Eagle Bancorp Inc (EGBN) 2009 Q4 法說會逐字稿

Good morning. This is the earnings call for the fourth quarter and for the year of 2009 for Eagle Bancorp Inc. The first speaker for the Company this morning will be Mr. James Langmead, Chief Financial Officer. Please go ahead, sir.

Good morning, everyone. Before we begin the presentation I would like to remind everyone that some of the comments made during this call may be considered forward-looking statements. Our Form 10-K for the 2008 fiscal year and our quarterly reports on Form 10-Q and current reports on Form 8-K in 2009 identify certain factors that could cause the Company's actual results to differ materially from those projected in any forward-looking statements made this morning. The Company does not undertake to update any forward-looking statements as a result of new information or future events or developments. Our periodic reports are available from the Company or online on the Company's website or the SEC website.

I would like to remind you that while we believe that our prospects for continued growth and performance are good, it is our policy not to establish with the markets any earnings, margin, or balance sheet guidance.

 Now I would like to introduce Ron Paul, the Chairman and Chief Executive Officer of Eagle Bancorp.

Thanks, Jim. Good morning. I would like to welcome you to our first quarterly earnings conference call of 2010. We are pleased with the number of shareholders who participated in our initial call back in October and appreciate your interest in our Company.

Also, with me on the call this morning are Chief Financial Officer, James Langmead, and our Chief Credit Officer, Jan Williams. They will be available later in the call to answer any questions you might have.

I'm truly pleased to announce that for the year of 2009, we achieved net income of $10.4 million, which is record earnings for us. This represents an increase of 40% from 2008 and is better than our previous high of $8 million, which was achieved in 2006 before the recession began.

We also achieved $8.1 million in net income available to common shareholders for the year 2009, which is the figure after the TARP dividend. This again represents an all-time high for Eagle Bancorp and is an increase of 12% over 2008. We are very pleased to have reached these levels of earnings in the midst of the recession, the troubled national economy, and a distressed financial services industry.

For the quarter ending December 31, we had $3 million in net income and $2.4 million in earnings available to the common shareholders. This represents an increase of 63% from the fourth quarter of 2008 and was 12% higher than the third quarter of 2009. We are very proud to deliver these increase levels of profitability in such difficult times.

Our asset quality continues to improve as our credit and lending teams proactively address and mitigate issues identified within the portfolio. NPAs as a percentage of total assets declined to 1.5% at December 31, a decline of 55% from a high of 3.33% at March 31, 2009. This is the third consecutive quarter for which we have seen improvement in our NPAs.

Net charge-offs for the quarter of $1.8 million were up from the fourth quarter of 2008 but remain within manageable levels and well below our peer group. I would like to add that for the year, our charge-offs were only 42 basis points of average loans outstanding or $5.5 million.

The provision expense for $2.5 million for the quarter. The amount of the provision was driven primarily by loan growth in the quarter and to a lesser extent by the portfolio mix and charge-offs during the quarter. We continue our conservative approach to the portfolio review process, which includes ongoing monitoring of the loan portfolio, the current economic and regulatory climate, identification and proactive management of potential problem and nonperforming assets, and consistent application in our reserve methodology.

Our allowance for loan losses is 1.47% of total loans at December 31, 2009, representing 94% of nonperforming loans. Management believes the reserve is adequate for the risk within the portfolio, both as a percentage of total loans and in regards to the coverage ratio.

On another positive note, we are pleased to report that the net interest margin for the quarter was 3.96%, which is the highest in the last five quarters. This has been a challenge during this environment of low short-term rates and steepening yield curve. However, we have been able to successfully manage both our cost of funds and loan yields while growing both sides of the balance sheet.

During the quarter our deposits increased to $128 million and the loan growth was $82 million. This is after what some of you may remember as rather modest loan growth in the third quarter of the year. The use of floor rates on a significant portion of our portfolio has helped to mitigate the impact on loan yields.

On the deposit side of the balance sheet, we've continued to grow our DDAs and the migration of funds away from CDs and borrowed funds to lower-cost, core, money-market accounts.

I would also like to mention that our ALCO modeling shows that we remain somewhat asset sensitive and we believe we are well positioned for a rising interest rate environment. Sixty-six percent of loans are either variable or adjustable and are tied to either prime or US Treasury rates. Therefore, we feel confident about our ability to maintain an attractive margin as we go forward.

Another positive factor is we achieved a revenue growth while keeping our eyes on operating expenses, which resulted in an efficiency ratio of 59.02% for the fourth quarter. The expense containment goals set at the time of the Fidelity & Trust acquisition in mid 2008 have all been recognized, and that is being reflected in the efficiency ratio.

The ratio will be impacted in the future as we continue and invest in technology, branch sites, and human resources. We are committed to having a proper infrastructure, so while we are very expense conscious, we won't sacrifice long-term effectiveness just to drive the efficiency ratio down.

Another important item for us to note is that we redeemed $15 million of TARP-preferred stock in December, so the impact on our capital position is reflected in the yearend balance sheet. This redemption was made after careful consideration as to the amount. We thought it proper to begin repaying the TARP now but have made no decisions as to the remaining $23.2 million. We are determined to maintain a strong capital position and enable organic growth and take advantage of any M&A opportunities that may become available in the Washington DC metropolitan area of which we currently see none.

Any decisions about future redemptions will be made in light of growth prospects and the cost of alternative forms of capital either currently on our balance sheet or available in the general markets. At December 31, 2009, our risk base capital ratio is 13.57% and a tangible common equity ratio is 8.96%.

Another event we celebrated during the fourth quarter was the opening of our 14th branch in Potomac, Maryland. This branch is a mixed-use development in an area of Montgomery County, Maryland with very attractive demographics. The branch has only been open for 60 days and is already ahead of budget.

Finally, I know that many of you have asked about the local economy here in the Washington DC metropolitan area. Recent reports are very favorable and indicate that the recession ended and the recovery on a local level began in the third quarter of 2009. While there was some impact from the Federal Stimulus spending, there are other encouraging signs. The local Case-Shiller Index of home values turned positive in mid summer and has posted further increases since then, although November looked a little soft.

However, as you know from our previous comments, it is critical to look at the specific location and type of property while assessing value. For example, while the value of land in outlying counties remains soft, the absorption of condo units in Washington DC is very strong.

Office vacancy rates have moved up slightly, but leasing rates have held up well to the point that the DC market now has the highest average lease rates in the United States. An increase of 25,000 new jobs is forecasted for 2010 for the metro area. So from a statistical view it appears that we are much better positioned than other parts of the United States.

At Eagle Bank we are very pleased with our results for this last year and feel that we are very well positioned for 2010.

That concludes my formal remarks, and we are available to take any questions at this time.

All right. Thank you. (Operator Instructions).

We'll take our first question from Brett Schneider with FBR Capital Markets.

Hi. It's been a great quarter.

Thank you, Brett.

Just two quick questions. First, some color on loan demand. Are you seeing healthy borrowers? Anything around loan demand would be very helpful first.

In answer to that question, we've seen a tremendous amount of loan growth and loan demand. As we've discussed before, so much of it is being driven right now by the opportunities that we see from the big banks. And it's just been a tremendous amount of solid core borrowers on both the C&I and the real estate side as a result of really the dysfunctional position that we're all experiencing with the very large banks.

We're seeing a huge demand, see a significant increase in pipeline, and feel real good about it.

Okay. And maybe just a little bit of color on your thought process as far as future TARP payment?

Well, as I think I mentioned in my comments, this is something that we're constantly reviewing and looking at and looking at alternatives. Still wanting to be well positioned in the market place from a capital perspective in terms of taking on any opportunities that arise as well as to be able to continue the organic growth that we've been able to see.

I also might add, going back to your first question, is that not only are we seeing tremendous loan growth, but we're seeing this accompanying core deposits from these borrowers. So the requirement that we have of substantial deposits coming along with loan growth is something that is critical and we're very pleased with.

Okay. Great. And if I may, just one more. Future branch openings or branch acquisition opportunities?

Again, as we've mentioned before, we see Northern Virginia as a great opportunity for us and we're exploring opportunities within the Northern Virginia market. At this point though, we have no comment as to any specific plans but certainly see that as a great opportunity for us.

Okay. Great. Congrats again.

Thank you.

(Operator Instructions). We'll take our next question from Carter Bundy with Stifel Nicolaus.

Good morning, everyone.

Good morning, Carter.

Ron, could you talk a little bit about the margin expectations? Obviously the result was very, very strong. It looks like the CD cost moved significantly lower. So could you talk a little bit about if you think there's additional opportunity to move that lower? And if that's not the case, is the margin probably stable from here going forward?

You didn't disappoint me that your first question was going to be about net interest margin, Carter.

Well it was a heck of a good result.

Thank you. You know, obviously I'm not going to make any comments as far as going forward, but I will tell you that what we've seen in the past and what you're seeing is, as I mentioned in my comments, the migration from higher-cost CDs and other borrowings into core money markets.

Right now our money market product is a 140 product that we've had significant increases in demand for. And again, as I mentioned earlier, with the loan growth that we have and we see of requiring these core deposits going into the bank as a requirement for the loan, we feel real good about our deposit structure.

Going forward obviously I think we're all questioning what's going to happen with interest rates? What's going to happen on the short end of the curve, the long end of the curve? Our DDAs right now are very, very strong and probably the highest percentage we've ever had. I think as of the end of the year, we had 20.2% of our total deposits in DDAs. As you know, it's always been in that range. So we don't see any slippage on that.

But again, going forward, who knows what's going to happen?

Could you talk a little bit about where that noninterest bearing growth came from, because that was a big number?

Jim?

Yes. I think, Carter, it's mostly the sales efforts of the Company and the advantages we have of trying to build relationships. We have an extremely good sales force that has been focused on goals in that area. And while we have a high percentage of DDAs, we think continuing to keep that number strong is very important.

So it's the new relationships. It's also, as we build loans we're also requiring that the new customers bring us deposits. So it's bringing along both sides of the balance sheet in tandem with each other.

Okay. Just a little more color on the deposits, and then I've got one final question and I'll hop off. Are you seeing competitors that, let's say, have been wounded in the last six months or nine months or twelve months that are maybe increasingly getting back in the market with the supposed movement throughout the cycle here? Are you seeing competition pick up?

Carter, the answer is the opposite. We're seeing an increase in the opportunities from the big banks.

Okay. All right. And then finally, Ron, you had mentioned that that efficiency ratio was probably going to move higher from here. Could you add a little color on that? Is it a function? Do you have targeted people you're going to be hiring here? Do you have a big initiative out there to increase branches or what have you?

No. We don't. As I say, we're certainly looking into the Northern Virginia market place. As of right now we have no leases signed. So you know how long it takes to open up a branch if I signed a lease tomorrow.

The infrastructure that I was really talking about is, again as we've talked about before. The opportunities right now that we see in the potential in hiring teams of lenders, business development officers as it relates from the big banks has just been tremendous. So that we hope will ultimately lead into income producing opportunities.

That's one area that we're certainly focused on. As I mentioned in my statements, we are working on improving technology. Our philosophy has always been to be ahead of the curve, not behind it, and we see with the tremendous growth that we have that I would much rather put that money into infrastructure that we could build on going forward rather than being reactive to it.

Okay. Thank you all for your time.

And we have no further questions in queue. I would like to turn it over to Ron Paul for further comment.

I would just like to thank everybody and wish everybody a happy and healthy new year. Looking forward to our last call.

That does conclude today's call. Thank you for your participation.