Q3 2024 Eagle Bancorp Inc Earnings Call

Unknown Executive: Good day, and thank you for standing by. Welcome to the Eagle Bancorp Inc. 3rd quarter, 2024 earnings conference call.

Good day and thank you for standing by welcome to the Eagle Bancorp, Inc. Third quarter 2024 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 need to press star one on your telephone you didn't hear an automated message about your hand is raised to withdraw your question. Please press star.

Unknown Executive: At this time, all participants are in a listen-only mode. After the speaker's presentation, it will be a question-and-answer session. To ask a question during the session, need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again.

Unknown Executive: Please be advised, today's conference is being recorded.

Sure wouldn't want again, please be advised today's conference is being recorded.

Eric Newell: I would like to have the conference over your speaker day, Eric Newell, Chief Financial Officer of Eagle Bancorp Inc. Please go ahead.

Speaker Change: The conference over to your Speaker today, Eric Newell, Chief Financial Officer of Eagle Bancorp, Inc. Please go ahead.

Eric Newell: Good morning. This is Eric Newell, Chief Financial Officer of Eagle Bancorp. Before we 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 Newell: Good morning. This is Eric <unk>, Chief Financial Officer of Eagle Bancorp before we begin the presentation I would like to remind everyone that some of the comments made during this call are forward looking statements.

Eric Newell: We cannot make any promises about future performance and caution you not to place undue reliance on these forward looking statements.

Eric Newell: Our form 10-Tay for the 2023 fiscal year and current reports on form 8-K include the earnings presentation slides, 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 only as today. Eagle Bancorp does not undertake to update any forward-looking statements as a result of new information, or future events, or developments, unless required by law.

Eric Newell: Our Form 10-K for the 2023 fiscal year and current reports on form 8-K include the earnings presentation slides.

Eric Newell: 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 only as of today.

Eric Newell: Eagle Bancorp does not undertake to update any forward looking statements as a result of new information or future events or developments unless required by law.

Eric Newell: 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 files with the SEC, contains reconciliations of this information to the most directly comparable GAAP information. Our periodic reports are available from the company online at our website or on the FCC's website.

Eric Newell: This morning's commentary will include non-GAAP financial information.

Eric Newell: 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.

Eric Newell: Our periodic reports are available from the company online at our website or on the Sec's website with.

Eric Newell: With me today is our president and CEO, Susan Reill, our retiring Chief Credit Officer, Jan Williams, and our incoming Chief Credit Officer, Kevin Gagan.

Eric Newell: With me today is our president and CEO, Susan Riel, our retiring Chief Credit Officer, Jan Williams, and our incoming Chief Credit Officer, Kevin Gilligan.

Susan Riel: I would now like to turn it over to Susan. Thank you, Eric. Good morning, everyone. Throughout 2024, we've taken foundational steps that will better position us to achieve our strategic objectives. In the quarters to come, our focus is on growing the bank, proactively managing our asset quality, improving our net income and profitability, and diversifying both our loan and deposit books. We've positioned the senior team over the last year to provide the leadership needed to support our goals. With the latest addition of Evelyn Lee, joining us as the Chief Lending Officer for our commercial line of business, I am confident we have the necessary leaders in place to succeed in our strategic goals.

I would now like to turn it over to Susan.

Susan Riel: Thank you Eric Good morning, everyone. Throughout 2024, we've taken foundational steps that will better position us to achieve our strategic objectives in the quarters to come our focus is on growing the bank proactively managing our asset quality improving our net income.

Susan Riel: And profitability and diversifying both our loan and deposit docs.

Susan Riel: We've positioned the senior team over the last year to provide the leadership needed to support our goals with the latest edition of the Epsilon Lee joining us as chief lending officer for our commercial line of business I am confident we have the necessary leaders in place to succeed and our strategic goals.

Susan Riel: I'm excited about Evelyn's leadership and the over 25 years of experience she brings to Eagle Bank. Our work this year will be fundamental to future growth in loans and deposits, and I am confident in our strategy and approach. We repaid our 70 million maturing sub-dated subordinated debt at the start of September. Subsequently, we raised 77.7 million of unsecured senior debt, replacing the capital that matured earlier in the month. The raise demonstrates the confidence investors have in our vision and in the future of our company. The issuance received full participation from executive management and the board, collectively investing $3.9 million, or about 5% of the total issuance.

Susan Riel: I'm excited about evidence leadership and the over 25 years of experience. She brings to Eagle Bank. Our work this year will be fundamental to future growth in loans and deposits and I am confident in our strategy and approach.

Susan Riel: We've repaid our 70 million maturing sub debt are supported.

Susan Riel: <unk> makes subordinated debt at the start of September subsequently, we raised $77 7 million of unsecured senior debt.

Susan Riel: Placing the capital that matured earlier in the month.

Susan Riel: The Reis demonstrates the confidence investors have in our vision and in the future of our company.

Susan Riel: Issuance received full participation from executive management, and Laborde, collectively investing $3 $9 million or about 5% of the total issuance.

Susan Riel: At the same time, we announced a recalibrated dividend strategy, positioning our dividend payout ratio to better support the company's future growth plans. This will also contribute to our goal of reducing our CRE concentration ratio. Our actions this year have reduced uncertainties about equals, which better positions us for the future. We've taken steps to address our balance sheet and capital. We have built our reserves for credit losses and substantially enhanced our income-producing CRE disclosures. The senior leadership team has undergone a notable change, and I am confident will provide the leadership needed for the execution of our strategy.

Susan Riel: At the same time, we announced a recalibrated dividend strategy positioning our dividend payout ratio to better support the company's future growth plans. This will also contribute to our goal of reducing our CRE concentration ratio.

Susan Riel: Our actions this year have reduced uncertainties about equal, which better positions us for the future.

Susan Riel: We've taken steps to address our balance sheet and capital we have built our reserves for credit losses and substantially enhanced our income producing CRE disclosures.

Susan Riel: The senior leadership team has undergone.

Susan Riel: A notable change and I am confident will provide the leadership needed for the execution of our strategy.

Susan Riel: Our digital channel, Channel Momentum, showed results during the quarter. We've designed our digital strategy to be a flexible tool to reduce the use of wholesale funding as our relationship-based deposit strategies take hold, which takes time. As I mentioned earlier, another step our team has taken this year is to enhance our income-producing CRE disclosure and give users of our financial statements more details about our loan book.

Susan Riel: Our digital channel channel momentum showed results during the quarter, we've designed our digital strategy to be a flexible tool to reduce the use of wholesale funding as our relationship based deposit strategies take hold which takes time.

Susan Riel: As I mentioned earlier another step our team has taken this year is to enhance our income producing CRE disclosure and gives users of our financial statements more details about our loan book.

Susan Riel: Before turning it over to Jan to talk more about our enhanced disclosure, I want to welcome Kevin Gagan to the team. Kevin joined Eagle in early September. Kevin and Jan have been working very closely together to ensure a seamless transition as Jan approaches her announced retirement. Jan's contributions over the last 20 years have been fundamental to the strong success we've seen with our asset quality over the life of Eagle Bank, and I am excited for her to spend more time with her family and on achieving her personal goals as she enters her next chapter.

Susan Riel: Before turning it over to Jan to talk more about our enhanced disclosure I want to welcome Kevin Gagan two the team Kevin joined Eagle in early September Kevin and Jan have been working very closely together to ensure a seamless transition as Jan approaches her now.

Susan Riel: <unk> retirement.

Susan Riel: <unk> contributions over the last 20 years have been fundamental to the strong success, we've seen with our asset quality over the life of the Eagle Bank and I am excited for her to spend more time with her family and on achieving her personal goals as she enters her next chapter with that.

Janice Williams: With that, I will turn things over to Jan. Thank you, Susan.

Speaker Change: That I will turn things over to Jim.

Janice Williams: Good morning, everyone. First, I'd like to direct your attention to our earnings presentation deck. Earlier this year, we added disclosure specific to our office portfolio. We've again substantially enhanced our disclosure on our income-producing commercial real estate. For our office portfolio, we've added more disclosure on slides 27 and 28, which includes the stratification of five of our office buildings in our portfolio. The Federal Reserve recently published a study indicating loss rates nearly seven times greater for office properties at 500,000 square feet as compared to those of 50,000 square feet. We also added more details about our Washington, DC, and Central Business District office exposure.

Jim: Thank you Susan and good morning, everyone first I'd like to direct your attention to our earnings presentation deck earlier. This year, we added disclosure specific to our office portfolio. Please again substantially enhanced our disclosure on our income producing commercial real estate.

Jim: For our office portfolio, we've added more disclosure on slides 27, and 28, which includes the stratification of size.

Jim: Buildings in our portfolio.

Jim: The Federal Reserve recently published a study indicating loss rates nearly seven times greater for office properties at 500000 square feet as compared to the 50000 square feet.

Jim: We also added more details about our Washington D C and central business District office exposure.

Janice Williams: It's worth mentioning we have only four Central Business District office loans, one of which was marked to market and was the source of the first quarter charge of. The other three properties are pass-rated and current as to payments. We've added details on our multi-family portfolio on pages 19 and 29. On pages 24 through 26, you can see detail on non-accrual loans, larger special mention and substandard loans, and our top 25 loans. On our non-accrual loans, you will see three offices in the population, all of which are on non-accrual, not due to payment default, but because of appraisal valuation.

It's worth mentioning we have only four central business District office loans, one of which was mark to market and what's the source of the first quarter charge offs.

Jim: Other three properties are pass rated and current as to payments.

Jim: We've added details on our multifamily portfolio on pages 19 and 29.

Jim: On pages 24 through 26, you can see detail on nonaccrual loans larger special mention and substandard loans and our top 25 months.

Jim: On our nonaccrual loans, you will see three offices in the population all of which are on non accrual not due to payment default, but because of appraisal valuation.

Janice Williams: In each case, the receipt of a new appraisal resulted in an associated charge-off, and each of the loans being placed on non-accrual, despite being current as payments. Finally, slides 30 to 33 provide further detail on our credit culture, history of asset quality, and other portfolio characteristics.

Jim: In each case, the receipt of a new appraisal resulted in an associated charge off in each of the loans being placed on non accrual despite being current as to payments.

Jim: Finally slides 30 to 33 provides further detail on our credit culture history of asset quality and other portfolio characteristics to summarize while our office portfolio has been the source of some uncertainty over the last year through this cycle, we have simply not yet seen.

Janice Williams: To summarize, while our office portfolio has been the source of some uncertainty over the last year, through this cycle, we've simply not yet seen payment performance issues in the office portfolio. Valuation risks have driven our charge-off activity from our office portfolio, and that risk is largest in the central business district, where we have only four loans, three of which are pass rated, and one of which has already been written down. Our total exposure is 132.8 million in the Central Business District. Our Northern Virginia and Maryland office exposure has not seen the same three evaluation challenges today.

Jim: <unk> payment performance issues in the office portfolio.

Jim: Valuation risks have driven our charge off activity from our office portfolio and not risky is largest in the central business District, where we have only four loans three of which are pass rated and one of which has already been written down our total exposure is 100.

Jim: $32 8 million in the Central business District, our Northern Virginia, and Maryland Office exposure has not seen the same degree of valuation challenges today.

Janice Williams: We are not seeing any material shift in the performance of our multifamily portfolio. Growth in net operating income, primarily as a result of rent increases in multifamily properties, has today compensated for increases in debt service due to higher interest rates. We believe this trend will continue as a housing shortfall continues to exist in our footprint. Net charge-offs moderated this quarter, as compared to earlier in 2024, with net charge-offs totaling 5.3 million in this quarter. Year-to-date charge-offs are 29 million or 48 basis points when annuals. Substandard loans declined 17 million during the third quarter, ending at 391.3 million.

Jim: We are not seeing any material shift in the performance of our multifamily portfolio.

Jim: Growth in net operating income primarily as a result of rent increases in multifamily properties has to date compensated for increases in debt service due to higher interest rates. We believe this trend will continue as the housing shortfall continues to exist in our footprint.

Speaker Change: Net charge offs moderated this quarter as compared to earlier in 2024 with net charge offs totaling $5 3 million. This quarter year to date charge offs are $29 million or 48 basis points when annualized.

Speaker Change: Sub standard loans declined $17 million during the third quarter ending at $391 3 million special.

Janice Williams: Special mention increased 57 million during the quarter, ending at 365 million. We note in our disclosure on page 21 of our earnings presentation that 91% of classified and criticized loans are performing. In our second quarter earnings call, I indicated three projects drove the increase in criticized loans, two of which were assisted living properties. One of those assisted living properties was moved to non-approval at September 30, with a carrying value of 17.9 million after a charge-off of 3.8 million during the quarter based on an updated appraisal. We also have a specific reserve set aside for this credit totaling 2.5 million.

Speaker Change: Special mention increased $57 million during the quarter ending at $365 million.

Speaker Change: We note in our disclosure on page 21 of our earnings presentation that 91% of classified and criticized loans are performing.

Speaker Change: And our second quarter earnings call I indicated three projects drove the increase in criticized loans two of which were assisted living properties.

Speaker Change: One of those assisted living properties was moved to nonaccrual at September 30th with a carrying value of $17 9 million after charge offs of $3 8 million during the quarter based on an updated appraisal.

Speaker Change: We also have a specific reserve set aside for this credit totaling $2 5 million.

Janice Williams: The other two loans placed into non-accrual status at September 30th were unrelated land loans, one in Tyson's Corner of Virginia with a principal balance of 16.4 million and one at the end of the Douglas Metro Line in Northern Virginia with a principal balance of 10.5 million.

Speaker Change: The other two loans placed into non accrual status at September 30th were unrelated land loans, one in Tysons corner, Virginia with a principal balance of $16 4 million and one at the end of the Dallas Metro line in Northern Virginia, with a principal balance of $10 5 million Boes.

Speaker Change: Loans are supported by current appraisals and neither evidences an impairment.

Speaker Change: Nonperforming loans were $134 4 million at September 30th an increase from $98 2 million at June 30th inclusive of the three loans I just mentioned N. P. A S. R $137 1 million, which was 122 basis points.

Janice Williams: 1334.4 million at September 30th, an increase from 98.2 million at June 30th, inclusive of the three loans I just mentioned. NPAs were 137.1 million, which was 122 basis points to total assets, an increase of eight basis points from the prior quarter. Loans 30 to 89 days past due were 56.3 million at September 30th. Increasing from 8.4 million at June 30th of the increase in 30 to 89 days past due to relationships totaling 39 million have become current subsequent to the end of the quarter, while the remaining 8.9 million included one loan on which we have received a paydown of 1 million in early October as a condition of extension, Eric.

Speaker Change: Total assets, an increase of eight basis points from the prior quarter.

Speaker Change: Loans 30 to 89 days past due were $56 3 million at September 30th increasing from $8 4 million at June 30 is of the increase in 30 to 89 day past is two relationships totaling $39 million have become current subsequent to the end of the quarter.

Speaker Change: While the remaining $8 9 million included one loan on which we have received a pay down of $1 million in early October as a condition of extension.

Eric Newell: Thank you, Jan. We reported net income for the quarter totaling 21.8 million, or 72 cents per diluted share. This compares to the prior quarter gap loss of 83.8 million after recording 104.2 million in a value of goodwill. Excluding the goodwill impairment, operating net income last quarter totaled 20.4 million or 67 cents per share. Third quarter operating earnings improved 1.4 million, attributed to a positive variance related to the change in provision for unfunded commitments, higher fee income, and a modest increase in that interest income. This was offset by an increase in provision for credit expense and non-interest expense.

Speaker Change: Eric.

Speaker Change: Jan.

Speaker Change: We reported net income for the quarter totaling $21 8 million.

Speaker Change: Or <unk> 72 per diluted share this.

Speaker Change: This compares to the prior quarter GAAP loss of $83 8 million after recording a $104 2 million impairment in the value of goodwill.

Speaker Change: Excluding the goodwill impairment operating net income last quarter totaled $20 4 million or <unk> 67 per share.

Speaker Change: Third quarter operating earnings improved $1 4 million attributed to a positive variance related to the change in provision for unfunded commitments higher fee income and a modest increase in net interest income.

Speaker Change: This was offset by an increase in provision for credit expense and non interest expense. The operating trend is relatively stable from the second quarter and materially improved from the first quarter.

Eric Newell: The operating trend is relatively stable from the second quarter and materially improved from the first quarter.

Eric Newell: Our capital position remains strong. To year one, leverage capital increased 36 basis points to 10.9%. Common equity to year one capital increased 62 basis points to 14.5%. Changeable common equity increased 51 basis points to 10.86%. Book value per share increased $1.86 to $40.61 per share, representing an annualized 19% growth rate from the prior quarter.

Speaker Change: Our capital position remains strong.

Speaker Change: <unk> leverage capital increased 36 basis points to 10, 9%.

Speaker Change: Common equity tier one capital increased 62 basis points to 14, 5%.

Speaker Change: Tangible common equity increased 51 basis points to 10 eight 6%.

Speaker Change: Book value per share increased $1 86 to $40 61 per share representing an annualized 19% growth rate from the prior quarter.

Eric Newell: On balance sheet and contingent liquidity also remains strong. Average deposits have grown 398 million from a year ago at September 30 of 2023. Our one way broker deposits representing non-relationship deposits have declined 182 million from the comparable 2023 period end and is the result of growth in non-wholesale deposits. Ensured deposits total 74% of our total deposits. At quarter end, available liquidity from the Federal Home Loan Bank, Federal Reserve discount window, cash and unencumbered securities totaled over 4.5 billion.

Speaker Change: On balance sheet and contingent liquidity also remains strong.

Speaker Change: Average deposits have grown $398 million from a year ago at September 32023.

Speaker Change: Our one way broker deposits, representing non relationship deposits have declined $182 million from the comparable 2023 period end and is the result of growth.

Speaker Change: Of non wholesale deposits.

Speaker Change: Insured deposits totaled 74% of our total deposits.

Speaker Change: At quarter end.

Speaker Change: Available liquidity from the federal home loan Bank Federal reserve discount window cash and unencumbered securities totaled over $4 5 billion.

Kevin Geoghegan: I'll pause here and let Kevin talk about reserves for credit losses. Thanks, Eric. As Jan mentioned, that charge has increased $3 million from the second quarter to $5.3 million. While we continue to assess the adequacy of our qualitative reserves to account for market uncertainty, it is more likely that future reserve build, if any, would be driven by specific reserves from individually evaluated loans. A change in economic estimates from our Moody's inputs to the qualitative regression model may also increase reserves in the event that there is a significant shift in economic expectations that we did not consider in our qualitative reserves.

Speaker Change: Cause here and let Kevin talk about reserves for credit losses.

Speaker Change: Thanks, Eric.

Speaker Change: Jane mentioned net charge offs increased $3 million from the second quarter to $5 3 million.

Kevin: While we continue to assess the adequacy of our qualitative reserves to account for market uncertainty. It is more likely that future reserve builds if any would be driven by specific reserves from individually evaluated loans.

Kevin: A change in economic estimates from our Moody's inputs to the call. It quantitative regression model May also increase reserves in the event there are significant shifts in economic expectations that we did not consider in our qualitative reserves.

Kevin Geoghegan: Well, we continue to add specific reserves to non-accrual office loans, as our policy is to re-appraise annually. While valuation risk in the office portfolio remains, as interest rates ease, we believe the valuation uncertainty will normalize. The allowance for credit losses increased to a $112 million at September 30th, representing coverage to help for our investment loans to 1.4%. Increasing seven basis points from the prior quarter. The ACL coverage to performing office loans increased to 4.55% at September 30th, increasing from 4.05% at June 30th. And 1.91% at December 31st.

Kevin: We continue to add specific reserves to non accrual office flows as our policy is to reappraise annually.

Kevin: While value valuation risk in the office portfolio remains as interest rates eased, we believe the valuation uncertainty will normalize.

Kevin: The allowance for credit losses increased to $112 million at September 30, representing coverage to held for investment loans to one 4% increasing seven basis points from the prior quarter.

Kevin: The ACL coverage to performing office loans increased to $4, 55% at September 30, increasing from four 5% at June 30, and $1, 91% at December 31, Eric.

Eric Newell: Eric? Thank you, Kevin. Operating pre-provision net revenue increased 35, increased to 35.2 million from 34.4 million in the prior period. The driver of the increase was higher non-interesting income from swap and loan fees and, to a lesser degree, an increase of net interest income. Net interest income before provision told 71.8 million in the third quarter, increasing from 71.4 million in the second quarter. NIM in the second quarter was 2.37%, declining three basis points from the second quarter. Driving the decline was certificate of deposit growth in our digital channel. Worth mentioning, in August, we reduced rates paid on non-mature deposits due to declining interest rates in the summer.

Eric: Thank you Kevin.

Eric: Operating pre provision net revenue increased 35 increased to $35 2 million from $34 4 million in the prior period. The driver of the increase was higher non interest income from swap and loan fees and to a lesser degree an increase of net interest income.

Eric: Net interest income before provision totaled $71 8 million in the third quarter, increasing from 71 $4 million in the second quarter.

Eric: NIM in the second quarter was 237% declining three basis points from the second quarter.

Driving the decline, which was certificate of deposit growth in our digital channel.

Eric: Worth mentioning in August we reduced rates paid on non maturity deposits due to declining interest rates in the summer following the decision by the FMC to ease the policy rate by 50 basis points in September we reduced rates again for non maturity deposits by an additional 50 basis points throughout <unk>.

Eric Newell: Following the decision by the FOMC to ease the policy rate by 50 basis points in September, we reduced rates again for non-mature deposits by an additional 50 basis points throughout September. We have 2 billion of loans tied to 30-day or overnight SOFR and 500 million of loans tied to prime. Operating non-interest expense told 43.6 million, increasing from 42.3 million in the previous quarter, adjusted to exclude goodwill impairment in the second quarter. The 1.3 million increase is attributed to higher FEOC expense.

Eric: We have 2 billion of loans tied to 30 day or overnight sofa and $500 million of loans tied to prime.

Eric: Operating non interest expense totaled $43 6 million, increasing from $42 3 million in the previous quarter adjusted to exclude goodwill impairment in the second quarter. The $1 3 million increase is attributed to higher FDIC expenses.

Eric Newell: In our quarterly investor deck, released along with our earnings, we added a preliminary view on 2025. Our thoughts on period and growth of loans next year is between 2 and 8% though the slides shows average loan growth. Mix will be critical as well for funding, growing non-intersparing deposits, and reducing use of wholesale funding should also contribute to spread. Of the 91.2 million of funded loan originations in the quarter, we had a weighted average rate of 7.11%. This compares to 178 million of funded loan originations at a weighted average rate of 8% in the second quarter.

Eric: In our quarterly Investor deck released along with our earnings we added a preliminary view on 2025, our thoughts on period end growth of loans next year is between two and 8%, though this slide shows average loan growth.

Eric: Earning asset growth as flat as we continue to take cash flows from our investment portfolio and reinvest in loans.

Eric: There is an expected benefit from this repositioning of the investment portfolio and the loan mix, which will enhance spread.

Eric: Mix will be critical for as well for funding growing noninterest bearing deposits and reducing use of wholesale funding should also contribute to spread.

Eric: Of the $91 2 million of funded loan originations in the quarter, we had a weighted average rate of seven 1%. This compares to a $178 million funded loan originations at a weighted average rate of 8% in the second quarter.

Susan Riel: I'll turn it over to Susan for a short wrap-up. Thanks, Eric. Team is planning on a future that will allow us to scale our franchise and continue to be the best community bank in the Washington DC Metro area. Eagle Banc's deep-rooted relationships within the region, combined with the expertise of our relationship managers, continue to develop tailored solutions that resonate with both our current and future clients. As a community-focused bank, we are committed to local decision making, building long-term customer trust, and supporting the economic growth of the DC market. We believe this sets us apart and positions Eagle Banc to benefit significantly from the evolving market dynamics.

Speaker Change: I'll turn it over to Susan for a short wrap up.

Susan Riel: Thanks, Eric.

Susan Riel: The team is planning on a future that will allow us to scale, our friendship franchise and continued to be the best community Bank in the Washington D. C Metro area Eagle Bank deep rooted relationships within the region combined with the expertise of our relationship managers continue to develop tailored.

Susan Riel: Solutions that resonate with both our current and future clients as a community focused bank. We are committed to local decision, making building long term customer trust and supporting the economic growth of the D C market.

Susan Riel: We believe this sets us apart and positions Eagle bank to benefit significantly from the evolving market dynamics, we are cautiously optimistic regarding our falling.

Susan Riel: We are cautiously optimistic regarding our following, regarding how falling interest rates may improve valuation risk that we've discussed over the last year and a half. Nevertheless, with our over 25 years of experience in this market, we have the expertise to support clients navigating the challenges of relatively higher interest rates.

Susan Riel: Regarding how falling interest rates may improve valuation risk that we've discussed over the last year and a half Nevertheless, with over 25 years of experience in this market, we have the expertise to support clients navigating the challenges of relatively higher interest rates.

Susan Riel: In closing, I would like to extend a heartfelt thank you to our employees, whose hard work every day makes Eagle a success.

Susan Riel: In closing I would like to extend a heartfelt. Thank you to our employees, whose hard work everyday makes eagle of success with that we will now open things up for questions.

Unknown Executive: With that, we will now open things up for questions. Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star-1-1 on your telephone. If your question has been answered, you wish to move yourself from the queue. Please press star-1-1 again. We will pause for a moment while we compile our queue in a roster.

Speaker Change: Thank you ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone. If your question has been answered or you wish to move yourself from the queue. Please press star one again, we will pause for a moment, while we compile the Q&A roster.

Justin Crowley: Our first question comes from Justin Crowley with Piper Sandler. Your line is open. Good morning, everyone. Just start on credit here and appreciate all that added disclosure in the deck. I wanted to see if you could detail just a little further the pickup and non-performers. It's specifically the assistant living area. I know some of the migration there. We've discussed before. I guess just what you're seeing in that area looking forward with payment defaults being more of a driver with these credits. Yeah, Justin, I think I can give you a quick run to on where we are with the current non-performers.

Speaker Change: Our first question comes from Justin Crowley with Piper Sandler Your line is open.

Justin Crowley: Hey, good morning, everyone.

Wanted to start on.

Justin Crowley: To start on credit here and I appreciate all the added disclosure on the deck I'm.

Justin Crowley: I'm wondering if you could detail just a little further to pick up in non performers.

Speaker Change: Typically the assisted living.

Speaker Change: Area I know some of the migration there.

Speaker Change: Discuss before so I guess, just what youre seeing in that area looking forward with payment defaults being more of a driver with these credits.

Speaker Change: Yes, Justin.

Justin Crowley: I can give you a quick run through on where we are with the current non performers we have D.

Janice Williams: We have the one CBD office property that we have discussed. last in the last two quarters. That's about 28 million dollars. We have an assisted living facility in Charles County, Maryland. That's 19.2 million dollars. You have an office in Arlington at 19.1 million, an office in Northern Virginia at 18.5. Then the newer loans added this quarter. An assisted living facility in Montgomery County, Maryland, very well-placed new facility. It had been current and performing at June 30. I believe there are some issues with achieving stabilization at this property. The sponsor I think is looking at some kind of a negotiation in terms of a lesser payment, will accram down, really.

Justin Crowley: One CBD office property that we have discussed.

Justin Crowley: And the last.

Justin Crowley: Two quarters, that's about $28 million we have.

Justin Crowley: And assisted living facility and.

Justin Crowley: Charles County, Maryland, that's $19 $2 million office in Arlington at $19 1 million office in Northern Virginia.

Justin Crowley: 18, five than the newer loans.

Justin Crowley: Out of this quarter.

Justin Crowley: And assisted living facility in Montgomery County, Maryland, very well.

Justin Crowley: The new facility.

Justin Crowley: It had been current and performing at June 30th.

Justin Crowley: We believe.

Justin Crowley: There are some issues with achieving stabilization at this property and the sponsor.

Justin Crowley: I think has.

Justin Crowley: As looking at some kind of a negotiation in terms of a lesser payment.

Speaker Change: Ah crammed down really.

Janice Williams: That remains to be seen, but we've already marked the property down based on the current appraisal and add as an additional reserve for that. I would say the ground lease land in Fairfax and Tyson's Corner is actually a great piece of property, but again the sponsors are looking for some reduction in the amount owed on that. Very unlikely to happen. That's a property that should be readily saleable at a number significantly in excess of our carrying amount. Then the land that the final one at $10.5 million is land that's at the end of the Dulles Metro.

Speaker Change: That remains to be seen but we've already mark the property down based on the current appraisal and add as an additional reserve for that.

Speaker Change: I would say the ground lease.

Speaker Change: Land in Fairfax, and Tysons corner is actually a great piece of property, but again the sponsors are looking for some reduction in the amount owed on that.

Speaker Change: Very unlikely to happen that's a property that should be readily salable at a number significantly in excess of arent carrying amount.

Speaker Change: And then.

Speaker Change: The.

Speaker Change: Land that.

Speaker Change: The final one at $10 $5 million.

Speaker Change: Land Thats at the end of the Dallas Metro.

Janice Williams: It is zoned from multi-family. It's with a ground lease. There are various issues amongst the fee owner, the adjoining land owner, and the ground lease holder that is resulting in litigation. Don't know how long it'll take for that to be resolved. If and when, we'll have a better idea. Right now there's an injunction against the property. So we have moved it into non-performing status. It is protected by a loan to value, but that's an evolving situation. Does that answer your question? Yeah, no, that's helpful detail. Then I guess just on office, more broadly, it was nice to see some stability there.

Speaker Change: It is.

Speaker Change: For multifamily, it's with a ground lease there are.

Speaker Change: Various issues amongst the fee owner the adjoining landowner and the ground lease holder that is resulting in litigation don't know how long it'll take for that to be resolved.

Speaker Change: If and when we will have a better idea right now there's an injunction against the property.

Speaker Change: We have moved into nonperforming status. It is protected by a loan to value, but thats an evolving situation.

Speaker Change: Does that answer your question.

Speaker Change: Yes.

Speaker Change: That's helpful detail and then I guess just on Opex.

Speaker Change: More broadly it was nice to see some stability there just as we look ahead to 'twenty five lighter year maturities before we get to 'twenty six.

Janice Williams: As we look ahead to 25, a lighter year for maturities before we get to 26, just curious any commentary or early work you're doing in those buckets in terms of what you're seeing with appraisals and then just what you're seeing with occupancy rates. There is still a lot of volatility in the appraisal area. I think it's because they're all driven by hindsight, and you're looking at what properties sold for in the last year. Most of what you're going to find is distress sales or foreclosures, and those are what I believe to be the lowest possible values they could be using for calculating valuation on newer properties.

Speaker Change: Just curious any commentary or early work youre doing in those buckets in terms of what youre seeing with <unk>.

<unk>.

Speaker Change: And then just what youre seeing with occupancy rates.

Speaker Change: There is still a lot of volatility in the appraisal.

Speaker Change: Area I think.

Speaker Change: It's because they're all driven by hindsight.

Speaker Change: Youre looking at what properties sold for in the last year most of what Youre going to find is distressed sales are foreclosures.

Speaker Change: Those are what I believe to be the lowest possible values they could be using for.

Speaker Change: For calculating valuation on newer properties when I look at what's been foreclosed on in our market and I think this is <unk>.

Janice Williams: When I look at what's been foreclosed on in our market, and I think that's... is probably true across the country. Large loans in the central business district are the ones that are seeing the biggest drop in valuation. There's a very limited number of buyers for those properties, very limited financing for anyone who is a buyer on those properties. We're starting to see some green shoes of activity in the markets, but I think that the volatility in appraisals, while it should be improving, will take a while to shake out there. We are seeing very stable occupancy in the properties that we have that are going out the next 18 months in terms of leaf roll or maturities.

Robley true across the country.

Speaker Change: <unk>.

Speaker Change: Large loans in the central business district, or the ones that are seeing the biggest drop in valuation and there's a very limited number of buyers for those properties.

Speaker Change: Limited financing for anyone who is a buyer on those properties were starting to see some green shoots of activity in the market.

Speaker Change: But I think that the volatility and appraisals, while it should be increasing will improve and we will take a while to shake out there.

Speaker Change: We are seeing.

Speaker Change: Very stable occupancy and <unk>.

Speaker Change: Properties that we have that are going out the next 18 months in terms of.

Speaker Change: Lease roll or maturities.

Janice Williams: I think we haven't really seen degradation in terms of the suburban office market in terms of occupancy levels. We're actually seeing some activity out there. We really only have minimal in terms of life sciences projects, which I know have been having issues lately, but we haven't skipped a beat in terms of the office portfolio as a whole. I think one of the reasons is the proximity on the life science aside to Fort Detrick and NIH that the 270 corridor has. So there really hasn't been the Central Business District. One is a trophy property. That's our largest loan.

Speaker Change: Zinc.

Speaker Change: We haven't really seen degradation in terms of the suburban.

Speaker Change: Office market in terms of occupancy levels.

Speaker Change: Actually seeing some activity out there.

Speaker Change: We really only have.

Speaker Change: Minimal.

In terms of life Sciences projects, which I know has been having issues lately, but we haven't skipped a beat in terms of.

Speaker Change: The office portfolio as a whole.

Speaker Change: One of the reasons is the proximity on the life science.

Speaker Change: Scientists side to Fort Dietrich and NIH, but the 270 corridor has there really hasn't been a weakness.

Speaker Change: That we've experienced I think.

Speaker Change: The four loans that we have in the Central business District won a trophy property, that's our largest loan it's about $48 million that Lan.

Janice Williams: It's about $48 million. That loan, long-term lease to New York-based international law firm, not expecting a blip on that one. The buildout is almost finished on it, and they should be moving in shortly, and rent payments will commence. So a lot of confidence in that property. The trophy market is extremely tight. No change in pricing on that either. I'm cautious, but I'm optimistic that with a couple of more drops in interest rate, we should start to see some decent valuations done on these properties as we start to see market trades happen. Okay, that's helpful.

Speaker Change: Long term leased to a New York based international law firm not expecting a blip I'm not one the build out is almost finished on it and they should be moving in shortly and rent payments will commence so a lot of confidence in that property.

Speaker Change: The trophy market is extremely tight.

Speaker Change: No change in pricing on that either.

Speaker Change: So I'm cautious, but I'm optimistic that with a couple of more drops in interest rate, we should start to see some decent Val.

Speaker Change: Valuations done on these properties as we start to see market trades happen.

Justin Crowley: Maybe it's more of a modeling question, but just on the reserve, I think it's been talked about before, maybe a 135, 140 reserve level. So being at the high end of that now, I know it wasn't in the outlook slide for 2020-25, but just any preliminary thoughts on either go forward charge-off expectations or provisioning assumptions and what kind of allowance level that gets you looking out the next year. Yeah, in terms of the allowance, I think we kind of talked about our thinking there in terms of any additional build. In terms of credit, I think the range that we're willing to talk about for 2025 is between 25 and 50 basis points on average loans.

Speaker Change: Okay. That's helpful and then.

Speaker Change: Maybe it's more of a modeling question, but just on the reserves I.

Speaker Change: I think it has been.

Speaker Change: Talks about before maybe a 135 140 <unk> reserve level and so being at the high end of that now I know it wasn't in the outlook slide for 2025, but just any preliminary thoughts on either.

Speaker Change: All forward charge off expectations or provisioning assumptions.

Speaker Change: What kind of allowance level that gets you looking out to next year.

Speaker Change: Yes in terms of the.

Speaker Change: And so I think we've kind of talked about our thinking.

Speaker Change: There in terms of any additional build in.

Speaker Change: In terms of credit.

Speaker Change: I think the range that we're willing to talk about for 2025 is between 25 and 50 basis points on average loans.

Justin Crowley: Williams. However, I think you need to, you know, that's a wide range, but you need to take in context all the comments that Jan just mentioned in what we're seeing right now for information that's available to us on that. But, you know, that's the way we're looking at it for next year for Charles Johnson. Okay, awesome. I appreciate that. I will leave it there. I appreciate you taking the questions.

Speaker Change: However.

Speaker Change: I think you need to.

Speaker Change: Wide range.

Speaker Change: But you need to take in context to all of the comments that Jan just mentioned and what we're seeing.

Speaker Change: Right now for information that's available to us on that but.

Speaker Change: That's the way we're looking at it for next year for charge offs.

Speaker Change: Okay Awesome I appreciate that I will leave it there I appreciate you taking the questions.

Catherine Mealor: One moment for our next question. Our next question comes from Katherine Mealor with KBW. Your line is open. Thanks. Good morning. Good morning, Katherine. Thank you for all the additional disclosure. It's very helpful. If I look at slide 26, that shows your top 25 loans, which I think is really cool to see. One thing that you talk about in your slide deck, and you mentioned before that the biggest thing that's bringing through your properties to MPL is not necessarily payment default, but it's a maturity and then the need to get an updated appraisal. And so if I look at that slide, it looks like you're really only kind of your largest loans, kind of two credits that we might be worried about in the next quarter: once the office loan, that's about 85 million, that matures in December, and then the data center loan that matures in December; both are criticized.

Thanks, Justin one of them before our next question.

Speaker Change: Yeah.

Speaker Change: Our next question comes from Catherine Mealor with <unk>. Your line is open.

Catherine Mealor: Thanks, Good morning.

Catherine Mealor: Good morning or afternoon.

Catherine Mealor: Thank you for all the additional disclosure.

Catherine Mealor: Very helpful.

Catherine Mealor: I look at slide 26 that shows your top 25 loans.

Catherine Mealor: Which I think is really cool to see.

Catherine Mealor: Yeah, one thing that you talk about in your slide deck and you've mentioned before that the biggest thing is bringing some of your properties to NPL is not necessarily a payment default, but it's the maturity and then they need to get an updated appraisal and so.

Catherine Mealor: If I look at that slide it looks like it.

Catherine Mealor: It really only kind of your largest loans two credits.

Catherine Mealor: You're worried about the next quarter ones.

Speaker Change: The office loan.

85 million that matures in December and then the data center loan that matures in December both are criticized.

Janice Williams: Any, I know it's preliminary and that'll happen in the fourth quarter, but any kind of preliminary thoughts on those two, as we kind of think about the migration that we could see next quarter. Thanks. Okay, thanks, Katherine. Yeah, we do have those. Not a ton of maturities coming up in the next six months or so. One of them is you're correct. One of the larger office properties, located in Primary County in Bethesda. I'm not expecting there to be an issue. I'm not appraisal because the occupancy is good, the debt service coverage is good. We've swept all of the cash flow for the last year, year and a half, so that we've built up about six million dollars in, I'm $7 million in a reserve for bills out for new tenants if there is roll over there.

Speaker Change: I know, it's preliminary and that'll happen in the fourth quarter, but any kind of preliminary thoughts on <unk>.

Speaker Change: Those two.

Speaker Change: So as we kind of think about the migration that we could see next quarter. Thanks.

Speaker Change: Okay. Thanks Catherine.

Speaker Change: We do have those not a ton of maturities coming up in.

Speaker Change: The next.

Speaker Change: Six months or so.

Speaker Change: One of them is.

Speaker Change: Is he a correct one of the larger.

Speaker Change: Office properties located in Montgomery County in Bethesda, not <unk>.

Speaker Change: Expecting there to be an issue on that appraisal because the occupancy is good the debt service coverage is good.

Speaker Change: Swept all of the cash flow for the last year year and a half.

Speaker Change: So that we've built up about $6 million and and.

Speaker Change: $7 million.

Speaker Change:

Speaker Change: Therefore build out for new tenants, if there is roll over there.

Janice Williams: And then also payment reserve of about two and a half million. So we think we're in good shape for that, even if they were to lose a tenant or two. Bethesda market is doing pretty well right now for these Class A properties. So not hugely worried. Tyson's the data center that you're talking about. I am a little concerned about that one because, while negotiations are ongoing with Amazon, it's tough to predict what Amazon is going to do right now in terms of data centers. They seem to shift their philosophy from rent to buy back and forth frequently.

Speaker Change: And then also a payment reserve of about $2 5 million.

Speaker Change: We think we're in good shape for that even if they were to lose a tenant or two.

Speaker Change: Because the market is doing pretty well right now for these class a properties.

Speaker Change: So not hugely worried tysons.

Speaker Change: Data center that you're talking about.

Speaker Change: I am a little concerned about that because.

Speaker Change: While negotiations are ongoing with Amazon.

Speaker Change: It's tough to predict what Amazon is going to do right now in terms of data centers they seem to shift their philosophy from Brent to buy.

Speaker Change: Back and forth frequently.

Catherine Mealor: So I don't know which direction that one's going to go in. Great, very helpful. Thank you for that.

Speaker Change: I don't know, which direction that one's going to go in.

Speaker Change: Okay, great very helpful. Thank you for that.

Catherine Mealor: And then maybe turning over to the margin, can you talk a little bit about what you've seen on deposit costs so far this quarter? I mean, your deposit cost has been so high. And so I would think that you would have a pretty high data on the way down. And so just curious what you've seen so far with the first 50 basis points of cuts and what you would expect from a data over the next couple of quarters. Thanks. Yeah, as I mentioned, my prepared commentary. We reduced non-maturity deposits collectively, accumulatively, I should say, 65 basis points; and late in the third quarter, 15 basis points in August and another 50 basis points in September. Haven't seen any preliminary customer behavior that would be concerning.

Speaker Change: And then maybe turning over to the margin.

Speaker Change: Can you talk a little bit about what you're seeing on deposit costs. So far this quarter I mean, your deposit costs have been so high and so I would think that you would have a pretty hard data on the way down and so just curious what you've seen so far with the first 50 basis points of cuts and what you would expect.

Speaker Change: From a beta.

Speaker Change: Over the next couple of quarters. Thanks.

Speaker Change: Yes, as I mentioned in my prepared commentary.

Speaker Change: Reduced non maturity deposits collectively are cumulatively I should say 65 basis points.

Speaker Change: And late in the third quarter 15 basis points in August and another 50 basis points in September Havent seen.

Speaker Change: Any.

Speaker Change: Preliminary customer behavior that would be concerning.

Eric Newell: There's been some statement cycles, which to me, at least my history, that's important. That's one that customer oftentimes realizes that rates are falling on their count, but we don't anticipate any issue or concerns there. In terms of your comment about data going forward, I would say it's not going to be 100%, but I think it could be pretty high for our customer deposits. And then in terms of wholesale, well, less wholesale now than before. You know, we're going to continue to use the tools that we have. One of which is the digital channel into next year that will help us reduce the use of wholesale, which has that higher beta money.

Speaker Change: Some statements cycles, which to me or at least my history. That's.

Speaker Change: That's important.

Speaker Change: That's the one that customer oftentimes realizes that rates are falling on their on their account, but we don't anticipate any issue or concerns there.

Speaker Change: In terms of your comment about.

Speaker Change: Beta going forward.

Speaker Change: I would say, it's not going to be 100%.

Speaker Change: But I think it could be pretty high.

Speaker Change: For our customer deposits and then in terms of wholesale while less less wholesale now.

Speaker Change: Then before.

Speaker Change: We're going to continue to use the tools that we have one of which is the digital channel into next year that will help us reduce the.

Speaker Change: Use of wholesale which adds about higher beta money and then.

Eric Newell: And then, you know, wow, digital isn't immediately accredited to our cost of funds. There is a level of complacency that that channel, the customer in that channel does demonstrate. We've seen a little of that already, even though we've been doing it for only 10 months. So I think we're going to learn a lot more here in the fourth quarter and the first quarter on testing that complacency of that customer. So I think that if you ask me this question next quarter, I could probably give you a little bit more informed view on the betas and that in the digital channel for Eagle.

Speaker Change: While digital.

Speaker Change: It isn't a immediately accretive to our cost of funds there is a level of complacency.

Speaker Change: That channel the customer in that channel does demonstrate we've seen a little of that already even though we've been.

Speaker Change: Doing it for only 10 months. So I think we're going to learn a lot more here in the fourth quarter and the first quarter on testing that complacency of that customer.

Think that if you asked me that question next quarter I could probably give you a little bit more of an informed view on.

Speaker Change: On the beta is in that in the digital channel for Eagle, but my experience.

Catherine Mealor: But my experience and other institutions that I've had experience with this channel is that data can sometimes be close to, you know, 60% to 70%. Okay, I'm super helpful.

Speaker Change: <unk>.

Speaker Change: And other institutions.

Speaker Change: Experienced whether it's channel is that data.

Speaker Change: Sometimes be close too.

Speaker Change: 60%, 60%, 70%.

Speaker Change: Okay Super helpful. And then maybe my last question is just on the dividend reduction.

Susan Riel: And then maybe my last question is just on the dividend reduction that you announced earlier this quarter. Can you just kind of give us some commentary on what drove that decision. And then, as we think about your commercial real estate to capital ratio, you mean you've got a ton of capital. But just kind of curious if there are, you know, there's a level that you hope to be to buy in the next couple of quarters and the end of 25 or just kind of what your target is for that and how that might impact growth over the next year.

Speaker Change: You announced earlier this quarter can you just kind of give us some.

Speaker Change: Commentary on what drove that decision and then as we think about your commercial real.

Real estate to capital ratio, you mean, you've got a ton of capital. If we just look at capital Standalone, but obviously, an elevated CRE to capital ratio and so I know that the.

Speaker Change: Plan is to reduce that.

Speaker Change: But just kind of curious if there are there is a level that you hope to be to buy.

Speaker Change: <unk>.

Speaker Change: A couple of quarters, they buy end of 'twenty, five or just kind of what your target is for that and how that might impact growth over the next year. Thanks.

Susan Riel: In terms of CRE, our strategic plan is focused on, and thinking strategically, we think 24 to 36 months out. Our goal is to get the CRE concentration ratio closer to FTSC guideline, but that does not mean that we're not serving our CRE customer. We have expertise in CRE; Eagle is known for CRE in our market. We're not turning our back on the CRE customer. We're serving our clients. That being said, the dividend, which, you know, the recalibration of the dividend, which seemed like a natural time to consider that given that the refinancing of the supported debt and the senior debt, I think the dividend helps us grow the numerator of that.

Speaker Change: In terms of CRE.

Speaker Change: Our strategic plan is focused on.

Speaker Change: We're thinking strategically we think 24 to 36 months out.

Speaker Change: Our goal is to get the CRE concentration ratio closer to FDIC guidelines, but that does not mean that we're not serving our CRE customer we are we're a CR.

Speaker Change: Expertise in CRE Eagle is known for CRD in our market, we're not turning our back on our CRM customer, we're serving our clients that being said the.

Speaker Change: Dividend.

Speaker Change: Yeah.

Speaker Change: Recalibration of the dividend, which seem like a natural time for us.

Speaker Change: Consider that given that the refinancing of the.

Speaker Change: The subordinated debt and the senior debt I think the dividend.

Speaker Change: Helps us grow the numerator of that no, but do not.

Eric Newell: No, but do not. I'm not great at math. You would think I'm not. No, you know what I'm saying. Sorry, we're all laughing at Eric right here. But it grows the capital at much greater by holding on to 32 million of additional capital, so that the CRE concentration ratio does get close to that guideline. I think there's another nuance here, so capital is the denominator. And on the numerator side, you know, I'm talking with Jan and Ryan, real, who's our Chief Lending Officer on CRE. There's about 400 million that the two of them believe could or is kind of primes to go find permanent financing somewhere else.

Speaker Change: I'm a great at math you would think.

Speaker Change: Yes.

Speaker Change: Our CFO.

Speaker Change: Yes.

Speaker Change: That's great.

Speaker Change: Sorry, if we're all laughing Eric here.

Speaker Change: The growth.

Speaker Change: The capital at much greater by holding on to $32 million of additional capital. So that the CRE concentration ratio does get close to that guideline I think there's another nuance here.

Speaker Change: So capital is the denominator and then on the numerator side.

Speaker Change: Alright, I'm talking with Jan and Ryan real Who's our chief lending officer on CRE.

Speaker Change: There is about 400 million of debt, but two of them believe.

Speaker Change: It could.

Speaker Change: It's kind of primed to go find permanent financing somewhere else, we're not a perm CRE financing institution, we're more of a bridge.

Eric Newell: We're not a permed CRE financing institution or more of a bridge lender. And so we're not going to be doing the deals that you would get in a pension fund or a life co, or, you know, or get, or we're not going to compete against, you know, financing from Jenny May. So we estimate that there could be about 400 million that, as if rates continued to fall, you know, these folks are using extensions to kind of wait to get lower rates before locking in. And we think that that could be quite helpful with reducing the CRE concentration ratio.

Speaker Change: Lender and so we're not going to be doing the deals that you would get in a pension fund or a life co or.

Speaker Change: Or that or I'm, not going to compete against.

Speaker Change: Financing from Ginnie Mae So we estimate that there could be about 400 million that if rates continue to fall.

Speaker Change: Those folks are.

Speaker Change: Are using extensions.

Speaker Change: To kind of wait to get lower rates before locking in and we think that that could be quite helpful.

With reducing the CRE concentration ratio so one of the goals that will have.

Eric Newell: So one of the goals that we'll have, if we have the benefit of that happening, to prop up earning assets would be CNI. And so Susan has spoken throughout this year about our initiative to grow CNI and bringing Evelyn on the leadership team, and her 25 years of experience in this market is certainly helpful in that strategy. And yes, organic growth in CNI will take some time, and we're certainly we have we see a lot of activity coming through our management loan committee. But I think there will be other opportunities that we could take it and the intermediate steps to also keep our earning assets flat and not show a decline in earning assets and have that to be in the CNI.

Speaker Change: We have the benefit of that happening to.

Speaker Change: Prop up earning assets would be C&I and so Susan has spoken throughout this year about our initiative to grow C&I.

Speaker Change: And bringing in the leadership team and her 25 years of experience in this market is certainly helpful in that strategy and yes organic growth in C&I will take some time and we're certainly we have we see a lot of activity.

Speaker Change: Coming through our management loan committee, but I think there'll be other opportunities, where we could take it in the intermediate steps too.

Speaker Change: Also keep our earning assets flat and not show.

Speaker Change: A decline in earning assets and have that would be in the C&I bucket.

Unknown Executive: All right, bye.

Christopher Marinac: Thank you very much for our next question. Our next question comes from Christopher Marinac with Janie Montgomery Scott; your line is open. Thanks, good morning.

Speaker Change: That's very helpful.

Speaker Change: Yes. He did is all very helpful. Thank you very much.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from Christopher <unk> with Janney Montgomery Scott Your line is open.

Eric Newell: I'm Eric. If we dug into the expense guide for 2025, do you already have the FDSE cost in that run rate? I was just thinking about a scenario where you would go above the expense guide and if that would be primarily just because you were more successful on new hires and if that was a fair scenario. So in the 2025 view of expenses, FDSE is flat from 2024, and then I believe that we will not see any increases of expenses, material increases of expenses away from where our outlook is showing, given due to team buildout.

Christopher <unk>: Thanks, Good morning, I'm, Eric if we dug into the expense guide for 2020 Fives do you already have the FDIC costs in that run rate.

Christopher <unk>: Just thinking about a scenario, where you would go above your expense guide and if that would be primarily just because you were more successful on new hires and if that was a fair.

Christopher <unk>: Scenario.

Christopher <unk>: We.

Speaker Change: In the 2025 view of expenses FDIC is flat.

Christopher <unk>: 2024.

Christopher <unk>: And then I believe that.

Christopher <unk>: We will not see any increases of expenses material increase of expenses away from where our outlook is showing given due to.

Eric Newell: I think that there's enough capacity for us to build out teams and take on new team members and new relationship managers when we want them on our team, and that's not going to materially alter our expense approach.

Christopher <unk>: Team build out I think there is enough capacity.

Christopher <unk>: For us to build out teams were and take on new team members in new relationship managers, when we want them on our team and thats not going to materially alter our expenses.

Christopher <unk>: Approach.

Christopher <unk>: Okay.

Eric Newell: Got it. And then with Evelyn joining in as she and her team get ramped up next year, what's the, I guess, outlook, not just for CNI business, but also kind of related deposits and does that give you some relief on funding costs in the 2025 guide? CNI deposit generation and growth, as we all know, is a long sales cycle. I don't want to speak for Evelyn, but I think that there are certainly opportunities with our current customers. How do we deepen our relationship with our current CNI customers, providing them treasury management products that they might be useful to them that they're not using?

Speaker Change: Got it and then with Evelyn joining it as she and her team get ramped up next year whats. The I guess outlook not just for C&I business, but also kind of related deposits and does that give you some relief on funding costs.

Speaker Change: The 2025 guide.

Speaker Change: C&I deposit.

Speaker Change: Generation and growth.

Speaker Change: We all know is a long sales cycle.

Speaker Change: I don't want to speak for Evelyn.

Speaker Change: But I think that there are certainly opportunities with our current customers how do we deepen our relationship with our current C&I customers providing them.

Speaker Change: Treasury management products that they might it might be useful to them that they're not using so I think that that certainly is.

Eric Newell: So I think that that certainly is a shorter sales cycle. And I think as Evelyn starts to familiarize herself with the team and finds talent that could be accretive to the existing team and gets the team focused on sales, outreach and efforts and being out in the community, those efforts will eventually help drive deposit growth. And a lot of words to say, I don't think we're going to see a material increase in CNI deposit growth in the next quarter or so because that takes some time. But I do believe that in the long term that that is definitely an important part of our strategy in improving the quality of our deposits, and it will absolutely be accretive to our cost of funds because it will allow us to reduce the use of wholesale funding, and it will also allow us to have less of a digital strategy presence in our deposits because the deposits that Evelyn and her team, as well as Ryan and his team, and also our small business and our branch channels, consumer channels, those are all relationships deposits that will really build the franchise value that we have here, and we want to continue to build on.

Speaker Change: Shorter sales cycle.

Speaker Change: I think as.

Speaker Change: I will start.

Speaker Change: Familiar.

Speaker Change: Familiarize yourself with the team.

Speaker Change: And finally talent.

Speaker Change: That could be accretive to the existing team and get the team focused on sales outreach and efforts and being out in the community. Those efforts will eventually help drive deposit growth.

Speaker Change: And.

Speaker Change: A lot of words to say I don't think we're going to see.

Speaker Change: Material increase in C&I deposit growth in the next quarter or so because that takes some time.

Speaker Change: But I do believe that in the long term.

Speaker Change: That that is definitely an important part of our strategy and improving the quality of our deposits and it will absolutely be accretive to our cost of funds because it will allow us to reduce the use of wholesale funding and it will also.

Speaker Change: Allow us to have less of a digital strategy presence and our deposits because the deposits that Avalon and her team as well as Ryan and his team.

Speaker Change: And also our small business and our branch channels consumer channels. Those are all relationship deposits that will really build the franchise value.

Speaker Change: We have here and we want to continue to build on.

Susan Riel: The only thing I would add to that is, over this last year, we have spent some time developing our Treasury management focus, so we've increased some of the products there and the staffing there, so that will help Evelyn get the ground running on gathering those deposits and those fees from that kind of a service.

Speaker Change: Only thing I would add to that is with this last year. We have spent some time developing our treasury management focus. So we've increased some of the products there and the staffing so that will help ethylene if the.

Speaker Change: Running on gather.

Speaker Change: Gathering those deposits and those fees from that kind of the surface.

Christopher Marinac: of us. Great. Thank you both for the feedback on that.

Speaker Change: Great. Thank you both for that feedback on that and just I guess, a relatively quick question for Janet or Kevin.

Janice Williams: And just I guess a relatively quick question for Jan and Kevin. Do the maturities in 2024 have anything we're meeting that are going to be dealt with in the fourth quarter, or is most of those already taken care of and the real focus is on 25 and 26. I'm saying you're correct that the real focus, I think, is going to be on 26, 25, so pretty light year for maturities. We are working through included in that number for the balance of 2024 our loans that have already matured and are non-performing. So those loans are matured, but nothing, no event is going to transpire.

Speaker Change: Do the maturities in 2024 had anything we're meeting that or kind of being dealt within the fourth quarter or is most of that has already taken care of and the real focus is on 'twenty five and 'twenty six.

I would say you are correct that the real focus I think is going to be on 26, 25 is a pretty light year from maturities.

Speaker Change: We are working through.

Speaker Change: Included in that.

Speaker Change: Number for the balance of 2024 are loans that have already matured and our nonperforming. So those loans are mature but.

Speaker Change: Nothing no event is going to transpire that would cause.

Janice Williams: That would cause an extension of those. So they will sit there until they're sold or repaid. So it's really a lesser number than not. Eric, I think you have the split out there on the maturities during 2024. Yeah. And the on the 2024, but I think you answered this question in 2024. If not, or any value, a valuation risk there. Well, there's always some, but I think overall, in terms of volume going for the balance of this year and even into next year, it's a pretty small number. Yeah. Got it.

Speaker Change: An extension of this date.

Speaker Change: They will sit there until they're sold or repaid.

Speaker Change: So it's really a lesser number than that Erik I think you have the split out there on the.

Speaker Change: Maturities during 2024.

Speaker Change: On the <unk>.

Speaker Change: Thousand 24.

Speaker Change: I think you answered Chris's question.

Speaker Change: In 2024, that's about any.

Speaker Change: Value.

Speaker Change: Valuation risk.

Speaker Change: Well, there's always some but I think overall.

Speaker Change: It's small.

Speaker Change: In terms of volume going for the balance of this year and even into next year, it's pretty small number yes.

Speaker Change: Yes.

Janice Williams: Is there any, I guess, risk in terms of working in advance on those 26 maturities, or is it really just a function of assessing the lost content possible and having to reserve appropriate? I think there is early intervention action that we've taken going out that far. Typically, that involves a cash flow sweep or a paydown. We're in a position, and the bars in a position to come up with a principle reduction. We probably would not enter into an extension until the time of maturity, but we would put into effect credit enhancements before the maturity date.

Speaker Change: Got it is there any.

Speaker Change: I guess risk in terms of working in advance on this 26.

Speaker Change: Maturities or is it really just a function of assessing the loss content possible and having the reserve appropriate.

Speaker Change: I think there is.

Speaker Change: Early intervention action that we've taken going out that far typically that involves a cash flow sweep or a pay down.

Speaker Change:

Speaker Change: We're in a position in the buyers in a position to come up with a principal reduction.

Speaker Change: <unk>.

Speaker Change: We probably would not enter into an extension until the time of maturity, but we would put into effect credit enhancements before the maturity date.

Eric Newell: Chris, I will add, maybe I've told you this prior. When I talk with institutional investors about the office reserve, oftentimes the number 10% comes up. And the reason that we don't believe 10% is appropriate for EGLE is given the limited, and now you can see that the actual exposure we have to the central business district, we have limited exposure to central business district, office loans. And when you look at the issuers that have those 10% reserves, they have much more exposure to the larger office loans in the central business district. And one of the disclosures that's added to our deck on slide 27 in the bottom right-hand corner is the stratification of our office portfolio by square footed.

Speaker Change: Chris I will add.

Speaker Change: Maybe ive told you at Pryor.

Speaker Change: When I talk with institutional investors about the office reserve oftentimes the number 10% comes up and the reason that we don't believe 10% is appropriate for Eagle is given the limited and now you can see that.

Speaker Change: Actual.

Speaker Change: <unk>, we have taught us the central business District, we have limited exposure to central business District.

Speaker Change: Office loans and when you look at the issuers that have those 10%.

Speaker Change: Reserves they have.

Speaker Change: <unk> much more exposure to it.

Speaker Change: Larger office loans in the Central business district, and with one of the disclosures that's additive to our deck.

Speaker Change: On slide 27 in the bottom right hand corner is the stratification of our office portfolio by square footage.

Janice Williams: and in that you can see we only have one office property that has 500,000 square feet or greater. I believe in Janice prepared comments, although I don't know if he said at this time. We spent so much time talking together, talking about credit. She's talked in the past about the loss rate for something that's 500,000 square feet is seven times greater than 50,000 square feet, and that's not Eagle saying that; that's the Federal Reserve. I think it was Kansas City that did a study earlier this year. So we spent a lot of time, Jan, myself and frankly the whole entire management team including Susan. We spent a lot of time talking about the reserves that we have for office and that that 4.55 we feel is adequate at September 30. It's given the information we have and you'll note in our prepared comments, from Kevin, we believe that if there is any additional reserve build, it's going to be more idiosyncratic and related to individually evaluated loans versus an overall qualitative reserve for office and continuing the build.

Speaker Change: And in that you can see we only have one office property that has 500000 square feet or greater I believe in Jane's prepared comments.

Speaker Change: Although I don't know if he said at this time, we spent so much time talking together talking about credit.

Speaker Change: <unk> talked in the past about the loss rate for something like 500000 square feet seven times greater than 50000 square feet and Thats not eagle, saying that the federal reserve because Kansas City did a study earlier this year. So we.

Speaker Change: We've spent a lot of time Jan and myself.

Speaker Change: Frankly, the whole entire management team, including Susan we spent a lot of time talking about the reserves that we have for office.

Speaker Change: And that $4 $5 five we feel is adequate at September 30, given the information we have.

Speaker Change: You'll note in our prepared comments from Kevin.

Speaker Change: We believe that.

Speaker Change: If there is any additional reserve build that is going to be more idiosyncratic and are related to.

Individually evaluated loans versus a overall qualitative reserve for office.

Speaker Change: Continuing to build.

Janice Williams: I think that's true, and when you look at the portfolio, as we sort of postmortem anywhere, we've had losses in the office portfolio; nothing of 20 million dollars or less, no loan of 20 million or less, has had any kind of a loss. So I think what the Fed has pointed out has held true for us that the smaller deals have a much less risk of loss. Typically, you're going to see personal guarantees on the smaller loans, so we have a lot more leverage and negotiating.

Speaker Change: I think thats true and when you look at.

Speaker Change: The portfolio.

Speaker Change: As we sort of postmortem anywhere we've had losses.

Speaker Change: In the office portfolio nothing of $20 million or less no line of $20 million. Our labs has had any kind of a loss. So I think what the fed has pointed out has held true for us at the smaller deals have a much less.

Speaker Change: Risk of loss.

Speaker Change: Typically youre going to see personal guarantees on smaller loans.

Speaker Change: We have a lot more leverage in it.

Speaker Change: Negotiating.

Christopher Marinac: Great, thank you all for your feedback, and again, thanks for the disclosure and slides. It was really, really helpful. Thank you, Chris.

Speaker Change: Great. Thank you all for your feedback and again, thanks for the disclosure in the slides it was really really helpful.

Speaker Change: Thank you Chris.

Unknown Executive: And I'm not showing any further questions.

Speaker Change: And I'm not showing any further question at this time I would like to turn the call back over to President and CEO, Susan Riel for any closing remarks.

Susan Riel: At this time, I like to turn the call back over to President Ciel, Susan, real for any closing remarks. I just want to take some time to thank you for your time today and for your questions, and we look forward to speaking to you again this quarter.

Susan Riel: Just wanted to take some time to thank you for your time today and for your questions and we look forward to speaking to you again next quarter.

Unknown Executive: Have a great day. Ladies and gentlemen, that's included in today's presentation.

Speaker Change: Have a great day.

Speaker Change: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

Unknown Executive: You may now disconnect and have a wonderful day.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: [music].