Getting Loans Where Everybody Knows Your Name

Spring 2013

Defined by the Federal Reserve Board as institutions with $10 billion or less in total assets, community banks can be a potent source of financing because of their local roots and knowledge, flexibility and commitment to their communities. According to the Independent Community Bankers of America (ICBA) in 2012, its 5,000 members in the United States totaled $1 trillion in deposits and $750 billion in loans to consumers, businesses and the agricultural community.

One of ICBA’s members is EagleBancorp, parent company of EagleBank in Bethesda, MD. EagleBank, with over $3.4 billion in assets, opened in July 1998 with three branches in Maryland and has since expanded to 17 branches.

Antonio Marquez

Antonio F. Marquez

Antonio F. Marquez, executive vice president and chief real estate lending officer, explained that commercial real estate has been a significant and growing part of the bank’s business for a long time, and he expects that to continue. The table below illustrates the breakdown of the EagleBank real estate book, which totals $1.5 billion.
Marquez expects that 2013 will see increased competition from other banks, absorption challenges and pressure to set loan rates and terms appropriately in view of where rates might be five years from now. However, despite the headwinds in achieving growth in the next few years, EagleBank will remain in the Washington, D.C. metro area rather than expand to other regions.

In its most recent 10-K filing, the bank reported:

  • A maximum loan-to-value (LTV) ratio of 80 percent or less. (Marquez noted there isn’t a set LTV).
  • A minimum cash flow debt service coverage of 1.15 to 1.00. Personal guarantees are generally required, unless the LTV is sufficiently low and the debt service coverage is sufficiently high.
  • Commercial mortgage loans are made for a period of five to seven years, with amortization set to a maximum of 25 years.
  • Interest rates are generally adjusted no less frequently than every five years.
  • Commercial land acquisition and construction loans are made for a maximum of 24 months.
table showing type of CRE and percent of book

Calling the bank “asset-agnostic,” Marquez commented, “We are more opportunity and sponsor-specific. Although the community bank does not compete with money center banks on the spread, the advantage of the community bank is in being flexible enough to provide financing on a deal with ‘hair’ if the economics, story and sponsor warrant it. The goal is to find a way to turn a problem into a relationship — there are at least a dozen ways loans can be structured to mitigate the concerns of the bank.” Although the legal lending limit of the bank is just below $50 million for individual loans, and its average loan is $1.7 million, a significant number are larger — in the range of $5 to $20 million.

Marquez noted that EagleBank’s record on nonperforming loans is very good compared to its peers. According to the December 31, 2012 Eagle Bancorp 8-K filing, its ratio of all nonperforming loans (not just commercial real estate-related) to total loans stood at 1.23 percent at the end of 2012 compared to the SNL regional peer average of 4.5 percent. It’s ratio of nonperforming assets ($36 million) to total assets was 1.06 percent, below the peer average of 3.57 percent. Its allowance for loan losses is 1.50 percent of total loans.