Eagle Bancorp Inc (EGBN) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Eagle Bancorp first-quarter 2014 earnings conference call. (Operator Instructions). As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Jim Langmead, Chief Financial Officer. Please go ahead.

Good morning, everyone. Before we begin the presentation I would like to remind you that some of the comments made during this call may be considered forward-looking statements. Our Form 10-K for the 2013 fiscal year, our quarterly reports on Form 10-Q and current reports on Form 8-K 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'd also like to remind you that while we think 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.

Thank you, Jim, and good morning. I would like to welcome all of you to our earnings call for the first quarter of 2014. We appreciate you calling in to join us this morning and your continued interest.

In addition to Jim Langmead, also on the call this morning is our Chief Credit Officer, Jan Williams. As usual, Jim and Jan will both be available later in the call for questions.

We are very pleased to announce that once again EagleBank has achieved a record level of quarterly net income which was $12.5 million. This record level of earnings was achieved through topline revenue growth maintaining a superior net interest margin and continued excellent credit quality. $12.5 million of net income is an 8% increase over the first quarter of 2013 and a 4% increase over the net income in the fourth quarter of 2013. The growth rate in net income available to common shareholders was similar with an 8% improvement over the first quarter of 2013 going from $11.4 million to $12.4 million.

Fully diluted earnings per share were $0.47 for the quarter showing a 7% increase from the $0.44 in the first quarter of 2013 and a 4% increase over the fourth quarter of 2012.

The results for the first quarter of 2014 have continued our record of consistent results and balanced performance as well as continuing the trend of increasing earnings per share. The topline revenue growth was driven by a 16% increase in net interest income as compared to the first quarter of 2013. This growth in net interest income together with increase noninterest income from gains on the sale of SBA guaranteed loans and service charges successively outpaced the reduction in gains on the sale of residential mortgages which decreased in the first quarter of last year when refinance activity was at peak levels.

We were particularly proud to note that the increase in net interest income for the first quarter was driven by both an improvement in net interest margin to 4.45% for the quarter and by the 4% growth in the loan portfolio during the quarter. The margin improved by 25 basis points from 4.2% in the first quarter of 2013 and by 5 basis points as compared to 4.4% in the fourth quarter of 2013.

The improved margin for the first quarter of 2014 was the result of maintaining an excellent yield from the loan portfolio and a reduction in the cost of funds. We continually monitor the competitive rate environment in the local market and adjust our deposit rates accordingly. We also improved the mix of earning assets during the first quarter by reducing liquidity and redeploying funds into the loan portfolio.

Loan to deposit ratio increased from 91.3% at December 31, 2013 to 93.6% at March 31, 2014.

We achieved strong growth in the loan portfolio which increased by $118 million or 4% during the first quarter and has grown by 20% since March of 2013. The largest growth category during the first quarter was income-producing commercial real estate loans. The average yield on loan portfolio was 5.45% for the first quarter of 2014 and the average yield on new loans booked in the quarter was 5.06%.

We are pleased by the first quarter as we continue our disciplined approach to loan pricing and to our philosophy that maintaining a strong margin and excellent credit quality are way more important performance factors than just achieving growth in the loan portfolio and balance sheet.

Regarding deposit activity, we saw a more moderate increase during the first quarter. We had mentioned in our year-end release that the bank had received two large deposits just prior to December 31, 2013 and that some balance fluctuations were expected. On an average basis, total deposits were up 6% for the first quarter as compared to the fourth quarter of 2013 and were 12% higher than the first quarter of 2013.

During the first quarter, we allowed some wholesale funding and CDs to run off. In addition, we reduced the rate paid on our money market accounts as we actively managed our deposit pricing and cost of funds based on our need for liquidity.

During the first quarter, we redeployed some of our liquidity from the Fed into loan portfolio positively impacting the net interest margin. For the quarter, our overnight funds position averaged $238 million which is above target so we remain very liquid. The deposit mix remains strong with DDAs at 27% of total deposits at March 31, 2014.

The Washington Metropolitan area continues to have one of the strongest economies in the country. Some of the economic factors indicate that the rate of growth has finally begun to reflect the reductions in government spending on the local economy. While at a slower pace, the region continues to see both population and employment growth with a low unemployment rate and increasing real estate values. The level of activity has not impacted our target customer segments.

For our income-producing real estate loans, we continue to specialize in the small, boutique type properties for both office and multi-family projects. We have strong pipeline of both loan and deposit opportunities.

As expected, noninterest income was down for the first quarter of 2014 as compared to the first quarter of 2013 due to the drop in gain on sale of residential mortgage loans. Residential mortgage loans closed in the first quarter of 2014 amounted to close to a $100 million as compared to $384 million in the first quarter of 2013. However, our SBA lending group had a very good quarter with recognized gains of $548,000. We continue to see the SBA loan business as an excellent opportunity for fee income production.

Our credit quality statistics continue at very favorable levels in the first quarter of 2014. Net charge-offs annualized were only 11 basis points of average loans for the quarter as compared to 33 basis points of average loans for the first quarter of 2013 and 18 basis points for the fourth quarter of 2013.

The level of net charge-offs by both dollars and percentage of average loans has declined over each of the last four quarters averaging only 18 basis points. The rate of charge-offs continued to meet way below industry norms.

At March 31, NPAs as a percentage of total assets were 1.19% as compared 1.12% a year ago and nonperforming loans as a percentage of total loans were 1.19% as compared to 1.11% at March 31, 2012. The absolute level of NPAs increased by $11.6 million in the first quarter of 2014. This was primarily attributable to one large commercial loan relationship totaling $11 million placed in nonperforming status in March. Collection activity is ongoing and we feel we are adequately reserved on this particular relationship and the entire portfolio. We continue to adhere to our conservative policy as to when to place a loan on nonperforming status.

The allowance for loan loss was 1.37% at the end of the quarter and we have continued to make a reasonable provision as directed by the size and quality of the loan portfolio and consistent application of our allowance methodology. The amount of allowance and the provision expense are dependent on both the changing mix of the portfolio and economic factors. At December 31, 2014, the coverage ratio was 116% of nonperforming loans and we believe that we are adequately reserved.

The efficiency ratio was 51.94% for the first quarter, higher as expected than the first quarter of last year when revenue included the record level of gains on sale of residential mortgages. The efficiency ratio was also slightly higher than the fourth quarter of 2013 primarily due to merit increases and discretionary bonus payments paid in 2014 based on the 2013 performance.

Noninterest expenses as a percentage of total assets were 2.5% for the first quarter essentially even with the 2.49% reported for the first quarter of 2013. The efficiency measures are very favorable to industry and peer group averages.

As we have said in the past, we expect that an efficiency ratio in the low 50s to high 40s is appropriate for EagleBank as we maintain a disciplined approach to expense management while establishing a proper infrastructure to support the size and growth rate of the Company.

We continue to invest in technology both to enhance the efficiency of our operations and to provide for improved customer interface applications like mobile banking.

We will continue our emphasis on growth in Northern Virginia and we will always be opportunistic and hire quality bankers when we can. We recently augmented our management team by the addition of three seasoned executives who joined EagleBank in February. These individuals have strong ties in the Northern Virginia market and add bench strength to the organization.

Our regulatory capital ratios remain strong as we build capital through additions through retained earnings each year. We remain well-capitalized with a total risk-based capital ratio of 13.04% at March 31, 2014, as compared to 12.5% at March 31, 2013. The tangible common equity ratio at March 31, 2014 was 9.22% which was improved from 8.86% at December 31, 2013.

Finally, we are continuing to focus on building new customer relations and broadening customer relationships throughout the Washington Metropolitan area. We make a concerted effort on both cross-selling through existing customers and developing new business. That hard work pays off and we are pleased to report that we have added over 1200 new customer relationships since March 31, 2013.

We appreciate the support of our shareholders and those of you on this call. We also appreciate the industry recognition that we have recently received from sources such as Keefe, Bruyette & Woods, Raymond James, and SNL Financial. We thank all of you for your interest in EagleBank. I would also like to remind you that our annual shareholder meeting is upcoming on May 15 at the Bethesda Marriott Hotel. We hope to see many of you at the meeting.

That concludes my formal remarks. We would be pleased to take any questions at this time.

Casey Orr, (Operator Instructions). Casey Orr, Sandler O'Neill.

Good morning. A great quarter. I was hoping, can you give us a little more color on that pickup in the average loan yields? You know is that in one particular loan category? And then maybe if you could elaborate on your prepared remarks on the average yield on new loans booked? Can you break out where C&I and CRE loans specifically are getting put on? Thanks.

Casey, I don't have specific information on the breakout of the new loan yields that Ron had mentioned. Keep in mind that that information does not include advances under lines of credit and paydowns under lines of credit. So what we try to do is give the market as much information on a new loan but where we've already got a commitment and we have got advances. So the number moves around a little bit because of the lines of credit advances and paydowns up.

Overall I think that our loan yields because of the disciplined approach we have, because of the pricing models we use because of the attention to risk adjusted return on equity, we are maintaining very good yields. We are continuing to get floors in our loans; 52% of the loans continue to have floors. We know that is a little different then you hear from many banks but I would say that I think the 5.45% -- it is going to be hard to sustain that, no question. There is a lot of competitive pressure to keep loans growing. We hear it every day. We are staying disciplined. So it wouldn't surprise me at all if that yield moved down a little bit over the next couple of quarters.

The one thing I would like to add to that Casey, if I could is that I think being the size that we are and the legal lending limit that we have you are hearing more and more the words certainty of execution. And some of our borrowers are recognizing, even our larger borrowers, more sophisticated borrowers, that that certainty of execution is becoming more and more key and they are willing to pay for that.

Great, that is helpful. Thanks. And then when you look at your loan growth, is that concentrated in any geography this quarter in particular? Or would you say it was pretty spread out?

It is consistent with the loan growth and the geographic allocation that we have had in previous quarters.

Okay great. And then switching gears, you know we have seen some M&A deals be announced recently in the area, is that something you guys are still not very interested in? Or have your thoughts changed at all with respect to how you are viewing M&A right now?

Well I think we have been pretty consistent to say that we are always going to be opportunistic number one. Number two, that whatever we did if we ever did something, that we would continue to maintain the discipline of making sure that it is accretive to our earnings, and again, would have to be large enough to be able to make a difference.

Okay, great. I will let someone else get on. Thank you for taking my questions.

Christopher Marinac, FIG Partners.

Thanks, good morning. Ron and Jim and others, could you talk about seasonality of expenses and will we see expenses behaving a little differently going into the next couple of quarters after this quarter's increase?

Chris, I'm sorry, could you speak a little closer to the phone?

Sure, I was asking about expenses and the seasonality of expenses in the first quarter and was that a play and will see expenses behave differently in the next quarter or two?

Yes, we noted Chris in Ron's comments and in the press release that in the first quarter of the year, we have our merit increases on officers that are effective January 1. They are becoming a larger part of the overall compensation. We also had some discretionary bonuses that were paid. Now under generally accepted accounting, we have got accruals for this going on all the time. It just happened that in the first quarter of the year when the compensation committee met there were some additional bonuses awarded that we recognized in the quarter. That number was $800,000 or so.

So if you take that out, that would bring our efficiency ratio down closer to 50%. We would also have the rate of growth of expenses of about 7% or 8% compared to the previous year. That is sort of the growth rate that we would like to operate at this year, 7% to 8%. Our categories of expenses are going to vary but I would say in total that is kind of what we are trying to do, keep that efficiency ratio in that, as Ron said, very low 50s, high 40s.

We did have that anomaly in the first quarter with the one-time discretionary bonus and I do expect that that efficiency ratio would get better in succeeding quarters.

Okay, great. And I guess my follow-up just has to do with sort of the momentum you are seeing in April, particularly given that weather has now improved. I guess any thoughts about sort of the magnitude, not necessarily magnitude, but just sort of direction in terms of whether it is construction lending or the mortgage business line?

I think you were asking about loan treads going forward, Chris. Your voice is breaking up a little bit on our speaker here. You were asking about some loan growth trends continuing, is that the point?

Right, in particularly April now that some of the weather issues are behind you.

Weather issues --

The weather issues clearly would have an effect on the construction lending in terms of draw requests and things like that. But for the most part, as I mentioned, we have a very strong pipeline. We continue to see the boutique type properties especially in the District becoming more and more of a demand. And that is clearly our sweet spot.

So the opportunities that we are seeing, the backlog, the entire pipeline, Northern Virginia, we are seeing a lot of activity. So April we feel real good about the amount of activity that we have going on right now. Nothing unusual, pretty consistent, again back to that disciplined approach.

Okay. Very good. Thanks very much.

I am not showing any further questions at this time. I would like to turn the call back over to management for closing remarks.

That is all the information that we have. Obviously we are available at any time that you need any other additional information, please feel free to call me or Mike Flynn. I appreciate everybody being on the call. And again, hope that we will see you at the annual shareholders meeting. And thank you very much for calling in.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a good day.