Eagle Bancorp, Inc. Announces Net Income for Fourth Quarter 2022 of $42.2 Million or $1.32 Per Diluted Share and Annual Earnings of $140.9 Million or $4.39 Per Diluted Share

BETHESDA, Md., Jan. 18, 2023 (GLOBE NEWSWIRE) -- Eagle Bancorp, Inc. (the "Company") (NASDAQ: EGBN), the parent company of EagleBank (the "Bank"), today announced net income of $42.2 million for the fourth quarter 2022, compared to net income of $37.3 million for the prior quarter and $41.6 million for the year-ago quarter. Net income (basic and diluted) was $1.32 per share for the fourth quarter 2022, compared to $1.16 per share for the prior quarter and $1.30 per share for the year-ago quarter.

The increase in earnings of $4.9 million from the third quarter of 2022 (the "prior quarter") was primarily attributable to the difference created by moving from a provision to the allowance for credit losses to a reversal from the allowance for credit losses, a lower tax provision and higher net interest income. Partially offsetting these increases in earnings from the prior quarter were higher noninterest expenses.

Full year 2022 net income was $140.9 million, or $4.40 per share (basic) and $4.39 per share (diluted). On a diluted basis, this was a decrease of $1.13 per share compared to $5.52 per share for the prior year. If adjusted to remove the one-time noninterest expense accruals for the previously disclosed settlement agreements and the reduction in noninterest expense accruals associated with compensation of the former CEO/Chairman, adjusted net income, a non-GAAP measure, was $158.8 million, or $4.95 per share (diluted).¹ As adjusted, this is a decrease of $0.57 per share, compared to $5.52 per share (diluted) for the prior year.

Fourth Quarter 2022 Highlights

• Loans at quarter-end were $7.6 billion, up $331.1 million from the prior quarter-end. This was the fifth consecutive quarterly increase. Loans were up 4.5% from the prior quarter and 8.1% from the year-ago quarter. Together with the smaller decrease in deposits, this increased the quarter-end loans-to-deposits ratio to 88%, up from 83% a quarter ago and 71% a year ago.
• Reversal to the allowance from credit losses was $0.5 million for the quarter, down from a provision of $3.0 million the prior quarter. This reduced the allowance for credit losses on loans to 0.97%, down from 1.04% a quarter ago and down from 1.06% a year ago.
• Deposits at quarter-end were $8.7 billion, down $50.2 million from the prior quarter-end, and average deposits for the quarter decreased by $383.4 million. Short-term borrowings were $975.0 million, up $460.0 million from the prior quarter-end, and average borrowings for the quarter increased by $253.1 million.
• During the quarter, the Company repurchased 738,300 shares at an average price of $44.82 per share (including commissions), totaling an aggregate of $33.1 million, and for 2023 adopted a new share repurchase program authorizing the repurchase of 1.6 million shares, or approximately 5% of outstanding shares.
• During the quarter, the Company declared a quarterly dividend of $0.45 per share.

CEO Commentary

Susan G. Riel, President and Chief Executive Officer of Eagle Bancorp, Inc. commented, "We ended 2022 on a high note, as we had our best quarter of the year for loan growth, asset quality metrics remained strong and we were active in stock repurchases. Loans at quarter-end were up 4.5% from the prior quarter and pipelines remain strong. Strong asset quality metrics coupled with improvements in the quantitative model led us to once again book a reversal to our reserve for credit losses. And, for our shareholders, during the quarter, we repurchased 738,300 shares of stock with an aggregate value of $33.1 million."

"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 $85.6 million for the fourth quarter 2022, compared to $83.9 million for the prior quarter and $78.2 million for the year-ago quarter. The increase in net interest income from the prior quarter was primarily driven by higher average loans for the quarter and higher yields on loans as the overall rate environment remained elevated. The combination of these factors outpaced the increase in interest expense from higher rates on interest bearing deposits and borrowings, and an increase in borrowings.
  
  
• Net interest margin ("NIM") was 3.14% for the fourth quarter 2022, compared to 3.02% for the prior quarter and 2.55% for the year-ago quarter. The increase in margin from the prior quarter was 12 basis points. The NIM growth was based on the yield on earning assets increasing by 72 basis points, offset by the 60 basis points increase in the cost of funds.
  
  • The yield on interest earning assets, which is inclusive of the yields on loans and securities, was 4.73% for the fourth quarter 2022 compared to 4.01% for the prior quarter and 2.81% for the year-ago quarter. The increase of 72 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 yield on the loan portfolio was 5.87% for the fourth quarter 2022, compared to 5.10% for the prior quarter and 4.45% for the year-ago quarter. The increase of 77 basis points from the prior quarter was from variable rate loans adjusting upward and from higher rates on newly originated loans.
  • The cost of funds was 1.59% for fourth quarter 2022, compared to 0.99% for the prior quarter and 0.26% for the year-ago quarter. The increase of 60 basis points from the prior quarter was primarily due to higher rates paid on savings and money market accounts and borrowings during the fourth quarter.

• Pre-provision net revenue ("PPNR"),⁴ a non-GAAP measure, was $52.0 million for the fourth quarter 2022, compared to $53.0 million for the prior quarter and $49.5 million for the year-ago quarter. As a percent of average assets, PPNR for the fourth quarter 2022 was 1.83%⁵, compared to 1.85%⁵ for the prior quarter and 1.56%⁵ for the year-ago quarter. This small decrease in both PPNR and PPNR as a percent of average assets from the prior quarter was primarily attributable to the increase in net interest income being slightly less than the increase in noninterest expense. The larger increase from the year-ago quarter was attributable to the increase in net interest income from higher rates and an expanded net interest margin, more than offsetting the decline in noninterest income from lower mortgage originations.
  
  

• Provision for credit losses on loans was a reversal of $0.5 million for the fourth quarter 2022, compared to a provision of $3.0 million for the prior quarter and a reversal of $6.4 million for the year-ago quarter. The decrease in the fourth quarter 2022 provision over the prior quarter was primarily driven by improvements in quantitative metrics partially offset by higher loan balances and increased risk in the qualitative and environmental ("Q&E") portion of the credit model. The improvement in quantitative metrics was associated with a decrease in the localization factor relative to the national unemployment forecast. The increased risk in Q&E portion of the model was attributable to the impact of the elevated risk associated with economic and business conditions.
  
  
• Noninterest income was $5.3 million for the fourth quarter 2022, as compared to $5.3 million for the prior quarter and $10.6 million for the year-ago quarter. The primary driver for the decrease in the fourth quarter 2022 and the prior quarter as compared to the year-ago quarter is higher rates on mortgage loans leading to fewer mortgage originations.
  
  Residential mortgage loan locked commitments were $37.5 million, down from $57.5 million for the prior quarter and down from $163.0 million for the year-ago quarter. As interest rates remained high in the fourth quarter, refinance activity continued to be slow resulting in a relatively low level of locked loans.
  

• Noninterest expense was $38.9 million for the fourth quarter 2022 compared to $36.2 million for the prior quarter and $39.3 million for the year-ago quarter. The notable changes from the prior quarter were as follows:
  • Salaries and employee benefits were $23.7 million, up $2.2 million from the prior quarter. The increase was primarily due to higher incentive bonus accruals.
  • Data processing expenses were $3.1 million, down $328 thousand from the prior quarter.
  • Legal, accounting and professional fees were $2.6 million, up $221 thousand from the prior quarter.

• Efficiency ratio⁶ was 42.8% for the fourth quarter 2022 compared to 40.6% for the prior quarter and 44.3% for the year-ago quarter. The increase in the efficiency ratio this quarter was primarily driven by the increase in noninterest expense outpacing the increase in net interest income.
  
  
• Effective income tax rate for the fourth quarter 2022 was 19.3%, compared to 24.2% for the prior quarter and 26.3% for the year-ago quarter. The decrease in the effective tax rate this quarter was primarily driven by an update in our state apportionment of revenues in the states in which we operate.
  

Balance Sheet

• Total assets at December 31, 2022 were $11.2 billion, up 4.1% from a quarter ago and down 5.9% from a year ago. The increase from the prior quarter-end was primarily driven by the increase in loans, and to a lesser extent, the increase in interest-bearing deposits with banks and other short-term investments. The growth in these asset types were funded with an increase in short-term borrowings.
  
  
• Investment securities Available-for-Sale ("AFS") and Held-to-Maturity ("HTM") had an aggregate balance of $2.7 billion at December 31, 2022, down 2.6% from a quarter ago and up 2.6% from a year ago. The decrease from the prior quarter-end was primarily from principal paydowns and maturities received, offset by a slightly higher carrying value on AFS securities. Investments purchased during the fourth quarter of 2022 were primarily agency mortgage backed securities for CRA Investment credit.
  
  
• Total loans (excluding loans held for sale) were $7.6 billion as of December 31, 2022, up 4.5% from a quarter ago and up 8.1% from a year ago. Excluding PPP loans, adjusted loan balances, a non-GAAP measure, were up 4.6% from a quarter ago and up 8.8% from a year ago.⁷ The increase in total loans from the prior quarter-end was driven by growth in commercial real estate ("CRE") loans and commercial & industrial loans ("C&I"). The increase in loans increased the ratio of loans-to-deposits to 88% from 83% the prior quarter.
  
  

• Allowance for credit losses was 0.97% of total loans at December 31, 2022, compared to 1.04% a quarter ago, and 1.06% a year ago. See commentary above in section "Provision for Credit Losses on Loans".
  
  Net charge-off was $896 thousand, which as a percent of average loans (excluding loans held for sale) was 0.05%⁸ for the fourth quarter 2022, compared to a small recovery which was less than 0.01%⁷ a quarter ago, and a net charge-off of 0.07%⁷ for the year-ago quarter.
  

• Nonperforming loans and assets: Nonperforming loans decreased compared to the prior quarter and the year-ago quarter. The decrease was driven primarily by loans being paid in full or returning to accrual status due to ongoing payment performance, as well as the partial charge-off of one relationship. Two notes totaling $326 thousand were moved to nonperforming status during the quarter. At quarter end, other real estate owned ("OREO") consisted of four properties with a value of $2.0 million.
  • Nonperforming loans as a percent of loans were 0.08% at December 31, 2022, compared to 0.10% a quarter ago and 0.41% a year ago.
  • Nonperforming assets as a percent of assets were 0.08% at December 31, 2022, compared to 0.09% a quarter ago and 0.26% a year ago.
    
    
• Total deposits were $8.7 billion at December 31, 2022, down 0.6% from a quarter ago and down 12.7% from a year ago. The decrease from the prior quarter-end and a year ago were primarily attributable to outflows from savings and money market accounts. In the most recent quarter, this outflow was partially offset by increases in other types of deposits. As most of the outflows were from savings and money market accounts, average noninterest bearing deposits to average total deposits was 40.9% for the fourth quarter 2022, up from 38.4% a quarter ago and up from 36.3% for the year-ago quarter. The increase in this fourth quarter 2022 percentage does not include the impact of increased short-term borrowings in place of deposit funding.
  
  
• Other short-term borrowings were $975.0 million at December 31, 2022, up 89.3% from a quarter ago, and up 225.0% from a year ago. The increase in borrowings from the prior quarter-end was driven by an effort to meet strong loan demand at quarter-end in light of the decrease in total deposits. These short-term borrowings are from the Federal Home Loan Bank of Atlanta ("FHLB") and are secured by collateral consisting of a blanket lien on qualifying loans in the Bank's commercial mortgage, residential mortgage and home equity loan portfolios.
  
  
• Total shareholders’ equity was $1.2 billion at December 31, 2022, up 0.7% from a quarter ago, and down 9.1% from a year ago. The increase in shareholders' equity of $8.6 million from the prior quarter-end was primarily from net income and a reduction in unrealized losses on investment securities AFS, partially offset by reductions in capital from the impact of share repurchases and dividends paid. Net income for the quarter was $1.32 per share and dividends declared were $0.45 per share.
  
  • Book value per share was $39.18, up $1.16 from a quarter ago, and down $3.10 from a year ago.
  • Tangible book value per share⁹ was $35.86, up $1.09 from a quarter ago, and down $3.11 from a year ago.
    
    
• Dividends: On December 14, 2022, the Board of Directors declared a quarterly cash dividend of $0.45 per share payable on January 31, 2023 to shareholders of record on January 5, 2023.
  
  
• Stock Repurchases: During the quarter, the Company repurchased 738,300 shares at an average price of $44.82 per share (including commissions), totaling an aggregate of $33.1 million, and for 2023 adopted a new share repurchase program authorizing the repurchase of 1.6 million shares, or approximately 5% of outstanding shares.
  
  
• Capital ratios for the Company are in the table below. All capital ratios at quarter-end were impacted by the reduction in capital from share repurchases in the fourth quarter of 2022. This impact coupled with an increase in risk weighted assets and a change in the mix of risk weighted assets led to a decline in those capital ratios which are based on risk weighted assets. Tier 1 capital increased as average assets were lower than the prior quarter and common capital ratios declined as quarter-end assets were higher than the prior quarter-end.
  
  

Additional financial information: The financial information that follows provides more detail on the Company’s financial performance for the three months ended December 31, 2022 as compared to the three months ended September 30, 2022 and December 31, 2021 as well as eight quarters of trend data. Persons wishing additional information should refer to the Company’s annual report on Form 10-K for the year ended December 31, 2021, quarterly report on Form 10-Q for the quarters ended March 31, 2022, June 30, 2022 and September 30, 2022 and other reports filed with 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 sixteen banking offices and five lending 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, and is committed to a culture of respect, diversity, equity and inclusion in both its workplace and the communities in which it operates.

Conference call: Eagle Bancorp will host a conference call to discuss its fourth quarter 2022 financial results on Thursday, January 19, 2023 at 10:00 a.m. eastern time. The public is invited to listen to this registering at the link https://register.vevent.com/register/BI395df276641b44e4aee3848563fb62eb 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 February 2, 2023.

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," "can," "anticipates," "believes," "expects," "plans," "estimates," "potential," "continue," "should," "could," "strive," "feel" and similar words or phrases. These statements are based upon current and anticipated economic conditions, nationally and in the Company’s market (including ongoing challenges and uncertainties relating to the continued evolution of COVID-19, including on our credit quality, asset and loan growth and broader business operations), volatility in interest rates and interest rate policy, the current high inflationary environment 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, 2021 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, and nothing contained herein is meant to or should be considered and treated as earnings guidance of future quarters’ performance projections. All information is as of the date of this press release. Any forward-looking statements made by or on behalf of the Company speak only as to the date they are made. Except to the extent required by applicable law or regulation, the Company undertakes no obligation to revise or update publicly any forward-looking statement for any reason.

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¹ A reconciliation between this non-GAAP financial measure and the nearest GAAP measure is provided in the tables that accompany this document. Aggregate comprised of settlement agreements of $22.9 million and noninterest expense accrual reductions of $5.0 million.
² A reconciliation between this non-GAAP financial measure and the nearest GAAP measure is provided in the tables that accompany this document.
³ A reconciliation between this non-GAAP financial measure and the nearest GAAP measure is provided in the table under the subsection, "Total Loans."
⁴ A reconciliation between this non-GAAP financial measure and the nearest GAAP measure is provided in the table below. An explanation of the reconciliations and the reasons why the Company believes this non-GAAP financial measure to be important for investors is included with the reconciliation tables accompanying this document.
⁵ Periods of less than one year are annualized.
⁶ A reconciliation between this non-GAAP financial measure and the nearest GAAP measure is provided in the tables that accompany this document.
⁷ A reconciliation between this non-GAAP financial measure and the nearest GAAP measure is provided in the following table. An explanation of the reconciliations and the reasons why the Company believes this non-GAAP financial measure to be important for investors is included with the reconciliation tables accompanying this document.
⁸ On an annualized basis.
⁹ A reconciliation of non-GAAP financial measures to the nearest GAAP measure is provided in the tables that accompany this document.
¹⁰Capital ratios for December 31, 2022 are subject to final filings with the Federal Reserve.
¹¹A reconciliation of non-GAAP financial measures to the nearest GAAP measure is provided in the tables that accompany this document.

(1) A reconciliation of non-GAAP financial measures to the nearest non-GAAP measure is provided in the tables that accompany this document.
(2) Computed by dividing noninterest expense by the sum of net interest income and noninterest income. The efficiency ratio measures a bank’s overhead as a percentage of its revenue. 
(3) Excludes loans held for sale.

(1) Periods of less than a year are annualized.

(1) Reversal of accrual reduction for non-tax deductible expenses of $5.0 million related to share-based compensation awards and deferred compensation for the Company's former CEO and Chairman, recorded in the first quarter of 2022.
(2) Reversal of accrual for non-tax deductible expenses of $22.9 million in connection with the Company's agreements in principal with the SEC and FRB to resolve the previously disclosed investigations with respect to the Company, recorded in the second quarter of 2022.

GAAP Reconciliation (unaudited) - Continued

Tangible common equity to tangible assets (the "tangible common equity ratio"), tangible book value per common share, and the return on average tangible common equity 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 calculates the annualized return on average tangible common equity ratio by dividing net income available to common shareholders by average tangible common equity which is calculated by excluding the average balance of intangible assets from the average common shareholders’ equity. 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 above table provides reconciliation of these financial measures defined by GAAP with non-GAAP financial measures.

Pre-provision net revenue is a non-GAAP financial measure derived from GAAP based amounts. The Company calculates PPNR by subtracting noninterest expenses from the sum of net interest income and noninterest income. PPNR to Average Assets is calculated by dividing the PPNR amount by average assets to obtain a percentage. The Company considers this information important to shareholders because it illustrates revenue excluding the impact of provisions and reversals to the allowance for credit losses on loans. The table in the "Income Statement" section of this earnings release provides a reconciliation of PPNR and PPNR to Average Assets to the nearest GAAP measure.

Total loans excluding PPP loans is a non-GAAP financial measure derived from GAAP based amounts. The Company calculates Total loans excluding PPP loans by subtracting the total amount of outstanding PPP loans from the amount of total loans, excluding loans held for sale. The Company considers this information important to shareholders because it allows investors to see changes in the Company's loan growth without the impact of the PPP loans, which were loan products specific to relief efforts in response to the COVID-19 pandemic. Excluding the impact of PPP loans also allows investors to better compare the Company's loan growth to historical periods prior to the pandemic. The table in the "Balance Sheet" section of this earnings release and the table above provides a reconciliation of total loans excluding PPP loans to the nearest GAAP measure.

Efficiency ratio is a non-GAAP measure calculated by dividing GAAP non-interest expense by the sum of GAAP net interest income and GAAP non-interest (loss) income. The Company believes that reporting the non-GAAP efficiency ratio more closely measures its effectiveness of controlling operational activities. The table above shows the calculation of the efficiency ratio from these GAAP measures.

Adjusted net income and adjusted earnings per share (diluted) are non-GAAP financial measures derived from GAAP based amounts.

• The Company calculates adjusted net income for 2022 by: (1) subtracting from net income the accrual reduction of $5.0 million related to share-based compensation awards and deferred compensation for the Company's former CEO and Chairman, recorded in the first quarter of 2022, and (2) excluding from net income the accrual of non-tax deductible expenses of $22.9 million in connection with the Company's agreements in principle with the Securities and Exchange Commission ("SEC") and the Board of Governors of the Federal Reserve System ("FRB") to resolve the previously disclosed investigations with respect to the Company, recorded in the second quarter of 2022.
• The Company calculates adjusted earnings per share (diluted) for 2022 by dividing adjusted net income by the weighted average shares outstanding (diluted).
• The Company considers this information important to shareholders because adjusted net income and adjusted earnings per share (diluted) provides investors insight into how Company earnings changed exclusive of the two aforementioned adjustments, and allows investors to better compare the Company's performance against historical periods. The table above provides a reconciliation of adjusted net income and adjusted earnings per share (diluted) to the nearest GAAP measure.
  
  

(1) Loans placed on nonaccrual status are included in average balances. Net loan fees and late charges included in interest income on loans totaled $3.8 million and $3.4 million for the three months ended December 31, 2022 and September 30, 2022, respectively.
(2) Interest and fees on loans and investments exclude tax equivalent adjustments.

(1) Loans placed on nonaccrual status are included in average balances. Net loan fees and late charges included in interest income on loans totaled $3.8 million and $4.3 million for the three months ended December 31, 2022 and December 31, 2021, respectively.
(2) Interest and fees on loans and investments exclude tax equivalent adjustments.

(1) A reconciliation of non-GAAP financial measures to the nearest non-GAAP measure is provided in the tables that accompany this document.
(2) Computed by dividing noninterest expense by the sum of net interest income and noninterest income.
(3) Excludes loans held for sale.

CONTACT:
David G. Danielson
240.552.9534