UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
For the transition period from _____________ to _____________.
Commission file number 0-29687
Eagle Bancorp
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(Exact name of small business issuer as specified in its charter)
United States 81-0531318
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1400 Prospect Avenue, Helena, MT 59601
----------------------------------------
(Address of principal executive offices)
(406) 442-3080
---------------------------
(Issuer's telephone number)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No[ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common stock, par value $0.01 per share 1,203,572 shares outstanding
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As of October 31, 2001
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
EAGLE BANCORP AND SUBSIDIARY
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition (As of
September 30, 2001 (unaudited) and June 30, 2001) ......... 1 and 2
Consolidated Statements of Income (For the three months
ended September 30, 2001 and 2000 (unaudited)) ............ 3 and 4
Consolidated Statements of Stockholders' Equity (For the
three months ended September 30, 2001 (unaudited)) ........ 5
Consolidated Statements of Cash Flows (For the three
months ended September 30, 2001 and 2000 (unaudited)) .... 6 and 7
Notes to Consolidated Financial Statements ................ 8 to 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................... 13 to 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ........................................... 19
Item 2. Changes in Securities ....................................... 19
Item 3. Defaults Upon Senior Securities ............................. 19
Item 4. Submission of Matters to a Vote of Security-Holders ......... 19
Item 5. Other Information ........................................... 19
Item 6. Exhibits and Reports on Form 8-K ............................ 19
Signatures
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 2001 June 30, 2001
------------------ -------------
(Unaudited) (Audited)
ASSETS
Cash and due from banks ........................ $ 3,072,714 $ 3,427,038
Interest-bearing deposits with banks ........... 4,688,163 4,925,000
Investment securities available for sale,
at market value .............................. 23,518,358 21,603,520
Investment securities held-to-maturity ......... 6,068,018 6,570,794
Federal Home Loan Bank stock, at cost .......... 1,513,500 1,487,300
Mortgage loans held-for-sale ................... 4,663,042 3,033,244
Loans receivable, net of deferred loan fees
and allowance for loan losses ................ 117,723,169 114,977,895
Accrued interest and dividends receivable ...... 1,024,632 941,117
Mortgage servicing rights ...................... 1,258,128 1,315,819
Property and equipment, net .................... 6,399,567 6,505,627
Cash surrender value of life insurance ......... 2,166,380 2,140,524
Real estate acquired in settlement of loans,
net of allowance for losses .................. -- --
Other assets ................................... 289,865 195,034
------------ ------------
Total assets ............................... $172,385,536 $167,122,912
============ ============
See accompanying notes to consolidated financial statements.
-1-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Continued)
September 30, 2001 June 30, 2001
------------------ -------------
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposit accounts:
Noninterest bearing .......................... $ 7,115,177 $ 6,486,306
Interest bearing ............................. 131,156,322 127,564,024
Advances from Federal Home Loan Bank ........... 11,418,889 11,443,889
Accrued expenses and other liabilities ......... 2,541,096 1,926,450
------------ ------------
Total liabilities .......................... 152,231,484 147,420,669
------------ ------------
Stockholders' Equity:
Preferred stock (no par value, 1,000,000 shares
authorized, none issued or outstanding) ......
Common stock (par value $0.01 per share;
10,000,000 shares authorized; 1,223,572
shares issued and 1,203,572 outstanding
at Sept. 30, 2001) ........................... 12,236 12,236
Additional paid-in capital ..................... 3,853,445 3,845,908
Unallocated common stock held by employee
stock ownership plan ("ESOP") ................ (303,648) (312,848)
Treasury stock, at cost (20,000 shares) ........ (235,000) (235,000)
Retained earnings .............................. 16,511,967 16,220,812
Accumulated other comprehensive loss ........... 315,052 171,135
------------ ------------
Total stockholders' equity ................. 20,154,052 19,702,243
------------ ------------
Total liabilities and stockholders' equity . $172,385,536 $167,122,912
============ ============
See accompanying notes to consolidated financial statements.
-2-
EAGLE BANCORP AND SUBSIDIARY
QUARTERLY STATEMENTS OF INCOME
Three Months Ended
September 30,
------------------------
2001 2000
---------- ----------
(unaudited)
Interest and dividend income:
Interest and fees on loans ....................... $2,376,020 $2,253,185
Interest on deposits with banks .................. 66,848 5,145
Securites held to maturity ....................... 90,831 162,123
Securities available for sale .................... 303,136 287,239
FHLB stock dividends ............................. 28,147 22,760
---------- ----------
Total interest and dividend income ........... 2,864,982 2,730,452
---------- ----------
Interest expense:
Deposits ......................................... 1,224,689 1,232,617
FHLB advances .................................... 178,809 144,934
---------- ----------
Total interest expense ....................... 1,403,498 1,377,551
---------- ----------
Net interest income .............................. 1,461,484 1,352,901
Loan loss provision .............................. -- --
---------- ----------
Net interest income after loan loss provision 1,461,484 1,352,901
---------- ----------
Noninterest income:
Net gain on sale of loans ........................ 171,118 42,599
Demand deposit service charges ................... 125,563 134,679
Mortgage loan servicing fees ..................... 15,332 72,594
Other ............................................ 92,209 93,431
---------- ----------
Total noninterest income ..................... 404,222 343,303
---------- ----------
See accompanying notes to consolidated financial statements.
-3-
EAGLE BANCORP AND SUBSIDIARY
QUARTERLY STATEMENTS OF INCOME
(Continued)
Three Months Ended
September 30,
------------------------
2001 2000
---------- ----------
(unaudited)
Noninterest expense:
Salaries and employee benefits ................... $ 733,467 $ 668,560
Occupancy expenses ............................... 113,749 114,051
Furniture and equipment depreciation ............. 68,144 81,816
In-house computer expense ........................ 49,499 41,779
Advertising expense .............................. 31,526 43,935
Amortization of mortgage servicing fees .......... 68,709 31,007
Federal insurance premiums ....................... 6,126 7,072
Postage .......................................... 29,753 21,667
Legal,accounting, and examination fees ........... 22,992 47,688
Consulting fees .................................. 7,356 9,447
ATM processing ................................... 10,561 14,296
Other ............................................ 181,920 167,055
---------- ----------
Total noninterest expense .................... 1,323,802 1,248,373
---------- ----------
Income before provision for income taxes ........... 541,904 447,831
Provision for income taxes ......................... 195,242 144,280
---------- ----------
Net income ......................................... $ 346,662 $ 303,551
========== ==========
Basic earnings per share ........................... $ 0.30 $ 0.26
========== ==========
Diluted earnings per share ......................... $ 0.29 $ 0.26
========== ==========
Weighted average shares outstanding (basic) ........ 1,164,857 1,180,258
========== ==========
Weighted average shares outstanding (diluted) ...... 1,184,857 1,180,258
========== ==========
See accompanying notes to consolidated financial statements.
-4-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
ACCUMULATED
ADDITIONAL UNALLOCATED OTHER
PREFERRED COMMON PAID-IN ESOP TREASURY RETAINED COMPREHENSIVE
STOCK STOCK CAPITAL SHARES STOCK EARNINGS INCOME TOTAL
--------- ------- ---------- ----------- ---------- ----------- ------------- -----------
Balance, June 30, 2001 .................. $ -- $12,236 $3,845,908 $(312,848) $(235,000) $16,220,812 $ 171,135 $19,702,243
Net income ............................ -- -- -- -- -- 346,662 -- 346,662
Other comprehensive income ............ -- -- -- -- -- -- 143,917 143,917
-----------
Total comprehensive income ........ -- -- -- -- -- -- -- 490,579
Dividends paid ($.10 per share) ....... -- -- -- -- -- (55,507) -- (55,507)
ESOP shares allocated or committed
to be released for allocation
(1,150 shares) ...................... -- -- 7,537 9,200 -- -- -- 16,737
------- ------- ---------- --------- --------- ----------- --------- -----------
Balance, September 30, 2001 ............. $ -- $12,236 $3,853,445 $(303,648) $(235,000) $16,511,967 $ 315,052 $20,154,052
======= ======= ========== ========= ========= =========== ========= ===========
See accompanying notes to consolidated financial statements.
-5-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
September 30,
--------------------------
2001 2000
----------- -----------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................. $ 346,662 $ 303,551
Adjustments to reconcile net income to
net cash from operating activities
Provision for loan losses .............................. -- --
Provision for mortgage servicing rights valuation losses 58,433 --
Depreciation ........................................... 132,172 139,400
Deferred Loan Fees ..................................... -- 20,328
Amortization of capitalized mortgage servicing rights .. 66,044 31,007
Gain on sale of loans .................................. (171,118) (42,599)
FHLB dividends reinvested .............................. (26,200) (22,700)
Increase in cash surrender value of life insurance ..... (25,856) (23,924)
Change in assets and liabilities:
(Increase) decrease in assets:
Accrued interest and dividends receivable .............. (83,515) (111,059)
Loans held-for-sale .................................... (1,430,918) (1,140,308)
Other assets ........................................... (94,831) (17,322)
Increase (decrease) in liabilities:
Accrued expenses and other liabilities ................... 589,954 129,870
Deferred compensation payable ............................ 6,242 6,340
Deferred income taxes payable ............................ (54,735) 147,231
----------- -----------
Net cash used in operating activities .............. (687,666) (580,185)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities:
Investment securities held-to-maturity ................... -- (326,150)
Investment securities available-for-sale ................. (3,882,047) --
Proceeds from maturities, calls and principal payments:
Investment securities held-to-maturity ................... 500,112 492,334
Investment securities available-for-sale ................. 2,160,335 311,227
Increase in interest bearing deposits held at banks ........ 236,837 --
Net (increase) decrease in loan receivable, excludes
transfers to real estate acquired in settlement of loans . (2,812,060) (4,349,163)
Proceeds from the sale of real estate acquired in the
settlement of loans ...................................... -- --
Purchase of property and equipment ......................... (10,496) (21,069)
----------- -----------
Net cash used in investing activities .............. (3,807,319) (3,892,821)
----------- -----------
See accompanying notes to consolidated financial statements.
-6-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Three Months Ended
September 30,
--------------------------
2001 2000
----------- -----------
(unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in checking and savings accounts .............. $ 4,221,168 $ 567,054
Net increase in advances to borrowers for
taxes and insurance ...................................... -- 274,160
Net increase (decrease) in FHLB advances ................... -- 3,083,333
Payment on FHLB advances ................................... (25,000) --
Purchase of Treasury Stock ................................. -- --
Dividends paid ............................................. (55,507) (40,256)
----------- -----------
Net cash provided by financing activities .......... 4,140,661 3,884,291
----------- -----------
Net decrease in cash ......................................... (354,324) (588,715)
CASH AND CASH EQUIVALENTS, beginning of period ............... 3,427,038 3,477,650
----------- -----------
CASH AND CASH EQUIVALENTS, end of period ..................... $ 3,072,714 $ 2,888,935
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest ................... $ 1,348,980 $ 1,339,866
=========== ===========
Cash paid during the period for income taxes ............... $ 76,088 $ --
=========== ===========
NON-CASH INVESTING ACTIVITIES:
(Increase) decrease in market value of securities
available-for-sale ......................................... $ (206,079) $ 109,773
=========== ===========
Mortgage servicing rights capitalized ........................ $ 66,786 $ 6,317
=========== ===========
See accompanying notes to consolidated financial statements.
-7-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTH
PERIODS ENDED SEPTEMBER 30, 2001 AND 2000 (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
------------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with instructions for Form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. However, such
information reflects all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of results for the unaudited interim periods.
The results of operations for the three months ended September 30, 2001 are not
necessarily indicative of the results to be expected for the fiscal year ending
June 30, 2002 or any other period. The unaudited consolidated financial
statements and notes presented herein should be read in conjunction with the
audited consolidated financial statements and related notes thereto included in
Eagle's Form 10-KSB dated June 30, 2001.
-8-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 2. INVESTMENT SECURITIES
------------------------------
Investment securities are summarized as follows:
September 30, 2001 June 30, 2001
-------------------------------------- --------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED FAIR AMORTIZED UNREALIZED FAIR
COST (LOSSES) VALUE COST (LOSSES) VALUE
----------- ---------- ----------- ----------- ---------- -----------
Available-for-sale:
U.S. government and agency
obligations .............. $ 3,505,375 $ 54,915 $ 3,560,290 $ 4,566,644 $ 42,694 $ 4,609,338
Municipal obligations ...... 4,303,022 (7,900) 4,295,122 4,303,574 (58,672) 4,244,902
Corporate obligations ...... 8,169,923 299,926 8,469,849 7,114,917 190,667 7,305,584
Mortgage-backed securities . 5,622,502 81,705 5,704,207 4,029,519 73,726 4,103,245
Collateralized mortgage
obligations .............. 1,113,178 17,212 1,130,390 1,190,586 (4,304) 1,186,282
Corporate preferred stock .. 350,000 8,500 358,500 150,000 4,169 154,169
----------- --------- ----------- ----------- --------- -----------
Total .................. $23,064,000 $ 454,358 $23,518,358 $21,355,240 $ 248,280 $21,603,520
=========== ========= =========== =========== ========= ===========
Held-to-maturity:
U.S. government and agency
obligations .............. $ 1,396,881 $ 17,643 $ 1,414,524 $ 1,395,905 $ 19,267 $ 1,415,172
Municipal obligations ...... 1,078,066 26,927 1,104,993 1,078,681 13,070 1,091,751
Mortgage-backed securities . 3,593,071 102,175 3,695,246 4,096,208 54,241 4,150,449
----------- --------- ----------- ----------- --------- -----------
Total .................. $ 6,068,018 $ 146,745 $ 6,214,763 $ 6,570,794 $ 86,578 $ 6,657,372
=========== ========= =========== =========== ========= ===========
-9-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 3. LOANS RECEIVABLE
-------------------------
Loans receivable consist of the following:
September 30, June 30,
2001 2001
------------- ------------
First mortgage loans:
Residential mortgage (1-4 family) ..... $ 76,722,679 $ 75,961,742
Commercial real estate ................ 10,495,848 9,062,769
Real estate construction .............. 1,605,512 1,981,968
Other loans:
Home equity ........................... 15,780,861 15,698,367
Consumer .............................. 11,251,030 10,362,135
Commercial ............................ 2,677,024 2,720,740
------------ ------------
Total ............................... 118,532,954 115,787,721
Less:
Allowance for loan losses ............. (684,583) (688,282)
Deferred loan fees .................... (125,202) (121,544)
------------ ------------
Total ............................... $117,723,169 $114,977,895
============ ============
Loans net of related allowance for loan losses on which the accrual of interest
has been discontinued were $442,000 and $407,000 at September 30, 2001 and June
30, 2001, respectively. Classified assets, including real estate owned, totaled
$1.33 million and $1.50 million at September 30, 2001 and June 30, 2001,
respectively.
The following is a summary of changes in the allowance for loan losses:
3 Months Ended 12 Months Ended
September 30, June 30,
2001 2001
-------------- ---------------
Balance, beginning of period ............ $688,282 $712,165
Reclassification to REO reserve ....... -- (13,725)
Provision charged to operations ....... -- --
Charge-offs ........................... (3,699) (29,037)
Recoveries ............................ -- 18,879
-------- --------
Balance, end of period .............. $684,583 $688,282
======== ========
-10-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 4. MORTGAGE SERVICING RIGHTS
----------------------------------
The Bank allocates its total cost in mortgage loans between mortgage servicing
rights and loans, based upon their relative fair values, when loans are
subsequently sold or securitized, with the servicing rights retained. Fair
values are generally obtained from an independent third party. Impairment of
mortgage servicing rights is measured based upon the characteristics of the
individual loans, including note rate, term, underlying collateral, current
market conditions, and estimates of net servicing income. If the carrying value
of the mortgage servicing rights exceeds the estimated fair market value, a
valuation allowance is established for any decline, which is viewed to be
temporary. Charges to the valuation allowance are charged against or credited to
mortgage servicing income. An independent valuation of the mortgage servicing
rights at September 30, 2001 showed a temporary decline in the fair value,
resulting in a provision of $58,433. There was no valuation allowance at June
30, 2001. The following schedules show the activity in the mortgage servicing
rights and the valuation allowance.
Three Months Twelve Months
Ended Ended
September 30, June 30,
2001 2001
------------- -------------
Mortgage Servicing Rights
Beginning balance ....................... $1,315,819 $1,338,271
Servicing rights capitalized ............ 66,786 150,029
Servicing rights amortized .............. (66,044) (172,481)
---------- ----------
Ending balance ........................ 1,316,561 1,315,819
---------- ----------
Valuation Allowance
Beginning balance ....................... -- --
Provision ............................... 58,433 --
Adjustments ............................. -- --
---------- ----------
Ending balance ........................ 58,433 --
---------- ----------
Net Mortgage Servicing Rights ............. $1,258,128 $1,315,819
========== ==========
-11-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 5. DEPOSITS
-----------------
Deposits are summarized as follows:
September 30, June 30,
2001 2001
------------- ------------
Noninterest checking .................... $ 7,115,177 $ 6,486,306
Interest-bearing checking ............... 22,912,956 22,535,586
Passbook ................................ 20,670,553 20,688,121
Money market ............................ 20,950,268 17,399,325
Time certificates of deposit ............ 66,622,545 66,940,992
------------ ------------
Total ............................... $138,271,499 $134,050,330
============ ============
NOTE 6. EARNINGS PER SHARE
---------------------------
Earnings per share for the three months ended September 30, 2001 are calculated
using 1,164,857 weighted average shares outstanding. Diluted earnings per share
is computed by adjusting the number of shares outstanding by the shares
purchased to fund the Company's restricted stock plan, for which stock was
awarded in January 2001, as determined by the treasury stock method. The
weighted average shares outstanding for the diluted earning per share
calculations are 1,184,857 for the three months ended September 30, 2001.
Earnings per share for the three months ended September 30, 2000 were calculated
using 1,180,258 weighted average shares outstanding.
NOTE 7. DIVIDENDS AND STOCK REPURCHASE PROGRAM
-----------------------------------------------
Eagle paid a dividend of $0.10 per share on August 24, 2001. A dividend of $0.10
per share was declared on October 18, 2001, payable November 16, 2001 to
stockholders of record on November 2, 2001. Eagle Financial MHC, Eagle's mutual
holding company, has waived the receipt of dividends on its 648,493 shares.
A stock repurchase program was announced on December 21, 2000, covering 4% of
the Company's outstanding common stock. Through October 18, 2001, 20,000 shares
had been repurchased. At the annual meeting held October 19, 2000, shareholders
approved stock option and restricted stock plans for the Company covering
aggregate grants of up to 80,511 and 23,003, respectively. The repurchase plan
announced in December is intended to meet the needs of the restricted stock
plan.
-12-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Note Regarding Forward-Looking Statements
This report contains certain "forward-looking statements." Eagle Bancorp
("Eagle" or the "Company") desires to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995 and is
including this statement for the express purpose of availing itself of the
protections of the safe harbor with respect to all such forward-looking
statements. These forward-looking statements, which are included in Management's
Discussion and Analysis, describe future plans or strategies and include Eagle's
expectations of future financial results. The words "believe," "expect,"
"anticipate," "estimate," "project," and similar expressions identify
forward-looking statements. Eagle's ability to predict results or the effect of
future plans or strategies or qualitative or quantitative changes based on
market risk is inherently uncertain. Factors which could affect actual results
but are not limited to include (i) change in general market interest rates, (ii)
general economic conditions, (iii) local economic conditions, (iv)
legislative/regulatory changes, (v) monetary and fiscal policies of the U.S.
Treasury and Federal Reserve, (vi) changes in the quality or composition of
Eagle's loan and investment portfolios, (vii) demand for loan products, (viii)
deposit flows, (ix) competition, and (x) demand for financial services in
Eagle's markets. These factors should be considered in evaluating the
forward-looking statements. You are cautioned not to place undue reliance on
these forward-looking statements which speak only as of their dates.
Financial Condition
Comparisons of quarterly results in this section are between the three months
ended September 30, 2001 and June 30, 2001.
Total assets increased by $5.27 million, or 3.15%, to $172.39 million at
September 30, 2001, from $167.12 million at June 30, 2001. Total liabilities
increased by $4.81 million to $152.23 million at September 30, 2001, from
$147.42 million at June 30, 2001. Total equity increased $450,000 to $20.15
million at September 30, 2001 from $19.70 million at June 30, 2001.
Growth in the loan portfolio of $2.74 million accounted for the majority of the
growth in total assets. The loan categories with the largest increase were
commercial real estate loans, which increased $1.44 million and consumer loans,
which increased $890,000. These represented increases over the balances at June
30, 2001 of 15.89% and 8.59%, respectively. Total loan originations were $28.33
million for the three months ended September 30, 2001, with single family
mortgages accounting for $19.93 million of the total. Consumer loan and home
equity loan originations totaled $2.67 million and $2.15 million, respectively,
for the same period. Loans held for sale increased from $3.03 million at June
30, 2001 to $4.66 million at September 30, 2001.
-13-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition (continued)
Growth in deposits funded asset growth. Deposits have grown $4.22 million, or
3.15%, to $138.27 million at September 30, 2001 from $134.05 million at June 30,
2001. Growth in money market accounts contributed to the increase in deposits.
Other liabilities increased to $2.54 million at September 30, 2001 from $1.93
million at June 30, 2001, primarily due to increases in the balances of deferred
income taxes and escrow balances for borrowers' tax and insurance payments.
The growth in total stockholders' equity was the result of earnings for the
three months of $347,000 and an increase in the unrealized gain on securities
available for sale of $144,000. This was partially offset by the payment of a
$0.10 per share regular cash dividend.
Results of Operations for the Three Months Ending September 30, 2001 and 2000
Net Income
Eagle's net income was $347,000 and $304,000 for the three months ended
September 30, 2001, and 2000, respectively. The increase of $43,000, or 14.14%,
was primarily due to increases in net interest income of $109,000 and
noninterest income of $61,000, partially offset by an increase in noninterest
expense of $75,000. Basic earnings per share were $0.30 for the current period,
compared to $0.26 for the previous year's period.
Net Interest Income
Net interest income increased to $1.46 million for the quarter ended September
30, 2001 from $1.35 million for the quarter ended September 30, 2000. This
increase of $109,000 was the result of an increase in interest and dividend
income of $135,000, partially offset by an increase in interest expense of
$26,000.
Interest and Dividend Income
Total interest and dividend income was $2.86 million for the quarter ended
September 30, 2001, compared to $2.73 million for the quarter ended September
30, 2000, representing an increase of $135,000, or 4.95%. Interest and fees on
loans increased to $2.38 million for the three months ended September 30, 2001
from $2.25 million for the same period ended September 30, 2000. This increase
of $130,000, or 5.78%, was due primarily to an increase in the average balances
of loans receivable for the quarter ended September 30, 2001. Average balances
for loans receivable, net, for the quarter ended September 30, 2001 were $119.94
million, compared to $110.79 million for the previous year. This represents an
increase of $9.15 million, or 8.26%. All loan categories except real estate
construction and commercial loans have shown increases from the previous year.
The average interest rate earned on loans receivable decreased by 21 basis
points, from 8.13% at September 30, 2000 to 7.92% at September 30, 2001.
Interest and dividends on investment securities available-for-sale (AFS)
increased from $287,000 for the
-14-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Three Months Ending September 30, 2001 and 2000
(continued)
Interest and Dividend Income (continued)
quarter ended September 30, 2000 to $303,000 for the current quarter, while
interest on securities held to maturity (HTM) decreased from $162,000 to
$91,000. Interest earned from deposits held at other banks increased from $5,000
for the quarter ended September 30, 2000 to $67,000 for the quarter ended
September 30, 2001.
Interest Expense
Total interest expense increased to $1.40 million for the quarter ended
September 30, 2001, from $1.37 million for the quarter ended September 30, 2000,
an increase of $26,000,or 1.90%, due to an increase in interest paid on FHLB
advances. Interest on deposits decreased to $1.22 million for the quarter ended
September 30, 2001, from $1.23 million for the quarter ended September 30, 2000.
This decrease of $8,000, or 0.65%, was the result of a decrease in average rates
paid on deposit accounts, even though balances increased significantly. All
deposit accounts showed decreases in average rates paid and also had increases
in average balances in the current quarter compared to last year's quarter.
Certificates of deposit and money market accounts saw the largest increases in
balances. The average rate paid on liabilities decreased 33 basis points from
the quarter ended September 30, 2000 to the quarter ended September 30, 2001.
Interest paid on borrowings increased from $145,000 for the quarter ended
September 30, 2000 to $179,000 for the quarter ended September 30, 2001. The
increase in borrowing costs was due to an increase in the average balance of
Federal Home Loan Bank advances. The cost of deposits is expected to continue to
decline in the coming quarter, as certificate of deposit accounts opened in
previous quarters are renewed at lower rates.
Provision for Loan Losses
Provisions for loan losses are charged to earnings to maintain the total
allowance for loan losses at a level considered adequate by Eagle's subsidiary,
American Federal Savings Bank, to provide for probable loan losses based on
prior loss experience, volume and type of lending conducted by American Federal,
available peer group information, and past due loans in portfolio. The Bank's
policies require the review of assets on a quarterly basis. The Bank classifies
loans as well as other assets if warranted. While the Bank believes it uses the
best information available to make a determination with respect to the allowance
for loan losses, it recognizes that future adjustments may be necessary. No
provision was made for loan losses for either the quarter ended September 30,
2001 or the quarter ended September 30, 2000. This is a reflection of the
continued strong asset quality of American Federal's loan portfolio, as
non-performing loan ratios continue to be below peer averages. Total classified
assets declined from $1.50 million at June 30, 2001 to $1.33 million at
September 30, 2001. The Bank currently has no foreclosed real estate.
-15-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Three Months Ending September 30, 2001 and 2000
(continued)
Noninterest Income
Total noninterest income increased to $404,000 for the quarter ended September
30, 2001, from $343,000 for the quarter ended September 30, 2000, an increase of
$61,000 or 17.78%. This was the result of an increase in net gain on sale of
loans of $128,000. Increased loan originations compared to a year ago
contributed to the increase in income from sale of loans. Mortgage loan
servicing fees declined to $15,000 for the current quarter from $73,000 for the
previous year's quarter. An independent valuation of the Bank's mortgage
servicing portfolio indicated a temporary decline in the value of the servicing
rights in the amount of $58,000. A provision was made to a valuation allowance
in that amount. Changes to the valuation allowance for mortgage servicing rights
are charged against mortgage loan servicing fees. The other categories of
noninterest income registered small decreases.
Noninterest Expense
Noninterest expense increased by $75,000 or 6.00% to $1.32 million for the
quarter ended September 30, 2001, from $1.25 million for the quarter ended
September 30, 2000. This increase was primarily due to an increase in salaries
and benefits of $65,000 and in amortization of mortgage servicing fees of
$38,000. The increase in salaries was due to merit raises and expenses related
to the stock benefit plan, while the increase in amortization of mortgage
servicing fees was related to increased prepayment activity on mortgage loans.
Legal and accounting fees decreased $25,000 due to lower costs for annual report
preparation. Furniture and equipment depreciation expense decreased $14,000 due
to computer equipment and ATMs becoming fully depreciated during the current
quarter.
Income Tax Expense
Eagle's income tax expense was $195,000 for the quarter ended September 30,
2001, compared to $144,000 for the quarter ended September 30, 2000. The
effective tax rate for the quarter ended September 30, 2001 was 36.03% and was
32.22% for the quarter ended September 30, 2000. The effective tax rate is
higher in the current quarter due to taxes paid for the previous fiscal year
ended June 30, 2001. Management expects Eagle's effective tax rate to be
approximately 35%.
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EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity, Interest Rate Sensitivity and Capital Resources
The Company's subsidiary, American Federal Savings Bank (the Bank), is required
to maintain minimum levels of liquid assets as defined by the Office of Thrift
Supervision (OTS) regulations. The OTS recently eliminated the statutory
requirement based upon a percentage of deposits and short-term borrowings. The
OTS states that the liquidity requirement is retained for safety and soundness
purposes, and that appropriate levels of liquidity will depend upon the types of
activities in which the company engages. For internal reporting purposes, the
Bank uses the previous regulatory definitions of liquidity. The Bank's liquidity
increased to $21.96 million due to an increase in deposit balances of $4.22
million for the three months ended September 30, 2001. Liquidity was $19.24
million at June 30, 2001.
The Bank's primary sources of funds are deposits, repayment of loans and
mortgage-backed securities, maturities of investments, funds provided from
operations, and advances from the Federal Home Loan Bank of Seattle. Scheduled
repayments of loans and mortgage-backed securities and maturities of investment
securities are generally predictable. However, other sources of funds, such as
deposit flows and loan prepayments, can be greatly influenced by the general
level of interest rates, economic conditions and competition. The Bank uses
liquidity resources principally to fund existing and future loan commitments. It
also uses them to fund maturing certificates of deposit, demand deposit
withdrawals and to invest in other loans and investments, maintain liquidity,
and meet operating expenses.
Liquidity may be adversely affected by unexpected deposit outflows, higher
interest rates paid by competitors, and similar matters. Management monitors
projected liquidity needs and determines the level desirable, based in part on
commitments to make loans and management's assessment of the bank's ability to
generate funds.
At June 30, 2001 (the most recent report available), the Bank's measure of
sensitivity to interest rate movements, as measured by the OTS, worsened
slightly from the previous quarter. The Bank's capital ratio as measured by the
OTS increased during the same period, offsetting increased interest rate risk.
The Bank is well within the guidelines set forth by the Board of Directors for
interest rate risk sensitivity.
As of September 30, 2001, the Bank's regulatory capital was in excess of all
applicable regulatory requirements. At September 30, 2001, the Bank's tangible,
core, and risk-based capital ratios amounted to 10.88%, 10.88%, and 18.65%,
respectively, compared to regulatory requirements of 1.5%, 3.0%, and 8.0%,
respectively. See the following table (amounts in thousands):
-17-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity, Interest Rate Sensitivity and Capital Resources (continued)
September 30, 2001
-------------------
% of
Amount Assets
------- ------
Tangible capital:
Capital level .............................. $18,599 10.88%
Requirement ................................ 2,564 1.50
------- -----
Excess ..................................... 16,035 9.38%
======= =====
Core capital:
Capital level .............................. $18,599 10.88%
Requirement ................................ 5,127 3.00
------- -----
Excess ..................................... $13,472 7.88%
======= =====
Risk-based capital:
Capital level .............................. $19,253 18.65%
Requirement ................................ 8,260 8.00
------- -----
Excess ..................................... $10,993 10.65%
======= =====
Impact of Inflation and Changing Prices
Our financial statements and the accompanying notes have been prepared in
accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the change in the relative purchasing power of money
over time and due to inflation. The impact of inflation is reflected in the
increased cost of our operations. Interest rates have a greater impact on our
performance than do the general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the prices of
goods and services.
-18-
EAGLE BANCORP AND SUBSIDIARY
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
Neither the Company nor the Bank is involved in any pending legal
proceedings other than non-material legal proceedings occurring in the
ordinary course of business.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The proxy statement for the Annual Meeting of Stockholders was mailed
on September 17, 2001. The following matters were voted on at the
meeting held on October 18, 2001:
1. Election of directors for three-year terms expiring in 2004:
For: Abstain:
--------- --------
Robert L. Pennington 1,119,392 1,575
Don O. Campbell 1,118,392 2,575
Charles G. Jacoby 1,119,367 1,600
2. Ratification of appointment of Anderson ZurMuehlen & Co., P.C. as
auditors for the fiscal year ended June 30, 2002:
For: Against: Abstain:
--------- -------- --------
1,116,322 250 4,395
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
None
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
EAGLE BANCORP
Date: November 9, 2001 By: /s/ Larry A. Dreyer
-----------------------
Larry A. Dreyer
President/CEO
Date: November 9, 2001 By: /s/ Peter J. Johnson
-----------------------
Peter J. Johnson
Sr. VP/Treasurer
-19-