Q4 2023 Eagle Bancorp Inc Earnings Call
[music].
Okay.
Yeah.
Good day, and thank you for standing by walking.
Welcome to the Eagle Bancorp fourth quarter and year end 2023 earnings conference call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
To ask a question during the session you will need to press star one on your telephone.
We'll then hear an automated message advising your hand is raised.
To withdraw your question. Please press star one again.
Please be advised that today's conference is being recorded.
Speaker Change: I would now like to hand, the conference over to your Speaker today, Eric Newell Chief Financial Officer of Eagle Bancorp. Please go ahead.
Speaker Change: Good morning. This is Erik Buell, Chief Financial Officer of Eagle Bancorp before we begin the presentation I would like to remind everyone that some of the comments made during the call are forward looking statements, we cannot make any promises about future performance.
Eric Newell: Our Form 10-K for the 2022 fiscal year and 10-Q for September 30 of 2023 and current reports on form 8-K, including the accompanying earnings presentation slides.
Erik Buell: Certain risk factors that could cause the company's actual results to differ materially from those projected in any forward looking statements made this morning.
Erik Buell: <unk> Bank Corp, does not undertake to update any forward looking statements as a result of new information or future events or developments unless required by law. This morning's commentary will include non-GAAP financial information the earnings release, which is posted in the Investor Relations section of our website and filed with SEC.
Erik Buell: Contains reconciliation of this information to the most directly comparable GAAP information.
Arctic reports are available from the company online at our website or on the Sec's website.
Erik Buell: I would now like to turn it over to our President and CEO Susan Riel.
Susan G. Riel: Thank you, Eric and good morning, everyone.
Susan G. Riel: It's last year presented many challenges for which Eagle Bank team persevered I'm excited about the resiliency of our company in light of these challenges we quickly reacted to uncertainties that crept into the banking sector in the first quarter. It was a failure of some large banks.
Susan G. Riel: We were able to lean into our relationships first culture.
Susan G. Riel: Focus on to respond to what our customers needed from us in that moment of uncertainty.
Susan G. Riel: We experienced a large deposit outflow in <unk>.
Susan G. Riel: In the early part of 2023.
Susan G. Riel: We reported total deposits at December 31.
Susan G. Riel: Higher than the year ago period.
Susan G. Riel: I am proud of the Eagle Bank team and our strong and trusted relationships they have.
Susan G. Riel: With our customers our communities and with each other I am confident that we will be able to leverage those characteristics as we work to achieve our strategic initiatives in 2024.
Susan G. Riel: I touched on those initiatives and our third quarter call, but it's worth highlighting again.
Susan G. Riel: We have been and will remain focused on our deposit portfolio. Our goal in 'twenty 'twenty four is to have a higher quality deposit portfolio with enhanced diversification.
Erik Buell: Desperately enhancing our deposit portfolio quality and growing deposits will allow us to reduce wholesale funding and enhance flexibility or pricing and dynamic interest rate environment.
Erik Buell: During the year, we will work on enhancing our capabilities to leverage our branch network and better its still sales behaviors building and improving our treasury management capabilities services and products.
Erik Buell: Introducing a digital channel primarily for deposit gathering efforts and out in.
Erik Buell: And outside our footprint.
Eric Newell: We are working to grow our C&I portfolio relative to total loans, we have evaluated areas of opportunity to grow our team and ensure those teams are compensated on the appropriate incentive plans and growth and deepen relationships, which can set us up for future years.
Eric Newell: Of course totally agree.
Eric Newell: Finally asset quality will remain an important part for us in 2024 hour history shows that Eagle Bank has recognized asset quality pressures earlier than our peers, we've taken a conservative and proactive approach by reassessing internal credit ratings.
Eric Newell: Exhibiting weaknesses in primary cash flows with those cash flows are our primary source of repayment.
Janet: This increased our classified assets in the fourth quarter, Janet will speak in more detail about the actions we took in the fourth quarter, which in part drove the higher provision for credit losses and impacted our net income I.
Janet Yellen: I am confident that our credit team work without borrowers and maximize collateral value.
Janet Yellen: At the same time seeking to improve the credit posture eaglebank through principal pay downs.
Janet Yellen: Our enhancements on a recourse and Gerry Schwartz our team aligned with those workouts and surveillance efforts of up to 50 years of experience with CRE and have seen many deep downturns, our strong capital level positions us well in the face of economic uncertainty.
Gerry Schwartz: And we have proven over the years to be good stewards of our capital very strong capital management.
Gerry Schwartz: I'm excited about the prospects of Eagle Bank and the team a lot of progress has been accomplished over the last six months. The senior staff is working closely with the entire Eagle bank team to position ourselves for sustainable growth with.
Gerry Schwartz: With improved and consistent profitability.
Gerry Schwartz: Uh huh.
Gerry Schwartz: This upcoming year may throw us some curve balls, we will respond appropriately.
Importantly, I am confident that.
Dan: We've identified the actions needed to be accomplished in 'twenty 'twenty four to set us up for continued success with that I'll hand, it over to Dan.
Dan Smith: Thank you Susan and good morning, everyone. Our credit teams continue to assess and work with our customers at our or might potentially be experiencing stress our future issues.
Dan Smith: I'll stress on a loan by loan basis.
Dan Smith: Predominantly in our office portfolio, we make every effort to work with our customers to improve their opportunity to succeed and protect the bank too early outreach and intervention.
Dan Smith: We have two notable events in the fourth quarter that impacted our provision expense.
Dan Smith: First late in the quarter, we saw the multifamily construction nonperforming.
Speaker Change: <unk> discussed in our call apps.
Speaker Change: Past few quarters.
Speaker Change: With a $39 5 million multifamily.
D C Metro market. The property was nearing stabilization. However, there were significant impediments to a near term resolution and acceptable to the bank.
Speaker Change: Our team assessed a multitude of disposition and remediation strategies and determined that our best course of action was to sell the note to an unaffiliated third party.
Speaker Change: Recognized.
Speaker Change: $5 million as a result of the announced sale an important factor in evaluating the decision to sell the note with the assessment of the time to remediate and dispose of the property and the net present value of the carrying cost compared to disposition value would be.
Second we had a charge off of $6 1 million recognizing a collateral shortfall.
Speaker Change: Updated appraisal on a previously performing substandard.
Speaker Change: As a result of the collateral deficiency alone listeners to non accrual in the fourth quarter.
Speaker Change: Nonperforming loans fell to $65 5 million at December 31 from $70 1 million at September 30.
Speaker Change: With the aforementioned office loan migrating into nonperforming and multifamily construction loans might be migrating out of the portfolio.
Speaker Change: N P and its worth $66.6 million, which was 57 basis points of total assets.
Speaker Change: 30 to 89 days past due were $27 million down from $46 4 million at the end of the prior quarter.
Speaker Change: Greece was due to migration.
Speaker Change: Nonperforming status at December 31.
Speaker Change: During the quarter the teams reviewed and conservatively reassess internal risk ratings for loans, where there may be some weakness or future weakness on the primary source of repayment as compared to how the project initially underwritten.
And many of these situations. We believe we are adequately collateralized based on a recent appraisal.
Speaker Change: And we have guarantors with ample income and our assets.
Speaker Change: The supplement repayment, however management felt it was prudent to downgrade these credits based upon the weekend.
Speaker Change: Weakness in the primary source of repayment.
Speaker Change: The results of these efforts in the quarter, you will see an increase in special mention and substandard loans.
Speaker Change: As you have seen throughout our disclosures in 2023 reduced modifications of the tool for working with our customers. Our modifications are generally extension of maturity in our short in duration between three and 12 months.
They require one or more credit enhancement for example, the establishment of a payment and other reserves control by Eagle Bank sweep accounts that control excess cash flow principal curtails additional collateral and or other measures as deemed prudent in exchange for extension.
Speaker Change: Commendations.
Speaker Change: Our office exposure will be a continued focus for the team in 2024.
Gerry Schwartz: Expectation of lower interest rates increase the prospects for commercial real estate and will improve the prospects of our mediation efforts are more challenged Gilles Alix.
Loans secured by non owner occupied CRE credits are 949 million or 11, 9% of the total loan portfolio at quarter end.
These office properties are primarily located in the Washington D C market with 24, 5% and the district of Columbia 35, 4% in the Maryland suburbs 32, 7% in Northern Virginia, and seven 4% located outside these markets.
Gerry Schwartz: For the fourth quarter, we had a provision to the ACL of 14 clients Milligan driving this increase were losses on the notes.
Gerry Schwartz: And the updated appraisal value on the substandard offer slot.
Gerry Schwartz: The ACL to loans at quarter end was up three basis points to one point.
Eric Newell: With that I would like to turn it over to Eric.
Eric: Thanks, Jamie net.
Net income for the quarter totaled $20 2 million or <unk> 67 per diluted share.
Eric: <unk> comments, Jeff detail net income was meaningfully impacted by the provision expense of $14 5 million, increasing from $5 $6 million from the previous quarter.
Eric: Withstanding the higher provision expense. We are excited that we experienced continued core deposit growth in the fourth quarter with deposits ending the year at $8 8 billion, increasing $432 million compared to $8 4 billion at September 30.
Jeff: The team's efforts throughout the year helped us show year over year deposit growth at year end for the first time in six quarters broker.
Jeff: Broker deposits declined by $67 million and were down to 27% of deposits.
Jeff: Our mix of deposits and borrowings at quarter end is now much closer to how it looked at look at the end of December 2022, before the market disruption in March.
Jeff: At December 31, 2023 deposits of $8 8 billion compared to $8 7 billion at year end 2022, and borrowings were $1 4 billion compared to $1 billion at year end 2022, due in part to our bank term funding program borrowings totaling $1 3 billion.
Jeff: During the quarter, we had relatively flat loan growth with loans up $52 million, but some of that was timing of existing construction loans funding at quarter end.
Jeff: This was the reason for the reversal of the provision on unfunded commitments.
Jeff: Even with the increase in loans with strong growth in deposits drove our loan to deposit ratio down to 90% from 95% the prior quarter.
Jeff: Net interest income totaled $73 million for the three months ending December 31, increasing from $77 million in the linked quarter.
Jeff: First time in several quarters that we've experienced a period to period increase in net interest income.
Jeff: Contributing to the increase with stability in our cost of interest bearing funding while also benefiting from an increase in the yield on our earning assets.
Jeff: Interest bearing liabilities benefited benefited from lower cost borrowings.
Since the start of the first quarter of 2024 management has taken actions to reduce some of our deposit rates on non maturity deposits to reflect lower market rates being late in the fourth quarter and into the new year.
Jeff: Noninterest income totaled $2 9 million for the fourth quarter declined from $6 3 million on a linked quarter. The main driver of the decline was swap fee income and mark to market benefits from higher interest rates recognized in the third quarter that did not repeat in the fourth quarter due to lower swap activity and falling interest rate.
Jeff: In total contributed $3 7 million of the decline in total noninterest income.
Jeff: Noninterest expense totaled $37 1 million in the fourth quarter relatively flat from the prior quarter salaries and benefits declined $3 1 million in the fourth quarter from the prior quarter due to truing up of incentives and lower salary expenses.
Jeff: Setting the decline in salaries and benefits increased FDIC insurance costs, increasing $1 1 million from the prior quarter.
Jeff: Impacting our FDIC premium cost at our level of modified loans, which increased the basis points of premium paid on deposits ego.
Eagle Bank was not impacted by the special assessment pursuant to systemic risk determination that was finalized in the fourth quarter.
Jeff: As Charles indicated last quarter, we expect to invest in the company in 2024 to achieve our strategic goals, but we did not but we do not expect a meaningful increase in our run rate of expenses in 2024 due to cost savings actions taken in 2023.
This past quarter efficiency was 48, 9%, which compares well to our proxy peers.
Jeff: We remain committed to identifying and executing strategies to find positive operating leverage.
Starting this quarter management will release, its quarterly investor deck, along with earnings as you can see what our filing last night.
Jeff: We provided insights to our expectations for full year 2020 for performance.
Jeff: Future calls, we will update you as our expectations change our 2024 performance our expectations near Susan's comments on our strategic goals for the year, mainly with deposit growth and continued improvement in the mix of our funding and reduced reliance on wholesale funding.
Jeff: Lastly, capital remains a core strength of the company our tangible common equity ratio at quarter end was 10, 2%.
Benefiting from lower market rates decreasing.
That unrealized loss impact on capital.
Jeff: In the face of uncertainty with non owner occupied office market valuations management believes it is prudent to gain more certainty before seeking approval from our board on another share repurchase program with that I'll hand, it back to Susan for our short wrap up.
Susan: Thanks, Eric.
Susan: We are all excited about <unk> future, we have demonstrated our ability to improve the balance sheet and stabilized.
Susan: We also continue to meet our commitment to our relationship first culture strong conservative underwriting and peer leading efficiency, we are committed to our our HIFU surveillance and.
Susan: And engagement with our portfolio.
Susan: In closing our senior management team.
Susan: We'd like to thank our employees, who work hard everyday to Nick Ebola success with that we will now open it up for questions.
As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Susan: Please standby, while we compile the Q&A roster.
Susan: Yeah.
Susan: Our first question comes from Casey Whitman with Piper Sandler.
Casey Whitman: Your line is now open.
Casey Whitman: Hey, good morning.
Casey Whitman: Hi, Casey.
Casey Whitman: Hi, So first Jan sorry, if you mentioned this in your prepared remarks, but what is the remaining balance of that office loan that you partially charged off this quarter.
Casey Whitman: Hello.
Casey Whitman: Right around $20 million.
Casey Whitman: Okay.
Janet Yellen: Thank you and then sticking with <unk>.
Janet Yellen: Office I think last quarter, you gave us the amount that was in substandard and special mention do you have those numbers for us this quarter.
Speaker Change: Within the office.
Speaker Change: Oh.
Speaker Change: Office.
Speaker Change: Yes.
Speaker Change: I have.
Speaker Change: Okay.
Speaker Change: 100, and already in the office and special mention.
Speaker Change: Okay, what about sub standard.
Speaker Change: Okay.
Speaker Change:
Speaker Change: Okay give me a minute to run that tenant all I'll tell you that.
Speaker Change: After I answer your question.
Speaker Change: Okay would you say, though that most of the move this quarter into the criticized.
Speaker Change: His office are there or maybe walk us through some of the other classes that might be experiencing.
Speaker Change: No.
Speaker Change: In terms of the additions to the substandard category.
Speaker Change: A little over two thirds were C&I loans there wasn't much.
Speaker Change: On the CRE side that moved into that category.
Gerry Schwartz: One <unk>.
Gerry Schwartz: Yes.
Gerry Schwartz: Okay.
Gerry Schwartz: And then I had one more question with Apis and then I guess the.
Gerry Schwartz: $950 million.
Gerry Schwartz: And also like how much of that is currently on extension or in modifications do you have that number.
Eric Newell: I think the modifications are disclosed every quarter I didn't run a total envelope was modified in the last trailing 12 months Eric.
Eric Newell: Okay.
Eric Newell: Don't have it with us, but it will come out with.
Eric Newell: Okay.
Eric Newell: Your docks.
Eric Newell: Okay. Thank.
Thank you I appreciate that and.
Eric Newell: We appreciate the the outlook slide in the presentation. So you guys have done a nice job managing expenses expenses over the last few years. So can you just walk through a little bit more about some of the puts and takes into what's going on going into the expectation you put it in there for some expense growth this year.
Eric Newell: Yes, I think this is Eric Casey.
Eric Casey: There is a little bit of just inflationary expense associated with SAP.
Eric Casey: Salaries as well.
Eric Casey: There is actually probably a little more inflationary pressure on professional services and contracts more than one salaries at this point.
Eric Casey: Contracts.
Eric Casey: Sometimes.
Eric Casey: Two to three years come up for renewal.
Eric Casey: We're seeing some.
Eric Casey: More meaningful increases there so I think that thats driving some of the increases.
And in the salaries and the noninterest expense line.
Eric Casey: Okay and we're also we're also.
Orientation.
Eric Casey: Growing.
Eric Casey: Some of that.
Eric Casey: We are executing in some of the strategies that Susan mentioned there is some additional people.
Eric Casey: We're going to add to the team throughout the year as well.
Eric Casey: Got it.
Eric Casey: And then what kind of rate assumptions are you using.
Susan: To get to that.
Gerry Schwartz: The margin outlook.
Gerry Schwartz: Okay.
Gerry Schwartz: Flat, so we're not assuming any.
Gerry Schwartz: And Thats more interest.
Gerry Schwartz: A decision that management has made not complicate things. So it's not necessarily our expectation of what's going to happen, but there is no assumption rate change here.
Gerry Schwartz: And then.
Gerry Schwartz: With one caveat.
Gerry Schwartz: Okay.
Deposit betas.
Gerry Schwartz: Some great pricing there.
Some deposits that were re pricing our current period, our current rates.
Gerry Schwartz: Re price up.
Gerry Schwartz: There is no expectation right Jamie.
Okay.
Gerry Schwartz: Last question I mean, obviously, some really nice deposit inflow. This quarter is there any seasonality there where we shouldn't be surprised to see some leg down, especially in that non interest bearing category in the first quarter or is that not really the case.
Gerry Schwartz: Yes, I think historically, we've seen a little a little bit of seasonality where.
Gerry Schwartz: Our DDA is higher at the end of the fourth quarter and there could be.
Gerry Schwartz: Some reduction here in the first quarter.
Gerry Schwartz: Obviously, we're working on building.
Gerry Schwartz: Our relationships and deposit growth.
Gerry Schwartz: We're hoping to.
Gerry Schwartz: To me some of that but I think from a historical perspective, there has been a little bit of the seasonality in the first quarter deposit.
Okay.
Gerry Schwartz: Got it and I'll, let someone else ask questions and Jan if you can get that substandard office, then but that is now thanks.
Gerry Schwartz: Yes.
Thank you one moment for our next question.
Gerry Schwartz: Okay.
Gerry Schwartz: And our next question comes from Catherine Mealor with <unk>. Your line is now open.
Gerry Schwartz: Thanks, Good morning.
Catherine Mealor: Good morning Catherine.
Catherine Mealor: Maybe one follow up on just the credit conversation do you have the updated.
Catherine Mealor: The reserve for your office portfolio was there any changes specifically in that book that took the higher reserve this quarter.
Catherine Mealor: Yes, I would say.
Catherine Mealor: When we look at the office reserve a lot of it is a qualitative.
Catherine Mealor: Overlay for us just because we haven't seen a lot of losses to be.
In the office portfolio from a quantitative perspective.
Catherine Mealor: We're continually evaluating the adequacy.
Catherine Mealor: And the balance sheet.
Catherine Mealor: From an office perspective, the majority of that portfolio continues to perform.
Catherine Mealor: As Jan said office wasn't in a primary driver of classified migration.
Catherine Mealor: And when do we think about the overall ACO having its improved.
Catherine Mealor: 108 basis points of total loans coverage.
Jan Smith: We're obviously constantly looking at the adequacy of Opex.
Acos and <unk>.
Well as circumstances present themselves throughout this year.
Jan Smith: We'll see what we need to continue to have an adequate.
Jan Smith: Great.
Jan Smith: And so.
Jan Smith: Is there any way I know, if theres going to be a big range on this but.
Jan Smith: Is there any way you can help us think about what the LTV is currently on your office book and as Youre getting up to that.
Jan Smith: Just one credit part of what drove.
Jan Smith: And then to now.
Jan Smith: Part of why you charge it off with you had an updated appraisal.
Jan Smith: Just trying to think of as Youre getting updated appraisals in that book are you seeing that LTV on the overall portfolio start to move up.
Jan Smith: Yes Catherine.
Jan Smith: Property.
Catherine Mealor: Continued knee and it's hard to generalize about where.
Catherine Mealor: And <unk> kind of come out.
Catherine Mealor: Still.
Catherine Mealor: In a lot of price discovery going on in the market.
Catherine Mealor: Listeners are struggling with.
Catherine Mealor: It really depends on the characteristics.
Catherine Mealor: Individual property.
Catherine Mealor: Building.
Catherine Mealor: What kind of leases that are in place.
Catherine Mealor: Whether or not the property.
Catherine Mealor: <unk>.
Catherine Mealor: For example.
Catherine Mealor: Yes.
Catherine Mealor: Conversion to residential.
Catherine Mealor: Mark.
Catherine Mealor: Hi, good piece of land.
Catherine Mealor: The worst possible scenario.
Catherine Mealor: Based on what I'm, writing is a class a building thats vacant.
Catherine Mealor: Zero lot line Meredith that fleet.
Catherine Mealor: I don't have any of that.
Catherine Mealor: All right.
Catherine Mealor: Yes.
Catherine Mealor: Yes, okay.
Catherine Mealor: And then I think this is the question that gives the answer Pat.
I wanted to make sure that.
Current.
Catherine Mealor: To vacation.
Catherine Mealor: Do you have that number.
Catherine Mealor: And then maybe just an office that kind of generally maybe what percentage of <unk>.
Catherine Mealor: Loans have had a.
Catherine Mealor: Modification.
In the past year or so.
Catherine Mealor: We do keep a record of a trailing 12, but I honestly havent worked a number for <unk>.
Catherine Mealor: There would be one and I don't think its been.
Catherine Mealor: Yes.
Catherine Mealor: Hey.
Catherine Mealor: And how would you think there'd be a big change from last quarter, we pull last quarter.
Catherine Mealor: Did this quarter have a big change or you are probably pretty stable on that.
Catherine Mealor: I think it's going to be pretty stable because of what youre going to see is that.
Ron: Ron it's that we may be modified.
Ron: Sure.
Ron: Venues.
Ron: It has been modified again during the same trailing 12.
Ron: We put in place a longer term solution.
Uh huh.
Ron: Even if it was modified during the quarter, it's already going to be in the past trailing.
Ron: Trailing 12.
Ron: And they wouldn't be here Mike.
Ron: Okay.
Ron: Okay that makes sense, okay great.
Ron: Tom.
And then maybe switching over to the margin.
Ron: Can you just kind of big picture I know that 250 to 270 margin guide.
Ron: A flat rate environment, but if we start to see.
Ron: Assuming you're well positioned in a rate cut scenario, just given your ability to bring deposit costs down.
Ron: But how are you thinking about the sensitivity and.
Ron: Maybe if the deposit beta on the way down that we should assume or how are you thinking about how much of that we could potentially see once we start to see rate cuts.
Ron: Yes in terms of how we model on sensitivity and what our approach to sensitivity.
Ron: Really more of a neutral positioning that.
Ron: I, just don't feel we get compensated appropriately enough to be liability sensitive materially liability or asset sensitive.
Ron: Or else, we probably albeit different jobs.
Ron: But yes.
Ron: Yes.
Ron: Our approach is to really be as neutral as possible, but given some of the nuances of our funding profile.
I would say that where we are positioned quite well.
And Ed downward rate environment too.
Ron: Pass along.
Ron: Any changes to market rates.
Ron: Dose.
Ron: Folks that are have funding with us.
Ron: And in fact are adequately prepared comments.
We've already taken some actions earlier.
Ron: January to reduce.
Ron: And deposits and so we're going to continue that effort throughout the quarter even Q4.
Ron: The fed potentially reduce rates.
Great.
Ron: Okay, Great. That's all I got thank you so much.
Ron: And you mentioned you asked the question about betas.
Say maybe.
Ron: Our future call I could probably talk a little bit more about our thoughts on betas.
Ron: Dollar rate environment.
Ron: And I know anthem is it.
Ron: That anyone's best guess right I think that's okay.
Ron: <unk> of how this is going to react on the way down, but I mean, given you have one of the higher betas on the way up my hope would be that you would have.
Ron: At least one of the higher betas on the way down on a relative basis, and we will see.
Ron: I hope that as well.
Ron: Alright, thank you so much.
Ron: Thank you.
For our next question.
Ron: Okay.
And our next question comes from Christopher <unk> with Janney Montgomery Scott. Your line is now open.
Christopher William Marinac: Hey, Thanks, Good morning, I kind of want to leverage Catherine's question, just to go a little bit deeper on kind of <unk> air.
Ron: Eric.
Christopher William Marinac: Now do you see that gap narrowing the next year or two and what are some of the best ways to kind of get there.
Christopher William Marinac: Yes.
Christopher William Marinac: To me when we looked at our pre provision net revenue ROA.
Christopher William Marinac: I think.
Christopher William Marinac: It really is a revenue story.
Christopher William Marinac: Largely spread I mean, if you look at our noninterest expense to average assets.
Christopher William Marinac: We're industry, leading there and I think Thats, a testament to our commitment and focus on operational efficiency.
Christopher William Marinac: So I don't think we can cut our way to excellence.
Christopher William Marinac: <unk>.
Christopher William Marinac: And from my perspective.
Christopher William Marinac: Our focus strategically on deposit growth improving the composition of that deposits that will ease up on our funding costs and are focused on ensuring that we get the margin.
Christopher William Marinac: Loans that the market is giving us.
Christopher William Marinac: And our focus on that will help us on the asset side as well.
Christopher William Marinac: We have about 300.
Christopher William Marinac: Call. It 330 $350 million, that's rolling off the investment portfolio. This year that will move into <unk>.
Higher yielding assets as well so I think.
Christopher William Marinac: Looking over the next 12 months, our PPR basis.
Christopher William Marinac: It's really going to be a spread story.
Christopher William Marinac: Got it and if some of that also loan yield in addition to deposits necessarily follow the funding base.
Yes, I think.
Yes.
Christopher William Marinac: Theres, a little more visibility at least from my perspective, having only been here for.
Christopher William Marinac: Got it.
Christopher William Marinac: Three or four months.
Christopher William Marinac: On the funding side and seeing how we can really.
Christopher William Marinac: Increased spread income by improving the composition and the qualities of our funding.
Christopher William Marinac: A lot of time.
Christopher William Marinac: As a management team over the last 60 days looking at spreads and really understanding how how we compare competition and making sure that we're getting loan spreads.
Christopher William Marinac: Market is giving Hudson.
Christopher William Marinac: Assessing ourselves that way and making sure that our relationship managers are being compensated.
Christopher William Marinac: On profitability.
Christopher William Marinac: I do think that.
Christopher William Marinac: Both sides.
Christopher William Marinac: Of the spread.
Christopher William Marinac: Calculation.
Speaker Change: Got it thanks for that and then Jim just a question for you on the <unk>.
Jan Smith: C&I migration, what's your general sense of the risk of loss on those loans, maybe in general just kind of using history and power Eagles performed but C&I in the past.
Jan Smith: Well I'll tell you.
Jan Smith: The migration is really.
Jan Smith: I think.
Jan Smith: Lot to do with <unk>.
Jan Smith: Primary source of repayment focus and not really focusing on.
Jan Smith: Additional guarantor support obviously the payments are being made or they would be showing up on the past due to report.
They are not so I think we've been pretty conservative in the way that we are assessing that on highlighting it.
Jan Smith: Today's economic and regulatory climate.
Jan Smith: Huge focus on primary source of repayment.
Jan Smith: And we're following that I don't think it means that they are necessarily in worse shape than they were last quarter. It's a change in the way that we are evaluating that now.
Jan Smith: And is this the first quarter of that or could you remind us sort of how long you've been instituting a new discipline.
Jan Smith: This is the first quarter of that.
Jan Smith: Okay. That's helpful. Great. Thank you for taking my questions sure. Thanks, Chris.
Jan Smith: Thank you.
Jan Smith: And I am showing no further questions at this time I would now like to turn it back to Susan Riel for closing remarks.
Jan Smith: We appreciate your questions and your taking the time to be with US on this call today, we look forward to speaking to you again next quarter.
Susan G. Riel: Thanks, and have a great day.
Susan G. Riel: This concludes today's conference call.
Susan G. Riel: Thank you for participating you may now disconnect.
Susan G. Riel: Okay.
Susan G. Riel: [music].
Susan G. Riel: Okay.
Susan G. Riel: [music].
Susan G. Riel: Okay.
Susan G. Riel: Okay.
[music].
Susan G. Riel: Yes.
Susan G. Riel: [music].