Eagle uses one U.S. fund to pay another

Eagle Bancorp, the Bethesda holding company for EagleBank, has made its final payment under the Troubled Asset Relief Program with an investment from another government kitty, the Small Business Lending Fund.

The company redeemed the remaining $23.2 million of the total $38.2 million in preferred stock it issued to the Treasury Department under TARP. Eagle paid the first half in December 2009, but continued to weigh its options for repaying the balance.

Under the SBLF program, TARP recipients that were up to date with their dividend payments could convert the prior investment to the new program. In doing so, they could reduce their dividend payments.

“SBLF is non-dilutive and only has a 1 percent cost of capital. Based on that, it’s an in­cred­ibly inexpensive source of capital,” said Ronald D. Paul, chairman and chief executive of Eagle.

Treasury has given EagleBank $56.6 million in funding through the SBLF program in exchange for 56,600 shares of preferred stock. The bank scored the lowest available dividend rate, 1 percent, as a result of its substantial small-business lending in recent quarters.

EagleBank’s loan portfolio climbed at least 10 percent most quarters in the past two years, most recently rising by 30 percent, or $444 million, for a total book of $1.9 billion. Paul anticipates the SBLF injection will help sustain that level of growth.

EagleBank is one of two local institutions, the other being Virginia Heritage Bank of Chantilly, to receive an investment from the $30 billion SBLF fund. The program, part of the Small Business Jobs Act of 2010 enacted in the fall, was created to encourage community banks to lend to mom-and-pop shops. A total of 869 banks have applied to the program to date, requesting $11.6 billion in funding.

Only $337 million has been distributed to 23 banks, to the dismay of some members of Congress who have questioned the pace of the program. At a recent hearing on Capitol Hill, Treasury Secretary Timothy Geithner ascribed the slow-going process to the requirement that applications be approved by a bank’s primary supervisor. Awards, however, should be distributed throughout the summer as Treasury wraps up final due diligence on applications that have received preliminary approval.

EagleBank, with $1.8 billion in deposits and $2.1 billion in assets, was approved for funding in early June. With the receipt of the funds two weeks ago, the bank simultaneously settled up its TARP balance.

With the acquisition of Fidelity & Trust Bank in 2008, EagleBank inherited underperforming loans. The bank resolved that material weakness and used the TARP money to continue to lend at a steady clip.

Of the 11 community banks in the metropolitan region that tapped TARP, six have repaid their debts in full. Bowie-based Old Line Bank handed back the $7 million it received in July 2009, while Capital Bank in Rockville redeemed its $4.7 million in preferred stock in December 2010. The remaining banks have a tab of $5 million to just more than $70 million outstanding. Regulators must grant approval before banks can repay TARP.