Eagle Bancorp Chairman, President and CEO Ron Paul knows how to work a real estate deal when he sees one.
So it was surprising that he was outbid on his offer for an empty lot in downtown Bethesda, Md., where he hoped to build a new headquarters for Eagle.
One slight problem for the winner—it had miscalculated the size of the lot. That resulted in a significant overbid, based on the appraised value of the land.
Paul devised a solution. Eagle would develop a building on the lot. The winning bidder would own the property, but lease it back to Eagle.
There was another sweetener for the owner (listed in county real estate records as Bethmont LLC). Besides the office space for Eagle's executives and a retail branch with a drive-through window on the lower floors, the top two floors of the building would contain luxury condominiums, providing another income stream for the landlord.
That is typical Ron Paul, who developed a talent for assessing real estate through his own development company.
It's a skill that also is evident in his work as a community banker, says Michael Royce, a managing director with the commercial real estate firm Cassidy Turley. "His background and experience in the practice of owning and managing real estate helped in his ability to vet opportunities as a lender," Royce says.
Since founding Eagle in 1998, Paul has steadily built the company into an outstanding performer and one of the most active lenders in the Washington area, with much of its loan growth coming from the real estate sector.
Some of Eagle's success hinges on raiding talent from much bigger rivals like HSBC, TD and Wells Fargo. But credit also goes to Paul's relentless pounding of the pavement—meeting with entrepreneurs and small business owners, being a public advocate on behalf of community banks and building relationships with local government officials.
At heart, Paul, a Long Island native raised in the Nassau County town of Oceanside, is just as much a small business owner as he is a banker. His development firm, Ronald D. Paul Cos., invests in and manages commercial and residential properties in Washington, D.C., and suburban Maryland.
Paul continues to lead the development firm, though he says he devotes the majority of his time to Eagle, and only gets directly involved in the real estate business to make decisions about acquisitions or renovation projects.
Many community banks have scrambled of late to diversify their loan books away from real estate, but not Eagle. About three-quarters of its $2.4 billion loan book is in real estate. Paul makes no apologies for that.
"I'll take real estate all day long," he says, sitting in the executive conference room at Eagle's white-brick headquarters in Bethesda.
The emphasis on real estate hasn't hurt Eagle. Its profit has risen for 15 straight quarters, and earnings per share have grown 32 percent annually since 2009.
Paul, who is Eagle's single-largest shareholder, touts the company's sterling figures for net interest margin (4.44 percent, as of Sept. 30), return on assets (1.08 percent) and credit quality (with nonperforming assets comprising 1.25 percent of total assets).
Return on equity stands at 12.32 percent, versus the 11.39 percent industry average. And Paul says he still sees room for growth.
Eagle holds about 1.62 percent of the retail deposits in metro Washington, according to the latest FDIC figures. In contrast, Capital One Financial, the biggest banking company in the region, has an 18.5 percent share of the market.
Just taking a tiny part of McLean, Va.-based Capital One's business would have a huge effect on Eagle's market share, Paul says. In the fall, Eagle opened a new branch in northern Virginia near Fairfax, not far from Capital One's home office.
To support its growth, Eagle raised $45 million of capital in October. Most of its growth so far has been organic, although it acquired Fidelity & Trust Financial Corp. for $13.1 million in 2008.
Paul says he won't goose growth by playing around with loan pricing. "If you think you're going to negotiate a half a point on a loan deal, you should go elsewhere," he said when the topic came up at an investor conference this summer.
"There are banks out there that are making 10-year loans at 4.25 percent. Our attitude is we're going to let those go."
Of course, Paul has a luxury that many community bankers don't enjoy—a market with a relatively stable economy.
Unemployment rates in the D.C. region have been among the lowest in the country in the past few years, and housing values have risen. And yet some community banks have been unable to capitalize on the region's economic strength. HarVest Bank of Maryland, for instance, failed in April, weighed down by problem loans.
Paul credits "basic blocking and tackling" for Eagle's success. His directors share that point of view. "It may be plain vanilla banking, but you have to do it well," says Don Rogers, a corporate lawyer in Bethesda who sits on Eagle's board. "What Ron's really saying is, we're just not doing crazy stuff."