Eagle Bancorp: Not Worthy Of An Upgrade Right Now

2025-01-22 07:00:00 ET

Summary

• I maintain a 'sell' rating on Eagle Bancorp due to its underperformance and worsening financial metrics, despite its attractive price-to-book ratios.
• Net interest income and net interest margin have declined, with significant increases in provisions for credit losses and FDIC insurance costs impacting profitability.
• The firm's high exposure to office properties and reliance on brokered deposits are concerning, despite management's efforts to reduce office holdings.
• Overall asset quality is mediocre, and the decline in deposits and profits suggests Eagle Bancorp will likely continue to lag the market.

Whenever I rate a company a ‘sell’, I am not necessarily saying that shares deserve to fall. Rather, I am merely stating that I believe that the stock will materially underperform the broader market for the foreseeable future. Having said that, if shares do drop, that's always a positive in my book. One firm that has seen some downside since I downgraded it from a ‘hold’ to a ‘sell’ back in October of last year is Eagle Bancorp ( EGBN ). At the time, I acknowledged that shares of the company were trading at a meaningful discount to their implied book value. However, certain financial metrics were worsening, and shares looked expensive relative to earnings. Add on top of this both the return on assets and return on equity of the institution, and I believed that taking a more bearish approach was right....

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