Watchlist loans spike at Eagle in Maryland

Eagle Bancorp in Bethesda, Md., has disclosed a big increase in the amount of loans meriting more attention from management.

The $9 billion-asset company said in its third-quarter financial results that special mention and watch loans nearly doubled in the third quarter from a quarter earlier, to $216 million, or 2.8% of total loans.

While watch loans have "generally acceptable asset quality," the borrower's performance "has not met expectations," Eagle said in the filing. That could include balance sheet or income statement deterioration "to the point that the obligor could not sustain any further setbacks."

Special mention loans involve commercial credits with "potential weaknesses" that "deserve management's close attention," the filing said. “If not addressed, these potential weaknesses may result in deterioration of the repayment prospects. Management believes that there is a moderate likelihood of some loss related to those loans."

The spike largely reflected an increase in watch loans, Michael Flynn, Eagle's director of investor relations, said in an interview. That increase was due primarily to one big loan tied to an income-producing property. Construction on the property is complete and the business is in operation, but it has yet to reach its projected income stream, Flynn said.

“We're closely monitoring” the credit, Flynn said, adding that the borrower has never missed a loan payment and that Eagle does not expect a loss.

Flynn said special mention loans were essentially flat from the second quarter.

Nonperforming loans rose by 54% during the third quarter, to $57.7 million, mostly reflecting "softness in the market for ultra high-end residential properties." Eagle noted in its filing that a $16.5 million nonperforming loan was brought current after the third quarter ended.

The loan-loss provision decreased by 11% in the third quarter from a year earlier, to $3.2 million. At Sept. 30, net charge-offs, annualized, totaled 0.08% of average loans; nonperforming assets made up 0.66% of total assets.

“We're being far more selective on construction loans,” Susan Riel, Eagle's CEO, said during last month's quarterly earnings call. “We're not out of the construction lending business, but we're being far more selective than we have been. Restaurants and hospitality, we've been very cautious with also.”

It has been a turbulent year for Eagle.

Founding Chairman and CEO Ronald Paul retired in March, citing a health issue. The company has since overhauled its board.

Eagle's shares plunged in July after Riel acknowledged that much of the $2.7 million Eagle paid for legal and professional fees in the second quarter was tied to multiple government investigations of Paul’s relationship with District of Columbia Councilman Jack Evans. Riel declined to say which agencies were involved.