Good day, ladies and gentlemen and welcome to the Eagle Bancorp Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder this call may be recorded. And I would now like to introduce your host for today’s conference Mr. Charles Levingston, Chief Financial Officer. Sir, you may begin.

Thank you, Skyler. 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 2017 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 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 formal 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 like to welcome to all of you to our earnings call for the second quarter of 2018. As is custom, our Chief Credit Officer, Jan Williams is also on the line with us this morning. Charles and Jan will both be available later in the call for questions. We are very pleased to announce that our second quarter earnings were $37.3 million, which is another record level of quarterly net income and represents a 34% increase over earnings for the second quarter of 2017, and a 4% increase over the earnings for the first quarter of 2018. Fully diluted earnings per share were $1.8 for the second quarter. A 33% increase over $0.81 in the second quarter 2017. In the most recent quarter, we continue to demonstrate strong results in all key performance measurement indicators. We expanded topline revenue over the second quarter of 2017 by 9% and over the linked first quarter of 2018 by 3%, driven partly by continued strong net interest margin of 4.15 coupled with average earning asset growth of 12% in the second quarter of 2018 over the second quarter of 2017. The asset growth was driven by 11% increases in both average loans and average deposits over the last year. Additionally, our favorable credit quality continued with low charge-offs and problem loans and continued attention to operating leverage results in the superior efficiency ratio of 38.55% in the most recent quarter. Our results in the second quarter demonstrate what we have repeatedly stated in these earning calls and in our frequent meetings with investors and analysts. At Eagle Bank, we are more focused on growth in earnings and earnings per share than in size or growth rate of our balance sheet. In the second quarter, revenue growth was driven by…

[Operator Instructions] And our first question comes from Casey Whitman with Sandler O'Neill. Your line is now open.

Good morning.

Good morning, Casey.

First question is around the deposit base. Just thinking about the betas in growth this quarter, I would just love to hear more about what the strategy is going forward for bringing in new deposits and how you feel your deposit betas will fair with the next rate hike, you know should we expect deposit betas to continue to move up or would you consider this quarter's move outside as you brought in longer-term funding?

Yes, I think that’s fair Casey. As Ron noted in his commentary, we embarked on a CD rating initiative that was successful in the second quarter raising an average of $235 million in additional CDs that change the mix a little bit and certainly, while – all the while rates were rising and obviously the terms on those were had fixed terms that will out longer, obviously than the money market, and also pushed rates up. In addition to those change in mix in the deposits and the move to more CDs, a significant element of the higher beta was, I think the convexity associated with higher and short-term rate. And as you know, we would expect there to be some tipping point with shorter rates moving up, and I think we saw that this quarter. I don't know that I would expect those betas to persist long-term, but I do expect more upward movement in money cost as rates increase. I would also point out that we do still maintain 33% of our deposit mix in DDAs, which is a significant factor on our ability to control the cost of funding and our – the highly commercial orientation of our deposit base is significant element in that success. Of course, we’re always going to continue to focus on the development of building core relationships, you know we’ve recognized the importance of deposit growth and we actually made some measures to further formalize our efforts in gathering deposits. Just while I've got the mic here, I'll also mention that with the additional term associated with CDs, we have improved our interest rate risk position as we continue to sense that rates may move up, that’s improved slightly as well. So, hopefully that answers your question and then some.

Yes, thank you. I guess can you speak more towards what those fixed terms where, you know like what the average duration of CDs that you are putting on this quarter or if you don't have that just what the duration of the entire CD book is right now?

Yes, so the leveraged term of the entire book is about 11 months now. In terms of the CDs that we put on they were closer to 16 months on a weighted average basis. They were about little over $370 million in growth CDs that were put on an obviously there were some CDs that mature and went away over the quarter or two. But that's where that's in.

Okay. And then switching gears, so what are you guys seeing out there in terms of competition for CRE loans in the market? Have you seen other banks get more aggressive post tax reform?

I'm sorry Casey, could you repeat the question?

Yes, just wondering what you guys are seeing out there in terms of competition for CRE loans, has pricing gotten more challenging post tax reform?

Pricing has definitely gotten very competitive. We’re certainly seeing an enormous amount of opportunities, but we're being selective in what loans we’re working after both from a credit quality perspective and a pricing perspective. We're certainly getting our share of bites at the apple. The market has gotten more competitive. You’ve had debt funds et cetera that are coming in and trying to buy loans, but I will tell you that our pipeline is strong and it goes back to the basics of we’ve been able to show our certainty of execution and our nimbleness in understanding what the product is, and therefore we’re certainly getting our share of loans that we want.

Okay, great. And just looking at the loan yield this quarter were there any one-time benefits kind of boosting those deals like prepayment penalties or anything like that?

No. Nothing material. Just kind of normal course. Yes.

Got it. Thanks for taking my questions. I’ll let someone else jump on.

Thanks Casey.

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

Thanks, good morning.

Good morning, Catherine.

Good morning, Catherine.

A couple more margin questions to follow-up from Casey’s. On the, Charles you said 370 million of new CDs come on this quarter do you see average rate of those?

Yes, the average rate, the leverage rate on those is about 2.2%.

Great and then on the loan yield, as we think about, you said loan yields were up 23 bips this quarter, which was great, and was basically higher if you were to offset the higher beta. So, as you think about where new pricing is and then when you think about the June hike, is it fair to assume that loan yields can increase at this similar pace or even a higher pace in future quarters or do you think competition is enough to even settle [ph] a little bit to [indiscernible] that. That linked quarter increased in loan yields could modify just a bit?

I think that we will be able to push interest rates on our loan portfolio as the market shows and obviously the fed does that increase. I think again it comes down to the fact that we are able to see the loans that we want to be able to get and go after them and it’s not just about the pricing side that has allowed us to be able to get these loans, it is the creativity, it is understanding the market, it is understanding what the developer wants. We’re seeing a lot of opportunities on the C&I side as we continue to grow. As I mentioned in my remarks, there is a number of positions that we recently hired to be able to continue to grow the C&I book and we're seeing opportunities there as well. Albeit very competitive, I certainly don't want to minimize that, but I think we get paid for the certainty of execution and understanding the needs of the borrower.

I also think that we have a certain amount, really a fair fairly high level of buoyancy in loan yields based on the variable and floating rate loans in the existing portfolio. So, I think we can take advantage of that and as new loans are coming in, the risk premium is essentially unchanged, what we're seeing is that it’s going to get some lift off of the index. So, I think we feel pretty confident that we’re going to be able to achieve that.

And it gets back to the variable nature of our loan portfolio being as large as this that as rates go up so does our yield.

Got it. Okay. And on growth, I mean, it seems like you're positive on growth – from your commentary Ron, I mean it is competitive but, you know your pipeline is strong, is there any change to your outlook for your growth target. It has historically been, you know double-digit grower, that's kind of probably kind of low double-digit, high single digit recently, but is there any change to your outlook to be able to be still kind of on average about 10% grower over the back half of this year?

I think consistent with what we’ve been saying is, I see us being in the very, very high single-digit on the loan growth side. I think that the opportunities that are out there, again we’re able to get. I think that this particular quarter we just had an extraordinary amount of payoffs, very unusual, I think it was 300 million versus 168 million the same quarter last year. So, clearly, we’re seeing the portfolio, the ebbs and flows of that portfolio, but that’s the good news of the fact that that’s what our portfolio is. And the fact that the loans are being paid off is a good news story because it shows that the market is vibrant and that we’re seeing the activity that we want to see both on the ability to place new loans and be able to execute on them.

Got it. And then one more on the margin. I mean, if you can give us some direction here, but the way I am going to ask it is, is there a scenario next quarter or the coming quarters where your deposit betas still are increasing to your point Charles, but at a lesser pace that we saw this quarter and your loan yields continue to increase at a similar pace to where your NIM actually could increase or are we still at a point of the cycle where there is still a downward pressure on the margin?

I got to think, Catherine, that to think of the margin at a stable to slightly decreasing levels is probably still the right trajectory in the near-term that’s just my take.

But still only slightly down. You feel that the dynamics within your portfolio is still, but you had a really high deposit base this quarter, but your NIM was only down two bips, right? So, I think there is a big focus today on your funding side, but I don't think we should forget about what’s happening on the asset side. So, I feel like you can really push the beta pretty high on your funding side and still really keep the margin only flat to even maybe down a couple of bips, I just want to make sure if I'm thinking about that correctly?

Yes, absolutely. You know to Jan's point with 66% adjustable or variable rate loans and piercing through those floors, which are a nonfactor at this point, we’ve got a fair amount of asset sensitive, a fairly asset sensitive position here. So, we can push it, yes.

Great. Okay. Thank you for the color.

Thanks Catherine.

Thanks Catherine.

At this time, I’m showing no further questions. I would like to turn the call back over to Mr. Ron Paul for closing remarks.

I appreciate everybody being on the call, and thank you, have a great summer. And I want to congratulate everybody at EagleBank. This is our 20th anniversary and obviously very proud and pleased as to what we’ve done for so many people. So, thank you very much to everybody, and again enjoy the summer.

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