Q3 2025 Eagle Bancorp Inc Earnings Call

Today's conference call.

At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.

So ask a question during the session you will need to press star one on your telephone you will then hear an automated message advice in your hand is raised to withdraw your question. Please press star one again.

Please be advised that today's conference is being recorded I would now like to turn the conference over to your speaker for today.

Eric Newell Chief Financial Officer of Eagle Bank, Inc. Please go ahead.

Thank you and good morning, before we begin the presentation I'd like to remind everyone that some of the comments made during this call are forward looking statements, we cannot make any promises about future performance and caution you not to place undue reliance on these forward looking statements.

Our Form 10-K for the fiscal year 2024.

<unk> 10, Qs for the first and second quarter and current reports on form 8-K, including the earnings presentation slides identify important factors that could cause the company's actual results to differ materially from 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 future events or developments unless required by law.

This morning's commentary will also 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.

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

With me today is our chair President and CEO, Susan Riel, Chief lending officer for commercial real estate, Brian Rail and our Chief Credit Officer, Kevin Gagan, I'll now turn it over to Susan.

Thank you Eric Good morning, and thank you for joining us the third quarter reflected continued progress in addressing asset quality issues and positioning the bank for sustainable profitability, while our results remain below our long term expectations. We are confident that we are nearing the end.

The elevated losses from decreased asset values on credit we've balanced appropriate urgency that is driven by our our near term view of the office market outlook with an approach that remains methodical and deliberate we are directly addressing persistent valuations.

Operator: Good day, and thank you for standing by. Welcome to the Eagle Bancorp, Inc. Third Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To start your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Eric Newell, Chief Financial Officer of Eagle Bancorp, Inc. Please go ahead.

Speaker #2: Good day and thank you for standing by . Welcome to the Eagle Bancorp , Inc. . Third quarter 2020 Earnings Conference Call . At this time , all participants are in listen only mode .

Stress of office buildings, we believe that working directly with Counterparties that have local knowledge leads to better execution. It is disciplined work, but it is the right path to long term stability spin.

Speaker #2: After the speakers presentation , there will be a question and answer session . To ask a question during the session , you will need to press star one one on your telephone .

Speaker #2: You will then hear an automated message advising your hand is raised . To withdraw your question , please press star one one again .

Specifically, we moved $121 million of criticized office loans to held for sale in the quarter and are working with buyers to sell these assets and partly in the quarter. We also took deliberate steps to reinforce confidence in our asset valuations and reserve levels.

Speaker #2: Please be advised that today's conference is being recorded . I would now like to turn the conference over to your speaker for today .

Speaker #2: Eric Newell, Chief Financial Officer of Eagle Bancorp, Inc. Please go ahead.

Eric Newell: Thank you and good morning. Before we begin the presentation, I'd like to remind everyone that some of the comments made during this call are forward-looking statements. They 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 fiscal year 2024, Form 10-Qs for the first and second quarter, and current reports on Form 8-K, including the earnings presentation slides, identify important factors that could cause the company's actual results to differ materially from any forward-looking statements made this morning, which speak only as of today. Eagle Bancorp, Inc. does not undertake to update any forward-looking statements as a result of new information, future events, or developments unless required by law. This morning's commentary will also include non-GAAP financial information.

Speaker #3: Thank you and good morning . Before we begin , the presentation , I'd like to remind everyone that some of the comments made during this call are forward looking statements .

First we engaged with the Nash with a nationally recognized loan review firm to conduct an independent credit devaluation of our CRE and C&I portfolios. Additionally, we performed our own supplemental internal review of all CRE exposures.

Speaker #3: 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 fiscal year 2024 form 10-q for the first and second quarter , and current Reports on Form 8-K , including the earnings presentation slides , identify important factors that could cause the company's actual results to differ materially from any forward looking statements made this morning , which speak only as of today .

$5 million and above.

We will provide more detail on both initiatives later in our remarks, but I am pleased to report that the findings from both outcomes support the adequacy of our current provisioning.

Our core commercial and deposit franchises continued to improve C&I loans increased by $105 million, representing the majority of our loan originations for the quarter average C&I deposits grew eight 6% or $134 2 million.

Speaker #3: Eagle Bancorp does not undertake to update any forward looking statements as a result of new information . Future events or developments . Unless required by law .

Speaker #3: This morning's commentary will also 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: 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. Our periodic reports are available from the company online at our website or on the SEC's website. 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.

For the second quarter.

This momentum reflects relationship growth client retention and new account activity. These are clear signs that our brand our service model and our people are earning and deepening trust in the marketplace.

Speaker #3: Our periodic reports are available from the company online at our website or on the SEC's website . With me today is our chair , president and CEO , Susan Riel Chief Lending Officer for Commercial Real Estate , Ryan Riehl , and our Chief Credit Officer , Kevin Geoghegan .

Cost our decisions are made locally by bankers, who know their clients and communities. We are able to respond quickly tailor the structure for each loan and deliver a level of service larger institutions simply cannot replicate.

Speaker #3: I'll now turn it over to Susan .

Susan Riel: Thank you, Eric. Good morning, and thank you for joining us. The third quarter reflected continued progress in addressing asset quality issues and positioning the bank for sustainable profitability. While our results remain below our long-term expectations, we are confident that we are nearing the end of elevated losses from decreased asset values. On credit, we've balanced appropriate urgency that is driven by our near-term view of the office market outlook with an approach that remains methodical and deliberate. We are directly addressing persistent valuation stress of office buildings. We believe that working directly with counterparties that have local knowledge leads to better execution. It is disciplined work, but it is the right path to long-term stability. Specifically, we moved $121 million of criticized office loans to held-for-sale in the quarter and are working with buyers to sell these assets.

Speaker #4: Thank you . Eric . Good morning , and thank you for joining us . The third quarter , reflected continued progress in addressing asset quality issues and positioning the bank for sustainable profitability .

And we see opportunities to extend that same relationship driven approach across all our clients segments.

Speaker #4: While our results remain below our long term expectations , we are confident that we are nearing the end of elevated losses from decreased asset values on credit .

We're executing on our strategic plan addressing potential credit issues diversifying the balance sheet, improving margins and aligning resources to protect and grow franchise value. These actions are positioning us to further improve funding quality reduce wholesale funding <unk>.

Speaker #4: We've balanced appropriate urgency that is driven by our our near-term view of the office market outlook with an approach that remains methodical and deliberate .

Speaker #4: We are directly addressing persistent valuation , stress of office buildings . We believe that working directly with counterparties that have local knowledge leads to better execution .

Clients and drive toward a lower cost of deposits our pre provision net revenue is believed to improve with time.

Our priorities are straightforward complete the credit cleanup deepen core relationships and deliver improved earnings performance, which should drive improved improved share value for shareholders. The fundamentals of this company are sound. Our strategy is working and we are focused on <unk>.

Speaker #4: It is disciplined work , but is the right path to long term stability ? Specifically , we moved 121 million of criticized office loans to held for sale in the quarter and are working with buyers to sell these assets in .

Susan Riel: Importantly, in the quarter, we also took deliberate steps to reinforce confidence in our asset valuations and reserve levels. First, we engaged with a nationally recognized loan review firm to conduct an independent credit evaluation of our CRE and C&I lending portfolios. Additionally, we performed our own supplemental internal review of all CRE exposures of $5 million and above. We'll provide more detail on both initiatives later in our remarks, but I'm pleased to report that the findings from both outcomes support the adequacy of our current provisioning. Our core commercial and deposit franchises continue to improve. C&I lending loans increased by $105 million, representing the majority of our loan originations for the quarter. Average C&I lending deposits grew 8.6% or $134.2 million for the second quarter. This momentum reflects relationship growth, client retention, and new account activity.

Speaker #4: Importantly , in the quarter , we also took deliberate steps to reinforce confidence in our asset valuations and reserve levels . First , we engaged with the with a nationally recognized loan review firm to conduct an independent credit evaluation of our CRE and CNI portfolios .

<unk> long term sustainable value I will now turn it to Kevin who will talk more about credit.

Thank you Susan.

As discussed over the prior two quarters, we continue to take a disciplined approach to resolving loan challenges.

Criticized and classified office loans have declined for two consecutive quarters from a peak of $302 million at the end of March 31.

Speaker #4: Additionally , we performed our own supplemental internal review of all CRE exposures of 5 million and above . We'll provide more detail on both initiatives later in our remarks , but I'm pleased to report that the findings from both outcomes support the adequacy of our current provisioning .

Two $113 1 million at September 30.

During the quarter, we moved $121 million of loans to held for sale. These.

These loans are in different stages of disposition with potential buyers and we expect to complete sales on a portion of them by the end of the year.

Speaker #4: Our core commercial and deposit franchises continue to improve CNI loans increased by 105 million , representing the majority of our loan originations for the quarter .

Results for the quarter include a $113 2 million provision for credit losses, primarily related to the office portfolio.

Speaker #4: Average CNI deposits grew 8.6% , or 134.2 million , for the second quarter . This momentum reflects relationship growth , client retention and new account activity .

Our office hold for like continues to be robust at $60 3 million or 10, 4% of the performing office balance.

Another $24 $7 million is associated with individually evaluated loans and the models quantitative component.

Susan Riel: These are clear signs that our brand, our service model, and our people are earning and deepening trust in the marketplace. Because our decisions are made locally by bankers who know their clients and communities, we are able to respond quickly, tailor the structure for each loan, and deliver a level of service larger institutions simply cannot replicate. We see opportunities to extend that same relationship-driven approach across all our client segments. We're executing on our strategic plan, addressing potential credit issues, diversifying the balance sheet, improving margins, and aligning resources to protect and grow franchise value. These actions are positioning us to further improve funding quality, reduce wholesale funding reliance, and drive toward a lower cost of deposits. Our pre-provision net revenue is believed to improve with time.

Speaker #4: These are clear signs that our brand , our service model and our people are earning and deepening trust in the marketplace because our decisions are made locally by bankers who know their clients and communities .

Our reserve methodology incorporates those losses from a valuation impairment.

Valuation impairments directly.

Speaker #4: We are able to respond quickly , tailor the structure for each loan , and deliver a level of service larger institutions simply cannot replicate , and we see opportunities to extend that same relationship driven approach across all our client segments .

Among performing office loans those rated sub standard carrier reserve of 44, 5% and special mentioned carrier reserve of 22, 2%.

I'll pass rated office loans greater than $5 million were reviewed in this quarter, resulting in just one loan migrating into special mention.

Speaker #4: We're executing on our strategic plan , addressing potential credit issues , diversifying the balance sheet , improving margins , and aligning resources to protect and grow franchise value .

Our allowance for credit losses ended the quarter at $156 2 million or two 4% of total loans.

That's down 24 basis points from the prior quarter, reflecting a decrease in criticized and classified office loan balances.

Speaker #4: These actions are positioning us to further improve funding quality, reduce wholesale funding reliance, and drive toward a lower cost of deposits.

At the end of the second quarter nonperforming loans were $226 4 million.

Speaker #4: Our Pre-provision net revenue is believed to improve with time . Our priorities are straightforward , complete the credit cleanup , deepen core relationships and deliver improved earnings performance , which should drive improved , improved share value for shareholders .

Susan Riel: Our priorities are straightforward: complete the credit cleanup, deepen core relationships, and deliver improved earnings performance, which should drive improved share value for shareholders. The fundamentals of this company are sound. Our strategy is working, and we are focused on building long-term sustainable value. I'll now turn it to Kevin, who will talk more about credit.

At September 30th May.

They declined to $118 $6 million down $108 million from the prior quarter.

Reflecting transfers to held for sale charge offs and loan pay offs you can see more detail on slide 23 in our investor deck.

Speaker #4: The fundamentals of this company are sound . Our strategy is working and we are focused on building long term , sustainable value . I'll now turn it to Kevin , who will talk more about credit .

Nonperforming assets were 123% of total assets and improvement of 93 basis points from last quarter.

Eric Newell: Thank you, Susan. As discussed over the prior two quarters, we continue to take a disciplined approach to resolving loan challenges. Total criticized and classified office loans have declined for two consecutive quarters, from a peak of $302 million at the end of March 31 to $113.1 million at September 30. During the quarter, we moved $121 million of loans to held-for-sale. These loans are in different stages of disposition with potential buyers, and we expect to complete sales on a portion of them by the end of the year. Results for the quarter include a $113.2 million provision for credit losses, primarily related to the office portfolio. Our office overlay continues to be robust at $60.3 million, or 10.4% of the performing office balance. Another $24.7 million is associated with individually evaluated loans and the model's quantitative component. Our reserve methodology incorporates those losses from evaluation impairments directly.

Speaker #5: Thank you Susan . As discussed over the prior two quarters , we continue to take a disciplined approach to resolving loan challenges . Total criticized and classified office loans have declined for two consecutive quarters , from a peak of 302 million at the end of March , 31st to $113.1 million at September 30th .

We also transferred $112 6 million land loan to Oreo.

Loans 30 to 89 days past due totaled $29 million at September 30.

Down 30 down from $35 million last quarter.

Finally, total criticized and classified loans rose to $958 million from $875 million last quarter.

Speaker #5: During the quarter , we moved $121 million of loans to held for sale . These loans are in different stages of disposition , with potential buyers , and we expect to complete sales on a portion of them by the end of the year .

Within that total office declined $198 million, while multifamily, including mixed use predominantly residential income by $10 4 million.

Speaker #5: Results for the quarter include a $113.2 million provision for credit losses , primarily related to the office portfolio . Our office overlay continues to be robust at $60.3 million , or 10.4% of the performing office balance .

The increase in class criticized and classified multifamily loans.

Largely reflects the impact of higher interest rates on debt service debt service coverage, rather than any meaningful deteriorate deterioration in the underlying property performance.

Net operating income levels.

Speaker #5: Another $24.7 million is associated with individually evaluated loans and the model's quantitative component. Our reserve methodology incorporates those losses from evaluation, impairment, and direct valuation impairments directly among performing office loans.

Remain at or above underwritten expectations across most of the portfolio.

There continues to be some pressure within the affordable housing segment.

Represents a relatively small share of the downgrades this quarter.

Eric Newell: Among performing office loans, those rated substandard carry a reserve of 44.5% and special mention carry a reserve of 22.2%. All pass-rated office loans greater than $5 million were reviewed in this quarter, resulting in just one loan migrating into special mention. Our allowance for credit losses ended the quarter at $156.2 million, or 2.14% of total loans. That's down 24 basis points from the prior quarter, reflecting a decrease in criticized and classified office loan balances. At the end of the second quarter, non-performing loans were $226.4 million. At September 30, they declined to $118.6 million, down $108 million from the prior quarter, reflecting transfers to held-for-sale, charge-offs, and loan payoffs. You can see more detail on slide 23 in our investor deck. Non-performing assets were 1.23% of total assets, an improvement of 93 basis points from last quarter. We also transferred one $12.6 million land loan to OREO.

As we indicated last quarter, we do not believe multifamily loans are affected by the same structural or valuation issues present in the office portfolio.

Speaker #5: Those rated substandard carry a reserve of 44.5% and special mention carry a reserve of 22.2% . I'll pass rated office loans greater than $5 million were reviewed in this quarter , resulting in just one loan migrating into special mention .

Relative strength of multifamily continues to support stable collateral values and we believe this pressure is largely limited to a near term income rather than asset impairment.

Speaker #5: Our allowance for credit losses ended the quarter at 156.2 million , or 2.14% of total loans . That's down 24 basis points from the prior quarter , reflecting a decrease in criticized and classified office loan balances at the end of the second quarter .

We will continue to be very Vigilantly monitoring these portfolios Eric.

Thanks, Kevin.

We reported a net loss of $67 5 million or $2 22 per share compared with a $69 8 million loss or $2 30 per share last quarter.

Speaker #5: Nonperforming loans were $226.4 million at September 30th . They declined to $118.6 million , down 108 million from the prior quarter , reflecting transfers to held for sale .

In the second quarter, we outlined a more proactive approach to accelerate the resolution of problem loans. This quarters actions were deliberate as we address valuation risk.

Even with this quarter's credit related losses, our capital position remains strong.

Common equity to tangible assets is 10, 39%.

Speaker #5: Charge offs and loan payoffs . You can see more detail on slide 23 . In our investor deck . Non-performing assets were 1.23% of total assets and improvement of 93 basis points from last quarter .

Tier one leverage ratio declined modestly to 10, 4%.

CET, one to $13 five 8%.

Tangible book value per share decreased $2 three to $37, reflecting the impact of credit cleanup rather than core earnings erosion.

Speaker #5: We also transferred one $12.6 million land loan to Oreo loans , 30 to 89 days past due , totaled $29 million at September 30th , down 30 , down from $35 million last quarter .

Continued deposit growth and an increasing proportion of insured balances reflect the depth and durability of our funding base.

Eric Newell: Loans 30 to 89 days past due total $29 million at September 30, down from $35 million last quarter. Finally, total criticized and classified loans rose to $958 million from $875 million last quarter. Within that total, office declined $198 million, while multifamily, including mixed-use, predominantly residential, increased by $204 million. The increase in criticized and classified multifamily loans largely reflects the impact of higher interest rates on debt service coverage rather than any meaningful deterioration in the underlying property performance. Net operating income levels remain at or above underwritten expectations across most of the portfolio. There continues to be some pressure within the affordable housing segment, though it represents a relatively small share of the downgrades this quarter. As we indicated last quarter, we do not believe multifamily loans are affected by the same structural or valuation issues present in the office portfolio.

With $5 3 billion in available liquidity, we maintained more than two three times coverage of uninsured deposits positioning us exceptionally well.

Speaker #5: Finally , total criticize and classified loans rose to 958 million from 875 million last quarter . Within that total , office declined 198 million , while multifamily , including mixed use , predominantly residential , increased by 204 million .

Our teams have reduced brokered deposits $534 million year to date, and we expect continued progress in the fourth quarter.

The improvement reflects coordinated efforts among our C&I teams branch network and the digital platform.

From an earnings standpoint, pre provision net revenue was $28 8 million down from the prior quarter.

Speaker #5: The increase in criticized and classified multifamily loans largely reflects the impact of higher interest rates on debt service. Debt service coverage, rather than any meaningful deterioration in the underlying property performance, shows that net operating income levels remain at or above underwritten expectations across most of the portfolio.

Adjusting for $3 6 million in losses from loan sales <unk> was $32 3 million a sequential increase reflecting the underlying strength of our core franchise.

Net interest income grew to $68 2 million up 383000, as the decline in deposit and borrowing costs outpaced a modest reduction in income on earning assets.

Speaker #5: There continues to be some pressure within the affordable housing segment , though it represents a relatively small share of the downgrades this quarter .

NIM expanded six basis points to 243%, primarily driven by a reduction in interest earning assets are associated with a decline in non accrual loan balances in the CRE loan portfolio.

Speaker #5: As we indicated last quarter , we do not believe multifamily loans are affected by the same structural or valuation issues present in the office portfolio .

Noninterest income totaled $2 5 million compared to $6 4 million last quarter, primarily due to a $3 6 million in loan loss sales and a $2 million loss on sale of investments with proceeds used to reduce higher cost funding.

Eric Newell: The relative strength of multifamily continues to support stable collateral values, and we believe this pressure is largely limited to a near-term income rather than asset impairment. We will continue to be vigilantly monitoring these portfolios. Eric?

Speaker #5: The relative strength of multifamily continues to support stable collateral values, and we believe this pressure is largely limited to near-term income rather than asset impairment.

We expect steady contributions from Boeing and a growing fee income as Treasury management sales expand.

Speaker #5: We will continue to be vigilant in monitoring these portfolios. Eric.

Noninterest expense declined $1 6 million to $41 9 million, reflecting lower FDIC assessments and disciplined cost management.

Kevin Geoghegan: Thanks, Kevin. We reported a net loss of $67.5 million, or $2.22 per share, compared with a $69.8 million loss, or $2.30 per share last quarter. In the second quarter, we outlined a more proactive approach to accelerate the resolution of problem loans. This quarter's actions were deliberate as we addressed valuation risk. Even with this quarter's credit-related losses, our capital position remains strong. Tangible common equity to tangible assets is 10.39%. Tier 1 leverage ratio declined modestly to 10.4% and CET1 to 13.58%. Tangible book value per share decreased $2.03 to $37, reflecting the impact of credit cleanup rather than core earnings erosion. Continued deposit growth and an increasing proportion of insured balances reflect the depth and durability of our funding base. With $5.3 billion in available liquidity, we maintain more than 2.3 times coverage of uninsured deposits, positioning us exceptionally well.

Speaker #3: Thanks , Kevin . We reported a net loss of $67.5 million , or $2.22 per share , compared with a 69.8 million loss , or $2.30 per share , last quarter .

We remain focused on maintaining efficiency, while supporting strategic priorities.

We recognize that investors want certainty that credit risk is fully understood and adequately reserved.

Speaker #3: In the second quarter, we outlined a more proactive approach to accelerate the resolution of problem loans. This quarter's actions were deliberate as we addressed valuation risk.

That's why in the third quarter, we engaged a highly experienced nationally recognized third party loan review order to complete an independent credit review of our commercial portfolio.

Speaker #3: Even with this quarter's credit related losses , our capital position remains strong . Tangible common equity to tangible assets is 10.39% . Tier one leverage ratio declined modestly to 10.4% , and Cet1 to 13.58% .

Goal was to provide us an independent perspective to quantify potential future losses under both baseline and stressed economic scenarios.

The review was conducted separately from our internal risk rating control process and included over 400 individual loans, representing 84, 9% of the commercial loan book are about $7 4 billion.

Speaker #3: Tangible book value per share decreased $2.03 to $37 , reflecting the impact of credit cleanup rather than core earnings . Erosion , continued deposit growth , and an increasing proportion of insured balances reflect the depth and durability of our funding base .

That assess potential losses over a 30 month horizon or <unk>.

Six months near term view plus an additional 24 months based on Moody's baseline in stress scenarios.

Speaker #3: With $5.3 billion in available liquidity , we maintain more than 2.3 . Times coverage of uninsured deposits , positioning us exceptionally well . Our teams have reduced brokered deposits 534 million year to date , and we expect continued progress in the fourth quarter .

Each loan was evaluated for collateral liquidation value cost to carry and dispose and borrower and guarantor liquidity to determine potential shortfalls.

Kevin Geoghegan: Our teams have reduced broker deposits $534 million year to date, and we expect continued progress in the fourth quarter. The improvement reflects coordinated efforts among our C&I teams, branch network, and the digital platform. From an earnings standpoint, pre-provision net revenue was $28.8 million, down from the prior quarter. Adjusting for $3.6 million in losses from loan sales, PP&R was $32.3 million, a sequential increase, reflecting the underlying strength of our core operating franchise. Net interest income grew to $68.2 million, up $383,000, as the decline in deposit and borrowing costs outpaced a modest reduction in income on earning assets. NIM expanded six basis points to 2.43%, primarily driven by a reduction in interest earning assets associated with a decline in non-accrual loan balances in the CRE loan portfolio.

Utilizing moody's baseline stress scenario the independent loan review analysis concluded total potential commercial loan losses of 257 million as of July 31, the date of their review.

Speaker #3: The improvement reflects coordinated efforts among our CNI teams , branch network and the digital platform . From an earnings standpoint , Pre-provision net revenue was 28.8 million , down from the prior quarter , adjusting for 3.6 million in losses from loan sales .

Importantly, we're the independent firm identified potential loss contract. There was in credits we had already flagged internally.

Their conclusions validated our own view of the portfolio. This was confirmation and not discovery.

Speaker #3: PPNR was $32.3 million, a sequential increase reflecting the underlying strength of our core operating franchise. Net interest income grew to $68.2 million, up $383,000, as the decline in deposit and borrowing costs outpaced a modest reduction in income on earning assets.

Utilizing the Moody's <unk> downside stress scenario, where theres only a 4% probability the economy performs worse than the baseline potential losses increased by $113 million to $370 million.

Between July 31, the date of the independent loan review and quarter end, we charged off $140 8 million and continues to hold $60 3 million in our qualitative office overlay and $24 7 million in individually evaluated reserves.

Speaker #3: Nim expanded six basis points to 2.43% , primarily driven by a reduction in interest earning assets associated with a decline in non-accrual loan balances in the CRE loan portfolio , non-interest income totaled 2.5 million , compared to 6.4 million last quarter , primarily due to the 3.6 million in loan loss sales and a $2 million loss on sale of investments , with proceeds used to reduce higher cost funding .

Kevin Geoghegan: Non-interest income totaled $2.5 million compared to $6.4 million last quarter, primarily due to $3.6 million in loan loss sales and a $2 million loss on sale of investments with proceeds used to reduce higher cost funding. We expect steady contributions from BOLI and a growing fee income as treasury management sales expand. Non-interest expense declined $1.6 million to $41.9 million, reflecting lower FDIC assessments and disciplined cost management. We remain focused on maintaining efficiency while supporting strategic priorities. We recognize that investors want certainty that credit risk is fully understood and adequately reserved. That's why in the third quarter, we engaged a highly experienced, nationally recognized third-party loan reviewer to complete an independent credit review of our commercial portfolio. The goal was to provide us an independent perspective to quantify potential future losses under both baseline and stressed economic scenarios.

Together that totals $225 8 million, which represents approximately 88% of the total potential losses identified in the baseline scenario.

The independent review assumed liquidation scenarios for consistency across institutions.

Speaker #3: We expect steady contributions from Boli and a growing fee income as Treasury management sales expand , noninterest expense declined 1.6 million to 41.9 million , reflecting lower FDIC assessments and disciplined cost management .

Our reserve process by contrast reflects workout strategies have historically resulted in better recoveries.

That's a methanol methodologies call distinction not a difference in recognizing risk.

Speaker #3: We remain focused on maintaining efficiency while supporting strategic priorities. We recognize that investors want certainty that credit risk is fully understood and adequately reserved.

Also during the quarter, we performed a supplemental internal review of all CRE loans greater than $5 million.

Covering 137 loans totaling $2 9 billion.

Speaker #3: That's why, in the third quarter, we engaged a highly experienced, nationally recognized third-party loan reviewer to complete an independent credit review of our commercial portfolio.

Following this review there were five downgrades of $158 $2 million of special mentioned and three downgrades of $101.8 million to substandard.

Speaker #3: The goal was to provide us with an independent perspective to quantify potential future losses under both baseline and stressed economic scenarios. The review was conducted separately from our internal risk rating control process and included over 400 individual loans representing 84.9% of the commercial loan book, or about $7.4 billion.

Together. These reviews gave us a data driven view of potential losses.

Reaffirm our belief that we are adequately reserved and the bulk of loss recognition is behind us.

Kevin Geoghegan: The review was conducted separately from our internal risk rating control process and included over 400 individual loans representing 84.9% of the commercial loan book, or about $7.4 billion. It assessed potential losses over a 30-month horizon, a six-month near-term view, plus an additional 24 months based on Moody's baseline and stress scenarios. Each loan was evaluated for collateral liquidation value, cost to carry and dispose, and borrower and guarantor liquidity to determine potential shortfalls. Utilizing Moody's baseline stress scenario, the independent loan review analysis concluded total potential commercial loan losses of $257 million as of July 31 at the date of their review. Importantly, where the independent firm identified potential loss contracts, it was in credits we had already flagged internally. Their conclusions validated our own view of the portfolio. This was confirmation, not discovery.

With that foundation in place, let me turn to how these actions position us for improved performance heading into 2026.

On slide 11 of the Investor deck, we presented our forecast for the full year of 2026.

Speaker #3: It assessed potential losses over a 30 month horizon , a six month near-term view , plus an additional 24 months based on Moody's baseline , and stress scenarios .

We expect net interest income to grow despite a smaller balance sheet driven by mix improvements and lower funding costs.

Speaker #3: Each loan was evaluated for collateral liquidation value, cost to carry and dispose, and borrower and guarantor liquidity to determine potential shortfalls.

As Kevin noted the total reserve coverage to loans declines primarily due to a reduction in the office qualitative overlay.

Speaker #3: Utilizing Moody's baseline stress scenario, the independent Loan Review analysis concluded total potential commercial loan losses of $257 million as of July 31st, the date of their review.

Our qualitative overlay captures a rolling 12 months of evaluation and loss experience is that period rolls off it will naturally reduce the overlay.

All pass rated office loans were reviewed this quarter to ensure current information and support our internal ratings framework.

Speaker #3: Importantly, where the independent firm identified potential loss contracts, it was in credits we had already flagged internally. Their conclusions validated our own view of the portfolio.

Looking ahead, we anticipate that loan we anticipate that loan growth in 2026, we will continue to be concentrated in C&I and we're pursuing that measured growth with a strong focus on disciplined credit standards.

Speaker #3: This was confirmation , not discovery . Utilizing the Moody's S4 , downside stress scenario , where there is only a 4% probability , the economy performs worse than the baseline potential losses increased by 113 million to 370 million between July 31st , the date of the independent loan review and quarter end .

Kevin Geoghegan: Utilizing the Moody's S4 downside stress scenario, where there's only a 4% probability the economy performs worse than the baseline, potential losses increased by $113 million to $370 million. Between July 31, the date of the independent loan review, and quarter end, we charged off $140.8 million and continue to hold $60.3 million in our qualitative office overlay and $24.7 million in individually evaluated reserves. Together, that totaled $225.8 million, which represents approximately 88% of the total potential losses identified in the baseline scenario. The independent review assumed liquidation scenarios for consistency across institutions. Our reserve process, by contrast, reflects workout strategies that have historically resulted in better recoveries. That's a methodological distinction, not a difference in recognizing risk. Also, during the quarter, we performed a supplemental internal review of all CRE loans greater than $5 million, covering 137 loans totaling $2.9 billion.

We're nearing our target investment portfolio range of 12% to 15% of assets at which point, we'll begin reinvesting cash flows to optimize earnings without compromising liquidity.

Noninterest expenses are expected to remain well controlled.

<unk> costs are expected to peak over the next several quarters, and then decline as asset quality and liquidity metrics continued to improve trends, we've already seen reflected in lower premiums in the last few quarters.

Speaker #3: We charged off $140.8 million and continue to hold $60.3 million in our qualitative office overlay and $24.7 million in individually evaluated reserves. Together, that totals $225.8 million, which represents approximately 88% of the total potential losses identified in the baseline scenario.

Finally, as mentioned last quarter, our capital return philosophy have shifted in line with performance and priorities.

The dividend reduction to <unk> <unk> per share was a proactive step to preserve capital flexibility not a response to capital adequacy concerns.

Speaker #3: The independent review assumed liquidation scenarios for consistency across institutions. Our reserve process, by contrast, reflects workout strategies that have historically resulted in better recoveries.

As earnings normalize in credit stabilizes, we will reassess the most effective forms of capital return I'll now turn it over to Susan for a wrap up. Thanks. Erik This was a pivotal quarter for Eagle Bank, we've made significant progress on the credit front controlling valuation risk head on.

Speaker #3: That's a methodological , methodological distinction , not a difference in recognizing risk . Also , during the quarter , we performed a supplemental internal review of all CRE loans greater than $5 million , covering 137 loans totaling 2.9 billion .

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Independent portfolio review and validating that our reserves are adequate at the same time, we're seeing tangible positive outcomes across our commercial and deposit franchises.

Kevin Geoghegan: Following this review, there were five downgrades of $158.2 million to special mention and three downgrades of $110.8 million to substandard. Together, these reviews give us a data-driven view of potential losses. They reaffirm our belief that we are adequately reserved and the bulk of loss recognition is behind us. With that foundation in place, let me turn to how these actions position us for improved performance heading into 2026. On slide 11 of the investor deck, we presented our forecast for the full year of 2026. We expect net interest income to grow despite a smaller balance sheet, driven by mixed improvements and lower funding costs. As Kevin noted, the total reserve coverage to loans declines primarily due to a reduction in the office qualitative overlay. Our qualitative overlay captures a rolling 12 months of valuation loss experience. As that period rolls off, it will naturally reduce the overlay.

Speaker #3: Following this review , there were five downgrades of 158.2 million to special mention and three downgrades of 110.8 million to substandard . Together , these reviews give us a data driven view of potential losses .

As we look ahead, we believe that in 2026 provisions will be manageable and earnings will improve and our focus on sustainable profitability will come through in our results.

Speaker #3: They reaffirm our belief that we are adequately reserved and the bulk of loss recognition is behind us . With that foundation in place , let me turn to how these actions position us for improved performance heading into 2026 .

Lastly, before we turn to Q&A, we wanted to announce the voluntary resignation of our Chief Credit Officer, Kevin Gagan, who will be moving back to Chicago effective December 31.

Speaker #3: On slide 11 of the investor deck, we presented our forecast for the full year of 2026. We expect net interest income to grow, despite a smaller balance sheet, driven by mix improvements and lower funding costs.

We have hired two seasons that trends William Karate Junior and Daniel Callahan to serve as interim chief credit officers and Deputy Chief Credit officer, respectively until a permanent replacement can be hired bill spent the bulk of his career at Frost Bank in Texas and <unk>.

Speaker #3: As Kevin noted , the total reserve coverage to loans declined primarily due to a reduction in the office qualitative overlay . Our qualitative overlay captures a rolling 12 months of valuation loss experience as that period rolls off , it will naturally reduce the overlay all past rated office loans were reviewed this quarter to ensure current information and support our internal ratings framework .

Dan at commercial at Commerzbank in Missouri, collectively they are leadership and very deep experience will facilitate the bank's continued focus on enhancing our overall credit risk management.

Kevin Geoghegan: All pass-rated office loans were reviewed this quarter to ensure current information and support our internal ratings framework. Looking ahead, we anticipate that loan growth in 2026 will continue to be concentrated in C&I, and we're pursuing that measured growth with a strong focus on disciplined credit standards. We're nearing our target investment portfolio range of 12% to 15% of assets, at which point we'll begin reinvesting cash flows to optimize earnings without compromising liquidity. Non-interest expenses are expected to remain well controlled. FDIC costs are expected to peak over the next several quarters and then decline as asset quality and liquidity metrics continue to improve, trends we've already seen reflected in lower premiums in the last two quarters. Finally, as mentioned last quarter, our capital return philosophy has shifted in line with performance and priorities.

Kevin was instrumental in helping shape and implementing our credit strategies working tirelessly with the team to both proactively deal with the bank's problem loans and improve our credit risk management governance practices.

Speaker #3: Looking ahead , we anticipate that loan . We anticipate that loan growth in 2026 will continue to be concentrated in CNI , and we're pursuing that measured growth with a strong focus on disciplined credit standards .

We thank Kevin for his contributions and wish him well.

Speaker #3: We're nearing our target investment portfolio range of 12% to 15% of assets, at which point we'll begin reinvesting cash flows to optimize earnings without compromising liquidity.

Before we conclude I want to express my sincere appreciation to our employees your dedication and professionalism make all the difference with that we'll now open the lineup for questions.

Speaker #3: Non-interest expenses are expected to remain well controlled . FDIC costs are expected to peak over the next several quarters , and then decline as asset quality and liquidity metrics continue to improve trends .

Thank you.

And if you would like to ask a question. Please press star one on your telephone.

Speaker #3: We've already seen reflected in lower premiums in the last two quarters . Finally , as mentioned last quarter , our capital return philosophy has shifted in line with performance and priorities .

You did hear an automated message advising you had is raised we also ask that you to wait for your name and company to be announced before proceeding with your question.

One moment, while we compile the Q&A roster.

Kevin Geoghegan: The dividend reduction to $0.01 per share was a proactive step to preserve capital flexibility, not a response to capital adequacy concerns. As earnings normalize and credit stabilizes, we'll reassess the most effective forms of capital return. I'll now turn it over to Susan for a wrap-up.

Speaker #3: The dividend reduction to $0.01 per share was a proactive step to preserve capital flexibility , not a response to capital adequacy concerns , as earnings normalize and credit stabilizes , we will reassess the most effective forms of capital return .

Our first question today comes from the line of.

Justin Crowley of Piper Sandler Your line is open.

Hey, good morning, everyone.

Hi, Tommy.

Thank you.

Obviously, a lot of steps taken this quarter.

Speaker #3: I'll now turn it over to Susan for a wrap up .

Susan Riel: Thanks, Eric. This was a pivotal quarter for Eagle Bancorp, Inc. We've made significant progress on the credit front, controlling valuation risk head-on, completing an independent portfolio review, and validating that our reserves are adequate. At the same time, we're seeing tangible positive outcomes across our commercial and deposit franchises. As we look ahead, we believe that in 2026, provisions will be manageable and earnings will improve, and our focus on sustainable profitability will come through in our results. Lastly, before we turn to Q&A, we wanted to announce the voluntary resignation of our Chief Credit Officer, Kevin Geoghegan, who will be moving back to Chicago effective December 31. We have hired two seasoned veterans, William Parati, Jr. and Daniel Callahan, to serve as interim Chief Credit Officer and Deputy Chief Credit Officer, respectively, until a permanent replacement can be hired.

Speaker #4: Thanks , Eric . This was a pivotal quarter for Eagle Bancorp . We've made significant progress on the credit front , controlling valuation , risk head on .

You had some of the losses on the sale of those two loans.

But after all the charge offs and Mark you've taking moving credits into held for sale.

Speaker #4: Completing an independent portfolio review and validating that our reserves are adequate . At the same time , we're seeing tangible positive outcomes across our commercial and deposit franchises .

And I know you had the independent review, which sounded pretty thorough but can you talk to you in a bit more on just what gets you.

So comfortable or uncomfortable on when it comes time to close these transactions.

Further losses won't be there or at least hopefully not too significant.

Speaker #4: As we look ahead , we believe that in 2026 , provisions will be manageable and earnings will improve . And our focus on sustainable profitability will come through in our results .

Thanks, Justin this is Ryan real.

I'd like to point out that in those two situations that the note sales that we or the property dispositions that we executed in the third quarter.

Speaker #4: Lastly , before we turn to Q&A , we wanted to announce the voluntary resignation of our Chief Credit Officer , Kevin Geoghegan , who will be moving back to Chicago effective December 31st .

The carrying value of those going into the third quarter was based on.

<unk> that ended up being traded down prior to execution of the transaction.

Speaker #4: We have hired two seasoned veterans , William Perrotti Jr and Daniel Callahan , to serve as interim chief credit officers and Deputy Chief credit officer , respectively , until a permanent replacement can be hired .

In response to that we've implemented in our proceeds our process to determine the carrying value of the loans in Hff's and then just carrying values in general is we're getting brokers opinion, which in our opinion is a better evaluation tools and appraisals in this marketplace.

Susan Riel: Bill spent the bulk of his career at Frost Bank in Texas and Dan at Commerce Bank in Missouri. Collectively, their leadership and very deep experience will facilitate the bank's continued focus on enhancing our overall credit risk management. Kevin was instrumental in both helping shape and implementing our credit strategies, working tirelessly with the team to both proactively deal with the bank's problem loans and improve our credit risk management governance and practices. We thank Kevin for his contributions and wish him well. Before we conclude, I want to express my sincere appreciation to our employees. Your dedication and professionalism make all the difference. With that, we'll now open the line up for questions.

Speaker #4: Bill spent the the bulk of his career at Frost Bank in Texas , and Dan at commercial at Commerce Bank in Missouri . Collectively , their leadership and very deep experience will facilitate the bank's continued focus on enhancing our overall credit risk management .

Brokers opinions give ranges of values, we've placed the carrying value at the bottom of that range in each case, along with consideration given to cost of disposition in an effort to make sure that that situation that played out in those two examples does not happen again.

Speaker #4: Kevin was instrumental in both helping shape and implementing our credit strategies , working tirelessly with the team to both proactively deal with the bank's problem loans and improve our credit risk management , governance and practices .

Okay, and then as far as timing and I imagine.

The sooner the better, but obviously pricing is part of the conversation.

Can you get any more specific on the timeline here for getting these assets off the balance sheet and maybe what a portion means.

Speaker #4: We thank Kevin for his contributions and wish him well . Before we conclude , I want to express my sincere appreciation to our employees , your dedication and professionalism make all the difference .

So it's hard to do that Holistically.

And each and every one of these cases as Eric mentioned in his commentary we are evaluating these circumstances of each individual asset.

Speaker #4: With that , we'll now open the line up for questions .

Operator: Thank you. As a reminder, if you would like to ask a question, please press star one one on your telephone. You will then hear an automated message advising your hand is raised. We also ask that you wait for your name and company to be announced before proceeding with your question. One moment while we compile the Q&A roster. Our first question today comes from the line of Justin Crowley of Piper Sandler. Your line is open.

Speaker #2: Thank you . As a reminder , if you would like to ask a question , please press Star One on your telephone . You will then hear automated message advising your hand is raised .

And in of themselves and looking for that highest and best outcome, obviously for the bank and for our shareholders.

Speaker #2: We also ask that you wait for your name and company to be announced before proceeding with your question . One moment while we compile the Q&A roster .

So in many of these cases, we have ongoing discussions and many of these cases those discussions are far enough along that we can confidently say that disposition will occur during the fourth quarter of 2025.

Speaker #2: Our first question today comes from the line of Justin Crowley of Piper Sandler . Your line is open .

I don't want to little bit superstitious I don't want to Jinx myself and put too fine a point on that but there will be material action taken in that in that category during the fourth quarter.

Ryan Riel: Hey, good morning, everyone.

Speaker #6: Hey , good morning everyone . Hi , John . Obviously , a lot of steps taken this quarter . You know , you had some of the losses on the sale of those two loans , but , you know , after all the charge offs and marks you've taken , moving credits into health for sale .

[Company Representative]: Hi, Justin.

Ryan Riel: Hi, Justin.

[Company Representative]: Obviously, a lot of steps taken this quarter. You had some of the losses on the sale of those two loans, but after all the charge-offs and marks you've taken, moving credits into held-for-sale, and I know you had the independent review, which sounded pretty thorough, can you talk even a bit more on just what gets you so comfortable or comfortable on, you know, when it comes time to close these transactions, that further losses won't be there, or at least hopefully not too significant?

Okay. That's helpful.

And then I know last quarter, you gave us a loose idea where charge offs could perhaps come in this quarter, obviously things changed and it may be changed more but at the moment.

Speaker #6: And I know you had the independent review , which sounded pretty thorough , but can you talk even a bit more on just what gets you so comfortable or comfortable on when it comes time to close these transactions ?

Do you think those could come in that next quarter, where does that leave things as we get into 2026.

Speaker #6: That further losses won't be there, or at least, hopefully not too significant.

Justin This is Eric.

Ryan Riel: Thanks, Justin. This is Ryan Riel. I'd like to point out that in those two situations, the note sales that we, or the property dispositions that we executed in the third quarter, the carrying value of those going into the third quarter was based on LOIs that ended up being traded down prior to execution of the transaction. In response to that, what we've implemented in our process to determine the carrying value of the loans in HFS and just carrying values in general is we're getting brokers' opinion, which in our opinion is a better valuation tool than appraisals in this marketplace. Brokers' opinions give ranges of values.

What I would.

Speaker #7: Thanks , Justin . This is Ryan . Real . I'd like to point out that in those two situations that the note sales that we or the property dispositions that we executed in the third quarter , the carrying value of those going into the third quarter was based on Loi that ended up being traded down prior to execution of the transaction .

I would say about that.

In terms of next quarter and 2026.

We're just not seeing.

Early activity that would cause us to believe that there is continued impact on book value from credit.

So.

Speaker #7: In response to that , what we've implemented in our our process to determine the carrying value of the loans in HFS and just carrying values in general , is we're getting broker's opinion , which in our opinion is is a better valuation tool than appraisals in this marketplace .

In terms of charge offs.

I don't want to give you an estimate on that but I just don't believe charge off activity in the quarter, we will have a meaningful impact on provision expense like it has in the last few quarters.

Okay. So the idea would be yes.

Speaker #7: Broker's opinions give ranges of values. We've placed the carrying value at the bottom of that range in each case, along with consideration given to cost of disposition.

It would be more than comfortable with the reserve, taking those hits and not having to replace those losses through the provision.

Ryan Riel: We've placed the carrying value at the bottom of that range in each case, along with consideration given to cost of disposition in an effort to make sure that that situation that played out in those two examples does not happen again.

Based on what we know right now yes.

Speaker #7: In an effort to make sure that that situation that played out in those two examples does not happen again .

Sure.

Our confidence comes from the two activities that I talked about in the prepared comments the independent loan review.

[Company Representative]: Okay. As far as timing, I imagine the sooner the better, but obviously, pricing is part of the conversation. Can you get any more specific on the timeline here for getting these assets off the balance sheet and maybe what a portion means?

Speaker #6: Okay . And then as far as timing , and I imagine , you know , the sooner the better . But obviously pricing is part of the conversation .

Which looked at 87% or 88% of the book as well as that supplemental loan review that looked at.

Speaker #6: But can you get any more specific on the timeline here for for getting these assets off the balance sheet ? And , you know , maybe what a portion means .

Almost $3 billion of past rate CRE loans.

Okay, and then with that pickup in total criticized balances and obviously, despite the charge offs taken on office multifamily was again a driver.

Ryan Riel: It's hard to do that holistically. In each and every one of these cases, as Eric mentioned in his commentary, we are evaluating the circumstances of each individual asset in and of themselves and looking for that highest and best outcome, obviously, for the bank and for our shareholders. In many of these cases, we have ongoing discussions. In many of these cases, those discussions are far enough along that we can confidently say that disposition will occur during the fourth quarter of 2025. I don't want to, I'm a little bit superstitious. I don't want to jinx myself and put too fine a point on that, but there will be a material action taken in that category during the fourth quarter.

Speaker #7: So it's hard to do that holistically in each and every one of these cases . As Eric mentioned in his commentary , you know , we are evaluating these the circumstances of each individual asset in and of themselves .

After a similar trend last quarter.

I know potential losses, it taken should be far less severe but just wondering if you could spend just a little more time on that and provide any further detail on our metrics just to help us get more comfortable but what we're seeing play out there.

Speaker #7: And looking for that highest and best outcome . Obviously , for the Bank and for our shareholders . So in many of these cases , we have ongoing discussions in many of these cases , those discussions are far enough along that we can can confidently say that disposition will occur during the fourth quarter of 2025 .

Sure Justin This is Ryan again.

I would like to point out that the transaction volume in our marketplace from a multifamily perspective has.

Sustained at prices that are still represent cap rates that are sub 6%.

Speaker #7: I don't want to , you know , a little bit superstitious . I don't want to jinx myself and put too fine a point on that .

That is consistent with valuations that we underwrote to.

Speaker #7: But there will be material action taken in that , in that category during the fourth quarter .

I'd also like to point out that if you look at slide 25, specifically and to focus on the special mention and substandard categories.

[Company Representative]: Okay, that's helpful. I know last quarter you gave us a loose idea of where charge-offs could perhaps come in this quarter. Obviously, things changed and could maybe change more, but at the moment, where do you think those could come in that next quarter, and where does that leave things as we get into 2026?

Speaker #6: Okay , that's that's helpful . And then I know last quarter you gave us a loose idea of where charge offs could perhaps come in this quarter .

Where youre seeing debt service coverage be challenged many of those loans. The actual performance of the property is at or above our underwritten levels. So the NOI is coming out at or above our expectation that was set at origination the debt service coverage ratio that you see reflected as somewhat stressed based on the interest rate.

Speaker #6: And , you know , obviously things changed . And could maybe change more . But at the moment , you know , where do you think those could come in at next quarter ?

Speaker #6: And where does that leave things as we get into 2026 .

Eric Newell: Justin, this is Eric. What I would say about that, in terms of next quarter and 2026, we're just not seeing early activity that would cause us to believe that there's a continued impact on book value from credit. In terms of charge-offs, I don't want to give you an estimate on that, but I just don't believe charge-off activity in the quarter will have a meaningful impact on provision expense like it has in the last two quarters.

Speaker #3: Justin , this is Eric . I think what I would I would say about that , you know , in terms of next quarter and 2026 , you know , we're just not seeing early activity that would cause us to believe that there's continued impact on book value from credit .

Environment that we're in today, if you took that same NOI and compared it with where the permanent market as.

You would get a better outcome in those debt service coverage ratios materially better outcome, frankly, because there is somewhere between $150 and 250 basis point gap, depending on which permanent.

Provider you look at it.

Speaker #3: So I in terms of charge offs , you know , I don't want to give you an estimate on that , but I just don't believe charge off activity in the quarter will have a meaningful impact on provision expense like it has in the last two quarters .

Okay, and then you pointed out on slide 25, but somewhat related but there is a large $56 million special use loan in Montgomery, that's all into special mention in the quarter can.

Can you just talk a little about what that credit is what the collateral looks like just anything you could share.

[Company Representative]: Okay. The idea would be, you'd know, you'd be more than comfortable with the reserve taking those hits and not having to replace those losses through the provision?

Speaker #6: Okay . So the idea would be , you know , you'd be more than comfortable with the reserve taking those hits and not having to replace those losses through the provision .

Yes, so that particular.

The loan is a special use loan it's actually self storage property in Montgomery County.

Eric Newell: Based on what we know right now, yes. Our confidence comes from the two activities I talked about in the prepared comments: the independent loan review, which looked at 87% or 88% of the book, as well as that supplemental loan review that looked at almost $3 billion of pass-rated CRE loans.

The performance of that property has been impaired by.

Speaker #3: Based on what we know right now . Yes . And we're we're our confidence comes from the two activities I talked about in the prepared comments .

Higher than expected operating expenses, which are being disputed primary driver there is real estate taxes.

Speaker #3: The independent loan review , which looked at 87% of or 88% of the book , as well as that supplemental loan review that looked at almost 3 billion of pass rate and CRE loans .

Theyre being disputed by that customer and have seen a material drop over the last several quarters of that its an ongoing dispute that theyre working there again, the topline performance of that property is at or above where we underwrote.

[Company Representative]: Okay. With that pickup in total criticized balances, obviously, despite the charge-offs taken on office, multifamily was again a driver after a similar trend last quarter. I know potential losses, if taken, should be far less severe, but just wondering if you could spend just a little more time on that and provide any further detail on metrics just to help us get more comfortable with what we're seeing play out there.

Speaker #6: Okay . And then , you know , with that pickup in total criticized balances and , you know , obviously , despite the charge offs taken in office , multifamily was again a driver after a similar trend last quarter .

Okay got it very helpful. I'll leave it there. Thanks, so much for the time this morning.

Thanks, Justin.

Thank you one moment for the next question.

Speaker #6: And you know , I know potential losses have taken should be far less severe . But just wondering if you could spend just a little more time on that and provide any further detail on on metrics just to help us get more comfortable with what we're seeing play out there .

And the next question will be coming from the line of Christopher.

Meronek.

Janney Montgomery and Scott Your line is open.

Hey, Thanks. Good morning, just wanted to go through briefly the government contract business that you have in <unk>.

Ryan Riel: Sure. Justin, this is Ryan again. I'd like to point out that the transaction volume in our marketplace from a multifamily perspective has sustained at prices that still represent cap rates that are sub 6%. That is consistent with valuations that we underwrote to. I'd also like to point out that if you look at slide 25 specifically and you focus on the special mention and substandard categories, where you're seeing debt service coverage be challenged, many of those loans, the actual performance of the property is at or above our underwritten level. So the NOI is coming out at or above our expectation that was set at origination. The debt service coverage ratio that you see reflected is somewhat stressed based on the interest rate environment that we're in today.

Speaker #7: Sure . Justin , this is Ryan again , the I'd like to point out that the transaction volume in our marketplace from a multifamily perspective has sustained at prices that are still represent cap rates that are sub 6% .

That appears at this time and is there any kind of volatility to expect with the.

With the shutdown that's ongoing.

Yes, Chris this is Eric.

<unk> seen.

Much of any concerns in the government contracting space because of the government shutdown as a reminder, the buy.

Speaker #7: That is , is consistent with valuations that we underwrote to . I'd also like to point out that if you look at slide 25 specifically and you focus on the special mention and substandard categories , you know where you're seeing debt service coverage be challenged .

<unk> of our portfolio is in defense and security.

No.

We looked at line.

Our.

Your line of credit usage.

Relative to earlier this year, it's actually down 30% that would be an early indicator of cash flow challenges of clients and so we're not seeing that but our relationship managers.

Speaker #7: Many of those loans, the actual performance of the property is at or above our underwritten level. So the NOI is coming out at or above our expectation.

Speaker #7: That was set at origination . The debt service coverage ratio that you see reflected is somewhat stressed based on the interest rate environment that we're in today .

Keith.

Austin flow of communication to understand anything that.

Ryan Riel: If you took that same NOI and compared it with where the permanent market is, you would get a better outcome in those debt service coverage ratios, a materially better outcome, frankly, because there's somewhere between 150 and 250 basis point gap depending on which permanent provider you look at.

Mike.

Speaker #7: If you took that same NOI and compared it with where the permanent market is , you would get a better outcome in those debt service coverage ratios , materially better outcome , frankly , because there's a somewhere between 150 and 250 basis point gap , depending on which permanent provider you look at .

These will respond to that.

Right and obviously, Chris the risk.

In that portfolio does increase as the shutdown looming.

Friday with Tomorrow would meet the first full paycheck of government workers not being met.

And we're hopeful and some of the indications are that that the shutdown.

Albeit prolonged at this point.

[Company Representative]: Okay. You pointed out on slide 25, but somewhat related, there was a large $56 million special use loan in Montgomery that fell into special mention in the quarter. Can you just talk a little about what that credit is, what the collateral looks like, just anything you could share?

Speaker #6: Okay . And then , you know , you pointed out on slide 25 , but somewhat related . But there was a large $56 million special use loan in Montgomery that fell into special mention in the quarter .

Reaching conclusion, hopefully in the coming time.

Alright, great. Thanks for that and then just back to the kind of main credit issues.

From the held for sale that you now have is the timing on that going to be the next quarter and could you just kind of walk through kind of how maybe what the risk is that you have an additional write off as those are finally disposed.

Speaker #6: Can you just talk a little about what that credit is , what the collateral looks like , just anything you could share . ?

Ryan Riel: That particular loan is a special use loan. It's actually a self-storage property in Montgomery County. The performance of that property has been impaired by higher than expected operating expenses, which are being disputed. The primary driver there is real estate taxes. They're being disputed by that customer, and I've seen a material drop over the last several quarters of that. It's an ongoing dispute that they're working there. The top-line performance of that property is at or above where we underwrote.

Speaker #7: Yeah . So that particular loan is a special use loan . It's actually a self-storage property in Montgomery County . The performance of that property has been impaired by , you know , higher than expected operating expenses , which are being disputed .

I think I'll point back to the comments I made to Justin that we've enhanced our process based on the experience we had in the third quarter with the two notes.

Speaker #7: Primary driver . There is real estate taxes . They're being disputed by that . That customer and have seen a material drop over the last several quarters of that .

Dispositions that we went through so we are basing our carrying value at the lower end of the range of values that we've determined through third party work.

Speaker #7: It's an ongoing dispute that they're working on there. Again, the top-line performance of that property is at or above where we underwrote.

We feel very confident based on conversations with.

Market participants and potential buyers that are carrying value as is.

[Company Representative]: Okay. Got it. Very helpful. I will leave it there. Thanks so much for the time this morning.

Speaker #6: Okay . Got it . Very helpful . I will leave it there . Thanks so much for the time this morning .

Ryan Riel: Thanks, Justin.

Speaker #7: Thanks , Justin .

Is better than where we will do in many instances.

Operator: Thank you. One moment for the next question. The next question will be coming from the line of Christopher Marinac of Janney Montgomery Scott. Your line is open.

Speaker #2: Thank you . One moment for the next question . And the next question will be coming from the line of Christopher Marinac of Janney , Montgomery and Scott .

Great and then I guess last one for me just has to do with kind of inflow in future quarters. I mean, do you have visibility about how the inflow may be the same or different in Q4, and Q1 and I guess part of that question is just sort of the ongoing maturity wall that you have in the portfolio I presume that was addressed by that.

Speaker #2: Your line is open .

[Analyst]: Hey, thanks. Good morning. Just wanted to go through briefly the government contract business that you have and, you know, how that appears at this time. Is there any kind of volatility to expect with the shutdown that's ongoing?

Speaker #8: Hey , thanks . Good morning . Just wanted to go through briefly the government contract business that you have . And you how that appears at this time and is there any kind of volatility to expect with the with the shutdown that's ongoing ?

But the deeper dive that you just did.

Chris It's Kevin.

Just a clarification did you mean, the inflow into HFF for the inflow into criticized classified.

Eric Newell: Yeah. Chris, this is Eric. We haven't seen much of any concerns in the government contracting space because of the government shutdown. As a reminder, the bias of our portfolios is in defense and security. We looked at line of credit usage relative to earlier this year. It's actually down 30%. I think that would be an early indicator of cash flow challenges of clients. We're not seeing that, but our relationship managers keep a constant flow of communication to understand anything that we might need to respond to.

Speaker #3: Yeah , Chris , this is Eric . We haven't seen much of any concerns in the government contracting space because of the government shutdown .

Criticized and classified.

Yes, I just wanted to make sure.

That was the purpose of doing the.

Speaker #3: As a reminder , the bias of our portfolio is in defense and security . You know , and we looked at line of credit or line of credit usage relative to earlier this year .

Additional review is too.

Get as much current information as we could on the entire portfolio so that our.

Apparel and certainly wouldn't be surprises, so I think that inflow will.

Speaker #3: It's actually down 30% . So that would be an early indicator of cash flow challenges of clients . And so we're not seeing that .

That migration will slow down.

So dramatic.

Dramatically.

Speaker #3: But our relationship managers keep a constant flow of communication to understand anything that we might need to respond to .

Yes, I would.

Build on that.

Sure.

Our expectation is.

Youre going to see criticized classified decline.

Ryan Riel: That's right. Obviously, Chris, the risk in that portfolio does increase as the shutdown looms. Tomorrow would meet the first full paycheck of government workers not being met. We're hopeful, and some of the indications are that the shutdown, albeit prolonged at this point, will be reaching conclusion, hopefully, in the coming time.

Speaker #7: That's right . Obviously , Chris , the risk in that portfolio does increase as the shutdown looms . Friday would tomorrow would meet the first full paycheck of of government workers not being met .

Into 2026.

Great. Thank you for taking all of our questions. This morning.

Thanks, Chris.

Thank you one moment for the next question.

Speaker #7: And we're hopeful and some of the indications are that that the shutdown , albeit prolonged at this point , will be reaching conclusion hopefully in the in the coming time .

And the next question is coming from the line of Brett Scheiner of Airbus Capital Advisors. Please go ahead.

Hi, guys can you hear me.

Yes, Hi, Brett.

Hey, guys I'm, just trying to understand you talked about a temporary cash flow issue in the multifamily space versus a long term impairment I'm trying to understand the difference between the two and how do we square that.

[Analyst]: All right. Great, thanks for that. Just to go back to the kind of main credit issues, from the held-for-sale that you now have, is the timing on that going to be the next quarter? Can you just walk through how or maybe what the risk is that you have an additional write-off as those are finally disposed?

Speaker #8: All right . Great . Thanks for that . And then just to back to the kind of main credit issues from the held for sale that you now have , is the timing on that going to be the next quarter ?

Speaker #8: And can you just kind of walk through kind of how or maybe what the risk is that you have an additional write off as those are finally disposed ?

Okay. So the.

Comments that I've made before where the NOI our underwritten NOI is.

Ryan Riel: I think I'll point back to the comments I made to Justin that we've enhanced our process based on the experience we had in the third quarter with the two note dispositions that we went through. We are basing our carrying value at the lower end of the range of values that we've determined through third-party work. I'm going to feel very confident based on conversations with market participants and potential buyers that our carrying value is better than where we'll do in many instances.

Speaker #7: I think I'll point back to the comments I made to Justin that we've enhanced our process based on the experience we had in the third quarter with the two dispositions that we went through.

As compared to the actual performance of many of these properties is at or below our underwritten NOI is at or below the actual performance of the performance is better in many instances than we expected that that service driven by the floating interest rate structure that it's on that is on many of those loans is higher.

Speaker #7: So we are our basing , our carrying value at the lower end of the range of values that we've determined through third party work and feel very confident based on conversations with market participants and potential buyers , that that our carrying value is is is better than than where we'll do in many instances .

Anticipated in putting stress on that debt ratio. Additionally, there are some challenges as we mentioned in our comments in the affordable housing space that specifically.

Specifically within the district of Columbia has put pressure on the performance the bad debt expense in Washington, DC. Unfortunately is well above the national average the DC Council passed a rental act recently that will help alleviate some of that over time.

[Analyst]: Great. The last one for me just has to do with kind of the inflow in future quarters. Do you have visibility about how the inflow may be the same or different in Q4 and Q1? Part of that question is just sort of the ongoing maturity wall that you have in the portfolio. I presume that was addressed by the deeper dive that you just did.

Speaker #8: Great. And then, I guess the last one for me just has to do with kind of the inflow in future quarters. I mean, do you have visibility about how the inflow may be the same or different in Q4 and Q1?

Speaker #8: And I guess part of that question is just sort of the ongoing maturity wall that you have in the portfolio . I presume that was addressed by the by the deeper dive that you just did .

That's primarily where we see the short term pressure in long term relief.

But does it doesn't that higher debt service and the pressure that you talked about that asset value.

Ryan Riel: Chris, it's Kevin. Just a clarification, did you mean the inflow into held-for-sale or the inflow into criticized classified?

Speaker #5: Chris , it's Kevin and just a clarification , did you mean the inflow into HFS or the inflow into criticized classified .

It certainly can yes.

[Analyst]: Really criticized and classified.

But how do you think of that as just a temporary cash flow issue versus valuation impairment.

Speaker #8: Really criticizing classified ?

Ryan Riel: Yeah, I just wanted to make sure. That was the purpose of doing the additional review, to get as much current information as we could on the entire portfolio so that, you know, in our parlance, it wouldn't be surprises. I think that inflow, that migration, will slow down dramatically.

Speaker #5: Yeah , I just wanted to make sure that was the purpose of doing the additional review is to get as much current information as we could on the entire portfolio , so that , you know , in our parlance , wouldn't be surprises .

Because the cash flow will improve over time, and therefore, the valuation will improve overtime.

They've done a refinance or some other issue.

Based on the passage of time and improved performance.

Speaker #5: So I think that inflow will that that migration will slow down . Dramatically .

Okay, well I'll follow up.

Offline on that and then any other comments on Kevin's departure I know.

Eric Newell: Yeah, I would build on that. This is Eric, that, you know, our expectation is that you're going to see criticized classified decline into 2026.

Speaker #3: Yeah , I would build on that . This is Eric that , you know , our expectation is that you're going to see criticized , classified decline in to 2026 .

About a year ago that was seem to be a big catalyst for a cleanup.

Okay.

Okay. Great. It was this is Kevin thanks for the question as Susan talked about I voluntarily resigned and I'm proud of a very proud of.

[Analyst]: Great. Thank you for taking all of our questions this morning.

Speaker #8: Great . Thank you for taking all our questions this morning .

What I was able to contribute to the enhanced credit risk management processes and policies here.

[Company Representative]: Thanks, Chris.

Speaker #7: Thanks , Chris .

Operator: Thank you. One moment for the next question. The next question is coming from the line of Brett Steiner of IBIS Capital Advisors. Please go ahead.

Speaker #2: Thank you . One moment for the next question . And the next question is coming from the line of Brett Steiner of Ibis Capital Advisors .

I also wanted to take a second and just thank my colleagues as well they all know who they are.

Speaker #2: Please go ahead .

[Analyst]: Hi, guys. Can you hear me?

Speaker #9: Hi , guys . Can you hear me ?

Eric Newell: Yep. Hi, Brett.

As they continue to manage through.

Speaker #3: Yep . Hi , Brett .

[Analyst]: Hey, you guys. I'm just trying to understand. You talked about a temporary cash flow issue in the multifamily space versus a long-term impairment. I'm trying to understand the difference between the two and how do we square that?

Speaker #9: Hey , guys . I'm just trying to understand you talked about a temporary cash flow issue in the multifamily space versus a long term impairment .

Sure.

Asset quality challenges I would also add to that that with Kevin forensic nation, and our desire to be deliberate in our process of finding a replacement.

Speaker #9: I'm trying to understand the difference between the two . And how do we square that ?

And not Miss a beat in continuing the strong credit risk management processes that we have put in place we decided to.

Ryan Riel: The comments that I made before were the NOI, our underwritten NOI is, as compared to the actual performance of many of these properties, at or below our underwritten NOI is at or below the actual performance. The performance is better in many instances than we expected. The debt service driven by the floating interest rate structure that is on many of those loans is higher than anticipated and putting stress on that ratio. Additionally, there are some challenges, as we mentioned in our comments in the affordable housing space, that specifically within the District of Columbia has put pressure on the performance. The bad debt expense in Washington, DC, unfortunately, is well above the national average. The DC Council passed a rental act recently that will help alleviate some of that over time. That's primarily where we see the short-term pressure and long-term relief.

Speaker #7: Okay , so the comments that I made before were the NOI are underwritten . NOI is as compared to the actual performance of many of these properties .

Two higher <unk> and Dan Callahan.

Interim basis, so that we would have the time the appropriate amount of time to seek.

Speaker #7: Is at or below our underwritten NOI is at or below the actual performance of the performance is better in many instances than we expected .

<unk> replacement for Kevin.

Speaker #7: That debt service driven by the floating interest rate structure that's on that is , on many of those loans , is higher than anticipated .

Okay, Great. Thanks, guys and then only one other thought as you go into <unk>, if you're at sort of peak marks and you don't think at this point, you'll need to be adding to reserves or charge escalate through and then you'll have to rebuild into the provision.

Speaker #7: And putting stress on that , that ratio . Additionally , there are some challenges as we mentioned in our comments in the affordable housing space that specifically within the District of Columbia has put pressure on the performance , the bad debt expense in Washington , DC , unfortunately , is well above the national average .

I assume that youll be accretive capital in fourth quarter.

Yes, I will direct my breath.

This is Eric.

Alright.

I would reaffirm what I said earlier on the call in terms of the independent loan review as well as that supplemental loan review really helping validate management's view.

Speaker #7: The D.C. Council passed the Rental Act recently that will help alleviate some of that over time . And that's that's primarily where we see the the short term pressure and long term relief .

Credit and.

My earlier comment.

Don't believe at this time that book value.

[Analyst]: Doesn't that higher debt service and the pressure that you talked about affect asset values?

Speaker #9: But doesn't higher debt service and the pressure that you talked about affect asset values?

<unk> integrated by credit.

Ryan Riel: It certainly can, yes.

Okay. So.

Speaker #7: It certainly can . Yes .

Yes.

[Analyst]: How do you think of that as just a temporary cash flow issue versus a valuation impairment?

Speaker #9: So how do you think of that as just a temporary cash flow issue versus a valuation impairment ?

Okay.

<unk> should exceed provision.

What I'm, saying is that I believe that.

Ryan Riel: Because the cash flow will improve over time, and therefore the valuation will improve over time.

Speaker #7: Because the cash flow will improve over time, the valuation will also improve over time.

Credit costs will not be degrading book value.

[Analyst]: Based on a refinance or some other issue?

Speaker #9: Based on a refinance or some other issue .

Okay, alright, thanks, so much guys for taking the questions.

Ryan Riel: Based on the passage of time and improved performance.

Speaker #7: Based on the passage of time and improved performance .

Thanks.

Thank you.

[Analyst]: Okay. I'll follow up offline on that. Are there any other comments on Kevin's departure? I know that about a year ago, that seemed to be a big catalyst for a cleanup.

Speaker #9: Okay . Well , I'll follow up offline on that . And then any other comments on Kevin's departure ? I know that , you know , about a year ago that was seemed to be a big catalyst for a cleanup .

One moment for the next question.

And the next question is coming from the line of Catherine Mealor with <unk>. Your line is open.

Thanks, Good morning.

Hi, Catherine.

Ryan Riel: Right. This is Kevin. Thanks for the question. As Susan talked about, I voluntarily resigned. I'm proud of, very proud of, what I was able to contribute to the enhanced credit risk management processes and policies here. I also want to take a second and just thank my colleagues as well. They all know who they are as they continue to manage through our asset quality challenges.

Speaker #5: Right . It was this is Kevin . Thanks for the question . You know , as Susan talked about , I voluntarily resigned .

Maybe just one follow up on credit and you've kind of touched on that much.

Therefore that more directly.

The independent review and the external loan review.

Speaker #5: And I'm proud of very proud of what I was able to contribute to the enhanced credit risk management processes . And policies here .

What did you see a U.

Did those reviews.

That.

Not really maybe captured before and how you were.

Speaker #5: And I also want to take a second and just thank my colleagues as well . They all know who they are as they continue to manage through our asset quality challenges .

Categorizing some of these properties because it was just it was surprising to me the big increase.

Special mentioned and then a few into substandard again, particularly on the multifamily piece.

So just kind of curious what changed and what specifically you saw within that line review that made you feel like it with now more appropriate.

Susan Riel: I would also add to that that with Kevin's resignation and our desire to be deliberate in our process of finding a replacement and not miss a beat in continuing the strong credit risk management processes that we have put in place, we decided to hire William Parati, Jr. and Daniel Callahan on an interim basis so that we would have the time, the appropriate amount of time to seek a permanent replacement for Kevin.

Speaker #4: I would also add to that that with Kevin's resignation and our desire to be deliberate in our process of finding a replacement and not miss a beat in continuing the the strong credit risk management processes that we have put in place .

Categorized that way.

Catherine Thanks.

That review was really.

Sure.

Putting all the current information that we had on every single loan.

Speaker #4: We decided to to hire Bill Perrotti and Dan Callahan on an interim basis so that we would have the time , the appropriate amount of time to seek a permanent replacement for Kevin .

In our lap at one point and we do reviews annually on all of these properties all of our loans.

But this was a.

All at one time to make sure we really understood the depth of the portfolio and.

[Analyst]: Okay. Great. Thanks, guys. Only one other thought. As you go into Q4, if you're at sort of peak marks and you don't think at this point you'll need to be adding to reserves or charge-offs will eat through and then you'll have to rebuild into the provision, I assume that you'll be accreting capital in the fourth quarter?

Speaker #9: Okay , great . Thanks , guys . And then only one other thought as you go into for Q , if you're at sort of peak marks and you don't think at this point you'll need to be adding to reserves or charge offs to lead through , and then you'll have to rebuild into the provision .

With that current information we saw some.

Segments of deterioration and we took according steps.

Speaker #9: I assume that you'll be accreting capital in fourth quarter .

Okay.

And then.

Eric Newell: Yeah, I would direct my, Brett, this is Eric, Brett. I would reaffirm what I said earlier on the call in terms of the independent loan review as well as that supplemental loan review, really helping validate management's view of credit and my earlier comment that I don't believe at this time that book value will continue to be degraded by credit.

Speaker #3: Yeah , I would I would direct my Bret , this is Eric Brett . You know , I would reaffirm what I said earlier on the call in terms of the independent loan review , as well as that supplemental loan review .

Again, as we think about it.

Alright that sounds really helpful that you brought out is the one on.

On.

They kind of move in the office.

Where we are in the cycle with from from where we started and kind of losses and write downs and transfers out of the office will consume it feels like from the office, but.

Speaker #3: I really believe this helps validate management's view of credit and my earlier comment that I don't believe, at this time, that book value will continue to be degraded by credit.

We're really kind of fall through the cycle and kind of working through those issues. The multifamily piece feels like we're a little bit more early and so is there any way you can.

[Analyst]: Okay. That's a yes? PP&R should exceed provision?

Speaker #9: Okay , so that's a yes . Ppnr should exceed provision .

Kind of articulate.

What you think the ultimate losses or write downs or multifamily maybe relative to what we're seeing in that in this office.

Speaker #3: I what I'm saying is that I believe that there credit costs will not be degrading book value .

Eric Newell: What I'm saying is that I believe that the credit costs will not be degrading book value.

Catherine This is Ryan.

I don't think theyre comparable at all right the structural issues in the office market in the Washington, DC region are significant and you see that in our performance over the last several quarters.

[Analyst]: Okay. All right. Best of luck. Thanks so much, guys, for taking the questions.

Speaker #9: Okay. All right. That's luck. Thanks so much, guys, for taking the questions.

Eric Newell: Thanks.

Speaker #7: Thanks

Speaker #7: .

Operator: Thank you. One moment for the next question. The next question is coming from the line of Catherine Mealor of KBW. Your line is open.

Speaker #2: Thank you . One moment for the next question . And the next question is coming from the line of Catherine Miller of KBW .

The structural issue the structural issues just don't exist in the multifamily.

Segment, if you look at transaction volume, it's a bit down but investors are still very interested in Washington D. C. Well located high quality, Washington D C region multifamily product.

Speaker #2: Your line is open .

[Analyst]: Thanks. Good morning.

Speaker #10: Thanks . Good morning .

Eric Newell: Hi, Catherine.

Speaker #3: Hi .

[Analyst]: Hi, Catherine. Maybe I just want to follow up on credit, and you've kind of touched on this, but I'm going to just ask a little bit more directly. As you did the independent loan review and the external loan review, what did you see as you did those reviews that was not really maybe captured before in how you were categorizing some of these properties? It was just, it was surprising to me the big increase into special mention and then a few into substandard, again, particularly on the multifamily piece. I'm just kind of curious, you know, what changed and what specifically you saw within that loan review that made you feel like it was now more appropriate to categorize the loans that way?

Speaker #4: Catherine .

Speaker #10: Maybe just want to follow up on credit . And you've kind of touched on this , but I'm going to just ask a little bit more directly .

Speaker #10: So as you did the independent loan review and the external loan review , what what

The jurisdictional issues that I referenced are presenting some headwinds for this segment were facing those head on we have good quality sponsorship in those situations.

Speaker #10: did you see as you did those reviews . that

Speaker #10: was not maybe captured before and how you were categorizing some of these properties because it was just it was surprising to me . The big increase in to special mention and then a few into substandard again , particularly on the multifamily piece .

Some of the other.

Other issues that are shown on slide 25, the special mention and substandard category are.

Simply transactions that the interaction of the net operating income in the debt service coverage based on the interest rate structure Thats in place and many of those.

Speaker #10: And so just kind of curious what changed , what specifically you saw within that loan review that made you feel like it was now more appropriate to categorize the loans that way ?

<unk> presents a challenge that's below policy levels, sometimes below one to one.

Ryan Riel: Yeah, Catherine, thanks. That review was really putting all the current information that we had on every single loan in our lap at one point. We do reviews annually on all these properties, all of our loans, but this was all at one time to make sure we really understood the depth of the portfolio. With that current information, we saw some segments of deterioration, and we took according steps.

Speaker #5: Catherine . Thanks . That review was really putting all the current information that we had on every single loan in our lap . At one point , and we do reviews annually on all these properties , all of our loans .

In those situations and all of those situations, we have structural enhancements that allow us to.

Qualified those as.

Potential weakness is not well defined weaknesses, while we work to restructure and we're in active discussions to restructure.

Speaker #5: But this was a , you know , all at one time to make sure we really understood the depth of the portfolio and with that current information , we saw some segments of deterioration and we took according steps .

As you know in the office category, when we went into restructure conversations or workout conversations the value of that collateral had diminished substantially that is just not the case in the mall properties.

Got it understood alright, thank you.

Correct.

[Analyst]: Got it. Okay. As we think about it, one part that I found really helpful that you brought out is the one on the kind of the movement in the office book that shows you almost where we are in the cycle, with from where we started and the losses and write-downs and transfers out of the office book. It feels like from the office book, we're really kind of far through the cycle and working through those issues. The multifamily piece feels like we're a little bit more early. Is there any way you can articulate what you think the ultimate losses or write-downs in multifamily may be relative to what we're seeing in this office book?

Thank you one moment for the next question.

Speaker #10: Okay . And then again , as we think about , because one part that I found really helpful that you brought out is the one on on kind of movement in the , in the office book that kind of shows you almost where we are in the cycle with , from , from where we started and kind of the losses and write downs and transfers out of the office book .

And the next question will be coming from the line of Nick Grant of Northland Capital. Your line is open.

Your line is open.

Okay.

One moment.

Speaker #10: And so it feels like from the office book , we're really kind of far through the cycle and kind of working through those issues .

Okay.

Our next question will come from the line of Nick Grant of Northland Capital. Please go ahead.

Speaker #10: The multifamily piece feels like we're a little bit more early , and so is there any way you can kind of articulate , you know , what you think the the ultimate losses are ?

Hey, guys can you hear me.

Yes.

Hi, Nick Alright, I wasn't on mute.

The issue is but thanks for taking my question. So first off I just want to applaud the proactive measures to work their credit like.

Speaker #10: Write downs in multifamily , maybe relative to what we're seeing in the in this office book .

Ryan Riel: Catherine, this is Ryan. I don't think they're comparable at all, right? The structural issues in the office market in the Washington, DC region are significant, and you see that in our performance over the last several quarters. The structural issues, the issues just don't exist in the multifamily segment. If you look at transaction volume, it's a bit down, but investors are still very interested in Washington, DC, well-located. High-quality,

Speaker #7: But Catherine , this is Ryan . I don't think there comparable at all . Right . The structural issues in the office market in the Washington , D.C.

When I step back that $37 of tangible book feels much more.

<unk>.

<unk> identified risk across your loan exposures.

Future credit migration and Susan in your opening remarks that adhere improving franchise value as a focus.

Speaker #7: region are significant . And you see that in our performance over the last several quarters . The structural issue , the structural issues just don't exist in the multifamily segment .

I really agree with that.

Industry.

Activity on the M&A front increase.

Increasing activity like we shouldn't see more deals here, how do you feel about the franchise the upstream optionality as a way to increase shareholder value.

Speaker #7: If you look at transaction volume , it's a bit down , but investors are still very interested in Washington , D.C. well located , high quality Washington , D.C.

Operator: Washington, DC region, multifamily product. Some of the jurisdictional issues that I referenced are presenting some headwinds for the segment. We're facing those head-on. We have good quality sponsorship in those situations. Some of the other issues that are shown on slide 25, the special mention in substandard category, are simply transactions that the interaction of the net operating income and the debt service coverage based on the interest rate structure that's in place in many of those, presents a challenge that's below policy levels, sometimes below one-to-one. In those situations, and in all of those situations, we have structural enhancements that allow us to qualify those as, you know, potential weaknesses, not well-defined weaknesses, while we work to restructure. We're in active discussions to restructure. As you know, in the office category, when we went into restructure conversations or workout conversations, the value of that collateral had diminished substantially.

Yes, I mean, I can start with that and Susan can finish.

Speaker #7: region , multifamily product . Some of the jurisdictional issues that I referenced are presenting some headwinds for the segment we're facing . Those head on .

From from our perspective.

We're focused on our strategic plan.

Speaker #7: We have good quality sponsorship in those situations , and some of the other other issues that are shown on slide 25 . The special mention and substandard category are simply transactions that the interaction of the net operating income and the debt service coverage based on the interest rate structure that's in place in many of those , presents a challenge that's below policy levels , sometimes below 1 to 1 .

And building shareholder value through the diversification efforts.

And C&I, improving our funding profile.

Focused on improving pre provision net revenue, which should drive enhanced.

Our improved ROA and our OTT.

But obviously, Nick as the board will focus on anything that adds value to our shareholders and will consider whatever other options coming our way.

Speaker #7: And those situations and all of those situations , we have structural enhancements that allow us to qualify those as potential weaknesses , not well defined weaknesses .

Understood. Thanks, guys.

Thank you the next question.

Speaker #7: While we work to restructure . And we're an active discussions to restructure , as you know , in the office category , when we went into restructure conversations or workout conversations , the value of that collateral had diminished substantially .

And we have a follow up question coming from Justin Crowley of Piper Sandler. Please go ahead.

Hey, I just wanted to hop back and then ask one quick one outside of credit just thinking about what will help.

Operator: That is just not the case in the multifamily properties.

Speaker #7: That is just not the case in the properties .

The margin.

Forward here, you get better yields in C&I, but do you have any detail on how much and fixed loan re pricings and adjustable that all reset maybe through the end of next year not sure. If you can give some color on the magnitude and the yield pick up and I guess, maybe excluding anything thats set to hopefully move off the balance sheet.

Operator: Got it. Understood. Great. Thank you.

Speaker #10: I understood all right . Thank you .

Eric Newell: Thank you. One moment for the next question. The next question will be coming from the line of Nick Grant of North Reef Capital. Your line is open. One moment. Our next question will come from the line of Nick Grant of North Reef Capital. Please go ahead.

Speaker #2: Thank you . One moment for the next question . And the next question will be coming from the line of Nick Grant of Norfolk Capital .

Speaker #2: Your line is open . Your line is open . One moment . Our next question will come from line of Nick Grant of North Capital .

Yes, I don't have that information in front of me Justin So I know.

Okay.

Assumptions for you there, but in terms of just more broadly.

NIM expectation I think you have.

Similar phenomenon.

Investment portfolio rolling off whether it's rolling back into investment portfolio, if we're getting close to that 12% to 15% with higher yields or cash.

Speaker #2: Please go ahead .

Susan Riel: Hey, guys. Can you hear me?

Speaker #11: Hey, guys, can you hear me?

Kevin Geoghegan: Yeah, we got you.

Speaker #7: Yeah , we got Nick .

Ryan Riel: Hey, Nick.

[Company Representative]: Hi, Nick.

Susan Riel: All right. I wasn't on mute, so I don't know what the IT issue was, but thanks for taking the question. First off, I just want to applaud the proactive measures to work through credit. When I step back, this $37 of tangible book feels much more reflective of the identified risk across your loan exposures, reduces future credit migration. Susan, in your opening remarks, I did hear improving franchise value is a focus. I'd really agree with that. Given industry activity on the M&A front, increasing activity, like we should see more deals here, how do you feel about the franchise upstream optionality as a way to increase shareholder value?

Speaker #4: Hi , Nick .

Speaker #11: All right . I wasn't on mute , so I don't know what the IT issue was , but thanks for taking the question .

Cash flows off the portfolio going into loans.

Speaker #11: So , I mean , first off , I just want to applaud the proactive measures to work through credit . Like , I mean , when I step back this $37 of tangible book deals , I mean , much more reflective of the identified risk across your loan exposures reduces future credit migration .

Is going to be helpful on the asset side.

And then the on.

On the liability side.

The continued expectation.

Fourth quarter as well in 2026, and we're going to be paying down wholesale funding brokered funding.

Speaker #11: And Susan , in your opening remarks , I did hear , you know , improving franchise value is a focus . I mean , I'd really agree with that .

It should be helpful in terms of cost of funds as well.

Speaker #11: I mean, given industry activity on the M&A front, increasing activity like we should see more deals here. How do you feel about the franchise upstream optionality as a way to increase shareholder value?

About 40% of our loan book is.

Fixed.

Short loan book growth.

Bryan has said call with lot of our lending is value add.

Eric Newell: Yeah. I can start with that, and Susan can finish. I think, you know, from our perspective, we're focused on the strategic plan, and building shareholder value through the diversification efforts in C&I, improving our funding profile, and focused on improving pre-provision net revenue, which should drive enhanced, or improved ROA and ROTC.

Speaker #3: Yeah , I mean , I can start with that . And Susan and can finish . But I think , you know , from from our perspective , you know , we're focused on the strategic plan and building shareholder value through the diversification efforts in CNI , improving our funding profile and focused on improving Pre-provision net revenue , which should drive enhanced or improved ROA and ROTC .

We're not the permanent financing takeout. So when you look at the average book, it's probably three to four years.

Okay got it I appreciate the follow up.

Thanks, Justin.

Thank you and that does conclude today's Q&A session I would like to turn the call over to President and CEO, Susan Riel for closing remarks. Please go ahead.

[Analyst]: Obviously, Nick, as you know, the board will focus on anything that adds value to our shareholders, and we'll consider whatever other options come our way.

That does conclude today's Q&A session I would like to turn the call over to President and CEO, Susan Riel for closing remarks. Please go ahead.

Speaker #4: But obviously, Nick, as you know, the board will focus on anything that adds value to our shareholders, and we'll consider whatever other options come our way.

Okay.

Thank you for your participation and questions. During this call and we look forward to speaking to you again next quarter.

Susan Riel: Understood. Thanks, guys.

Speaker #11: Understood . Thanks , guys .

Eric Newell: Thank you. One moment for the next question. We have a follow-up question coming from Justin Crowley of Piper Sandler. Please go ahead.

Speaker #2: Thank you. One moment for the next question. And we have a follow-up question coming from Justin Crawley of Piper Sandler.

Thank you.

Thank you all for joining you can now disconnect.

Speaker #2: Please go ahead .

Kevin Geoghegan: Hey, I just wanted to hop back in and ask one quick one outside of credit. Just thinking about what'll help out the margin, looking forward here. You know, you get better yields in C&I, but do you have any detail on how much in fixed loan repricings and adjustable that'll reset maybe through the end of next year? Not sure if you can give some color on the magnitude and the yield pickup, and I guess maybe excluding anything that's set to hopefully move off the balance sheet.

Speaker #6: Hey , just wanted to hop back in and ask one quick one outside of credit . Just thinking about what will help out the margin .

Speaker #6: Looking forward here . You know , you get better yields in CNI , but do you have any detail on on how much in fixed loan repricing and adjustable that'll reset maybe through the end of next year ?

Speaker #6: Not sure if you can give some color on the magnitude and the yield pickup . And I guess maybe excluding anything that's set to hopefully move off the balance sheet .

Eric Newell: Yeah. I don't have that information in front of me, Justin, so I don't want to make assumptions for you there. In terms of just, you know, more broadly with the NIM expectations, I think you have the similar phenomenon of investment portfolio rolling off, whether it's rolling back into investment portfolio if we're getting close to that 12% to 15% with higher yields or the cash flows off the portfolio going into loans. That's going to be helpful on the asset side. On the liability side, it's the continued expectation in the fourth quarter as well as 2026 that we're going to be paying down wholesale funding, brokered funding, which should be helpful in terms of cost of funds as well. About 40% of our loan book is fixed, but it's a short loan book.

Speaker #3: Yeah , I don't have that information in front of me , Justin . So I don't I don't want to make assumptions for you .

Speaker #3: There . But in terms of just , you know , more broadly with the Nim expectations , I think you have the similar phenomenon of investment portfolio rolling off , whether it's rolling back into investment portfolio , if we're getting close to that 12 to 15% with higher yields or the cash flows off the portfolio going into loans , that's going to be helpful on the asset side .

Speaker #3: And then the on the liability side , it's the continued expectation in the fourth quarter as well as 2026 that we're going to be paying down wholesale funding , brokered funding , which should be helpful in terms of cost of funds as well .

Speaker #3: About 40% of our loan book is , is is fixed , but it's a short loan book , you know , as Ryan has said in various calls , a lot of our our lending is value add .

Eric Newell: You know, as Ryan has said in today's call, a lot of our lending is value-add. We're not the permanent financing takeout. When you look at the average book, it's probably three to four years.

Speaker #3: We're not the permanent financing takeout. So when you look at the average book, it's probably 3 to 4 years.

Kevin Geoghegan: Okay, got it. I appreciate the follow-up.

Speaker #6: Okay . Got it . I appreciate the follow up .

Eric Newell: Thanks, Justin.

Speaker #7: Thanks , Justin .

Eric Newell: Thank you. That does conclude today's Q&A session. I would like to turn the call over to President and CEO Susan Riel for closing remarks. Please go ahead.

Speaker #2: Thank you . And that does conclude today's Q&A session . I would like to turn the call over to president and CEO Susan Riel for closing remarks .

Speaker #2: Please go ahead . That does conclude today's Q&A session . I would like to turn the call over to president and CEO Susan Riel for closing remarks .

Speaker #2: Please go ahead .

[Analyst]: Okay. Thank you for your participation and questions during this call, and we look forward to speaking to you again next quarter. Thank you.

Speaker #7: Okay .

Speaker #4: Thank you for your participation and questions during this call. We look forward to speaking with you again next quarter. Thank you.

Eric Newell: Thank you all for joining. You can now disconnect.