Good day, ladies and gentlemen, and welcome to the Eagle Bancorp Fourth Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we’ll conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder this conference call is being recorded. I would now like to introduce your host for today’s conference Jim Langmead, Chief Financial Officer of Eagle Bancorp. Please go ahead.

Good morning, everyone. Before we begin the presentation, I’d like to remind you that some of the comments made during this call may be considered forward-looking statements. Our Form 10-K for the 2012 fiscal year, our quarterly reports on Form 10-Q and current reports on Form 8-K identify certain factors that could cause the company’s actual results to differ materially from those projected in any forward-looking statements made this morning. The company does not undertake to update any forward-looking statements, as a result of new information or future events or development. Our periodic reports are available from the company or online on the company's website or the SEC website. I'd also like to remind you that while we think that our prospects for continued growth and performance are good, it is our policy not to establish with the markets, any earnings, margin or balance sheet guidance. Now I'd like to introduce Ron Paul, the Chairman and Chief Executive Officer of Eagle Bancorp.

Thank you. Good morning everyone. I'd like to welcome you to our earnings call to discuss the results of the fourth quarter and full year of 2013. Thank you for joining us in this call this morning. In addition to Jim Langmead, also on the call this morning is our Chief Credit Officer Jan Williams. Jim and Jan will both be available for questions later in the call. I'm extremely pleased to once again announce a record level of quarterly net income at $12 million, which represented an 18% increase over the fourth quarter of 2012 and 2% growth over the third quarter of 2013. At $12 million in earnings, it was a 20th consecutive quarter for which we have reported record increasing earnings. It is also a very strong finish to an excellent year. The net income for the 2013 full year of $47 million was a 33% increase over the annual earnings for 2012. Net income available to common shareholders was also up 18% over the fourth quarter of 2012, $11.9 million versus $10 million. Diluted earnings per share was $0.45 for the fourth quarter, a 15% increase over the fourth quarter of 2012 figure and $0.39 per share and a 1% per share better than the third quarter of 2013. Total revenue was $43 million in the fourth quarter 2013 5% over the same quarter of 2012 and was a $169.5 million for the full year of 2013, 14% higher than 2012. We’re very pleased with the results for the quarter not just in terms of level of earnings, ROAA, ROAE, but because once again we’ve been able to produce these earnings through consistent performance in all of the key fundamental indicators. The net income for the fourth quarter was the result of an improved net interest…

(Operator Instructions). Our first question comes from the line of Scott Valentin with FBR Capital Markets. Your line is open.

Good morning. Thanks for taking my question. Just with regard to loan yields, you guys had very strong loan growth. Just wondering loan yields I guess for the quarter were 5.4%, just wondering where they were versus third quarter. And then what you're seeing early in the first quarter. I think people are generally starting to think that loan yields are going to be stabilized despite the competition.

Jim, why don't you take the first part of the question?

Scott, the fourth quarter yield you’ve mentioned of 5.40 for the portfolio compared to 5.48 for the third quarter, so it was 8 basis point contraction.

As far as the pipeline is concerned, as I mentioned, we do see with the rise in interest rates, less irrational pricing from some of the competition. And obviously with 18% loan growth throughout the year, even with the competitive nature of rates, we’ve still had a very, very strong pipeline and believe that to be continuing.

Okay. And then just on the liability side, is there additional room to lower the cost of funds at all or is that kind of hit the bottom?

Well, I think Scott we have some opportunity. And as you can see, it’s been trending down the last several quarters, cost of interest bearing liabilities was 51 basis points in the fourth quarter from 53 in the third from 57 in the second. We still have some opportunity as we’re paying off broker deposits that mostly we had put on because of the concern over the TAG program at the end of 2012. Those broker deposits are running off and have average rates at or around one -- with much less expensive core deposits and so that will help to continue bring down the cost of money absent any impacts of rising rates that some say may occur later in the year. But overall, we think we’re in a good position with respect to the cost of money.

Okay. And then just one follow-up question. You’ve pointed out the trend in expense growth declined sharply in ’13. Should that continue, I mean I guess I’m asking about infrastructure versus growth, you guys feel comfortable with the current infrastructure and can you support growth or do feel you have to continue to reinvest at a pretty high level?

That’s a great question. As I mentioned in previous calls, we spent a lot of money in 2011, 2012 on both GL operating system, total rehab in April of 2011. We built out a bunch of branches in 2011-‘12. So yes, answer to your question, with personnel that we brought on that has capacity, branches that have capacity infrastructure that has capacity, we feel real good about the level that we have right now of our non-interest expense.

Okay. Thanks very much.

Thank you.

Our next question comes from the line of Casey Orr with Sandler O'Neill. Your line is open.

Good morning. Thanks for taking my call.

Hi Casey.

Just starting with the loan growth you saw this quarter, can you give us some more color on which specific geographies you are seeing the most opportunities for growth? And then maybe on the other side, what areas you are maybe seeing things slow down a bit?

It’s across the board, Casey. It’s really -- although we’ve certainly seen as a percentage of growth an increase in Northern Virginia, and certainly the seeds have been planted in Northern Virginia, it’s really been an across the broad growth both C&I and CRE. C&I has very strong 2013 fourth quarter that a great two thousand event -- great fourth quarter. So it’s really been across the board. It’s again, it’s just stealing market share from the big banks that have pretty much gotten their arms around where they want to be within this market, much larger size loans. So, we still can do a tremendous job on $2 million, $3 million loan or even the $20 million loan providing a customer service. So, it really is across the board, both C&I and real-estate even with the drop that we’ve had in the loans held for sale on the mortgage side.

Okay, thanks. And then moving on to fee income, it looks like other fee income jumped up in the quarter about 500,000. Is there anything unusual going on there or something that you wouldn’t consider for the run rate?

Some of that Casey is due to additional BOLI investments, bank owned life insurance that we’ve made in the period. I can’t think of anything else that’s real unusual in the fourth quarter. We’ve got loan fees that come in from time-to-time when you have pay-offs of loans, prepayments and things like that where that’s not part of the yield, that’s part of fee income. That varies depending upon the level of prepayments that might have occurred. But I think the BOLI issue is one. We're also doing a good job with respect to electronic banking and their fees in that area, merchant credit cards, services, we're growing that area a little bit, ATM fees. We've got some good locations where we generate good fee income. So, it's a little bit of hodgepodge but it is a positive event.

Okay, great and then just thinking about the SBA gains going forward, can you remind us how many people you have in that team, if you are still kind of building that out and what opportunities do you think there is for that as a source of income?

We have five people in that department and we do believe that there is a tremendous opportunity out there. We’re right now, one of the leading SBA lenders and we think that we can continue to grow that department considerably.

All right. Thanks for taking my questions. I'll let somebody else jump on.

Thanks, Casey.

Our next question comes from the line of Catherine Mealor with KBW. Your line is open.

Good morning everyone.

Hi, Catherine.

Good morning, Catherine.

Your loan to deposit ratio came up a little bit, I think to about 94%, what's your comfort level with this ratio? Do you think there is still room to move it up or do you feel this is a level that makes sense for you just given rate outlook?

I think, Catherine, we're comfortable with operating in the low to mid-90s, much higher than most banks but we've been there before. And I would say that level we had in the fourth quarter of the year is comfortable for us.

Catherine, I think that the flavor as it relates to that is being able to manage both sides of the balance sheet to recognize that there are opportunities for us to be able to grow the liability side should we need it and feel strongly that we can grow that liability side at a very, very reasonable cost. So we're monitoring [those tickets] [ph] pretty carefully, but feel that as long as there is a capacity for us to be able to grow the funding side, we certainly will continue to grow the asset side.

Let me add to that, Catherine that even though that loan-to-deposit ratio is 94% for the fourth quarter, the average liquidity we had was just a little bit north of $200 million and it was down from the third quarter, which contributed to the margin expansion. But $200 million of average liquidity for a $3.7 billion bank I think is very substantial. And so, just adding some color to what Ron is saying, we're all the time looking at the liquidity and our ability to get at funds and the core deposit growth just as much as we are the loan-to-deposit ratio.

Got it, makes a lots of sense. Maybe as a follow-up to the excess liquidity that certainly did drive most of the margin expansion this quarter and I mean you’ve got 440 margins; so it's phenomenal, so I don’t mean for this question to sound negative because it's not, but just directionally as we think about where the margin is going. Now that most excess liquidity has been deployed, would it be safe to say that the NIM should trend down modestly over the next year just as we see loan yields continuing to taper down maybe even just down 5 bps a quarter, you still may see 5 to 10 bps compression in the margin from here. Is that a safe assumption do you think or is there, are there more levers do you think that could actually bring the margin higher at this point?

Obviously, without giving any forward-looking statements, I think that if you look at all the different levers as you point out that as Jim mentioned earlier, there might be an opportunity for us to [skinny] the cost of funds. We are seeing stabilization in the loan pricing side. So there are lots of levers that we could work off with regard to our NIM. Obviously, even with the efficiency ratio being as strong as it is right now, we have a stabilization of that non-interest expense. So we believe that there are opportunities to maintain that. So it really, if you look at the whole picture, we believe that the NIM is still going to be a strong NIM and our efficiency ratio continued to be again a strong efficiency.

Great, thanks so much.

Our next question comes from the line of Christopher Marinac with FIG Partners. Your line is open.

Thanks, good morning. Ron and others, could you elaborate on sort of how much of business opportunity there is within your existing customer base versus the ongoing, obtaining new customers? Just whether you look at as products for household or just sort of how much you are doing with that business [versus] your top-tier customers are?

If you call 425 employees, they will all tell you that our cross-sell ratio is probably at the top of the discussion. So it's really both. Obviously with 1,200 growth in new relationships we feel that that’s a phenomenal opportunity for us. Again, we all have to remember that even being the largest community bank that we're in; we still have less than 2% of the market share. So dealing with one part of your question, the opportunity for us to continue to steal market share is tremendous. With regard to the cross-sell side, we're definitely seeing improvement in the cross-sell side and that’s not only, as an example, we have 247 customers right now that just have a loan, they don’t have any of the products. That has to be improved upon. So there is a bunch of a cross-sell side, a tremendous amount of merchant service work that could be done. We've never done a major emphasis on the refinance side with our existing customers. So the opportunity for us to be able to do, and by the way, I will tell you that the cross-sell ratio is still a very impressive cross-sell ratio when compared to peers, but there is still opportunities for us to improve upon that in a very big way, our insurance division also an opportunity for us to grow. So, we have about 15 products that we look at on our cross-sell ratio and until all 15 are capitalized upon, there is still room for improvement.

Great, I guess my follow-up, Ron is, if you look at the sort of the staffing changes you had in terms of the net producers that have come to the team last year and the year before. How different should ‘14 be? Should we see a similar amount of hires or will you be less dependent on that?

No, I believe that our -- if you exclude the residential real estate department, I would say that our -- that we do have a solid core group of lenders with capacity. So as I said in my statements, we’re going to be opportunistic in terms of when we hire and where we hire from, but we feel really good about a great team that we have that those have some of that capacity.

Okay, very well. Thanks very much.

Thanks Chris.

(Operator Instructions). Our next question comes from line of Andy Stapp with Merion Capital Group. Your line is open.

Hey, guys.

Hey Andy.

Good morning, Andy.

I just wonder what the mix between refi and purchase more users were during the quarter.

Let me see, Andy. For the quarter; I would say that the refi number was about 35% to 40% and purchase money now call it 60%, 65%.

Okay. And…

That’s same for us.

Okay.

I was going to say that’s obviously good for us that the purchase money business is good in this area.

Yeah.

And as a follow-up to that, Andy I think what’s important we go back to Chris’s question on the cross-sell side is that the home sales within the Washington area is still incredibly strong and where we certainly capitalized on the refi market in 2011, ‘12 and half of ‘13, we are seeing more and more energy being put by our lenders on working with our builders whether it’s condo converters or whether it’s single-family home builders to be able do and become more of their preferred lender. So, we do see that as a huge opportunity for us.

Okay. That’s great news. And what were your gains on SBA loans during the quarter?

For the quarter, I don’t have a full year number here. Let me see if I can get you the number for the quarter real quickly. There were only a little bit more than $200,000, Andy, but for the year they were $2.1 million. I think we’ve talked in various quarters about the fact we’ve got a lot of variability by quarter based on the size of the loans that we’re doing and the backlog at the SBA. But for the quarter, the gains were down compared to the third quarter, but for the year they were very strong compared to 2012. We had about $440,000 gains in ‘12, $2.1 million in ‘13.

Okay, great. Thank you.

Thanks Andy.

Our next question is a follow-up from the line of Scott Valentin with FBR Capital Markets. Your line is open.

Well, thank you. Thanks for taking my follow-up question. Ron, you mentioned capital you think I guess with ROA, ROE, ROA particularly exceeding the growth rate overall the balance sheet, you don’t see any -- I mean should we be able to self fund from a capital perspective. Just wondering you guys have a target range of capital levels? And then following that up, given that you’re generating excess capital can we see something on the return of capital front?

Well, I think we feel Scott that the capital levels we have are very are strong. I think the regulators would agree with that when you consider all the risk in the balance sheet. I think we have that our -- the rate at which we are crediting capital into equity is at least the strong as the balance sheet. So we haven’t seen a lot of leverage going on. We did add some in the fourth quarter because of the strong amount of loan growth more than 5% loan growth and so the ratios came down a bit at the end of the year compared to September, but we are pretty comfortable. The event we got to be looking forward is the increase in the dividend rate on the SBLF preferred stock at the end of 2015. And I think we have said that before between now and the end of 2015 we have got a $56.6 million of preferred stock whose dividend rate jumps from 1% to 9%. We would need to consider capital between now and then, but the actual timing of that is indeterminable. We are assessing that on an ongoing basis looking at the market looking at the earnings and growth prospects. So it’s an ongoing exercise and something the board talks about each meeting. That’s the best I can go.

With regard to the return on capital, as we have said repeatedly, with the growth that we have, the expectations we have, the opportunities that we have and then as Jim points out with the SBLF, some type of dividend is not a likely event.

Okay. Thanks for clarifying. Thank you.

And I am not showing any further questions at this time. I'd like to turn the call back over to management for closing remarks.

Again I want to thank you all for being on the call. We're very proud and pleased with what we've been able to accomplish in 2013. As I mentioned in my call, very excited about the opportunities that we see in 2014, I’m looking forward to speaking with you after the first quarter. So, thank you all again for being on the call.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. And you may all disconnect. Everyone have a wonderful day.