It is often said that community banks need to have at least $1 billion of assets to compete effectively for commercial business, and with its deal to buy a hometown rival, the nine-year-old Eagle Bancorp Inc. in Bethesda, Md., would surpass that threshold.
Acquiring the $432 million-asset Fidelity and Trust Corp. would boost Eagle's assets to nearly $1.3 billion and its lending limit by 33%, to $15.5 million. Ronald Paul, Eagle's chairman, president, and chief executive, said the higher limit should help Eagle land the business of larger borrowers in the Washington market, such as restaurants and law, accounting, and lobbying firms.
"We haven't been able to service them as well because we haven't been large enough to provide the legal lending limit that they need to address what they're looking for," said Mr. Paul.
In passing the $1 billion mark, Eagle would likely draw more attention from larger banking companies looking to bulk up in one of the nation's most attractive banking markets. Lew Sosnowik, a vice president at Koonce Securities Inc. in Bethesda, said that banks become more visible when they reach $1 billion. Though Mr. Paul said in an interview that he has "no interest in selling," Mr. Sosnowik said he would expect offers to start rolling in anyway.
"They're not for sale today, but no one knows what they'll say a month from now," Mr. Sosnowik said.
The $802 million-asset Eagle announced the Fidelity deal, which would be its first acquisition, on Dec. 2. It agreed to pay about $48.8 million in stock. After buying Fidelity, Eagle would have 15 branches in Washington region, including its first in northern Virginia.
Fidelity chairman Robert P. Pincus would join Eagle as vice chairman. Mr. Pincus, a longtime local banker who gave Mr. Paul his first real estate loan 25 years ago, has run a number of successful area banks, including Franklin Bancorp, which was sold to BB&T Corp. in 1999. Franklin tripled its assets in five years under Mr. Pincus.
Mr. Pincus joined Fidelity in 2005, after his noncompete agreement with BB&T expired. "What he brings to the table for Eagle is a great set of [business] relationships," said Christopher Marinac, an analyst with FIG Partners LLC in Atlanta.
Mr. Pincus said in an interview that he would not be involved in Eagle's day-to-day operations, but would focus on strategic planning and do "a lot of rainmaking."
The four-year-old Fidelity lost $5.6 million in the first nine months of 2007 largely because of losses at its mortgage lending unit, which it sold in August. Mr. Pincus said the bank considered raising money to cover the costs of purging the mortgage company, "but the opportunity to combine with Eagle Bank was more enticing. We think it's better for the customers, shareholders, and employees," he said.
David Danielson, the president of Danielson Capital LLC in Vienna, Va., said that though buying Fidelity would give Eagle "a more attractive footprint," Eagle itself could become too large an acquisition target for some buyers. "There are only so many of those banks around that can pick up a $1.3 billion bank," he said.
Mr. Paul, Eagle's largest shareholder, said he would consider selling the company if the right opportunity came along, but he stressed that he would prefer it stay independent. "From a personal perspective, I have no interest in selling," he said.