Eagle Bancorp (EGBN) 25 Jan 242023 Q4 Earnings call transcript

Good day, and thank you for standing by. Welcome to the Eagle Bancorp Fourth Quarter and Year-end 2023 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Eric Newell, Chief Financial Officer of Eagle Bancorp. Please go ahead.

morning. Good Newell, of Eric Bancorp. Financial Chief is Eagle Officer This

forward-looking like presentation, everyone made Before make are the future would promises during We to about any call comments we begin the I remind performance. cannot of that the statements. some

forward-looking XX-K earnings fiscal year by materially for to The which could with certain is factors presentation statements of future required XX, law. or slides This Relations information for undertake and X-K, posted Form cause XXXX in in morning's reports any this reconciliations this made earnings to information does release, projected the actual those include that differ directly result current GAAP of update filed identify as from and most on the results information. and the including of Form Investor any XX-Q our September commentary website statements new financial Our the XXXX, unless events the information. or section to contains Bancorp company's accompanying comparable developments will the SEC, risk a non-GAAP forward-looking morning. Eagle not

it website. I Our now our website SEC's are online like company at Susan periodic on President the to available reports or and our from the over turn CEO, to would Riel.

culture on, respond customers us uncertainty. We morning, Thank our to to of reacted some resiliency moment presented banks. many the in of you, sector our company We team quarter into of last focus quickly needed were first This able and excited first crept in good Eric, the into relationships challenges. that about in challenges lean large what those persevered. and year everyone. from of through uncertainties failure through I'm the which light the to our banking that EagleBank and

proud I deposit communities will the reported were that ago with other. I and in achieve relationships our touched period. strong December we experienced is the and team I'm deposits we but third large the the to customers, in total year that EagleBank we higher work of of the part each we in than am XXXX, our trusted leverage While early confident worth have that initiatives initiatives highlighting at am call, outflow thrilled they those strategic our able I with XXXX. our and it again. quarter on those characteristics to as be XX

We focused been on deposit remain and will our portfolio. have

goal with quality enhance pricing wholesale reduce in funding to deposits deposit to environment. portfolio in for successfully is us interest portfolio enhanced allow Our enhancing flexibility and a and XXXX dynamic higher have our deposit quality growing diversification, will rate

and enhancing building the digital management capabilities leverage we deposit channel, footprint. in for instill During and our our services to and behaviors, on branch introducing year, will improving our network better efforts primarily and capabilities products gathering work outside a treasury our and sales

are We loans. to to grow working our total C&I relative portfolio

evaluated opportunity us to years team have deepen can and appropriate of incentive the and those which up relationships, growth areas teams and portfolio of are We on ensure set future compensated for plans grow growth. our

important an remain XXXX. for us will quality part asset in Finally,

guarantors. or the borrowers classified value of with credit impacted to the the posture pressures our credit for Our through I will assets credit history weaknesses seeking a than proactive principal in for fourth Jan at asset source the primary peers. speak EagleBank maximize shows quarter exhibiting while primary actions and losses a the This work recognized quarter. in in taken about repayment. same enhancements internal which ratings increased that income. by provision that credit paydowns we with are net in of to quality drove am cash more collateral conservative on took confident EagleBank detail our team will higher recourse and reassessing and cash our approach in has earlier flows time, fourth flows improve part our We've credit our those our

and aligned of and many team CRE years with deep seen Our those workout have surveillance to up have downturns. with experience efforts XX

level economic proven uncertainty, of the us of capital capital positions stewards we years excited in well am the be our the EagleBank strong capital over of Our I face have management. through to strong position good of prospects and working last and the accomplished senior closely lot to is A with over years team team. sustainable the the with staff profitability EagleBank for improved growth come. months. and progress to The been ourselves X for about entire consistent has

will appropriately. throw us curveballs, may some respond year upcoming this we While

Importantly, in we've us up that, be actions over I'll Jan. to for success. With continued set identified I it the confident needed accomplished to am that XXXX to hand

morning, and Susan, good you, Thank everyone.

our credit to succeed basis, bank predominantly in their teams our outreach future improve intervention. work stress that are and customers potentially and our or experiencing that every make work to loan-by-loan opportunity stress with to customers be issues to and cause Our assess early might continue portfolio. protect on with through could or a the effort We office

provision We impacted fourth quarter expense. have our events the X in that notable

The we a discussed the quarters. The in was X call nonperforming $XX.X First, past the multifamily note loan nearing million was the stabilization. construction quarter, our late multifamily in D.C. metro sold in property a I note market. that

resolution a significant near-term to the were impediments there bank. However, acceptable to

present and evaluating costs our carrying realized. of the sell was the third the An sell dispose the important the a disposition to note a net assessed was result the determined and in factor and assessment recognized to the to loss disposition of as to note the We strategies value million time party. $X.X that compared the course a action an decision of of of multitude the of sale. note best and value Our remediation team to property unaffiliated remediate

updated substandard recognizing collateral charge-off previously appraisal Second, loan. we a an had on of $X.X a million, performing shortfall office from a

December XX the nonperforming into XX aforementioned multifamily the and from at loan loan million the moved fourth migrating $XX.X was September out the portfolio. the result office construction quarter. nonaccrual million to a of the fell at As loans migrating collateral $XX.X loans to Loans of Nonperforming deficiency, were due the with nonperforming XX The which quarter. into from in prior of to NPAs total December days was the million, were end the at to XX down XX assets. due $XX.X points XX. million $XX.X decrease at status million, of to loan X past $XX. was migration basis

repayment to During future a underwritten. have and/or and we believe of teams appraisal repayment. loans and situations, source be we compared based conservatively adequately project many for guarantors supplement we some the reviewed there was initially primary the collateralized In weakness how weakness ample internal income upon quarter, assets the the may risk ratings of reassessed to recent where these are or where with as on

the to management However, primary was upon it prudent source felt these of the repayment. weakness credits of based downgrade

As these you quarter, efforts of an in a see increase of will loans. result substandard special and the mention

for our used customers. a modifications have with tool disclosures working you in throughout seen as XXXX, we've As our

in extensions other credit Our accommodations. to additional modifications of other exchange measures prudent They for payment principal maturity excess as months. are enhancements, or example, flow, reserves the may extension with and cash accounts one are the control and shorting generally establishment curtails, of and/or EagleBank, more by duration require collateral being X between Sweep XX a controlled and

prospects for the District focus nonowner-occupied quarter Office of the will million Columbia, outside in XX.X% be located credits commercial will improve D.C. in XXXX. the estate the and remediation secured of field. a XX.X% with loan more interest $XXX properties of located at and market total rates expectation The team Virginia CRE real lower in X.X% challenged for continued of of markets. were Washington, loans exposure efforts office are the in XX.X% prospects Our improves or portfolio Maryland end. These primarily XX.X% in suburbs, these office the by Northern

loan. we to on ACL million. of had were $X.XX. With it like increase on over X I'd updated be at to Eric. a appraisal quarter, the quarter to was provision substandard $XX.X note loans Driving basis the the The points ratio value fourth ACL the to turn end this of to that, up sale and losses office For

per income totaled million Thanks, for $X.XX Jan. quarter Net or share. the diluted $XX.X

$X.X higher meaningfully the core by to in million deposits. was at the at compared quarter, deposit provision deposits billion show fourth us for just helped at the that ending September year billion, down net we comments the from Notwithstanding growth Brokered in expense excited the XX% throughout increasing the $XX the million expense, of quarters. are continued $X.X Jan's of to $XXX impacted year-over-year in $X.X year-end previous million with declined efforts X XX. provision year and quarter. were million, $XX.X As detailed, by deposit time increasing The experienced growth income team's first we deposits

March. At part the $X.X XXXX December how $X.X billion end at and quarter $X.X end totaling at is before funding of market much our billion year-end XXXX, year-end disruption the billion due in program XXXX were deposits looked compared borrowings of $X mix it borrowings deposits closer December of billion. at to billion Our and XX, in to bank to at term $X.X to compared borrowings now XXXX,

premium repeat from in the income. Noninterest not for income decline taken million the $X.X experienced million decline decline $XX.X reflect falling totaled into in and the loans net swap benefits interest-bearing is we of of an up timing the liabilities in cost existing from the fourth due the the to deposit million, income FDIC deposits quarter noninterest from new benefits deposits linked earning not million but costs quarter late prior In third salary loans, some in quarter. with interest several market deposits. increasing XX% benefits in rates swap During fourth to the at to the on The first of the main pursuant in was expense the was due $XX.X the our commitments. the growth, that on the quarters was yield points in to linked the our mark-to-market and Interest-bearing increase Salaries the X the the for million rates quarter, Since relatively reason lower time FDIC unfunded Noninterest fourth special income reduce was basis the activity XX, quarter, quarter, the up paid that quarter. end. first in lower on actions flat totaled loan-to-deposit quarter of Net recognized driver quarter. at increased decline provision interest start management in the XX% on of strong prior in flat assets. our the impacted and costs, increased that prior fourth by total, increase expenses. to and lower while million level and in from in from in the $X.X to nonmaturity the also December funding contributing drove to rates. ending the increase in which the of premium quarter, loans interest of interest XXXX, $X.X with impacting $XX benefited assessment loan a of in loans in $X.X of did finalized has the from quarter. declined our reversal period-to-period was our risk for quarter benefiting income. Contributing quarter, incentives stability our fourth the the rates truing some million from insurance salaries prior growth fee of down that from of million quarter cost higher year. systemic had fourth was from construction ratio total quarter determination and quarter in Offsetting seen months modified Even totaled of lower relatively increase $X.X million funding This increasing the a we've $XX of borrowings. EagleBank

future with along can the peers. rate our find in to -- In will operating positive management expenses meaningful was executing quarter, calls, expectations last goals expect net savings we this in as night. last to we invest the committed quarter, change. XXXX to see our did insights efficiency remain Starting its our quarter, identifying quarterly run achieve which compares proxy release in strategic but as we we investor not strategies will indicated for XXXX earnings, update you increase leverage. we filing XXXX year expect deck, cost to in expectations due full our In Charles company not XX.X%, actions As you provided taken our do to past to with in We debt, performance. XXXX. This but a of and well to

Susan's near expectations reliance with and funding for or performance goals XXXX year the Our mix strategic wholesale improvement on mainly continued growth the on deposit of comments in and the funding. our reduced

the of company. a strength Lastly, core capital remains

benefiting on market XX.XX%, is from quarter approval Our it that, short ratio certainty hand market common end the it lower face office tangible uncertainty Board rates Susan gain our repurchase capital. nonowner to more loss share prudent back of occupied another valuations, a management at unrealized wrap-up. to on with equity impact seeking I'll believes for was decreasing from program. With before In

Thanks, Eric.

We are future. EagleBank's excited about all

ability demonstrated margin. our stabilize and both We to improve balance have the earnings sheet and

We culture, and to commitment efficiency. our also to peer-leading continue relationship-first meet strong underwriting conservative our

We closing, team portfolio. day a we will and it are In hard with open an engagement employees that, questions. senior our thank now our committed to for our work management success. With like of heightened I, our Eagle every we'd to who to make surveillance up

Casey question Whitman comes first Our Piper Instructions] from [Operator Co. with & Sandler

right. All

off office of this quarter? your charged that you if first, but So partially sorry that in balance is remarks, prepared this you mentioned what remaining the loan Jan,

around Right million. $XX

with Okay. And then sticking office.

gave the the was numbers this quarter you amount that us Do quarter, substandard you last book? those in just within think us have mention. for I special office

million With in mention. have I office, $XXX special office in

And what about substandard?

me give your I'll question. you minute I to Can after run you a answer that that tell total.

say through that sort of was criticized the Would Or -- maybe some of experiencing classes you this us quarter office? though into [indiscernible]? there of that the or the walk Okay. boots is other might be most

C&I the X/Xs of terms category, on little were office wasn't in CRE additions of loans. moved category, loans. line side substandard into over Now, that that to the There much the a

is million currently guess had in like in extension with have And that much on Do that modifications. one the question you how or I of office. then number? -- office more $XXX I

disclosed that? happen total on the you every in I I think was are what to XX trailing quarter. run modifications Eric, the didn't a modified last do have months.

don't. I

have us, with but come don't We it [indiscernible] out will the it with

that. Thank appreciate slide And really the outlook the presentation. you. Appreciate in

done have over a managing last few guys the you job So expenses nice years.

into some walk put little just for you -- some bit going through there this in So more a the the what's you year? on and can going into about puts of takes growth expense expectation

renewal, some There's this of little I Yes, Casey. services pressure Eric, that as just on X a as we is have well. think with X probably more contracts for and actually little than there's associated a expense are meaningful -- sometimes contracts more professional even increases this at years, up point salaries inflationary more to bit inflationary seeing salaries come there.

driving or strategy line. And growing -- team we in add that, salaries we're well. expense additional in or we're executing think that throughout -- the So Susan that's some increases I in the noninterest of year to some of as orientation to also also the mentioned, there the our going that is the of some the the some people of

are then assumptions the And it. of get Got you using rate outlook? margin what to to kind

Flat.

decision -- any not assuming more that not just we're to management a things. So complicate that's made

there's no rates caveat but deposit assumption repricing data, or some our So change. with current expectation some would that reprice but it's that changes then If there's we repricing the And no had here. deposits happen, period one were necessarily going or not current in they that any up there's of and expectation what's to rate there.

the I the some especially question. Or case? really nice that in some any noninterest-bearing inflow where is shouldn't Last be in Is obviously, not deposit really surprised there this Okay. quarter. first down, category there to we seasonality leg see quarter? that mean

Yes.

building higher working I in at seasonality there first bit some and fourth growth. think historically, we're DDA of new relationships the and on here we've the reduction could seen deposit quarter. the quarter where a our little of Obviously, be is end

perspective, the a quarter of first a a there of that. So in I little been has in we're think some hoping seasonality from deposits. historical bit But to [indiscernible]

going Jan, else that substandard it. questions. someone office let number, get you ask to Got I'm us if Thanks. And let know.

next Catherine Mealor And KBW. from question our with comes

reserve Do you there this in reserve higher Maybe And one the the was quarter? for your follow-up on changes office the conversation. that credit that portfolio? updated book any have specifically

a and to throughout portfolio it as a at have adequate primary it date to overall And said, perspective, look continues Jan we circumstances having total wasn't of in and when ACL portfolio present an . for we qualitative at classified a we overlay office themselves when well, we'll lot improved think the looking seen of majority to driver because lot obviously perspective. and basis say a year, haven't the office and that to a quantitative the migration the office do of points to And would office continue just of we as we're coverage, ACLs need this office fact, from adequacy it adequacy continually evaluating reserve, I perform. about from XXX we're see Yes. what loans in constantly us is losses the of the of

Great.

is on can to currently there going getting so one office appraisal. this, had big book? any you about a as it way I And but on of help -- be is -- of what range think to is just credit any I know your if charge there there's what up LTV the -- know move you part way if updated part -- drove and And an you're you why off us

that book, trying as to to just you LTV on portfolio appraisals seeing move getting up? updated in overall the start that think So you're are

come generalize is out. unique, it's and Catherine, every is and pretty to about appraisal hard going property where to

I a market. on price think there's still of discovery lot the going in

Class really lot appraisers has place of property a on X what could parking lot example, based on I of that -- used the residential are It building very of I'm possible [indiscernible] not [indiscernible], of struggling building reading type the even to any in the conversion have line are it, piece it's a individual is leases and a vacant don't class a is what for that's with scenario B What an kind that, worst So characteristics this. depends be or property. whether has land

Yes.

asked, think percentage that I to of want have just past that generally, make was the loans sure had the so? kind what then year of but office, And this current I Okay. question number that Casey even in maybe -- just do or not a an you in a but modifications, have modification

haven't a I the trailing XX/XX it's of number think a don't pulled yet. been keep looked honestly but XX, do now. for I We record at

this big quarter? there think quarter change big you pretty pulled out stable a that? quarter probably change -- be on would a Does have from Would we last or you're last

stable going that place some see we what as a of that to it's been to pretty modified you're we longer-term solution. into during put be be think might because again XX going may trailing have I modified XX the same is loans days for

it of in even trailing already path be quarter, So modified was if it's the during the to going XX.

So...

makes sense. that Okay,

flat what see way thinking the Great. switching rate margin. about rate environment. much deposit big then you're deposit costs well how in assuming maybe your to -- margin kind that how down just given potentially the as beta cut But positioned on XXX -- rate picture. maybe are you to just assume? cut? we see if a upside start down. start to and bring to scenario about Any we ability Okay. are sensitivity over Or assumes And that But could how to the a thinking are see know we we you guide -- XXX of a I should

Yes.

a those to I well I But say we be that of that really funding any nuances positioned market jobs. or But environment I or how quite is asset liability I feel to our folks would earlier approach reduce -- different that and approach to what prepared funding to to we've some on be the we compensated our some in had profile, positioning are with to deposits. of along neutral neutral are all pass fact, sensitive downward sensitive -- possible. our -- as sensitivity liability changes to enough of given just as of we obviously already those more comments, sensitivity rate probably rates and is the and think terms us. my actions don't get because January have And our in a appropriately but really taken In model rates in materially

more we're you continue our so rate talk future a could betas. call, I And mentioned to question the -- environment. betas maybe reduce in effort would quarter, in you going a before about dollar throughout thoughts asked could I that a probably rates. And Fed on potentially say a little even the about bit

to I everyone's you And we'll But relative then on way have how know the the higher down the that's I given react question going big at least betas a would guess, see. you it's best the I basis, way right? my higher a have of think this of be hope one mean on is up, the would one way that and of betas on on down.

as that well. I hope

question Montgomery next our from And Christopher Marinac Scott. comes Janney with

kind Eric, kind And on Catherine's I are that to there? now. bit want a year or the the of get ways of of to narrowing gap leverage to you X? little next kind just question, get deeper where see best ROA. what of are PPNR you some Do

testament Yes. and when ROA, pre-provision think our a assets, story that's spread. focus if to industry at is our I To average it noninterest revenue I there, we look a and at efficiency. mean, commitment we're expense our largely look and think you on revenue to I leading really net me, operational

cut on think our as on margin focus is of can asset my side the So up get And that strategically and on we focus growth, we well. help ease way composition deposits that the our ensuring from excellence. our that our funding and us will I perspective, on that deposit on loans improving don't giving for us costs will on focus the market our the that

$XXX rolling that as portfolio assets into higher-yielding the investment this $XXX move it million off will call year million, We have about -- that's well.

XX the it's a months on going basis, a spread looking to that story. over think really I So PPNR next be

that necessarily is to some And follow it. Got addition the piece? that also deposits of in loan funding yield

Yes.

and been at a spread and here income having management how We've on sure funding. assessing funding X spread making X way we only side a the last lot that the for that and sure months least by time market think XX seeing making our really more increase I looking visibility, understanding on of or as is to really from qualities are and my how a the improving team the at that composition days perspective, could getting of there's profitability. little ourselves we're that compare our and being competition we us relationship and the spreads over giving managers compensated loan spent

think it's So both I do that sides of the spread calculation.

And for or then, on a C&I C&I Jan, the in it. general history using your sort the Got just of What's question kind the general, migration. you those in how of and on maybe Eagle sense with past. loss just risk of loans,

I'll the of not. past and report, on with you, support. migration Obviously, repayment do source they up are I lot be guarantor the primary really due being on a the focusing showing tell the payments really, made is think, focus additional they'd Well, or to not are

this are we've and darn we think highlighting it pretty conservative assessing I So been way the climate. economic in and regulatory today's that in

think that they we're It's there's a think last that that. and in of in evaluating were worse the are I focus huge following source repayment don't I primary shape than change we're on it necessarily quarter. them. they a way means

sort could been remind discipline? of of And that? is you us how new instituting this first a you've quarter long Or the

first the of is This quarter that.

closing would like turn to back I now Thank to no I'm for this at Riel it you. And questions remarks. showing time. Susan further

us and to this questions great to look you to with the taking speaking have your be quarter. on call time today. forward day. and next a again you Thanks, appreciate We We

concludes This Thank call. today's you participating. conference for

You may now disconnect.