially higher on balance sheet liquidity.
  • While the Company has been proactive in lowering its cost of funds (0.68% for the year ended December 31, 2020 compared to 1.23% in 2019), the yield on earning assets also declined by 113 basis points (from 5.00% to 3.87%).
  • Average on balance sheet liquidity was $1.2 billion for the year 2020 as compared to $415 million for the year 2019.
  • Additionally, the net interest margin was negatively impacted by approximately nine basis points due to lower rates on PPP loans as compared to non-PPP loans.
• Provision for credit losses was $45.6 million for the year ended December 31, 2020 as compared to $13.1 million for the year ended December 31, 2019. The higher provisioning for the year ended December 31, 2020, as compared to the same period in 2019, is primarily due to the implementation of CECL (effective January 1, 2020) and the impact of COVID-19 on our actual and expected future credit losses.
• Net charge-offs of $20.1 million for the year ended December 31, 2020 represented 0.26% of average loans, excluding loans held for sale, as compared to $9.4 million, or 0.13% of average loans, excluding loans held for sale, in the year ended December 31, 2019. Net charge-offs in 2020 consisted primarily of $12 million in commercial loans, $7.2 million in commercial real estate loans, and $815 thousand in mortgage loans.
• Noninterest income for the year ended December 31, 2020 increased to $45.7 million from $25.7 million for the year ended December 31, 2019, a 78% increase. The increase was due substantially to higher gains on the sale of residential mortgage loans of $21.8 million in 2020 as compared to $8.2 million in 2019. Underlying these gains were residential mortgage loan locked commitments of $1.9 billion in 2020 as compared to $877.3 million in 2019.
• Noninterest expenses totaled $144.2 million for the year ended December 31, 2020, as compared to $139.9 million for the year ended December 31, 2019, a 3% increase.
  • Salaries and employee benefits were $74.4 million, a decrease of $5.4 million or 7% for the year ended December 31, 2020 compared to $79.8 million for the same period in 2019. The decrease was primarily due to the $6.2 million of largely nonrecurring charges accrued in the first quarter of 2019 related to share-based compensation awards and the resignation of our former CEO and Chairman in March 2019, of which a portion was released in the second quarter of 2020. The decrease was partially offset by higher salaries attributable to merit increases and increased headcount in 2020.
  • Legal, accounting and professional fees were $16.4 million for the year ended December 31, 2020, an increase of $4.2 million or 35% year-over-year. Legal fees and expenditures of $9.1 million for the year ended December 31, 2020 were primarily associated with previously disclosed ongoing governmental investigations and related subpoenas and document requests and our defense of the previously disclosed class action lawsuit. The amount of legal fees and expenditures for the year is net of the probable expected insurance coverage recovery pursuant to our D&O insurance policies but does not include any offset for potential claims we may have in the future as to which recovery is impossible to predict at this time
  • FDIC expenses were $7.9 million in 2020, up from $3.2 million in 2019. The year-over-year increase is primarily due to a nonrecurring credit in 2019 and a higher assessment base in 2020 resulting from growth in total assets.
• Efficiency Ratio for 2020 was 39.25% as compared to 39.99% for 2019.
• Effective income tax rates were 24.9% and 27.4% for 2020 and 2019, respectively. The decrease in the effective tax rate was due primarily to a decrease in nondeductible expenses, state taxes and adjustments related to the completion of the 2019 tax returns.

Additional Quarterly Financial Commentary

• Loans Closed/Payoffs: New loans closed in the fourth quarter of 2020 were similar to the level closed in the fourth quarter of 2019, but were outpaced by loan payoffs in the fourth quarter of 2020. Unfunded commitments declined to $1.99 billion as of December 31, 2020 as compared to $2.28 billion as of December 31, 2019.
• Loan Mix: In addition to the current sharply lower interest rate environment as compared to 2019, there has been less focus on higher risk and higher yielding construction lending and more attention towards strong commercial real estate credits secured by stabilized income producing properties. The yield on the loan portfolio was 4.50% for the fourth quarter of 2020 as compared to 5.18% for the fourth quarter of 2019 and 4.46% for the third quarter of 2020.
• Paycheck Protection Program: As a Small Business Administration ("SBA") preferred lender, the Bank actively participated in the PPP, and at December 31, 2020 had an outstanding balance of PPP loans of $454.8 million to just over 1,400 businesses. The stated rate for these loans is 1.00%. For the fourth quarter of 2020, the average yield which includes fee amortization was 2.55%. The lower loan yield on these PPP loans negatively affected fourth quarter loan portfolio yields by 12 basis points. For 2020, the average yield which includes fee amortization was 2.48%. The lower loan yield on these PPP loans negatively affected our twelve month loan portfolio yields in 2020 by 21 basis points. Excluding PPP loans, loan yields were 4.62% for the fourth quarter of 2020, and were 4.87% for the full year 2020.
• Deposit Mix: The Company continues to emphasize achieving core deposit growth and we continue to seek well-structured new loan opportunities. The mix of noninterest deposits to total deposits remained favorable and averaged 33% in the fourth quarter of 2020, as compared to 30% in the fourth quarter of 2019. Certain long-term core fiduciary clients increased their deposit balances in the fourth quarter of 2020 seeking some nominal interest income as market interest rates continued to remain quite low. While the Bank was able to invest these deposits into earning assets, the spreads were narrow and contributed to a decline in the net interest margin.

• Nonperforming Loans and Assets: At December 31, 2020, the Company’s nonperforming loans were $60.9 million (0.79% of total loans) as compared to $48.7 million (0.65% of total loans) at December 31, 2019. Nonperforming assets amounted to $65.9 million (0.59% of total assets) at December 31, 2020 compared to $50.2 million (0.56% of total assets) at December 31, 2019.
• CECL: The Company adopted the new CECL accounting standard (ASC 326) in the first quarter of 2020. The Company made an initial adjustment to the allowance for credit losses of $10.6 million along with $4.1 million to the reserve for unfunded commitments. This adjustment increased the ratio of the allowance to total loans from 0.98% at December 31, 2019 to 1.12% at January 1, 2020. Based on our ongoing risk analysis and modeling under the CECL allowance methodology, the Company further increased the allowance for credit losses to 1.40% at September 30, 2020 and 1.41% of total loans as of December 31, 2020, which reflects COVID-19 risks assessments and an updated unemployment forecast for the Washington, D.C. metropolitan area. Additionally, the qualitative risk factors have been increased associated with our higher mix of Accommodation & Food Services industry loans. The allowance for credit losses of $109.6 million at December 31, 2020 represented 180% of nonperforming loans at that date, as compared to a coverage ratio of 190% at September 30, 2020, and 151% at December 31, 2019.
• Loan Deferrals: Management is closely monitoring borrowers and remains attentive to signs of deterioration in borrowers’ financial conditions and is proactively taking steps to mitigate risk as appropriate. Significant effort has been placed on moving loans off of deferral status. As of September 30, 2020, a total of 321 notes were on deferral status representing $851 million in outstanding exposure or 10.8% of total loans. As of December 31, 2020, deferrals had been reduced to 36 notes with $72.4 million in outstanding exposure or 0.9% of gross loans. The table that follows provides additional detail on deferrals by Industry/Collateral Type.

• COVID-19 Loan Deferral Migration: The table below shows the migration of the $851 million deferred loans from September 30, 2020 through December 31, 2020. The $791 million represents the updated balance of the deferred loan population from September 30, 2020. The subsequent columns represent the collateral support and disposition of those loans. All loans that received a second deferral were automatically downgraded and added to our watch list to raise visibility within the loan portfolio.