Eagle Bancorp, Inc.

Chief Financial Officer, Charles Livingston

Thank you, Michelle. 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. While our growth and performance over the past quarter has been positive, we cannot make any promises about future performance, and it is our policy not to establish with the markets any formal guidance with respect to our earnings. None of the forward-looking statements made during this call should be interpreted as our providing formal guidance. Our Form 10-K for the 2020 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. Eagle Bancorp does not undertake to update any forward-looking statements as a result of Thank you for joining us. This morning, Susan Riel, the President and CEO of Eagle Bank Corp., will start us off with a high-level overview. Then, Jan Williams, our Chief Credit Officer, will discuss her thoughts on loans and credit quality matters. Then, I'll return to discuss our financials in more detail. At the end, all three of us will be available to take questions. I would now like to turn it over to our President and CEO, Susan Riel.

Thank you, Charles. Good morning, everyone, and welcome to our earnings call for the second quarter of 2021. I'm pleased to report another great quarter for the bank. Similar to last quarter, earnings again are at record levels. Equity has risen to an all-time high. Asset quality remains high with favorable credit trends. And efficiency remains a strength. A key difference from last quarter is that there was an increase in total loans, excluding loans held for sale and PPP loans. It was a modest increase of almost $60 million, but it breaks the downward trend. Focusing on earnings first, earnings for the quarter were $48 million, or $1.50 per share. This was a 1.68% return on average assets and a 16.25% return on average tangible common equities. The larger items impacting earnings this quarter included $4.7 million of accelerated interest income from the sale of PPP loans and $4.6 million reversal from the allowance for credit losses on loans and reserves for unfunded commitments. Earnings over the last four quarters, which includes the third quarter of 2020 when the nation was still locked down, totaled $171.7 million, or $5.35 per diluted share. These earnings continue to build our common equity, which at the end of the quarter was $1.3 billion, or 11.92% of assets. Turning to asset quality, at the end of the quarter, NPAs were 50 basis points of assets, and for the quarter, annualized net charge-offs with 30 basis points of average loans. These asset quality ratios combined with an improved economic outlook nationally and locally informed our decision to make a second conservative reversal from our allowance for credit losses and reserve for unfunded commitments. With a reversal of $4.6 million for the quarter, The total reversal for the first half of 2021 was 7.4 million. After the reversal, our reserves were 1.32% of loans, excluding PPP loans. In terms of operating efficiency, we continue to be a leader with an efficiency ratio of 37.1% for the quarter. We are always prudent in our approach to expense management. For example, this quarter we closed our Roslyn, Virginia branch as it had an expiring lease and our customers can be served from other northern Virginia branches. The combined annual pre-tax cost savings and rental expense will be about $263,000 and there was no write-off of leasehold improvements as these had been fully amortized upon the expiration of the lease. We are also pleased that all of the employees working at the branch have filled or will be filling positions within the company. Additionally, given the bank's robust capital levels, we requested and received board and regulatory approval to redeem $150 million of subordinated debt issued in 2016. Charles will have more details on this later. Before discussing loans, I would like to once again mention the contributions of the residential mortgage and FHA teams. Our residential mortgage team had another great quarter with locked loans of $248 million and a gain on sale of mortgage loans of $3.5 million. Even with mortgage volume off slightly from last quarter, We expect the residential mortgage division will continue to contribute meaningfully to the bottom line. Our FHA team also did well generating trade premiums of $2.6 million that are included in non-interest income. The revenue stream from the FHA division is not smooth from quarter to quarter. Comparatively, the FHA division has larger transactions and less volumes. and the Mortgage Division, which has smaller transactions and higher value. In regard to loans, last quarter on this earnings call, I said Eagle Bank intends to more assertively pursue loan opportunities. This past quarter, our funding for new loan originations and advances increased, while payoffs and paydowns decreased. As a result, loans excluding loans held for sale and PPP loans increased by $60 million. Jane will talk in more detail about this later. While still talking about loans, during the quarter we made a decision to sell $170 million of our PPP loans, which generated nearly $4.7 million in accelerated net deferred fees and costs into interest income. The sale was to a well-regarded firm with significant expertise in the ongoing servicing and processing associated with PPP loans. Additionally, just below $160 million in loans were forgiven during the second quarter. The PPP loans retained, totaling $238 million, were those that had already started the forgiveness process on our platform or those that we decided to retain for customer service reasons. The sale of the PPP loans and with the remaining loans moving through the forgiveness process will enable us to free up personnel to focus on originating new business and to continue to provide a high level of service to our clients. In regards to our market, we serve a strong and robust market Anchored by the federal government and government contracting, a growing technology presence which includes Amazon's HQ2, many substantial domestic and international firms, several large hospital systems, and a long list of universities. Our home market continues to see companies open. Hotels are doing more business. Tourists have returned and many of the restaurants are full. Internally, Eagle Bank, which has been operating remotely where possible since the beginning of the pandemic, will have its workforce return in a hybrid environment on September 13. We also have a legal update. We are pleased to have initiated discussions with Commission staff about a potential resolution or settlement regarding the Commission's investigations. which we first disclosed in July 2019. We hope to resolve the Commission's investigation as it relates to the company within the next few months. This would be a welcome development for Eagle Bank and its shareholders. In addition, we are also pleased to have initiated discussions with the staff of the Federal Reserve Board about a potential resolution or settlement regarding the Federal Reserve Board's investigations. We also hope to resolve the Federal Reserve Board's investigation as it relates to the company in a timely manner. We also disclosed in yesterday's press release that our CFO, Charles Lovingston, received a Wells Notice in connection with the ongoing SEC investigation. Charles made a submission to the SEC in response to the Wells Notice and is cooperating with the SEC's investigation. Charles is continuing to serve in his capacity as CFO. While we can't comment on the allegations against Charles, I want to stress that in making the decision to have Charles continue to serve as CFO, the Board evaluated the circumstances, considered a number of factors, and consulted with members of management and external advisors, including our independent auditors. The board's top priority is, as it always has been, to act in the best interest of the company and the company's stockholders. And we and the board remain confident in the company's disclosure controls, accuracy of its financial reporting, and the professionalism of the company's finance function and personnel. We work closely with other members of the company's management, the company's disclosure controls committee, and other advisors and consultants to ensure that the company maintains strong internal controls over financial reporting. Given that the investigation is ongoing, we obviously cannot speculate or comment further on these developments at this time, nor are we able to speculate or comment on former employees and directors' Potential Interactions with the SEC. Accordingly, we cannot answer any questions about the investigation during our Q&A. Before turning it over to Jan, I would like to reiterate that we remain focused on building stockholder value. Book value rose to $40.87 per share, up 11% from a year ago. and Tangible Book was $37.58 per share, up 12% from a year ago. We also increased the quarterly dividend to 35 cents per share. This is up from 25 cents from the prior quarter and 22 cents the quarter before that. Based on recent stock prices for Eagle, a dividend of 35 cents per share increased puts our dividend yield more in line with our peers. I would like to thank all of our employees for their hard work and their commitment to support our clients. Additionally, we remain committed to a culture of respect, diversity, and inclusion in both the workplace and the communities we serve. With that, I would like to turn the speaking duties over to Jan Williams Our chief credit officer.