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, 2004
[ ] 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
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(Address of principal executive offices)
(406) 442-3080
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(Issuer's telephone number)
Website address: www.americanfederalsavingsbank.com
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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 1,156,872 shares outstanding
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As of November 8, 2004
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
EAGLE BANCORP AND SUBSIDIARY
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
September 30, 2004 (unaudited) and June 30, 2004.....................................1 and 2
Consolidated Statements of Income for the three months
ended September 30, 2004 (unaudited).................................................3 and 4
Consolidated Statements of Changes in Stockholders' Equity
for the three months ended September 30, 2004 (unaudited)..................................5
Consolidated Statements of Cash Flows for the three
months ended September 30, 2004 and 2003 (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. Unregistered Sales of Equity Securities and Use of Proceeds.................................20
Item 3. Defaults Upon Senior Securities.............................................................20
Item 4. Submission of Matters to a Vote of Security-Holders.........................................21
Item 5. Other Information...........................................................................21
Item 6. Exhibits....................................................................................21
Signatures...............................................................................................22
Exhibit 10.4.......................................................................................23 to 32
Exhibit 31.1......................................................................................33 and 34
Exhibit 31.2..................................................................................... 35 and 36
Exhibit 32.1.............................................................................................37
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, June 30,
2004 2004
---- ----
(Unaudited) (Audited)
ASSETS
Cash and due from banks $ 3,471,837 $ 3,587,145
Interest-bearing deposits with banks 6,077,903 759,621
---------- ----------
Total cash and cash equivalents 9,549,740 4,346,766
Investment securities available-for-sale,
at market value 85,541,147 88,547,458
Investment securities held-to-maturity,
at amortized cost 1,399,017 1,565,692
Federal Home Loan Bank stock, at cost 1,589,700 1,672,200
Mortgage loans held-for-sale 888,042 1,436,747
Loans receivable, net of deferred loan fees
and allowance for loan losses 93,903,742 92,456,589
Accrued interest and dividends receivable 1,083,937 1,079,815
Mortgage servicing rights, net 1,905,709 2,003,258
Property and equipment, net 6,535,836 6,557,883
Cash surrender value of life insurance 2,497,306 2,476,842
Real estate acquired in settlement of loans,
net of allowance for losses - -
Other assets 403,875 870,001
-------- -------
Total assets $ 205,298,051 $ 203,013,251
============= =============
See accompanying notes to consolidated financial statements.
-1-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Continued)
September 30, June 30,
2004 2004
---- ----
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposit accounts:
Noninterest bearing $ 10,898,484 $ 9,267,458
Interest bearing 162,134,686 160,801,422
Advances from Federal Home Loan Bank 5,760,185 7,450,000
Accrued expenses and other liabilities 2,032,620 1,469,832
------------- -------------
Total liabilities 180,825,975 178,988,712
------------- -------------
Stockholders' Equity:
Preferred stock (no par value, 1,000,000 shares
authorized, none issued or outstanding) - -
Common stock (par value $0.01 per share;
9,000,000 shares authorized; 1,223,572 shares
issued; 1,190,372 and 1,212,372 outstanding at
September 30, 2004 and June 30, 2004, respectively) 12,236 12,236
Additional paid-in capital 4,100,848 4,072,947
Unallocated common stock held by employee
stock ownership plan ("ESOP") (193,248) (202,448)
Treasury stock, at cost (33,200 and 11,200 shares at
September 30, 2004 and June 30, 2004, respectively) (914,765) (198,665)
Retained earnings 21,510,257 21,250,088
Accumulated other comprehensive income (loss) (43,252) (909,619)
------------- -------------
Total stockholders' equity 24,472,076 24,024,539
------------- -------------
Total liabilities and stockholders' equity $ 205,298,051 $ 203,013,251
============= =============
See accompanying notes to consolidated financial statements.
-2-
EAGLE BANCORP AND SUBSIDIARY
QUARTERLY CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
September 30,
------------------------------
2004 2003
------------- ------------
(Unaudited)
Interest and Dividend Income:
Interest and fees on loans $1,464,407 $1,673,289
Interest on deposits with banks 15,418 18,399
FHLB Stock dividends 13,965 22,314
Securities available-for-sale 695,738 560,367
Securities held-to-maturity 17,665 25,978
------------- ------------
Total interest and dividend income 2,207,193 2,300,347
------------- ------------
Interest Expense:
Deposits 578,485 776,770
FHLB Advances 60,299 145,409
------------- ------------
Total interest expense 638,784 922,179
------------- ------------
Net Interest Income 1,568,409 1,378,168
Loan loss provision - -
------------- ------------
Net interest income after loan loss provision 1,568,409 1,378,168
------------- ------------
Noninterest income:
Net gain on sale of loans 114,465 588,981
Demand deposit service charges 139,183 161,316
Mortgage loan servicing fees 84,423 495,696
Net gain on sale of available-for-sale securities (193) 9,911
Other 94,449 91,897
------------- ------------
Total noninterest income 432,327 1,347,801
------------- ------------
See accompanying notes to consolidated financial statements.
-3-
EAGLE BANCORP AND SUBSIDIARY
QUARTERLY CONSOLIDATED STATEMENTS OF INCOME
(Continued)
Three Months Ended
September 30,
----------------------------
2004 2003
------------- ------------
(Unaudited)
Noninterest expense:
Salaries and employee benefits 808,888 720,005
Occupancy expenses 125,610 120,285
Furniture and equipment depreciation 78,260 61,106
In-house computer expense 61,866 59,583
Advertising expense 39,844 45,020
Amortization of mtg servicing fees 95,620 265,135
Federal insurance premiums 6,219 6,478
Postage 25,546 30,845
Legal, accounting, and examination fees 34,700 28,242
Consulting fees 11,027 7,560
ATM processing 11,626 13,777
Other 200,181 240,731
--------- ---------
Total noninterest expense 1,499,387 1,598,767
--------- ---------
Income before provision for income taxes 501,349 1,127,202
--------- ---------
Provision for income taxes 143,642 357,847
--------- ---------
Net income $ 357,707 $ 769,355
========= =========
Basic earnings per share $ 0.31 $ 0.65
========= =========
Diluted earnings per share $ 0.30 $ 0.64
========= =========
Weighted average shares outstanding (basic eps) 1,172,153 1,180,258
========= =========
Weighted average shares outstanding (diluted eps) 1,198,658 1,194,058
========= =========
See accompanying notes to consolidated financial statements.
-4-
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY For the Three Months
Ended September 30, 2004
ACCUMULATED
ADDITIONAL UNALLOCATED OTHER
PREFERRED COMMON PAID-IN ESOP TREASURY RETAINED COMPREHENSIVE
STOCK STOCK CAPITAL SHARES STOCK EARNINGS INCOME TOTAL
----- ----- ------- ------ ----- -------- ------ -----
Balance, June 30, 2004 $ - $12,236 $4,072,947 $(202,448) $(198,665) $21,250,088 $(909,619) $24,024,539
Net income (unaudited) - - - - - 357,707 - 357,707
Other comprehensive income
(unaudited) - - - - - - 866,367 866,367
----------
Total comprehensive income
(unaudited) - - - - - - - 1,224,074
----------
Dividends paid ($.18 per share)
(unaudited) - - - - - (97,538) - (97,538)
----------
Treasury stock purchased
(22,000 shares @ $32.55)
(unaudited) - - - - (716,100) - - (716,100)
ESOP shares allocated or committed
to be released for allocation
(1,150 shares) (unaudited) - - 27,901 9,200 - - - 37,101
---- ------- ---------- --------- ---------- ---------- --------- -----------
Balance, September 30, 2004
(unaudited) $ - $12,236 $4,100,848 $(193,248) $(914,765) $21,510,25 $(43,252) $24,472,076
==== ======= ========== ========= ========== ========== ========= ===========
See accompanying notes to consolidated financial statements.
-5-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
September 30,
2004 2003
------------------------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 357,707 $ 769,355
Adjustments to reconcile net income to net cash
from operating activities:
Provision for mortgage servicing rights valuation losses 58,605 (365,527)
Depreciation 126,850 109,244
Net amortization of marketable securities premium
and discounts 395,908 448,231
Amortization of capitalized mortgage servicing rights 95,620 265,135
Gain on sale of loans (114,465) (588,980)
Gain on sale of real estate owned - (596)
Net realized (gain) loss on sale of available-for-sale securities 193 (9,911)
FHLB & other dividends reinvested (13,900) (41,050)
Increase in cash surrender value of life insurance (20,464) (23,888)
Change in assets and liabilities:
(Increase) decrease in assets:
Accrued interest and dividends receivable (4,122) (162,487)
Loans held-for-sale 653,929 2,174,839
Other assets 103,694 (10,859)
Increase (decrease) in liabilities:
Accrued expenses and other liabilities 436,931 556,671
Deferred compensation payable - -
Deferred income taxes payable - -
---------- ----------
Net cash provided by operating activities 2,076,486 3,120,177
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities:
Investment securities available-for-sale (3,939,351) (22,776,348)
Proceeds from maturities, calls and principal payments:
Investment securities held-to-maturity 165,764 336,703
Investment securities available-for-sale 5,910,857 12,220,462
Proceeds from sales of investment securities available-for-sale 2,040,611 68,556
Proceeds from the sale of real estate acquired settlement of loans - 70,606
See accompanying notes to consolidated financial statements.
-6-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Three Months Ended
September 30,
2004 2003
---------------------------------
(Unaudited)
CASH FLOWS FROM INVESTING ACTIVITIES (CONTINUED):
Net (increase) decrease in loan receivable, excludes transfers
to real estate acquired in settlement of loans (1,503,827) 2,449,567
FHLB stock redeemed 96,400 -
Purchase of property and equipment (104,803) (246,726)
---------- ----------
Net cash used in investing activities 2,665,651 (7,877,180)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in checking and savings accounts 2,964,290 5,378,163
Net increase (decrease) in overnight FHLB advances (1,450,000) -
FHLB advances - -
Payments on FHLB advances (239,815) (25,000)
Sale (Purchase) of Treasury Stock (716,100) -
Dividends paid (97,538) (89,805)
---------- ----------
Net cash provided by financing activities 460,837 5,263,358
---------- ----------
Net increase (decrease) in cash and cash equivalents 5,202,974 506,355
CASH AND CASH EQUIVALENTS, beginning of period 4,346,766 10,230,043
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 9,549,740 $ 10,736,398
============ =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest $ 633,396 $ 920,869
============ =============
Cash paid during the period for income taxes $ - $ -
============ =============
NON-CASH INVESTING ACTIVITIES:
(Increase) decrease in market value of securities available-for-sale $(1,400,996) $ 743,076
============ =============
Mortgage servicing rights capitalized $ 56,676 $ 319,697
============ =============
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 month period ended September 30, 2004
are not necessarily indicative of the results to be expected for the fiscal year
ending June 30, 2005 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 Bancorp's Form 10-KSB dated June 30, 2004.
-8-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 2. INVESTMENT SECURITIES
Investment securities are summarized as follows:
September 30, 2004 (Unaudited) June 30, 2004 (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 $ 9,179,043 $ 13,542 $ 9,192,585 $ 11,071,378 $ (159,926)$ 10,911,452
Municipal obligations 8,766,397 167,105 8,933,502 9,267,086 (194,580) 9,072,506
Corporate obligations 17,621,287 21,723 17,643,010 17,934,087 (338,757) 17,595,330
Mortgage-backed
securities 15,763,830 (48,735) 15,715,095 16,755,411 (174,212) 16,581,199
Mutual Funds - - - 99,693 477 100,170
Collateralized
mortgage obligations 32,210,840 (61,844) 32,148,996 32,821,048 (405,785) 32,415,263
Common stock 128,908 4,892 133,800 128,908 (1,872) 127,036
Corporate preferred
stock 1,950,000 (175,841) 1,774,159 1,950,000 (205,498) 1,744,502
------------- ------------ ------------ ------------ ------------ ------------
Total $ 85,620,305 $ (79,158)$ 85,541,147 $ 90,027,611 $ (1,480,153)$ 88,547,458
============= ============ ============ ============= ============ ============
Held-to-maturity:
Municipal obligations $ 830,063 $ 51,497 $ 881,560 $ 930,422 $ 35,999 $ 966,421
Mortgage-backed
securities 568,954 27,595 596,549 635,270 28,849 664,119
------------- ------------ ------------ ------------ ------------ ------------
Total $ 1,399,017 $ 79,092 $ 1,478,109 $ 1,565,692 $ 64,848 $ 1,630,540
============= ============ ============ ============= ============ ============
-9-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 3. LOANS RECEIVABLE
Loans receivable consist of the following:
September 30, June 30,
2004 2004
(Unaudited) (Audited)
------------ ----------
First mortgage loans:
Residential mortgage (1-4 family) $ 51,307,843 $ 49,044,832
Commercial real estate 10,357,988 9,336,336
Real estate construction 2,860,368 5,101,591
Other loans:
Home equity 15,073,130 14,874,279
Consumer 10,496,687 9,801,698
Commercial 4,342,225 4,840,045
---------------- ---------------
Total 94,438,241 92,998,781
Less: Allowance for loan losses (605,496) (627,733)
Deferred loan fees 70,997 85,541
---------------- ---------------
Total $ 93,903,742 $ 92,456,589
================ ===============
Loans net of related allowance for loan losses on which the accrual of interest
has been discontinued were $601,000 and $497,000 at September 30, 2004 and June
30, 2004, respectively. Classified assets, including real estate owned, totaled
$920,000 and $924,000 at September 30, 2004 and June 30, 2004, respectively.
The following is a summary of changes in the allowance for loan losses:
Three Months Ended Year ended
September 30, June 30,
2004 2004
(Unaudited) (Audited)
------------- ------------
Balance, beginning of period $ 627,733 $ 672,841
Reclassification to repossessed
property reserve (10,587) (8,671)
Provision charged to operations - -
Charge-offs (13,842) (45,431)
Recoveries 2,192 8,994
-------------- -------------
Balance, end of period $ 605,496 $ 627,733
============== =============
-10-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 4. DEPOSITS
------------------------
Deposits are summarized as follows:
September 30, June 30,
2004 2004
(Unaudited) (Audited)
------------ ----------
Noninterest checking $ 10,898,484 $ 9,267,458
Interest-bearing checking 30,088,629 29,370,347
Passbook 26,692,111 25,862,734
Money market 30,256,188 30,332,871
Time certificates of deposit 75,097,758 75,235,470
----------------- -----------------
Total $ 173,033,170 $ 170,068,880
================= =================
NOTE 5. EARNINGS PER SHARE
----------------------------------
Basic earnings per share for the three months ended September 30, 2004 is
computed using 1,172,153 weighted average shares outstanding. 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 1,198,658 for the three months ended
September 30, 2004 and 1,194,058 for the three months ended September 30, 2003.
NOTE 6. DIVIDENDS AND STOCK REPURCHASE PROGRAM
------------------------------------------------------
This fiscal year Eagle has paid a dividend of $0.18 per share on August 27,
2004. A dividend of $0.18 per share was declared on October 21, 2004, payable
November 19, 2004 to stockholders of record on November 5, 2004. Eagle Financial
MHC, Eagle's mutual holding company, has waived the receipt of dividends on its
648,493 shares.
At their regular meeting of August 21, 2003, the Company's Board of Directors
announced 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. As of
November 10, 2004, 57,500 shares have been purchased, thereby completing the
program.
-11-
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 the valuations, a temporary
decline in the fair value was determined to have occurred, and a valuation
allowance of $118,953 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,
2004 2004
(Unaudited) (Audited)
----------------- -----------------
Mortgage Servicing Rights
Beginning balance $ 2,063,606 $ 2,048,334
Servicing rights capitalized 56,676 643,798
Servicing rights amortized (95,620) (628,526)
----------------- -----------------
Ending balance 2,024,662 2,063,606
----------------- -----------------
Valuation Allowance
Beginning balance 60,348 756,720
Provision 58,605 (696,372)
Adjustments
----------------- -----------------
Ending balance 118,953 60,348
----------------- -----------------
Net Mortgage Servicing Rights $ 1,905,709 $ 2,003,258
================= =================
-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, 2004.
Total assets increased by $2.29 million, or 1.13%, to $205.30 million at
September 30, 2004, from $203.01 million at June 30, 2004. Total liabilities
increased by $1.84 million to $180.83 million at September 30, 2004, from
$178.99 million at June 30, 2004. Total equity increased $450,000 to $24.47
million at September 30, 2004 from $24.02 million at June 30, 2004.
Interest-bearing deposits with banks increased $5.32 million to $6.08 million at
September 30, 2004. Loans receivable increased $1.44 million, or 1.56%, to
$93.90 million at September 30, 2004 from $92.46 million at June 30, 2004.
Single-family mortgage loans were the loan category with the largest increase,
$2.27 million, and most loan categories showed some increase. Total loan
originations were $20.22 million for the three months ended September 30, 2004,
with single family mortgages (including $885,000 of construction loans)
accounting for $13.61 million of the total. Home equity loan and consumer loan
originations totaled $2.19 million and $1.58 million, respectively, for the same
period. Commercial real estate and land loan originations totaled $1.68 million.
Loans held-for-sale decreased to $888,000 at September 30, 2004 from $1.44
million at June 30, 2004.
Growth in deposits funded asset growth. Deposits grew $2.96 million, or 1.74%,
to $173.03 million at September 30, 2004 from $170.07 million at June 30, 2004.
Growth in non-interest checking and passbook savings accounts contributed to the
increase in deposits. Interest bearing checking showed a modest increase, while
certificates of deposit and money market accounts declined slightly.
-13-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition (continued)
The growth in total equity was the result of earnings for the three months of
$358,000 and the decrease in the unrealized loss on securities
available-for-sale of $866,000, offset by the payment of an $0.18 per share
regular cash dividend and Company stock repurchases.
Results of Operations for the Three Months Ending September 30, 2004 and 2003
Net Income. Eagle's net income was $358,000 and $769,000 for the three months
ended September 30, 2004, and 2003, respectively. The decrease of $411,000, or
53.45%, was primarily due to a decrease in noninterest income of $915,000,
offset by an increase in net interest income of $190,000 and decreases in
noninterest expense of $100,000 and income tax expense of $214,000. Basic
earnings per share were $0.31 for the current period, compared to $0.65 for the
previous year's period.
Net Interest Income. Net interest income increased to $1.57 million for the
quarter ended September 30, 2004 from $1.38 million for the quarter ended
September 30, 2003. This increase of $190,000 was the result of a decrease in
interest expense of $283,000, partially offset by the decrease in interest and
dividend income of $93,000.
Interest and Dividend Income. Total interest and dividend income was $2.21
million for the quarter ended September 30, 2004, compared to $2.30 million for
the quarter ended September 30, 2003, representing a decrease of $93,000, or
4.04%. Interest and fees on loans decreased to $1.46 million for the three
months ended September 30, 2004 from $1.67 million for the same period ended
September 30, 2003. This decrease of $209,000, or 12.49%, was due primarily to
the decrease in the average balances of loans receivable for the quarter ended
September 30, 2004 and the decline in the average interest rate earned on loans.
Average balances for loans receivable, net, for the quarter ended September 30,
2004 were $93.45 million, compared to $97.90 million for the previous period.
This represents a decrease of $4.45 million, or 4.55%. This decrease is smaller
than previous quarters, and all loan categories except real estate construction
and commercial real estate loans have shown increases from the previous year.
Commercial real estate loans are down since last year as the government
guaranteed portion of a large loan was sold during the past twelve months. The
average interest rate earned on loans receivable decreased by 57 basis points,
from 6.84% at September 30, 2003 to 6.27% at September 30, 2004. Interest and
dividends on investment securities available-for-sale (AFS) increased to
$696,000 for the quarter ended September 30, 2004 from $560,000 for the same
quarter last year. Average balances on investments increased to $88.04 million
for the quarter ended September 30, 2004, compared to $84.98 million for the
quarter ended September 30, 2003. The average interest rate earned on
investments increased to 3.24% from 2.76%. Interest on securities held to
maturity (HTM) decreased from $26,000 to $18,000 as new purchases are placed in
the AFS portfolio. Dividends on Federal Home Loan Bank (FHLB) stock decreased to
$14,000 for the quarter ended September 30, 2004 from $22,000 for the quarter
ended September 30, 2003, due to the decline in holdings of FHLB stock.
-14-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Three Months Ending September 30, 2004 and 2003
(continued)
Interest Expense. Total interest expense decreased to $639,000 for the quarter
ended September 30, 2004, from $922,000 for the quarter ended September 30,
2003, a decrease of $283,000, or 30.69%. Interest on deposits decreased to
$579,000 for the quarter ended September 30, 2004, from $777,000 for the quarter
ended September 30, 2003. This decrease of $198,000, or 25.48%, was the result
of a decrease in average rates paid on deposit accounts. All deposit accounts
showed decreases in average rates paid and two categories, certificates of
deposit and money market accounts, had decreases in average balances in the
current quarter compared to last year's quarter. Average balances in
interest-bearing deposit accounts decreased to $161.32 million for the quarter
ended September 30, 2004, compared to $162.92 million for the same quarter in
the previous year. The average rate paid on liabilities decreased 61 basis
points from the quarter ended September 30, 2003 to the quarter ended September
30, 2004. This is the result of the repricing of deposits in the current low
interest rate environment. A decrease in the average balance of borrowings from
the FHLB, as well as a decrease in average rate paid, resulted in a decrease in
interest paid on borrowings to $60,000 in the current quarter compared to
$145,000 in the previous year's quarter. This was mainly attributable to the
Company paying off higher rate borrowings in June 2004. Another $2.00 million of
higher rate borrowings matured in early October, and will likely result in a
further decrease in interest expense on borrowings.
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, 2004 or the quarter ended September 30, 2003.
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 slightly from $924,000 at June 30, 2004 to
$920,000 at September 30, 2004 and total less than 1% of the total loan
portfolio. The Bank currently has no foreclosed real estate.
Noninterest Income. Total noninterest income decreased to $432,000 for the
quarter ended September 30, 2004, from $1.35 million for the quarter ended
September 30, 2003, a decrease of $915,000. This was the result of a decline in
net gain on sale of loans (due to a slowdown in mortgage refinance activity) and
to the lower valuation of the Bank's mortgage servicing rights, which decreased
$59,000. The latter's decrease is reflected in mortgage loan servicing fees.
Mortgage loan servicing fees decreased to $84,000 for the current quarter from
$496,000 for the previous year's quarter. Last year's results included an
increase in the Bank's mortgage servicing rights of $366,000. Income from sale
of loans decreased to $114,000 from $589,000. Demand deposit service charges
decreased to $139,000 for the quarter ended September 30, 2004 from $161,000 for
the quarter ended September 30, 2003. This was due to decreased income on
overdraft charges.
-15-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Three Months Ending September 30, 2004 and 2003
(continued)
Noninterest Expense. Noninterest expense decreased by $100,000 or 6.25% to $1.50
million for the quarter ended September 30, 2004, from $1.60 million for the
quarter ended September 30, 2003. This decrease was primarily due to a decrease
in amortization of mortgage servicing fees of $170,000. The decrease in
amortization of mortgage servicing fees was related to decreased prepayment
activity on mortgage loans. Excluding the mortgage servicing fee amortization
expense produces an increase in expenses of 5.26%. Salaries and employee
benefits increased $89,000 due primarily to a reduction in the amount of
salaries capitalized for SFAS 91 (as loan originations decline, the amount of
capitalized salary expense declines, thereby increasing salary expense).
Furniture and equipment depreciation expense increased $17,000 due to the
purchase of new computer equipment during the last twelve months. "Other"
noninterest expense decreased $41,000 due primarily to lower loan expenses,
attributable to the decreased lending volume during the current quarter. Other
expense categories showed minor changes.
Income Tax Expense. Eagle's income tax expense was $144,000 for the quarter
ended September 30, 2004, compared to $358,000 for the quarter ended September
30, 2003. The effective tax rate for the quarter ended September 30, 2004 was
28.65% and was 31.75% for the quarter ended September 30, 2003. Management
expects Eagle's effective tax rate to be approximately 31%.
Liquidity, Interest Rate Sensitivity and Capital Resources
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 18.46% and 27.02% for the
three months ended September 30, 2004 and September 30, 2003, respectively.
Liquidity decreased due to the decreased investment balances and the pledging of
certain securities as collateral for FHLB borrowings.
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.
-16-
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, 2004 (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. The Bank's capital ratio as measured by the OTS also
decreased slightly from the previous quarter, but improved from one year ago.
The Bank's strong capital position mitigates its interest rate risk exposure.
The Bank is well within the guidelines set forth by the Board of Directors for
interest rate risk sensitivity.
As of September 30, 2004, the Bank's regulatory capital was in excess of all
applicable regulatory requirements. At September 30, 2004, the Bank's tangible,
core, and risk-based capital ratios amounted to 11.48%, 11.48%, and 18.94%,
respectively, compared to regulatory requirements of 1.5%, 3.0%, and 8.0%,
respectively. See the following table (amounts in thousands):
(Unaudited)
At September 30, 2004
---------------------
For Capital
Adequacy
Dollar Purposes
Amount % of Assets
------------ ------------
Tangible capital:
Capital level $ 23,477 11.48%
Requirement 3,068 1.50
----------------- -----------------
Excess $ 20,409 9.98%
================= =================
Core capital:
Capital level $ 23,477 11.48%
Requirement 6,135 3.00
----------------- -----------------
Excess $ 17,342 8.48%
================= =================
Risk-based capital:
Capital level $ 24,049 18.94%
Requirement 10,159 8.00
------------------ -----------------
Excess $ 13,890 10.94%
================= =================
-17-
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 generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the change in the relative purchasing power of money
over time and due to inflation. The impact of inflation is reflected in the
increased cost of our operations. Interest rates have a greater impact on our
performance than do the general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the prices of
goods and services.
-18-
EAGLE BANCORP AND SUBSIDIARY
CONTROLS AND PROCEDURES
Based on their evaluation, the company's Chief Executive Officer, Larry A.
Dreyer, and Chief Financial Officer, Peter J. Johnson, have concluded the
company's disclosure controls and procedures are effective as of September 30,
2004 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. Unregistered Sales of Equity Securities Use of Proceeds.
c.) Small Business Issuer Purchases of Equity Securities.
-------------------------------------------------------------------------------------------------------
Total Number Maximum
of Shares Number of
Purchased Shares that
Total as Part of May Yet Be
Number of Average Publicly Purchased
Shares Price Paid Announced Plans Under the Plans
Period Purchased* Per Share or Programs or Programs
-------------------------------------------------------------------------------------------------------
July 2004 22,000 $32.55 24,000 33,500
7-1-04 to
7-31-04
-------------------------------------------------------------------------------------------------------
August 2004 None N/A N/A
8-1-04 to
8-31-04
-------------------------------------------------------------------------------------------------------
September 2004 None N/A N/A
9-1-04 to
9-30-04
-------------------------------------------------------------------------------------------------------
Total 22,000 $32.55 24,000 33,500
-------------------------------------------------------------------------------------------------------
*The Company publicly announced a stock repurchase program on August
21, 2003. The Company is authorized to acquire up to 57,500 shares
of common stock with the price subject to market conditions. No
expiration date was set for the repurchase program.
Item 3. Defaults Upon Senior Securities.
Not applicable.
-20-
EAGLE BANCORP AND SUBSIDIARY
Part II - OTHER INFORMATION (CONTINUED)
Item 4. Submission of Matters to a Vote of Security Holders. The proxy statement
for the Annual Meeting of Stockholders was mailed on September 17, 2004.
The following matters were voted on at the meeting held on October 21,
2004:
a.) Election of directors for three-year terms expiring in 2007:
For Against:
--------- --------
Don O. Campbell 1,126,137 2,427
Charles G. Jacoby 1,126,262 2,302
Robert L. Pennington 1,126,262 2,302
b.) Ratification of appointment of Anderson ZurMuehlen & Co., P.C.
as auditors for the fiscal year ended June 30, 2005:
For: Against: Abstain:
--- ------- --------
1,127,479 885 200
Item 5. Other Information. None.
Item 6. Exhibits.
10.4 American Federal Savings Bank Split-Dollar Plan.
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 (a) 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 (a) 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.
-21-
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 11, 2004 By: /s/ Larry A. Dreyer
-------------------
Larry A. Dreyer
President/Chief Executive Officer
Date: November 11, 2004 By: /s/ Peter J. Johnson
--------------------
Peter J. Johnson
Chief Financial Officer
-22-