Troubled office loans pushed a Maryland bank towards a $70 million quarterly loss as elevated vacancy rates and plummeting property values continue hammering commercial lenders.
EagleBank’s provision for credit losses soared to $138.2 million in the second quarter, up from $26.3 million in the first quarter and just $9 million in last year’s second quarter, the Washington Business Journal reported. The Bethesda-based bank has spent two years taking losses from commercial real estate loans, largely tied to older office properties with stubbornly high vacancy rates.
Of EagleBank’s $821 million office portfolio, nearly a third of loans are classified as substandard or special mention, signaling danger of default.
The bank charged off $83.9 million, or 4.2 percent of loans, in the second quarter compared to $2.3 million or just 0.1 percent of loans in the same period last year.
Chief financial officer Eric Newell said the $10.6 billion-asset bank is intentionally working through troubled office loans at an expedited speed. The quarter’s sizable loss provision covers loans tied to offices whose values may continue to drop, loans the bank expects to exit this year that won’t be paid in full and loans that could sell at a loss.
“We view it as prudent and necessary to reduce the risk that these loans present to us,” Newell said, adding that more aggressive moves are coming in the third quarter.
Shares of the bank fell 21 percent following the earnings report, traded at $17.06 per share Thursday afternoon. Analysts questioned executives about the timeline for working through its troubled loans and the possibility of conducting a bulk sale of loans.
Newell suggested “strategic patience” instead, hinting that a bulk sale would be more painful. He said Eagle is “close to the peak” of criticized and classified loans and would return to normal provisions for losses by next year’s first quarter.
The bank has been rebalancing its portfolio away from commercial real estate.
Income-producing commercial real estate loans shrank from 53 percent to 48 percent of the portfolio over the past 12 months, while commercial and industrial loans held steady at 15 percent.
Total loans declined 4 percent year-over-year to $7.7 billion as of the end of last month. Despite the loan troubles, deposits increased 10 percent to $9.1 billion.— Holden Walter-Warner
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