In a rare move for banks, Eagle Bancorp Inc. will split its CFO roles between its holding company and bank subsidiary in an attempt to allow the two executives to better focus on their various responsibilities.
Last month, the Bethesda, Md.-based company announced that Eric Newell will become CFO of Eagle Bancorp on Sept. 25, and current CFO Charles Levingston will stop serving as executive vice president and CFO of the parent company but will continue in his role as CFO of EagleBank. The move to split the roles between the holding company and the bank subsidiary comes at a time when many banks are looking to cut costs as the current environment drives up expenses, but Eagle Bancorp said the split roles are worth the added cost.
"We really feel in the long run, we will be ahead for spending that money," President and CEO Susan Riel said in an interview. "We've always felt that if you can find a good athlete, put them on the team."
Benefits of 2 CFOs
Like many banks, Eagle Bancorp has been making moves to trim its head count to reduce expenses, posting a 4.3% sequential decline in full-time employees in the second quarter and an 8.1% year-over-over decline, according to an analysis by S&P Global Market Intelligence. That quarter-over-quarter decline placed the company among the top 20 banks with the largest sequential declines, according to the analysis.
Still, the company sees benefits in splitting the CFO role and paying those two salaries. With the addition of Newell, who previously was CFO of Equity Bancshares Inc. and its bank subsidiary Equity Bank, the company can build its bench of executive talent while allowing both Newell and Levingston to better focus on their different responsibilities, executives said in interviews with Market Intelligence.
At a high level, the holding company CFO can focus on strategic initiatives while the bank CFO can focus on running the day-to-day operations of the bank in support of that strategy, Newell said in an interview. More specifically, the holding company CFO wields a lot of leverage in finding operational efficiencies, improving revenue and focusing on opportunities and threats to a company's balance sheet structure, Newell said.
For example, while many banks treat asset-liability management as a perfunctory, box-checking exercise to appease regulators, a holding company CFO that operates independently from the bank CFO can take a more strategic approach, Newell said.
"You can have a strategic conversation with internal constituents inside the bank and make decisions on how the balance sheet might need to change," Newell said. "A lot of work goes into that and the leverage of having two CFOs allows us to be more effective."
Having more flexibility to take advantage of opportunities like investor conferences is another advantage of splitting the roles, Levingston said in an interview.
"If I'm stretched too thin and an opportunity comes up to go to an investor conference, and I can't go, we just have to miss out," Levingston said. "This situation will have more capacity for those areas of responsibility."
Banks will often split C-suite roles in an attempt to succession plan, but in this case, Levingston and Newell are essentially the same age, at 44 and 43, respectively. However, Levingston said the move is an attempt to bring on younger talent.
"We want to make sure that we're going to be around for the next many years," Levingston said. "You just have to do the cost-benefit analysis of that and say, 'Look, we've got an opportunity to bring on some good talent here.'"
Cleanup job
Splitting the CFO roles could also help Eagle Bancorp reduce its regulatory costs at a time when the bank is in cleanup mode, according to Janney Montgomery Scott analyst Christopher Marinac.
The company has struggled since its previous CEO, Ronald Paul, retired in 2019 as it faced a class action lawsuit in the same year over allegedly misleading statements in its regulatory filings. The company settled with regulators for $22.9 million in fees last year. The Federal Reserve permanently barred Paul from employment in the banking industry and the company paid an additional $9.5 million to the regulator for violating its insider lending rule.
The addition of Newell is also likely an attempt from Eagle Bancorp's board to take action and spur change following those regulatory woes, and it could be the first of several changes over time, Marinac said.
"It seems to me that it's a precursor of something bigger," Marinac said. "There are some structural issues at the company and I think that a leadership change like bringing Eric in could be incredibly healthy."
Additionally, the company's net interest margin (NIM) has suffered acutely as the Federal Reserve raised interest rates, Marinac said. The company's NIM was 2.52% at June 30, down from 2.76% in the first quarter and 2.96% in the year-ago period, according to S&P Global Market Intelligence data.
As such, improving the company's core funding will be key to its survival and independence, and Newell has "a very good discipline" with core funds that he is bringing to Eagle Bancorp, Marinac said.
"They just haven't had the funding to enable margin to do anything other than to struggle," Marinac said. "The higher cost of funds is a challenge and they need to try to hopefully reverse that."
Credit will likely be a focus for the company as well, which could become an issue over the next 2.5 to three years as the credit cycle progresses.
"Eagle will have to build reserves and handle issues. That doesn't mean that they need to be at a certain level, I just think that that's going to become more apparent as actual problems come out," Marinac said.
