What happened

Shares of the $11 billion asset Eagle Bancorp (EGBN 6.76%) based in Maryland traded 14.5% lower at 10:21 a.m. ET today after the bank reported disappointing earnings results for the first quarter of the year.

So what

Eagle Bancorp reported diluted earnings per share of $0.78 on total revenue of $78.7 million, both numbers that missed analyst estimates for the quarter.

The main culprit was a huge decline in deposits, roughly $1.2 billion during the quarter. This forced the bank to bring on significant higher-cost, short-term borrowings on the balance sheet to plug the hole, which crushed the bank's net interest income (NII), which is the money banks make on loans and securities after funding those assets.

"While we are disappointed with our first quarter operating results, our capital ratios are well in excess of regulatory minimums and our asset quality metrics remained strong, even against the backdrop of a challenging market, including continued disintermediation of deposits amid a rising interest rate environment," Eagle Bancorp's CEO Susan Riel said in an earnings statement.

She added, "We met the liquidity needs of our depositors, and the credit needs of our borrowers, while holding firm to our commitment to strong underwriting and risk management practices." 

Now what

We know that during the first quarter and the banking crisis, smaller banks saw a lot of deposit outflows, as customers rushed to either perceived safety or higher-yielding assets. Eagle Bancorp appears to have been a victim of these trends.

The bank does have unrealized losses in its bond portfolio that the bank plans to hold to maturity. If this portfolio had to be sold while trading at a loss, the bank would destroy some shareholder equity, although it doesn't look like anything too dramatic.

For now, I think investors should stay on the sidelines and wait for evidence that deposit outflows are stabilizing before thinking about investing.