Behind many successful chief executives is a wise board member.
This is certainly the case with Eagle Bancorp Inc. CEO Ronald Paul and Vice Chairman Bob Pincus, a banking veteran and former chairman of Fidelity and Trust Bank, who helped engineer the two institutions' merger in 2008. With Paul's real estate connections and Pincus' banking expertise, the duo has increased the size of the Bethesda, Md., company's EagleBank by 33% in the past year — and logged seven consecutive quarters of record profits, including this past quarter.
Their modus operandi? Take employees — and market share — from much bigger banks.
"Whether it's a Bank of America or Wachovia, they had issues around the country and it kind of paralyzed them from being active in the marketplace," Pincus said. "Candidly — this might sound like a little bit of arrogance — but our community bank had talent … and we have outperformed our peers and taken advantage of this."
The strategy is a page right out of Pincus' playbook; he used it during the economic downturns in the early 1980s and then again in the early 1990s when he was a chief executive at two Middle Atlantic community banks. Paul, a former real estate investor, brings extensive knowledge of the Washington real estate market, which has helped EagleBank underwrite loans and maintain relationships that larger banks could not, said Brett Scheiner, an analyst with FBR Capital Markets.
"Because Ron is a local real estate investor, you can imagine that his knowledge when he makes a loan is superior to competitors," Scheiner said. "They've been able to get out of more difficult trouble spots with very, very little hit to the bank, if any."
EagleBank had an impressive third quarter, beating analysts' estimates by nearly 30%, and hitting the milestone $2 billion-asset mark. Net income more than doubled from a year earlier to $4.4 million, or 22 cents a share, beating estimates by 5 cents, the company reported last week.
Total loans rose by 16%, or $214 million — more than $180 million of which came from its mortgage banking initiative — and deposits increased $314 million, or 24%.
EagleBank "appears to be one of the few banks that we have seen grow its loan book this quarter," Casey Orr, an analyst with Sandler O'Neill & Partners LP, wrote in a research note.
Fee income rose an astounding 44% from the previous quarter, driven by gains in loan sales, "far outpacing the modest 5.3% increase we had expected," Orr said. Spread revenue was up 5.8% from the second quarter, more than three times the forecast.
An increase in net interest income drove the net interest margin up 33 basis points from a year earlier, to 4.1%. That resulted in a 10% return on average common equity in the third quarter, compared with 7.85% a year earlier.
EagleBank's credit quality remained stable, with nonperforming assets totaling $32 million, or 1.61% of assets, and net chargeoffs totaling $1.4 million, flat compared with the previous quarter. The loan-loss provision also was lower than expected, at $1.96 million.
"When you look at those numbers, you sort of make sure your math is right," said Carter Bundy, an analyst with Stifel Nicolaus. "The quarter, just generally speaking, was very, very strong."
Also important is EagleBank's capital strength, Bundy said. The company, which still owes the Treasury Department about $22.5 million under the Troubled Asset Relief Program, has an 8.8% tangible common equity ratio, after raising $50 million in capital last year. Also, surpassing the $2 billion asset mark puts EagleBank in a better position to expand its market share. "As they've grown and as they've built their capital base, they've been able to attract larger customers on both the loan and deposit side," Bundy said.
Yet EagleBank has been picky about deploying its capital. Rather than going after failed-bank acquisitions with assistance from the Federal Deposit Insurance Corp., Paul said it is concentrating on six to nine banks in the Washington market that are of the size and quality it would be interested in pursuing. "What we've done on our earnings side and our growth side, we certainly don't want to take the risk of screwing that up, so it really would have to be compelling," he said.
Meanwhile, EagleBank is busily hiring away employees from competitors, who will bring business along with them. It picked up 14 people after Capital One acquired Chevy Chase Bank of McLean, Va., in 2009. And earlier this year EagleBank was approached by a team of five mortgage lenders from a regional bank in the area. That team originated more than $180 million of new loans in the third quarter, Paul said. "When you're on a roll, you're on a roll." he said. "And right now we're on a roll."