Eagle Bancorp, Inc. Announces Continued Strong Growth and Record Quarterly Earnings, With Assets Exceeding $4.1 Billion

BETHESDA, Md., Oct. 15, 2014 (GLOBE NEWSWIRE) -- Eagle Bancorp, Inc. (the "Company") (Nasdaq:EGBN), the parent company of EagleBank, today announced record quarterly net income of $14.1 million ($14.8 million on an operating basis) for the quarter ended September 30, 2014, a 19% increase on a net income basis (26% on an operating basis) over the $11.8 million net income for the quarter ended September 30, 2013. Net income available to common shareholders for the quarter ended September 30, 2014 increased 20% (26% increase on an operating basis) to $13.9 million ($14.6 million on an operating basis) as compared to $11.6 million for the same period in 2013. Net income per basic and diluted common share for the three months ended September 30, 2014 was $0.54 and $0.52, respectively ($0.57 per basic common share and $0.55 per diluted common share on an operating basis), as compared to $0.45 per basic common share and $0.44 per diluted common share for the same period in 2013.

Operating earnings exclude merger related expenses of $885 thousand or $674 thousand net of tax ($0.03 per basic and diluted share) recorded in the third quarter and $1.46 million ($0.05 per basic and diluted share) recorded for the first nine months of 2014 related to the pending merger with Virginia Heritage Bank. Where appropriate, parenthetical references refer to operating earnings, which the Company believes are better comparisons to prior period results of operation. Reconciliations of GAAP earnings to operating earnings are contained in the footnotes to the financial highlights table.

"We are very pleased and proud to report our twenty-third consecutive quarter of record earnings, together with continued strong and most importantly balanced financial performance," noted Ronald D. Paul, Chairman and Chief Executive Officer of Eagle Bancorp, Inc. "The Company's net income has increased each quarter since the fourth quarter of 2008. For the third quarter of 2014, the Company's performance was highlighted by 18% growth in total revenue as compared to the same quarter in 2013, by growth in both loans and deposit balances, by continuation of a very favorable net interest margin and by continued solid asset quality measures including lower levels of net credit losses from an already favorable position. The strong earnings resulted in a return on average assets of 1.37% (1.44% on an operating basis) for the third quarter of 2014 and together with a successful subordinated debenture raise of $70 million in August 2014, contributed to a higher total risk based capital ratio of 14.51% at September 30, 2014 as compared to 13.12% at September 30, 2013.

On June 9, 2014, the Company and Virginia Heritage Bank ("Virginia Heritage") (OTCQB:VGBK) announced that they have entered into a definitive agreement pursuant to which Virginia Heritage will be merged into EagleBank, with EagleBank being the surviving institution. The merger is expected to accelerate the Company's growth in the attractive Northern Virginia market. At June 30, 2014, Virginia Heritage had approximately $955.7 million in assets, $744.8 million in net loans and $776.1 million in deposits. All regulatory approvals required for consummation of the merger have been received. Subject to approval by Virginia Heritage shareholders at a special meeting to be held October 16, 2014, and satisfaction of other conditions to closing, the merger is expected to be consummated on October 31, 2014.

For the nine months ended September 30, 2014, the Company's net income was $39.5 million ($40.8 million on an operating basis), a 13% increase (17% on an operating basis) over the $35.0 million for the nine months ended September 30, 2013. Net income available to common shareholders was $39.1 million ($40.3 million on an operating basis) as compared to $34.6 million for the same nine month period in 2013, a 13% increase (17% on an operating basis). Net income per basic and diluted common share for the nine months ended September 30, 2014 was $1.50 and $1.47, respectively ($1.55 per basic common share and $1.52 per diluted common share on an operating basis), as compared to $1.35 per basic common share and $1.31 per diluted common share.

For the third quarter of 2014, total loans grew 4.7% over June 30, 2014, and were 23% higher at September 30, 2014 as compared to September 30, 2013. For the third quarter of 2014, total deposits increased 4.9% over June 30, 2014, and were 18% higher at September 30, 2014 than September 30, 2013. The net interest margin was 4.45% for the third quarter, 14 basis points higher than the third quarter of 2013. Mr. Paul added, "The continuing emphasis on disciplined pricing for both new loans and funding sources together with a favorable loan to deposit ratio has resulted in a superior net interest margin position."

Total revenue (net interest income plus noninterest income) for the third quarter of 2014 was $49.4 million, or 18% above the $41.9 million of total revenue earned for the third quarter of 2013. For the first nine months of 2014, total revenue was $139.7 million, 10% higher than $126.5 million recorded for the first nine months of 2013.

The primary driver of the Company's revenue growth for the third quarter of 2014 was its net interest income growth of 22%, as compared to the third quarter in 2013 ($44.6 million versus $36.7 million), effectively outpacing the decline in total noninterest earnings attributable primarily to much lower levels of residential mortgage originations and sales. Additionally, the Company achieved 6% growth in net interest income in the third quarter of 2014 as compared to the second quarter of 2014 ($44.6 million versus $42.0 million).

For the third quarter of 2014, revenue from residential mortgage banking net interest income and fees represented 2.80% of total revenue versus 5.90% of total revenue for the third quarter of 2013. For the first nine months of 2014, revenue from residential mortgage banking net interest income and fees represented 2.56% of total revenue versus 8.84% of total revenue for the first nine months of 2013. The Company evaluates its residential mortgage lending unit on an ongoing basis in light of changes in current and projected market conditions. Mr. Paul emphasized "that the Company continues to focus its activities on generating spread or net interest income, while also looking to residential mortgage banking as a component of the Company's ongoing noninterest income growth opportunities. Purchase money residential mortgage activity has been increasing in the Company's market area and EagleBank is committed to participating in that improved business activity." The mix of purchase money mortgages was 60% for the first nine months in 2014 as compared to 23% for the first nine months in 2013. Activity in SBA lending was favorable in the third quarter of 2014 with $503 thousand of gains on sale recognized as compared to $453 thousand for the third quarter of 2013. The Company remains committed to growing the SBA business.

Asset quality measures remained solid at September 30, 2014. Net charge-offs (annualized) were just 0.09% of average loans for the third quarter of 2014 and were 0.13% of average loans for the first nine months of 2014, as compared to net charge-offs (annualized) of 0.20% and 0.25%, respectively for the third quarter of 2013 and the first nine months in 2013. Taking into account loan growth, the level and details of nonperforming loans and portfolio delinquencies, net charge-off trends and consistent loan loss reserve methodology resulted in the allowance for loan losses ($45.0 million) ending September 30, 2014 at 1.31% of total loans and 152% of total nonperforming loans, as compared to 1.42% of total loans and 144% of nonperforming loans at September 30, 2013, and 1.39% of total loans and 166% of nonperforming loans at December 31, 2013.

Lastly, Mr. Paul noted, "that for the first nine months of 2014, the Company's operating cost management remained quite strong." The efficiency ratio of 50.38% (49.33% on an operating basis) reflects management's determined and continuous efforts to control costs. Noninterest expense was elevated in the third quarter due to accruals for year-end incentive compensation. The Company's goal is to maximize operating performance without inhibiting growth or negatively impacting our ability to service our customers. Mr. Paul further noted the favorable level of nine month noninterest expenses (annualized) to average assets of just 2.42% (2.37% on an operating basis). "We will maintain strict oversight of costs, while retaining an infrastructure to remain competitive."

At September 30, 2014, total assets were $4.17 billion, compared to $3.50 billion at September 30, 2013, a 19% increase, and $3.77 billion at December 31, 2013, an 11% increase. Total loans (excluding loans held for sale) were $3.43 billion at September 30, 2014 compared to $2.80 billion at September 30, 2013, a 23% increase, and $2.95 billion at December 31, 2013, a 17% increase. Total deposits were $3.53 billion at September 30, 2014, compared to deposits of $2.98 billion at September 30, 2013, an 18% increase and $3.23 billion at December 31, 2013, a 10% increase. Loans held for sale amounted to $41.3 million at September 30, 2014 as compared to $39.2 million at September 30, 2013, a 5% increase, and $42.0 million at December 31, 2013, a 2% decline.

The investment portfolio totaled $382.5 million at September 30, 2014, a 7% increase from the $355.8 million balance at September 30, 2013. As compared to December 31, 2013, the investment portfolio at September 30, 2014 increased by $4.3 million, a 1% increase. Total borrowed funds (excluding customer repurchase agreements) were $109.3 million at September 30, 2014 as compared to $39.3 million at September 30, 2013 and December 31, 2013 respectively, an increase of 178%. The increase in borrowed funds reflects the issuance of $70 million ten year noncallable 5.75% subordinated debt in August 2014. The subordinated debt qualified as Tier 2 capital for regulatory purposes at the Company.

Total shareholders' equity increased to $442.6 million at September 30, 2014, compared to $382.1 million and $393.9 million at September 30, 2013 and December 31, 2013, respectively, primarily reflecting growth in retained earnings. The Company's capital position remains substantially in excess of regulatory requirements for well capitalized status, with a total risk based capital ratio of 14.51% at September 30, 2014, as compared to a total risk based capital ratio of 13.12% at September 30, 2013 and 13.01% at December 31, 2013. In addition, the tangible common equity ratio (tangible common equity to tangible assets) was 9.19% at September 30, 2014, compared to 9.19% at September 30, 2013 and 8.86% at December 31, 2013.

At September 30, 2014, the Company's nonperforming assets amounted to $38.1 million, representing 0.92% of total assets, compared to $38.8 million of nonperforming assets, or 1.11% of total assets at September 30, 2013 and to $33.9 million of nonperforming assets, or 0.90% of total assets at December 31, 2013. Management continues to remain attentive to early 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 allowance for loan losses, at 1.31% of total loans (excluding loans held for sale) at September 30, 2014, is adequate to absorb potential credit losses within the loan portfolio at that date. The allowance for credit losses represented 152% of nonperforming loans at September 30, 2014, as compared to 144% at September 30, 2013 and 166% at December 31, 2013. The decrease in the allowance for credit losses as a percentage of total loans at September 30, 2014, as compared to December 31, 2013 (from 1.39% to 1.31%) is due to increased loan growth and overall improved credit quality in the loan portfolio at September 30, 2014.

Analysis of the three months ended September 30, 2014 compared to September 30, 2013

For the three months ended September 30, 2014, the Company reported an annualized return on average assets ("ROAA") of 1.37% (1.44% on an operating basis) as compared to 1.35% for the three months ended September 30, 2013. The annualized return on average common equity ("ROAE") for the quarter ended September 30, 2014 was 14.52% (15.22% on an operating basis), as compared to 14.37% for the three months ended September 30, 2013. The higher ROAA and ROAE ratios for third quarter of 2014 as compared to 2013 were due primarily to a higher net interest margin.

Net interest income increased 22% for the three months ended September 30, 2014 over the same period in 2013, resulting from both growth in average earning assets of 18% and an expanded net interest margin for the three months ended September 30, 2014. The net interest margin was 4.45% as compared to 4.31% for the three months ended September 30, 2013. The Company believes its net interest margin remains favorable compared to peer banking companies and that its disciplined approach to managing its loan portfolio yield to 5.39% and 5.40%, for the third quarter and first nine months of 2014, respectively, has been a significant factor in its overall profitability.

The provision for credit losses was $2.1 million for the three months ended September 30, 2014 as compared to $1.4 million for the three months ended September 30, 2013. The higher provisioning in the third quarter of 2014, as compared to the third quarter of 2013, is due to higher loan growth. Net charge-offs of $710 thousand in the third quarter of 2014 represented an annualized 0.09% of average loans, excluding loans held for sale, as compared to $1.3 million or an annualized 0.20% of average loans, excluding loans held for sale, in the third quarter of 2013. Charge-offs in the third quarter of 2014 were attributable primarily to construction loans ($614 thousand) and home equity and other consumer ($274 thousand) offset by net recoveries totaling $199 thousand in commercial loans.

Noninterest income for the three months ended September 30, 2014 decreased to $4.8 million from $5.2 million for the three months ended September 30, 2013, a 9% decrease. This decrease was primarily due to a decline of $1.2 million in gains on the sale of residential mortgage loans due to substantially lower origination volume. This decrease was partially offset by increases of $112 thousand and $465 thousand, respectively, in income from service charges on deposits and other income. There were no investment securities gains recorded for the third quarter of 2014 and 2013.

The efficiency ratio, which measures the ratio of noninterest expense to total revenue, improved to 50.90% (49.11% on an operating basis) for the third quarter of 2014, as compared to 51.68% for the third quarter of 2013. As a percentage of average assets, total noninterest expense (annualized) improved to 2.45% (2.36% on an operating basis) for the third quarter of 2014 as compared to 2.48% for the same period in 2013. Noninterest expenses totaled $25.1 million ($24.3 million on an operating basis) for the three months ended September 30, 2014, as compared to $21.7 million for the three months ended September 30, 2013, a 16% increase (12% increase on an operating basis). Cost increases for salaries and benefits were $2.8 million, due primarily to increased salaries and employee benefits expense and incentive compensation. Premises and equipment expenses were $152 thousand higher, due to costs of additional office space and increases in leasing costs. Data processing expense increased $186 thousand primarily due to increases in network expenses. Legal, accounting and professional fees decreased by $124 thousand. The increase in other expenses of $394 thousand (a decrease of $491 thousand on an operating basis) was due primarily to $885 thousand of merger expenses.

Analysis of the nine months ended September 30, 2014 compared to September 30, 2013

For the nine months ended September 30, 2014, the Company reported an annualized ROAA of 1.36% (1.40% on an operating basis) as compared to 1.38% for the nine months ended September 30, 2013, while the annualized ROAE was 14.33% (14.79% on an operating basis), as compared to 14.79% for the same nine months of 2013.

Net interest income increased 19% for the nine months ended September 30, 2014 over the same period in 2013, resulting from both growth in average earning assets of 14% and an expanded net interest margin for the nine months ended September 30, 2014. The net interest margin was 4.46% as compared to 4.25% for the nine months ended September 30, 2013. Year-to-date in 2014, the Company has been able to maintain its loan portfolio yields relatively close to 2013 levels (5.40% versus 5.55%) due to disciplined loan practices, and also has been able to reduce its cost of funds (0.31% versus 0.38%), while maintaining a favorable deposit mix, much of which has occurred from ongoing efforts to increase and deepen client relationships.

The provision for credit losses was $7.2 million for the nine months ended September 30, 2014 as compared to $7.1 million for the nine months ended September 30, 2013. The higher provisioning for the nine months ended September 30, 2014 as compared to the same period in 2013 is due to higher loan growth and lower net charge-offs. For the nine months ended September 30, 2014 net charge-offs totaled $3.1 million (0.13% of average loans) compared to $4.9 million (0.25% of average loans) for the nine months ended September 30, 2013. Net charge-offs for the nine months ended September 30, 2014 were attributable primarily to construction loans ($1.3 million), commercial and industrial loans ($1.2 million) and home equity and other consumer ($557 thousand).

Noninterest income for the nine months ended September 30, 2014 decreased to $13.0 million from $20.4 million for the nine months ended September 30, 2013, a 36% decrease. This decrease was primarily due to decline of $7.9 million in gains on the sale of residential mortgage loans due to lower origination and sales volume, and a decrease of $775 thousand in income from sales of SBA loans. This decrease was partially offset by $287 thousand higher income from service charges on deposits and a $499 thousand increase in income from Bank Owned Life Insurance. There were $10 thousand of investment securities gains recorded for the first nine months of 2014, as compared to $23 thousand of investment securities gains for the first nine months of 2013.

Noninterest expenses for the first nine months of 2014 were $70.4 million ($68.9 million on an operating basis) compared to $63.1 million, a 12% increase (9% on an operating basis). Cost increases for salaries and employee benefits were $6.8 million, due primarily to merit increases, higher benefit costs and incentive compensation and accruals. Premises and equipment expenses were $621 thousand higher, due to costs of additional office space and increases in leasing costs. Legal, accounting and professional fees increased by $287 thousand primarily due to an increase in professional fees, consulting fees and collection costs related to problem loans. The decrease in other expenses of $720 thousand ($2.2 million on an operating basis) was due primarily to a decline in costs related to OREO property and other losses. As a percentage of average assets, total noninterest expense improved to 2.42% (2.37% on an operating basis) for the first nine months of 2014 as compared to 2.48% for the same period in 2013. For the first nine months of 2014, the efficiency ratio remained favorable at 50.38% (49.33% on an operating basis) as compared to 49.85% for the same period in 2013.

The financial information, which follows, provides more detail on the Company's financial performance for the nine and three months ended September 30, 2014 as compared to the nine and three months ended September 30, 2013, 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, 2013 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 eighteen full service 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 the third quarter 2014 financial results on Thursday, October 16, 2014 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 13072898, 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 October 30, 2014.

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, 2013 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.

Notice to Virginia Heritage Shareholders

This press release does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. In connection with the proposed acquisition of Virginia Heritage by the Company, the Company filed a registration statement on Form S-4 (the "Registration Statement") with the SEC, which contains the proxy statement of Virginia Heritage for use at its special meeting of shareholders and a prospectus of the Company (collectively, the "proxy statement/prospectus").

SHAREHOLDERS OF VIRGINIA HERITAGE ARE ENCOURAGED TO READ THE REG- ISTRATION STATEMENT AND THE DEFINITIVE PROXY STATEMENT/PROSPECTUS AND ALL OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, AS WELL AS SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED ACQUISITION OF VIRGINIA HERITAGE BY THE COMPANY. Investors and security holders may obtain the definitive proxy statement/prospectus and the other documents free of charge at the SEC's website, www.sec.gov. In addition, documents filed with the SEC by the Company are available free of charge by (1) accessing the Company's website at www.eaglebankcorp.com under the "Investor Relations" link and then under the heading "SEC Filings," (2) writing the Company at 7830 Old Georgetown Road, Third Floor, Bethesda, Maryland 20814, Attention: Jane Cornett or (3) writing Virginia Heritage at 8245 Boone Boulevard, Suite 820, Tysons Corner, Virginia 22182, Attention: Charles C. Brockett.

(1)   The reported figure includes the effect of $1.5 million and $885 thousand of merger related expenses ($1.3 million and $674 thousand net of tax) for the nine and three months ended September 30, 2014. As the magnitude of the merger expenses distorts the operational results of the Company, we present in the GAAP reconciliation below and in the accompanying text certain performance ratios excluding the effect of the merger expenses during the nine and three months periods ended September 30, 2014. We believe this information is important to enable shareholders and other interested parties to assess the core operational performance of the Company.

(2)   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.

(3)   Computed by dividing noninterest expense by the sum of net interest income and noninterest income.