Good day, ladies and gentlemen and welcome to the Eagle Bancorp Third Quarter 2017 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] As a reminder, this conference call maybe recorded. I would now like to introduce your host for today’s conference, Mr. Charles Levingston, Chief Financial Officer. You may begin.

Thank you, Crystal. Good morning. This is Charles Levingston, Chief Financial Officer of Eagle Bancorp. Before we begin the presentation, I would like to remind everyone that some of the comments made during this call maybe considered forward-looking statements. Our Form 10-K for the 2016 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 would 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 in the earnings, margin or balance sheet guidance. Now, I would like to introduce Ron Paul, the Chairman and CEO of Eagle Bancorp.

Thank you, Charles. I would like to welcome all of you to our earnings call for the third quarter of 2017. We appreciate you calling in this morning and your continued interest in Eagle Bank. As is our custom in addition to Charles Levingston, also on the call with me this morning is our Chief Credit Officer, Jan Williams. Jan and Charles will be available later in the call for questions. I am pleased to announce that for the third quarter we achieved another period of growth and record earnings for Eagle Bank. Net income for the third quarter was $29.9 million, a 22% increase over the $24.5 million in earnings for the third quarter of 2016. Fully diluted net income per share was $0.87 for the quarter, a 21% increase over $0.72 per diluted share for the third quarter a year ago. This is our 35th consecutive quarter for which we have achieved record increasing earnings dated back to the first quarter of 2009. Our exceptional long-term performance is as a result of the continued consistent approach to growth initiatives and to our disciplined credit administration combined with our continued attention to operating leverage and efficiency. Our strategies continue to produce balanced results for all the key performance indicators, including top line revenue growth, with increased non-interest income, the superior efficiency ratio creating improved operating leverage, solid credit quality and above peer net interest margin and continued loan and deposit growth. This collective performance has resulted in our consistent growth and profitability measures by the most important being earnings per share. As we have said many times, we are much more focused on increasing profitability and just growing the size of the balance sheet. Return on average assets increased to 1.66% from the third quarter of 2017 from 1.5%…

Thank you. [Operator Instructions] Our first question comes from Catherine Mealor from KBW. Your line is open.

Thanks. Good morning.

Good morning, Catherine.

Good morning, Catherine.

In earlier comments, Ron, my first question is just on loan growth and so thinking about some of the commentary you just made, would you categorize the slower loan growth this quarter has really just the impact from higher pay-downs and then the sale of the residential mortgage loans that you talked about or did you see this quarter any kind of intentional slowdown in your loan growth in an effort to maintain the margin and maintain profitability?

Catherine, yes, if you exclude the residential piece of that $37 million, the loan activity that we have is as strong as it’s ever been. We are constantly monitoring the pricing versus the risk. We are increasing our analysis that we continually talk about to the 60%, 65% loan to cost. We are insisting on completion guarantees. On the C&I side, it’s tougher and tougher from a pricing perspective. But in terms of the overall loan growth, it is as strong as it’s ever been. We have to remember that when you do a construction loan, there is 35% of the amount of the purchase price and construction is funded into the project day 1. We are not day 1 over a period of time by the borrower. So, there is the period of time before they start drawing down on our loan. So, as it relates to both outstandings and for that matter what we have talked about before of being the opportunity of pushing our interest rates, that’s something that is a lag period on, because as I say that 35% equity has got to go in first. But in answering the bigger question, the loan demand, the loan growth on the C&I side, on the CRE side, both the ADC and core real estate is as strong as it’s ever been, if anything for us has been stronger because of the position that we are in and our willingness to do larger size deals, which the big banks don’t want to do and the smaller banks can’t do. And that’s where we are getting the pricing power as well.

Got it, okay. So, from that commentary then, we should see loan growth pickup I would say from here as compared to this quarter’s rate. And so then if that happens, how are you thinking about deposit costs in a period where growth improved from the levels we have seen the past couple of quarters. Your betas have been really good so far, but I would argue growth has been a little bit slower as well. So, that helps that.

Now, that’s because we are really good. In terms of the – let me just close the loop a little bit on the loan growth side, we still believe that we will be able to maintain that low double-digit loan growth. And again that’s balancing risk reward and understanding the market as I think we do as well as we do. In terms of the funding side, clearly the funding is one of the biggest issues that we have. No surprise, Washington DC is an incredibly competitive deposit world. We are always looking at different sources of funding whether as I mentioned the FHLB side, whether we are actively working more and more on the nonprofit world. The municipalities leave a meeting with the State of Maryland shortly to talk to – talk about the state funding into community banks. So, there is a lot of moving parts on that, but again I never want to say anything other than the deposit side is constantly a battle. We have increased our monitoring internally on making sure that the operating accounts of all of our companies continue. So, on the C&I side, on the CRE side, even on the CRE side, when it comes to the property management companies that, that apartment building might be using that property management company needs to deposit their money with us. So, it’s a lot of nickels and dimes from a lot of different places. But the bottom line is that we have plenty of sources of liquidity. It’s just a matter of balancing the time and the yield on that.

Yes. Catherine, this is Charles. Just adding on to that, we did expect obviously deposit rates to increase over the course of this year. We are seeing some of that. Clearly, I would also point to our average DDA balances at 32.4% this year as being some pretty solid defense as it relates to those rising deposit betas, in rights deposit cost rather. And additionally, our plenty of sources of alternative sources of liquidity of $1.3 billion in capacity at the home loan bank at which you saw about $200 million drawn on at the end of the quarter, but always exploring and trying to closely manage those cost of funds.

That’s very helpful. Thank you.

Thanks, Catherine.

Thank you. Our next question comes from Casey Whitman from Sandler O’Neill. Your line is open.

Good morning.

Good morning, Casey.

Great quarter. Tacking on the Catherine’s question is about the loan growth and the higher payoffs this quarter. Can you give us some specific numbers for the level of payoff this quarter versus historically and is your outlook that, that would slow down?

Sure. Charles?

Yes, sure. So, yes, in terms of the loan payoffs, we booked just under about $450 million of new loan book in the third quarter and a little under $300 million or so in maturities for the third quarter. These numbers are well and above look at third quarter last year where it was new loans book were closer to just under $300 million and maturities and payoffs were just around $220 million. So, again, we are seeing the velocity pickup as it relates to those new loans booked and loans paid off. So, additionally, there were some FHA loans, the FHA loans that we securitized and sold were part of that payoff.

If I could just kind of summarize a lot of this loan growth is that as Eagle has grown and as we have said over previous quarters that our desire especially in today’s point of the cycle whatever that means anymore, I am not even sure that we are willing to do larger sized deals with more equity in them. The lumpiness that we are going to have of the funding and the payoffs will always be disproportionate to where we are as the size of the bank. So, as an example, literally the last day of the month, we had approximately $50 million loan payoff. So, if you look at the average, it was there for the whole quarter, but from a point-to-point perspective, it dropped. So, the lumpiness of this I was just saying will continue, but it’s going to continue on – it’s clearly an upward tick especially with the construction funding that we just talked about.

Great, helpful. And then you talked about the improving loan yield this quarter, I am just curious as to what category or sized loans you are seeing the most pricing power on?

Totally counterintuitive. We are seeing as much pricing power on the larger sized loans maybe even more on the larger sized loans than the smaller sized loans in the real estate world. In the C&I world, it’s more and more competitive although we have been able to grow our C&I book because our understanding of the importance of certain covenants and being willing to waive other covenants. So – and again that’s where we are always going to be able to beat the big banks. So, the pricing power though on the higher end is clearly in the CRE, ADC side on, I’ll say, $10 million loans and greater.

Okay. And then can you remind us where you stand now with respect to the CRE in concentration – and construction in concentrations as a percentage of capital?

Yes. For the third quarter, we are going to see those increased a fair amount for ADC. These are numbers that are still being worked on as the call report really dictates and drives how those numbers play out, but the ADC number is probably going to be upwards of about 130% and the CRE concentration will probably going to be closer to 335 or so.

Casey, that’s going to mature, but one thing you also have to factor in is the volume of loans that we have under this construction heading which technically the construction is finished, they are leasing up, but for call report purposes you are still classifying them as construction loans. We are past the construction risk. We just haven’t been able to move them for call report purposes because of the way the instruction addresses.

Got it. Helpful. Thank you. Just last question, a housekeeping item is this quarter’s tax rate a good run-rate to you going forward assuming obviously no change in the corporate tax rate or is there – was there anything unusual in this quarter?

In the third quarter, we actually got involved in some low income housing tax credits. I’d say that’s probably worth about 0.7% or so of that tax rate performing it down by that amount, but I would expect it’s not going to be too far off from where we are given that benefit persists going forward. And then of course, you have got other noise as it relates to that first quarter vesting that we benefit from based on the new accounting rules that we released and went into effect earlier this year. So, you have got a little bit of movements in ebbs and flows there, but my best thought there would be relatively smooth.

Alright. I will let someone else hop on. Thanks for taking my questions.

Thanks, Casey.

Thank you. Our next question comes from Joe Gladue from Merion Capital Group. Your line is open.

Good morning.

Hey, Joe.

Just a couple of things. I guess last quarter you mentioned that the new loan yields had finally risen above average portfolio yields just in relation to that, has that gap kind of stay the same or is it increasing?

In fact, we are seeing a little bit of a situation where the gap has reversed again, if I look at the third quarter and new loans coming on we are at about 4.60% or so in terms of rates with deferred fees and costs, you are looking at closer to 5% and loans coming off are closer to 4.80% or so. So, there is a little bit overall, but then these are weighted averages based on funded amounts that are booked into Ron’s earlier point as these loans, as the construction loans fund up, which typically carry the higher yields. You would likely see higher yields on the portfolio as a whole.

Okay, alright. And I guess just wondering if you have any – what your feelings are on possibilities of benefiting from the disruption and the hiring of new banking teams or lending teams?

We are always out there looking, Joe. There has been a lot of consolidation, as you know, in the marketplace, which benefits our opportunities both from a customer side and from an employee base side. So, the answer is just that we are pretty robust on being out in the marketplace and boots on the ground from the customer and potential opportunities on the hiring side.

Alright. That’s it. Thank you.

Thank you. Our next question comes from Emily Chambers from FIG Partners. Your line is open.

Hi, there. Thanks for taking my question.

Good morning.

I think you answered a couple of my questions already which is great, but just specifically with the CRE loan growth, could you give us a sense of your outlook specifically for CRE loan growth?

I think the balance of our portfolio we are always looking to be pretty consistent to where we are. Again, we are going to have ebbs and flows depending on the particular funding, the particular pay off, but on again a consistent run-rate, I think we will be pretty standard to where we are right now. The opportunities are still tremendous. In Washington, as I am sure in a lot of cities, but Washington as many as anything I have ever seen is that there is submarkets that are just going crazy, 68,000 net new jobs. Obviously, there is an enormous amount of disruption right now as a result of the federal government uncertainty that relates to both the C&I lending and housing. And we think that, that’s going to add to the opportunities that we see in a strong market already. So, I think its key for us to stay within certain submarkets that we know really well. And we see as I mentioned earlier the vacancy rate is extremely low and there certainly has been a pullback in the amount of construction permits that have been issued. There is certainly growth going on right now because of permits that have been issued 1.5 years ago, but that absorption is there and therefore we believe that pricing power couple of years from now is going to be even stronger on the run-rate side.

Great. That was very helpful. I think you answered everything else. Thanks so much.

Thank you.

Thank you. And I am showing no further question from our phone lines. I would now like to turn the conference back over to Ron Paul for any closing remarks.

Again, I appreciate everybody being on the call. Thank you for your interest in the Eagle Bank and wishing everybody a happy holiday and we are looking forward to speaking to you in January. Thank you very much.

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