U.S. Markets closed

Understated Factors To Consider Before Investing In Eagle Bancorp Inc (NASDAQ:EGBN)

Gavin Beck

As a small-cap bank stock with a market capitalisation of US$2.00B, Eagle Bancorp Inc’s (NASDAQ:EGBN) risk and profitability are largely determined by the underlying economic growth of the US regions in which it operates. Since a bank profits from reinvesting its clients’ deposits in the form of loans, negative economic growth may lower deposit levels and demand for loan, adversely impacting its cash flow. After the GFC, a set of reforms called Basel III was imposed in order to strengthen regulation, supervision and risk management in the banking sector. Basel III target banking regulations to improve the sector’s ability to absorb shocks resulting from economic stress which may expose financial institutions like Eagle Bancorp to vulnerabilities. Its financial position may weaken in an adverse macro event such as political instability which is why it is crucial to understand how well the bank manages its risks. High liquidity and low leverage could position Eagle Bancorp favourably at the face of macro headwinds. A way to measure this risk is to look at three leverage and liquidity metrics which I will take you through today. Check out our latest analysis for Eagle Bancorp

NasdaqCM:EGBN Historical Debt Apr 18th 18

Is EGBN’s Leverage Level Appropriate?

Banks with low leverage are exposed to lower risks around their ability to repay debt. A bank’s leverage can be thought of as the amount of assets it holds compared to its own shareholders’ funds. Financial institutions are required to have a certain level of buffer to meet capital adequacy levels. Eagle Bancorp’s leverage level of less than the suitable maximum level of 20x, at 8x, is considered to be very cautious and prudent. This means the bank has a sensibly high level of equity compared to the level of debt it has taken on to maintain operations which places it in a strong position to pay back its debt in unforeseen circumstances. Should the bank need to increase its debt levels to meet capital requirements, it will have abundant headroom to do so.

What Is EGBN’s Level of Liquidity?

Handing Money Transparent

As I eluded to above, loans are relatively illiquid. It’s helpful to understand how much of this illiquid asset makes up Eagle Bancorp’s total asset. Generally, they should make up less than 70% of total assets, but its current level of 84.86% means the bank has obviously lent out 15% above the sensible upper limit. This indicates that revenue is dependent on this particular asset but also the bank is more likely to be exposed to default compared to its competitors with less loans.

Does EGBN Have Liquidity Mismatch?

A way banks make money is by lending out its deposits as loans. These loans tend to be fixed term which means they cannot be readily realized, yet customer deposits on the liability side must be paid on-demand and in short notice. This mismatch between illiquid loans and liquid deposits poses a risk for the bank if unusual events occur and requires it to immediately repay its depositors. Relative to the prudent industry loan to deposit level of 90%, Eagle Bancorp’s ratio of over 108.42% is higher, which puts the bank in a risky position due to the negative liquidity disparity between loan and deposit levels. Essentially, for $1 of deposits with the bank, it lends out more than $1 which is unsustainable.

Next Steps:

Today, we’ve only explored one aspect of Eagle Bancorp. However, as a potential stock investment, there are many more fundamentals you need to consider. I’ve put together three relevant factors you should further research:

  1. Future Outlook: What are well-informed industry analysts predicting for EGBN’s future growth? Take a look at our free research report of analyst consensus for EGBN’s outlook.
  2. Valuation: What is EGBN worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether EGBN is currently mispriced by the market.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.