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Eagle Bancorp Is a Solid Organic Growth Play

NEW YORK ( TheStreet) -- Eagle Bancorp (EGBN - Get Report) of Bethesda, Md., is bucking the trend for many larger competitors, with strong organic growth and an expanding net interest margin.

FIG Partners analyst Christopher Marinac rates Eagle Bancorp "Outperform," and says "the company's fundamentals are doing great," and that "they are in the D.C. market place that is attractive, picking up the business from bigger banks," including Bank of America (BAC), Capital One Financial (COF), and PNC Financial Services Group (PNC).

Eagle Bancorp had $3.0 billion in total assets as of June 30, with 17 branches in Montgomery County, Md., Washington, and Arlington and Fairfax Counties in Virginia.

The company reported second-quarter earnings of $7.6 million, or 37 cents a share, increasing from $7.5 million, or 36 cents a share in the first quarter, and $4.9 million, or 24 cents a share, during the second quarter of 2011. The second-quarter return on average assets was 1.08%, and the return on average common equity was 13.52%, which are both good numbers in the current environment for banks.

Eagle Bancorp's net interest margin -- the difference between a bank's average yield on loans and investments and its average cost for deposits and borrowings -- expanded to 4.39%, from 4.11% the previous quarter and 4.32% a year earlier, which is an unusual showing for a bank, as long-term rates continue to decline. Marinac says that the company's margin success shows that it is not only acquiring new customers, it is "doing more business with the same customers," meaning that low-cost checking deposits grow, as the company expands its commercial real estate loan portfolio.

The company's total deposits grew 6% quarter-over-quarter and 30% from a year earlier, to $2.5 billion as of June 30. Meanwhile, coveted noninterest bearing demand deposits increased 12% sequentially and 77% year-over-year, to $773 million.

Total loans grew 6% during the second quarter and 19% year-over-year, to $2.3 billion as of June 30, with strong growth in commercial real estate loans, as well as in the company's smaller construction loan portfolio.

Commercial real estate made up 53% of total loans as of June 30, which could give some investors pause, since many of the banks that got in trouble during the real estate bubble that popped in 2008 were heavily concentrated in CRE, however, Marinac says that Eagle Bancorp has "had good credit quality all throughout the cycle," and that "they really never got big in construction, so the construction lending they have done has augmented" earnings.

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