What happened
Eagle Bancorp. (EGBN +0.94%) saw its stock price drop 16% this week, as of 1:00 p.m. ET on Friday, according to S&P Global Market Intelligence. The stock price had been down as much as 20.1% during the week. As of Friday afternoon, the stock was trading at about $26.22 per share, down 40.5% year to date (YTD).
The markets were all down slightly this week, as the S&P 500 dropped 0.3%, the Dow Jones Industrial Average fell 0.4%, and the Nasdaq Composite ticked down 0.6% this week, as of Friday at 1:00 p.m. ET.
So what
Bethesda, Maryland-based Eagle Bancorp, the holding company for EagleBank, reported first-quarter earnings this week that were worse than expected.
It was a difficult quarter, particularly for small, regional banks like Eagle, which is the 129th largest U.S. bank with about $11.1 billion in assets. Net income was down 47% year over year and 43% from the fourth quarter to $24.2 million, while revenue fell 10.5% year over year to $78.7 million.
Two factors really hurt Eagle Bancorp this quarter: provision for credit losses and deposits. The provision for credit losses was $6.2 million, up from a $2.8 million in credit reserves in the first quarter of 2022.
NASDAQ: EGBN
Key Data Points
Deposits were down 22% year over year to $7.5 billion, which was not unusual for most banks, particularly smaller ones, following the banking crisis in March. It had an impact on Eagle's net-interest income, which dropped 6.8% to $75 million compared to the same quarter a year ago despite a 9% increase in loans to $7.7 billion.
The drop in net-interest income was due in part to higher interest rates paid on deposits as well as the need to bring in short-term borrowings to fill the void left by the drop in deposits. These borrowings were at higher rates than those deposits they replaced, thus the drain on interest income.
Now what
This is a difficult time for smaller banks, as they may be facing more regulations following the March banking crisis. Plus, there's more uncertainty around the stability of smaller banks coming out of this period when we saw the collapse of two banks. That has resulted in a flight to larger banks, which could continue as we move into a potential economic slowdown.
The good news is Eagle Bancorp's liquidity is solid, with a common equity tier 1 ratio of 13.7%, well above the 7% regulatory minimum. And its efficiency ratio is a healthy 51% -- up from 35% a year ago but still a pretty good number. However, this is just not a great time to be in the market for small and mid-sized banks, given the circumstances.
