Eagle Bancorp, Inc. Q2 FY2026 earnings call

Newly appointed CEO Steve Curley outlined four core immediate priorities after joining the firm three weeks prior to the call:

• **Executive & Leadership Priorities

• Asset quality and credit risk management is the top priority: All known portfolio issues have been identified, are actively managed with a disciplined asset-by-asset approach focused on maximizing recoveries and minimizing losses.
• The firm is recruiting a new Chief Credit Officer to strengthen credit oversight and portfolio risk discipline, and is searching for a new Chief Human Resources Officer to support talent development and organizational strengthening.
• Curley has personally reviewed most large problem credits and confirmed the existence of clear resolution plans for all legacy problem assets, with no unforeseen major surprises in the portfolio.

• **Funding & Deposit Strategy

• The bank will prioritize building relationship-based core deposits first to support future disciplined loan growth, reversing the prior model of growing loans first and securing funding after.
• The firm is not aiming to shrink the balance sheet long-term; the current focus on balance sheet reduction is a temporary step to improve asset quality and funding before returning to growth.
• Eagle will leverage its attractive position in the Washington DC metropolitan region to win new customers and grow its core deposit franchise.

• **Operating Performance Improvement

• The firm will expand business banking capabilities and improve branch productivity, positioning existing branches as an engine for core deposit and business banking growth.
• Management will maintain expense discipline while continuing to invest in high-return initiatives, including technology and process improvements to better serve customers.
• CNI growth will remain disciplined, targeted at high single-digit to low double-digit annual growth with diversification across industry segments to avoid concentration risk.

• **Capital Strategy

• The bank maintains a strong current capital position, and Curley is conducting a full review of the bank's capital framework, including capital levels, flexibility, and allocation strategies to maximize long-term shareholder value.
• No specific capital actions or targets will be announced until the review is complete, with all capital deployment focused on supporting both bank safety/soundness and long-term shareholder interests.

Eagle Bancorp reported Q2 2026 net income of $6.9 million, or $0.23 per diluted share, down from $14.7 million in the prior quarter. The decline was driven by elevated credit provision expense, a smaller interest-earning asset base, and ongoing problem asset resolution activities.

• Commercial Real Estate (CRE): CRE loan balances declined by $1.7 billion year-over-year as the bank reduced concentration risk. The CRE concentration ratio (CRE loans as a % of total risk-based capital and reserves) fell to 268% from 295% in the prior quarter, moving below the 300% regulatory threshold. ADC concentration ended at 66%. Despite the large loan balance reduction, associated deposits only declined by $152 million, pushing the CRE portfolio deposit funding ratio up to 36% from 27% a year prior.
• Commercial and Industrial (CNI): CNI loans grew 24% year-over-year, with strong credit quality and a well-diversified production pipeline. CNI deposits grew 14% year-over-year, supported by strategic talent acquisition and a cross-sell focused growth strategy focused on new primary client relationships.

Overall net interest income declined $1.3 million to $62.4 million, but net interest margin expanded 5 basis points to 2.52% due to improved funding mix. Pre-provision net revenue rose $1.4 million quarter-over-quarter to $29.1 million, with an efficiency ratio of 60.2% down from 63.8% in the prior quarter. Total period-end deposits declined $406.4 million quarter-over-quarter, but non-interest-bearing deposits increased 5.2% to $1.56 billion and high-cost brokered deposits declined $301.5 million, improving the overall funding profile. Criticized and classified assets declined $34.5 million to $759.6 million, a 30% drop from their Q3 2025 peak. Non-performing loans fell to $111.1 million, or 1.68% of total loans. Provision for credit losses was $21.4 million, with net charge-offs totaling $47.9 million for the quarter. The allowance for credit losses ended at $121.1 million, or 1.83% of total loans, including $40 million in specific reserves for the income-producing office portfolio.

• Balance sheet guidance: Revisions to full-year 2026 guidance for average deposits, loans and earning assets reflect actual balance sheet reductions in the first half of 2026; no additional overall declines are expected in the second half of 2026. Balance sheet decline will be arrested in H2 2026, with the bank returning to positive growth in 2027.
• Net Interest Margin: The full-year 2026 NIM guidance range has been narrowed to 2.6% to 2.7%, up from the prior broader range, reflecting improved visibility into earning asset mix and deployment opportunities. Management expects continued NIM expansion in the second half of 2026 as deposit mix optimization continues.
• Non-interest expense: Full-year non-interest expense guidance was revised upward to an expected year-over-year decline of 7% to 11%, driven primarily by lower-than-expected FDIC insurance expense.
• Non-interest income: Full-year 2026 non-interest income growth guidance is maintained at 15% to 25% year-over-year.
• Provision and charge-offs: Management reaffirms that Q1 2026 provision and charge-off levels are a reasonable run rate for the full year, despite the higher Q2 2026 run rate. Provision expense and charge-off levels are expected to decline in the second half of 2026, with a slower pace of reserve coverage reduction than seen in the first half of the year.
• Pre-provision net revenue: Year-to-date pre-provision net revenue to average assets was 109 basis points, an improvement from 2025, on track toward the intermediate target of ~150 basis points.

• Legacy credit risk: The bank holds $759.6 million in criticized and classified assets, and $111.1 million in non-performing loans, with $216 million in loan downgrades during Q2 2026, concentrated in multifamily loans. While 30-89 day past due balances rose $26.1 million to $44.1 million in Q2, a $35.4 million delinquent loan was paid off after quarter end, so management does not view this as a sign of broader deterioration.
• Concentration risk: While CRE concentrations have declined materially, the bank still holds a large CRE portfolio relative to capital, with CRE loans equal to 268% of total risk-based capital and reserves.
• Deposit cost pressure: The bank currently has higher average deposit costs than peer institutions, though management believes the ongoing shift to lower-cost relationship deposits will reduce this pressure over time.
• Strategic execution risk: The turnaround and balance sheet stabilization plan relies on successful execution of credit resolution, deposit growth and disciplined new lending, with no guarantee these goals will be met on the expected timeline.

Q: Can you provide more detail on what drove the majority of Q2 charge-offs, and what is the expected trajectory of charge-offs after 2026? / A: Most Q2 charge-offs came from transfer of loans to held-for-sale as part of active problem asset resolution; the single large non-transfer charge-off was for an office loan. As the criticized and classified asset portfolio continues to decline (the watch list category is already down 50% from peak, and upgrades are beginning), charge-off frequency will decline as the overall problem portfolio shrinks. The reduction is not linear, but the trend is clear. (301 characters)

Q: What is the most immediate low-hanging opportunity for Eagle's turnaround, and what is the CNI growth outlook? / A: The most immediate opportunity is arresting the balance sheet decline and returning to disciplined CRE lending now that concentrations have fallen below regulatory thresholds, plus growing business banking through the existing branch network. CNI growth will normalize to high single-digit to low double-digit annual growth, with diversified exposure across verticals and a focus on new primary relationships that include core deposit and treasury management cross-sales. (348 characters)

Q: How should investors model provision and reserve releases in H2 2026, and is there room to lower deposit costs from current higher-than-peer levels? / A: Provision and charge-offs will be lower in H2 2026, aligned with the Q1 2026 run rate, and the pace of reserve coverage reduction will slow from the first half. The bank will always maintain a fully funded allowance for credit losses that reflects portfolio risk. Because Eagle currently has higher deposit costs than peers, there is more room to reduce costs as the mix shifts to lower-cost core deposits, with NIM expansion expected in H2 2026. (392 characters)

Q: Will you add new deposit-focused business verticals similar to your prior role, and can you update on two large maturing problem loans? / A: The immediate priority is fortifying the existing franchise and leaning into what Eagle already does well, but long-term, management will actively pursue new low-cost granular deposit growth opportunities, which are the most accretive driver of franchise value. The $56 million Prince George's County multifamily loan will be restructured to improve its risk profile, while the Montgomery County self-storage loan is expected to be paid off in full by the end of 2026. (387 characters)

Q: How is the bank incentivizing deposit growth, and will foreclosures be used more for problem asset resolution? / A: The bank has already updated incentive plans for the branch network and business bankers to heavily reward new deposit growth, with 50% of cultural change coming from leadership focus and 50% from aligned incentives. Management is not averse to foreclosures when they are the fastest or most efficient route to problem asset resolution, and will use them as needed alongside note sales and restructurings to resolve legacy problem credits. (363 characters)