BETHESDA, Md., Jan. 29 /PRNewswire-FirstCall/ -- Eagle Bancorp, Inc. (the 'Company') (Nasdaq: EGBN), the parent company of EagleBank, today announced net income of $7.4 million ($0.63 per basic common share and $0.62 per diluted common share) for the year ended December 31, 2008 compared to $7.7 million ($0.73 per basic common share and $0.71 per diluted common share) for 2007, a 4% decline in net income.
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For the three months ended December 31, 2008, the Company earned $1.7 million ($0.12 per basic common share and $0.12 per diluted common share) compared to $2.3 million ($0.22 per basic common share and $0.21 per diluted common share) for the three months ended December 31, 2007. This decrease was due primarily to a non-recurring $1.0 million pre-tax amount recorded in the fourth quarter of 2007 from settlement of a subordinated financing transaction.
Per share amounts and the number of outstanding shares have been adjusted to give effect to the 10% common stock dividend paid on October 1, 2008.
'At a time of substantial stress in our financial markets and instability in many banks, we are extremely pleased to report positive earnings and continued asset and capital growth for the fourth quarter and full year 2008,' noted Ronald D. Paul, Chairman and CEO of Eagle Bancorp, Inc. 'In spite of a very difficult interest rate environment during 2008, wherein the Federal Reserve has lowered the targeted federal funds interest rate by 400 basis points to a record low level to combat a weakening economic situation, the Company maintained a net interest margin in excess of 4.00% for the twelve months ended December 31, 2008.'
A significant portion of the growth in the balance sheet in 2008 was the result of the consummation of the acquisition of Fidelity & Trust Financial Corporation ('Fidelity & Trust') on August 31, 2008. The acquisition added approximately $360 million in loans, $100 million in investments, $385 million in deposits, $70 million in customer repurchase agreements and other borrowings, and $13 million in equity capital, as of the date of consummation. The earnings of the Fidelity & Trust operations are included in the Company's results in 2008 for the four months ended December 31, 2008, the period subsequent to consummation.
Growth in average loans, deposits and other funding sources were the major drivers of the increase in net interest income for the three months ended December 31, 2008 as compared to the same three month period in 2007. Growth in these areas was primarily a result of the acquisition, but also reflects a $100 million increase in loans during the fourth quarter.
For the three months ended December 31, 2008, the Company reported an annualized return on average assets (ROAA) of 0.46% as compared to 1.06% for the three months ended December 31, 2007; while the annualized return on average common equity (ROAE) for the most recent quarter was 5.21%, as compared to 11.33% for the three months ended December 31, 2007. The most significant factors affecting these ratios have been a decline in the net interest margin, higher provisioning for credit losses, and a decrease in noninterest income due primarily to a non-recurring $1.0 million pre-tax amount recorded in the fourth quarter of 2007 from settlement of a subordinated financing transaction.
Both lending and deposit activities showed growth in the fourth quarter of 2008 as compared to the same period in 2007, as average loans increased 77% and average deposits increased by 75%. For the twelve months ended December 31, 2008, average loans increased 38% and average deposits increased 32%. A significant portion of these increases was due to inclusion of the balances acquired in the Fidelity & Trust acquisition as of August 31, 2008.
Net interest income increased 50% for the three months ended December 31, 2008 over 2007. The effect of favorable balance sheet growth was offset partially by a decline in the net interest margin of 56 basis points. For the three months ended December 31, 2008, the net interest margin was 3.74% as compared to 4.30% for the three months ended December 31, 2007. The Company's net interest margin remains favorable compared to peer banking companies. The Company's net interest margin for the fourth quarter of 2008 declined by 37 basis points (to 3.74%) from the net interest margin for the third quarter of 2008 of 4.11%, in part due to a lower net interest margin from the assets and liabilities acquired from Fidelity & Trust and in part due to the effect on the net interest margin of lower market interest rates over the past three months resulting from the reduction of the federal funds rate from 4.25% at December 31, 2007 to 2.00% at September 30, 2008 and .25% at December 31, 2008.
The net interest margin is also being compressed by the cost of the additional capital the Company raised in the third quarter. On August 28, 2008 the Company sold an aggregate of $12.15 million of subordinated notes (the 'Notes'). The Notes bear interest at a fixed rate of 10.0% per year. The Company recognized interest expense amounting to $310 thousand for the fourth quarter and $425 thousand for the year ended December 31, 2008.
The provision for credit losses was $1.4 million for the fourth quarter of 2008 as compared to $883 thousand for the fourth quarter of 2007. The higher provisioning in the fourth quarter of 2008 as compared to the fourth quarter of 2007 is primarily attributable to higher levels of loan growth in the fourth quarter of 2008 versus 2007, risk migration within the portfolio, and increases in specific reserves for problem loans. The provision for credit losses was $4.0 million for the year ended December 31, 2008 as compared to $1.6 million in 2007. The higher provisioning in the year ended December 31, 2008 as compared to 2007 is attributable to substantially higher levels of loan growth, risk migration within the portfolio and increases in reserve allocations on classified loans.
At December 31, 2008 the allowance for credit losses represented 1.45% of loans outstanding, as compared to 1.12% at December 31, 2007 and 1.46% at September 30, 2008. The higher allowance percentage at December 31, 2008 as compared to December 31, 2007 resulted primarily from the acquisition of the loan portfolio of Fidelity & Trust whose allowance for credit losses was approximately $7.5 million or 2.10% of loans outstanding at August 31, 2008. At December 31, 2008, the allowance represented 76% of non-performing loans.
For the fourth quarter of 2008, the Company recorded net charge-offs of $166 thousand as compared to $250 thousand of net charge-offs for the fourth quarter of 2007. For the year ended December 31, 2008 net charge-offs totaled $1.1 million versus $1 million for the twelve months ended December 31, 2007. Net charge-offs in the twelve months ended December 31, 2008 were attributable to charge-offs in commercial construction and land development loans ($446 thousand), the un-guaranteed portion of SBA loans ($337 thousand), non-real estate commercial business loans ($100 thousand), consumer loans ($210 thousand), and commercial real estate investment property loans ($29 thousand).
The ratio of non-performing loans to total loans increased from 1.79% ($21.0 million) at September 30, 2008 to 1.90% ($24.2 million) at December 31, 2008, an increase of $3.2 million. The ratio at December 31, 2008 was elevated as compared to December 31, 2007 of 0.74% ($5.3 million). A portion of the increase occurred in the third quarter of 2008 following the acquisition of Fidelity & Trust's impaired loans which were recorded at estimated fair value at the acquisition date in accordance with generally accepted accounting principles. The increase in non-performing loans at December 31, 2008 as compared to September 30, 2008 relates primarily to two specific commercial real estate loan relationships which have experienced delays and/or cost overruns in the construction and development processes. Management believes that the Company is adequately reserved for the identified risk inherent in the loan portfolio at December 31, 2008.
Noninterest income for the fourth quarter of 2008 was $1.3 million as compared to $2.0 million for the three months ended December 31, 2007, a 36% decrease. This decrease was due primarily to a non-recurring $1.0 million recorded in the fourth quarter of 2007 from settlement of a subordinated financing transaction. Excluding this non-recurring transaction, noninterest income increased 30% over the same period in 2007, in part due to the Fidelity & Trust acquisition. Other major contributors were higher service charges on deposit accounts and loan fees, offset by a lower volume of SBA and residential mortgage loan sales activity which is subject to significant quarterly variances.
Noninterest expenses were $10.5 million for the fourth quarter of 2008, as compared to $6.5 million for 2007, a 62% increase, in part due to the Fidelity & Trust acquisition consummated as of August 31, 2008. Other primary reasons for this increase were merit increases and related personnel costs, increased broker fees, higher internet and license agreement fees, increased legal, accounting and professional fees, including loan collection costs, and acquisition related expenses. In addition, higher costs were incurred in the fourth quarter for marketing, sponsorship, and professional services associated with the EagleBank Bowl, a new NCAA Bowl in 2008 played in Washington, D.C. on December 20th. The efficiency ratio, which measures the level of noninterest expense to total revenue, was 72.54% for the three months ended December 31, 2008, as compared to 59.87% for the three months ended December 31, 2007.
For the year ended December 31, 2008, the Company reported ROAA of 0.69% as compared to 0.96% for the same period in 2007, while the ROAE was 8.05%, as compared to 10.03% for the same period in 2007. Declines in these ratios were due primarily to lower net interest margins and higher loan loss provisions, factors which are being experienced throughout the banking industry.
For the year ended December 31, 2008, net interest income increased 26% over the year of 2007. As noted above, average loans increased 38% and average deposits increased by 32%, due in part to the Fidelity & Trust acquisition. The net interest margin for the year of 2008 was 4.05% as compared to 4.37% for 2007, as the effects of a steep decline in market interest rates impacted the Company. Additionally, a portion of the decline was due to lower margins on the assets and liabilities acquired from Fidelity & Trust.
