Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Eagle Bancorp Third Quarter 2014 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) I would now like to hand the conference over to Jim Langmead, Chief Financial Officer. Please go ahead.

Good morning, everyone. Before we begin the presentation, I would 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 2013 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 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, any earnings, net interest margin or balance sheet guidance. Now, I would like to introduce Ron Paul, the Chairman and Chief Executive Officer of Eagle Bancorp.

Thank you, Jim. I would like to welcome all of you to our earnings call for the third quarter of 2014. We appreciate you calling in this morning and your continued interest in EagleBank. As is our custom, in addition to Jim Langmead; also on the call with me this morning is our Chief Credit Officer, Jan Williams. Jim and Jan will both be available later in the call for questions. I am very pleased to announce our 23rd consecutive quarter of record earnings for EagleBank. Net income for the quarter was $14.1 million and operating earnings were $14.8 million. Operating earnings, which exclude the impact of merger-related expenses from the Virginia Heritage transaction, increased 26% over $11.8 million for the third quarter of 2013. Net income available to common shareholders increased 20% as compared to the third quarter of 2013, but was 26% higher on an operating basis. Operating earnings, excluding $885,000 of pre-tax merger expenses, fully diluted net income per share was $0.52 for the quarter and $0.55 on the on an operating basis as compared to $0.44 on an operating basis per diluted share in the third quarter one year ago. The strong earnings growth in the third quarter is the result of the continued focus on our core banking activities of maintaining a strong margin, making quality loans, generating deposits and building relationships. This strategy continues to produce balanced results for the key performance indicators, including top-line revenue growth, net interest margin, loan and deposit growth, solid credit quality, a strong efficiency ratio and approve capital position. This collective performance has resulted in consistent growth in earnings per share as well as very favorable return on average assets and equity. Return on average assets has increased from 1.35% in the third quarter of 2013 to 1.44%…

Thank you. (Operator Instructions) Our first question comes from the line of Catherine Mealor from KBW.

Good morning, everyone.

Good morning, Catherine.

Great quarter, I just wanted to dig into the margin a little bit and first ask on your loan yields, which continue to be very stable. Can you update us on where you are seeing loans coming off where they are going on? Are you still seeing that gap narrowing?

Catherine, I think in Ron's comments, he mentioned the average yield on new loans for the third quarter was about 5%. That is a yield, not an interest rate. It does include fees. I would say that loans are coming off at about 540, so there is probably 40 basis points of give up. The fact we were able to increase the loan to deposit ratio in the quarter that has been mentioned a couple of times is the reason we are able to overcome that compression, but we think that that compression is modest compared to what is happening with a lot of banks, so those are our numbers.

Any more room on the cost of funds? Do you think from here you would be hitting a bottom there?

Well, you know, with interest rates doing what they have been doing in the last couple of weeks, who knows what is going to happen to rates. We do have some opportunity, we think, with CDs continuing to roll up, brokered CDs, we have been paying off in favor of core deposits throughout this 2014 nine-month period and there is some more of that to come, but it is not much is it was a year ago, so there is a modest opportunity to lower cost of funds, but not by a lot.

Also, Catherine, if I could just add to that is that because of the recent capital raise strength of the bank, us being out more and more in the marketplace, we are seeing as I mentioned in previous quarters, some municipalities and other jurisdictions, institutions, hospitals etcetera, that are willing to deposit with us now and they are not as sensitive to the interest rate side to that. As an example, we have been able to get a significant amount of money on fairly cheap sources.

Okay. That's helpful. Thank you. Then just last question on the margin. How should we think about the impact on the margin from Virginia Heritage coming in next quarter?

Yes. That is going to be a little bit of a challenge. We continue to work on that. As you know, we have to account for that under a fair value accounting and that will have some implications to the margin. I would say that overall, Virginia Heritage has been reporting a net interest margin of around 3.60%. The fair value adjustments were made are going to improve that. The fact that they are 20% to 25% of our asset-base is also going to be a factor, so I would say that we are going to see some margin compression, but not going down to a significant amount. I am not going to give you a specific number, but there is going to be some margin compression, but the fair value accounting helps you in that regard and we think that overall we will see some compression, but not a lot.

The other part to that, Catherine, if I could just add is that the cross-sell emphases that we are going to be placing on Virginia Heritage side, will make a big difference on the deposit end in terms of the DDA ratios that we have compared to what the VHB does, so Dave and Chris Brockett, and their entire lending team is completely on board with the energy that we are going to be putting forth on that cross-sell side mainly starting on the deposit.

Okay. Great. Very helpful. Congrats on a good quarter.

Thanks, Catherine.

Thank you. Our next question comes from the line of Scott Valentin from the FBR Company.

Good morning and thanks for taking my question. It is early days, and Ron, you mentioned interest rates are kind of fallen down. We have seen some of the regional banks report increased activities on the application side for mortgage banking. I am wondering if you are seeing the same or if it is too early.

We have seen a pick up over the past couple of days, but as we have discussed it is such an incredibly choppy business, applications come in. Fortunately from our perspective everything is pre-sold, pre-qualified, pre-locked, so what we are not concerned about interest rate risk obviously because of that, but we do see pick up in volume.

Then just on the health of investment growth. The C&I growth really picked up this quarter. I was wondering if that's a reflection of investments you have made in the past or is that a reflection of environment?

I think that your question is about our C&I loan growth in the quarter, Scott. Is that correct?

That's correct. Yes. It looks like it was a pretty sharp pickup from the past. I am just wondering if that's a reflection of investments you have made, such as loan officers or if it's just the reflection of the D.C. market?

No. It's a reflection of the D.C. market. Again, so much of what we keep talking about is that the choppiness that you have in certain areas of the financials. You have a tremendous pipeline and you might get a significant closing that takes place, which would boost your numbers for the quarter, but overall our C&I portfolio is strong and has a great pipeline. We do anticipate that to continue. It has not been as a result of increase of our overhead side. It has just been again boots on the ground in terms of being out there and developing business.

Okay, then one final question on operating expense. You mentioned that it was mostly due to incentive comp accruals in the third quarter. Is that kind of a one-time true up for the year or is that kind of going to reflect going forward in the fourth quarter as well?

Yes, Scott. Good question. We think it will allow us to moderate accruals in the fourth quarter, because that so called catch up or true-up, whatever you want to call that occurred in the third quarter, so we effectively accounted for 75% of any adjustments, so that should alleviate pressure on that calculation in the fourth quarter. It's a great question.

A lot of our incentive plan has to do with thresholds and the likely situation is that the threshold surpass based on the year that we had in the third quarter and that's why it's so much [heavy] up in that.

Okay. That makes sense. Very helpful.

Thank you. Our next question comes from the line of Christopher Marinac from FIG Partners.

Thanks. Good morning. Ron, Jim and team, would you remind us on the commercial loan side, how often are you selling portion of the loan for the back-end. You always have been retaining 100%?

We maintain 100% of our portfolio. The only thing that we sell-off is the guarantee portion of SBA, and as I mentioned, the residential real estate side.

Right. Got it. Okay. I just wanted to clarify. Then second, Ron, on the portion of the portfolio that has longer than three years that approximately 40%. How often are you going above five years or has the pricing opportunities getting any narrower as longer term deals?

You know, it's a great question, Chris and something that we are spending a lot of time analyzing. Most of our portfolio as you know is much shorter than the five years. With the recent drop of rates over the past couple of days, the question is can we capitalize on that through potential swaps on larger size loans, so it's something that we are looking into. We haven't done it yet, but we do see some opportunities with some of our better, bigger customers that we could be able to satisfy the larger needs, but take out the interest rate risk within that portfolio. I would tell you that something we are looking into doesn't change at all the credit risk, but those give us an opportunity on our loan portfolio, where you have less of a churn.

Okay. Great. Then, I guess, last question for Jim. On the loan yield, what is approximately the portion that comes (Inaudible) Maybe that's just a role that we could think about it big picture?

Yes. That's a good question. About 30 basis points, you could say. You could say that 5% yield I quoted you for the third quarter; the rate is like 4.70% and add 30 to get to the 5%.

Got you. Great. Okay. Perfect.

Also on a lot of these loans, we do have pre-payment penalties, so it's something that needs to be put in that number in terms of their ability to pay us off.

Great. That would be included in the 30, typically or separate?

No. That would be excluding.

Got you. Okay. Very good. Thank you.

Thanks, Chris.

Thank you. Our next question comes from the line of Chris Stulpin from Merion Capital.

Good morning. Thanks for taking my call. Only one question remains on my list. That is regarding purchase money mortgages. Can you characterize what level of demand you are seeing in your market and what your strategy is to focus on this product going forward? Thanks.

Chris, I think we put in the press release about 60% of the production that we have had in the first nine months of the year was purchase money.

Right.

The actual amount of loans closed in the first nine months of the year is about $400 million, so $240 million over nine months that is sort of the case of purchase money in our shop right now. I will tell you, Chris, we are really proud of the fact that our residential real estate guys have been nimble enough to be able to move from the refinance to the purchase. However, I am sure that they will tell you over the past couple days it's flip flopped back the other way, so that's one of the big advantages of having a group that's just nimble as they have been.

Okay. Great. Thank you.

Thank you. That concludes our question and answer session. I would like to turn the conference back to Eagle Bancorp for any closing comments.

Once again, we would like to thank everybody for joining the call and we look forward to speaking with you again next quarter. Very anxious and excited about closing on the Virginia Heritage transaction at the end of the quarter and looking forward to speak to everybody next quarter.

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