Operator: Good day, and thank you for standing by. Welcome to Inc. Second Quarter 26 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *11 on your telephone, You will then hear an automated message advising that your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Eric Newell, Chief Financial Officer of Eagle Bancorp. Please go ahead.
Eric Newell: Good morning. This is Eric Newell, Chief Financial Officer of Eagle Bancorp. Before we begin the presentation, I would like to remind everyone that some of the comments made during the 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-Ks, for the fiscal year 2025 and current reports on Form 8-Ks 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 on our website or on the SEC's website. With me today is our new president and CEO, Stephen R. Curley our chief lending officers, Ryan A. Riel and Evelyn Lee for commercial real estate and C&I, respectively. I would now like to turn it over to Steve.
Stephen R. Curley: Thank you, Eric, and good morning, everyone. Before I start the quarter, let me say how honored I am to join Eagle as its new president and CEO. This is a franchise built over decades. Through strong client relationships, deep community ties, and an exceptional and seasoned team of bankers. While I have only been with Eagle for 3 weeks, I spent that time meeting and talking with employees, customers, shareholders, while conducting an intensive review of the business. Those conversations have reinforced what attracted me to Eagle in the first place. A strong franchise, talented people, and significant potential. My immediate priorities are clear. Maintain disciplined execution, preserve our culture, and make decisions grounded in a thorough understanding of our franchise our markets, and our best opportunities. Investors are looking for results not promises. You will judge us by what we do, not what we say, and that is exactly how we intend to earn your confidence. With that, let me turn to the 4 priorities receiving my greatest attention. First is asset quality. The issues within the portfolio have been identified, are well understood, and are being actively managed. Addressing them transparently is essential. It builds confidence in our financial reporting, and gives investors greater clarity into the strength of the franchise. Our objective here is simple. Maximize recoveries, and minimize loss. We will continue to take a disciplined asset by asset approach to problem credits. Reducing uncertainty around our future credit performance. Consistency will be key to strengthening investor confidence. To support that effort, we are recruiting a new chief credit officer. An important leadership role that will help shape the future of our credit organization. In the meantime, we have benefited from the experience and guidance of William L. Perotti, and Daniel Callahan who have been working closely with the bank since last fall. The team has made meaningful progress over the last 18 months. And I see additional opportunities to strengthen credit oversight portfolio management, and risk discipline. We are also beginning the search for our next chief human resource officer, following a planned retirement. As I look at the organization, it is critical we strengthen our bench. We need to bring in new expertise where appropriate, while also developing and advancing the strong team already in place. At the same time, we will continue to invest in technology, processes, and capabilities that can help us better serve customers. Our second priority is improving our funding profile and deposit base. Too often, banks start by growing loans and then figuring out how to fund them. We will take the opposite approach. Build relationship based core deposits and create the capacity to support disciplined loan growth. We are not managing the bank with the objective of shrinking. Our objective is to build a stronger funding franchise improve asset quality, and position Eagle to deliver responsible growth. The sequencing matters. But growth remains part of this bank's future. We operate in 1 of the most attractive banking markets in the country. The Washington Metropolitan Region offers significant opportunities to deepen customer relationships, generate core operating deposits, and support high quality lending activity. We are going to make the most of our position in Washington and win new customers and grow a valuable deposit franchise. Our third priority is improving operating performance. That means generating stronger returns from the investments we make across the organization. An important part of that effort is expanding our business banking capabilities and increasing branch productivity. While our branches successfully serve our long term customer relationships, they have the potential to be an engine for core deposit and business banking growth. We will remain disciplined on expenses, while continuing to invest where we see attractive long term returns. The fourth area receiving my attention is capital. 1 of the strengths of this franchise is its capital position. And I recognize that capital allocation is an important topic for shareholders and investors. As part of my broader review of the bank, I am evaluating our capital framework, including how we think about capital levels, capital flexibility, and the best ways to create long term shareholder value. While it is too early to discuss specific capital targets, or potential capital actions, we are approaching this topic thoughtfully and deliberately. Capital is a strategic asset and we want to ensure we are deploying it in a manner that supports both the safety and soundness of the bank as well as the long term interests of our shareholders. As we make progress in asset quality, funding, operating performance, our capital framework, our longer term strategic direction, will come into sharper focus. Eagle already has a strategy and we have been executing against it. My responsibility is to build on that work evaluate where we are making progress, identify areas where we can improve, and determine where adjustments may enhance our ability to create long term value. Over the coming months, I will continue to learn the organization, the market, and the opportunities available to us. In the meantime, I am going to focus on execution. As we demonstrate progress, we will provide additional perspective on our long term priorities our capital objectives, and our vision for creating sustainable shareholder value. I am optimistic about the future. We have strong franchise, a dedicated team here at Eagle, a valuable market position, and clear priorities. I look forward to updating you on our progress. With that, I will turn it back over to Eric to review the quarter.
Eric Newell: Thank you, Steve. During the quarter, we reported net income of $6.9 million or $0.23 per diluted share. Compared to $14.7 million in the previous quarter. The decline primarily reflects elevated provision expense, a smaller interest earning asset base, and continued resolutions associated with addressing problem assets and strengthening the overall health of the balance sheet. We believe that the issues within the portfolio are identified understood, and are actively being managed. Our approach continues to be straightforward. Recognize problems early, reserve adequately, pursue resolution, and maximize recovery. With that context, let me walk through the second quarter asset quality trends. And I will begin with our concentration metrics. The second quarter saw continued reductions in both our CRE and ADC concentrations as expected payoffs asset resolutions, and completion of construction projects contributed to further reduction in the concentration risk. Our CRE concentration ratio, which measures CRE loans as a percentage of total risk based capital and reserves, declined to 268% at quarter end from 295% the prior quarter. Moving further below the 300% threshold. Our ADC concentration ratio ended the quarter at 66%. Turning to criticized and classified assets, combining substandard special mention and held for sale loans balances declined by approximately $34.5 million during the quarter to $759.6 million at June 30, compared to $794.1 million at March 31. As shown on Slide 16 of our investor deck, criticizing classified balances have now declined more than 30% from their peak in the third quarter of 25. As a percentage of tier 1 capital in ACL, criticized and classified assets declined to 58.1% at quarter end, compared to 65.7% at year end 2025. During the quarter, we experienced approximately $260 million of downgrade activity. Of this total, $102 million relates to multifamily loans, of which 3 loans represent all of the downgrade activity. And of that, $35 million has paid off after quarter end. The 2 remaining loans representing $64 million are undergoing activities with no future losses anticipated. Turning to held for sale loans. At quarter end, held for sale balances totaled $49.7 million and importantly, that entire balance is currently under contract or have sold since quarter end. During the quarter, we transferred a $155 million into held for sale and had $162 million of sales resulting in a gain on sale loans totaling $2.3 million. As criticized and classified balances improved during the quarter, so did nonperforming loans. Declining to $111.1 million or 1.68% of total loans. Our focus remains on the broader trend, and we continue to expect criticized and classified loans to decline from current levels and remain meaningfully below where they stood at year end 2025. We are starting to see some upgrades from the watch category, and that category has fallen 50% from its peak and gives us confidence that inflows into criticized and classified will fall in subsequent quarters. Provision for credit losses totaled $21.4 million during the quarter. While elevated, the provision reflects our continued effort to proactively address problem assets and maintain appropriate reserve coverage as credits migrate through the risk rating process. The entire provision expense can be attributed to disposition activities that took place during the quarter. The allowance for credit losses ended the quarter at $121.1 million or 1.83% of total loans. Included within that balance is approximately $40 million of reserves allocated specifically to our income producing office portfolio, reflecting our continued conservative approach to reserving for that sector. Net charge-offs were $47.9 million during the quarter, and of that, $18.5 million were charge offs for loans being transferred from held for investment to held for sale. 30 to 89 day past due balances increased by $26.1 million to $44.1 million during the quarter. As of today's earnings call, 1 loan with a balance of $35.4 million was subsequently paid off in full. As a result, we do not view the quarter end balance as indicative of a broader deterioration in delinquency trends. Turning to operating performance. Despite further balance sheet reduction and elevated credit costs, the franchise continued to generate positive earnings, improved pre-provision net revenue, and capital growth during the quarter. We continue to be encouraged by the momentum in C&I where strategic talent acquisition along with the bank's strong reputation for service and execution, is yielding a strong pipeline of opportunities for primary new relationships. C&I loans are up 24% year over year. Production is well diversified, and credit quality in that portfolio remains strong. Importantly, the strength of our relationship focused model is also evident in CRE. Despite a $1.7 billion reduction in CRE loans year over year, deposits associated with the portfolio declined by only $152 million, demonstrating the durability of our core deposit franchise. As a result, the CRE portfolio deposit funding ratio improved to 36% up from 27% a year ago, reflecting the success of our relationship focused strategy and the significant progress we have made in improving the portfolio's funding profile. Net interest income declined $1.3 million to $62.4 million primarily reflecting continued commercial real estate payoffs the resulting reduction in average earning assets partially offset by improvement in our funding mix. Pre provision net revenue was $29.1 million, an improvement of $1.4 million from the prior quarter. The increase was driven by lower non interest expense which declined $4.7 million to $44 million primarily due to lower FDIC insurance expense driven by improved risk and performance metrics. As well as reduced expenses related to loan dispositions. Altogether, these factors produce an efficiency ratio of 60.2% compared to 63.8% in the prior quarter. As we previously discussed, 1 of our objectives is to improve earnings power of the bank. While we are not where we want to be, we are making measurable progress. Year to date, pre provision net revenue to average assets was approximately 109 basis points. An improvement from 2025 and a step towards our intermediate target of roughly 150 basis points. Pivoting to funding, Period end deposits declined $106.4 million from the prior quarter driven primarily by lower savings, money market and brokered time deposits. However, the overall funding profile continue to improve as broker deposits declined $301.5 million reflecting our ongoing strategy to reduce higher cost wholesale funding and replace it with more stable relationship based deposits. Noninterest bearing deposits increased to $1.56 billion or 5.2% from the prior quarter, contributing positively to both funding costs and net interest margin. While total core deposits declined during the quarter, driven in part by C&I, where deposits were incrementally lower on a linked quarter basis, the portfolio continues to show strong trends as we onboard new relationships. From a profitability perspective, that improvement was reflected in net interest margin, which expanded 5 basis points to 2.52%. The expansion was primarily driven by the funding optimization that included less reliance on brokered time deposits. Which helped mitigate the impact of lower average cash balances CRE paydowns, and increased borrowing costs. There is roughly 2-basis-point adverse impact on NIM due to the sale of the loan with COVID deferred interest that was not collected on. Turning briefly to our forecast for 2026 which you can find on slide 11, in our investor deck. There are changes to revisions for the outlook for average deposits, average loans, and average earning assets. These revisions predominantly reflect the actual reductions that occurred in the first half and do not reflect continued declines in the second half of 26. We have also narrowed our net interest margin outlook to 2% to 2.7% compared to our prior range reflecting greater visibility into the earning asset mix and deployment opportunities. In addition, we have improved our noninterest expense outlook to a decline of 7% to 11% year over year compared to our previous expectation, and that is primarily driven by lower FDIC insurance expense. We continue to expect non interest income growth of 15% to 25% for the year. As I indicated on our last call in response to a question about provision and charge off levels, I had determined that the Q1 provision and charge off levels are reasonable run rate for the remainder of 2026. While the second quarter run rate is higher, I stand by the original statement. Indicating our expectation of lower levels in the second half of 2026. With that, I will turn the call back over to Steve for some closing remarks before opening up the line for questions.
Stephen R. Curley: Thank you, Eric. Before we move to questions, let me make a couple final comments. Since joining Eagle, I have spent a significant time reviewing the portfolio alongside our credit and special asset teams. Together with our director of special assets, I have personally visited almost all of our special mention and substandard relationships greater than $7 million. As well as several of our larger watch relationships These visits have reinforced my belief that we understand the challenges within the portfolio, have realistic plans to address them, and are taking appropriate action to drive resolution. What I found was not a portfolio full of surprises, I found a portfolio with known issues active resolution plans, and teams focused on executing against them. Asset quality remains my foremost area of focus. I do not believe there is a substitute for getting into the field. Seeing the properties firsthand, meeting borrowers, and working alongside the teams responsible for resolving the problem credits. I am encouraged by what I have seen so far at Eagle. We have a strong franchise. Very talented people, an attractive market position, a clear set of priorities. 1 of the things that attracted me to Eagle was its focus on relationship banking and exceptional client service. After spending the last several weeks meeting with employees, customers, shareholders, and members of the community Eagle's reputation is very well deserved. What attracted me to the organization before I joined has been reinforced by what I have experienced since arriving. The relationships-first culture is real. it is evident in how our teams serve customers, how they support 1 another, and how they approach long term relationships within our community. that is what makes Eagle special it is 1 of the reasons I am so excited about the opportunity ahead. My objective is not to create a different Eagle Bank. it is to build a stronger Eagle Bank. Thanks for your time and for your continued interest in our company. And with that, I will turn it over to the operator, and we are happy to take some questions.
Operator: Thank you. Ladies and gentlemen, as a reminder, to ask a question at this time, you will need and wait for your name to be announced. Please stand by while we compile the Q&A roster. Our first coming from the line of Justin Crowley with Piper Sandler. Your line is now open.
Justin Crowley: Hey. Good morning. Hey, Justin and welcome, Steve. Good to be with you and everyone on the call today. Well, I was wondering if we could start out providing a little more detail on the makeup of the charge offs in the quarter. You know, it looks like the majority of that came outside of the office portfolio. And that appears to be on that 1 loan, that 1 DC loan that is on non accrual. And so just beyond that, just curious if you could give more detail on the other types of credits taking marks and just what loss severity looks like.
Eric Newell: Yeah. Justin, I can start with that. The majority of charge offs in the quarter related to the disposition strategies that we deployed. So you will note in our deck, there is a walk on the held for sale loans. I think it is a $155 or a $156 million that was transferred in And we had strategies in place for those assets that were transferred in. And when we transfer it from held for investment to held for sale, that results in that charge off. And then there is 1 other charge off that is related to 1 of the loans that is currently non accrual as we continue to work through that disposition strategy as well.
Justin Crowley: Okay. But is that, like, a--you know, is that, like, multifamily, or what is driving that? If I saw the chart correctly, it looks like the held for sale additions in office, were kind of flat. So just wondering, you what else might be in there.
Stephen R. Curley: Justin, the loan that made up the--Eric was commenting on last was an office loan is an office loan.
Justin Crowley: Okay. Gotcha. And then I guess, Eric, any thoughts on the trajectory of charge offs you know, beyond the balance of this year, you know, just as we get beyond 2026. Is getting back to somewhere closer to 50 basis points, is that what you would call normalized? Is that fair? And if so, how long does it take to revert back to that kind of a level?
Eric Newell: When I look at where we are at, at June 30 for the criticized and classified portfolio, And in my prepared commentary, I called this out. there is the watch category, which we are not showing here. But that is the lowest pass category. That category has come down by 50% from its peak. And we are also seeing some of the criticized and classified have positive trends, so they might upgrade and that could cause that portfolio to come that total criticized and classified portfolio to come down. I, you know, I think from my perspective, I look at that total portfolio. And as we continue to show that portfolio decline towards year end and even into 2027, that could potentially see nonaccrual and charge offs. But as the overall portfolio declines, so will the charge offs and so will so will the nonaccrual loans. it is not linear, but to me, it is as the overall portfolio gets smaller, so will that incidence of charge-offs. Okay.
Justin Crowley: that is helpful. And then maybe just, like, shifting over to loan growth. You know, I think previously, you guys have talked about you know, material reduction in CRE through the first half of the year, which you know, we have obviously seen but then a return to growth in the back half. Is that still kinda how you are thinking about things?
Ryan A. Riel: Just a minute. We are confident that we can stabilize balances through the back half of the year. We have already engaged with clients. They are going back 6, 9 months. To get back into the production mode. So that will happen Stabilizing will happen. Growth is probably not, happen in the second half of this year.
Justin Crowley: Okay. So that is gonna be a function of ramping production, and does not necessarily mean that, you know, any moves--you know, additional moves into held for sale are gonna necessarily slow?
Eric Newell: I think the held for sale tool or mechanism for disposition of underperforming assets. it is certainly a tool that we will continue to use. You know, my expectation absent inflow during this quarter, I mentioned in my prepared comments, most of that portfolio has subsequently sold or is under contract to sell. So, you know, that could potentially be at a zero balance at 9/30. Right.
Ryan A. Riel: And importantly too, Justin, year to date through 06:30, we have seen just under $400 million of multifamily credits pay off in full that were that were watched or criticized and classified assets. So many of those assets, we have talked about, in this setting, do not contain loss content, and the market can absorb and has absorbed the principal balances that are there.
Operator: Justin, 1 other thing I just wanna say, you know, just to make sure we are answering your question.
Stephen R. Curley: We are going to arrest the decline in the balance sheet in the back half of the year, and we will return to a growth footing in 2027.
Justin Crowley: Okay. Gotcha. And maybe just 1 last 1, bigger picture here. Just as you kind of continue down this process, you learn more about these workout strategies. And, you know, I know it is early, but, Steve, we would love to kinda hear your thoughts here. Just, again, you know, higher level. Just any early thoughts on potential changes to the strategy that you are thinking about, at this stage?
Stephen R. Curley: You know, honestly, you know, coming in, I had looked as part of my due diligence process before taking the job. I looked at statistics, portfolios, reports, and, you know, I talked to board members about asset quality and got comfortable. But still, nonetheless, when you show up, it is what is in the report and what you see with your eyes is slightly different. And so, honestly, that is why I went and saw every sub standard and special and substandard that I could get to. And, you know, to me, it feels the past feels materially different than the future because every asset, as you drive up to an asset, you either like, oh, that is not too bad, or you get a pit in your stomach. And, you know, I rolled up on a lot of the acids, and it felt pretty good. And then as I worked through with the special assets team, there was a very clear plan on each asset and what we are gonna do. what is it gonna take to upgrade it? What does the borrower need to do if the borrower does not take x action, what is our response to that? And so, honestly, I felt pretty good, after getting out in the field and looking at all the loans and all the underlying properties.
Justin Crowley: Great. I will leave it there. Thank you so much, guys.
Stephen R. Curley: Thanks, Justin.
Operator: Our next question coming from the line of David Chiaverini with Jefferies. Your line is now open.
David Chiaverini: Hi, thanks for taking the questions. And maybe following up on that, last question, with a big picture 1. Steve, only 3 weeks at the bank, but where do you see the most immediate opportunity during the turnaround at Eagle Bank? What is the lowest hanging fruit that you will be focused on?
Stephen R. Curley: Well, I really do think it is arresting the decline in the balance sheet. You know? I mean, I have never seen a bank shrink to greatness. And so from my perspective, there is actually it is kind of a coiled spring here with people ready to move forward and kind of produce. You have to get through the asset quality issues first, and you gotta make sure you have a strong balance sheet and that you have capital to grow. But I think everybody's confident in that, and so I feel really good about the production franchise. And I spent a lot of time on asset quality, but now I look forward to going on a lot of sales calls. And so, you know, I think the biggest opportunity is really just I think everyone's building a fantastic business in C&I, I think an immediate opportunity is really to start booking real estate loans again. I know we are below 300%, but, I mean, 250, 260 is not where we wanna be either. So I feel good about commercial real estate and moving forward with that with a disciplined credit approach. And then I also you know, think there is a lot of opportunity with the branch network and having the branches you know, go out and do significant calling effort, building business banking. And so right now, what I am gonna focus on is what we do well improving on that. And then once we are done with that and we have got the momentum in the franchise, we will look we will look at some new things.
David Chiaverini: Brett. Thanks for that. And that is a good segue into my follow-up on C&I loan growth. So very strong up 24% year over year. Can you talk about the outlook here, areas or verticals showing the most strength within C&I and the hiring pipeline.
Evelyn Lee: Sure. Thanks, David. So just a couple of things. So I have been at Eagle for just under 24 months. And, you know, 1 thing I can say with certainty is we just benefit from a great franchise here at Eagle Bank. So we have had a strategy that includes really ginning up the production machine that was here. And then adding some really nice new talent in the market. Have the benefit of some fantastic bankers who are really well known here in the DMV, and that is afforded us opportunities to bring in new primary relationships, and that is the growth strategy. What I would say about going forward is, you know, normalized growth for us will probably look more like high single digits, low double digits. We are really pleased with the momentum we have been able to build kind of growing into that leveling out. And what I have been really pleased to see is the cross-sell on the deposit side. They go out after the loan. They are booking loans, but they are cross selling and treasury management as a function of their sales process. Which I think is reflects a much more sophisticated approach than you see at most community banks. And then I did not respond first time around to your sector question. We have some areas of expertise where we really execute well, but the growth is very diversified, and that is our goal. We are not looking to outpace growth in a particular industry segment. We really want the book to grow in a way that is balanced.
David Chiaverini: Very helpful. Thank you.
Evelyn Lee: Thank you.
Operator: And our next question coming from the line of Catherine Mealor with KBW. Your line is now open.
Catherine Mealor: Thanks. Good morning. Good morning. I wanted to ask about the reserve. it is as I look at the balance between charge off and reserve release over the past couple of quarters, it is about around 50% of your reserve lease has been about 50% of your of your charge off. And so I do not know if that is just a coincidence that it was around that same level the past 2 quarters. But just trying to think about how we should be modeling the pace of reserve release relative to the level of charge off that we are modeling? Because I think both are a little bit of a shot in the dark from where we sit. I think the provision is the biggest is the hardest thing to model. Right? And so just kind of curious about your thinking about how those 2 things play off each other and then how we should really just be thinking about perhaps provision levels in the back half of the year.
Eric Newell: Catherine, this is Eric. I would look towards my comment that I made in the first quarter where I was asked about the provision the pace of provision and charge offs. And I had indicated that the first quarter is a good proxy for what you could see for the full year. And while this quarter is a little bit higher, our expectation is that provision expense and charge off will be lower in the back half So there is some provision expense coverage release that you will expect at year end. I just do not believe it will be at the pace that you have been seeing in the first half of the year. Some of the release or in terms of coverage, the reduction in the coverage ratio that you saw this quarter was related to a charge off on a individually evaluated loan. So there was reserves sitting there at March 31. We got additional information about from the client and how we are gonna resolve and restructure that, and that resulted in us charging off the individually evaluated, the specific reserve on that loan. So I do not think you are gonna see a much more meaningful coverage reduction to loans like you saw in the first half of the year.
Stephen R. Curley: And, Catherine, I wanna just tell you, we are always gonna have a fully funded reserve that appropriately reflects the risk in our loan portfolio. I think last year, we had to that catch up quite a bit. But we are always gonna have a fully funded ACL that reflects the risks in our portfolio. And you will be able to rely on that number.
Catherine Mealor: Okay. Great. Great. And then if you refer to deposit cost, it is it is interesting. there is such a narrative right now about higher deposit cost and how competitive it is. And as I look at your deposit costs and you are you are among the highest of your peers. And so as you improve your deposit mix, do you think there is actually opportunity for you to continue to lower deposit cost? Or are we more just so competitive that we are kinda stable at these levels with higher rates?
Eric Newell: I do think there is an opportunity. there is--for me, there is a little bit of a elasticity effect there. So if you have somebody that has very low deposit cost given the composition and mix of their book, relative to us, they are experiencing some pressure. But since we are already high cost payer, I think that we have more opportunity to reduce our costs more than some of the other folks that are feeling that pressure, and we have been demonstrating that in the first half of the year. And I will continue to show NIM expansion in the back half of the year as that activity continues.
Catherine Mealor: Great. Thank you. Welcome, Steve. Looking forward to working with you.
Stephen R. Curley: Thank you.
Operator: Thank you. Our next question in queue coming from the line of Steve Moss with Raymond James. Your line is now open.
Stephen Moss: Good morning. Morning, Steve. Morning, Ryan. Steve, starting off with you here, you know, welcome aboard and, you know, just curious here. You started with your introductory comments on deposits here. And just thinking about your background at Western Alliance, I know you ran a number of deposit rich verticals. Just kind of curious if you are thinking about maybe adding something like that here at Eagle.
Stephen R. Curley: You know, honestly, I reflecting on that last night because you know, I am also a shareholder still there. And they had a good quarter. But I think, you know, when I started at Western Alliance, we were about 6 billion in assets. And now they are just closing in on a 100 billion largely organically. You know? So when I think about that coming over here, I do really want to lean into what we are already good at, but I am highly you know, confident in our ability to identify some new opportunities to grow loans. Grow deposits, and build some new businesses. I do wanna fortify the franchise first. I will tell you, I am going to wake up every morning with a keen focus on low cost granular deposits. I think that is the most accretive thing any CEO can do is what is our funding profile look like What does our deposits look like? What are the cost of those deposits? How are they cross sold into our customers? And are we generating treasury fees? So, I do not know what businesses I am going to build yet, but I am confident that I am gonna find something in that business is going to be focused on deposits. And the lower the cost of those deposits are, the better.
Stephen Moss: Okay. Appreciate that color there. And then my next question here, just in terms of the criticized and classified loans, there are a number of loans in both buckets that mature this quarter. In fact, the largest special mention and largest substandard loan this quarter. Just kind of curious what your guys' expectations are around resolution or if there is gonna be an extension here on those types of properties. You know, in particular, the $56 million apartment in Prince George's County and then the storage facility in Montgomery.
Ryan A. Riel: Right. Thanks, Steve. We have, as part of our standard operating procedure, we engage on maturities, you know, 6 to 9 months before that, engage with clients. Where there is challenges with the asset, we are engaged actively there is active resolution plans as Steve mentioned in his comments. For each of the loans that are in there. On those 2 specific loans, our expectation and belief is that the multifamily loan in Prince George's County will be restructured for a longer term basis. On a longer term basis, and that restructure will result in an improved, risk profile for that asset. And the expectation on the self storage facility in Montgomery County is that will, be paid off in full. By the end of the year.
Stephen Moss: Okay. Great. And then in terms of the in terms of the other additions on the list here, you know, several were apartment buildings. And mixed use and condo type stuff. Just kinda curious Is there any common theme with regard to those properties? I know it is a bunch of them are in DC. Yeah.
Ryan A. Riel: So you are breaking up a little bit there, Steve. But 2 thirds of the inflow of the $216 million is comprised of 4 assets. 1 of which, $34.5 million Eric mentioned in his prepared remarks that paid off subsequent to quarter end, so that paid off in full. That was 35 million. We are in active discussions on the other 2 multifamily properties that will result, that we believe will result in upgrades in the near term, and, the other asset is an ongoing resolution plan that we have that is a maturity that is farther out there.
Stephen Moss: Okay. Great. And then in terms of the C&I loan growth this quarter, you know, continuing 3 very strong quarters of growth, just kind of curious what are you guys seeing for origination yields kind of what is the typical average loan size these days? And how much are you guys the lead versus participating?
Operator: Steve, you were breaking up a little bit, but I think I heard enough parts of your question.
Evelyn Lee: But come back if I do not answer them all. As I mentioned when I answered the prior question, I think when you look forward, you can anticipate C&I growth that is more high single digit. Low double digit. In terms of participations versus new primary relationships, you know, the business development strategy is heavily focused on new primary relationships. And 1 way that, you know, I kind of keep tabs on that is growth in treasury management revenue. that is growing at a nice clip. I am very pleased with that. So while we certainly do some clubbing with other community banks, and we have entered into a handful of participations, if you looked at the production it is dominated by either small clubs where we have significant deposits or ancillary and primary new relationships.
Stephen Moss: In terms of new I think you asked about new average loan size. Is that right? Yeah.
Evelyn Lee: Yeah. I mean, so if you look at the portfolio generally, typical relationship is somewhere between $5 and $10 million in exposure for us in C&I. And as we do new loan production, we are really trying to serve the true commercial and lower middle market client So while new loan production is a little on top of that, a little bit larger than that, it is still in the band you would expect. So think typically, $7 to $15 or $20 million for a new relationship.
Stephen R. Curley: And I just want to kind of reinforce that position. This happened before I joined. But the company since last year really has been very cognizant of the size of loans that they close. And selling down pieces of things that are larger, whereas perhaps in the past, they would have kept the whole amount. So loan size discipline and concentration is being managed. And I think, frankly, that is you know, some of the challenges Ryan faces will you know, some of the payoffs are $60, $70 million, and we have to do 2, 3 loans to replace that. And so it takes a little while to build the production staff. In the you know, the manufacturing capacity to do that. But to me, it is well worth it. I would rather, you know, I would rather have 3 $30 million loans than 1 $90 million loan, and that is kind of the approach they have been taking, which I was pleased to see when I got here.
Stephen Moss: Okay. that is that is great color. And just my 1 last question on the commercial. Was just kind of curious where are new origination yields for the book these days?
Stephen R. Curley: When you say where are they geographically? No. No. what is the yield? The yield. Right. I believe I mean, you can keep me honest here. I think we are in the, like, mid-200 basis point range. Yeah. I would Over next. Yeah. I would say, because I observed loan committee, but we are probably between 25 to 75 over SOFR is most of origination activity. And I think that yield reflects the risk of the portfolio. You know, that is the appropriate yield for the risk that we are taking, and that is why we are comfortable with high single, low-double digit growth because it is good yield, but it is good credit. Okay. Great.
Stephen Moss: I really appreciate all the color here today. Thank you very much.
Stephen R. Curley: Thank you.
Operator: Our next question in queue coming from the line of Christopher Marinac with Green Capital LLC. Your line is now open.
Christopher Marinac: Hey. Thanks. Good morning. Wanted to ask about C&I deposits and how new inflows are occurring and kind of new account openings in C&I that we may not see from the slide last night.
Evelyn Lee: Yeah. Sure. So, you know, I think I have been really pleased with the new primary relationship additions that the team has been making. Since I joined the bank. And I think that is really what shows in that 14% year-over-year growth in deposits. You know, I will note that in our portfolio, we have a handful of really great long dated clients that are impacted either by seasonality or by transaction timing. A good example of the former would be our charter school portfolio where we receive a lot of funding at a certain time of year and then draw that down across the 12 months. And a good example of the latter would be a class action law firm where, you know, inflows can really come in heavy and then get dispersed out on a quarter by quarter basis, you could see some variability but I am pleased with that kind of overall trend. And I think I think I mentioned 1 of the other metrics that, you know, we keep an eye on is the treasury management. Revenue growth kind of period over period, and that is been climbing at a nice clip. For me, that is really indicative of, you know, new account openings, new primary relationships where you are getting all the treasury, you know, all the payables and receivables. So, overall, I think, very strong positive trends.
Christopher Marinac: And then you are incenting your team to bring in new deposits. So, like, there is been a whole behavior shift that we just have not seen the balance realized yet.
Evelyn Lee: We are definitely incenting the team on new deposits. I mean, would argue we are seeing the benefits given the percentage growth that we have seen over the last 4 quarters. But it is absolutely an important part of the incentive plan.
Christopher Marinac: And, Steve, maybe the same question for you. I mean, as you have built deposit frameworks over the years, how important are incentives? And is that something that we will hear more about in the next few quarters?
Stephen R. Curley: Yeah. I think, you know, 50% is leadership and direction. And 50% is in incentives because, I mean, you have to back up what you say with actions. But to me, I am going to wake up every day thinking about and asking about deposits, and that will percolate through the culture pretty quickly. But then I wanna make sure that the people that kind of grab on to that, you know, that we reward them appropriately. You know? So early in my career, I was more of a loan officer. And then, you know, and it was a low interest rate environment, and it was kinda like, yeah. I get a loan, and it pretty easy to fund it. And then the last you know, since rates started rising, I just have had a real sea change. it is the value of a franchise is its deposits. And so every day I wake up thinking about deposits and how can I get them, and how can I get more, and how can I cross sell TM? And, you know, it takes a little while for people to hear that, but it takes them a little while to learn how to do it and be good at it, and I think they are through that transition. And then once they are at it, they should certainly be rewarded for that behavior. And so you will hear more about that, and I think the change is well underway.
Evelyn Lee: 1 other thing just to mention is, obviously, you know, we can grow new primary relationships But if we have relationships going out the back door, that can be futile. So I have been very pleased with the client retention. The team has exhibited. And I know Eric mentioned in his prepared remarks the deposit retention CRE as compared to the loan reduction. So think the team has done a really good job on retention and maintenance of the franchise and the brand. And now we are driving new relationships.
Eric Newell: And, Christopher, just to pile on to the on the incentive side of that question, we have implemented, in recent times, an incentive plan that covers our entire branch network and our business bankers. that is enhanced in deposit heavy. So that behavior, to Steve's point, over time will you will see the results of that behavior change.
Christopher Marinac: Great. Thank you all for your, input on that. Just 1 last asset quality question, which is, would foreclosures be something that you would do more of? And would that kind of accelerate further credit risk recognition?
Stephen R. Curley: Yeah. I am not afraid of foreclosures. And sometimes that is the best way. Sometimes an expedient way or in a very distressed or difficult situation, a note sale, is better. But the reality is sometimes you have to foreclose. If that is what we have to do to get resolution on the assets, that is what we are gonna do. And oftentimes, a foreclosure process will result in a borrower realizing the seriousness of the situation and taking the appropriate action to protect their assets. So, foreclosure, foreclosing on properties will be part of our resolution plans.
Christopher Marinac: Great. Thanks again, Steve, and thank you everybody for hosting us this morning.
Stephen R. Curley: Thank you.
Operator: Thank you. I am showing no further questions in the Q&A queue at this time. I will now turn the call back over to the company president and CEO, Mr. Curley, for any closing comments.
Stephen R. Curley: Well, I just wanna thank everybody for your participation and questions during the call. I just wanna reiterate how proud I am to be here at Eagle and how much I am looking forward to the future here. And we look forward to connecting with you guys again next quarter. Thank you.
Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
