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 March 31, 2002
[ ] 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
------------------------------- -------------------
(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 1,208,172 shares outstanding
--------------------------------------------------------------------------------
As of May 10, 2002
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
March 31, 2002 (unaudited) and June 30, 2001 .............. 1 and 2
Consolidated Statements of Income for the three and nine
months ended March 31, 2002 and 2001 (unaudited) .......... 3 and 4
Consolidated Statements of Stockholders' Equity for the
nine months ended March 31, 2002 (unaudited) .............. 5
Consolidated Statements of Cash Flows for the nine
months ended March 31, 2002 and 2001 (unaudited) .......... 6 and 7
Notes to Consolidated Financial Statements ................ 8 to 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................... 14 to 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ........................................... 23
Item 2. Changes in Securities and Use of Proceeds ................... 23
Item 3. Defaults Upon Senior Securities ............................. 23
Item 4. Submission of Matters to a Vote of Security-Holders ......... 23
Item 5. Other Information ........................................... 23
Item 6. Exhibits and Reports on Form 8-K ............................ 23
Signatures
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, 2002 June 30, 2001
-------------- -------------
(Unaudited) (Audited)
ASSETS
Cash and due from banks ........................ $ 2,850,003 $ 3,427,038
Interest-bearing deposits with banks ........... 6,285,332 4,925,000
------------ ------------
Total cash and cash equivalents ............ 9,135,335 8,352,038
Investment securities available for sale,
at market value .............................. 43,136,336 21,603,520
Investment securities held-to-maturity,
at amortized cost ............................ 4,709,886 6,570,794
Federal Home Loan Bank stock, at cost .......... 1,562,900 1,487,300
Mortgage loans held-for-sale ................... 1,910,055 3,033,244
Loans receivable, net of deferred loan fee
and allowance for loan losses ................ 107,947,811 114,977,895
Accrued interest and dividends receivable ...... 988,028 941,117
Mortgage servicing rights, net ................. 1,492,085 1,315,819
Property and equipment, net .................... 6,264,564 6,505,627
Cash surrender value of life insurance ......... 2,218,114 2,140,524
Real estate acquired in settlement of loans,
net of allowance for losses .................. -- --
Other assets ................................... 226,633 195,034
------------ ------------
Total assets ............................... $179,591,747 $167,122,912
============ ============
See accompanying notes to consolidated financial statements.
-1-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Continued)
March 31, 2002 June 30, 2001
-------------- -------------
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposit accounts:
Noninterest bearing .......................... $ 5,919,159 $ 6,486,306
Interest bearing ............................. 141,574,275 127,564,024
Advances from Federal Home Loan Bank ........... 9,368,889 11,443,889
Accrued expenses and other liabilities ......... 1,831,390 1,926,450
------------ ------------
Total liabilities .......................... 158,693,713 147,420,669
------------ ------------
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 1,208,172 outstanding
at March 31, 2002 and 1,203,572 outstanding
at June 30, 2001) ............................ 12,236 12,236
Additional paid-in capital ..................... 3,872,793 3,845,908
Unallocated common stock held by employee
stock ownership plan ("ESOP") ................ (285,248) (312,848)
Treasury stock, at cost (15,400 shares at
March 31, 2002 and 20,000 shares at
June 30,2001) ................................ (180,950) (235,000)
Retained earnings .............................. 17,505,970 16,220,812
Accumulated other comprehensive income (loss) .. (26,767) 171,135
------------ ------------
Total equity ............................... 20,898,034 19,702,243
------------ ------------
Total liabilities and stockholders' equity . $179,591,747 $167,122,912
============ ============
See accompanying notes to consolidated financial statements.
-2-
EAGLE BANCORP AND SUBSIDIARY
QUARTERLY CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------ -------------------------
2002 2001 2002 2001
---- ---- ---- ----
(unaudited) (unaudited)
Interest and dividend income:
Interest and fees on loans ...... $2,165,050 $2,294,079 $6,905,858 $6,848,557
Interest on deposits with banks . 27,851 46,859 138,673 74,458
FHLB Stock dividends ............ 22,787 23,060 75,733 68,951
Securities available-for-sale ... 430,175 314,536 1,080,061 887,452
Securities held-to-maturity ..... 67,377 126,495 237,638 433,539
---------- ---------- ---------- ----------
Total interest and dividend
income ..................... 2,713,240 2,805,029 8,437,963 8,312,957
---------- ---------- ---------- ----------
Interest expense:
Deposits ........................ 1,044,883 1,297,021 3,419,933 3,829,644
FHLB Advances ................... 144,716 185,926 498,806 497,291
---------- ---------- ---------- ----------
Total interest expense ...... 1,189,599 1,482,947 3,918,739 4,326,935
---------- ---------- ---------- ----------
Net Interest Income ............. 1,523,641 1,322,082 4,519,224 3,986,022
Loan loss provision ............. -- -- -- --
---------- ---------- ---------- ----------
Net interest income after
loan loss provision ........ 1,523,641 1,322,082 4,519,224 3,986,022
---------- ---------- ---------- ----------
Noninterest income:
Net gain on sale of loans ....... 324,974 87,636 897,131 218,914
Demand deposit service charges 127,025 125,016 380,828 398,845
Mortgage loan servicing fees .... 83,542 74,163 177,705 219,524
Net gain (loss) on sale of
available-for-sale securities .. 14,653 4,755 16,629 4,755
Other ........................... 102,647 108,350 289,125 302,563
---------- ---------- ---------- ----------
Total noninterest income .... 652,841 399,920 1,761,418 1,144,601
---------- ---------- ---------- ----------
See accompanying notes to consolidated financial statements.
-3-
EAGLE BANCORP AND SUBSIDIARY
QUARTERLY CONSOLIDATED STATEMENTS OF INCOME
(Continued)
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------- ---------------------
2002 2001 2002 2001
---- ---- ---- ----
(unaudited) (unaudited)
Noninterest expense:
Salaries and employee benefits ........ $ 745,396 $ 741,461 $2,177,650 $2,103,716
Occupancy expenses .................... 120,654 118,062 356,191 359,767
Furniture and equipment depreciation .. 71,554 82,523 210,924 247,769
In-house computer expense ............. 55,614 44,461 153,992 133,370
Advertising expense ................... 20,439 31,664 78,354 119,259
Amortization of mortgage servicing fees 76,820 33,704 250,612 89,806
Federal insurance premiums ............ 6,221 6,077 18,435 18,471
Postage ............................... 34,752 34,771 86,524 81,967
Legal, accounting, and examination fees 33,769 36,048 105,938 134,964
Consulting fees ....................... 3,920 7,482 17,156 23,958
ATM processing ........................ 11,004 14,079 34,301 44,597
Other ................................. 182,819 150,037 567,585 507,852
---------- ---------- ---------- ----------
Total noninterest expense ......... 1,362,962 1,300,369 4,057,662 3,865,496
---------- ---------- ---------- ----------
Income before provision for income taxes 813,520 421,633 2,222,980 1,265,127
---------- ---------- ---------- ----------
Provision for income taxes .............. 270,040 149,735 771,147 418,099
---------- ---------- ---------- ----------
Net income .............................. $ 543,480 $ 271,898 $1,451,833 $ 847,028
========== ========== ========== ==========
Earnings per share -- basic ............. $ 0.46 $ 0.23 $ 1.24 $ 0.72
========== ========== ========== ==========
Earnings per share -- diluted ........... $ 0.46 $ 0.23 $ 1.22 $ 0.72
========== ========== ========== ==========
Weighted average shares outstanding
(basic eps) ........................... 1,171,683 1,169,701 1,167,517 1,177,178
========== ========== ========== ==========
Weighted average shares outstanding
(diluted eps) ......................... 1,187,952 1,182,562 1,186,273 1,181,411
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
-4-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Nine Months Ended March 31, 2002
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 $19,702,243
Net income (unaudited) ................. -- -- -- -- -- 1,451,833 -- 1,451,833
Other comprehensive loss (unaudited) ... -- -- -- -- -- -- (197,902) (197,902)
-----------
Total comprehensive income (unaudited) -- -- -- -- -- -- -- 1,253,931
-----------
Dividends paid ($.30 per share)
(unaudited) .......................... -- -- -- -- -- (166,675) -- (166,675)
-----------
Restricted stock plan shares allocated
(4,600 shares) (unaudited) ........... -- -- -- -- 54,050 -- -- 54,050
-----------
ESOP shares allocated or committed
to be released for allocation
(3,450 shares) (unaudited) ........... -- -- 26,885 27,600 -- -- -- 54,485
------- ------- ---------- --------- --------- ----------- --------- -----------
Balance, March 31, 2002 (unaudited) ...... $ -- $12,236 $3,872,793 $(285,248) $(180,950) $17,505,970 $ (26,767) $20,898,034
======= ======= ========== ========= ========= =========== ========= ===========
See accompanying notes to consolidated financial statements.
-5-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
March 31,
---------------------------
2002 2001
---- ----
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................... $ 1,451,833 $ 847,028
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 ............................... 356,304 390,835
Net amortization of marketable securities
premium and discounts .................... 99,564 28,846
Amortization of capitalized mortgage
servicing rights .......................... 250,612 89,805
Gain on sale of loans ...................... (897,131) (218,914)
Gain on sale of real estate owned .......... -- (8,951)
Net realized (gain) loss on sale of
available-for-sale securities ............. (16,629) --
FHLB & other dividends reinvested .......... (124,880) (68,800)
Increase in cash surrender value
of life insurance ......................... (77,590) (73,910)
Gain on sale of property & equipment ....... (950) --
Change in assets and liabilities:
(Increase) decrease in assets:
Accrued interest and dividends receivable .. (46,911) (157,161)
Loans held-for-sale ........................ 2,010,007 (1,506,627)
Other assets ............................... (25,089) 43,603
Increase (decrease) in liabilities:
Accrued expenses and other liabilities ....... 148,737 (61,501)
Deferred compensation payable ................ 18,232 17,305
Deferred income taxes payable ................ (82,736) (7,108)
----------- -----------
Net cash provided by (used in) operating
activities ............................... 3,121,806 (685,550)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities:
Investment securities held-to-maturity ....... (278,708) (641,150)
Investment securities available-for-sale ..... (28,371,953) (3,904,060)
Proceeds from maturities, calls and
principal payments:
Investment securities held-to-maturity ....... 3,132,203 2,597,139
Investment securities available-for-sale ..... 4,490,896 1,901,519
See accompanying notes to consolidated financial statements.
-6-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Nine Months Ended
March 31,
-----------------------------
2002 2001
---- ----
(unaudited)
CASH FLOWS FROM INVESTING ACTIVITIES:
(CONTINUED)
Proceeds from sales of investment securities
available-for-sale ....................... 1,010,755 201,396
Increase in interest-bearing deposits
held at banks ............................. (1,360,332) --
Net (increase) decrease in loan
receivable, excludes transfers
to real estate acquired in settlement
of loans .................................. 6,538,263 (6,916,112)
Proceeds from the sale of real estate
aquired in the settlement of loans ........ -- 129,957
Purchase of property and equipment ......... (115,242) (54,717)
Proceeds from sale of equipment ............ 950 --
----------- -----------
Net cash used in investing activities .. (14,953,168) (6,686,028)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in checking and savings
accounts .................................. 13,443,102 6,973,408
Net increase (decrease) in advances to
borrowers for taxes and insurance ......... -- 243,994
Net increase (decrease) in FHLB advances ... (2,075,000) 3,425,000
Sale (purchase) of treasury stock .......... 52,900 (235,000)
Dividends paid ............................. (166,675) (119,542)
----------- -----------
Net cash provided by financing
activities ........................... 11,254,327 10,287,860
----------- -----------
Net increase (decrease) in cash .............. (577,035) 2,916,282
CASH AND CASH EQUIVALENTS, beginning
of period ................................... 3,427,038 3,477,650
----------- -----------
CASH AND CASH EQUIVALENTS, end of period ..... $ 2,850,003 $ 6,393,932
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest ... $ 3,889,652 $ 3,869,803
=========== ===========
Cash paid during the period for income taxes $ 873,950 $ 429,500
=========== ===========
NON-CASH INVESTING ACTIVITIES:
(Increase) decrease in market value of
securities available-for-sale ............ $ 311,244 $ (457,731)
=========== ===========
Mortgage servicing rights capitalized ........ $ 485,311 $ 64,655
=========== ===========
See accompanying notes to consolidated financial statements.
-7-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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 accounting principles
generally accepted in the United States of America 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 and nine month periods ended March 31,
2002 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:
March 31, 2002 June 30, 2001
------------------------------------------ ------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED FAIR AMORTIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE COST GAINS (LOSSES) VALUE
----------- -------------- ----------- ----------- -------------- -----------
Available-for-sale:
U.S. government and agency
obligations .............. $ 5,985,578 $ 14,984 $ 6,000,562 $ 4,566,644 $ 42,694 $ 4,609,338
Municipal obligations ...... 4,301,920 (165,227) 4,136,693 4,303,574 (58,672) 4,244,902
Corporate obligations ...... 6,956,424 139,122 7,095,546 7,114,917 190,667 7,305,584
Mortgage-backed securities . 9,719,827 24,958 9,744,785 4,029,519 73,726 4,103,245
Collateralized mortgage
obligations .............. 14,278,598 (14,938) 14,263,660 1,190,586 (4,304) 1,186,282
Corporate preferred stock .. 1,956,953 (61,863) 1,895,090 150,000 4,169 154,169
----------- --------- ----------- ----------- --------- -----------
Total .................. $43,199,300 $ (62,964) $43,136,336 $21,355,240 $ 248,280 $21,603,520
=========== ========= =========== =========== ========= ===========
Held-to-maturity:
U.S. government and agency
obligations .............. $ 499,328 $ 2,857 $ 502,185 $ 1,395,905 $ 19,267 $ 1,415,172
Municipal obligations ...... 1,355,283 6,705 1,361,988 1,078,681 13,070 1,091,751
Mortgage-backed securities . 2,855,275 63,510 2,918,785 4,096,208 54,241 4,150,449
----------- --------- ----------- ----------- --------- -----------
Total .................. $ 4,709,886 $ 73,072 $ 4,782,958 $ 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:
March 31, June 30,
2002 2001
(Unaudited) (Audited)
------------ ------------
First mortgage loans:
Residential mortgage (1-4 family) ..... $ 69,506,223 $ 75,961,742
Commercial real estate ................ 9,929,715 9,062,769
Real estate construction .............. 3,218,981 1,981,968
Other loans:
Home equity ........................... 13,978,083 15,698,367
Consumer .............................. 9,894,624 10,362,135
Commercial ............................ 2,281,889 2,720,740
------------ ------------
Total ............................... 108,809,515 115,787,721
Less:
Allowance for loan losses ............. (709,071) (688,282)
Deferred loan fees .................... (152,633) (121,544)
------------ ------------
Total ............................... $107,947,811 $114,977,895
============ ============
Loans net of related allowance for loan losses on which the accrual of interest
has been discontinued were $505,000 and $407,000 at March 31, 2002 and June 30,
2001, respectively. Classified assets, including real estate owned, totaled
$1.56 million and $1.50 million at March 31, 2002 and June 30, 2001,
respectively.
The following is a summary of changes in the allowance for loan losses:
Nine Months Ended Year Ended
March 31, June 30,
2002 2001
(Unaudited) (Audited)
---------------- -----------
Balance, beginning of period ............ $688,282 $712,165
Reclassification to REO reserve ....... -- (13,725)
Transfer from interest reserve ........ 6,510 --
Provision charged to operations ....... -- --
Charge-offs ........................... (20,144) (29,037)
Recoveries ............................ 34,423 18,879
-------- --------
Balance, end of period .............. $709,071 $688,282
======== ========
-10-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 4. DEPOSITS
-----------------
Deposits are summarized as follows:
March 31, June 30,
2002 2001
(Unaudited) (Audited)
------------- ------------
Noninterest checking .................... $ 5,919,159 $ 6,486,306
Interest-bearing checking ............... 24,399,061 22,535,586
Passbook ................................ 23,589,438 20,688,121
Money market ............................ 25,422,895 17,399,325
Time certificates of deposit ............ 68,162,881 66,940,992
------------ ------------
Total ............................... $147,493,434 $134,050,330
============ ============
NOTE 5. EARNINGS PER SHARE
---------------------------
Basic earnings per share for the three months ended March 31, 2002 is computed
using 1,171,683 weighted average shares outstanding. Basic earnings per share
for the nine months ended March 31, 2002 is computed using 1,167,517 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 earnings per share calculations are 1,187,952 for the three
months ended March 31, 2002 and 1,186,273 for the nine months ended March 31,
2002. Earnings per share for the three months ended March 31, 2001 is computed
using 1,169,701 weighted average shares outstanding. Earnings per share for the
nine months ended March 31, 2001 is computed using 1,177,178 weighted average
shares outstanding.
-11-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 6. DIVIDENDS AND STOCK REPURCHASE PROGRAM
-----------------------------------------------
This fiscal year Eagle has paid three dividends of $0.10 per share, on August
24, 2001, November 16, 2001, and February 15, 2002. Another dividend of $0.10
per share was declared on April 18, 2002, payable May 17, 2002 to stockholders
of record on May 3, 2002. 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 May 10, 2002, 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. On January 18, 2002, 4,600 shares of the restricted stock plan vested and
were distributed to the participants.
-12-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 7. 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. Periodic independent valuations of the mortgage
servicing rights are performed. As a result of a valuation performed on
September 30, 2001, a temporary decline in the fair value was determined to have
occurred, and a valuation allowance of $58,333 was established. There was no
valuation allowance at June 30, 2001. The following schedules show the activity
in the mortgage servicing rights and the valuation allowance.
Nine Months Twelve Months
Ended Ended
March 31, June 30,
2002 2001
(Unaudited) (Audited)
------------- -------------
Mortgage Servicing Rights
Beginning balance ....................... $1,315,819 $1,338,271
Servicing rights capitalized ............ 485,311 150,029
Servicing rights amortized .............. (250,612) (172,481)
---------- ----------
Ending balance ........................ 1,550,518 1,315,819
---------- ----------
Valuation Allowance
Beginning balance ....................... -- --
Provision ............................... 58,433 --
Adjustments ............................. -- --
---------- ----------
Ending balance ........................ 58,433 --
---------- ----------
Net Mortgage Servicing Rights ............. $1,492,085 $1,315,819
========== ==========
-13-
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 results in this section are between the nine months ended March
31, 2002 and June 30, 2001.
Total assets increased by $12.47 million, or 7.46%, to $179.59 million at March
31, 2002, from $167.12 million at June 30, 2001. Total liabilities increased by
$11.27 million to $158.69 million at March 31, 2002, from $147.42 million at
June 30, 2001. Total equity increased $1.2 million to $20.90 million at March
31, 2002 from $19.70 million at June 30, 2001.
Growth in the available-for-sale investment portfolio of $21.54 million
accounted for the majority of the growth in total assets. The investment
category with the largest increase was collateralized mortgage obligations,
which increased $13.07 million. The loan portfolio decreased $7.03 million, or
6.11%, to $107.95 million at March 31, 2002 from $114.98 million at June 30,
2001. Heavy refinancing activity and the sale of practically all new
originations contributed to the decline in single-family mortgage loan balances
to $69.51 million at March 31, 2002 from $75.96 million at June 30, 2001. The
commercial real estate and construction loan categories showed increased
balances, while all other loan categories showed small decreases since June 30,
2001. Total loan originations were $94.20 million for the nine months ended
March 31, 2002. Single-family mortgages accounted for $70.24 million of the
total.
-14-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition (continued)
Commercial real estate loan originations totaled $6.98 million (including a $1.5
million construction loan not fully funded). Home equity and consumer loan
originations totaled $6.05 million and $6.01 million, respectively, for the same
period.
Growth in deposits funded asset growth. Deposits have grown $13.44 million, or
10.03%, to $147.49 million at March 31, 2002 from $134.05 million at June 30,
2001. Growth in money market accounts and checking accounts contributed to the
increase in deposits. The balances in Federal Home Loan Bank advances declined
$2.07 million, as an advance matured in December 2001.
The growth in total equity was the result of earnings for the nine months of
$1.45 million, offset by an increase in the unrealized loss on securities
available for sale of $198,000 and the payment of three $0.10 per share regular
cash dividends during the period.
Results of Operations for the Three Months Ending March 31, 2002 and 2001
Net Income. Eagle's net income was $543,000 and $272,000 for the three months
ended March 31, 2002, and 2001, respectively. The increase of $271,000, or
99.63%, was primarily due to increases in non-interest income of $253,000 and
net interest income of $202,000, partially offset by increases in noninterest
expense of $63,000 and income tax expense of $120,000. Basic earnings per share
were $0.46 for the current period, compared to $0.23 for the previous year's
period.
Net Interest Income. Net interest income increased to $1.52 million for the
quarter ended March 31, 2002 from $1.32 million for the quarter ended March 31,
2001. This increase of $202,000 was the result of decreases in interest and
dividend income of $91,000 and in interest expense of $293,000.
Interest and Dividend Income. Total interest and dividend income was $2.71
million for the quarter ended March 31, 2002, compared to $2.80 million for the
quarter ended March 31, 2001, representing a decrease of $91,000, or 3.25%.
Interest and fees on loans decreased to $2.16 million for 2002 from $2.29
million for 2001. This decrease of $130,000, or 5.68%, was due to a decrease in
the average balances of loans receivable for the quarter ended March 31, 2002
and a decline in the average interest rate earned on loans. Average balances for
loans receivable, net, for the quarter ended March 31, 2002 were $113.14
million, compared to $114.78 million for the previous year. This represents a
decrease of $1.64 million, or 1.43%. Most loan categories had
-15-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Three Months Ended March 31, 2002 and 2001
(continued)
Interest and Dividend Income (continued)
shown decreases from the previous year. The average interest rate earned on
loans receivable decreased by 34 basis points, from 7.99% at March 31, 2001 to
7.65% at March 31, 2002. Interest and dividends on investment securities
available-for-sale (AFS) increased to $430,000 for the quarter ended March 31,
2002 from $315,000 for quarter ended March 31, 2001. Average balances on
investments increased significantly, to $41.86 million for the quarter ended
March 31, 2002, compared to $28.59 million for the quarter ended March 31, 2001.
The average interest rate earned dropped to 4.75% from 6.17%. Interest on
securities held-to-maturity (HTM) decreased to $67,000 from $126,000, as most of
the new investment purchases are placed in the AFS portfolio. Interest earned
from deposits held at other banks decreased to $28,000 for the quarter ended
March 31, 2002 from $47,000 for the quarter ended March 31, 2001, due to the
significant drop in short-term interest rates.
Interest Expense. Total interest expense decreased to $1.19 million for the
quarter ended March 31, 2002, from $1.48 million for the quarter ended March 31,
2001, a decrease of $293,000, or 19.86%, due to a decrease in interest paid on
deposits. Interest on deposits decreased to $1.05 million for the quarter ended
March 31, 2002, from $1.30 million for the quarter ended March 31, 2001. This
decrease of $252,000, or 19.38%, was the result of a decrease in average rates
paid despite higher balances on deposit accounts. Money market accounts
accounted for the largest gain in balances during the period from March 31, 2001
to March 31, 2002. The decline in interest rates over the past year combined
with the poor performance of the stock market appears to have led consumers to
invest in safe, short-term insured deposits. Average balances in money market
accounts increased from $14.84 million for the quarter ended March 31, 2001 to
$24.34 million for the quarter ended March 31, 2002. The average rate paid on
money market accounts decreased, from 3.94% to 2.40% for the period. Average
rates paid on all interest-bearing deposits declined from 2001 to 2002, with the
average rate paid on all liabilities dropping 116 basis points from the quarter
ended March 31, 2001 to the quarter ended March 31, 2002. The cost of deposits
is expected to continue to decline in the coming quarter, as the interest rate
on statement savings and passbook accounts will be lowered in May 2002. Interest
paid on borrowings decreased to $145,000 for the quarter ended March 31, 2002
from $186,000 for the quarter ended March 31, 2001. The decrease in borrowing
costs was due to a decrease in the average balance of Federal Home Loan Bank
advances.
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.
-16-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Three Months Ended March 31, 2002 and 2001
(continued)
Provision for Loan Losses (continued)
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 March 31, 2002 or the quarter ended March 31, 2001. This is a reflection
of the continued strong asset quality of American Federal's loan portfolio.
Total classified assets increased slightly to $1.56 million at March 31, 2002
from $1.50 million at June 30, 2001. The Bank currently has no foreclosed
property.
Noninterest Income. Total noninterest income increased to $653,000 for the
quarter ended March 31, 2002, from $400,000 for the quarter ended March 31,
2001, an increase of $253,000 or 63.25%. This was the result of an increase in
net gain on sale of loans of $237,000. Increased loan originations compared to a
year ago contributed to the increase in income from sale of loans. Low interest
rates contributed to unusually high levels of refinancing activity, which will
likely decline in the coming quarter, resulting in lower loan originations and
income from the sale of loans. Mortgage loan servicing fees increased to $84,000
in the quarter ended March 31, 2002 from $74,000 in the quarter ended March 31,
2001. A security was sold for a gain of $15,000 during the current quarter,
compared to a gain of $5,000 in the previous year's quarter.
Noninterest Expense. Noninterest expense increased by $63,000 or 4.85% to $1.36
million for the quarter ended March 31, 2002, from $1.30 million for the quarter
ended March 31, 2001. This increase was primarily due to an increase in
amortization of mortgage service fees of $43,000. The increase was related to
increased prepayment activity on mortgage loans. An increase in overall lending
activity led to an increase in loan expenses of $15,000 over the previous
period. Advertising expense decreased $11,000 due to decreased advertising for
product promotions.
Income Tax Expense. Eagle's income tax expense was $270,000 for the quarter
ended March 31, 2002, compared to $150,000 for the quarter ended March 31, 2001.
The effective tax rate for the quarter ended March 31, 2002 was 33.19% and was
35.51% for the quarter ended March 31, 2001. Management expects Eagle's
effective tax rate to be approximately 35%.
Results of Operations for the Nine Months Ending March 31, 2002 and 2001
Net Income. Eagle's net income was $1.45 million and $847,000 for the nine
months ended March 31, 2002 and 2001, respectively. The increase of $603,000, or
71.19%, was primarily due to increases in noninterest income of $620,000 and net
interest income of $530,000, partially offset by increases in non-interest
expense of $190,000 and income tax expense of $353,000. Basic earnings per share
for the period ended March 31, 2002 were $1.24, compared to $0.72 per share for
the period ended March 31, 2001.
-17-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Nine Months Ending March 31, 2002 and 2001
(continued)
Net Interest Income. Net interest income increased to $4.52 million for the nine
months ended March 31, 2002 from $3.99 million for the nine months ended March
31, 2001. This increase of $530,000 was the result of an increase in interest
and dividend income of $120,000 and a decrease in interest expense of $410,000.
Interest and Dividend Income. Total interest and dividend income was $8.43
million for the nine months ended March 31, 2002, compared to $8.31 million for
the same period ended March 31, 2001, representing an increase of $120,000, or
1.44%. Interest and fees on loans increased to $6.91 million for 2002 from $6.85
million for 2001. This increase of $60,000, or 0.87%, was due primarily to an
increase in the average balances of loans receivable for the nine months ended
March 31, 2002. Average balances for loans receivable, net, for this period were
$117.22 million, compared to $113.01 million for the previous year. This is an
increase of $4.21 million, or 3.72%. The average interest rate earned on loans
receivable decreased by 22 basis points, to 7.86% from 8.08%. Interest and
dividends on investment securities available-for-sale (AFS) increased to $1.08
million for the nine months ended March 31, 2002 from $887,000 for the same
period ended March 31, 2001, while interest on securities held to maturity (HTM)
decreased from $434,000 to $238,000. Most new purchases of securities are placed
in the AFS portfolio, and the HTM portfolio will likely continue to shrink as
the securities in it mature. Interest earned from deposits held at other banks
increased to $139,000 for the nine months ended March 31, 2002 from $74,000 for
the nine months ended March 31, 2001 due primarily to higher average balances in
these accounts due to increased liquidity from deposit growth and higher loan
sale volume.
Interest Expense. Total interest expense decreased to $3.92 million for the nine
months ended March 31, 2002 from $4.33 million for the nine months ended March
31, 2001, a decrease of $410,000, or 9.46%, due to the decrease in interest paid
on deposits. Interest on deposits decreased to $3.42 million for the nine months
ended March 31, 2002 from $3.83 million for the nine months ended March 31,
2001. This decrease of $410,000, or 10.70%, was the result of a decrease in
average rates paid on deposit accounts despite higher balances on deposit
accounts. Money market accounts accounted for the largest gain in balances
during the period from March 31, 2001 to March 31, 2002. Average balances in
money market accounts increased from $14.80 million at March 31, 2001 to $22.48
million at March 31, 2002. The average rate paid on money market accounts
decreased, from 4.02% to 2.97%. Average rates paid on all interest-bearing
deposits declined from 2001 to 2002, with the average rate paid on all
liabilities dropping by 78 basis points from the nine month period ended March
31, 2001 to the nine month period ended March 31, 2002. The cost of deposits is
expected to continue to decline in the coming months,
-18-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Nine Months Ending March 31, 2002 and 2001
(continued)
Interest Expense (continued)
as the interest rate on statement savings and passbook accounts will be lowered
in May 2002. Interest paid on borrowings showed no change at $500,000 for the
nine months ended March 31, 2002 and March 31, 2001.
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
of the nine-month periods ended March 31, 2002 or March 31, 2001. This is a
reflection of the continued strong asset quality of American Federal's loan
portfolio. Total classified assets increased slightly to $1.56 million at March
31, 2002 from $1.50 million at June 30, 2001. The Bank currently has no
foreclosed property.
Noninterest Income. Total noninterest income increased to $1.76 million for the
nine months ended March 31, 2002, from $1.14 million for the nine months ended
March 31, 2001, an increase of $620,000 or 54.38%. This was the result of an
increase in net gain on sale of loans of $678,000. Increased loan originations
contributed to the increase in income from sale of loans. Low interest rates
over the past year have contributed to unusually high levels of refinancing
activity, which will likely decline over the remainder of the year, resulting in
lower loan originations and income from the sale of loans. Mortgage loan
servicing fees declined to $178,000 for the current nine-month period compared
to $220,000 for the previous year's period. An independent valuation of the
Bank's mortgage 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. Demand
deposit service charges declined by $18,000 from the previous year due to a
decline in the volume of overdraft fees.
Noninterest Expense. Noninterest expense increased by $190,000 or 4.90% to $4.06
million for the nine months ended March 31, 2002, from $3.87 million for the
nine months ended March 31, 2001. This increase was primarily due to an increase
in amortization of mortgage servicing fees of $161,000 and in salaries and
benefits of $80,000. The increase in amortization of mortgage servicing fees was
related to increased prepayment activity on mortgage loans, while the
-19-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Nine Months Ending March 31, 2002 and 2001
(continued)
Noninterest expense (continued)
increase in salaries was due to merit raises. These increases were partially
offset by decreases of $41,000 in advertising expense and $37,000 in furniture
and equipment depreciation. The decrease in advertising expense was due to
decreased product promotional advertising, while a portion of the bank's
equipment becoming fully depreciated led to the decline in depreciation expense.
Income Tax Expense. Eagle's income tax expense was $771,000 for the nine months
ended March 31, 2002, compared to $418,000 for the nine months ended March 31,
2001. The effective tax rate for the nine months ended March 31, 2002 was 34.68%
and 33.04% for the nine months ended March 31, 2001.
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 has 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 average
liquidity ratio average was 20.82% and 17.06% for the months ended March 31,
2002 and March 31, 2001, respectively. Liquidity increased due to growth in
deposits and the increased loan sale volume for the period ending March 31,
2002.
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
-20-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity, Interest Rate Sensitivity and Capital Resources (continued)
the level desirable, based in part on commitments to make loans and management's
assessment of the bank's ability to generate funds.
At December 31, 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 position, when measured
against its interest rate risk, remains very strong. The Bank is well within the
guidelines set forth by its Board of Directors for interest rate risk
sensitivity.
As of March 31, 2002, the Bank's regulatory capital was in excess of all
applicable regulatory requirements. At March 31, 2002, the Bank's tangible,
core, and risk-based capital ratios amounted to 11.0%, 11.0%, and 20.2%,
respectively, compared to regulatory requirements of 1.5%, 3.0%, and 8.0%,
respectively.
At March 31, 2001
------------------
% of
Amount Assets
------- ------
Tangible capital:
Capital level .............................. $19,564 10.96%
Requirement ................................ 2,678 1.50
------- -----
Excess ..................................... $16,886 9.46%
======= =====
Core capital:
Capital level .............................. $19,564 10.96%
Requirement ................................ 5,356 3.00
------- -----
Excess ..................................... $13,854 7.96%
======= =====
Risk-based capital:
Capital level .............................. $20,242 20.23%
Requirement ................................ 8,003 8.00
------- -----
Excess ..................................... $12,239 12.23%
======= =====
-21-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Impact of Inflation and Changing Prices
Our financial statements and the accompanying notes have been prepared in
accordance with accounting principles generally accepted in the United States of
America, 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, as demonstrated in the results of the current reporting period.
Interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services.
-22-
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
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
None
-23-
EAGLE BANCORP AND SUBSIDIARY
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: May 10, 2002 By: /s/ Larry A. Dreyer
-----------------------
Larry A. Dreyer
President/CEO
Date: May 10, 2002 By: /s/ Peter J. Johnson
-----------------------
Peter J. Johnson
Sr. VP/Treasurer
-24-