Q1 2024 Eagle Bancorp Inc Earnings Call
Okay.
Speaker Change: Good day, and thank you for standing by and welcome.
Speaker Change: Welcome to the Eagle Bancorp, Inc. First quarter 2024 earnings conference call.
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Speaker Change: I would now like to hand, the conference over your Speaker today, Eric Newell, Chief Financial Officer of Eagle Bancorp, Inc. Please go ahead.
Speaker Change: Good morning, This is Eric Newell, Chief Financial Officer of Eagle Bancorp.
Eric R. Newell: Before we get begin the presentation I would like to remind everyone that some of the comments made during this call are forward looking statements, we cannot make any promises about future performance and caution you not to place undue reliance on these forward looking statements.
Eric R. Newell: Our Form 10-K for 2023 fiscal year and current reports on form 8-K, including the earnings presentation slides identify risk factors that could cause the company's actual results to differ materially from those projected in any forward looking statements made this morning, which speak one.
Eric R. Newell: As of today.
Eric R. Newell: 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.
Speaker Change: This morning's commentary will include non-GAAP financial information.
Speaker Change: The earnings release, which is posted in the Investor Relations section of our website and filed with the SEC contains reconciliations of this information to the most directly comparable GAAP information.
Speaker Change: Our periodic reports are available from the company online at our website or on the Sec's website.
Speaker Change: With me today is our president and CEO, Susan Riel, our Chief Credit Officer, Jan Williams, and our Bank Chief Financial Officer, Charles Levingston, I would now like to turn it over to Susan.
Susan G. Riel: Thank you Eric good morning, everyone.
Susan G. Riel: Management team and I have four three of the first quarter to continue executing on our strategies that I discussed on our last earnings call in January I will update you on niche in a moment, but first while our first quarter results reflect continued stability in pre provision net revenue.
Susan G. Riel: Fourth quarter net income was impacted by a loss recognized in our office portfolio.
Susan G. Riel: Eric and Jan will review in more detail. The quarter's net income was impacted by a charge off on a central business District office relationship.
Susan G. Riel: We are continuing to be proactive in identifying and addressing challenges Eric will discuss how our allowance for credit losses is evolving informed by more timely information about our markets, we've been proactive with our customers that have maturities upcoming to address.
Susan G. Riel: The credit posture of Eaglebank the.
Jan: The challenges of the first quarter demonstrated the benefits of the company's prudent approach to capital preservation, our common equity tier one ratio at March 31.
Speaker Change: Excuse me.
Susan G. Riel: Stood at 13, 8% based on December 31 capital ratio equals capital levels are in the top quartile of banks greater than $10 billion. In total assets. We are highly confident that our focus on preserving and growing pre provision net revenue and our strong.
Susan G. Riel: Evel of capital will allow us to work through our office portfolio challenges.
Susan G. Riel: The team has been hard at work during the quarter on executing on our strategies last quarter I mentioned, our strategy to diversify our deposit portfolio.
Susan G. Riel: To that end last year, we introduced our direct banking channel as a soft launch we've expanded that to our local markets in the first quarter and just two weeks ago started to market more widely outside of our footprint.
Susan G. Riel: Early results are promising.
Susan G. Riel: Over the last six months with our deposit promotion strategies, we've opened 558, new relationships through all of our acquisition channels, including our new digital channel. Most of these customers are new to Eagle and our teams have been developing strategies to cross.
Susan G. Riel: <unk> sell these customers into other products to deepen their relationships.
Susan G. Riel: During the quarter. We also on boarded a new team that has developed and built ex Patriots banking. This programs at their pharma organizations once up and running we expect this line of business digital nicely augment our deposit gathering efforts.
Susan G. Riel: Another important strategy is the growth of C&I loans. This includes expanding the breadth and depth of services offered by our Treasury management business to better support the growth of C&I loans, our C&I pipelines are growing as we are seeing more activity.
Susan G. Riel: Our government contracting and education segments, our government contracting team was a source of revenue growth in the first quarter and we continue to win new relationships in our charter School segment, where we are establishing a strong presence in.
Susan G. Riel: In late February we announced the July 2020 for retirement of Lindsay real who leads the C&I team I'm excited for Lindsay on his next chapter and appreciate his contributions to Eaglebank, we expect to have identified a new leader later this spring.
Susan G. Riel: While I am disappointed at the quarterly results I'm excited about the future Eaglebank was built on the premise of serving commercial real estate investors and commercial business customers in the metropolitan area around Washington D C.
Susan G. Riel: Our expertise allows us to better partner with our customers through challenges in combination with the new initiatives just discussed we remain committed to our customers providing them concierge service through our relationship first culture.
Susan G. Riel: As we've worked through the cycle of credit our strategies and focus will also be on growing pre provision net revenue through growth of net interest income and fee income.
Susan G. Riel: Our objective is to have a strong foundation and be well positioned for sustainable growth with improved and consistent profitability, regardless of the interest rate environment.
Susan G. Riel: I'm confident that we've identified the actions needed to set us up for continued success with that I'll hand, it over to Eric.
Eric R. Newell: Thanks, Susan we reported a net loss for the quarter totaling 338000.
Eric R. Newell: Or a loss of a penny per diluted share draw.
Eric R. Newell: Driving the loss in the quarter was $35 2 million provision for credit losses in the quarter.
Eric R. Newell: While net charge offs totaled $21 6 million the allowance for credit losses increased to $99 7 million at March 31 from $85 9 million at December 31.
Eric R. Newell: The resulting coverage to the ACL to total loans increased to $1 two 5% at March 31 from one point OE per se at December 31.
Eric R. Newell: In our earnings release and back we are disclosing the ACO attributed to our performing office loan portfolio.
Eric R. Newell: The ACL coverage to performing office loans was 367% at March 31, increasing from $1, 91% at December 31.
Eric R. Newell: Office loans that are rated substandard have an ACO nearing 15%, reflecting new information we've received through appraisals on office properties.
Eric R. Newell: While Jan will touch on it more the methodology for the ACO relating to office loans has been designed to incorporate new information as it becomes available.
Eric R. Newell: We remain focused on comprehensively considering the risks as we establish the ACO.
Eric R. Newell: With the information available to us at March 31, we believe the ACO is appropriate.
Eric R. Newell: Inputs relating.
Eric R. Newell: Two office loans are dependent on a data set that has limited information on recent evaluations and so as price discovery continues we may see changes to the ACL associated with this portfolio.
Eric R. Newell: Notwithstanding the higher provision expense pre provision net revenue remained relatively flat in the quarter at $38 3 million from $38 8 million kind of late period, reflecting the benefits of our recent strategic initiatives.
Eric R. Newell: Net interest income before provision totaled $74 7 million in the first quarter.
Eric R. Newell: Increasing from $73 million in the fourth quarter.
Eric R. Newell: NIM in the first quarter was 243% declining two basis points from the fourth quarter.
Eric R. Newell: While the cost from interest bearing liabilities increased early in the quarter when market rates have fallen we took some opportunities to reduce rates paid on certain deposit types, which drove an improvement of four basis points and our savings and money market rates.
Eric R. Newell: I would note while period end deposit balances showed a seasonal decline due to tax payments. The average balance of total deposits increased by $190 million in the first quarter from the quarter ending December 31, and deposits increased 1 billion or 14% from March 31 last year.
Eric R. Newell: Noninterest expense totaled 440 million, increasing $2 9 million from the previous quarter.
Eric R. Newell: Seasonal increases in salaries and benefits were only a portion of the driver of the increase with the majority attributed to a reversal of incentive compensation in the fourth quarter that did not reoccur in the first quarter.
Eric R. Newell: For the comparable period in 2023 salaries declined $2 4 million attributed to lower incentive accruals in 2024.
Eric R. Newell: FDIC insurance expense increased reflecting in part our strategy to use modifications on portions of our loan portfolio, which increases our assessment.
Eric R. Newell: During the quarter, we had relatively flat loan growth with loans up $26 million driven by existing construction loans funding at quarter end.
Eric R. Newell: In our quarterly Investor deck, along with earnings we updated our view for the remainder of 2020 for performance.
Eric R. Newell: We provided the components of pre provision net revenue and the effective tax rate.
Eric R. Newell: Our view of <unk> for the full year remains largely unchanged from what we communicated in January 2024.
Eric R. Newell: We augmented our disclosure this quarter in the investor deck on our office portfolio on pages 17 and 18.
Eric R. Newell: Our 2024 expectations mirror Susan's comments on our strategic goals.
Eric R. Newell: Do not model any changes to interest rates and our forecasting but expect the betas on our deposit generally flattened.
Eric R. Newell: Of the $112 $5 million of loan originations in the quarter, we had a weighted average rate of seven 5% 6%.
Eric R. Newell: Lastly, capital remains a core strength of the company our tangible common equity ratio at quarter end was 10, 3%, which was impacted by higher interest rates and its impact on <unk>.
Eric R. Newell: Our consolidated CET, one ratio was 13, 8% at March 31.
Eric R. Newell: Senior management has been evaluating our options as it pertains to our subordinated debt maturity in September key factors as we consider those options include capital deployment opportunities the interest rate environment and market conditions.
Speaker Change: Jim Thank.
Jim: Thank you Eric as mentioned, we recognized a loss on one central business District office relationship during the quarter. It's important to note that the lung was current and accruing as we entered the quarter with mirror maturity and Thats a standard practice preorders enterprise.
Jim: The appraisal had a cap rate of eight 5% and a discount rate of 10%.
Jim: Rates materially higher than other recent appraisal 16 on office properties at March 31, we individually evaluated along and charged off the collateral deficiency after cost of sales as well as three first 522000 of collected interest from interest.
Jim: Income during the quarter.
Jim: Today, we've seen appraisal et cetera.
Jim: Our charge offs, rather than cash flow from underlying properties. The subject relationship is the largest we have in our central business District office portfolio for the remainder of 2024. There are no other central business District office loans maturing, which would result in an updated appraisal.
Jim: Expectation is that price discovery will continue in the central business district, and make appraisals more predictable going forward.
Jim: Important to note that we believe central business District office is not indicative of our total office portfolio and our office portfolio is not indicative of our income producing CRE portfolio.
Jim: Page 17 of our earnings presentation, we visualize the change of our internal risk ratings for office and non office income producing CRE.
Jim: <unk> weighted average risk rating at March 31 was 4500 compared to 4600 at December 31, and 3700 at March 31 last year.
Jim: Ear risk right and we have fair amount is 9000, while the loss recognition is disappointing. It is not entirely unexpected we expect and are preparing for additional losses recognized through the cycle.
Jim: We've been working as a team to identify anticipated losses through our ACL. We're now at $1 two 5% of total loans and increased from one 8% of total loans at December 31.
Jim: Data and information and merge that helps inform our ACL methodologies, we will incorporate as deemed appropriate.
Jim: Our emphasize what Eric previously mentioned.
Jim: And as we illustrate in our earnings presentation, we have significant loss absorbing capital regulatory expected and unexpected losses, when taking into account our ACL and CET one capital. We've also enhanced our office exposure clearly the maturities we are actively reviewing all CF.
Jim: Sorry loans with maturities that over the course of the next 18 months and taking action where appropriate to mitigate maturity risks such mitigation action may include cashflow sweeps Paydown Mackay requirements in return for extensions enhanced guarantor support payment reform.
Jim: <unk> and additional collateral.
Jim: Thus far one of the most significant risks we have seen is the risks associated with August appraisals, and the wide discrepancies and valuation over relatively short periods of time, largely as a result of differing perspectives on discount rates and cap rates for office assets, which have been somewhat.
Jim: Unpredictable due to ongoing price discovery and market rates were.
Jim: We are creating solutions for our clients as well we have designed the bespoke evaluation process with our office portfolio of maturities and our goal is to have a mutually acceptable solution for our clients as well as an improved credit posture for the bank.
Jim: Our solutions to date have included <unk> keeping control of their properties. We have worked with our borrowers whenever possible to collaboratively sell assets and payoff associated debt provide paydowns in interest only periods bridging rent commencement on these leases provide extension.
Jim: Brian existing performing debt and reposition property to residential years, each resolution, it's unique to the asset under evaluation.
Jim: Total classified loans increased 26 million to $361 8 million at March 31st and total criticized loans increased $84 3 million to $627 1 billion at March 31.
Jim: Noted in our disclosure on page 20 of our earnings presentation that 85% of classified and criticized loans are performing at March 31.
Jim: Of the total increase in special mention loans income producing CRE was $47 7 million of which $10 million with office and C&I was $10 7 million.
Jim: Non performing loans increased to $91 5 million at March 31 from $65 5 million at December 31, with the aforementioned office land migrating into Nash.
Jim: NPS of $92 3 million, which was 79.
Jim: Of total assets.
Jim: Loans 30 to 89 days past due were $31 1 million up from $13 6 million at the end of the prior quarter.
Jim: The increase was due to two loans one has been brought current and we have assessed.
Jim: Seth the other S curves in little risk of loss.
Jim: <unk> construction project for which we received Paydowns as units are sold and there are more than sufficient units to satisfy the debt with that I'll hand, it back to Susan for a short wrap up Susan Thanks Jan.
Susan G. Riel: <unk> previously said our team showed its tenacity client focus and perseverance over the last year.
Susan G. Riel: This quarter and this year are no different we are committed to continue.
Susan G. Riel: Continued heightened surveillance of and our engagement with our office portfolio. Our just over 25 years, that's a commercial lender in this market gives us the expertise to work with our clients challenged by higher interest rates, our strong levels of capital gives us the ability.
Susan G. Riel: To be flexible and serve our customers and communities for another 25 years.
Susan G. Riel: Our strategies are intended to drive growth in pre provision net revenue, which in turn supports returns on assets and equity that can be invested in products and services designed for our customers and our communities, while providing appropriate returns on capital for our shares.
Speaker Change: Holders and closing our senior management team and I would like to thank our employees, who work hard every day to make Eagle a success and the strong partnerships. We have made with our customers and we will make with our future customers with that I will now open it up for questions.
Speaker Change: Yes.
Speaker Change: 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 please.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from Casey Whitman with Piper Sandler Your line is open.
Casey Cassiday Orr Whitman: Hey, good morning.
Casey Cassiday Orr Whitman: Hi, good morning.
Casey Cassiday Orr Whitman: So for the one large office phone, where you had to get a reappraisal can you address the size of that loan.
Casey Cassiday Orr Whitman: Specific amount of net charge offs you took on it this quarter.
Speaker Change: <unk> was up $48 million.
Speaker Change: Loan relationship.
Speaker Change: The.
Speaker Change: <unk> itself was 63%.
Speaker Change:
Speaker Change: Is the same.
Speaker Change: <unk>.
Speaker Change: Okay 15 months ago, we'll keep current appraisals on these loans.
Speaker Change: I think.
Speaker Change: The.
Speaker Change: Decline in value of the property over a 15 month period.
Speaker Change: Was pretty close to.
Speaker Change: 50%.
Speaker Change:
Speaker Change: Which pushed it into an area, where we had a partial charge off on it about $20 million.
Speaker Change: Okay.
Speaker Change: Okay and so the remaining 28 is isn't non accruals right now.
Speaker Change: That's correct.
Speaker Change: Okay was it already in special mention or substandard at year end.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Alright, and then given the $10 million average size in your office I think you said. This is this was the biggest one in the central business District, but do you have any others sort of of this size and some of the other markets or is it safe to say that this was one of your largest across.
Speaker Change: Across the whole market.
Speaker Change: There are other larger loans in other geographic areas.
Speaker Change: Henry County, there are a couple of large loans.
Speaker Change: Downtown Bethesda, I think we've been.
Speaker Change: Successful in those suburban markets and Havent seen the issues hit as heavily as they have in terms of value.
Speaker Change: Degradation.
Speaker Change: Appraisals in the Central business District, we have one other.
Speaker Change: A total of four other loans in the central business District total of $110 million.
Speaker Change: There is one of size about 35 $36 million.
Speaker Change: Comes up for renewal.
Speaker Change: 2028, so it's pretty far down the road.
Speaker Change: The remainder of 2024, there is nothing there is one small loan.
Speaker Change: About $1 million.
Speaker Change: Hits in 2025.
Speaker Change: It's pretty.
Speaker Change: Pretty well split up and matures over.
Speaker Change: Barely stratified schedule over the next five years or so.
Speaker Change: Okay I appreciate that I'll just.
Speaker Change: Ask one more switching gears, Eric just can you walk us through how much of that drop in noninterest bearing this quarter, you would attribute to seasonality and then.
Speaker Change: Maybe just some comments around where ultimately you think non interest bearing as a percentage is going to land for eagle.
Eric R. Newell: Yes, this quarter I would attribute the majority of the drop at the period end.
Eric R. Newell: To seasonal tax payments that our customers have.
Eric R. Newell: Again I had in my prepared comments, but the average balance during the year.
Eric R. Newell: During the quarter was $190 million greater than the previous quarter.
Eric R. Newell: At March 31, and I think that takes our noninterest bearing accounts to about 22% of deposits.
Eric R. Newell: I would say that our goal is to obviously grow that our strategic objectives.
Eric R. Newell: That Susan talked about.
Eric R. Newell: All of our acquisition channels, but particularly in the commercial segment.
Eric R. Newell: I would say our goal our longer term goal would be to have.
Eric R. Newell: Non interest total deposits of around 30% to 35%.
Eric R. Newell: Okay.
Speaker Change: Thank you for taking my questions and I'll, let someone else jump on.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from.
Speaker Change: Catherine Mealor with <unk> Your line is open.
Catherine Fitzhugh Summerson Mealor: Thanks, Good morning.
Catherine Fitzhugh Summerson Mealor: Follow up on credit just.
Catherine Fitzhugh Summerson Mealor: What's your I know, it's hard because you've got these appraisals coming in and the values are all over the place but as you.
Catherine Fitzhugh Summerson Mealor: Okay, what you're what you've currently got in criticized classified and what's maybe maturing.
Speaker Change: Over the rest of this year and that slide was really helpful.
Speaker Change: Do you have a range of where you feel like it would be safe to model, where the the reserve ratio could go.
Speaker Change: And that might be hard because maybe this is more coming in charge offs versus the reserve builds for you from what we saw this quarter, but just kind of any.
Speaker Change: Any range reasonable range of what you're seeing kind of provisioning or the reserve bill could be this year would be it would be really helpful.
Speaker Change: Well today.
Speaker Change: Catherine we do think our ACL coverage is adequate for the risk that we have and will continue to incorporate new market data into our provisioning approach.
Speaker Change: And we're looking at our forecast on ACL coverage at the end of 2024 to be between $1 35, and 145 of total loans.
Speaker Change: Our credit losses.
Speaker Change: Office.
Speaker Change: It has really been based on appraisal risk and price discovery in that area is still pretty it's been pretty much everything that's transacted has been a distressed for sale. So it's hard to know exactly where things will settle out that.
Speaker Change: In.
Speaker Change: The appraisal.
Speaker Change: They are really all over the place, but based on what we know today I could give you my thoughts on a ballpark range for charge offs for the rest of the year.
Speaker Change: I would estimate somewhere between.
Speaker Change: 20, and $40 million for the remainder of the year.
Speaker Change: Okay great.
Speaker Change: That's helpful just kind of put the range on it.
Speaker Change: And then you mentioned the value in the Central business District office, one was about 50%.
Speaker Change: Again, I know, it's a range but.
Speaker Change: How how our values our appraisals different and some of your other markets like Montgomery County, or Bethesda is I'm, assuming it's not that.
Speaker Change: That much of a decline just any kind of color you can give us what youre seeing in those appraisals.
Speaker Change: It has not been as severe.
Speaker Change: Other areas and even within the CBD I don't think its been as severe as what we saw in the most recent appraisal.
Speaker Change: I think in some instances because there arent really any market trades going on out there right now.
Speaker Change: The bid and ask are too far apart for there to be a market transaction.
Speaker Change: We're seeing our transactions that are distressed levels in the CBD, which some appraisers are interpreting to be the market is only distressed market and so they are using the higher factors.
Speaker Change: Were discounting them for cap rates.
Speaker Change: <unk> has not happened in other markets to that level I am seeing a range of cap rates from 7% to I've seen as high of nine 5%.
Speaker Change: Office properties I'm seeing discount rates that have been anywhere from 7% to 10, 5%. So there is.
Speaker Change: Pretty wide range out there and I'm very much appreciated the fact that.
Speaker Change: We're not.
Speaker Change: Must appraised situation in the CBD for a while I do think there's been some erosion in the suburban properties, but not nearly at the same level eight properties in trophy properties are not seeing the same level I think were.
Speaker Change: For the remainder of the year have gone through everything thats coming up over the year and have given it kind of in that ballpark number I gave you our best estimate of what could move.
Speaker Change: The rest of the year.
Speaker Change: Okay.
Speaker Change: Helpful. Thank you so much Jan and maybe one question just on the margin you reiterated your outlook for the margin to be $2 50 to $2 70 for the year of course, you know it came in lower this quarter, but I.
Speaker Change: I know some of that was from that.
Speaker Change: The interest reversal, so what what gets your margin.
Speaker Change: I mean, it feels like the low end of that range is kind of safe is a safe place to be but what gets the margin towards the mid to high end of that range is it take rate cuts are there things that you're doing just within your balance sheet.
Speaker Change: That you think can push that higher.
Speaker Change: Yeah No I appreciate the question.
Speaker Change: And on that note on the interest reversal of 522000 that Jim mentioned, we estimate that to be about seven basis points impact on the margin. So had we not had that reversal our NIM would have been.
Speaker Change: That would have come in at two 5% for the quarter, which is at the bottom end of that range.
Speaker Change: To.
Speaker Change: To answer your question about what gets us higher up in the range I think a lot of it comes down to our success.
Speaker Change: And we're starting to see that and I think it's building momentum.
Speaker Change: Deposit growth from.
Speaker Change: Our our digital channel for example, and that while it comes in at a higher price because that's just how you acquired that type of customer.
Speaker Change: Success in building those into deeper relationships can have the effect of reducing our cost of funds.
Speaker Change: As we're growing.
Speaker Change: The.
Speaker Change: The core deposit.
Speaker Change: Customer.
Speaker Change: Core deposit then we're able to reduce usage of ethics.
Speaker Change: <unk> borrowings for example.
Speaker Change: That has a high.
Speaker Change: Cost then.
Speaker Change: So I think a lot of it is our liability strategy we.
Speaker Change: We do have 300.
Speaker Change: For the full year of 24 was $340 million of.
Speaker Change: Investments that are rolling off our books, which is earning us about 2%. So you have the benefit of a higher yield even if it's just sitting in cash that's about 300 basis points of yield I do think that the.
Speaker Change: The spreads.
Speaker Change: We're seeing.
Speaker Change: Seeing on new loan originations are pretty close to what the market's giving us. So I think a lot of it is our liability strategy getting success.
Speaker Change: Coming more successful in that liability strategy in the back half of the year and really honestly setting us up for a good 2025 and 2026.
Speaker Change: Okay.
Speaker Change: Thank you so much I appreciate it.
Speaker Change: Thank you.
Speaker Change: For our next question.
Speaker Change: Okay.
Speaker Change: Our next question comes from Christopher <unk> with Janney Montgomery Scott Your line is open.
Christopher: Hey, Thanks, Good morning, Eric just a quick one for you on the non accrued interest on so youre going to get that back, but you still have the.
Christopher: A portion of a loan thats still on non accrual is that correct.
Christopher: Correct.
Christopher: Okay.
Speaker Change: And then I guess for Jan can you talk a little bit about sort of the.
Speaker Change: Kind of at the level of modified loans you have now or are you not really having any modified larger simply renewing them with the reserve build in some charge off where appropriate.
Janice L. Williams: Well I think.
Janice L. Williams: We have a.
Janice L. Williams: Full menu of options that were exercising in some cases, we are doing modifications within the office portfolio in particular, if you've got a maturity issue.
Janice L. Williams: Generally once in a while we see a payoff, but not that often I think it's difficult to get financing certainly from banks.
Janice L. Williams: Perhaps private financing is more available for office.
Janice L. Williams: That's another hefty premium so we are looking at situations, where we do have to modify those lines to extend them.
Janice L. Williams: I think in other cases, we're looking at getting pay downs as part of that process, we are working with each borrower.
Janice L. Williams: And have been successful so far in.
Janice L. Williams: Providing.
Janice L. Williams: And Avenue for the buyer were to continue to stay in the deal.
Janice L. Williams: Potential for some upside down the road.
Janice L. Williams: Minimizing the risks to the bank from ultimate loss.
Janice L. Williams: Loss perspective, the wildcard in all of that being appraisals.
Janice L. Williams: Fortunate that we've projected out.
Janice L. Williams: Mentioned, the Katherine earlier, where we are on maturities that are coming up in the portfolio. This year.
Janice L. Williams: And where it will be in a situation where we have.
Janice L. Williams: An updated appraisal thats required and evaluated those loans within a range.
Janice L. Williams: For what could be theoretically possible in the charge offs arena.
Speaker Change: Great and all of this is done within sort of the B b.
Janice L. Williams: The current guidelines on.
Janice L. Williams: Modified loans, so that the regulators put in place last year and really that you've used in past cycles too. So that's all consistent.
Janice L. Williams: Yes.
Janice L. Williams: Absolutely.
Speaker Change: And then can you just give us a little more color about how often youre getting more collateral or more cash.
Speaker Change: I thought your comments on the prepared remarks is really helpful. Just wanted to drill down further how often that topic.
Speaker Change: It's happening in more deals and it's not happening and I think we have instituted cash flow sweeps.
Speaker Change: And accumulated funding.
Janice L. Williams: On a go forward basis for office.
Janice L. Williams: You really need to be thinking about the cost of reach Heaven thing. In addition to the cost of making payments. So we wanted to be sweeping cash flow. So that we not only have the payment reserve, but we also have a reserve to re tenant at the property and I think we've been pretty successful with that and at least.
Janice L. Williams: Three of the large deals that we've worked through we have had that in place and are currently working through that.
Janice L. Williams: Pay downs and a number of instances we've had modifications where we've done an interest only exception.
Janice L. Williams: Sure.
Janice L. Williams: Or extension.
Janice L. Williams: Because the.
Janice L. Williams: Barber has entered into a long term lease with a credit tenant for substantially all of the space and rent doesn't commence for six months, we will give them six months of making payments to make their return to amortization consistent with the rent payments.
Speaker Change: So I think.
Janice L. Williams: We are.
Janice L. Williams: Pretty bespoke in terms of the solutions that we've come up with on the circumstances that we're working through.
Janice L. Williams: And as Youre getting this collateral cash youre not seeing defaults occur. So it's not as if youre triggering people throwing keys that you that seems to be a predominant last night. This morning.
Janice L. Williams: Note that.
Janice L. Williams: Zinc is a situation that banks don't really want to be and we're not property managers.
Speaker Change: We're probably not very good at it since it's not our business so.
Janice L. Williams: Having the buyer where stay in with a chance to.
Janice L. Williams: Return some investment to there.
Janice L. Williams: Investors I think is a good solution for everyone.
Speaker Change: Great and then last question from me just has to do with kind of the existing reserve on office and if you have maturities as far out as 2028 does the reserve kind of have some loss content on that that loan even though it's not in the near term maturity wall.
Speaker Change: Well it does in terms of.
Janice L. Williams: The <unk>.
Janice L. Williams: Our reserve methodology, it'll have a quantitative and qualitative reserve.
Janice L. Williams: The additional overlay that we've been adding to the reserve is.
Janice L. Williams: Really more focused on loans that are on.
Janice L. Williams: Special mention or substandard, where there are additional Roe.
Janice L. Williams: Serves that we've added based on a probability.
Janice L. Williams: Enel.
Janice L. Williams: Analysis.
Janice L. Williams: Our loss given default so I think.
Janice L. Williams: That's just part of our general seasonal methodology, Eric do you want to no you got it.
Janice L. Williams: Yes.
Eric R. Newell: Yes, I mean, I guess just.
Eric R. Newell: Got it.
Eric R. Newell: We're agnostic as to the maturities.
Eric R. Newell: The office loans, when we're looking at it from a qualitative perspective, and we're really focused on that internal risk rating for our probability of default loss given default.
Speaker Change: Yes, that's a good point great. Thank you for all the background we greatly appreciate it.
Speaker Change: Thank you. Thank you. Thank you.
Speaker Change: Thank you. This concludes the question and answer session.
Speaker Change: I would now like to turn it back to Susan Riel, President and CEO for closing remarks.
Susan G. Riel: We appreciate your questions and your taking the time to join US on the call. We look forward to meeting with you again next quarter.
Speaker Change: <unk>.
Speaker Change: Yes.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: [music].