Analysis of the three months ended December 31, 2012 compared to December 31, 2011
As reported in October 2011, EagleBank became the escrow depository in mid-September 2011 of approximately $620 million of noninterest bearing deposits resulting from a long term client relationship (the "settlement deposit"). The deposits, as expected, were substantially withdrawn in the fourth quarter of 2011. While this large and unusual transaction did not impact 2012 results, these funds contributed approximately $140 thousand to net earnings in the fourth quarter of 2011 and $170 thousand to earnings for the full year 2011 and significantly impacted a number of financial ratios and metrics. To allow for appropriate comparisons, we make certain parenthetical comments in this earnings press release, in order to compute the relevant non-GAAP ratios on a basis which excludes this large and unusual short-term transaction.
For the three months ended December 31, 2012, the Company reported an annualized return on average assets ("ROAA") of 1.25% as compared to 0.91% (1.03% excluding the effect of the settlement deposit) for the three months ended December 31, 2011. The annualized return on average common equity ("ROAE") for the quarter ended December 31, 2012 was 13.95%, as compared to 13.40% for the quarter ended December 31, 2011. The higher ROAA and ROAE ratios for the fourth quarter of 2012 as compared to 2011 are due to an expanded net interest margin and higher noninterest income.
Net interest income increased 23% for the three months ended December 31, 2012 over the same period in 2011, resulting from a combination of strong average balance sheet growth and net interest margin expansion, as the mix of earning assets shifted to higher yield assets and the cost of funds declined, as compared to the same quarter in 2011. As compared to the fourth quarter of 2011, average earning assets increased by 4% for the fourth quarter of 2012 (20% excluding the effect of the settlement deposit). For the three months ended December 31, 2012, the net interest margin was 4.31% as compared to 3.65% (4.16% excluding the effect of the settlement deposit) for the three months ended December 31, 2011. The Company's net interest margin remains favorable compared to peers.
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