Eagle Bancorp(US:EGBN)2025-05-08 20:47PART I. FINANCIAL INFORMATION Provides a comprehensive overview of the company's financial performance and position for the first quarter of 2025, including detailed financial statements and management's analysis Financial Statements For Q1 2025, Eagle Bancorp reported a net income of $1.7 million, a significant improvement from a net loss of $0.3 million in the prior-year period, with total assets increasing to $11.3 billion and deposits growing to $9.3 billion Consolidated Balance Sheet Highlights (Unaudited) | (in thousands) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $11,317,361 | $11,129,508 | | Loans held for investment, net | $7,813,837 | $7,820,498 | | Total Deposits | $9,277,268 | $9,131,078 | | Total Liabilities | $10,072,470 | $9,903,447 | | Total Shareholders' Equity | $1,244,891 | $1,226,061 | Consolidated Statement of Operations Highlights (Unaudited) | (in thousands, except per share data) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net Interest Income | $65,649 | $74,698 | | Provision for Credit Losses | $26,255 | $35,175 | | Noninterest Income | $8,207 | $3,589 | | Noninterest Expense | $45,451 | $39,997 | | Net Income (Loss) | $1,675 | $(338) | | Diluted Earnings (Loss) Per Share | $0.06 | $(0.01) | Note 1 – Summary of Significant Accounting Policies The company's accounting policies conform to GAAP, with the Allowance for Credit Losses (ACL) estimated using a CECL model incorporating an 18-month forecast and four economic variables across three scenarios - The company's CECL model for estimating the Allowance for Credit Losses (ACL) uses a forecast period of 18 months49 - The cash flow model incorporates four economic variables: national unemployment, Commercial Real Estate (CRE) Price Index, House Price Index, and Gross Domestic Product (GDP), using a weighted approach of three economic scenarios (baseline, upside, downside)49 Note 3 – Investment Securities As of March 31, 2025, the investment portfolio comprised $1.21 billion in AFS and $924.5 million in HTM securities, holding significant unrealized losses primarily due to market interest rate changes Investment Securities Summary (March 31, 2025) | Security Category | Amortized Cost (in thousands) | Estimated Fair Value (in thousands) | | :--- | :--- | :--- | | Available-for-Sale (AFS) | $1,330,077 | $1,214,237 | | Held-to-Maturity (HTM), net | $924,473 | $820,530 | - As of March 31, 2025, the AFS portfolio had gross unrealized losses of $115.9 million, and the HTM portfolio had gross unrecognized losses of $105.2 million7377 - The allowance for credit losses on AFS securities was zero, while the allowance for HTM securities was $1.28 million as of March 31, 202579 Note 4 – Loans and Allowance for Credit Losses The total loan portfolio was $7.94 billion as of March 31, 2025, with a significant concentration in commercial real estate, and the ACL increased to $129.5 million driven by provisions and net charge-offs Loan Portfolio Composition | Loan Category | March 31, 2025 (in thousands) | % of Total | | :--- | :--- | :--- | | Income producing - commercial real estate | $3,967,124 | 49% | | Owner occupied - commercial real estate | $1,403,668 | 18% | | Construction - commercial and residential | $1,210,788 | 15% | | Commercial | $1,178,343 | 15% | | Other | $183,083 | 3% | | Total Loans | $7,943,306 | 100% | Allowance for Credit Losses (ACL) Activity - Q1 2025 | (in thousands) | Amount | | :--- | :--- | | Balance at beginning of year | $114,390 | | Net loans charged-off | $(11,230) | | Provision for credit losses | $26,309 | | Ending balance | $129,469 | - Nonaccrual loans totaled $200.4 million as of March 31, 2025, down from $208.7 million as of December 31, 2024108 - During Q1 2025, the company modified loans for borrowers experiencing financial difficulty with an amortized cost basis of $83.0 million114 Note 7 – Deposits Total deposits increased to $9.28 billion as of March 31, 2025, driven by time deposit growth, with brokered deposits remaining a significant funding source at 41% of the total Deposit Composition | (in thousands) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Noninterest-bearing demand | $1,607,826 | $1,544,403 | | Interest-bearing transaction | $926,722 | $1,211,791 | | Savings and money market | $3,558,919 | $3,599,221 | | Time deposits | $3,183,801 | $2,775,663 | | Total Deposits | $9,277,268 | $9,131,078 | - As of March 31, 2025, total brokered deposits were $3.8 billion, representing 41% of total deposits139 Note 8 – Borrowings Total borrowings were approximately $598.5 million as of March 31, 2025, primarily FHLB advances and senior notes, while the company maintained significant available liquidity of approximately $4.2 billion Borrowings Summary (March 31, 2025) | Borrowing Source | Net Outstanding (in thousands) | Available Capacity (in thousands) | | :--- | :--- | :--- | | FHLB | $490,000 | $1,070,435 | | FRB Discount Window | $0 | $1,806,205 | | Senior notes | $76,181 | $0 | | Total | $566,181 | $2,876,640 | - The Company has total additional undrawn borrowing capacity of approximately $4.2 billion, which includes unencumbered securities available to be pledged141 Note 13 - Legal Contingencies The company is cooperating with an ongoing U.S. Attorney's Office investigation concerning anti-money laundering controls from 2011-2017 and cannot estimate potential losses - The Company is under an ongoing investigation by the U.S. Attorney's Office regarding its anti-money laundering controls from approximately 2011 to 2017172 - Due to the inherent uncertainty, the Company cannot estimate the potential losses, if any, resulting from this investigation172 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A attributes Q1 2025 net income to lower credit loss provisions and higher noninterest income, offsetting declining net interest income and increased expenses, while maintaining strong capital and liquidity Results of Operations Net income for Q1 2025 improved to $1.7 million due to decreased provision for credit losses and increased noninterest income, despite a decline in net interest income and higher noninterest expenses - Net interest income decreased by 12% to $65.6 million in Q1 2025 from $74.7 million in Q1 2024, primarily due to lower yields on loans and higher average deposit balances with lower rates194203 - The provision for credit losses was $26.3 million in Q1 2025, a decrease from $35.2 million in Q1 2024196 - Noninterest income increased 129% to $8.2 million, primarily driven by a $3.6 million increase in income from bank-owned life insurance (BOLI) following a new $200 million investment195220 - Noninterest expense rose 14% to $45.5 million, largely due to a $2.5 million (40%) increase in FDIC insurance expense197221 Balance Sheet Analysis Total assets grew 2% to $11.3 billion, primarily from a BOLI investment, with the loan portfolio stable at $7.94 billion, heavily concentrated in commercial real estate, and deposits increasing to $9.3 billion - Total assets increased by 2% to $11.3 billion, primarily driven by the purchase of additional BOLI coverage228 - The loan portfolio has a high concentration in real estate, with commercial real estate and construction loans making up 83% of the portfolio as of March 31, 2025238 - Income producing CRE loans collateralized by office properties comprised $847.7 million, or 10.7% of total loans, as of March 31, 2025242 - Total deposits increased 2% to $9.3 billion, driven by a $408.1 million increase in time deposits231278 Allowance for Credit Losses The ACL on loans increased to $129.5 million, or 1.63% of total loans, driven by a $26.3 million provision and $11.2 million in net charge-offs, improving the ACL to nonperforming loans ratio to 65% ACL Ratios | Metric | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | ACL for loans (in millions) | $129.5 | $114.4 | | ACL as % of total loans | 1.63% | 1.44% | | ACL as % of nonperforming loans | 65% | 55% | - Net charge-offs for Q1 2025 were $11.2 million, which included $11.0 million from three CRE office lending relationships253 - The ACL attributable to performing office properties as a percentage of total loans increased to 5.78% from 3.81% at year-end, indicating increased reserves for this segment257 Nonperforming Assets Total nonperforming assets decreased to $202.9 million, or 1.79% of total assets, primarily due to a reduction in nonperforming loans from charge-offs on CRE loans Nonperforming Assets Summary | (in thousands) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Nonperforming loans | $200,441 | $208,706 | | Other real estate owned (OREO) | $2,459 | $2,743 | | Total nonperforming assets | $202,900 | $211,449 | | Ratio of NPLs to total loans | 2.52% | 2.63% | | Ratio of NPAs to total assets | 1.79% | 1.90% | - The decrease in nonperforming loans was primarily due to charge-offs on CRE loans during the quarter262 Liquidity Management The company maintains a strong liquidity position with $5.6 billion in available secondary liquidity and $4.2 billion in total aggregate borrowing capacity, deemed adequate for funding needs Secondary Sources of Liquidity (March 31, 2025) | Source | In Use (in thousands) | Available (in thousands) | | :--- | :--- | :--- | | Unsecured brokered deposits | $1,077,776 | $1,266,390 | | FHLB secured borrowings | $490,000 | $1,070,435 | | FRB Discount window | $0 | $1,806,205 | | Unpledged assets (for collateral) | $0 | $1,292,908 | | Total (selected) | $1,567,776 | $5,435,938 | - Total aggregate borrowing capacity as of March 31, 2025 was $4.2 billion301 Capital Resources and Adequacy The company's capital levels significantly exceed regulatory requirements, with a CET1 ratio of 14.61% and a total risk-based capital ratio of 15.86%, despite a concentration in construction and development loans Company Capital Ratios (March 31, 2025) | Ratio | Actual | Minimum Required (w/ buffer) | | :--- | :--- | :--- | | CET1 capital ratio | 14.61% | 7.00% | | Tier 1 capital ratio | 14.61% | 8.50% | | Total risk-based capital ratio | 15.86% | 10.50% | | Tier 1 leverage ratio | 11.11% | 4.00% | - The company's construction, land, and land development loans represent 119.61% of consolidated risk-based capital, exceeding the 100% regulatory guidance threshold for potential concentration risk309 - A regular quarterly cash dividend of $0.165 per share was announced on April 23, 2025316 Asset/Liability Management The company actively manages interest rate risk, positioned as asset-sensitive, with a +100 basis point rate shock modeled to increase net interest income by 0.8% over 12 months Interest Rate Shock Analysis on Net Interest Income (12-Month) | Change in Rates (bps) | % Change in NII | | :--- | :--- | | +400 | 3.4% | | +200 | 1.7% | | +100 | 0.8% | | -100 | (0.7)% | | -200 | (1.4)% | - The re-pricing duration of the loan portfolio was 10 months as of March 31, 2025, with 62.8% of loans having variable or adjustable rates323 - The duration of the investment portfolio decreased to 4.1 years from 4.2 years at year-end 2024325 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during Q1 2025 - Management concluded that disclosure controls and procedures were effective as of March 31, 2025350 - No material changes to internal control over financial reporting occurred in Q1 2025351 PART II. OTHER INFORMATION Presents additional disclosures, including specific risk factors related to the company's geographic concentration and potential impacts from economic and policy changes Risk Factors The company highlights risks from its concentration in the Washington, D.C. metropolitan area, including potential adverse impacts from federal government spending changes, and notes risks from U.S. trade policy shifts - A key risk is the potential adverse impact from changes in federal government spending or workforce size in the Washington, D.C. area, which could harm the local economy and the commercial real estate market355356 - The company notes that a decline in federal government spending or a shutdown could have a ripple effect, adversely affecting asset quality, capital, and liquidity357 - Changes in U.S. trade policies and practices, such as new tariffs, are identified as a risk that could disrupt the economy and adversely affect the company's business and financial results359361