Q1 2025 Eagle Bancorp Inc Earnings Call
Unknown Executive: Good day and thank you for standing by.
Good day, and thank you for standing by.
Unknown Executive: Welcome to the Eagle Bancorp Inc first quarter 2025 earnings conference call. At this time, all participants are in listen only mode. After the speaker's presentation, there'll be a question and answer session.
Speaker Change: Welcome to the Eagle Bancorp, Inc. First quarter 2025 earnings conference call.
At this time, all participants are in listen only mode.
Speaker Change: After the Speakers' presentation, there'll be a question and answer session.
Unknown Executive: To ask a question during this session, you will 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.
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Unknown Executive: Please be advised that today's conference is being recorded.
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Unknown Executive: I would now like to hand the conference over to your first speaker today, Eric Newell, Chief Financial Officer of Eagle Bancorp Inc. Please go ahead.
Speaker Change: I'd like to hand, the conference over to your first 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'd like to remind everyone that some of the comments made during this call are forward-looking statements.
Speaker Change: Yeah.
Speaker Change: Good morning. This is Eric Newell, Chief Financial Officer of Eagle Bancorp before.
Speaker Change: Before we begin the presentation I'd like to remind everyone that some of the comments made during this call are forward looking statements.
Eric Newell: The current market environment is uncertain, and 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 2024 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. 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.
Speaker Change: The current market environment is uncertain and we cannot make any promises about future performance and caution you not to place undue reliance on these forward looking statements.
Speaker Change: Our Form 10-K for the 2020 for 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.
Speaker Change: 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 filed with 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 SEC's website.
This morning's commentary will include non-GAAP financial information.
Speaker Change: The earnings release, which is posted in the Investor Relations section of our website and filed with SEC contains reconciliations of this information to the most directly comparable GAAP information.
Speaker Change: Our periodic reports are available from the company online at our website or on the Sec's website.
Susan Riel: With me today is our Chair, President, and CEO, Susan Riel, Chief Lending Officer for Commercial Real Estate, Ryan Riel, and our Chief Credit Officer, Kevin Geoghegan. I'll now turn it over to Susan.
Speaker Change: With me today is our chairman President and CEO, Susan Riel, Chief lending officer for commercial real estate, Ryan rail and our Chief Credit Officer, Kevin Gagan, I'll now turn it over to Susan.
Susan Riel: Thank you, Eric.
Susan Riel: Good morning, everyone. Last night, we reported net income of $1.7 million for the quarter. While this reflects continued earnings pressure, our balance sheet remains resilient. We recognize the need for improved performance and remain focused on executing our strategy to drive stronger, more sustainable results. Our first quarter earnings reflect our previously discussed strategy of prudently managing valuation risk by thoughtfully incorporating all known risks into our loss and loss model. As Kevin will discuss in more detail later on in this call, we updated our assumptions regarding probability of default and loss given default for our office portfolio, which drove an increase in the qualitative overlay for office loans and in the allowance for loan loss reserve.
Susan Riel: Thank you Eric Good morning, everyone last night, we reported net income of $1 7 million for the quarter. While this reflects continued earnings pressure our balance sheet remains resilient with recognize the need for improved performance and remain focused on executing our strategy to drive.
Speaker Change: Wrong or more sustainable results.
Speaker Change: First quarter earnings reflect our previously discussed strategy of prudently managing valuation risk by thoughtfully, incorporating all known risks into our loss and loss modeling.
Speaker Change: As Kevin will discuss in more detail later on in this call we updated our assumptions regarding the probability of default and loss given default for our office portfolio, which drove an increase in the qualitative overlay for office loans and then the allowance for loan loss reserves as a consequence.
Susan Riel: As a consequence, our overall provision for credit losses materially increased. As sentiment shifts and market risks present themselves in an uncertain and volatile environment, particularly around office valuations, we want to make sure that we are adequately reserved for these uncertain outcomes. We remain focused on the fundamentals of the banking business and maintaining our franchise value.
Speaker Change: Our overall provision for credit losses materially increase.
Speaker Change: Sentiment shifts and market risks present themselves in an uncertain and volatile environment, particularly around office valuations, we want to make sure that we are adequately reserved for these uncertain outcomes.
Speaker Change: We remain focused on the fundamentals of the banking business and maintaining our franchise value equal bank operates from a position of strength capital levels are high liquidity is strong and our balance sheet is well positioned to weather continued volatility.
Susan Riel: Eagle Bank operates from a position of strength. Capital levels are high, liquidity is strong, and our balance sheet is well positioned to weather continued volatility. We also remain focused on executing on our discipline strategy that positions Eagle Bank and our clients for long-term success. The first quarter of 2025 saw encouraging results from our commercial lending platform as those loans grew, period end, by $109.1 million, or 4.3% over December 31, 2024. New additions to the C&I team have settled in and we're seeing the impact of those hires reflected in growth and improving market penetration. We expect growth in our commercial lending portfolio to enhance franchise value as we bolster our position as the go-to community bank in the greater Washington, D.C.
Speaker Change: We also remain focused on executing on our disciplined strategy that positions Eagle bank and our clients for long term success. The first quarter of 2025 saw encouraging results from our commercial lending platform as those loans grew period end by 109.
Speaker Change: $1 million or four 3% over December 31, 2024.
Speaker Change: New additions to the C&I team have settled in and we're seeing the impact of those hires reflected in growth and improving market penetration, we expect growth in our commercial lending profile.
Speaker Change: The portfolio to enhance franchise value as we called.
Speaker Change: Our position as the go to community bank in the Greater Washington D C Metro area.
Susan Riel: metro area. Deposits grew in the first quarter by $146.2 million, largely through timed deposits in our digital and branch channels, demonstrating our ability to attract funding and providing further support to the bank's overall liquidity strength. There's no question that uncertainty remains as the market adjusts to changes under the new administration. Shifts in the federal workforce and the broader implications of government spending are still unfolding. Importantly, our modest exposure to government contracting and GSA-linked assets reduces our sensitivity to changes in federal budget spending. Moreover, the D.C. economy extends well beyond the federal government. It includes world-class educational institutions, a growing technology-driven private sector, and a robust tourism industry, all of which support the region's diversification and long-term stability.
Speaker Change: <unk> grew in the first quarter by $146 2 million.
Speaker Change: <unk> through time deposits in our digital and branch channels, demonstrating our ability to attract funding and providing further support to the bank's overall liquidity strength. There's no question that uncertainty remains as the market adjusts to changes under the New administration sure.
Speaker Change: <unk> and the federal workforce and the broader implications of government spending are still unfolding.
Fortunately, our modest exposure to government contracting and GSA linked assets reduces our sensitivity to changes in federal budget spending.
Speaker Change: Moreover, the DC economy extends well beyond the federal government. It includes world class educational institutions, and growing technology, driven private sector and a robust tourism industry, all of which support the regional diversification and long term stability.
Susan Riel: We believe in this market and community and our geographic presence here. We believe our role as a top local community lender and our deeply rooted relationship first values create a strong competitive advantage. These qualities and this market are a recipe for long term value for both our shareholders and our clients. While we remain optimistic about the long-term strength and resilience of the Washington, D.C. region, we must also acknowledge the sustained pressure on office property valuations in our market. Over the past five quarters, we have built reserves and focused on capital preservation, steps that have strengthened our capacity to absorb loss.
Speaker Change: We believe in this market and community and our geographic presence here, we believe our role as the top local community lender and are deeply rooted relationship first values create a strong competitive advantage. These qualities in this market are a recipe for long term value for.
Speaker Change: Our shareholders and our clients.
Speaker Change: While we remain optimistic about the long term strength and resilience of the Washington D. C region. We must also acknowledge that sustained pressure on office property valuations in our market.
Speaker Change: Over the past five quarters, we have built reserves and focused on capital preservation steps that have strengthened our capacity to absorb losses.
Susan Riel: Looking ahead, we will explore asset disposition strategies for office loans to reflect evolving short- and intermediate-term valuation risks. As market conditions develop, our cost-benefit analysis will similarly evolve, and we may take a more proactive approach to disposition. This may result in higher near-term credit costs, but is aligned with our objective of reducing non-accrual, criticized, and classified loans and improving the quality of our loan portfolio. As we continue to navigate a complex operating environment, we remain focused on preserving capital and maintaining financial flexibility. Given persistent uncertainty in the credit conditions, particularly in the office portfolio, we believe it is both necessary and responsible to align all aspects of our capital deployment strategy with the realities of forward-looking earnings.
Speaker Change: Looking ahead, we will explore asset disposition strategies for office loans to reflect evolving short and intermediate term valuation risk as market conditions develop our low cost our cost benefit analysis will similarly evolved and we may take a more proactive.
Speaker Change: To dispositions. This may result in higher near term credit costs, but it's aligned with our objective of reducing non accrual criticized and classified loans and improving the quality of our loan portfolio.
Speaker Change: As we continue to navigate a complex operating environment, we remain focused on preserving capital and maintaining financial flexibility, giving persistent uncertainty in the credit conditions, particularly in the office portfolio. We believe it is both necessary and responsible to <unk>.
Speaker Change: <unk> all aspects of our capital deployment strategy with the realities of forward looking earnings we are actively reassessing capital allocation priorities, including shareholder return strategies as we continue to pursue our goals of long term franchise value and capital accretion.
Susan Riel: We are actively reassessing capital allocation priorities, including shareholder return strategies, as we continue to pursue our goals of long-term franchise value and capital accretion. Our overarching objective remains to maintain a resilient capital base capable of supporting both strategic growth and prudent risk management.
Speaker Change: Overall, our overarching objective remains to maintain a resilient capital base capable of supporting both strategic growth and prudent risk management.
Susan Riel: Our team is inspired by the progress we've made and the future possibilities and opportunities available to us as an organization. With our core banking fundamentals intact and our strategic efforts taking root, we are confident in our ability to execute on our goals.
Speaker Change: Our team is inspired by the progress we've made in the future possibilities and opportunities available to us as an organization with our core banking fundamentals intact and our strategic efforts taking route we are confident in our ability to execute on our goals with that I will turn things.
Kevin Geoghegan: With that, I will turn things over to Kevin. Thank you, Susan. Results for the quarter were impacted by the $26.3 million provision for credit losses. Of this total, 13.9 related to the increase in our office overlay, which is a qualitative reserve. Annually, we reassess the probability of default and loss-given default assumptions for loans secured by office properties based on our recent experience with appraisals, and updated assumptions drove an increase in the reserve. The allowance for credit losses increased to $129.5 million at $331 representing coverage of total loans at $1.63, increasing 19 BIFs from the prior quarter.
Kevin Gagan: Over to Kevin.
Kevin Gagan: Thank you Susan.
Kevin Gagan: Results for the quarter were impacted by the $26 3 million provision for credit losses of.
Kevin Gagan: This total $13 nine related to the increase in our office overlay, which is a qualitative reserve.
Kevin Gagan: Annually, we reassess the probability of default and loss given default assumptions for loans secured by office properties based on our recent experience with appraisals and updated assumptions drove an increase in the reserve.
Kevin Gagan: The allowance for credit losses increased to $129 5 million at $3 31, representing coverage of total loans at 163, increasing 19 bps from the prior quarter.
Kevin Geoghegan: The ACL coverage to performing office loans stood at 5.78% at the end of the quarter, up from 3.1% at year end. Non-performing loans were $200.4 million at 331, a decrease of $8.3 million from the prior quarter. The reduction was predominantly associated with the $11.2 million non-performing loans that were charged off during the quarter. Non-performing assets to total assets were 1.79%, a decrease of 11 bps from the prior quarter. Net charge-offs totaled $11.5 million in the first quarter, or an annualized $57 bps of average loan. Loans from 89 days past due were $83.0 million at $331, increasing from $26.8 million at $1231.24.
Kevin Gagan: The ACL coverage to performing office loans stood at $5, 78% at the end of the quarter up from three one at year end.
Kevin Gagan: Nonperforming loans were $204 million or $3 31, a decrease of $8 3 million from the prior quarter.
Kevin Gagan: The reduction was.
Kevin Gagan: Predominantly associated with the $11 2 million dollar nonperforming loans that were charged off during the quarter.
Kevin Gagan: Nonperforming assets to total assets were $1 seven 9% a decrease of 11 bps from the prior quarter.
Kevin Gagan: Net charge offs totaled $11 million in the first quarter or an annualized 557 bps of average loans.
Kevin Gagan: Loans.
Kevin Gagan: 89 days past due were 83.0 million at $3 31, increasing from $26 8 million at 12 31 24.
Kevin Geoghegan: While this level of past due loans is elevated relative to historical trends, a portion of the increase is attributable to recent maturities in process that are in process of being remedied. Of the total past due balance at March 31, we expect $22 million will be remedied by the end of April. Substandard loans increased $75.2 million during the first quarter to end at $501.6 million, primarily reflecting continued stress in the office portfolio. Special mention increased $28.6 million during the quarter to end at $273.4 million as we proactively identified credits showing signs of potential weakness. We note in our disclosure on slide 19 of our earnings presentation that 74% of our criticized and classified loans are performing.
Kevin Gagan: While this level of past due loans is elevated relative to historical trends a portion of the increase is attributable to recent maturities in process that are in process of being remedy of the total past due balance at March 31, we expect $22 million will be remedied.
Kevin Gagan: By the end of April.
Kevin Gagan: Substandard loans increased $75 2 million during the first quarter to end at 501 6 million, primarily reflecting continued stress in the office portfolio.
Kevin Gagan: Special mentioned increased $28 6 million during the quarter to end at $273 $4 million.
Kevin Gagan: As we proactively identified credits showing signs of potential weakness.
Kevin Gagan: We note in our disclosure on slide 19 of our earnings presentation that 74% of our criticized and classified loans are performing.
Kevin Geoghegan: During the quarter, two office relationships were added to special mention and substandards respectively. both reflected clear weakness, primarily due to updated financials, declining net operating income, or anticipated pressure on debt service coverage from upcoming interest rate resets. We also added two government government contracting relationships to special mention. The FIRST has experienced contract cancellations and is currently working through the government's established collection protocol. The company has a strong management team that responded quickly to right sizing their operation. The second loan is also under pressure due to its exposure to USAID and is facing cash flow challenges that could be strained by potential federal cost-cutting measures.
Kevin Gagan: During the quarter two office relationships were added to special mention and substandard respectively.
Kevin Gagan: Both reflect a clear weakness primarily due to updated financials.
Kevin Gagan: <unk>.
Net operating income or anticipated pressure on debt service coverage from upcoming interest rate resets.
We also added two government government contracting relationships so special mentioned.
Kevin Gagan: The first has experienced contract cancellations and is currently working through the government's establish collection protocol.
Kevin Gagan: The company has a strong management team that responded quickly to right sizing their operations.
Kevin Gagan: The second loan is also under pressure due to its exposure to U S. AIB and is facing cash flow challenges that could be strained by potential federal cut cost cutting measures.
Kevin Geoghegan: Our teams are closely collaborating with our government contracting clients, staying informed on industry developments, and providing ongoing support as the situation evolves. Lastly, one multifamily loan was downgraded to substandard. This relationship is tied to an affordable housing project that continues to face cash flow issues stemming from D.C.'s pandemic-era eviction moratoriums and resulting prolonged adjudication process. More broadly, we remain cautious given the uncertainty in the Washington, D.C. market, particularly as it relates to the office sector and the potential downstream effects of the federal budget tightening.
Kevin Gagan: Our teams are closely collaborating with our government contracting clients staying informed on industry developments and providing ongoing support as the situation evolves.
Kevin Gagan: Lastly, one multifamily loan was downgraded to sub standard. This relationship is tied to an affordable housing project that continues to face cash flow issues stemming from Dcs pandemic era eviction, moratoriums and resulting.
Kevin Gagan: Prolonged adjudication process.
Kevin Gagan: More broadly we remain cautious given the uncertainty in the Washington, DC market, particularly as it relates to the office sector and the potential downstream effects of the federal budget tightening.
Kevin Geoghegan: Our strategy is centered on preserving capital flexibility, improving portfolio quality, and positioning the company to manage through the continued volatility while staying focused on our long-term franchise value.
Kevin Gagan: Our strategy is centered on preserving capital flexibility improving portfolio quality.
Kevin Gagan: And positioning the company to manage through the continued volatility while staying focused on our long term franchise value Eric.
Eric Newell: Thanks, Kevin. We reported net income for the quarter totaling $1.7 million, or $0.06 per diluted share. This compares to the prior quarter of $15.3 million, or $0.50 per diluted share.
Kevin Gagan: Eric.
Eric Newell: Thanks, Kevin we reported net income for the quarter totaling $1 7 million or six cents per diluted share. This compares to the prior quarter of $15 3 million or <unk> 50 per diluted share.
Eric Newell: Pre-tax income declined $17.3 million to $2.4 million in the first quarter. The higher provision for credit losses, decline in net interest income, higher non-interest expenses contributed to the pre-tax decline. These factors were partially offset by a $4.1 million increase in non-interest income.
Eric Newell: Pre tax income declined $17 3 million to $2 4 million in the first quarter.
Eric Newell: Higher provision for credit losses declined and net interest income higher noninterest expenses contributed to the pretax decline. These factors were partially offset by a $4 1 million increase in noninterest income.
Eric Newell: Despite this earnings pressure, Eagle Bank continues to operate safely and soundly from a position of financial strength. Our capital position remains strong. Tier 1 leverage increased 37 basis points to 11.11% as average assets decreased more than Tier 1 capital quarter over quarter. Common Equity Tier 1 ratio decreased two basis points to 14.61%. Tangible Common Equity Ratio decreased two basis points to 11% at quarter end. Book value per share increased $0.39 to $40.99 per share as unrealized losses on available-for-sale securities decreased due to lower market rates at March 31 compared to the prior quarter end.
Eric Newell: Despite this earnings pressure Eagle Bank continues to operate safely and soundly from a position of financial strength, our capital position remains strong.
Eric Newell: Tier one leverage increased 37 basis points to a $11 one 1%.
Eric Newell: Average assets decreased more than tier one capital quarter over quarter.
Eric Newell: Common equity tier one ratio decreased two basis points to $14 six 1%.
Eric Newell: Tangible common equity ratio decreased two basis points to 11% at quarter end.
Eric Newell: Book value per share increased 39 to $40 99 per share and unrealized losses on available for sale securities decreased due to lower market rates at March 31, compared to the prior quarter end.
Eric Newell: We also remain confident in the strength and flexibility of our balance sheet. Average deposits have grown $381.6 million from a year ago during the first quarter of 2024. As of quarter end, 75% of our total deposits were insured, reflecting a stable funding base. Available liquidity from the Federal Home Loan Bank, Federal Reserve discount window, cash, and unencumbered securities totaled $4.8 billion, providing a robust buffer. Net interest income before provision totaled $65.6 million in the first quarter, decreasing from $70.8 million in the prior quarter. That interest income declined because of two fewer days in the quarter.
Eric Newell: We also remain confident in the strength and flexibility of our balance sheet average deposits have grown $381 6 million from a year ago. During the first quarter of 2024.
Eric Newell: As of quarter end, 75% of our total deposits were insured, reflecting a stable funding base.
Eric Newell: Available liquidity from the federal home loan Bank Federal reserve discount window cash and unencumbered securities totaled $4 8 billion, providing a robust buffer.
Eric Newell: Net interest income before provision and totaled $65 6 million in the first quarter decreasing from $70 8 million in the prior quarter.
Eric Newell: Net interest income declined because of two fewer days in the quarter.
Eric Newell: Lower average interest-bearing cash balances, lower rates on loans, and a higher mix of interest-bearing deposits. Both interest income and interest expense declined due to lower market rates. Of the $238.9 million of funded loan originations in the first quarter, they had a weighted average rate of 7.33%. This compares to $162.6 million of funded loan originations at a weighted average rate of 7.68% in the fourth quarter. NIM declined one basis point from the fourth quarter to 2.28%. The shift in mix of average bearing liabilities with a higher proportion of interest bearing deposits was the primary driver of the decline in NIM.
Eric Newell: Lower average interest bearing cash balances lower rates on loans and a higher mix of interest bearing deposits. Both interest income and interest expense declined due to lower market rates.
Eric Newell: Of the 2200, $38 9 million of funded loan originations in the first quarter.
Eric Newell: They had on average our weighted average rate of 733%. This compares to a $162 6 million of funded loan originations at a weighted average rate of 768% in the fourth quarter.
Eric Newell: NIM declined one basis point from the fourth quarter of $2 two 8% the shift in mix of average bearing liabilities with a higher proportion of interest bearing deposits was the primary driver of the decline in NIM.
Eric Newell: The NIM outlook in our earnings deck for the full year of 2025 is being adjusted downward as funding costs remain higher than initially forecast. Forecasted higher NIM for the remainder of the year is driven by lower funding costs associated with a large interest-bearing transaction relationship, lower average borrowings, and higher yields on earning assets as cash flows off of the investment portfolio reprice upward. Non-interest income was $8.2 million for the first quarter of 2025 compared to $4.1 million in the prior quarter. The primary driver of the increase was an increase in income associated with a $200 million separate account BOLI transaction that was entered into in the first quarter.
Eric Newell: NIM outlook in our earnings deck for the full year of 2025 is being adjusted downward as funding costs remained higher than initially forecasted.
Eric Newell: Forecasted higher NIM for the remainder of the year is driven by lower funding costs associated with a large interest bearing transaction relationship.
Eric Newell: Lower average.
Eric Newell: Lower average borrowings and higher yields on earning assets as cash flows off of the investment portfolio reprice upward.
Eric Newell: Noninterest income was $8 2 million for the first quarter of 2025 compared to $4 1 million in the prior quarter. The primary driver of the increase was an increase in income associated with a $200 million separate account bully transaction that was entered into in the first quarter. In addition to supporting future.
Eric Newell: In addition to supporting future employee benefits through this tax-advantaged investment vehicle, this transaction is designed to provide additional non-interest income to the company.
Eric Newell: For your benefit students tax advantaged investment vehicle. This transaction is designed to provide additional noninterest income to the company.
Eric Newell: As you can see on slide 12 in our current 2025 outlook, we have revised our growth projection of non-interest income from flat to 35 to 40 percent to account for this. $900,000 to $45.5 million from the previous quarter. This increase was primarily due to increased legal, accounting, and professional fees, and it's due to the timing of an insurance receivable that we expect this expense will decline in the second quarter. Other expenses declined in the first quarter due to an elevated level of personal property tax true-up in the fourth quarter that did not repeat again in the first quarter.
Eric Newell: As you can see on slide 12 in our current 2025 outlook, we have revised our growth projection of non in noninterest income from flat to 35% to 40% to account for this.
Eric Newell: Noninterest expense increased.
Eric Newell: $900000 to $45 5 million from the previous quarter. This increase was primarily due to increased legal accounting and professional fees and is due to timing of an insurance receivable that we expect this expense will decline in the second quarter.
Eric Newell: Other expenses declined in the first quarter due to an elevated level of personal property tax true up in the fourth quarter that did not repeat again in the first quarter.
Eric Newell: In our quarterly investor deck release, along with our earnings, we updated our view on full year 2025, which is on slide 12. Our thoughts on period end growth of loans this 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 the loan. We discussed adjustments to NIM earlier, which reflects an update to a lower range based on higher interest expense in the first quarter. The previously mentioned BOLI transaction, along with the impact of a purchased tax credit transaction, is expected to have a positive impact on our annual tax rate for the year.
Eric Newell: In our quarterly Investor deck released along with our earnings we updated our view on full year 2025, which is on slide 12, our thoughts on period end growth of loans. This year remains between two and 8%.
Eric Newell: <unk> shows average growth.
Eric Newell: Earning asset growth as flat as we continue to take cash flows from our investment portfolio and reinvest into loans.
Eric Newell: We discussed adjustments to NIM earlier, which reflects an upward on an update to lower out range based on the higher interest expense in the first quarter. The previously mentioned Angola transaction, along with the impact of the purchase.
Eric Newell: Along with the impact of the purchase tax credit transaction is expected to have a positive impact on our annual tax rate for the year.
Eric Newell: We updated the range to reflect in the deck to 15 to 17%.
Eric Newell: We updated the range to reflect in the deck to 15% to 17%.
Eric Newell: Altogether, the strength of our capital, liquidity, and funding positions Eagle Bank to manage through near-term uncertainty while we continue to serve our clients and invest in our strategic priorities.
Eric Newell: Altogether, the strength of our capital liquidity and funding positions Eagle bank to manage through near term uncertainty, while we continue to serve our clients and invest in our strategic priorities.
Susan Riel: I'll turn it over to Susan for a short wrap-up. Thanks, Eric. We continue to execute on our strategic priorities, growing and diversifying our franchise, deepening relationship-based deposits, and driving operational efforts. While the path forward includes challenges, particularly around asset quality and valuation pressures in the office segment, we are taking deliberate action to address these issues while laying the foundation for long-term performance. What continues to distinguish Eagle Bank is our deep connection to the communities we serve. In an evolving market like the DMV, staying close to our clients remains a core strength that supports our resilience and relevance.
Susan Riel: Turn it over to Susan for a short wrap up.
Speaker Change: Thanks, Derek we continue to execute on our strategic priorities growing and diversifying our franchise deepening relationship based deposits and driving operational excellence, while the path forward includes challenges, particularly around asset quality and valuation pressures in the office segment we are.
Speaker Change: Taking deliberate actions to address these issues, while laying the foundation for long term performance. While continues to distinguish Eagle bank is our deep connection to the communities. We serve in an evolving market like the DMV staying close to our clients remains a core strength that supports.
Speaker Change: Salary salience and relevant.
Susan Riel: Before we conclude, I want to express my sincere appreciation to our employees. Your dedication and professionalism make all the difference, especially as we navigate through the change and position, to change and position Eagle Bank for future success.
Speaker Change: Before we conclude I want to express my sincere appreciation to our employees their dedication and professionalism make all the difference, especially as we navigate through the change in physician.
Speaker Change: To change and position Eagle Bank for future success with that we'll now open things up for questions.
Unknown Executive: With that, we'll now open things up for questions. Thank you. At this time, we'll conduct the question and answer session.
Speaker Change: Thank you at this time, we will conduct a question and answer session.
Unknown Executive: As a reminder to ask a question, you'll need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 again. Please stand by while we compile the Q&A roster.
Speaker Change: As a reminder to ask a question you will need to press star One wondering your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again please.
Speaker Change: Please standby will compile the Q&A roster.
Speaker Change: Yeah.
Justin Crowley: And our first question comes from the line of Justin Crowley of Piper Sandler. Your line is now open.
Speaker Change: And our first question comes from the line of Justin Crowley of Piper Sandler. Your line is now open.
Eric Newell: Hey, good morning. I just wanted to start off digging a little deeper into what you're seeing in office. I'm just wondering if you could provide a little more color on specific drivers of the reserve bill here, and perhaps if you're seeing, you know, if there's any greater transparency into, you know, valuation trends that led to the increased overlay factored into that allowance.
Justin Crowley: Hey, good morning.
Speaker Change: Good morning, gentlemen.
Speaker Change: Wanted to start off digging a little deeper into what you are seeing office. Just wondering if you could provide a little more color on specific drivers.
Speaker Change: The reserve build here and perhaps if youre seeing if.
Speaker Change: If there is any greater transparency transparency into valuation trends that led to the increased overlap factored into that allowance.
Eric Newell: Yeah, Justin, this is Eric. We use a management qualitative overlay for our office portfolio. And that is driven off of behavior, actual experience with appraisals that we've received through the cycle. Annually, in the first quarter, we reassess the probability of default and the loss given default based on that behavior that we've had with those received appraisals. And we updated those factors, which drove a $14.3 million increase to the ACL as it pertains to the performing office portfolio, which increased the coverage to, I believe it's 5.78%.
Eric Newell: Yes, Justin this is Eric.
Eric Newell: Use a management qualitative overlay for our office portfolio in that.
Eric Newell: Is driven off of behavior actual experience.
Eric Newell: Appraisals that we've received through cycle.
Eric Newell: Annually in the first quarter, we reassessed the probability of default and the loss given default.
Eric Newell: Based on that behavior that we've had with those received appraisals and we updated those factors, which drove a $14 3 million dollar increase to be.
Eric Newell: ACL.
Eric Newell: As it pertains to the performing office portfolio.
Eric Newell: <unk> increased the coverage to I believe its $5 70 per se.
Ryan Riel: In terms of valuation factors, maybe, Ryan, you want to touch on that?
Eric Newell: In terms of valuation factors, maybe Ryan you want to touch on that.
Ryan Riel: Thanks, Justin.
Eric Newell: This is Ryan Riel. The valuations we've, as Eric said, our assumptions looking forward have been informed by the appraisals that we've been getting. Market conditions have somewhat stabilized from the data that we're seeing, although the stabilized point is not, not a high value point. So we are, our assumptions and our actions are taking all of that into Okay, got it. And then I guess as we look out to 2026 maturities, particularly taking that portion of loans with appraisals that predate March of last year that you break out in the deck, you know, how is that captured in the allowance?
Ryan Rail: Thanks, Justin this is Ryan.
Eric Newell: Evaluations.
Eric Newell: As Eric said, our assumptions looking forward have been informed by the appraisals that we've been getting market conditions have somewhat stabilized.
Eric Newell: From the data that we're seeing although the stabilized point is not.
Eric Newell: It's not a high value point, so we are.
Eric Newell: Our assumptions and our actions are taking all of that into account.
Speaker Change: Okay got it and then I guess as we look out to 2026 maturities, particularly taking a portion of loans.
Speaker Change: Appraisals that pre dated March of last year that you break out in the deck.
Eric Newell: And how do you think about the risk there? We, with the qualitative overlay for office, it's driven by the internal risk rating that we have. So I believe in prior quarters we've told you that substandard performing office loans carried a certain percentage in the allowance and updating that number to this most recent quarter, it's about 18%. So for all the dollars that sit for office in substandard internal classification, we're carrying 18% in the reserve. So a lot of that is taking into account as best as we can in the framework that we have for the qualitative overlay, the valuation risk that we see in the portfolio.
Speaker Change: How is that captured in the allowance and how do you think about the risk there.
Speaker Change: Okay.
Speaker Change: We with the qualitative overlay for office.
Speaker Change: Driven by the.
Speaker Change: Internal risk rating that we have so I.
Speaker Change: Believe in prior quarters, we've told you that substandard performing office loans carried a certain percentage.
Speaker Change: In the allowance.
Speaker Change: Updating that number to this most recent quarter, it's about 18% so for all of the dollars that sit in that.
Speaker Change: For office, and substandard internal classification or carrying 18% in the reserve. So lot of that is taking into account as best as we can in the framework that we have for that.
Speaker Change: Qualitative overlay evaluation of risk that we.
Ryan Riel: I would just add to that, Eric, that the loss mitigation strategies that we've been working with our clients on for some time, we're not waiting until that maturity date is around the corner. We've been doing it for some time and we'll continue to do it.
Speaker Change: See in the portfolio I would just add to that Eric that the loss mitigation strategies that we've been working with our clients on for some time, we're not waiting until that maturity date is around the corner. We had 10 for some time and we'll continue to.
Justin Crowley: Okay, and then, you know, just sticking to credit, but maybe outside of what you're seeing within office, and the idea of looking through the portfolio and seeing what's at risk given, you know, the climate around trade policy, and then also just spending cuts across the federal government, you know, you mentioned some of the migration in government contracting, you know, what else you've seen there as far as, you know, potentially impacted borrowers?
Speaker Change: Okay, and then just sticking to credit, but maybe outside of what Youre seeing within office.
Speaker Change: And the idea of looking through the portfolio and seeing what's at risk given the climate around trade policy and then also just spending cuts across the federal government you mentioned some of the migration and government contracting what else are you seeing there as far as potentially impacted borrowers.
Kevin Geoghegan: Well, Justin, it's Kevin. First, I'd say our GovCon portfolio is very modest. I think we have $250 outstanding and a $350 million exposure.
Kevin Gagan: Well, Justin it's Kevin first I would say our Gov.
Speaker Change: Portfolio is very modest.
Speaker Change: I think we have 250 outstanding and a $350 million.
Kevin Geoghegan: The uncertainty continues. But as I said in my comments, our RRMs are contacting and in contact with their clients very often, both getting information and providing information as well on different trends that we all see. Okay.
Speaker Change: Exposure.
Speaker Change: Uncertainty continues but as I said in my comments, our RMS are contacting and in contact with their clients.
Speaker Change: We often both getting information and providing.
Speaker Change: Sure.
Speaker Change: Information as well on different trends that we all see.
Justin Crowley: And then maybe just one last one, if I could sneak it in.
Speaker Change: Okay.
Eric Newell: You know, wondering just on the margin, Eric, if you could maybe detail a little further the assumptions that help you get that expansion through the balance of the year, just including the larger pricing opportunity on the deposit side you mentioned. And then, you know, if you could also just comment on how sensitive that guide is to Fed rate cuts. Yeah, the forecast doesn't include any changes to Fed rate cuts, so it's a stable forecast. I would say there's three factors that are driving the forecast on NIM for the remainder of the year. First, we have a third-party payment processing relationship that has a new pricing structure that went into effect on April 1, so that's going to provide benefit to the cost of funds.
Speaker Change: And then maybe just one last one if I could sneak it in wondering just on the margin Eric if you could maybe detail little farther the assumptions that help you get that expansion through the balance of the year, just including the the larger pricing opportunity on the deposit side you mentioned.
Speaker Change: Then if you could also just comment comment on how sensitive that guide is two fed rate cuts.
Speaker Change: Yes.
Speaker Change: The forecast doesn't include any changes.
Speaker Change: To fed rate cuts so it's a stable.
Speaker Change: Forecast.
Speaker Change: I'd say theres three factors that are driving that.
Speaker Change: The forecast on NIM for the remainder of the year first we have a.
Speaker Change: Third party payment processing relationship that.
Speaker Change: Has.
Speaker Change: Our new pricing.
Speaker Change: Structure that went into effect on April one so that's going to provide benefit to the cost of funds.
Eric Newell: Second, we have another $300 million approximately of funds that are going to roll out of the investment portfolio, earning us about 180 basis points or less. That will be redeployed into higher-earning assets. And then third, but more modest, is our anticipation of some small relationship deposit growth due to the continued execution of our strategy of diversifying the commercial book and the resulting deposit growth that will likely – or we're starting to see that growth in terms of new customers, and then the balances will come in later in the year from our C&I team, and that should have some benefit to the cost of funds as well.
Speaker Change: Second we have another $300 million approximately of funds that are going to rollout of the investment portfolio, earning us about 180 basis points or less.
Speaker Change: That will be redeployed into higher earning assets.
Speaker Change: And then third but more modest as our anticipation of some small relationship deposit growth due to the continued execution of our strategy of diversifying their commercial book and the resulting.
Speaker Change: Deposit growth will likely.
Speaker Change: We're starting to see that growth in terms of new customers and then the balances will come in.
Speaker Change: Later in the year from our C&I team and that should have some some benefit to the cost of funds as well.
Eric Newell: Okay, and do you think would you know, if we get a few fed rate cuts, you know, would that be additive to that guide? How would the how would the margin behave under that scenario? I would say there's, we're relatively neutral to, at least in the short term, to interest rate movements. And the reason I say that is, first off, for every change in the Fed funds rate last year, we passed that along to our non-maturity depositors. So we were able to pass all that to our customers. And I think we'll continue to attempt to do that because we've had limited discussions with our customers because of that.
Speaker Change: Okay and do you think.
Speaker Change: If we get a few fed rate cuts would that be additive to that guide how would how.
Speaker Change: How would the margin behave under that scenario.
Speaker Change: I would say there is.
Speaker Change: We're relatively.
Speaker Change: Neutral to our at least in the short term.
Speaker Change: Our interest rate movements.
Speaker Change: And the reason I say that is first off for every.
Speaker Change: Change in the fed funds rate last year, we pass that along to our.
Speaker Change: Non maturity deposit so we were able to pass all of that to our customers.
Speaker Change: And I think we will continue to attempt to do that because we've had limited discussions with our customers because of that and the reason I believe that has been more successful in doing that is because we do it almost at the same time as when the fed is.
Eric Newell: And the reason I believe that we've been more successful in doing that is because we do it almost at the same time as when the Fed is reducing rates. So if that were to happen, we would definitely have that conversation. But we also have a large portion of our loan book floats as well on SOFR. So that, to me, is why I don't think there's a lot of sensitivity to this forecast based off of higher changes to the Fed funds rate. Okay, got it. Thank you.
Speaker Change: Reducing rates, so if that were to happen.
Speaker Change: Definitely have that conversation, but we also have.
Speaker Change: A large portion of our loan book floats as well on sofa so that.
Speaker Change: To me is why I don't think Theres a lot of sensitivity to this.
Speaker Change: This forecast based off of higher or changes to the fed funds rate.
Unknown Executive: I'll leave it there. Thank you. One moment for our next question.
Speaker Change: Okay got it.
Speaker Change: Thank you I'll leave it there.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Okay.
Catherine Mealor: And our next question comes from the line of Catherine Mealor of KBW. Your line is now open.
Speaker Change: Our next question comes from the line of Catherine Mealor with <unk>. Your line is now open.
Catherine Mealor: Thanks, good morning. Hey Catherine.
Catherine Mealor: Thanks, Good morning.
Ryan Riel: Could y'all give us some additional information of how much of your office portfolio do you think has exposure to government agencies within within the So Catherine, this is Ryan Riel. We've done a poll. Hey, we've done a polling of our office borrowers and that that percentage is very small. It's less than 5% of our lease space in the office.
Speaker Change: Hey, Catherine.
Catherine Mealor: Could you give us some idea.
Speaker Change: There is no information of how much of your office portfolio do you think has exposure to government agencies within within the lease.
Catherine Mealor: So Catherine this is Ryan.
Speaker Change: On April.
Speaker Change: Hey, we've done a pulling of.
Speaker Change: Our office borrowers and that percentage is very small it's less than 5% of our lease space in the office portfolio. Okay.
Ryan Riel: And would you say that, have you seen any kind of change in the values on the appraisals? Or I think you're, you're seeing anecdotally in these appraisals that have been impacted by just all the kind of doge noise? Or do you think this is also just kind of a continuation of just the market and kind of office portfolio being I think it's a continuation, Catherine, of the market that we've been in for some time now.
Speaker Change: Okay.
Speaker Change: And would you say that.
Speaker Change: And have you seen any kind of change in the.
Speaker Change: The values on the appraisal or anything Youre youre seeing anecdotally. These appraisals that have been impacted by just all the kind of data there's noise or do you think this is also just kind of a continuation of just.
Speaker Change: The market and kind of office portfolio being under stress.
Catherine Mealor: I think it's a continuation Catherine of the market that we've been in for some time now.
Catherine Mealor: Um, and then just anecdotally with your clients, and I mean, you're the you've the largest concentration of just DC. So this is the market that you kind of own and the market that everyone's focused on just trying to figure out kind of what happens to DC under all this volatility. What are your clients saying?
Got it okay.
Speaker Change: And then just anecdotally with your clients.
Catherine Mealor: Yeah.
Speaker Change: You have the largest concentration of just D. C. So this is a market that you kind of own and it's a market that everyone's focused on just trying to figure out kind of what happens to DC under all this volatility what are your clients, saying are you in terms of.
Ryan Riel: Are you in terms of, I mean, the credit side is hard to see right now, but just in terms of new originations, and really where the risk is, what are you hearing on the in terms of appetite for, for lending? And then I guess, I guess it's a twofold question, one for lending, and then also just on the credit. Even though I know that's hard to believe. Right, on the lending side, we continue to support our clients on the commercial real estate lending side. Our C&I pipeline is robust at this point in time. On the credit side, I think the word you nailed it, it's the uncertainty.
Speaker Change: I mean, the credit side is it's hard to see right now, but just in terms of new originations.
Speaker Change: Really where the risk is what are you hearing on the ground in terms of appetite for.
Speaker Change: For lending.
Speaker Change: And then I guess I guess twofold question, one for lending and then also just on the credit side.
Speaker Change: I know that's higher.
Speaker Change: On the lending side there as we.
Speaker Change: We continue to support our clients on the commercial real estate lending side, our C&I pipeline is robust at this point in time.
Speaker Change: On the credit side I think the word you nailed it it's the uncertainty.
Ryan Riel: I don't know that anybody can look out very far into that crystal ball and have any confidence. and that out.
Speaker Change: I don't know that anybody can look out very far into that crystal ball and have any confidence right now in that outlook.
Eric Newell: I would say, Catherine, just to add to what Ryan's saying, you know, in Kevin's earlier comments about the GovCon portfolio, it's a modest exposure, and, you know, in discussions we've had with investors over the quarter, because they are all calling wondering about Doge and its impact, you know, there's certainly what I characterize as second and third derivative impacts that could impact us, but it's hard to quantify that at this point. So that's why, you know, the continued discussions that our relationship managers have with our clients is critical to understand if there's any evolving trends that could inform how we posture ourselves in the allowance going forward.
Catherine Mealor: I would say Catherine just to add to what Ryan was saying.
Catherine Mealor: And Kevin's earlier comments about <unk> current portfolio, it's a modest exposure.
Catherine Mealor: And discussions we've had with investors over that.
Catherine Mealor: The quarter.
Catherine Mealor: Are all calling wondering about goes and its impact.
Catherine Mealor: Certainly.
Catherine Mealor: I'd characterize the second.
Catherine Mealor: And third derivative impacts.
Catherine Mealor: That could impact us, but it's hard to quantify that at this point.
Catherine Mealor: So thats why.
Catherine Mealor: But continued discussions at our relationship managers have with our clients is critical to understand if theres any.
Catherine Mealor: <unk> trends.
Catherine Mealor: Could inform how we posture ourselves.
Catherine Mealor: <unk> going forward.
Catherine Mealor: And just within your client base, have you seen any pickup in kind of late, I guess unemployment is the big macro piece that we're looking for to see how that impacts That impacts the market. So have you seen any just with any commentary within your clients that are in the private sector, either one that are starting to lay off employees or even on the flip side two are hiring got individuals that have been maybe laid off by DOJ because there's a big conversation under the private sector if they're robust they'll be able to really absorb a lot of the layoff coming from DOJ.
Catherine Mealor: And just within your client base have you seen any pickup in kind of late and I guess unemployment is the big macro piece that we're looking forward to see how that impacts that.
Catherine Mealor: That impacts the market have you seen any just.
Catherine Mealor: Any commentary with your clients that are in the private sector, either one that are starting to lay off.
Catherine Mealor: Employees or even on the flip side to our hiring.
Speaker Change: Got individuals that have been many laid off by damage because theres a big conversation on that the private sector is still robust they'll be able to really absorb a lot of the layoffs coming from dose have you seen any kind of anecdotes of that in your client base.
Kevin Geoghegan: Have you seen any kind of anecdotes of that in your client base?
Ryan Riel: Catherine, it's Kevin. I would say it's too early in the cycle for that, but we are seeing resumes coming in, and I think our clients are from the government sector. Yeah, I would build on that. The USAID contractor that Kevin mentioned in his comments, we have heard from them, and they've had some reduction in force. That's a direct impact, obviously, getting to Eric's point of what would be, I guess, a first derivative, right? So we've heard that, we are seeing in the positions that we are looking for an abundance of talent from some former government workers or frankly some folks that are just fearful that they may lose their job.
Catherine Mealor: Catherine.
Kevin Gagan: Go ahead, Kevin Kathryn, it's Kevin I would say, it's too early in that.
Speaker Change: In this cycle for that.
Speaker Change: But we are seeing resumes coming in and I think our clients are from the government sector.
Speaker Change: I would build on that the USA I'd contracted that Kevin mentioned in his comments, we have heard from them and they've had some reduction in force. That's a direct impact obviously to Eric's point it would be I guess, the first derivative right.
Speaker Change: So we've heard that we are seeing.
Speaker Change: And the positions that we are looking for an abundance of talent from some former government workers are frankly, some folks that are just fearful that they may lose their job and I'm sure I don't need to add to that.
Ryan Riel: I'm sure I don't need to add to that, the comment that our RMs are working closely with their clients every day. So we're gathering and we're getting information back from the RMs through our new Chief Lending Officer on the C&I side on a regular basis. So we are in close contact with our clients.
Speaker Change: Comments that are and are working closely with their clients every day. So we're gathering and we're getting information back from the IRS Spiro Agnew.
Speaker Change: Chief lending officer, and the C&I C&I side on a regular basis.
We are in close contact with our clients.
Catherine Mealor: And then maybe just one question on fees. I know you talked about the BOLI transaction. Can you just kind of walk us through that transaction and just how we should model that moving forward?
Speaker Change: Alright.
Speaker Change: And then maybe just one question on fees I know you talked about the bully transaction can you just kind of walk us through that transaction and just.
Speaker Change: How we should model that moving forward.
Eric Newell: a big increase in the feline. Yeah, we added 200 million BOLI early in the I estimate that the fee income off of that will be, it's a separate account product, so there is market value fluctuations, but I think that modeling between three to four million a quarter from that transaction is what I would suggest. We are starting to see some benefits from our strategic initiatives on growing fee income from treasury management.
Speaker Change: Big increase in the fee line.
Speaker Change: Yes, we added 200 million fully early enough.
Speaker Change: Quarter.
Speaker Change: Estimate that.
Speaker Change: Fee income off of that will be.
Speaker Change: That's a separate account products. So there is.
Speaker Change: Market value fluctuations, but I think modeling between.
Speaker Change: $3 million to $4 million a quarter from that transaction.
What I would suggest we are.
Susan Riel: Starting to see some benefits from our strategic initiatives on growing fee income from Treasury management, Susan do you want to add onto that yes, I would say what we've already seen we had modest fee income last year from the Treasury management group, but we have already exceeded that in.
Susan Riel: Susan, do you want to add on for that? Yeah, I would say what we've already seen, we had modest fee income last year from the treasury management group, but we have already exceeded that in 2025 with a lot of optimism on how much that could grow with the growth that we're seeing in CNI and some of the commitments we already have in our pipeline for treasury management products. So we're very optimistic that we'll see some good growth in that area. That, I mean, the biggest factor, Catherine, in the change in the forecast is Bolino. Yes.
Speaker Change: 2025 with a lot of.
Speaker Change: Optimism on how much that could grow with the growth that we're seeing in C&I and some of the commitments. We already have in our pipeline that Treasury management products. So we're very optimistic that we'll see some good <unk>.
Speaker Change: Both in that area.
Speaker Change: That.
Speaker Change: I mean, the biggest factor Kathryn.
Speaker Change: The change in the forecast is Volvo.
Yes, okay that makes sense.
Eric Newell: And then one more and just on deposit costs, if we don't, I think we're all assuming the Fed cuts at some point later this year, but let's just kind of put that aside and under a flat rate environment, how much more How much room do you have to lower deposit costs, or are we... I see we're not there because your deposit costs are still so high. So just kind of curious, it's like no rate cuts kind of where deposit costs could potentially bother. We have a lot of opportunity to reduce deposit costs based on how our funding profile is with deposits, whether it's brokered.
Speaker Change: And then.
Speaker Change: One more in just on deposit costs, if we don't.
Speaker Change: I think we're all assuming the fed cuts at some point later this year, but let's just kind of put that aside and under a flat rate environment how much more.
Speaker Change: You have to lower deposit cost or are we.
Speaker Change: I assume we're not there because your deposit costs are still so high so just kind of curious if like no rate cuts kind of where deposit cost could potentially bottom.
Speaker Change: We have a lot of opportunity to reduce deposit costs based on how our funding.
Speaker Change: Profile with deposits, whether it's brokered for.
Eric Newell: For us, I mean, this isn't an immediate benefit to us, this is why our strategic initiatives are so critical in growing relationship deposits. As we continue to execute and be successful and start to show that in our results, that is going to have a meaningful impact to our cost of funds. The digital channel has been very successful for us. It's allowed us to reduce use of brokered funding and wholesale funding, not always accretive to the cost of funds, because there is a cost to the digital channel, but it certainly has helped us reduce the Wholesale funding nature of our portfolio when you compare us to 18 months ago, and frankly it's added 7,000 to 8,000 customers that we didn't have just a year ago.
Speaker Change: I mean this isn't an immediate.
Speaker Change: The benefit to US. This is why our strategic initiatives are so critical and growing relationship deposits as we as we continue to execute and be successful and start to.
Speaker Change: Show that in our results that is going to have a meaningful impact to our cost of funds.
Speaker Change: There is.
Speaker Change: Digital channel.
Speaker Change: Has been very successful for us and it's allowed us to reduce use of brokered funding and wholesale funding.
Speaker Change: Always accretive to the cost of funds.
Speaker Change: There is.
Speaker Change: Cost to digital channel, but it certainly has helped us.
Speaker Change: Reduced.
Speaker Change: <unk>.
Wholesale funding.
Speaker Change: Nature of our portfolio when you compare us to 18 months ago, and frankly, it's added 7% to 8000 customers that we didn't have.
Eric Newell: And a lot of those customers, not a lot, but a portion of those customers are actually in the DMV and have been introduced to Eagle through our digital channel. So, we have teams that are working on looking at those, that subset of customers to understand how we can make that into a, turn that into a relationship. Right.
Speaker Change: Just a year ago.
Speaker Change: A lot of those customer not a lot, but a portion of those customers are.
Speaker Change: Or are actually in the DMV.
Speaker Change: That introduced the Eagle through our digital channel. So we have teams that are working on looking at those that subset of customers.
Speaker Change: Understand how we can make that into our turn that into a relationship right I would just build on that.
Eric Newell: I would just build on that. The diversifying the product base and increasing the share of wallet we have with that specific subset of clients will have a meaningful impact on the cost of the funds in a positive direction. Great.
Speaker Change: The diversifying the product base and increasingly share of wallet, we have with that specific subset of clients will have a meaningful impact on the cost of funds in a positive direction.
Unknown Executive: All right. Thank you.
Speaker Change: Great great. Thank you.
Christopher Marinac: One moment for our next question.
Speaker Change: Thank you one moment for our next question.
Christopher Marinac: Our next question comes from the line of Christopher Marinac of Janie Montgomery Scott. Your line is now open.
Speaker Change: Our next question comes from the line of Christopher <unk> of Janney Montgomery Scott. Your line is now open.
Christopher Marinac: Hey, thanks.
Unknown Executive: Good morning. And thank you for all the background and information today.
Christopher: Hey, Thanks, Good morning, and thank you for all the background information today I wanted to ask about the possibility of doing.
Kevin Geoghegan: I wanted to ask about the possibility of doing, you know, more aggressive resolutions, loan sales, AB structures, things that you know about from past cycles, and is this the time to kind of put those on a, you know, higher priority? I'll start with that, Chris. You know, our, our goal is to reduce non accrual, substandard and special mention loans and all of those. Activities that you asked in your question are on the table for us. And, you know, the way I look at it and the way we're all looking at it, it's a cost-benefit analysis.
Christopher: More aggressive resolutions loan sales AB structure things that you know about from past cycles is this the time to kind of put those in.
Christopher: Higher priority.
Speaker Change: I'll start with that Chris.
Speaker Change: Our goal is to reduce non accrual substandard and special mentioned loans.
Speaker Change: All of those.
Speaker Change: Activities that you asked in your question are on the table for us.
Speaker Change: The way I look at it in a way.
Speaker Change: The way, we're all looking at it.
Kevin Geoghegan: There are certainly exposures that will likely come to a conclusion that it makes sense to keep that on our balance sheet because it's a great exposure for us and we want to maintain that exposure. And then there'll be others that we might decide that the best alternative in the cost-benefit analysis is to exit that. And, you know, that's the way we're kind of looking at it. Right. It's just said a little bit differently. It's finding the best possible outcome in each and every situation within the strategy that we're employing.
Speaker Change: Cost benefit analysis, there certainly.
Speaker Change: Exposures that will likely come to a conclusion that it makes sense to keep that on our balance sheet because thats a great.
Speaker Change: Exposure for us and we.
Speaker Change: And we want to maintain that exposure and then there'll be others that we might decide the best alternative in the cost benefit analysis is to expect that.
Speaker Change: But that's the way we're kind of looking at it right. It's just set a little bit differently. It's finding the best possible outcome in each and every situation within the strategy that we're employing.
Kevin Geoghegan: Okay, and then on the disclosure you gave us about the office portfolio with 2026 maturities, will we see an update on appraisals for that each quarter as we, you know, finish 25 and get into 26? Or how much of that are you ahead of the game on? Chris, I think the chart on page 20 or 18, 16 shows it and it's an appropriate for 26. It's appropriate right now. We don't wait for the maturity to come. We're actively before that in discussion and the valuation or the appraisals are occurring, you know, anywhere between 120 and 90 days out.
Speaker Change: Okay, and then on the disclosure you gave us about the office portfolio with 2026 maturities.
Speaker Change: Where we see an update on appraisals for that each quarter as we finished 25 and get into 'twenty six or how much of that are you ahead of the game on.
Speaker Change: Chris I think the chart on page.
2018, 16 shows and it's inappropriate for 26, it's appropriate right now.
Speaker Change: We don't wait for the maturity to come we're at.
Speaker Change: Actively before that in discussion and the valuation or the appraisals are occurring.
Speaker Change: Anywhere between $120 90 days out.
Kevin Geoghegan: I do want to add, on slide 16, this disclosure was enhanced this quarter from prior quarters. So we actually are showing the readers if there has been an appraisal after 3.31 of 2024. So you can see that there is a portion, a large portion of 2025 maturities and a smaller portion of 2026 maturities that we've already touched in this cycle. So obviously some of those blue bars that were before 331.24, those will get refreshed as we go forward. So we just presume that will happen at the proper time. Yes, correct. Got it.
Speaker Change: I do want to add.
Speaker Change: On slide 16. This disclosure was enhanced this quarter from prior quarters. So we actually are showing the readers.
Speaker Change: There has been an appraisal after.
Speaker Change: 331 of 2024. So you can see that there is a portion a large portion of our 2025 maturities and a smaller portion of 2026 maturities that we've already touched in this cycle.
Speaker Change: So obviously some of those blue bars that were before 331 'twenty for those will get refresh as we go forward. So.
Speaker Change: So we just presume that what's happened at the proper time.
Yes, correct correct.
Ryan Riel: Okay, and then last question just has to do with the C&I portfolio and kind of the growth you're seeing, I guess, in the pipeline, you know, are we going to see that number in terms of the 15% commercial go incrementally higher as this year plays out? Or is it hard to say at this point? All indications point to yes to that. to answer that question. We have some new team members that have really hit the ground running, and we're really starting to see the benefit of having them. They have lots of experience in this market, and we're seeing increased activity.
Speaker Change: Got it Okay and then last question just has to do with the C&I portfolio and kind of the growth Youre seeing I guess in the pipeline are we going to see that number in terms of the 15% commercial go incrementally higher as this year plays out of the work is it hard to say at this point.
Speaker Change: All indications point to yes to that.
Chris: To answer that question Chris.
Chris: We have some new team members that have really hit the ground running and we're really starting to see the benefit of having them.
Chris: They have lots of experience in this market and we're seeing increased activity. The pipeline is really looking at and not to take anything away from the new team members, but the diversity of the opportunities that we're seeing are coming from across the board in our C&I Okay great.
Ryan Riel: The pipeline is really looking good. And not to take anything away from the new team members, but the diversity of the opportunities that we're seeing coming from across the board in our CNI team. Agreed. Great, sounds good.
Unknown Executive: Thanks again for all the information this morning. Thank you. I'm showing no further questions at this time.
Chris: Great sounds good thanks again for all the information this morning.
Chris: Thanks, Chris.
Speaker Change: Thank you I'm showing no further questions at this time I'll now turn it back to President and CEO, Susan Riel for closing remarks.
Susan Riel: I'll now turn it back to President and CEO Susan Riel for closing remarks. Thank you for your participation and for your questions, and we look forward to talking to you again next quarter. Thank you for your participation in today's conference.
Speaker Change: Okay. Thank you for your participation and for your questions and we look forward to talking to you again next quarter.
Speaker Change: Yes.
Speaker Change: Thank you for your presentation in today's conference. This does conclude the program you may now disconnect.
Unknown Executive: This concludes the program. You may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: [music].