Q4 2024 Eagle Bancorp Inc Earnings Call

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Eric Newell: Our team remains focused on executing a disciplined strategy that positions Eagle Bank and our clients for long-term success, even amid evolving market dynamics.

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Susan Riel: The enhanced loan disclosures introduced last quarter reflect our commitment to transparency, helping stakeholders better understand the risks we see and how we are addressing them.

Please be advised that today's conference is being recorded.

Eric Newell: The enhanced loan disclosures introduced last quarter reflect our commitment to transparency, helping stakeholders better understand the risks we see and how we are addressing them.

I would now like to hand, the conference over to your speaker today, Eric Newell.

Chief Financial Officer of Eagle Bancorp. Please go ahead.

Susan Riel: Looking back on 2024, we made significant progress toward building a foundation for sustainable growth. We strengthened our C&I team to deepen relationships and grow deposits and fee income, key components of our profitability strategy. Fourth quarter deposit growth of $590.2 million allowed us to fully repay $1 billion in bank term funding program debt, a testament to the strength of our balance sheet and liquidity management. As we look ahead, our geographic presence in the DMV, our role as a top local commercial lender, and our deep, deeply rooted relationship first values create a strong competitive advantage. These qualities enable us to adapt to change and deliver solutions that build trust and long term value for our clients.

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 our call today are forward looking statements.

Eric Newell: Looking back on 2024, we made significant progress toward building a foundation for sustainable growth.

Eric Newell: We strengthened our C&I team to deepen relationships and grow deposits and fee income, key components of our profitability strategy.

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

Our Form 10-K for the 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 reflected in any forward looking statements made this morning, which speak only as of today.

Eric Newell: As we look ahead, our geographic presence in the DMV, our role as a top local commercial lender, and our deeply rooted relationship-first values create a strong competitive advantage.

Eagle Bank Corp, does not undertake to update any forward looking statements as a result of new information or future events or developments unless required by law.

This morning's commentary will include non-GAAP financial information the earnings release, which is posted in the Investor Relations section of our website and filed with the SEC contains reconciliations of this information to the most directly comparable GAAP information.

Eric Newell: These qualities enable us to adapt to change and deliver solutions that build trust and long-term value for our clients.

Susan Riel: The entire team is energized by the progress we've made and the opportunities ahead. With the groundwork laid in 2024, we are confident in our ability to execute on our strategic goals and deliver results for our shareholders.

Eric Newell: The entire team is energized by the progress we've made and the opportunities ahead.

Our periodic reports are available from the company online at our website or on the Sec's website with me today is our president and CEO, Susan Riel, Kevin Gagan, and Jan Williams I'd like to now turn it over to Susan.

Speaker Change: With the groundwork laid in 2024, we are confident in our ability to execute on our strategic goals and deliver results for our shareholders. With that, I will turn things over to Jan.

Jan Williams: With that, I will turn things over to Jan. Thanks. Our asset quality metrics were impacted by the migration of an office loan from special mention to non-accrual substandard in the fourth quarter. While the office loan matured in December, because of our extension to September 2025, a new appraisal was obtained. The new appraisal showed a 44% decline in value since the date of the last appraisal in May of 2022. The borrower is cash flowing and continues to be current on payment. There are indications of improvement in the market. We've seen increases in leasing activity and positive net absorption in the fourth quarter of 2024.

Thank you Eric Good morning, everyone last night, we reported net income of $15 3 million for the quarter.

Thank you, Susan.

Jan: Our asset quality metrics were impacted by the migration of an office loan from special mention

Susan: This result reflects our proactive approach to navigating valuation risk, particularly through an increased provision for credit loss as part of the effort. We've moved to $74 9 million office loan to non accrual status due to a new appraisal.

Jan: to non-accrual substandard in the fourth quarter. While the office loan matured in December, because of our extension to September 2025, a new appraisal was obtained.

Jan: The new appraisal showed a 44% decline in value since the date of the last appraisal in May of 2022. The borrower is cash flowing and continues to be current on payments.

Susan: <unk> continues to make contractual payments and the properties improving fundamentals gives us cautious optimism as we manage through this challenging environment.

Jan: There are indications of improvement in the market. We've seen increases in leasing activity and positive net absorption in the fourth quarter of 2024.

Our team remains focused on executing a disciplined strategy that positions Eagle bank and our clients for long term success, even amid evolving market dynamics, the enhanced loan disclosures introduced last quarter reflect our commitment to transparency.

Jan Williams: Cash flow from properties and transactions are occurring at higher valuations than recent appraisals. At the same time, appraisals remain inherently backward-looking and are heavily dependent on historical context. So an appraisal today may not fully capture current market trends. As more market transactions occur, we would anticipate less volatility in appraisals.

Jan: Cash flow from properties and transactions are occurring at higher valuations than recent appraisals. At the same time, appraisals remain inherently backward-looking and are heavily dependent on historical comparables.

Susan: Thank stakeholders better understand the risk, we see and how we are addressing them.

Susan: Looking back on 2024, we made significant progress towards building a foundation for sustainable growth, we strengthened our C&I team to deepen relationships and grow deposits and fee income key components of our profitability strategy.

Jan: So an appraisal today may not fully capture current market trends. As more market transactions occur, we would anticipate less volatility in appraisals.

Jan Williams: Given the outcome of the appraisal, we individually evaluated the loan and took a charge off of $9 million, more than two-thirds of which was already contained in the reserve. The loan was placed on nonaccrual. We believe the loan remains adequately reserved at this time. The balance of the loan is $74.9 million. Since late 2020, we've been sweeping cash flow and building reserves to build out on new leases and payment reserves. We continue to sweep excess cash flow and continue building additional reserves.

Jan: Given the outcome of the appraisal, we individually evaluated the loan and took a charge off of $9 million.

Susan: Fourth quarter deposit growth of $592 million allowed us to fully repay $1 billion in bank term funding program get.

Jan: more than two-thirds of which was already contained in the reserve.

Jan: The loan was placed on non-accrual. We believe the loan remains adequately reserved at this time. The balance of the loan is $74.9 million.

Susan: Testament to our strength the strength of our balance sheet and liquidity management.

Jan: Since late 2020, we've been sweeping cash flow and building reserves to build out on new leases and payment reserves. We continue to sweep excess cash flow and continue building additional reserves.

Susan: As we look ahead, our geographic presence in the DMV, our role as a top local commercial lender and our deep deeply rooted relationship first values create a strong competitive advantage. These qualities enable us to adapt to change and deliver solution.

Jan Williams: Details about the loan are included on page 23 and 24 of our earnings staff.

Jan Williams: Net charge-offs totaled $9.5 million in the fourth quarter, resulting in 2024 charge-offs of $38.6 million, or 48 basis points. During the quarter, we upgraded two separate office loans that were previously special mention and substandard to pass. For one of those loans, we worked with the borrower to secure a three-year extension with three principal curtailments, putting the bank in a better position and allowing the borrower to continue exploring redevelopment of the property to multifamily. On the other, we received a curtailment that resulted in a reduced loan-to-value of less than 70%. We also saw an upgrade in the quarter of a $46.3 million hotel loan from special mention to pass-rated with improved operations.

Jan: Details about the loan are included on page 23 and 24 of our earnings debt.

Jan: Net charge-offs totaled $9.5 million in the fourth quarter, resulting in 2024 charge-offs of $38.6 million, or 48 basis points. During the quarter, we upgraded two separate office loans that were previously special mention and substandard to pass.

Susan: So that build trust and long term value for our clients.

Susan: The entire team is energized by the progress we've made and the opportunities ahead with the groundwork laid in 2024, we are confident in our ability to execute on our strategic goals and deliver results for our shareholders with that I will turn things over to Jim.

Jim: Thank you Susan.

Jim: Asset quality metrics were impacted by the migration of an office loan from special mention to nonaccrual substandard in the fourth quarter, while the office land matured in December because of our extension to September 2025, and new appraisal on the contained a new appraisal.

Jan: On the other, we received a curtailment that resulted in a reduced loan-to-value of less than 70%. We also saw an upgrade in the quarter of a $46.3 million hotel loan from special mention to pass-rated with improved operations.

Jan Williams: A multi-family loan of $30 million was upgraded from substandard to PATH as a result of additional cash reserves sufficient to support a pre-planned HUD education. Two C&I loans totaling $26.5 million were upgraded from substandard to special mention due to direct assignment of contract proceeds more than sufficient to repay the debt. Other downgrades in addition to the office loan of $74.9 million in the quarter included the $36.8 million owner-occupied industrial commercial real estate project. Substandard loans increased $35.1 million during the fourth quarter to end at $426.4 million. Special mention decreased $120.2 million during the quarter to end at $244.8 million.

Jan: A multi-family loan of $30 million was upgraded from substandard to PAS as a result of additional cash reserves sufficient to support a pre-planned HUD exit.

Jim: All showed a 44% decline in value since the date of the last appraisal in may of 2020 to.

Jim: The borrower is cash line and continues to be current on payments.

Jan: Two C&I loans totaling $26.5 million were upgraded from substandard to special mention due to direct assignment of contract proceeds more than sufficient to repay the debt.

Jim: There are indications of improvement in the market, we've seen increases in leasing activity and positive net absorption in the fourth quarter of 2024.

Jim: Cash flow from properties and transactions are occurring at higher valuations than recent appraisals at the same time appraisals remain inherently backward looking and are heavily dependent on historical comparables.

Jan: Other downgrades, in addition to the office loan of $74.9 million in the quarter, included a $36.8 million owner-occupied industrial commercial real estate property.

Jan: Substandard loans increased $35.1 million during the fourth quarter to end at $426.4 million. Special mention decreased $120.2 million during the quarter to end at $244.8 million.

Jim: Your line appraisal today may not fully capture current market trends.

Jim: As more market transactions occur, we would anticipate less volatility in our practice given.

Jan Williams: This represents overall positive migration of our criticized and classified loans for the fourth quarter. We note in our disclosure on page 20 of our earnings presentation that 69% of our classified and criticized loans are performing following the migration of the aforementioned office loan to non-accrual during the fourth quarter. Non-performing loans were $208.7 million at December 31st, an increase of $74.3 million from September 30th, driven by the Office Non-performing assets to total assets were 1.9%, an increase of 68 basis points from the prior quarter.

Jim: Given the outcome of the appraised only individually evaluated the loan and took a charge off of $9 million more than two thirds of which with already contained in the reserve. The loan was placed on non accrual. We believe the loan remains adequately reserved at this time the balance of the loan of $74 nine.

Jan: This represents overall positive migration of our Criticized and Classified Loans for the Fourth Order.

Jan: We noted in our disclosure on page 20 of our earnings presentation that 69% of our classified and criticized loans are performing following the migration of the aforementioned office loan to non-accrual during the fourth quarter.

Jim: Million since late 2020, we've been sweeping cash flow and building reserves or build out on new leases and payment reserves. We continue to sweep excess cash flow and continue building additional reserves details about alone are included on page 23, and 24 of our earnings.

Jan: Non-performing loans were $208.7 million at December 31st, an increase of $74.3 million from September 30th, driven by the office loan.

Jan: Non-performing assets to total assets were 1.9%, an increase of 68 basis points from the prior quarter.

Jim: Net charge offs totaled $9 5 million in the fourth quarter, resulting in 2020 for charge offs of $38 6 million or 48 basis points. During the quarter. We upgraded two separate office loans that were previously special mention and substandard to pass.

Jan Williams: Loans 30 to 89 days past due were $22 million at December 31st, decreasing from $56.3 million at September 30th.

Jan: Loans 30 to 89 days past due were $22 million at December 31st, decreasing from $56.3 million at September 30th. Eric?

Eric Newell: Thanks, Jan. We reported net income for the quarter totaling $15.3 million or $0.50 per diluted share. This compares to the prior quarter of $21.8 million or $0.72 per diluted share. Pre-tax income declined $6.9 million to $19.8 million in the fourth quarter. The decline in net interest income, higher provision for credit losses, lower fee income, and higher non-interest expenses contributed to the pre-tax decline. The taxes were largely unchanged from the fourth quarter despite lower pre-tax income due to return to provision adjustment and uncertain tax benefit representing $2.2 million of tax expense in the quarter. This was partially offset by a $1.7 million tax benefit from an investment tax credit purchased during the quarter.

Speaker Change: Thanks Jan. We reported net income for the quarter totaling 15.3 million or 50 cents per diluted share. This compares to the prior quarter of 21.8 million or 72 cents per diluted share.

Jim: One of those loans, we work with the borrower to secure a three year extension with three principal curtailments put in the bank in a better position and allowing.

Jim: Continue exploring redevelopment of the property to multifamily.

Jan: Pre-tax income declined $6.9 million to $19.8 million in the fourth quarter.

Jim: On the other we received a curtailment that resulted in a reduced loan to value of less than 70%. We also saw an upgrade in the quarter of $46 3 million hotel loan from special mention to pass rated with improved operations.

Jan: The decline in net interest income, higher provision for credit losses, lower fee income, and higher non-interest expenses contributed to the pre-tax decline.

Jan: Taxes were largely unchanged from the fourth quarter despite lower pre-tax income due to return to provision adjustment and uncertain tax benefit.

Jim: Our multifamily loan of $30 million with upgraded from substandard to path as a result of additional cash reserves sufficient to support a preplanned HUD exit two.

Jan: representing 2.2 million of tax expense in the quarter. This was partially offset by a 1.7 million tax benefit from an investment tax credit purchased during the quarter. Our capital position remains strong.

Eric Newell: Our capital position remains strong. Tier 1 leverage ratio decreased 3 basis points to 10.74% as average assets increased slightly more than Tier 1 capital quarter over quarter. Common Equity Tier 1 Ratio increased 33 basis points to 14.63%. Tangible Common Equity Ratio increased 16 basis points to 11.02% at quarter end. Book value per share decreased a penny to $40.60 per share as unrealized losses increased due to higher market rates at December 31 compared to the prior quarter end.

C&I loans totaling $26 5 million were upgraded from substandard to special mention due to direct assignment of contract proceeds more than sufficient to repay the debt.

Jan: Tier 1 leverage ratio decreased 3 basis points to 10.74% as average assets increased slightly more than Tier 1 capital quarter over quarter.

Jim: Other downgrades in addition to the office loan of $74 9 million in the quarter included $36 8 million dollar owner occupied industrial commercial real estate properties.

Jan: Common Equity Tier 1 ratio increased 33 basis points to 14.63%.

Jan: Tangible Common Equity Ratio increased 16 basis points to 11.02% at quarter end.

Jim: Substandard loans increased $35 1 million during the fourth quarter to end at $426 4 million special mentioned decreased $122 million during the quarter to end at $244 8 million.

Jan: Book value per share decreased a penny to $40.60 per share as unrealized losses increased due to higher market rates at December 31 compared to the prior quarter end.

Eric Newell: On balance sheet and contingent liquidity also remain strong. Average deposits have grown 585.1 million from a year ago at December 31, 2023. A significant amount of this annual growth was achieved through our digital channel. Our one-way broker deposits increased $234 million from a comparable 2023 period end due to contractual non-maturity broker funding relationship. We reduce brokered CDs throughout the year and expect to resize our contractual non-maturity brokered relationships in 2025. Growth in deposits in the second half of 2024 facilitated our ability to fully pay off early our $1 billion of bank term funding program borrowings that were outstanding at September 30th.

Jan: On balance sheet and contingent liquidity also remain strong. Average deposits have grown 585.1 million from a year ago at December 31, 2023. A significant amount of this annual growth was achieved through our digital channel.

Jim: This represents overall positive migration of our criticized and classified loans for the fourth quarter. We noted in our disclosure on page 20 of our earnings presentation at 69% of our classified and criticized loans are performing following the migration of the aforementioned office loans to non accrual.

Jan: Our one-way broker deposits increased $234 million from the comparable 2023 period end due to contractual non-maturity broker funding relationships.

Jim: During the fourth quarter.

Jim: Nonperforming loans were $208 7 million at December 31.

Jan: We reduce brokered CDs throughout the year and expect to resize our contractual non-maturity brokered relationships in 2025.

Jim: An increase of $74 3 million from September 30, driven by the office loans nonperforming assets to total assets were one 9% an increase of 68 basis points from the prior quarter.

Jan: Growth in deposits in the second half of 2024 facilitated our ability to fully pay off early our $1 billion of bank term funding program borrowings that were outstanding at September 30th.

Eric Newell: Insured deposits total 76% of our total deposits.

Loans 30 to 89 days past due were $22 million at December 31.

Eric Newell: At the end of the quarter, available liquidity from the Federal Home Loan Bank, Federal Reserve Discount Window, cash, and unencumbered securities totaled $4.6 billion. Net interest income before provision totaled $70.8 million in the fourth quarter, decreasing from $71.8 million in the third quarter. Net interest income declined because of $965,000 reversal from interest income due to the migration to nonaccrual of the previously discussed office loan. MIM declined 8 basis points from the 3rd quarter to 2.29%. Generally, we saw interest income and interest expense decline proportionately to one another. The shift in mix of average earning assets with a higher proportion of interest earning deposits was the largest contributor to the decline in NIMS. Of the $162.6 million of funded loan originations in the quarter, we had a weighted average rate of 7.68%.

Insured deposits total 76% of our total deposits.

Jim: Decreasing from $56 3 million at September 30.

Jan: At the end of the quarter, available liquidity from the Federal Home Loan Bank, Federal Reserve Discount Window, cash, and unencumbered securities totaled $4.6 billion.

Jim: Eric.

Jim: Thank you Tim.

Jim: We reported net income for the quarter totaling $15 3 million or 50 cents per diluted share. This compares to the prior quarter of $21 8 million or <unk> 72 cents per diluted share pre.

Jan: Net interest income before provision totaled $70.8 million in the fourth quarter, decreasing from $71.8 million in the third quarter.

Jim: Pre tax income declined $6 9 million to $19 8 million in the fourth quarter.

Jan: Net interest income declined because of $965,000 reversal from interest income due to the migration to nonaccrual of the previously discussed office loan.

Jim: The decline in net interest income higher provision for credit losses, lower fee income and higher noninterest expenses contributed to the pretax decline.

Jim: <unk> were largely unchanged from the fourth quarter, despite lower pretax income due to return to provision adjustment and uncertain tax benefit.

Jan: MIM declined 8 basis points from the 3rd quarter to 2.29%.

Jan: Generally, we saw interest income and interest expense decline proportionately to one another.

Jim: Representing $2 2 million of tax expense in the quarter. This was partially offset by a $1 7 million tax benefit from investment tax credit purchased during the quarter.

Jan: The shift in mix of average earning assets with a higher proportion of interest earning deposits was the largest contributor to the decline in NIM.

Jim: Our capital position remains strong.

Tier one leverage ratio decreased three basis points to 10, 74% as average assets increased slightly more than tier one capital quarter over quarter.

Jan: Of the $162.6 million of funded loan originations in the quarter, we had a weighted average rate of 7.68%.

Eric Newell: This compares to 91.2 million of funded loan originations at a weighted average rate of 7.11% in the third quarter. Management has reduced rates paid on non-maturity deposits due to declining interest rates. Following the decisions by the FOMC to ease the policy rate by 25 basis points each in November and December, we reduced rates for non-maturity deposits by a cumulative 50 basis This follows our actions taken to reduce non-maturity deposit rates from the FOMC easing earlier in the fall. Non-interest income decreased as the third quarter items, such as the sale of MSRs, income from SBIC investments, as well as income from back-to-back swap transactions, did not reoccur in the fourth quarter.

Jan: This compares to 91.2 million of funded loan originations at a weighted average rate of 7.11% in the third quarter.

Jim: Common equity tier one ratio increased 33 basis points to 14 six 3%.

Jim: Tangible common equity ratio increased 16 basis points to 11, 2% at quarter end.

Jan: Management has reduced rates paid on non-maturity deposits due to declining interest rates.

Jim: Book value per share decreased depending to $40 60 per share as unrealized losses increased due to higher market rates at December 31 compared to <unk>.

Jan: Following the decisions by the FOMC to ease the policy rate by 25 basis points each in November and December, we reduced rates for non-maturing deposits by a cumulative 50 basis points.

Jim: Prior quarter Ed.

Jim: On balance sheet and contingent liquidity also remains strong.

Jim: Average deposits have grown $585 1 million from a year ago at December 31, 2023, a significant amount of this annual growth was achieved through our digital channel.

Jan: This follows our actions taken to reduce non-maturity deposit rates from the FOMC easing earlier in the fall.

Jan: Non-interest income decreased as the third quarter items, such as the sale of MSRs, income from SBIC investments, as well as income from back-to-back swap transactions, did not reoccur in the fourth quarter.

Jim: Our one way broker deposits increased $234 million from the comparable to 2023 period than due to contractual non maturity brokered funding funding relationships.

Eric Newell: In early January, management added to its bank-owned life insurance policies, which will increase the run rate of cash surrender value growth and related income starting in the first quarter. Non-interest expense totaled $44.5 million, increasing from $43.6 million in the previous quarter. Salaries and benefits increased due to a true up on severance for a departing employee and a higher compensation expense due to forfeitures of share-based compensation in the third quarter, which did not repeat in the fourth quarter. Marketing and advertising declined because of lower spend on our digital channel. Legal, accounting, and professional expenses declined. and we're offset by higher FDIC expenses.

Jan: In early January, management added to its bank-owned life insurance policies, which will increase the run rate of cash surrender value growth and related income starting in the first quarter.

Jim: We reduced brokered Cds throughout the year and expect to resize, our contractual non maturity brokered relationships in 2025.

Jim: Growth in deposits in the second half of 2024 facilitated our ability to fully pay off early or $1 billion of bank term funding program borrowings that were outstanding at September 30th.

Jan: Non-interest expense totaled $44.5 million, increasing from $43.6 million in the previous quarter.

Jan: Salaries and benefits increased due to a true up on severance for a departing employee and a higher compensation expense due to forfeitures of share-based compensation in the third quarter, which did not repeat in the fourth quarter.

Jim: Insured deposits totaled 76% of our total deposits.

Jim: At the end of the quarter available liquidity from the federal home loan Bank Federal reserve discount window cash and unencumbered securities totaled $4 6 billion.

Jan: Marketing and advertising declined because of lower spend on our digital channel. Legal, accounting, and professional expenses declined and were offset by higher FDIC expenses.

Net interest income before provision totaled totaled $70 8 million in the fourth quarter decreasing from $71 8 million in the third quarter.

Eric Newell: In our quarterly investor deck released along with earnings, we updated our view on 2025. Our thoughts on period end growth of loans next year remain between two and 8% though the slide shows average growth. Earning asset growth is flat as we continue to take cash flows from our investment portfolio and reinvest in loans. With our budgeting process completed, management has a more precise view of the net interest margin. As noted last quarter, there is an expected benefit from this repositioning of the investment portfolio and loan mix that is expected to enhance spread. Growing relationship deposits and reducing and optimizing the use of wholesale funding are also expected to contribute to spread.

Jan: In our quarterly investor deck released along with earnings, we updated our view on 2025. Our thoughts on period end growth of loans next year remain between 2% and 8%, though the slide shows average growth.

Jim: Net interest income declined because of 360 965000 reversal from interest income due to the migration to non accrual of the previously discussed office alone.

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

Jim: NIM declined eight basis points from the third quarter to two 9%.

Jim: Generally we saw interest income and interest expense declined proportionately to one another.

Jan: With our budgeting process completed, management has a more precise view of the net interest margin. As noted last quarter, there is an expected benefit from this repositioning of the investment portfolio and loan mix that is expected to enhance spread.

The shift in mix of average, earning assets with a higher proportion of interest earning deposits was the largest contributor to the decline in NIM.

Speaker Change: Growing relationship deposits and reducing and optimizing the use of wholesale funding are also expected to contribute to spread. I'll turn it over to Kevin to discuss our ACL. Thank you, Eric.

Jim: Of the $162 6 million of funded loan originations in the quarter, we had a weighted average rate of seven 6% to 8%. This.

Kevin Geoghegan: I'll turn it over to Kevin to discuss our ACL. Thank you, Eric. As Jane mentioned, net charge us increased $4.2 million from the third quarter to $9.5 million. We will continue to evaluate the sufficiency of our qualitative reserves to address market uncertainty. However, we currently expect that any future reserve increases will stem from specific reserves for individually assessed loans. Should there be a significant shift in economic expectations not accounted for in our qualitative reserves, that would be reflected in the inputs we use to inform our model, and that could result in increases in reserve. Last quarter, we mentioned the future reserve bill, if any, would be driven by specific reserves from individually evaluated loans.

Jim: This compares to $91 2 million of funded loan originations at a weighted average rate of 711% in the third quarter.

Kevin: As Jane mentioned, net charge-offs increased $4.2 million from the third quarter to $9.5 million. We will continue to evaluate the sufficiency of our qualitative reserves to address market uncertainties.

Jim: Management has reduced rates paid on non maturity deposits due to declining interest rates.

Following the decisions by the FMC to ease the policy rate by 25 basis points. Each in November and December we reduced rates on four non metairie deposits by a cumulative 50 basis points.

Kevin: However, we currently expect that any future reserve increases will stem from specific reserves for individually assessed loans.

Kevin: Should there be a significant shift in economic expectations not accounted for in our qualitative reserves, that would be reflected in the inputs we use to inform our model, and that could result in increases in reserve.

Jim: This follows our actions taken to reduce non maturity deposit rates from the epilepsy easing earlier in the fall.

Jim: Noninterest income decreased as the third quarter items, such as the sale of Msr's.

Reserves.

Kevin: Last quarter, we mentioned the future reserve bill, if any, would be driven by specific reserves from individually evaluated loans.

Jim: Come from Spi investments as well as income from back to back swap transactions did not reoccur in the fourth quarter.

Kevin Geoghegan: This is, in fact, the driver of the allowance for credit losses during the quarter. In addition to specific reserves associated with the office loan discussed previously, we increased our specific reserves for an assisted living relationship, which is number three on our nonaccrual loan listing on page 23 of our investor data. The allowance for credit losses increased to $114 million at 1231 representing coverage of total loans at 1.44%, an increase of 4 bps from the prior quarter. The ACL coverage to performing office loans. totals 3.81% at 1231 down from 4.55% at 930 due to the reserves associated with the office loan following it into the individually evaluated specific reserves.

Jim: In early January management added to its bank owned life insurance policies, which will increase the run rate of cash surrender value growth and related income starting in the first quarter.

Kevin: This is, in fact, the driver of the allowance for credit losses during the quarter.

Kevin: In addition to specific reserves associated with the office loan discussed previously, we increased our specific reserves for an assisted living relationship, which is number three on our nonaccrual loan listing on page 23 of our investor deck.

Jim: Noninterest expense totaled $44 5 million, increasing from $43 6 million in the prior previous quarter.

Jim: Salaries and benefits increased due to a true up.

On severance for departing employee and higher compensation expense due to forfeitures of share based compensation in the third quarter, which did not repeat in the fourth quarter.

Kevin: The allowance for credit losses increased to $114 million at 12-31, representing coverage of total loans at 1.44%, an increase of 4 bps from the prior quarter.

Jim: Marketing and advertising declined because of lower spend on our digital channel.

Legal accounting and professional expenses declined.

The ACL coverage to performing office loans.

Jim: And were offset by higher FDIC expenses.

Jim: In our quarterly Investor deck released along with earnings we updated our view on 2025, our thoughts on period end growth of loans next year remain between two and 8%, though the slideshows average growth.

Kevin: Due to the reserves associated with the office loan, following it into the individually evaluated specific reserves. Finally, we continue to believe that our reserves are adequate.

Kevin Geoghegan: Finally, we continue to believe that our reserves are adequate.

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

Susan Riel: I'll turn it over to Susan for a short wrap. Thanks, Kevin. The team completed foundational actions last year to support our strategic goals, growing and diversifying, building relationship deposits, and focusing on operational excellence. While it will take time to reach our operational goals, we are beginning to see early successes that will drive results. At the same time, we remain focused on addressing asset quality concerns and mitigating valuation risk as office loans approach maturity. As a community-focused bank, we take pride in being deeply connected to the communities we serve. This commitment sets us apart and positions Eagle Bank to thrive amid evolving market dynamics in the DMV.

Jim: With our budgeting process completed management has a more precise view of the net interest margin.

Kevin: I'll turn it over to Susan for a short wrap up. Thanks, Kevin.

Susan: The team completed foundational actions last year to support our strategic goals, growing and diversifying, building relationship deposits, and focusing on operational excellence.

Jim: Last quarter. There is an expected benefit from this repositioning of the investment portfolio and loan mix is expected to enhance spread.

Jim: Growing relationship deposits and reducing and optimizing the use of wholesale funding.

Susan: While it will take time to reach our operational goals, we are beginning to see early successes that will drive results.

Jim: It also expected to contribute to spread I'll turn it over to Kevin to discuss our ACO. Thank you Eric.

Susan: At the same time, we remain focused on addressing asset quality concerns and mitigating valuation risk as office loans approach maturity.

Jim: As Jane mentioned net charge offs increased $4 $2 million from the third quarter to $9 5 million.

Jim: We will continue to evaluate the sufficiency of our qualitative reserves to address market uncertainties.

Susan: As a community-focused bank, we take pride in being deeply connected to the communities we serve. This commitment sets us apart and positions Eagle Bank to thrive amid evolving market dynamics in the DMV.

Jim: However, we currently expect that any future reserve increases will stem from specific reserves per individually assessed loans.

Susan Riel: In closing, I want to thank our dedicated employees. Your hard work makes Eagle Bank a success and ensures we continue to deliver value to our customers and stakeholders.

Jim: Should there be a significant shift in economic expectations not accounted for in our qualitative reserves that would be reflected in the inputs. We use to inform our model and that could result in increases in reserve.

Susan: In closing, I want to thank our dedicated employees. Your hard work makes Eagle Bank a success and ensures we continue to deliver value to our customers and stakeholders. With that, we will now open things up for questions.

Operator: With that, we will now open things up for questions. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A raw.

Jim: Serge.

Jim: Last quarter, we mentioned future reserve build if any would be driven by specific reserves from into the individually.

Susan: As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced.

Jim: <unk> evaluated loans.

To withdraw your question, please press star 1 1 again.

Jim: This is in fact, the driver of the allowance for credit losses during the quarter in.

Please stand by while we compile the Q&A roster.

Justin Crowley: And our first question comes from Justin Crowley with Piper Sandler. Your line is open. Hey, good morning, everyone.

In addition to specific reserves associated with the office loan discussed previously we increased our specific reserves for an assisted living relationship which is number three on our non accrual loans a listing on page 23 of our investor deck.

Thank you.

Thank you.

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

Susan Riel: Just want to hit on the office loan that got downgraded in the quarter, you know, obviously reappraisal volatility has been an issue overall, but maybe thought some of these Class A buildings, particularly in areas like Montgomery County were a bit more inflated from that risk. You know, does this situation change at all how you're thinking about that sort of risk as you look across the portfolio, outside of what's in DC Central Business District, and especially as we move through the year and get closer to some of these larger loans with 2026 maturities. Yeah, I think we are and have been focused on all office, whether suburban or Central Business District, and the severity of the decline in raised values is much more in the Central Business District and is ameliorated to a certain extent in the suburbs.

Hey, good morning, everyone.

Speaker Change: I just wanted to hit on the office loan that got downgraded in the quarter, you know, obviously reappraisal volatility has been an issue overall, but maybe thought some of these Class A buildings, particularly in areas like

Jim: The allowance for credit losses increased to $114 million.

Jim: At 12, 31, representing coverage of total loans at 144% an increase of four bps from the prior quarter.

Speaker Change: Montgomery County were a bit more insulated from that risk. You know, does this situation change at all, how you're thinking about that sort of risk as you look across the portfolio outside of what's in D.C.'s Central Business District? And especially as we move through the year and get closer to some of these larger loans with 2026 maturities.

Jim: The ACL coverage.

Jim: Performing office loans.

Jim: Totals $3 eight 1% at $12 31 down from $4 five 5% at 930 due to the reserves associated with the office load following into the individually evaluated specific reserves. Finally, we continue to believe that our reserves are added.

Thank you for watching. Please subscribe to my channel.

Speaker Change: yeah I think we are and have been focused on all office whether suburban or

Speaker Change: Central Business District. The rarity of the decline in raised values is much more in the Central Business District and is ameliorated to a certain extent in the suburbs.

Jim: Quinn.

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

Susan: Thanks, Kevin.

Susan: The team completed foundational actions last year to support our strategic goals growing and diversifying building relationship deposits and focusing on operational excellence, while it will take time to reach our operational goals. We are beginning to see early successes that we.

Susan Riel: That said, different appraisers have different on appropriate cap rates, leasing rates. discount rate.

That said, different appraisers have different...

perspectives on appropriate cap rates, leasing rates, discount rates.

Susan Riel: For me personally, I was surprised to see a discount rate of 11% in a Class A suburban market with a increased leasing activity. On the other hand, we can see that overall, the time to stabilization has been reduced to the current leasing activity. You're looking at this particular property as a stabilized value of about $110 million.

Susan: We'll drive results at the same time, we remain focused on addressing asset quality concerns and mitigating valuation risk as office slowness approach maturity.

As a community focused bank, we take pride in being deeply connected to the communities. We serve this commitment sets us apart and positions Eagle bank to thrive amid evolving market dynamics in the DMV.

increased leasing activity

Speaker Change: On the other hand, we can see that, overall, the time to stabilization

Speaker Change: has been reduced to the current leasing activity. You're looking at this particular property as a stabilized value of about $110 million.

Susan: In closing I want to thank our dedicated employees, you're a hard floor makes eagle bank of success and ensures we continue to deliver value to our customers and stakeholders with that we will now open things up for questions.

Susan Riel: So.

Susan Riel: in 2027. So I think you're going to see Changes as the pace of leasing increases or decreases in this particular class of building, I have cautious optimism that we are going to be in a position to continue. If you took a look at, there's one other similar property that you may have thought of. That's an office property of similar size that is also in Montgomery County, and that is on our top 25 list that we provided in our deck. That's number two on that list. and that particular property was appraised in February of 2023 compared to the May of 2022 appraisal on the property that we just placed into non-performing status.

Speaker Change: So that's in 2027, so I think you're going to see

Susan: As a reminder to ask a question. Please press star and one one on your telephone and wait for your name to be announced.

changes as the pace of leasing

Speaker Change: increases or decreases in this particular class of building. I have cautious optimism that we are going to be in a position to continue.

Susan: To withdraw your question. Please press star one again.

Susan: Please standby, while we compile the Q&A roster.

Susan: Yeah.

Speaker Change: If you took a look at, there's one other similar property that you may have thought of that's

Speaker Change: And our first question comes from Joseph Crowley with Piper Sandler Your line is open.

Speaker Change: an office property of similar size that is also in Montgomery County, and that is on our top 25 list that we provided in our deck, that's number two on that list.

Speaker Change: Hey, good morning, everyone.

Speaker Change: Just wanted to hit on the the office alone they got downgraded in the quarter, obviously reappraisal volatility has been issue overall, but maybe thoughts some of these class a buildings, particularly in areas like Montgomery County are a bit more insulated from that risk.

Speaker Change: As this situation change at all how youre thinking about that sort of risk as you look across the portfolio.

Speaker Change: Outside of Whats Mdc's Central business District.

Speaker Change: compared to the May of 2022 appraisal on the property that we just placed into non-performing status. There was a 44% drop in valuation on the appraisal.

Speaker Change: And especially as we move through the year and get closer to some of these.

Susan Riel: There was a 44% drop in valuation on the Appraisal.

Speaker Change: Larger loans with 2026 maturities.

Speaker Change: Yes, I think we are and have been focused on all of this weather.

Susan Riel: from May 22 until.

Speaker Change: Bourbon or.

Susan Riel: January of 2025. who kind of extrapolated from there and this would just be a ballpark swag and took 44% decline in appraised value on the office property that comes up for reappraisal in 2026. You'd be looking at a potential $3 million charge-up, so I don't think it's a... Staggering number. You may have different discounts that you're looking at and you may feel that different cap rates apply and that's, you know, a matter of judgment. But I think we're on top of these and continuing to work with borrowers. One of the things that really helped us on the property that became non-performing was the fact that we had been sleeping cash low for a significant period of time and that assisted us both in...

Speaker Change: Central business District.

Speaker Change: The severity.

Speaker Change: Majority of the.

Speaker Change: The decline in todays values is much more in the central business District.

Speaker Change: If you kind of extrapolate it from there, and this would just...

Be.

Speaker Change: <unk> is ameliorated to a certain extent in the suburbs.

a ballpark swag and took 44% decline in appraised value.

Speaker Change: That said.

Speaker Change: Different appraisers have different.

Speaker Change: The office property that comes up for reappraisal in 2026, you'd be looking at a potential $3 million charge up. So I don't think it's a...

Speaker Change: Perspective.

Speaker Change: <unk>.

Create cap re leasing rates.

Speaker Change: Discount rates.

Speaker Change: It's.

Speaker Change: For me personally I was surprised to see a discount rate of 11%.

Daggering number

You may have different...

Speaker Change: that you're looking at and you feel that different cap rates apply and that's a matter of judgment. But I think we're on top of these and continuing to work with borrowers. One of the things that really helped us on

Speaker Change: <unk> a suburban market with.

Speaker Change: Increased leasing activity on the other hand, we can see that.

Speaker Change: Overall, the time to stabilization.

Speaker Change: The property that became non-performing was the fact that we had been sweeping cash flow.

Speaker Change: Has been reduced.

Speaker Change: Current leasing activity.

for a significant period of time.

Susan Riel: The Collateral Valuation and also in the ability to continue forward and fund any TI work that is necessary in connection with value-add leasing, so I know there is TI work in progress right now.

Speaker Change: King at this particular property stabilized value.

Speaker Change: $110 million.

Speaker Change: the collateral valuation, and also in the ability to continue forward and fund any TI work that is necessary in connection with value-add leasing.

Speaker Change: <unk>.

Speaker Change: In 2027.

Speaker Change: So I think youre going to see.

Speaker Change: Changes as the pace of leasing.

Susan Riel: © The Bulletproof Executive 2013 I have cautious optimism on that front.

Speaker Change: So I know there is TI work in progress right now.

Speaker Change: Increases or decreases in this particular class a building.

Justin Crowley: Did that answer your question? Yeah, I know that's helpful.

a particular new

I have cautious optimism on that front.

Speaker Change: Cautious optimism that we are going to be in a position to.

Susan Riel: And just for I guess, just a little further detail, you noted just some of the improving fundamentals on that property that moved to non accrual this quarter. Can you unpack that just a little more just in terms of what the leasing activity activities look like, or occupancy levels, and you know, maybe how that squares with the other loan that's currently on special mention that you had called out? Well, I can tell you that the has been fairly consistent over the last couple of years in that it's managed to sustain occupancy in a difficult market. But it's picked up right now.

Did that answer your question?

Speaker Change: Yeah, I know that's helpful. And just for, I guess, just a little further detail, you noted just some of the improving fundamentals on that property that moved to non-accrual this quarter. Can you unpack that just a little more just in terms of what the leasing activities look like or occupancy levels and, you know, maybe how that squares with the other loan that's currently on special mention that you had called out?

Speaker Change: Continue.

Speaker Change: You took a look at and there's one other similar property that you may have thought of.

Speaker Change: That's.

Speaker Change: And office property of similar size that is also in Montgomery County.

Speaker Change: On our.

Speaker Change: Top 25 list.

Speaker Change: Provided in our deck.

Speaker Change: Well, I can tell you that the leasing activity has been fairly consistent over the last couple of years in that it's managed to sustain occupancy in a difficult market.

Speaker Change: Number two on that list.

Speaker Change: And that particular property.

Speaker Change: Appraised in February of 2023.

Speaker Change: And compared to the May of 2022 appraisal.

Susan Riel: And what we're seeing are reductions in concessions, in addition to a more rapid Please stop the period to get stabilization. I think you've, you know, at one point, maybe two years ago, in the summer, we were looking at $180 a foot TI allowances, and not an eyebrow was raised at that, and now we're down around $95 a foot, so I think effective gross rents are increasing, and we are also seeing more activity both in this property and in very similar proximate properties. I have optimism on that. Okay, got it.

Speaker Change: but it's picked up right now and what we're seeing are reductions in concessions in addition to a more rapid

Speaker Change: On the property that we just placed into nonperforming status.

Speaker Change: With a 44% drop in valuation on the.

Speaker Change: Lisa Period to get to stabilization. I think you've, you know, at one point.

Speaker Change: Appraisal.

Speaker Change: On May 22, and Cao.

Speaker Change: January of 2025.

Speaker Change: Maybe two years ago, in the summer, we were looking at $180 a foot TI allowances.

Speaker Change: If you kind of.

Speaker Change: Extrapolating from there and this would just be a ballpark swag and took 44% decline in appraised value.

Speaker Change: and not an eyebrow was raised at that. Now we're down around $95 a foot, so I think effective gross rents are increasing.

Speaker Change: <unk>.

Speaker Change: The office property that comes up for reappraisal in 'twenty 'twenty six you'd be looking at a potential $3 million charge.

Speaker Change: And we are also seeing more activity both in this property and in very similar proximate properties. So I have optimism on that.

Justin Crowley: Um, and then I guess, you know, somewhat relatedly, you know, with the new administration in place now, there have been some headlines in recent days describing, you know, the potential for some large scale sales of federal government office space and canceling of leases, etc. You know, which would, of course, likely take some time to play out. But are you able to provide any detail on direct exposure to government office?

Speaker Change: I don't think its a.

Speaker Change: Staggering number.

Thank you.

Speaker Change: You may have different discounts that you are looking at it and we found a different cap rate supply and that's a matter of judgment, but I think we're on top of these and continuing to work with borrowers.

Speaker Change: The things that really helped us on.

Speaker Change: The property that became nonperforming was the fact that we had been sleeping cashflow for a significant period of time and that assisted us book and.

Susan Riel: And then, you know, I know it's early, but just any preliminary thoughts on, you know, the impact moves out of the GSA could potentially have on your book? We have very little exposure to GSA. I think those properties that had large GSA leases were, for the most part, in the CMVS market. Those are bigger properties, and at the time, I think, GSA lease was thought to be as good as you could get. on Leasing. That certainly has changed, at least the chatter around it has changed at this point. I do think It pulls two ways.

Speaker Change: The collateral valuation.

Speaker Change: Also in the ability to continue forward and fund any ti work that is necessary in connection with value add leasing.

Speaker Change: No there is ti work in progress right now.

Speaker Change: <unk>.

Speaker Change: A particular, new lease I have cautious optimism on that front does that answer your question.

Speaker Change: Yes, no thats helpful.

Speaker Change: And just for I guess, just a little further detail you'd noted just some of the improving fundamentals on that property that moved to non accrual. This quarter can you unpack that just a little more just in terms of what the leasing actively activities look like.

Susan Riel: It appears the administration believes that the private sector can provide occupancy to the government less expensively than the government is providing it to itself and do a better job. I don't think it's a huge surprise that this administration would want to privatize that activity. So I would expect they would be trying to sell some properties, some in this area, some across the country. I do think that means there's going to be more leasing as a result of the Concurrent directives for federal employees to go back to the office. There has to be some place for them to go.

Speaker Change: Our occupancy levels and maybe how that squares with the other loan that is currently on special mentioned that you had called out.

Speaker Change: Well I can tell you that the leasing activity has been fairly consistent over the last couple of years and that has managed to sustain occupancy.

Speaker Change: A difficult market.

Speaker Change: But it's ticked up right now and what we're seeing are reductions in concessions. In addition to a more rapid.

Speaker Change: Lease up period to get to stabilization.

Susan Riel: So there could be. For properties that have significant floor plates available that are in the B plus, A minus area, that might be something that could see an uptick with the federal government leasing. I do think the properties that they're contemplating selling appear to be B minus, C plus properties. And it will take a significant period, I think, for those properties to be rehabbed and brought back to the market.

Speaker Change: Thank you.

Speaker Change: At one point.

Speaker Change: Maybe two years ago in the summer we were looking at 180 Bucks a foot Ti allowances.

Speaker Change: Not an eyebrow list right now are down around $95 a foot so I think.

Speaker Change: Effective gross rents are increasing.

Speaker Change: We are also seeing more activity both in this property and in very similar proximate properties have.

Susan Riel: Just one person's thoughts on it.

Speaker Change: Have optimism on that.

Speaker Change: Okay got it.

Justin Crowley: Okay, that's helpful.

Susan Riel: And then, you know, shifting gears a little, there's obviously a larger in market competitor who's involved in a, you know, merger transaction right now. You know, to what extent has it already created some opportunity for you folks? Or, you know, how do you think any dislocation could play out from your standpoint, whether that's new business or opportunity to add talent? and you want to take that. We think it will bring opportunities for us. So we'll be the largest community banker in this area. And we think that will mean opportunities for us. Of course, there'll be opportunities with people.

Speaker Change: And then I guess somewhat relatedly, what the new administration in place now there've been some headlines in recent days describing.

Speaker Change: Potential for some large scale sales in federal government office space and canceling of leases et cetera.

Speaker Change: Of course likely take some time to play out.

Speaker Change: Are you able to provide any detail on direct exposure to government office and then I know, it's early but just any preliminary thoughts on the impact moves out of the GSA could potentially have on your book.

Speaker Change: And we have very little exposure to GSA I think those properties that had large GSA leases were for the most part in the <unk> market those are bigger properties.

Eric Newell: And there are some shared customers that we already have with them. So we're looking at it as a positive for us.

Speaker Change: And at the time I think.

Speaker Change: GSA lease was thought to be as good as you could get.

Eric Newell: Eric, do you want to add anything? Yeah, there's a team that has mobilized to analyze where we share customers, if there's opportunities for us to get greater market or a greater wallet share of that shared customer. We think that there will be opportunities around milestones in that transaction when there's a legal close, when there's a conversion, and we hope to be able to share our value proposition and deepen the relationships that we share customers with them, as well as Acquired because Okay, great.

Speaker Change: On leasing that certainly has changed at least the chatter around that has changed at this point.

Speaker Change: I do think.

Speaker Change: Its pulse two ways. It appears the administration believes that the private sector can provide occupancy to the government.

Speaker Change: Less expensively than the government is providing it to itself and do a better job.

I don't think it's a huge surprise that this administration would want to privatize.

Speaker Change: That activity. So I would expect they would be trying to sell some properties. Some in this area across the country.

Justin Crowley: I appreciate the time this morning. Thank you.

Speaker Change: I do think that means there's going to be more leasing as a result of the.

Catherine Mealor: Our next question comes from Catherine Mealor with KBW. Your line is open. Thanks. Good morning.

Speaker Change: Concurrent directives for federal employees to go back to the office there has to be some place for them to go.

Catherine Mealor: Morning. Maybe just one back on credit. As we think about your outlook for the reserve and, you know, I know it's kind of hard to put a range on a reserve build and that charge-off, but as you kind of sit here today and you think about your potential exposure, would you expect to continue to see reserve builds throughout the course of 25, or do you think we're at a good place today? It certainly was good to see less inflows of, you know, substandard and special mission credits, which makes me feel like maybe we're at a peak in our allowance.

Speaker Change: There could be.

Speaker Change: For properties that have significant floor plates available.

Speaker Change: Your outlook for the reserve and I know, it's kind of hard to put a range on our reserve build in the charge off but as you sit here today and you think about your potential exposure would you expect to continue to see reserve builds throughout.

Speaker Change: In the B.

Speaker Change: B plus a minus area that might be something that could see an uptick with the federal government leasing.

Speaker Change: Thank the properties that they are contemplating selling.

Speaker Change: Of course, a 25 or do you think we're at a place.

Speaker Change: Selling appear to be B minus C plus properties.

Speaker Change: Today, it certainly with good to see less inflows of.

Speaker Change: And it will take a significant period I think for those properties to be rehabbed and brought back to the market.

Speaker Change: On the.

Catherine Mealor: Just curious your thoughts on that.

Speaker Change: The standard on special mention credits, which makes me feel like maybe we're at a peak in our allowance just curious your thoughts on that.

Susan Riel: Thank you. In our budgeting process, we do not currently anticipate any reserve bill beyond what Kevin's comments talked about in the sense that if there's an idiosyncratic issue with a credit that requires us to individually evaluate that loan, there could be noise there. But we feel that the office overlay is a qualitative approach that we're addressing concerns as we see it for office. We feel that that is adequate at this point. I believe last Call. put a range out on. Credit costs, I think it was 25 to 50 basis points for 2025, and we continue to expect that to be the range.

Speaker Change: Just one person's thoughts on it.

Speaker Change: You.

Speaker Change: Okay. That's helpful.

Speaker Change: Yes.

Speaker Change: Our budgeting process.

Speaker Change: And then shifting gears a little there is obviously a larger end market competitor who's fault.

Speaker Change: We do not currently anticipate any.

Speaker Change: The reserve build beyond what Kevin's comments talked about in the sense that if there is a.

Speaker Change: <unk> transaction right now to what extent is it already created some opportunity for you folks or how do you think any dislocation could play out from your standpoint, whether thats, new business or opportunity to add talent.

Speaker Change: Idiosyncratic issue with a credit that requires us to individually evaluate that loan there.

Speaker Change: Thank you.

Speaker Change: Could be noise there.

Speaker Change: Susan you want to add.

Speaker Change: But we feel that the office overlay.

Susan: We think it will bring opportunities for us so we'll be the largest.

As a qualitative approach that we're addressing concerns as we see it for office, we feel that that is adequate at this point.

Speaker Change: Community Bank.

Speaker Change: In this area and we think that will be opportunities for us of course there'll be opportunities with people and there are some shared customers that we already have.

Speaker Change: I believe last.

Speaker Change: Call.

Speaker Change: I put a range out on.

Speaker Change: With them so.

Speaker Change: Credit costs I think it was 25 to 50 basis points for.

Speaker Change: We're looking at it as a positive for us.

Eric Newell: Eric do you want to add anything.

Speaker Change: For 2025.

Susan Riel: And that's provisioning versus charge-offs, or I guess maybe they're kind of in the same range. Without the without right. Yeah, I look I look at it as kind of the same thing because without a reserve build, you're kind of you're going in and out. Thinking about what we achieved in 2024. Actually, in the last 18 months, ending December 31, 24, I think at June 30th, our reserve was approximately 100 basis points to loans, and now we're at 144 basis points to loans. We've achieved a lot of build over that 18 months. And based on the information that we have today.

Speaker Change: We continue to expect that to be the range.

Eric Newell: <unk> is.

Eric Newell: As mobilized to analyze.

Speaker Change: And thats provisioning versus charge offs or I guess, maybe.

Eric Newell: Where we share customers. If there is opportunities for us to get greater market, great greater wallet share of that shared customer, we think that there'll be opportunities.

Speaker Change: Maybe they are kind of in the same range.

Speaker Change: Without the great yes.

Eric Newell: Round milestones in that transaction when that when there is no legal close when there is a conversion.

Speaker Change: Look at it as kind of the same thing because without a reserve build.

Speaker Change: Youre going in and out.

Eric Newell: We hope to be able to share our value proposition.

Speaker Change: Yes, okay.

Speaker Change: Great.

Speaker Change: Thinking about what we achieved in 2004.

Eric Newell: And deepen the relationships that we share the share customers with them as well as.

Speaker Change: Actually even in the last 18 months ending December 31, 24, I think at June 30.

Eric Newell: Acquire new customers.

Speaker Change: Our reserve was approximately 100 basis points to loans and now we are at.

Speaker Change: Okay, Great I appreciate the time this morning. Thank you.

Speaker Change: At 144 basis points to loans.

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

Speaker Change: We've achieved a lot of build over that 18 months.

Susan Riel: We believe that that is adequate.

Speaker Change: Based on the information we have today.

Catherine Mealor: Okay, great. And then on to Outlook for the balance sheet, you know, there's a big build in the balance sheet from the excess liquidity and deposit growth this quarter. And so I thought it was interesting that your guide for average earning assets was flat. I would think maybe you might see a little bit of decline as that, you know, as we just kind of put some of that excess liquidity to work. But still, we're coming from such a larger average earning asset base at the end of the year.

Catherine Mealor: Thanks, Good morning.

Speaker Change: We believe that that is adequate.

Speaker Change: Good morning, good morning.

Speaker Change: Maybe just one back on credit as we think about.

Speaker Change: Okay great.

Speaker Change: And then all of that.

Speaker Change: Outlook for the balance sheet.

Your outlook for the reserve and I know, it's kind of hard to put a range on reserve builds and net charge offs as you guys sit.

Speaker Change: He was a big build in the balance sheet from the excess liquidity and deposit growth this quarter and so.

Speaker Change: Here today, and you think about your potential exposure would you expect to continue to see reserve builds throughout the.

Speaker Change: I thought it was interesting that your guide for average, earning assets was flat I would think maybe you might see a little bit of decline is because of that.

Speaker Change: In the course of 'twenty five or do you think we're at a place today it certainly with good to see less inflows.

Speaker Change: Just kind of.

Speaker Change: As soon as that excess liquidity to work, but still.

Eric Newell: Just curious, your thoughts on that, as we kind of think about excess liquidity kind of into the bond book and into loan growth. We're not currently expecting any growth in the bond portfolio. And in fact, our goal is to get the percentage of the bond portfolio assets into the team. I think Charles was saying around 15% and we're above that.

Speaker Change: Still are coming from such a larger average earning asset base at the end of the year just kind of curious your thoughts on that.

Speaker Change: The standard <unk> session. Mr. <unk> credits, which makes me feel like maybe we're at a peak in our allowance just curious your thoughts on that thank you.

Speaker Change: And so kind of think about excess liquidity kind of into the bond book and until loan growth.

Speaker Change: Yes.

Our budgeting process, we do not currently anticipate any.

Speaker Change: We're not.

Speaker Change: Currently expecting any growth in the bond portfolio and in fact, our goal is to get the percentage of the bond portfolio assets.

Speaker Change: Reserve build beyond what Kevin's comments talked about it in the sense that if there is a.

Speaker Change: Idiosyncratic issue with a credit that requires us to individually evaluate that loan there there could be noise there.

Speaker Change: So the team's been.

Speaker Change: Charles.

Eric Newell: And that is one of the reasons why in our budgeting process, you can see that there was a improvement in our outlook on NIM for 2025 versus what we previously had disclosed in last quarter. about $385 million of cash flows that are currently earning us around 2% that are expected to go into the loan portfolio, or even cash in this case, I mean, that's not really what our goal is. We want to go into the loan portfolio, which materially contributes to an increase in spread. The comment about the average balance sheet, it is true that we had some excess cash throughout the fourth quarter.

Charles: Was saying around 15% and we're above that and that is one of the reasons why.

Speaker Change: But we feel that the office overlay.

Charles: Our budgeting process you can see that there was an improvement in our outlook on NIM.

Speaker Change: As a qualitative approach.

Speaker Change: We're addressing concerns as we see it for office, we feel that that is adequate at this point.

Charles: For 2025 versus what we previously.

Speaker Change: I believe last.

Charles: Disclosed last quarter.

Speaker Change: Call.

Charles: You have.

Speaker Change: I put a range out on.

Charles: About $385 million.

Speaker Change: Credit costs I think it was 25 to 50 basis points.

Charles: <unk> cash flows that are currently earning us around 2%.

For 2025.

But are expected to go into the loan portfolio or even cash in this case I mean, that's not really what our goal is we want to go into the loan portfolio.

Speaker Change: We continue to expect that to be the range.

Speaker Change: And thats provisioning versus charge offs or I guess, maybe.

Charles: Materially contributes to an increase in spread.

Speaker Change: Maybe they are kind of in the same range.

Speaker Change: Without the right, yes, yes.

Speaker Change: The comment about.

Charles: Average balance sheet.

Speaker Change: Look at it as kind of the same thing because without a reserve build.

Charles: It is true that we had some.

Youre going in and out.

Eric Newell: We do have expectations that that would be utilized, better utilized into the loan portfolio as well in 2025.

Charles: Excess cash.

Speaker Change: Yes.

Charles: Throughout the fourth quarter, we do have expectations that that would be utilized better utilized into the loan portfolio as well.

Speaker Change: Great.

Speaker Change: Thinking about what we achieved in 2004.

Eric Newell: And I've noticed that you've made a couple of new hires in the C&I line of business. Any commentary there and just thoughts on your loan growth, how much of that's coming in C&I versus CRE? We're already seeing positive results from the changes that we've made in the C&I area with bringing Evelyn Lee in as the head of the C&I group and with the strategic hires that we have made so far, we're seeing increased activity in that area in a very, very positive way. In terms of growth, Catherine Yeah, our CRE team is seeing payoffs in the multi-family space particularly.

Speaker Change: Actually even in the last 18 months ending December 31, four I think at June 30.

Charles: In 2025.

Charles: And I noticed that you've made a couple of new hires in the C&I line of business any commentary there and just thoughts on your loan growth how much of that is coming in.

Speaker Change: Our reserve was approximately 100 basis points to loans and now we are.

Speaker Change: At 144 basis points to loans.

Charles: Versus CRE.

Speaker Change: We've achieved a lot of build over that 18 months.

Charles: We're already seeing positive results from the chain.

Speaker Change: Based on the information we have today.

Charles: Changes that we've made in the C&I area with bring and evidently in.

Speaker Change: We believe that that is adequate.

Speaker Change: Okay great.

Speaker Change: And then all of that.

Speaker Change: Outlook for the balance sheet.

Charles: As the head of the C&I group and with the strategic hires that we have made so far we're seeing increased activity in that area in a very very positive way.

Speaker Change: He was a big build in the balance sheet from the excess liquidity and deposit growth this quarter and so.

Speaker Change: I thought it was interesting that your guide for average, earning assets was flat I would think maybe you might see a little bit of decline is good at that.

In terms of.

Charles: Growth Kathryn.

Just kind of.

Speaker Change: As soon as that excess liquidity to work, but still.

Our CRE team is seeing payoffs in the multifamily space, particularly we saw some in the fourth quarter I think we're expecting more in the first quarter.

Eric Newell: We saw some in the fourth quarter, I think we're expecting more in the first quarter and I believe Ryan made a comment about some expected payoffs in the second quarter as well. And what that will allow us to do is we can opt to, depending on the pipelines, we can opt to work on any types of activity that the CRE team might be seeing and then also use some of that capacity to, in terms of cash flows coming back to us, redeploy that in our C&I portfolio. Right, we're really looking at our C&I, CRE concentration coming down to as a result of that, those payoffs.

Speaker Change: Still are coming from such a larger average earning asset base at the end of the year just kind of curious your thoughts on that.

Speaker Change: And so kind of think about excess liquidity kind of into the bond book and until loan growth.

Speaker Change: And I believe Brian you made a comment about some expected payoffs in the second quarter as well and what that will allow us to do is.

Speaker Change: We're not.

Speaker Change: Currently expecting any growth in the bond portfolio and in fact, our goal is to get the percentage of the bond portfolio assets.

Speaker Change: We can opt to depending on the pipelines.

Speaker Change: We kind of ops too.

Speaker Change: So the team's been.

Speaker Change: Charles.

Speaker Change: Work on any types of <unk>.

Speaker Change: Was saying around 15% and we're above that and that is one of the reasons why.

Speaker Change: Activity CRE team might be seeing.

Speaker Change: And then also use some of that capacity to in terms of cash flows coming back to us and redeploy that.

Speaker Change: Our budgeting process you can see that there was an improvement in our outlook on NIM.

Speaker Change: Our portfolio right, we're really looking at our C&I CRE concentration coming down too.

Speaker Change: For 2025 versus what we previously.

Speaker Change: Disclosed last quarter.

Eric Newell: which is a big focus of ours, is reducing that CRE concentration ratio. Yes, for sure, for sure.

Speaker Change: Result of that pay off.

Speaker Change: You have.

Speaker Change: About $385 million.

Speaker Change: Which is a big pain control.

Catherine Mealor: Okay, great. Thank you very much. I appreciate it.

Speaker Change: <unk> cash flows that are currently earning us around 2%.

CRE concentration ratio.

Catherine Mealor: Thanks, Catherine. Thank you.

Yes for sure for.

Speaker Change: Okay, great. Thank you very much I appreciate it.

Speaker Change: But are expected to go into the loan portfolio or even cash in this case I mean, that's not really what our goal is we want to go into the loan portfolio.

Operator: I'm showing no further questions at this time.

Catherine: Thanks Catherine.

Susan Riel: I would now like to turn it back to President and CEO Susan Riel for closing remarks. Okay, I'd like to thank everyone for your questions and for you taking the time to join us today. We look forward to speaking with you again next quarter. Have a great day.

Speaker Change: Thank you.

Catherine: I'm showing no further questions at this time.

Speaker Change: Materially contributes to an increase in spread.

Speaker Change: I would now like to turn it back to President and CEO, Susan Riel for closing remarks.

Speaker Change: The comment about.

Susan Riel: Okay I'd like to thank everyone for your questions are for you taking the time to join US today, we look forward to speaking with you again next quarter.

Speaker Change: Average balance sheet.

Speaker Change: It is true that we had some.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Speaker Change: Excess cash.

Speaker Change: On through.

Speaker Change: Great day.

Speaker Change: Throughout the fourth quarter, we do have expectations that that would be utilized better utilized into the loan portfolio as well.

Speaker Change: This concludes today's conference call.

Speaker Change: Thank you for participating you may now disconnect.

Speaker Change: 2025.

Speaker Change: And I noticed that you've made a couple of new hires in the C&I line of business any commentary there and just thoughts on your loan growth how much of that is coming in.

Speaker Change: C&I versus CRE.

Speaker Change: We're already seeing positive results from the.

Speaker Change: Changes that we've made in the C&I area with bring and evidently in.

Speaker Change: As the head of the C&I group and with the strategic hires that we have made so far we're seeing increased activity in that area in a very very positive way.

Speaker Change: In terms of.

Speaker Change: Growth Kathryn.

Speaker Change: Our CRE team is seeing payoffs in the multifamily space, particularly we saw some in the fourth quarter I think we're expecting more in the first quarter.

Speaker Change: And I believe Brian you made a comment about some expected payoffs in the second quarter as well and what that will allow us to do is we can opt to depending on the pipelines.

Speaker Change: We kind of ops too.

Speaker Change: Work on any types of <unk>.

Speaker Change: Activity that CRE team might be seeing.

Speaker Change: And then also use some of that capacity to in terms of cash flows coming back to us and redeploy that.

Speaker Change: Our portfolio right, we're really looking at our C&I CRE concentration coming down too.

Speaker Change: As a result of that.

Speaker Change: Payoffs.

Speaker Change: Which is a big pain control.

Speaker Change: CRE concentration ratio.

Speaker Change: Yes for sure for.

Speaker Change: Okay, great. Thank you very much I appreciate it.

Speaker Change: Thanks Catherine.

Speaker Change: Thank you.

Speaker Change: I'm showing no further questions at this time.

Speaker Change: I would now like to turn it back to President and CEO, Susan Riel for closing remarks.

Susan Riel: Okay I'd like to thank everyone for your questions are for you taking the time to join US today, we look forward to speaking with you again next quarter.

Speaker Change: Great day.

Susan Riel: This concludes today's conference call.

Speaker Change: Thank you for participating you may now disconnect.