Eagle Bancorp(EGBN) - 2025 Q1 - Quarterly Results

Company Overview Eagle Bancorp, Inc. is a prominent financial institution in the Washington D.C. metro area, holding a strong market position with over $11 billion in assets Company Snapshot and Market Position Eagle Bancorp, Inc. is a significant financial institution headquartered in the Washington D.C. metropolitan area, holding a strong market position by deposit market share - Operates in the attractive Washington D.C. metropolitan market, which features a dynamic mix of public and private sector activity and high household incomes[8] - Ranks as one of the largest banks headquartered in the Washington D.C. area and is 3rd by deposit market share for banks under $15 billion in assets[9] Eagle Bancorp at a Glance (as of March 31, 2025) | Metric | Value | | :--- | :--- | | Total Assets | $11.1 billion | | Total Deposits | $9.3 billion | | Total Loans | $7.9 billion | | Shares Outstanding | 30,368,843 | | Market Capitalization | $633 million (as of April 22, 2025) | | Tangible Book Value per Common Share | $40.59 | Investment Highlights and Strategy Eagle Bancorp offers an attractive investment opportunity due to its strong capital, liquidity, disciplined cost structure, and strategic profitability initiatives Investment Thesis and Key Strengths Eagle Bancorp presents an attractive investment opportunity due to its best-in-class capital levels, strong liquidity, disciplined cost structure, and strategic D.C. geography - Boasts best-in-class capital levels with a CET1 Ratio of 14.61%, placing it in the top quartile of bank holding companies with over $10 billion in assets[14] - Maintains a strong liquidity position, with a liquid assets to total deposits ratio of 7.3% and total available liquidity of $4.8 billion; uninsured deposits represent only 25% of total deposits[14] - Operates with a disciplined, branch-light cost structure, reflected in an Operating Noninterest Expense to Average Assets ratio of 1.52% and an Operating Efficiency Ratio of 61.5%[14] Strategies for Profitability Improvement The company focuses on growing and diversifying deposits, expanding its C&I team, and increasing fee income to enhance profitability and improve ROAA - Actively working to grow and deepen relationship deposits to reduce reliance on higher-cost and non-core funding sources[18] - Expanding the C&I team and building sales behaviors within Treasury Management to accelerate customer acquisition and deepen deposit relationships[16] - Maintaining pricing discipline on new loans and focusing on operating efficiency to achieve positive operating leverage[18] - As of Q1 2025, Eagle's ROAA of 0.06% is significantly lower than its peer group median[16] Peer Comparison: Capital and Liquidity Compared to its peers, Eagle Bancorp demonstrates superior capital and liquidity, with a high CET1 ratio and robust cash equivalents to total deposits - Capital ratios are high relative to peers, with a CET1 ratio of 14.6% and an Excess CET1 (over 9%) plus ACL to Total Loans ratio of 8.2%, both ranking near the top of the peer group[20][22] - The ratio of Cash Equivalents + AFS Securities to Total Deposits stands at 20.4%, which is strong compared to the peer median[24] - Insured deposits constitute 74% of total deposits as of Q1 2025, enhancing funding stability[24] Q1 2025 Financial Performance and Outlook Q1 2025 saw decreased net income and compressed net interest margin, with updated 2025 outlook reflecting revised NIM and increased noninterest income Key Performance Ratios In Q1 2025, key performance metrics showed mixed results, with decreased operating returns but a stable tangible common equity to tangible assets ratio Quarterly Performance Trends | Metric | Q4 2024 | Q1 2025 | Trend | | :--- | :--- | :--- | :--- | | Operating Return on Avg Tangible Common Equity | 4.94% | 0.55% | Decreased | | Operating Return on Assets | 0.48% | 0.06% | Decreased | | Operating Efficiency Ratio | 59.5% | 61.5% | Increased (Worsened) | | Tangible Common Equity / Tangible Assets | 11.02% | 11.00% | Stable | Net Interest Income and Margin Net interest income and margin compressed slightly in Q1 2025 due to fewer days and lower cash balances, partially offset by reduced borrowing costs Net Interest Income and Margin (QoQ) | Metric | Q4 2024 | Q1 2025 | | :--- | :--- | :--- | | Net Interest Income | $70.8 million | $65.6 million | | Net Interest Margin (NIM) | 2.29% | 2.28% | - The decrease in NII was driven by lower interest income ($9.1 million decrease, mainly from volume) and a smaller decrease in interest expense ($2.8 million decrease, mainly from yield)[33][34] - Management expects cash flows from the investment portfolio of $292 million for the remainder of 2025 to be redeployed at higher yields[34] Net Income Summary Net income significantly decreased in Q1 2025, driven by lower net interest income and a substantial increase in the provision for credit losses Net Income Drivers (Q4 2024 vs Q1 2025) | Component | Change (in thousands) | Reason | | :--- | :--- | :--- | | Net Interest Income | $(5,145) | Fewer days in quarter, lower cash balances | | Provision for Credit Losses | $(14,123) | Increased reserve for net charge-offs and higher overlay for CRE office risk | | Noninterest Income | $4,140 | Increase in income from a new BOLI policy | | Noninterest Expense | $(1,238) | Increased legal and professional fees | 2025 Company Outlook The company updated its 2025 outlook, projecting a downward revision for net interest margin but an upward revision for noninterest income due to a Q1 gain Current 2025 Outlook | Key Driver | Current 2025 Outlook | | :--- | :--- | | Balance Sheet | | | Average deposits | 1-4% increase | | Average loans | 2-5% increase | | Income Statement | | | Net interest margin | 2.35% - 2.50% (Revised Down) | | Noninterest income | $35 - $40 million (Revised Up) | | Noninterest expense | 3-5% growth | Balance Sheet and Funding The balance sheet reflects increased deposits and stable loans, with a focus on managing funding costs and optimizing the investment portfolio for higher yields Deposit and Funding Profile Total deposits increased year-over-year to $9.3 billion, with a shift in mix and rising costs, while the company maintains significant available liquidity - Period-end deposits were $9.3 billion, up $776 million from Q1 2024, driven by growth in money market and CD accounts[43][51] - The cost of total deposits increased to 3.40% in Q1 2025, up from 3.17% in Q4 2024 and 3.36% in Q1 2024[45] - The company has ample access to liquidity, with over $4.8 billion available from the FHLB, FRB Discount Window, cash, and unencumbered securities[49][53] Loan Portfolio Composition and Yields Total loans remained stable at $7.9 billion, with CRE as the largest segment, and a slight increase in total loan yield contributing to stable earning asset yield Loan Portfolio Composition (March 31, 2025) | Loan Category | % of Total Loans | | :--- | :--- | | Total Income Producing CRE | 50% | | Owner-occupied - commercial real estate | 18% | | Construction - commercial and residential | 15% | | Commercial (C&I) | 15% | | Other | 2% | Quarterly Yield Analysis | Yield | Q4 2024 | Q1 2025 | | :--- | :--- | :--- | | Total Loan Yield | 6.91% | 6.93% | | Securities Yield | 2.01% | 2.04% | | Total Earning Asset Yield | 5.71% | 5.71% | Investment Portfolio The investment portfolio, primarily Agency MBS and Debentures, decreased due to paydowns, with projected cash flows expected to be reinvested at higher yields - The portfolio is dominated by Agency MBS (57%) and Agency Debentures (25%)[118] - Total securities decreased by $98 million from 12/31/2024 due to principal paydowns and sales[120] - Projected cash flow for the remainder of 2025 is $292 million, which is expected to be reinvested at higher yields[120] Asset Quality and Credit Risk Asset quality metrics deteriorated in Q1 2025, marked by increased provisions, higher net charge-offs, and a rise in criticized and nonaccrual loans Key Asset Quality Metrics Asset quality metrics deteriorated in Q1 2025, with significant increases in provision for credit losses, net charge-offs, and non-performing assets Quarterly Asset Quality Trends | Metric | Q4 2024 | Q1 2025 | Trend | | :--- | :--- | :--- | :--- | | Provision for Credit Losses | $10.1 million | $35.2 million | Increased | | NCO / Average Loans (annualized) | 0.57% | 1.07% | Increased (Worsened) | | NPAs / Assets | 1.22% | 1.81% | Increased (Worsened) | | ACL / Loans HFI | 1.40% | 1.63% | Increased | Classified, Criticized, and Nonaccrual Loans Criticized and classified loans increased in Q1 2025, primarily due to CRE downgrades, with nonaccrual loans concentrated in office and assisted living sectors - Total criticized and classified loans (Special Mention + Substandard) increased by $104 million quarter-over-quarter to $775 million[72] - The increase in Special Mention loans was driven by C&I, while the increase in Substandard loans was driven by CRE[74] Top Nonaccrual Loans (as of March 31, 2025) | | Purpose/Location | Balance ($000s) | % Total NPLs | | :--- | :--- | :--- | :--- | | 1 | Office - Montgomery | $73,942 | 36.9% | | 2 | Office - Washington DC | $24,660 | 12.3% | | 3 | Office - Fairfax | $18,502 | 9.2% | | 4 | Assisted Living - Montgomery | $17,934 | 8.9% | | 5 | Land - Fairfax | $16,755 | 8.4% | Detailed Loan Portfolio Review This section provides a detailed review of the loan portfolio, focusing on the performance and risk profiles of CRE Office, Multifamily, Construction, Hotel, and GovCon segments Commercial Real Estate (CRE) - Office The CRE Office portfolio, totaling $994.3 million, shows risk rating deterioration and a significant maturity wall, with limited exposure to lower-class properties CRE Office Portfolio Overview (as of March 31, 2025) | Category | Balance ($M) | of Loans | % Criticized/Classified | | :--- | :--- | :--- | :--- | | Owner Occupied Office | $145.0 | 92 | 1% | | Income Producing Office | $849.3 | 72 | 30% | | Total CRE Office | $994.3 | 164 | 31% | - The risk rating for the non-office portion of the income-producing CRE portfolio has remained largely unchanged, while the office portion has seen risk rating deterioration[55] - A significant portion of the income-producing office portfolio matures in the near term, with 23.8% maturing by YE 2025 and an additional 37.9% in 2026[59] Commercial Real Estate (CRE) - Multifamily The income-producing Multifamily CRE portfolio, totaling $837.0 million, exhibits strong credit quality with high 'Pass' ratings and no non-accrual loans Income Producing Multifamily Portfolio (as of March 31, 2025) | Metric | Value | | :--- | :--- | | Total CRE Balance | $837.0 million | | of Loans | 43 | | % Pass Rated | 92% | | % Criticized | 8% | | Non-Accrual % | 0% | | Weighted LTV | 63% | | Weighted DSCR | 1.2x | - There are zero multifamily loans on nonaccrual status; however, there are 4 substandard loans totaling $50.2 million and 2 special mention loans totaling $31.7 million[102] Other Portfolios (CRE Construction, Hotel, GovCon) Other specialized portfolios, including CRE Construction, Hotel, and GovCon, generally exhibit strong credit quality with high 'Pass' ratings and low non-accrual rates - CRE Construction: $1.13 billion total balance across 90 loans; 85 loans ($1.1 billion) are risk-rated 'Pass', while 5 loans ($38.0 million) have adverse risk ratings[109][110][113] - Hotel: $431.5 million outstanding balance across 21 loans; all loans are risk-rated 'Pass' with zero nonaccrual or criticized loans[116] - GovCon: Less than $250 million outstanding balance; there are zero GovCon loans on nonaccrual status, and over 30% of balances are tied to ABL-structured lines of credit[105] Appendices The appendices offer supplementary financial details, including granular loan schedules, tangible book value analysis, and non-GAAP reconciliations for enhanced transparency Detailed Loan Schedules The appendices provide granular detail on specific loan categories, including nonaccrual, special mention, substandard, and top 25 loans, with geographic breakdowns - Provides a detailed breakdown of the 8 largest nonaccrual loans, which total $191.4 million, or 95.5% of all nonaccrual loans; several were placed on nonaccrual due to new appraisals, not payment default[85][86] - Lists 9 Special Mention loans over $10 million (totaling $245.3 million) and 15 Substandard loans over $10 million (totaling $380.7 million), with details on collateral, LTV, and DSCR[87] - The top 25 loans total $1.62 billion, representing 20.3% of the total loan portfolio; the largest single exposure is a $93.9 million construction loan for an apartment building[89] Tangible Book Value Per Share Analysis Tangible book value per share was $40.59, showing a slight quarterly decrease due to dividends and AOCI, but a long-term CAGR of 3.3% Q1 2025 TBV per Share Walk | Component | Per Share Amount | | :--- | :--- | | 12/31/24 TBVPS | $40.99 | | Net Income | $0.06 | | Dividend | $(0.165) | | AOCI & Other | $(0.30) (Calculated) | | 3/31/25 TBVPS | $40.59 | - Tangible book value per share has shown a compound annual growth rate (CAGR) of 3.3% from $35.74 at year-end 2020 to $40.59 at the end of Q1 2025[123] Non-GAAP Reconciliation This section reconciles non-GAAP financial measures like Tangible Common Equity and Operating Net Income to GAAP equivalents, providing clearer insights into performance - Reconciles GAAP Net Income to Operating Net Income, which primarily adjusts for a one-time goodwill impairment charge of $104.2 million taken in Q2 2024[129][133] - Provides calculations for tangible common equity and tangible assets by subtracting intangible assets from their corresponding GAAP measures[129][133] - Details the calculation of the Operating Efficiency Ratio by dividing Operating Noninterest Expense by operating revenue (Net Interest Income + Noninterest Income)[131][135]