UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2003
[ ] 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 incorporation (I.R.S. Employer
or organization) Identification No.)
1400 Prospect Avenue, Helena, MT 59601
----------------------------------------
(Address of principal executive offices)
(406) 442-3080
---------------------------
(Issuer's telephone number)
Website address: www.americanfederalsavingsbank.com
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 1,209,772 shares outstanding
--------------------------------------------------------------------------------
As of November 12, 2003
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
EAGLE BANCORP AND SUBSIDIARY
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Page
----
Consolidated Statements of Financial Condition as of
September 30, 2003 (unaudited) and June 30, 2003...........1 and 2
Consolidated Statements of Income for the three
months ended September 30, 2003 and 2002 (unaudited).......3 and 4
Consolidated Statements of Stockholders' Equity for the
three months ended September 30, 2003 (unaudited)................5
Consolidated Statements of Cash Flows for the three
months ended September 30, 2003 and 2002 (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
Item 3. Controls and Procedures...........................................19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................20
Item 2. Changes in Securities.............................................20
Item 3. Defaults Upon Senior Securities...................................20
Item 4. Submission of Matters to a Vote of Security-Holders...............20
Item 5. Other Information.................................................20
Item 6. Exhibits and Reports on Form 8-K..................................20
Signatures....................................................................21
Exhibit 31.1...........................................................22 and 23
Exhibit 31.2...........................................................24 and 25
Exhibit 32.1..................................................................26
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, June 30,
2003 2003
------------- -------------
(Unaudited) (Audited)
ASSETS
Cash and due from banks $ 3,042,968 $ 2,966,202
Interest-bearing deposits with banks 7,693,430 7,263,841
------------- -------------
Total cash and cash equivalents 10,736,398 10,230,043
Investment securities available-for-sale,
at market value 86,181,495 76,855,280
Investment securities held-to-maturity,
at amortized cost 1,942,504 2,280,736
Federal Home Loan Bank stock, at cost 1,708,600 1,686,300
Mortgage loans held-for-sale 5,266,116 6,908,373
Loans receivable, net of deferred loan fees
and allowance for loan losses 90,751,900 93,521,165
Accrued interest and dividends receivable 1,075,588 913,101
Mortgage servicing rights, net 1,711,703 1,291,614
Property and equipment, net 6,530,107 6,392,625
Cash surrender value of life insurance 2,371,120 2,347,232
Real estate acquired in settlement of loans,
net of allowance for losses -- 70,010
Other assets 572,783 561,924
------------- -------------
Total assets $ 208,848,314 $ 203,058,403
============= =============
See accompanying notes to consolidated financial statements.
-1-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Continued)
September 30, June 30,
2003 2003
------------- -------------
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposit accounts:
Noninterest bearing $ 9,379,650 $ 7,868,012
Interest bearing 164,422,581 160,556,053
Advances from Federal Home Loan Bank 9,218,889 9,243,889
Accrued expenses and other liabilities 2,116,531 1,893,668
------------- -------------
Total liabilities 185,137,651 179,561,622
------------- -------------
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; 1,209,772 outstanding at September 30, 2003
and June 30, 2003, respectively) 12,236 12,236
Additional paid-in capital 3,976,953 3,954,432
Unallocated common stock held by employee
stock ownership plan ("ESOP") (230,048) (239,248)
Treasury stock, at cost (13,800 shares at September 30,
2003 and June 30, 2003, respectively) (188,715) (188,715)
Retained earnings 20,211,959 19,532,409
Accumulated other comprehensive income (71,722) 425,667
------------- -------------
Total stockholders' equity 23,710,663 23,496,781
------------- -------------
Total liabilities and stockholders' equity $ 208,848,314 $ 203,058,403
============= =============
See accompanying notes to consolidated financial statements.
-2-
EAGLE BANCORP AND SUBSIDIARY
QUARTERLY CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
September 30,
-----------------------
2003 2002
---------- ----------
(Unaudited)
Interest and Dividend Income:
Interest and fees on loans $1,673,289 $2,070,579
Interest on deposits with banks 18,399 32,645
FHLB Stock dividends 25,978 49,320
Securities available-for-sale 560,367 608,517
Securities held-to-maturity 22,314 23,989
---------- ----------
Total interest and dividend income 2,300,347 2,785,050
---------- ----------
Interest Expense:
Deposits 776,770 978,026
FHLB Advances 145,409 147,082
---------- ----------
Total interest expense 922,179 1,125,108
---------- ----------
Net Interest Income 1,378,168 1,659,942
Loan loss provision -- --
---------- ----------
Net interest income after loan loss provision 1,378,168 1,659,942
---------- ----------
Noninterest income:
Net gain on sale of loans 588,981 309,163
Demand deposit service charges 161,316 128,860
Mortgage loan servicing fees 495,696 96,072
Net gain (loss) on sale of available-for-sale securities 9,911 --
Other 91,897 100,920
---------- ----------
Total noninterest income 1,347,801 635,015
---------- ----------
See accompanying notes to consolidated financial statements.
-3-
EAGLE BANCORP AND SUBSIDIARY
QUARTERLY CONSOLIDATED STATEMENTS OF INCOME
(Continued)
Three Months Ended
September 30,
-----------------------
2003 2002
---------- ----------
(Unaudited)
Noninterest expense:
Salaries and employee benefits 720,005 723,224
Occupancy expenses 120,285 129,941
Furniture and equipment depreciation 61,106 53,297
In-house computer expense 59,583 54,836
Advertising expense 45,020 33,295
Amortization of mtg servicing fees 265,135 97,828
Federal insurance premiums 6,478 6,276
Postage 30,845 28,162
Legal, accounting, and examination fees 28,242 26,716
Consulting fees 7,560 5,880
ATM processing 13,777 11,589
Other 240,731 182,711
---------- ----------
Total noninterest expense 1,598,767 1,353,755
---------- ----------
Income before provision for income taxes 1,127,202 941,202
---------- ----------
Provision for income taxes 357,847 323,820
---------- ----------
Net income $ 769,355 $ 617,382
========== ==========
Basic earnings per share $ 0.65 $ 0.53
========== ==========
Diluted earnings per share $ 0.64 $ 0.52
========== ==========
Weighted average shares outstanding (basic eps) 1,180,258 1,173,041
========== ==========
Weighted average shares outstanding (diluted eps) 1,194,058 1,189,457
========== ==========
See accompanying notes to consolidated financial statements.
-4-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Six Months Ended December 31, 2001
ADDITIONAL UNALLOCATED
PREFERRED COMMON PAID-IN ESOP TREASURY
STOCK STOCK CAPITAL SHARES STOCK
------------ ------------ ------------ ------------ ------------
Balance, June 30, 2003 $ -- $ 12,236 $ 3,954,432 $ (239,248) $ (188,715)
Net income (unaudited) -- -- -- -- --
Other comprehensive income (unaudited) -- -- -- -- --
Total comprehensive income (unaudited) -- -- -- -- --
Dividends paid ($.16 per share) (unaudited) -- -- -- -- --
ESOP shares allocated or committed to be
released for allocation (1,150 shares)
(unaudited) -- -- 22,521 9,200 --
------------ ------------ ------------ ------------ ------------
Balance, September 30, 2003 (unaudited) $ -- $ 12,236 $ 3,976,953 $ (230,048) $ (188,715)
============ ============ ============ ============ ============
ACCUMULATED
OTHER
RETAINED COMPREHENSIVE
EARNINGS INCOME TOTAL
------------ ------------ ------------
Balance, June 30, 2003 $ 19,532,409 $ 425,667 $ 23,496,781
Net income (unaudited) 769,355 -- 769,355
Other comprehensive income (unaudited) -- (497,389) (497,389)
------------
Total comprehensive income (unaudited) -- -- 271,966
------------
Dividends paid ($.16 per share) (unaudited) (89,805) -- (89,805)
------------
ESOP shares allocated or committed to be
released for allocation (1,150 shares)
(unaudited) -- -- 31,721
------------ ------------ ------------
Balance, September 30, 2003 (unaudited) $ 20,211,959 $ (71,722) $ 23,710,663
============ ============ ============
See accompanying notes to consolidated financial statements.
-5-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
September 30,
2003 2002
------------ ------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 769,355 $ 617,382
Adjustments to reconcile net income to net cash
from operating activities:
Provision for mortgage servicing rights valuation losses (365,527) --
Depreciation 109,244 101,295
Net amortization of marketable securities premium
and discounts 448,231 121,982
Amortization of capitalized mortgage servicing rights 265,135 97,828
Gain on sale of loans (588,980) (309,163)
Net realized (gain) loss on sale of available-for-sale securities (9,911) --
FHLB & other dividends reinvested (41,050) (60,084)
Increase in cash surrender value of life insurance (23,888) (26,057)
Gain on sale of real estate owned (596) --
Change in assets and liabilities:
(Increase) decrease in assets:
Accrued interest and dividends receivable (162,487) (7,473)
Loans held-for-sale 2,174,839 (548,068)
Other assets (10,859) (275,011)
Increase (decrease) in liabilities:
Accrued expenses and other liabilities 556,671 690,621
------------ ------------
Net cash provided by operating activities 3,120,177 403,252
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities:
Investment securities held-to-maturity -- --
Investment securities available-for-sale (22,776,348) (10,415,566)
Proceeds from maturities, calls and principal payments:
Investment securities held-to-maturity 336,703 303,595
Investment securities available-for-sale 12,220,462 2,461,397
Proceeds from sales of investment securities available-for-sale 68,556 --
See accompanying notes to consolidated financial statements.
-6-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Three Months Ended
September 30,
2003 2002
------------ ------------
(Unaudited)
CASH FLOWS FROM INVESTING ACTIVITIES (CONTINUED):
Net (increase) decrease in loan receivable, excludes transfers
to real estate acquired in settlement of loans 2,449,567 2,270,704
Purchase of property and equipment (246,726) (55,121)
Proceeds from the sale of real estate aquired in the settlement
of loans 70,606 --
------------ ------------
Net cash used in investing activities (7,877,180) (5,434,991)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in checking and savings accounts $ 5,378,163 $ 5,440,605
Payments on FHLB advances (25,000) (25,000)
Sale (Purchase) of Treasury Stock -- (33,150)
Dividends paid (89,805) (72,758)
------------ ------------
Net cash provided by financing activities 5,263,358 5,309,697
------------ ------------
Net increase in cash 506,355 277,958
CASH AND CASH EQUIVALENTS, beginning of period 10,230,043 10,622,989
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 10,736,398 $ 10,900,947
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest $ 920,869 $ 1,131,334
============ ============
Cash paid during the period for income taxes $ -- $ 1,084
============ ============
NON-CASH INVESTING ACTIVITIES:
(Increase) decrease in market value of securities available-for-sale $ 743,076 $ (168,572)
============ ============
Mortgage servicing rights capitalized $ 319,697 $ 201,058
============ ============
See accompanying notes to consolidated financial statements.
-7-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLDIATED 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 month periods ended September 30, 2003
are not necessarily indicative of the results to be expected for the fiscal year
ending June 30, 2004 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, 2003.
-8-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 2. INVESTMENT SECURITIES
------------------------------
Investment securities are summarized as follows:
September 30, 2003 (Unaudited) June 30, 2003 (Audited)
------------------------------------------------- -------------------------------------------------
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 $ 7,907,874 $ 74,435 $ 7,982,309 $ 5,039,764 $ 111,500 $ 5,151,264
Municipal obligations 8,074,014 (4,121) 8,069,893 6,851,051 235,534 7,086,585
Corporate obligations 13,973,660 89,462 14,063,122 6,180,404 217,512 6,397,916
Mortgage-backed
securities 24,740,561 (49,368) 24,691,193 28,032,532 190,352 28,222,884
Mutual Funds 4,720,397 (28,352) 4,692,045 4,696,019 (26) 4,695,993
Collateralized
mortgage obligations 24,803,818 (40,725) 24,763,093 23,461,474 (7,351) 23,454,123
Common stock 168,856 3,665 172,521 58,645 2,710 61,355
Corporate preferred
stock 1,950,000 (202,681) 1,747,319 1,950,000 (164,840) 1,785,160
-------------- -------------- -------------- -------------- -------------- --------------
Total $ 86,339,180 $ (157,685) $ 86,181,495 $ 76,269,889 $ 585,391 $ 76,855,280
============== ============== ============== ============== ============== ==============
Held-to-maturity:
Municipal obligations $ 931,383 $ 56,657 $ 988,040 $ 1,031,729 $ 75,173 $ 1,106,902
Mortgage-backed
securities 1,011,121 35,094 1,046,215 1,249,007 49,206 1,298,213
-------------- -------------- -------------- -------------- -------------- --------------
Total $ 1,942,504 $ 91,751 $ 2,034,255 $ 2,280,736 $ 124,379 $ 2,405,115
============== ============== ============== ============== ============== ==============
-9-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 3. LOANS RECEIVABLE
-------------------------
Loans receivable consist of the following:
September 30, June 30,
2003 2003
(Unaudited) (Audited)
------------ ------------
First mortgage loans:
Residential mortgage (1-4 family) $ 42,264,758 $ 45,404,699
Commercial real estate 18,514,814 18,819,234
Real estate construction 4,349,049 3,802,257
Other loans:
Home equity 13,557,360 13,791,769
Consumer 9,917,838 9,278,219
Commercial 2,760,265 3,033,786
------------ ------------
Total 91,364,084 94,129,964
Less: Allowance for loan losses (675,238) (672,841)
Deferred loan fees 63,054 64,042
------------ ------------
Total $ 90,751,900 $ 93,521,165
============ ============
Loans net of related allowance for loan losses on which the accrual of interest
has been discontinued were $542,000 and $610,000 at September 30, 2003 and June
30, 2003, respectively. Classified assets, including real estate owned, totaled
$1.12 million and $1.57 million at September 30, 2003 and June 30, 2003,
respectively. The following is a summary of changes in the allowance for loan
losses:
Three Months Ended Year ended
September 30, June 30,
2003 2003
(Unaudited) (Audited)
------------ ------------
Balance, beginning of period $ 672,841 $ 702,705
Transfer from interest reserve -- --
Provision charged to operations -- --
Charge-offs -- (37,118)
Recoveries 2,397 7,254
------------ ------------
Balance, end of period $ 675,238 $ 672,841
============ ============
-10-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 4. DEPOSITS
-----------------
Deposits are summarized as follows:
September 30, June 30,
2003 2003
(Unaudited) (Audited)
------------ ------------
Noninterest checking $ 9,379,650 $ 7,868,012
Interest-bearing checking 27,823,437 27,125,488
Passbook 26,392,453 25,762,108
Money market 32,871,476 30,177,605
Time certificates of deposit 77,335,215 77,490,852
------------ ------------
Total $173,802,231 $168,424,065
============ ============
NOTE 5. EARNINGS PER SHARE
---------------------------
Basic earnings per share for the three months ended September 30, 2003 is
computed using 1,180,258 weighted average shares outstanding. Diluted earnings
per share is computed using the treasury stock method by adjusting the number of
shares outstanding by the shares purchased. The weighted average shares
outstanding for the diluted earnings per share calculations are 1,194,058 for
the three months ended September 30, 2003. Basic earnings per share for the
three months ended September 30, 2002 is computed using 1,173,041 weighted
average shares outstanding. Diluted earnings per share for the three months
ended September 30, 2002 is computed using 1,189,457 weighted average shares
outstanding.
NOTE 6. DIVIDENDS AND STOCK REPURCHASE PROGRAM
-----------------------------------------------
This fiscal year Eagle has paid one dividend of $0.16 per share, on August 22,
2003. A dividend of $0.16 per share was declared on October 16, 2003, payable
November 14, 2003 to stockholders of record on October 31, 2003. Eagle Financial
MHC, Eagle's mutual holding company, has waived the receipt of dividends on its
648,493 shares.
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. A stock repurchase program was announced on
December 21, 2000, covering 4% of the Company's outstanding common stock, with
the intent of meeting the needs of the restricted stock plan. On January 18,
2002 and January 21, 2003, 4,600 shares of the restricted stock plan vested and
were distributed to the participants. By October 24, 2002, 23,000 shares had
been repurchased, completing the repurchase program.
-11-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 6. DIVIDENDS AND STOCK REPURCHASE PROGRAM (CONTINUED)
-----------------------------------------------------------
At their regular meeting of August 21, 2003, the Company's Board of Directors
approved a stock repurchase program for up to 57,500 shares. This represents
approximately 10% of the outstanding common stock held by the public. The
repurchased shares will be held as treasury stock and will be held for general
corporate purposes and/or issuance pursuant to Eagle's benefit plans. Timing is
at the discretion of management.
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 the valuations, a temporary
decline in the fair value was determined to have occurred, and a valuation
allowance of $391,193 has been established. 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,
2003 2003
(Unaudited) (Audited)
------------ ------------
Mortgage Servicing Rights
Beginning balance $ 2,048,334 $ 1,609,833
Servicing rights capitalized 319,697 1,183,848
Servicing rights amortized (265,135) (745,345)
------------ ------------
Ending balance 2,102,896 2,048,334
------------ ------------
Valuation Allowance
Beginning balance 756,720 21,515
Provision (365,527) 735,205
Adjustments -- --
------------ ------------
Ending balance 391,193 756,720
------------ ------------
Net Mortgage Servicing Rights $ 1,711,703 $ 1,291,614
============ ============
-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 in this section are for the three months ended September 30, 2003.
Total assets increased by $5.79 million, or 2.85%, to $208.85 million at
September 30, 2003, from $203.06 million at June 30, 2003. Total liabilities
increased by $5.58 million to $185.14 million at September 30, 2003, from
$179.56 million at June 30, 2003. Total equity increased $210,000 to $23.71
million at September 30, 2003 from $23.50 million at June 30, 2003.
The growth in assets was primarily in the available-for-sale (AFS) investment
portfolio, which increased $9.32 million, or 12.13%, to $86.18 million at
September 30, 2003 from $76.86 million at June 30, 2003. The investment category
with the largest increase was corporate obligations, which increased $7.66
million. The loan portfolio decreased $2.77 million, or 2.96%, to $90.75 million
at September 30, 2003 from $93.52 million at June 30, 2003. Continued
refinancing activity and the sale of predominantly all new originations
contributed to the decline in single-family mortgage loans to $42.26 million at
September 30, 2003 from $45.40 million at June 30, 2003. Consumer loans and real
estate construction loans increased slightly, while all other loan categories
showed moderate declines in balances. Total loan originations were $47.05
million for the three months ended September 30, 2003, with single family
mortgages (including $2.73 million of construction loans) accounting for $41.46
million of the total. Home equity loan and consumer loan originations totaled
$2.78 million and $2.31 million, respectively, for the same period. Loans
held-for-sale decreased to $5.27 million at September 30, 2003 from $6.91
million at June 30, 2003.
-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 grew $5.38 million, or 3.19%,
to $173.80 million at September 30, 2003 from $168.42 million at June 30, 2003.
Growth in money market accounts and non-interest checking contributed to the
increase in deposits. Passbook savings accounts and interest bearing checking
showed modest increases, while certificates of deposit declined slightly.
The growth in total stockholders' equity was the result of earnings for the
three months of $769,000, offset by an increase in the unrealized loss on
securities available-for-sale of $497,000 and the payment of a $0.16 per share
regular cash dividend.
Results of Operations for the Three Months Ending September 30, 2003 and 2002
Net Income. Eagle's net income was $769,000 and $617,000 for the three months
ended September 30, 2003, and 2002, respectively. The increase of $152,000, or
24.64%, was primarily due to an increase in noninterest income of $713,000,
offset by a decrease in net interest income of $282,000 and increases in
noninterest expense of $245,000 and income tax expense of $34,000. Basic
earnings per share increased to $0.65 for the current period, compared to $0.53
for the previous year's period.
Net Interest Income. Net interest income decreased to $1.38 million for the
quarter ended September 30, 2003 from $1.66 million for the quarter ended
September 30, 2002. This decrease of $282,000 was the result of a decrease in
interest and dividend income of $485,000, partially offset by the decrease in
interest expense of $203,000.
Interest and Dividend Income. Total interest and dividend income was $2.30
million for the quarter ended September 30, 2003, compared to $2.79 million for
the quarter ended September 30, 2002, representing a decrease of $485,000, or
17.38%. Interest and fees on loans decreased to $1.67 million for the three
months ended September 30, 2003 from $2.07 million for the same period ended
September 30, 2002. This decrease of $397,000, or 19.18%, was due primarily to
the decrease in the average balances of loans receivable for the quarter ended
September 30, 2003 and the decline in the average interest rate earned on loans.
Average balances for loans receivable, net, for the quarter ended September 30,
2003 were $97.90 million, compared to $107.18 million for the previous year.
This represents a decrease of $9.28 million, or 8.66%. All loan categories
except real estate construction and commercial real estate loans have shown
decreases from the previous year. The average interest rate earned on loans
receivable decreased by 89 basis points, from 7.73% at September 30, 2002 to
6.84% at September 30, 2003. Interest and dividends on investment securities
available-for-sale (AFS) decreased to $560,000 for the quarter ended September
30, 2003 from $609,000 for the same quarter last year. Average balances on
investments increased significantly, to $84.98 million for the quarter ended
September 30, 2003, compared to $57.66 million for the quarter ended September
30, 2002. The average interest rate earned on investments dropped to 2.76% from
4.57%. Interest on securities held to maturity (HTM) decreased from
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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, 2003 and 2002
(continued)
$49,000 to $26,000 as new purchases are placed in the AFS portfolio. Interest
earned from deposits held at other banks decreased to $18,000 for the quarter
ended September 30, 2003 from $33,000 for the quarter ended September 30, 2002,
due to the decline in short-term interest rates.
Interest Expense. Total interest expense decreased to $922,000 for the quarter
ended September 30, 2003, from $1.12 million for the quarter ended September 30,
2002, a decrease of $203,000, or 18.13%, due to a decrease in interest paid on
deposits. Interest on deposits decreased to $777,000 for the quarter ended
September 30, 2003, from $978,000 for the quarter ended September 30, 2002. This
decrease of $201,000, or 20.55%, was the result of a decrease in average rates
paid on deposit accounts, despite higher balances. All deposit accounts showed
decreases in average rates paid and also had increases in average balances in
the current quarter compared to the comparable period last year. Passbook
savings accounts and certificates of deposit saw the largest increases in
average balances from the previous year. Average balances in interest-bearing
deposit accounts increased to $162.92 million for the quarter ended September
30, 2003, compared to $146.52 million for the same quarter in the previous year.
The average rate paid on liabilities decreased 75 basis points from the quarter
ended September 30, 2002 to the quarter ended September 30, 2003. This is the
result of the repricing of deposits as interest rates have declined. Management
continues to look for additional opportunities to decrease interest expense, as
the bank's net interest margin is squeezed due to the decline in interest
income. The interest rate on passbook savings accounts will be lowered effective
October 1, 2003, while the rates on other deposit account types are closely
monitored.
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 (the Bank), to provide for
probable loan losses based on prior loss experience, volume and type of lending
conducted by the Bank, 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, 2003 or the quarter ended September 30, 2002.
This is a reflection of the continued strong asset quality of the Bank's loan
portfolio, as non-performing loan ratios continue to be below peer averages.
Total classified assets declined from $1.57 million at June 30, 2003 to $1.12
million at September 30, 2003. The Bank currently has no foreclosed real estate.
Noninterest Income. Total noninterest income increased to $1.35 million for the
quarter ended September 30, 2003, from $635,000 for the quarter ended September
30, 2002, an increase of $713,000 or 112.28%. This was the result of an increase
in the value of the Bank's mortgage servicing rights, which increased $366,000.
This increase is reflected in mortgage loan servicing fees. Mortgage loan
servicing fees increased to $496,000 for the current quarter from $96,000 for
the previous year's quarter. Increased loan originations compared to a year ago
contributed to the increase in income from sale of loans to $589,000 from
$309,000. Demand deposit service charges increased to $161,000 for the quarter
ended September 30, 2003 from $129,000 for the quarter ended
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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, 2003 and 2002
(continued)
September 30, 2002, an increase of $32,000, or 24.81%. This was due to the
implementation of higher fees introduced during the current quarter.
Noninterest Expense. Noninterest expense increased by $245,000 or 18.15% to
$1.60 million for the quarter ended September 30, 2003, from $1.35 million for
the quarter ended September 30, 2002. This increase was primarily due to an
increase in amortization of mortgage servicing fees of $167,000. The increase in
amortization of mortgage servicing fees was related to increased prepayment
activity on mortgage loans. Excluding the mortgage servicing fee, amortization
expense produces an increase in expenses of 6.19%. "Other" noninterest expense
increased $58,000 due primarily to higher loan expenses, attributable to the
increased lending volume during the current quarter. Advertising expense
increased $12,000 due to increased advertising for consumer loans. Other expense
categories showed minor changes.
Income Tax Expense. Eagle's income tax expense was $358,000 for the quarter
ended September 30, 2003, compared to $324,000 for the quarter ended September
30, 2002. The effective tax rate for the quarter ended September 30, 2003 was
31.77% compared to 34.43% for the year ended June 30, 2003. Management expects
Eagle's effective tax rate to be approximately 33%.
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 was 27.02% and 23.39% for the months ended September 30, 2003
and September 30, 2002, respectively. Liquidity increased due to growth in
deposits and the increased loan sale volume for the period ended September 30,
2003.
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.
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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 (Continued)
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, 2003 (the most recent report available), the Bank's measure of
sensitivity to interest rate movements, as measured by the OTS, worsened from
the previous quarter, but improved slightly from one year ago. The Bank's
capital ratio as measured by the OTS also decreased slightly from the previous
quarter. The Bank is well within the guidelines set forth by the Board of
Directors for interest rate risk sensitivity.
As of September 30, 2003, the Bank exceeds all applicable regulatory capital
requirements. At September 30, 2003, the Bank's tangible, core, and risk-based
capital ratios amounted to 10.86%, 10.86%, and 18.64%, respectively, compared to
regulatory requirements of 1.5%, 3.0%, and 8.0%, respectively. See the following
table (dollar amounts in thousands):
At September 30, 2003
-------------------------
For Capital
Adequacy
Dollar Purposes
Amount % of Assets
----------- -----------
Tangible capital:
Capital level $ 22,559 10.86%
Requirement 3,117 1.50
----------- -----------
Excess $ 19,442 9.36%
=========== ===========
Core capital:
Capital level $ 22,559 10.86%
Requirement 6,235 3.00
----------- -----------
Excess $ 16,324 7.86%
=========== ===========
Risk-based capital:
Capital level $ 23,214 18.64%
Requirement 9,962 8.00
----------- -----------
Excess $ 13,252 10.64%
=========== ===========
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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. 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
EAGLE BANCORP AND SUBSIDIARY
CONTROLS AND PROCEDURES
As of September 30, 2003, an evaluation was performed under the supervision and
with the participation of the company's Chief Executive Officer, Larry A.
Dreyer, and Chief Financial Officer, Peter J. Johnson. Based on their
evaluation, they have concluded that the company's disclosure controls and
procedures are effective as of September 30, 2003 to ensure that information
required to be disclosed in the reports that the company files or submits under
the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms. During the last fiscal quarter, there have been no
significant changes in the company's internal control over financial reporting
that have materially affected, or are reasonably likely to materially affect,
the company's internal control over financial reporting.
-19-
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.
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 15, 2003. The following matters were voted on at the
meeting held on October 16, 2003:
1. Election of directors for three-year terms expiring in 2006:
For: Against:
--- -------
Thomas J. McCarvel 1,144,618 1,792
James A. Maierle 1,144,618 1,792
2. Ratification of appointment of Anderson ZurMuehlen & Co., P.C.
as auditors for the fiscal year ended June 30, 2004:
For: Against: Abstain:
--- ------- -------
1,145,250 700 460
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
a.) Exhibits
31.1 Certification by Larry A. Dreyer, Chief Executive Officer,
pursuant to Rule 13a-14(a) under the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
31.2 Certification by Peter J. Johnson, Chief Financial Officer,
pursuant to Rule 13a-14(a) under the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
32.1 Certification by Larry A. Dreyer, Chief Executive Officer, and
Peter J. Johnson, Chief Financial Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
b.) Reports on Form 8-K.
No current reports on Form 8-K were filed during the first quarter
of the 2004 fiscal year. On July 17, 2003, the Company furnished
under Item 9 of Form 8-K a press release announcing its earnings
for the fourth quarter of the 2003 fiscal year and earnings for the
year ended June 30, 2003. The information contained in the Form 8-K
was intended to be furnished pursuant to Item 12, "Disclosure of
Results of Operations and Financial Condition," and was included
under Item 9 in accordance with Securities and Exchange Commission
Release No. 33-8216.
-20-
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: November 12, 2003 By: /s/ Larry A. Dreyer
-------------------
Larry A. Dreyer
President/CEO
Date: November 12, 2003 By: /s/ Peter J. Johnson
--------------------
Peter J. Johnson
Sr. VP/Treasurer
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