Eagle Bancorp, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Eagle Bancorp, Inc., fourth quarter, end-year-end 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Charles Levingston, Chief Financial Officer. Thank you. Please go ahead, sir.

Thank you, Rebecca. 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 may be considered forward-looking statements. Our Form 10-K for the 2019 fiscal year, our quarterly reports on Form 10-Q, and current reports on Form 8K 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. Eagle Bancorp does not undertake to update any forward-looking statements as a result of new information or future events or developments unless required by law. This morning's commentary will include non-GAAP financial information. The earnings release, which is posted in the investor relations section of our website and filed with the SEC, contains reconciliations of this information to the most directly comparable GAAP information. Our periodic reports are available from Eagle or online at our website or the SEC's 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, margin, or balance sheet guidance. Now I would like to introduce Susan Riel, the President and CEO of Eagle Bancorp.

Thank you, Charles. Good morning and welcome to our earnings call for the fourth quarter of 2020. This morning I'd like to start off with a high-level overview of the quarter and the year and also make a few comments on 2021. Benjan Williams, our chief credit officer, will discuss her thoughts on loans and credit quality matters. And Charles, who kicked off the call, will discuss our financials in more detail. The three of us will be available later in the call for questions. Looking back at 2020, it is impossible to overstate the commitment and resiliency of our Eagle team. to adapt to a totally new environment. It is through their efforts that Eagle's assets reached $11.1 billion and finished the back half of 2020 with renewed strength. In the second half of 2020, our fourth quarter earnings were $38.9 million or $1.21 per diluted share, and our third quarter earnings were $41.3 million or $1.28 per share. At $80.2 million for the two quarters combined, these were our highest ever level of earnings in linked quarters, just above our earnings in the second half of 2018. For the fourth quarter, our return on average tangible common equity was 13.69%. This return continues to outperform others in the industry and is notable as our tangible common equity to tangible assets was a relatively high 10.31% at year end. Similar to the third quarter, our residential mortgage division continued to remain very active. The fourth quarter loans locked a $427 million and gain on sale of $5.9 million for the year. I'm sorry, $5.9 million. For the year, locked loans were $1.9 billion with a gain on sale of $21.8 million. With market interest rates expected to remain low in 2021, we anticipate that the residential mortgage division will continue to contribute meaningfully to the bottom line. We also saw some gains from our FHA group in 2020. FHA trade premiums, origination fees, and related servicing revenues were slightly less than $4 million during the year. While our traditionally strong loan growth has been impacted in 2020 with the COVID-19 pandemic, it was also impacted by our efforts to reduce the overall mix of Construction Lending in the first half of 2020. In the latter half of the year, lower rates sometimes forced us to say no rather than match the pricing of others. Heading into 2021, we expect that the Washington DC market will continue to improve as the vaccine rollout continues and that our loan teams will continue to get its share as the pace of economic recovery accelerates. Dan will be speaking to both the improvement of the local economy as well as highlight our continued focus on loan quality. In terms of deposits, corporate deposits continue to flow into the bank. As we said in the past, we will continue to support our clients by holding their deposits. While we have historically operated at an average loan-to-deposit ratio closer to 100%, we averaged just 86% in the fourth quarter of 2020. Carrying this much liquidity contributed to net interest margin falling to 2.98%. However, the additional earning assets offset some of the margin compression and contributed additional net interest income and earnings to the company. Charles will have some comments on the NIM later in the call. Expense control has been an important financial metric for us. Our efficiency ratio at 38.3% with quarter remains among the best in the industry. Underlying this is our focus on commercial lending with a streamlined branch network which has been our trademark since the bank launched in 1998. Over the past decade, we have seen other banks slowly begin to reduce their expensive branch footprints. More recently, the pace has increased. Early on, we saw the value of being less reliant on branches and putting more emphasis on commercial relationships and technology. We see this as a validation of our banking model. With deposits averaging $9.2 billion in the fourth quarter and just 20 branch offices, our deposits per branch of $460 million is much higher than our peers. On the lending side, in addition to our 20 banking offices, we also have one loan production office. Our on-the-ground philosophy has always been an to remain light and adaptable. All of our locations are leased. That includes our headquarters, all branches, the loan production office, and back office locations. This may change if we see property that warrants purchasing, but that has not been our normal practice. In February and March, as leases expire, we plan to relocate our Bethesda and Gallery Place branches to newer, better locations and combine our two back office locations into one newer location. As we move through 2021, we expect to continue to focus on ways to maintain our efficiency. In sum, we believe we'll take our share of the loans as the market improves, continue to be laser focused on credit quality, and continue our longstanding practice of strong expense control. Before handing it over to Dan, I'd like to address our efforts to increase shareholder value, the recently announced stipulation of settlement and our efforts on diversity and inclusion. For our shareholders, our earnings combined with stock repurchases and dividends are three ways we seek to increase shareholder value. At the end of September, we reinstituted our 2019 stock repurchase plan, and by mid-December, we completed share repurchases under that plan. In late December, the Board authorized a new stock repurchase plan for 2021 for up to 5% of outstanding shares, or approximately 1.6 million shares. One of the factors behind authorizing a new stock repurchase plan is our strong capital position. For the year, we repurchased stock valued at $61.4 million and declared dividends of $28.3 million, returning almost $90 million directly to our shareholders. Also, during the year, tangible book value grew 9.4%, rising to $35.74 per share. Shares outstanding were reduced by 4.4% and we paid out 21.4% of earnings in cash dividends. On Monday, we filed an 8K announcing that we had entered into a stipulation of settlement subject to court approval in connection with the previously disclosed shareholder demand letter. We are glad to put this particular matter behind us and look forward to implementing the agreed-upon governance and control enhancements, many of which, as you know, are already underway. We are not going to address any of the specifics of the stipulation of settlement and will let the publicly filed stipulation papers speak for themselves. As disclosed in our earnings release, The payment of attorney's fees in connection with the stipulation of settlement was accrued for in the fourth quarter of 2020 and is expected to be fully recovered from our insurance carriers. The previously disclosed securities class action against the company and several of its current and former officers and directors remains outstanding. Lastly, in 2021, We will continue our focus on diversity and inclusion. We have a diverse board with four women, including myself. We recently added two new board members, one of whom identifies as a minority. Last year, we formed a diversity and inclusion council comprised of 16 employees and conducted an employee engagement survey. The Council will be working on identifying areas of opportunity to focus on and programs to support those areas of opportunity. This is an initiative that is very important to the continued success of the bank and has the full support of the senior staff and the Board. With that, I would like to turn the speaking duties over to Jan Williams, our Chief Credit Officer.