Good day, ladies and gentlemen, and welcome to the Eagle Bancorp Second Quarter 2016 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 follow at that time. [Operator Instructions]. I would now like to introduce your host for today's conference call, Mr. Jim Langmead, Chief Financial Officer. You may begin, sir.

Thank you, Kevin. Good morning, everyone. Before we begin the formal remarks, 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 2015 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 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.

Thanks you, Jim. I'd like to welcome all of you to our earnings call for the second quarter of 2016. As usual, in addition to Jim Langmead, our Chief Credit Officer, Jan Williams is also on the line with us this morning. Jim and Jan will both be available later in the call for questions. We are very pleased to announce that our second quarter earnings were $24.1 million, which is another record level of quarterly net income and represents a 15% increase over earnings for the second quarter of 2015 and a 4% increase of earnings for the first quarter of 2016. Net income available to common shareholders was also $24.1 million, a 16% increase over the second quarter of 2015. Fully diluted earnings per share was $0.71 for the current quarter representing a 16% increase from $0.61 in the second quarter of 2015 and a 4% increase over $0.68 per diluted share for the first quarter of this year. We are proud to announce that due to our disciplined and consistent management approach this is the 30th consecutive quarter of record increasing earnings, going back to the first quarter of 2009. In the most recent quarter, we continued to demonstrate balanced, strong performance across all of the key measurement indicators. We expanded top-line revenues driven primarily by loan growth of 4.8% in the second quarter combined with a continued very strong net interest margin of 4.3%. Non-interest income was also favorable for the second quarter as compared to both the second quarter of 2015 and the first quarter of 2016. Additionally, we realized growth in deposits, continued favorable asset quality and through disciplined expense control an improved efficiency ratio of 39.63%. We continue to monitor and adjust all the dials that are required to consistently produce these balanced…

[Operator Instructions] Our first question comes from Casey Orr with Sandler O'Neill.

Great quarter. First, just wondered, can we get a little color on the mortgage piece, I guess just how much of the volume this quarter was purchased versus re-fi and where did the gain on sale margin come in versus last quarter?

Yes, Casey, the re-fi percentage of the loans closed in the second quarter was about 60%. We closed roughly $214 million worth of loans in the quarter and the profitability gain is moving up. We’re between 1.25% and 1.5% and it was around 1.15% or so for the first quarter. We have modified the mix, so we’ve added some real good expertise in FHA lending and those particular loans generate better profitability although there is more work effort, but that’s the reason, but that’s the answer I believe to your question.

That is. Thanks. And moving on the margin, deposit cost continue to trickle up during the quarter. If we assume the fed doesn’t move rates in that event, do you think we see deposit cost continue to move up here for you guys just due to competitive pressures?

Well, rates, you know, have been very, very low. We're very focused on our cost of money and it's -- we're much lower than peers. That’s part of why our margin is better, but we're also needing to fund loan growth on a pretty aggressive basis. So we're out there looking at money cost all the time from different sources. I would say, our money market rate has stayed in that 30 basis point to 35 basis point, 40 basis point area for a good while and if things were to move up, that’s a big part of our deposit base. We would do that. But so far we've been able to manage that cost in that 35, 45 basis point area, but we're very focused on keeping the cost of money as low as we can, but we also have to be sensitive to the loan-to-deposit ratios and the ability to continue to fund what is a very strong pipeline of loans.

Casey, if I can just add to that, there has been an additional emphasis within the Relationship Management Group on our DDAs, which is why you see the DDA growth go back up to the 31%. There is a major program that we're working on with regard to our centers of Influence. So we believe that our DDA structure will continue to be a solid piece of our deposit composition.

Okay, great, helpful. And then maybe a little color just on where pricing was coming in, in the quarter for new loans versus ones coming off?

Yes, it's interesting because the -- again everything that we're all reading about with regard to the lending world, we're actually seeing an opportunity in pushing up rates slightly within EagleBank. Our pipeline is very strong. The selectivity that we continue to maintain within our portfolio and pipeline continues and we are seeing the opportunity being able to push rate slightly in the lending world. That’s more on the CRE side than it is on the C&I side.

What do you think is driving that?

I think a lot of it comes down to reputation. I think our ability and certainty of execution and getting paid for that. Our ability to be able to do larger size deals and not have to be -- cut the rates dramatically as our -- again that’s certainty of execution and the entrepreneurial side of understanding what the borrower is looking for in the structure of these deals is giving us some pricing power.

Okay. And then one final question, I'll let someone else jump on. Just about this sub-debt issuance, what do you think the impact on the margin is going to be or should we assume these funds get immediately deployed into loans?

I think you should assume the latter frankly with our pipeline of loans. So if our average earning asset deal is running close to 5% and were - pick up this sub debt and the expectation is the rate is going to be around there, we shouldn’t give up a lot, but even if we calculate it a 2%, it's not a huge impact. It's pretty minimal, Casey, is the answer specifically to your question.

All right. Great. Thanks for taking my questions.

Our next question comes from David Bishop with FIG Partners.

Hi. Good morning. Circling back to Casey's question in regards to rate competition on the loan side, you said that you're getting paid on some of the larger deals. Can you give a sense sort of how close you are in terms of maybe broaching these relationships where it becomes more price sensitive? I mean, is the market large enough to continue to support this growth within the relationship banking model within these types of bars and within these size of loans that are available in the market?

Dave, the answer is absolutely. Our pipeline today is as strong as it's ever been. We're not competing with the insurance companies as an example on pricing. We're certainly not competing with the larger banks, the national banks. So when you're doing a larger size deal and again, I'm talking about let's just say in that $15 million-$20 million range, the ability of us to be able to get the pricing because of that certainty of execution and our understanding of what the market is and how to structure the loan that’s not going to jeopardize the credit quality, but gives the borrower what they're looking for is really been something that we've been able to really excel in over the years, and I strongly believe we will be able to continue to do that.

Got it. And then maybe provide some color in terms of the growth this quarter maybe the pipeline how that's shaping up from a geographic and product type?

We are continuing to see the same geographic lending habits that we have seen for many years. A lot of growth in the DC market, but again remember that the frothiness that everybody talks about within DC is in a product that we’re not really lending into and that's the Triple A office buildings, so that's the 300 unit department project. We're still looking at those the boutique type projects. There’s an awful lot of growth throughout the Washington area. You're actually seeing in a market for us that the B minus project that's getting renovated to become a B plus project because that B plus project is really where I think the market is going to continue to go more and more for these millennials. They want to live downtown and you can get significant -- the developer can get significant returns on their capital improvements within the project. So to put $30,000 into the renovation for kitchen and bathrooms, you are getting significant returns on that which is exactly why we are seeing a lot of the renovation of some of these apartment projects. Not everybody could afford the $4 a foot in rent. So they can afford $2.80, $3.25 a foot in rent and they're willing to pay for it with the renovated unit.

Got it. I appreciate the color.

Our next question comes from Austin Nicholas with Stephens.

Just a quick question on the mortgage what percentage of the gain on sale there was, you know, resi mortgage, SBA and FHA, just wondering what the breakdown of those was?

Austin, I don’t actually have that detail with me. I’d be happy to follow-up. I just - most of our business is the conventional. We do a pretty fair amount of jumbo business you could imagine in this geographic area. FHA is a more modest part but my comment earlier about it increasing is something we wanted to do and can do because we've got more expertise. But it's really the jumbo and this FHA business that are comprising the majority of the average loan size that continued to be like $440,000. So if that helps you with color but if you need specifics, give me a call and I will be happy to get those to you.

Okay. That's enough. That’s helpful. And then just on the CRE market with larger banks that lends in New York and Florida saying that they're pulling back in CRE. Are you seeing any pullback in -- from maybe larger players in the DC market even if it’s not in areas that you play in, have you -- are you seeing any sort of kind of pull back in the market at all?

I wouldn’t say pull back. I think there’s a little bit more caution. As I mentioned before I think that the competition in the 300 unit larger size projects, some of the larger lenders are requiring more equity. As a result of that you have seen a reduction in permits that have been issued in the district over the past few months. So I think that you're seeing a significant absorption. I think the supply will start trending downward and, therefore I think you’d be able to get additional pricing opportunities. But in answering your question, it's - the Washington market is so strong and the vacancy level is still very, very low. So I do believe that you are seeing the big banks and insurance companies and funds. And now candidly with the flattening of the yield curve and the foreign currencies in jeopardy you're seeing more foreign money coming into the Washington market as well.

Okay. That's very helpful. And then just one last question on M&A, has there been any change in your message there into the type of the M&A on both the whole bank and then maybe non-bank fee income areas that you would look at? A – Ron Paul: No, the M&A philosophy still remains the same. Anything that we would look at would have to be a specific reason to do that, not just to expand within a region that we’re already in. And if it was, it would have to be accretive right away. So that philosophy has stayed consistent.

Okay, great. I think that's all my questions for now. Thanks.

Our next question comes from Catherine Mealor with KBW.

A follow-up on the M&A question. How do you think that the focus on CRE from the regulators will impact M&A both for you'll and for maybe the DC market as a whole given so many of the banks in DC are so heavily focused on commercial real estate? A – Ron Paul: That's a great question. I think that the regulators will certainly be drilling down deeper into approval on any M&A, if both banks have that concentration of real estate. So I would say that that will be impactful going forward.

And does it - and Ron, does it make you-all less likely to look at M&A as an option? A – Ron Paul: No, Catherine you really -- you hit the nail on the head when you say that there are so many banks within the Washington Metropolitan area have real estate concentration. So for us it's not about the acquisition, it's about why would you do the acquisition, if it’s accretive it makes sense. Again if you separate the regulatory approval process, you have something that will have to be accretive. So our philosophy really is that we have great growth opportunities. We have a great franchise. We think we are located exactly where we want to be. We’re in a market that we know very, very well. And we're just going to continue to hit the same nail constantly like we were doing for 18 years.

All right, great. Thanks for the color.

And I’m not showing any more questions at this time. I would now like to turn the call back over to our host.

I thank everybody for joining the call and look forward to speaking to you again at the end of the third quarter. And hope everybody has a great summer.