Good day, ladies and gentlemen. And welcome to the Eagle Bancorp Second Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this is 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, sir.

Thank you, Daniel. Good morning, everyone. Before we begin the formal comments, 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 2014 fiscal year, our quarterly reports on Form 10-Q, 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 developments. 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, Jim. I’d like to welcome all of you to our earnings call for the second quarter of 2015. Thank you for calling in this morning. As usual, in addition to Jim Langmead, Jan Williams, our Chief Credit Officer is also on the line with us this morning. Jim and Jan are both available later in the call for questions. We are very pleased to announce that for the second quarter our earnings were $20.9 million which is another record level of quarterly net income which represents a 62% increase over the earnings for the second quarter of 2014 and an 8% increase over earnings for the first quarter of 2015. Net income available to common shareholders was $20.8 million which is also a 62% increase over the second quarter of 2014. Fully diluted earnings per share was $0.61 for the current quarter, representing a 27% increase from $0.48 in the second quarter of 2014 and equal to the $0.61 per diluted share for the first quarter of 2015. We are proud to announce that due to our disciplined and consistent management approach this is the 26th consecutive quarter of record increase in earnings going back to the fall of 2008. We continue to demonstrate balanced strong performance across all of the key measurement indicators. In the second quarter, we saw expanded revenue driven primarily by loan growth combined with the continued very strong net interest margin. Noninterest income was also favorable for the second quarter. Additionally, we realized growth in deposits, continued improvement in already favorable asset quality and through disciplined expense control improved an already very strong efficiency ratio. As you've heard many times, we continue to monitor and adjust all the dials that are required to consistently produce this kind of balance strong results. The earnings…

[Operator Instructions] And our first question comes from Casey Orr from Sandler O'Neill. Your line is now open. Please go ahead.

Good morning. And congrats on another great quarter. First was hoping we could dig more into the margin. Can you tell us about how much fair value accretion impacted the margin this quarter?

Casey the amount was about 6 or 7 basis points that impacted the margin very similar to what happened in the first quarter of the year. It is about $300,000 of fair value accretion that goes on month-to-month so if you annualize that over average assets I think you get about six basis points which have been pretty consistent so from quarter-to-quarter it had no effect but that's the absolute impact.

Okay. Thanks Jim, that's helpful. And then when we think about the excess liquidity you put on this quarter and your loan-to-deposit ratio now at 94%, is your intention to try to keep that at that level? Or are you comfortable growing that back closer to 100%?

Casey, obviously everyday of ebbs and flows of your liquidity position. I think we've always felt that 94% to 98% range is a comfortable range we have with the additional liquidity that we have available to us.

Okay, great. Then, Ron, in your opening comments you talked about expecting some yield and margin compression going forward. Just wondering; does that take into account the indirect auto loans coming off? Or is that just more of a general comment and not about what we might see in the third quarter when those loans are sold? Thanks.

Yes. It is general comments, obviously the indirect is only $84 million so in proportion to the overall loan portfolio. We do believe we have consistently said although candidly I have been wrong is that we anticipate the loan yields to compress based on competition, obviously now with the likelihood of rate increases who knows when that will happen and what impact that will happen obviously especially considering the short duration of most of our loan portfolio.

Okay, great, and one more question. Can you give us a little more color on what you saw this quarter on the deposit end and what specifically was driving the rise in demand deposits, which was very impressive? Thank you.

Casey, as we've talked about the energy that the Eagle Bank team has put towards larger size deposits continues. The relationships they were building with various counties as far as municipal funds are something that is certainly helping us. We've done a great job of expanding existing relationships. So our average deposits per customer continue to expand. That by the way is the same thing on the loan side. So it is overall just the everyday blocking and tackling with the addition of the larger size deposits from municipalities and universities and the like.

How much would you say the municipalities and universities are as a percentage of your total deposits now?

I would off hand say about $150 million.

Right that 2% or 3%.

Great. I'll let someone else jump on. Thanks.

Casey, the one other thing I want to add to that is this year we've beefed up our incentive our incentive programs in terms of the new relationships and deposits in addition to loans from both the lenders and the branches. So I think it is an overall concentrated effort as well as the ongoing effort in North Virginia with the VHB merger.

Thanks, Ron. Did you say that was new this year, or how long --?

It is not new. It is something that we added to and expanded upon.

Thank you. And our next question comes from Catherine Mealor from KBW. Your line is now open. Please go ahead.

All right. Thanks, good morning, guys. One more question on the margin, so, Ron, your outlook for a little bit of margin compression in the back half of this year. What type -- how much of the deployment of your excess liquidity is factored into that? Or do you believe that, that is something that could -- as you deploy that excess liquidity into loans, that's going to effectively help, you stabilize the margin a little bit? Or do you think the decline in loan yields and higher funding costs are enough to offset that remix over the next couple of quarters?

I don't think that we are going to see an increase in cost to liabilities, but I do see that the competitive nature and again I keep using the word disciplined approach to the loan portfolio is occasional we are seeing other banks coming with crazy long -term low yields that we are not going to jump after. So it is all that that I think will make a difference along with the fact obviously offsetting it as you with deployment of the liquidity going from very low yield in fed funds to high yielding -- higher yielding loans.

Okay, got it.

Catherine let me just add that there is a bunch of moving parts in that as you know as we sell the indirect portfolio, the expectation is that those, that cash would over time go into higher yields and CRE and C&I. We also have the opportunity to move some of the liquidity into the investment portfolio, even if we don't get it into loan portfolio because at present our liquidity portfolio is a very high percentage of overall funds. So there is some opportunities that we have in the asset side in terms of mix that is responsive I think to your question.

And thinking more longer term kind of a bigger picture about your margin, can you just help us think about how you're positioned for when rates start to move? I know you're liability sensitive from a static perspective but that doesn't really take into account growth and how quickly your portfolio is going to mature. So just how do we think about, aside from over the next year, how you think your margin is positioned to behave as the rates start to move?

Yes. In terms of the interest rate risk position at June 30, we are actually more asset sensitive than we were in March. Part of that has to do with the liquidity being much stronger to help our sale portfolio being higher; our analysis says that if rates are up 100 basis points that our net interest income would only go down 0.3%, that's compared to 1.1% in March and 2.2% in December. So, overall we have been -- having -- we've had a moderate level of interest rate risk in our balance sheet over a long period of time, and never taken much interest rate risk but at June 30th, we are actually better positioned for rising rates than we would have been a quarter or a year ago.

Okay. That's very helpful. Maybe one last one on the expenses. Any outlook on the expenses going forward? There was a big or a notable decline in salaries this quarter. How should we think about that line going into the back half of the year?

Yes. That second quarter event, you are correct on -- there was decline in salary and benefits by about a $1 million. If you go back a year ago you will see a similar -- some of that is seasonal and relates the payroll taxes we paid on bonuses and incentives in 2014 that hit the books in 2015. You have issues relating to meetings, social security limit, so we do have a seasonal effect there. The other impact was that we had higher OREO expenses in the first quarter than in the second quarter, that's when the other expenses line -- so but overall I think we believe that managing operating expenses and keeping that efficiency ratio pretty close to where it is, is our goal. And we see that as Ron talks about dials to be another important management issues. Final comment I'd make is from the number of people standpoint which is also keeping our efficiency ratio in really good shape, other than the addition of the personnel from the Virgina Heritage transaction that we added in the fourth quarter of the year. We have not had much increase net in staffing. We ended June at 404 positions, salary wise we began the year at 401. So we are very sensitive to the number of personnel and improving process and continuing to focus attention on that efficiency ratio. So I know that's not specific dollar-and-cent answer to your question but that's hopefully that will give you some good color.

Yes, that's very helpful. Thanks, guys.

But before we take the question, Casey to your question on government funding we just ran some quick and dirty numbers and it is about $75 million of municipality deposits that we've received since the end of the year.

Thank you. And your next question comes from Scott Valentin from FBR Capital Markets. Your line is now open. Please go ahead.

Thanks very much for taking my question. Just with regard to interest rate risk, I think you mentioned that you're I guess less liability sensitive. I'm just wondering how much -- when you think about managing the balance sheet going forward, how much does that consideration regarding sensitivity factor in? For instance you mentioned, Jim that the liquidity was up. Was that conscious or how can we expect the balance sheet to move? And is interest rate risk a big driver of your decisions regarding the balance sheet?

Well, we have average liquidity in the second quarter of almost $400 million compared to $250 million in the first quarter so that's $150 million pretty significant number. Clearly our goal is to make good loans, but we are also sensitive to the pricing of those loans. So it is really hard to know what from quarter-to-quarter that margins going to do but I think the fact that interest rate risk is very much concerning to bankers today, we are not out there doing 8 and 10 year fixed rate transaction in any big way. So I think we are going to continue keep the balance sheet duration at relatively short amounts, Scott, the loan portfolio as Ron mentioned had a pricing duration of 28 months at June 30th. That has not changed to whole lot, 44 months in the maturity that is not changed a lot, so we are very sensitive to interest rate risk. We want to make sure that that margin is real and stable and is not a reflection of adding a lot of long-term assets and putting that margin at risk when rates go up.

Okay. That's helpful. Then with regard to the indirect auto portfolio sale, aside from the margin benefit, you mentioned that there is an operating expense associated with servicing it. So when we think about operating expense going forward, are that a net positive, and can we expect to see maybe some benefit on the OpEx line once that closes at the end of July for the third quarter?

Well, it is not real significant. We do have some personnel in that area that we believe we are going to get a saving from not having an $83 million portfolio to process payments on. So we build that into the analysis but it is not a significant line item on noninterest expenses, Scott. Most of benefits, it is going to be -- be able to get better yields and get out of a portfolio that is not strategic, not part of our business planning and move more into businesses that are strategic to Eagle CRE and C&I lending.

The one additional comment I just want to add to that if I could is that we are actively talking and looking at hiring additional lenders because we do have some capacity in the back office side. So obviously those lenders would hit your salary side but also would significantly increase your revenue side. Again it is a timing issue.

Thank you. And your question comes from Christopher Marinac from FIG Partners. Your line is now open. Please go ahead.

Thanks. Good morning, Ron and Jim and team. I was just curious about sort of how quickly the loan portfolio is turning over just with the normal commercial book. Is it any faster or slower than it has been way back in time?

No. It is pretty consistent, Chris. I think that if you followed our both maturity side and more importantly the maturity on the interest rate side, it has been pretty consistent.

Okay. And then you've historically been very successful on the loan fee side. Is that still the same in terms of kind of what you're charging in general? And is that at all competitively a changing out there in the landscape?

We are certainly competitive in the market. But just anecdotally can just give you one quick story is that just couple of days ago a long-term customer of ours came to us and needed a quick decision on a piece of real estate. And he wasn't sensitive -- he wasn't extremely sensitive I should say on the interest rate side. And we were able to get a 4.75% yield on a three year note which is certainly probably 2.75% to 3.8% higher but again it was something that we were paid for because we dropped everything to get it in done, and we got out him out term sheet in four days. So that's the beauty and that's what Eagle Bank has built itself around, and we continue to see those opportunities regularly from core customers.

Thank you. And I am not showing any further questions at this time. I would now like to turn the call back to Ron Paul for any closing remarks.

Again I thank you all for attending and being on the call. Hope everybody enjoys this summer. And we will speak to you again next quarter. We are obviously always available for any questions should anybody have any. Thank you.

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