Eagle Bancorp(EGBN) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported net income of $7.6 million, or $0.25 per diluted share, compared to a loss of $67.5 million, or $2.22 per share, in the previous quarter [6] - Non-performing loans decreased to $106.8 million, down $12 million from the prior quarter, representing 1.47% of total loans [7] - Total non-performing assets declined by $24 million to $108.9 million, representing 1.04% of total assets, compared to 1.23% in the prior quarter [7] - The allowance for credit losses ended the quarter at $159.6 million, or 2.19% of total loans [8] - Tangible common equity to tangible assets is 10.87%, Tier 1 leverage ratio is 10.17%, and CET1 is 13.83% [10] Business Line Data and Key Metrics Changes - Net interest income grew by $144,000 to $68.3 million, with a net interest margin (NIM) decline of five basis points to 2.38% [9][10] - Non-interest income increased to $12.2 million from $2.5 million in the previous quarter, primarily due to non-recurrent losses and gains from investments [10] - Non-interest expense rose by $17.9 million to $59.8 million, driven by costs associated with the disposition of held-for-sale loans [10] Market Data and Key Metrics Changes - The company experienced a reduction in brokered deposits by $602 million while increasing core deposits by $692 million during 2025 [11] - The concentration ratio for commercial real estate (CRE) loans to total risk-based capital and reserves declined to 322% [9] - The acquisition, development, and construction (ADC) concentration ratio decreased to 88% [9] Company Strategy and Development Direction - The company is transitioning from remediation to execution, focusing on consistent performance and improving returns [4][14] - There is an emphasis on reducing concentration risk and enhancing the quality of the balance sheet to support sustainable earnings [4] - The company aims to expand pre-provision net revenue in 2026, despite a smaller average balance sheet, prioritizing shareholder returns and profitability [12] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the company's direction, highlighting improved asset quality and a stronger foundation [14] - The expectation is for average deposits, loans, and earning assets to decline year-over-year, reflecting deliberate balance sheet repositioning rather than operational pressure [12] - Management is cautious about capital management and will consider changes only after observing continued positive trends over multiple quarters [28] Other Important Information - The company has $4.7 billion in available liquidity, maintaining 2x coverage of uninsured deposits [11] - The company is actively hiring producers in the commercial and industrial (C&I) sector to support growth [72] Q&A Session Summary Question: Can you provide more details on the asset dispositions and the expected timing? - The company has $90.7 million of loans held for sale, with two-thirds scheduled for resolution in the first quarter [19] Question: What is the potential for further moves into held-for-sale loans? - There could be situations where selling loans is deemed the best strategy, but the pace is not expected to match 2025 [21] Question: What trends are being observed in the multifamily sector? - There are signs of stabilization and improvement in multifamily loans, with strong valuations compared to the office market [22] Question: How do you view the current reserves and future provisioning? - The company expects to see a decline in the allowance for credit losses as the criticized classified loan portfolio continues to decrease [35][46] Question: Can you discuss the buyer interest in the secondary market for loans? - Buyer interest is high, with a range of investors involved, including local developers and existing ownership looking to purchase their own debt [37] Question: What is the outlook for loan growth in the C&I sector? - The growth seen in the fourth quarter is not expected to be sustainable at that level, but the C&I platform is expected to continue growing [55] Question: What is the current status of brokered deposits and cash levels? - The company holds $1.56 billion in brokered deposits, with plans to reduce this significantly throughout 2026 [58][60]