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Eagle strikes optimistic tone despite lower 4Q performance

Eagle Bancorp in Bethesda, Md., is hopeful that most of the issues that have plagued recent earnings have been addressed.

The $9 billion-asset company's quarterly profit fell 12% from year earlier, to $35.5 million, weighed down by a thinner net interest margin, higher credit costs and ongoing legal expenses.

Susan Riel, who succeeded Ronald Paul as CEO last March, told analysts during a conference call Thursday that she expects the margin to expand in coming quarters. Eagle has also addressed a $100 million loan that had joined its watchlist.

But Eagle, which is grappling with a series of probes into its treatment of related-party transactions and ties to a Washington councilman accused of ethics violations, is still trying to get a handle on legal costs.

"Part of our culture at EagleBank is to strive for strong results across all of the performance indicators for community banks," Riel said.

The margin compressed by 48 basis points from a year earlier, to 3.49%, due to a large influx of deposits early in the fourth quarter and repricing on loans tied to the 30-day Libor, which make up about 40% of the company's portfolio.

Net interest income fell by 1.2%, to $80.7 million. (Total loans and assets decreased slightly from a year earlier.)

Riel said that pricing for deposits has stabilized somewhat. About $2 billion of loans with floors have bottomed out; another $1 billion are not there yet.

"I think, given the current facts and circumstances, it's reasonable to expect that there may be some improvement in the margin going forward," Riel said.

The loan-loss provision rose by 13% to $2.9 million, while net charge-offs more than tripled, to $3 million. Nonperforming loans also tripled from a year earlier, to $48.7 million.

Riel delivered some positive news on credit, telling analysts that a $100 million loan added to its watchlist was removed from its year-end list after the bank added some credit enhancements.

"You're going to see a precipitous decline" in watchlist loans, Riel said.

Legal costs rose by 64%, to $4.1 million, and Riel was unable to provide guidance on what those expense levels could be in 2020.

"We work with the attorneys and get some budgets together from them and their recommendations, but it's very difficult for us to project what the outcome of the legal expenses will be," she said.

A positive in the quarter was noninterest income, which rose by 10%, to $6.7 million, largely due to gains from selling mortgages and the guaranteed portion of Small Business Administration loans.

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