Eagle Bancorp, which has been grappling with elevated risk levels in its office loan portfolio, reported a surge in nonperforming assets, even as its fourth-quarter net income beat analysts' expectations.
A $74.9 million office loan that was previously rated as "special mention" moved into nonperforming status in the three months ended Dec. 31, the Bethesda, Maryland company said Wednesday. The event pushed overall nonperforming assets to 1.90% of total assets, the highest level in Eagle's 26-year history.
The office loan's borrower "continues to make contractual payments," but an appraisal obtained earlier this month indicated a dramatic decline in the property's valuation since it was last evaluated in 2022, President and CEO Susan Riel said Thursday on a conference call with analysts.
"Asset quality fell short of expectations and valuation risk in our office portfolio continues to be a key concern," Riel said. "While we are proud of the groundwork laid last year, we are eager to build on these efforts and drive meaningful improvements in our profitability."
Traditionally a predominantly commercial real estate lender, the $11.1 billion-asset Eagle is engaged in a
The pivot has yet to make a significant impact on Eagle's financial results. C&I loans, along with owner-occupied commercial real estate, made up 31% of Eagle's $7.9 billion loan portfolio on Dec. 31, roughly the same as a year ago.
Still, Riel painted a brighter picture for Eagle as it enters 2025. Increased leasing activity in Eagle's core markets of Washington, D.C., suburban Maryland and northern Virginia could lessen pressure on the company's office portfolio while increased activity by the expanded C&I team accelerates the shift away from CRE. "We're already seeing positive results," Riel said of Eagle's C&I lenders.
In the fourth quarter, CRE loans comprised 51% of Eagle's portfolio, also level with the fourth quarter of 2023. Riel said she's hopeful the CRE concentration will trend down in 2025 as more C&I loans are booked and multifamily loans continue to roll off the books. Loan paydowns reduced the size of Eagle's multifamily portfolio by $55 million in the fourth quarter.
Eagle reported fourth-quarter net charge-offs of $9.5 million, bringing cumulative charge-offs recorded the past five quarters to $50.5 million, according to Christopher Marinac, Janney Montgomery Scott's director of research. Marinac reiterated his neutral rating on the stock.
In a research note released Wednesday, Marinac wrote that the C&I effort is gaining traction but he expects additional losses as Eagle continues working through problem loans. Marinac added that the company's projected earnings and reserves should be more than sufficient to fund the process.
Eagle posted net income of $15.3 million, or 50 cents per share, in the fourth quarter, down from $20.2 million, or 67 cents a share, a year ago. The results still beat analysts' estimates by three cents, according to Marinac.
Eagle's period-end deposits totaled $9.1 million, up from $8.8 million a year ago. The inflow gave Eagle the confidence to retire $1 billion in
Eagle also reported some glimmers of hope connected to credit quality. Classified and criticized loans declined by 11% to $671 million on a linked-quarter basis. Loans delinquent 30 days to 89 days also declined from the Sept. 30 levels.
"It certainly was good to see [lower] inflows of substandard and special-mention credits, which makes me feel like maybe we're at a peak" in the allowance for credit losses, Catherine Mealor, who covers Eagle for Keefe Bruyette and Woods, said on the conference call.
Eagle is projecting 2025 deposit growth between 1% and 4%. Loans are expected to grow 2% to 5%. At the same time, Eagle believes it has reached a comfort level with its $114 million allowance for credit losses.
"We've achieved a major buildup the past 18 months," Chief Credit Officer Kevin Geoghegan said on the conference call. "Based on the information we have today, we believe it's adequate."
Eagle's allowance for credit losses totaled $78 million on June 30, 2023.
