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 December 31, 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
--------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
United States 81-0531318
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1400 Prospect Avenue, Helena, MT 59601
--------------------------------------------
(Address of principal executive offices)
(406) 442-3080
--------------------------------------------
(Issuer's telephone number)
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 1,161,472 shares outstanding
--------------------------------------------------------------------------------
As of February 7, 2005
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
December 31, 2004 (unaudited) and June 30, 2004............... 1 and 2
Consolidated Statements of Income for the three and
six months ended December 31, 2004 and 2003 (unaudited)....... 3 and 4
Consolidated Statements of Changes in Stockholders' Equity
for the six months ended December 31, 2004 (unaudited)........ 5
Consolidated Statements of Cash Flows for the six
months ended December 31, 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 21
Item 3. Controls and Procedures......................................... 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................... 23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..... 23
Item 3. Defaults Upon Senior Securities................................. 23
Item 4. Submission of Matters to a Vote of Security-Holders............. 24
Item 5. Other Information............................................... 24
Item 6. Exhibits........................................................ 24
Signatures.............................................................. 25
Exhibit 31.1...........................................................26 and 27
Exhibit 31.2...........................................................28 and 29
Exhibit 32.1............................................................ 30
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, June 30,
2004 2004
------------ ------------
(Unaudited) (Audited)
ASSETS
Cash and due from banks $ 3,777,931 $ 3,587,145
Interest-bearing deposits with banks 265,499 759,621
------------ ------------
Total cash and cash equivalents 4,043,430 4,346,766
Investment securities available-for-sale,
at market value 82,167,927 88,547,458
Investment securities held-to-maturity,
at amortized cost 1,328,352 1,565,692
Federal Home Loan Bank stock, at cost 1,419,600 1,672,200
Mortgage loans held-for-sale 1,223,835 1,436,747
Loans receivable, net of deferred loan fees
and allowance for loan losses 94,450,242 92,456,589
Accrued interest and dividends receivable 1,050,768 1,079,815
Mortgage servicing rights, net 1,981,240 2,003,258
Property and equipment, net 6,443,690 6,557,883
Cash surrender value of life insurance 4,960,775 2,476,842
Real estate acquired in settlement of loans,
net of allowance for losses -- --
Other assets 551,052 870,001
------------ ------------
Total assets $199,620,911 $203,013,251
============ ============
See accompanying notes to consolidated financial statements.
-1-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Continued)
December 31, June 30,
2004 2004
------------- -------------
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposit accounts:
Noninterest bearing $ 9,989,538 $ 9,267,458
Interest bearing 160,347,137 160,801,422
Advances from Federal Home Loan Bank 3,918,518 7,450,000
Accrued expenses and other liabilities 1,778,419 1,469,832
------------- -------------
Total liabilities 176,033,612 178,988,712
------------- -------------
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; 1,156,872 and 1,212,372 outstanding at
December 31, 2004 and June 30, 2004, respectively) 12,236 12,236
Additional paid-in capital 4,131,040 4,072,947
Unallocated common stock held by employee
stock ownership plan ("ESOP") (184,048) (202,448)
Treasury stock, at cost (66,700 and 11,200 shares at
December 31, 2004 and June 30, 2004, respectively) (2,072,190) (198,665)
Retained earnings 21,989,379 21,250,088
Accumulated other comprehensive income (loss) (289,118) (909,619)
------------- -------------
Total stockholders' equity 23,587,299 24,024,539
------------- -------------
Total liabilities and stockholders' equity $ 199,620,911 $ 203,013,251
============= =============
See accompanying notes to consolidated financial statements.
-2-
EAGLE BANCORP AND SUBSIDIARY
QUARTERLY CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended
December 31, December 31,
------------------------- -------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
Interest and Dividend Income:
Interest and fees on loans $ 1,507,239 $ 1,612,587 $ 2,971,646 $ 3,285,876
Interest on deposits with banks 9,320 11,028 24,738 29,427
FHLB Stock dividends 7,000 21,533 20,965 43,847
Securities available-for-sale 733,145 706,460 1,428,883 1,266,827
Securities held-to-maturity 16,648 23,628 34,313 49,606
----------- ----------- ----------- -----------
Total interest and dividend income 2,273,352 2,375,236 4,480,545 4,675,583
----------- ----------- ----------- -----------
Interest Expense:
Deposits 587,905 665,152 1,166,390 1,441,922
FHLB Advances 32,858 145,085 93,157 290,494
----------- ----------- ----------- -----------
Total interest expense 620,763 810,237 1,259,547 1,732,416
----------- ----------- ----------- -----------
Net Interest Income 1,652,589 1,564,999 3,220,998 2,943,167
Loan loss provision -- -- -- --
----------- ----------- ----------- -----------
Net interest income after loan loss provision 1,652,589 1,564,999 3,220,998 2,943,167
----------- ----------- ----------- -----------
Noninterest income:
Net gain on sale of loans 110,611 217,562 225,076 806,543
Demand deposit service charges 144,733 164,820 283,916 326,136
Mortgage loan servicing fees 251,292 337,436 335,715 833,132
Net gain on sale of available-for-sale securities 9,964 (8,609) 9,771 1,302
Other 105,830 88,375 200,279 180,272
----------- ----------- ----------- -----------
Total noninterest income 622,430 799,584 1,054,757 2,147,385
----------- ----------- ----------- -----------
See accompanying notes to consolidated financial statements.
-3-
EAGLE BANCORP AND SUBSIDIARY
QUARTERLY CONSOLIDATED STATEMENTS OF INCOME
(Continued)
Three Months Ended Six Months Ended
December 31, December 31,
----------------------- -----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
Noninterest expense:
Salaries and employee benefits 807,347 816,840 1,616,235 1,536,845
Occupancy expenses 122,507 112,342 248,117 232,627
Furniture and equipment depreciation 79,650 60,731 157,910 121,837
In-house computer expense 65,686 56,469 127,552 116,052
Advertising expense 47,172 29,207 87,016 74,227
Amortization of mtg servicing fees 93,506 122,673 189,126 387,808
Federal insurance premiums 6,114 6,316 12,333 12,794
Postage 22,709 28,554 48,255 59,399
Legal, accounting, and examination fees 48,878 43,701 83,578 71,943
Consulting fees 11,637 3,780 22,664 11,340
ATM processing 11,856 12,920 23,482 26,697
Other 240,809 232,183 440,990 472,914
---------- ---------- ---------- ----------
Total noninterest expense 1,557,871 1,525,716 3,057,258 3,124,483
---------- ---------- ---------- ----------
Income before provision for income taxes 717,148 838,867 1,218,497 1,966,069
---------- ---------- ---------- ----------
Provision for income taxes 146,518 258,667 290,160 616,514
---------- ---------- ---------- ----------
Net income $ 570,630 $ 580,200 $ 928,337 $1,349,555
========== ========== ========== ==========
Basic earnings per share $ 0.50 $ 0.49 $ 0.80 $ 1.14
========== ========== ========== ==========
Diluted earnings per share $ 0.48 $ 0.49 $ 0.77 $ 1.13
========== ========== ========== ==========
Weighted average shares outstanding (basic eps) 1,145,492 1,181,412 1,158,823 1,180,835
========== ========== ========== ==========
Weighted average shares outstanding (diluted eps) 1,199,812 1,195,212 1,199,235 1,194,635
========== ========== ========== ==========
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, 2004
ADDITIONAL UNALLOCATED
PREFERRED COMMON PAID-IN ESOP TREASURY
STOCK STOCK CAPITAL SHARES STOCK
------- ----------- ----------- ----------- -----------
Balance, June 30, 2004 $ -- $ 12,236 $ 4,072,947 $ (202,448) $ (198,665)
Net income (unaudited) -- -- -- -- --
Other comprehensive
income (unaudited) -- -- -- -- --
Total comprehensive
income (unaudited) -- -- -- -- --
Dividends paid
($.36 per share) (unaudited) -- -- -- -- --
Treasury stock purchased
(22,000 shares @ $32.55)
(33,500 shares @ $34.55)
(unaudited) -- -- -- -- (1,873,525)
ESOP shares allocated or committed
to be released for allocation
(2,300 shares) (unaudited) -- -- 58,093 18,400 --
------- ----------- ----------- ----------- -----------
Balance, December 31, 2004
(unaudited) $ -- $ 12,236 $ 4,131,040 $ (184,048) $(2,072,190)
======= =========== =========== =========== ===========
ACCUMULATED
OTHER
RETAINED COMPREHENSIVE
EARNINGS INCOME TOTAL
------------ ------------ ------------
Balance, June 30, 2004 $ 21,250,088 $ (909,619) $ 24,024,539
Net income (unaudited) 928,337 -- 928,337
Other comprehensive
income (unaudited) -- 620,501 620,501
------------
Total comprehensive
income (unaudited) -- -- 1,548,838
------------
Dividends paid
($.36 per share) (unaudited) (189,046) -- (189,046)
------------
Treasury stock purchased
(22,000 shares @ $32.55)
(33,500 shares @ $34.55)
(unaudited) -- -- (1,873,525)
ESOP shares allocated or committed
to be released for allocation
(2,300 shares) (unaudited) -- -- 76,493
------------ ------------ ------------
Balance, December 31, 2004
(unaudited) $ 21,989,379 $ (289,118) $ 23,587,299
============ ============ ============
See accompanying notes to consolidated financial statements.
-5-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
December 31,
2004 2003
------------------------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 928,337 $ 1,349,555
Adjustments to reconcile net income to net cash
from operating activities:
Provision for mortgage servicing rights valuation losses (49,569) (567,651)
Depreciation 255,930 220,877
Net amortization of marketable securities premium
and discounts 722,556 842,283
Amortization of capitalized mortgage servicing rights 189,126 387,808
Gain on sale of loans (225,076) (806,542)
Net realized (gain) loss on sale of available-for-sale securities (9,771) (1,313)
FHLB & other dividends reinvested (13,900) (79,695)
Increase in cash surrender value of life insurance (83,933) (62,131)
Gain on sale of real estate owned -- (596)
Change in assets and liabilities:
(Increase) decrease in assets:
Accrued interest and dividends receivable 29,047 (186,452)
Loans held-for-sale 436,590 6,518,869
Other assets 146,088 (163,592)
Increase (decrease) in liabilities:
Accrued expenses and other liabilities 181,651 111,878
------------ ------------
Net cash provided by operating activities 2,507,076 7,563,298
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities:
Investment securities held-to-maturity -- --
Investment securities available-for-sale (6,098,091) (37,743,037)
Proceeds from maturities, calls and principal payments:
Investment securities held-to-maturity 235,642 465,173
Investment securities available-for-sale 10,585,239 18,832,395
FHLB stock redeemed 266,500 --
Proceeds from sales of investment securities available-for-sale 2,179,483 6,679,310
Net (increase) decrease in loan receivable, excludes transfers
to real estate acquired in settlement of loans (2,111,190) 945,745
See accompanying notes to consolidated financial statements.
-6-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Six Months Ended
December 31,
2004 2003
------------------------------
(Unaudited)
CASH FLOWS FROM INVESTING ACTIVITIES (CONTINUED):
Purchase of property and equipment (141,737) (304,944)
Purchase of bank owned life insurance (2,400,000) --
Proceeds from the sale of real estate acquired in the
settlement of loans -- 70,606
------------ ------------
Net cash provided by (used in) investing activities 2,515,846 (11,054,752)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in checking and savings accounts 267,795 3,864,957
Net increase (decrease) in overnight FHLB advances (1,000,000) --
Payments on FHLB advances (2,531,482) (1,100,000)
FHLB advances -- 1,050,000
Sale (Purchase) of Treasury Stock (1,873,525) --
Dividends paid (189,046) (179,610)
------------ ------------
Net cash provided by (used in) financing activities (5,326,258) 3,635,347
------------ ------------
Net increase (decrease) in cash and cash equivalents (303,336) 143,893
CASH AND CASH EQUIVALENTS, beginning of period 4,346,766 10,230,043
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 4,043,430 $ 10,373,936
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest $ 1,285,561 $ 1,768,761
============ ============
Cash paid during the period for income taxes $ 183,000 $ 274,450
============ ============
NON-CASH INVESTING ACTIVITIES:
(Increase) decrease in market value of securities available-for-sale $ (998,187) $ 706,639
============ ============
Mortgage servicing rights capitalized $ 117,539 $ 418,109
============ ============
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 and six month periods ended
December 31, 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'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:
December 31, 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 $ 8,997,919 $ (26,579) $ 8,971,340 $11,071,378 $ (159,926) $10,911,452
Municipal obligations 10,922,109 132,107 11,054,216 9,267,086 (194,580) 9,072,506
Corporate obligations 17,507,766 (107,050) 17,400,716 17,934,087 (338,757) 17,595,330
Mortgage-backed
securities 13,998,756 (82,857) 13,915,899 16,755,411 (174,212) 16,581,199
Mutual Funds -- -- -- 99,693 477 100,170
Collateralized
mortgage obligations 29,273,344 (169,081) 29,104,263 32,821,048 (405,785) 32,415,263
Common stock -- -- -- 128,908 (1,872) 127,036
Corporate preferred
stock 1,950,000 (228,507) 1,721,493 1,950,000 (205,498) 1,744,502
----------- ----------- ----------- ----------- ----------- -----------
Total $82,649,894 $ (481,967) $82,167,927 $90,027,611 $(1,480,153) $88,547,458
=========== =========== =========== =========== =========== ===========
Held-to-maturity:
Municipal obligations $ 829,750 $ 46,096 $ 875,846 $ 930,422 $ 35,999 $ 966,421
Mortgage-backed
securities 498,602 24,387 522,989 635,270 28,849 664,119
----------- ----------- ----------- ----------- ----------- -----------
Total $ 1,328,352 $ 70,483 $ 1,398,835 $ 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:
December 31, June 30,
2004 2004
(Unaudited) (Audited)
------------ ------------
First mortgage loans:
Residential mortgage (1-4 family) $ 53,230,247 $ 49,044,832
Commercial real estate 11,242,942 9,336,336
Real estate construction 1,260,765 5,101,591
Other loans:
Home equity 15,012,649 14,874,279
Consumer 9,485,953 9,801,698
Commercial 4,714,942 4,840,045
------------ ------------
Total 94,947,498 92,998,781
Less: Allowance for loan losses (585,067) (627,733)
Deferred loan fees 87,811 85,541
------------ ------------
Total $ 94,450,242 $ 92,456,589
============ ============
Loans net of related allowance for loan losses on which the accrual of interest
has been discontinued were $523,000 and $497,000 at December 31, 2004 and June
30, 2004, respectively. Classified assets, including real estate owned, totaled
$850,000 and $924,000 at December 31, 2004 and June 30, 2004, respectively.
The following is a summary of changes in the allowance for loan losses:
Six Months Ended Year ended
December 31, 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 (36,325) (45,431)
Recoveries 4,246 8,994
--------- ---------
Balance, end of period $ 585,067 $ 627,733
========= =========
-10-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 4. DEPOSITS
Deposits are summarized as follows:
December 31, June 30,
2004 2004
(Unaudited) (Audited)
------------ ------------
Noninterest checking $ 9,989,538 $ 9,267,458
Interest-bearing checking 30,081,968 29,370,347
Passbook 26,014,387 25,862,734
Money market 29,490,944 30,332,871
Time certificates of deposit 74,759,838 75,235,470
------------ ------------
Total $170,336,675 $170,068,880
============ ============
NOTE 5. EARNINGS PER SHARE
Basic earnings per share for the three months ended December 31, 2004 is
computed using 1,145,492 weighted average shares outstanding. Earnings per share
for the six months ended December 31, 2004 is computed using 1,158,823 weighted
average shares outstanding. Basic earnings per share for the three months ended
December 31, 2003 is computed using 1,181,412 weighted average shares
outstanding. Earnings per share for the six months ended December 31, 2003 is
computed using 1,180,835 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 1,199,812 for
the three months ended December 31, 2004 and 1,199,235 for the six months ended
December 31, 2004. Diluted earnings per share for the three months and six
months ended December 31, 2003 is computed using 1,195,212 and 1,194,635
weighted average shares outstanding, respectively.
NOTE 6. DIVIDENDS AND STOCK REPURCHASE PROGRAM
This fiscal year Eagle has paid two dividends of $0.18 per share, on August 27,
2004 and November 19, 2004. A dividend of $0.18 per share was declared on
January 20, 2005, payable February 11, 2005 to stockholders of record on January
28, 2005. Eagle Financial MHC, Eagle's mutual holding company, has waived the
receipt of dividends on its 648,493 shares.
At their regular meeting of January 20, 2005, the Company's Board of Directors
approved a stock repurchase program for up to 57,500 shares. This represents
approximately 11% 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
February 7, 2005, the Company had committed to purchasing all 57,500 shares,
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 $10,779 has been established. The following schedules show the
activity in the mortgage servicing rights and the valuation allowance.
Six months Twelve months
ended ended
December 31, June 30,
2004 2004
(Unaudited) (Audited)
----------- -----------
Mortgage Servicing Rights
Beginning balance $ 2,063,606 $ 2,048,334
Servicing rights capitalized 117,539 643,798
Servicing rights amortized (189,126) (628,526)
----------- -----------
Ending balance 1,992,019 2,063,606
----------- -----------
Valuation Allowance
Beginning balance 60,348 756,720
Provision (49,569) (696,372)
Adjustments -- --
----------- -----------
Ending balance 10,779 60,348
----------- -----------
Net Mortgage Servicing Rights $ 1,981,240 $ 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.
Overview
The Company's primary activity is owning its wholly owned subsidiary, American
Federal Savings Bank (the "Bank"). The Bank is a federally chartered savings
bank, engaging in typical banking activities: acquiring deposits from local
markets and investing in loans and investment securities. The Bank's primary
component of earnings is its net interest margin (also called spread or margin),
the difference between interest income and interest expense. The net interest
margin is managed by management (through the pricing of its products and by the
types of products offered and kept in portfolio), and is affected by moves in
interest rates. Noninterest income in the form of fee income and gain on sale of
loans adds to the Bank's income.
The Bank has a strong mortgage lending focus, with the majority of its loans in
single-family residential mortgages. This has led to successfully marketing home
equity loans to its customers, as well as a wide range of shorter term consumer
loans for various personal needs (automobiles, recreational vehicles, etc.). In
recent years the Bank has focused on adding commercial loans to its portfolio,
both real estate and non-real estate. The purpose of this diversification is to
mitigate the Bank's dependence on the mortgage market, as well as to improve its
ability to manage its spread. The Bank's management recognizes the need for
sources of fee income to complement its margin, and the Bank now maintains a
significant loan serviced portfolio, which provides a steady source of fee
income. The gain on sale of loans also provides significant fee income in
periods of high mortgage loan origination volumes. Fee income is also
supplemented with fees generated from the Bank's deposit accounts. The Bank has
a high percentage of non-maturity deposits, such as checking accounts and
savings accounts, which allows management flexibility in managing its spread.
Non-maturity deposits do not automatically reprice as interest rates rise, as do
certificates of deposit.
-13-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview (Continued)
For the past year, management's focus has been on improving the Bank's core
earnings. Core earnings can be described as income before taxes, with the
exclusion of gain on sale of loans and adjustments to the market value of the
Bank's loan serviced portfolio. In the previous two fiscal years, the Bank
experienced very strong mortgage loan origination volume due to low interest
rates and large refinancing activity. If, as expected, interest rates rise,
mortgage volume will likely decrease (as has already been the case in the
current fiscal year), reducing this component of income. Management believes
that the Bank will need to focus on increasing net interest margin, other areas
of fee income, and control operating expenses to achieve earnings growth going
forward. Management's strategy of growing the bank's loan portfolio and deposit
base is expected to help achieve these goals: loans typically earn higher rates
of return than investments; a larger deposit base will yield higher fee income;
increasing the asset base will reduce the relative impact of fixed operating
costs.
Another factor which has impacted recent earnings has been the volatility in the
value of the Bank's mortgage servicing rights. The value declined significantly
in fiscal year 2003, only to recover almost the entire amount in fiscal year
2004. If interest rates continue to rise as anticipated, the value of the
servicing rights would be expected to rise as well. Management believes this
would also eliminate the valuation allowance on the servicing rights and the
fluctuations that accompany it. Comparisons of fiscal year 2005 to fiscal year
2004 will still be affected by the large recovery of the valuation allowance
that happened in 2004.
Financial Condition
Comparisons of results in this section are between December 31, 2004 and June
30, 2004.
Total assets decreased by $3.39 million, or 1.67%, to $199.62 million at
December 31, 2004, from $203.01 million at June 30, 2004. Total liabilities
decreased by $2.96 million to $176.03 million at December 31, 2004, from $178.99
million at June 30, 2004. Total equity decreased $440,000 to $23.58 million at
December 31, 2004 from $24.02 million at June 30, 2004.
Investment securities available-for-sale (AFS) decreased $6.38 million, or
7.20%, to $82.17 million at December 31, 2004 from $88.55 million at June 30,
2004. The investment category with the largest decrease was collateralized
mortgage obligations, which decreased $3.31 million. Loans receivable increased
$1.99 million, or 2.15%, to $94.45 million at December 31, 2004 from $92.46
million at June 30, 2004. Most loan categories showed an increase. Construction
loans declined $3.84 million since June 30, 2004 due to the completion of a
large commercial construction project, while single family mortgages increased
$4.19 million in the same time period. Total loan originations were $41.85
million for the six months ended December 31, 2004, with single family mortgages
(including $2.05 million of construction loans) accounting for $28.76 million of
the total.
Home equity loan and consumer loan originations totaled $4.60 million and $3.15
million, respectively, for the same period. Commercial real estate and land loan
originations totaled $3.53 million. Loans held for sale decreased to $1.22
million at December 31, 2004 from $1.44 million at June 30, 2004.
-14-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition (continued)
Advances from the Federal Home Loan Bank of Seattle (FHLB) decreased $3.53
million, to $3.92 million from $7.45 million, while deposits were up slightly.
Checking accounts showed the largest increase in deposit accounts.
Total equity declined as a result of $1.87 million in treasury stock purchased
during the period, earnings for the six months of $928,000, a decrease in other
comprehensive loss of $621,000 (due to a reduction in net unrealized loss on
securities available-for-sale) and the payment of two quarterly $0.18 per share
regular cash dividends.
Results of Operations for the Three Months Ended December 31, 2004 and 2003
Net Income. Eagle's net income was $571,000 and $580,000 for the three months
ended December 31, 2004, and 2003, respectively. The decrease of $9,000, or
1.55%, was due to a decrease in noninterest income of $177,000 and an increase
in noninterest expense of $32,000, offset by an increase in net interest income
of $88,000. Eagle's tax provision was $112,000 lower in the current quarter.
Basic earnings per share were $0.50 for the current period, compared to $0.49
for the previous year's period.
Net Interest Income. Net interest income increased to $1.65 million for the
quarter ended December 31, 2004, from $1.56 million for the previous year's
quarter. This increase of $88,000 was the result of a decrease in interest
expense of $189,000 partially offset by the decrease in interest and dividend
income of $101,000.
Interest and Dividend Income. Total interest and dividend income was $2.27
million for the quarter ended December 31, 2004, compared to $2.37 million for
the quarter ended December 31, 2003, representing a decrease of $101,000, or
4.26%. Interest and fees on loans decreased to $1.51 million for the three
months ended December 31, 2004 from $1.61 million for the same period ended
December 31, 2003. This decrease of $105,000, or 6.52%, was due primarily to the
decline in the average interest rate earned on loans for the quarter ended
December 31, 2004 as average balances showed little change from the previous
year's quarter. The average interest rate earned on loans receivable decreased
by 45 basis points, from 6.74% at December 31, 2003 to 6.29% at December 31,
2004. Interest and dividends on investment securities available-for-sale (AFS)
increased to $733,000 for the quarter ended December 31, 2004 from $706,000 for
the same quarter last year. Average balances on investments decreased to $85.91
million for the quarter ended December 31, 2004, compared to $91.26 million for
the quarter ended December 31, 2003. The average interest rate earned on
investments increased to 3.49% from 3.20%. Interest on securities
held-to-maturity (HTM) decreased from $24,000 to $17,000 as new purchases are
placed in the AFS portfolio. Dividends on FHLB stock decreased to $7,000 for the
quarter ended December 31, 2004 from $22,000 for the quarter ended December 31,
2003, due to the FHLB lowering their dividend rate as part of their newly
adopted capital plan.
-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 December 31, 2004 and 2003
(continued)
Interest Expense. Total interest expense decreased to $621,000 for the quarter
ended December 31, 2004, from $810,000 for the quarter ended December 31, 2003,
a decrease of $189,000, or 23.33%, primarily due to a decrease in interest paid
on FHLB advances. A decrease in the average balance of borrowings from the FHLB,
as well as a decrease in the average rate paid, resulted in a decrease in
interest paid on borrowings to $33,000 in the current quarter compared to
$145,000 in the previous year's quarter. The Company has paid off higher rate
borrowings since December 2003. Interest on deposits decreased to $588,000 for
the quarter ended December 31, 2004, from $665,000 for the quarter ended
December 31, 2003. This decrease of $77,000, or 11.58%, was the result of a
decrease in average rates paid on deposit accounts. All deposit accounts showed
decreases in average rates paid (except passbook savings which remained the
same), 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
$161.26 million for the quarter ended December 31, 2004, compared to $164.23
million for the same quarter in the previous year. The average rate paid on
liabilities decreased 37 basis points from the quarter ended December 31, 2003
to the quarter ended December 31, 2004.
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 December 31, 2004 or the quarter ended December 31, 2003. This
reflects the continued strong asset quality of the Bank's loan portfolio. Total
classified assets decreased from $924,000 at June 30, 2004 to $850,000 at
December 31, 2004. The Bank currently has no foreclosed real estate.
Noninterest Income. Total noninterest income decreased to $622,000 for the
quarter ended December 31, 2004, from $799,000 for the quarter ended December
31, 2003, a decrease of $177,000 or 22.15%. This was the result of the decrease
in net gain on sale of loans of $107,000 and the decline in income from loan
servicing fees. Decreased mortgage loan originations compared to the same
quarter a year ago contributed to the decrease in income from sale of loans.
Mortgage loan servicing fees were lower due to the higher adjustment to the
value of the Bank's mortgage servicing rights in the previous year's quarter.
Demand deposit service charges decreased to $145,000 for the quarter ended
December 31, 2004 from $165,000 for the quarter ended December 31, 2003. This
was due to decreased income on overdraft charges. The other categories of
noninterest income registered small increases.
-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 December 31, 2004 and 2003
(continued)
Noninterest Expense. Noninterest expense increased by $32,000 or 2.09% to $1.56
million for the quarter ended December 31, 2004, from $1.53 million for the
quarter ended December 31, 2003. This increase was primarily due to increases in
furniture and equipment depreciation of $19,000 (new computer equipment) and
advertising expense of $18,000 (increased promotion of lending products).
Amortization of mortgage servicing fees decreased $29,000 due to the decreased
prepayment activity on mortgage loans. Other expense categories showed minor
changes.
Income Tax Expense. Eagle's income tax expense was $147,000 for the quarter
ended December 31, 2004, compared to $259,000 for the quarter ended December 31,
2003. The effective tax rate for the quarter ended December 31, 2004 was 20.43%
and was 30.84% for the quarter ended December 31, 2003. The current quarter's
tax expense was lower due to adjusting for the previous fiscal year's income tax
expense. Management expects Eagle's effective tax rate to be approximately 31%.
Results of Operations for the Six Months Ended December 31, 2004 and 2003
Net Income. Eagle's net income was $928,000 and $1.35 million for the six months
ended December 31, 2004 and 2003, respectively. The decrease of $422,000, or
31.26%, was primarily due to a decrease in noninterest income of $1.093 million,
offset by an increase in net interest income of $278,000 and a decrease in
noninterest expense of $67,000. Noninterest income declined due to the decrease
in net gain on sale of loans and to larger increases in the value of Eagle's
mortgage servicing rights in the previous year's period. Eagle's tax provision
was $326,000 lower in the current period. Basic earnings per share for the
period ended December 31, 2004 were $0.80, compared to $1.14 per share for the
period ended December 31, 2003.
Net Interest Income. Net interest income increased to $3.22 million for the six
months ended December 31, 2004 from $2.94 million for the six months ended
December 31, 2003. This increase of $278,000 was the result of a decrease in
interest expense of $473,000, partially offset by a decrease in interest and
dividend income of $195,000.
Interest and Dividend Income. Total interest and dividend income was $4.48
million for the six months ended December 31, 2004, compared to $4.675 million
for the same period ended December 31, 2003, representing a decrease of
$195,000, or 4.17%. Interest and fees on loans decreased to $2.971 million for
2004 from $3.285 million for 2003. This decrease of $314,000, or 9.56%, was due
to a decrease in the average balances of loans receivable for the six months
ended December 31, 2004 and the decline in the average interest rate earned on
loans. Average balances for loans receivable, net, for this period were $94.65
million, compared to $96.83 million for the previous year. This is a decrease of
$2.18 million, or 2.25%. Most loan categories had shown increases
-17-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Six Months Ended December 31, 2004 and 2003
(continued)
from the previous year, however commercial real estate declined significantly
due to the sale of a large loan participation. The average interest rate earned
on loans receivable decreased by 51 basis points, to 6.28% from 6.79%. Interest
and dividends on investment securities available-for-sale (AFS) increased to
$1.43 million for the six months ended December 31, 2004 from $1.27 million for
the same period ended December 31, 2003. Interest on securities held-to-maturity
(HTM) decreased from $50,000 to $34,000. Dividends on FHLB stock decreased to
$21,000 for the six months ended December 31, 2004 from $44,000 for the six
months ended December 31, 2003 due to the lower dividend rate as part of the
FHLB's newly adopted capital plan.
Interest Expense. Total interest expense decreased to $1.259 million for the six
months ended December 31, 2004 from $1.732 million for the six months ended
December 31, 2003, a decrease of $473,000, or 27.31%. Interest on deposits
decreased to $1.166 million for the six months ended December 31, 2004 from
$1.442 million for the six months ended December 31, 2003. This decrease of
$276,000, or 19.14%, was the result of a decrease in average rates paid on
deposit accounts and a decline in average balances in deposit accounts. Average
rates paid on all interest-bearing deposits declined from 2003 to 2004, with the
average rate paid on all liabilities dropping by 49 basis points from the six
month period ended December 31, 2003 to the six month period ended December 31,
2004. Average balances in interest-bearing deposits decreased to $161.29 million
for the six month period ended December 31, 2004 compared to $163.58 million for
the same period in the previous year. Interest paid on borrowings decreased to
$93,000 for the six months ended December 31, 2004 from $290,000 for the same
period ended December 31, 2003. The decrease in borrowing costs was due to
decreases in the average rate paid and 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 (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
of the six month periods ended December 31, 2004 or December 31, 2003. This is a
reflection of the continued strong asset quality of the Bank's loan portfolio.
Total classified assets decreased to $850,000 at December 31, 2004 from $924,000
at June 30, 2004. The Bank currently has no foreclosed property.
Noninterest Income. Total noninterest income decreased to $1.054 million for the
six months ended December 31, 2004, from $2.147 million for the six months ended
December 31, 2003, a decrease of $1.093 million, or 50.91%. Net gain on sale of
loans declined to $225,000 for the six months ended December 31, 2004, compared
to $807,000 for the same period ended December 31, 2003. This decrease was due
to a decline in mortgage originations, caused by a slowdown in mortgage
refinance activity.
-18-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Six Months Ended December 31, 2004 and 2003
(continued)
Mortgage loan servicing fees declined to $336,000 in 2004 from $833,000 in 2003.
In the six month period ended December 31, 2003, the value of Eagle's mortgage
servicing rights increased by $568,000. In the current six month period, the
value of the mortgage servicing rights increased by $50,000. Demand deposit
service charges decreased to $284,000 for the six month period ended December
31, 2004 from $326,000 for the same period ended December 31, 2003. This was due
to decreased income on overdraft charges. Other categories of noninterest income
showed minor increases.
Noninterest Expense. Noninterest expense decreased by $67,000, or 2.14% to
$3.057 million for the six months ended December 31, 2004, from $3.124 million
for the six months ended December 31, 2003. This decrease was primarily due to a
decrease in the amortization of mortgage servicing fees of $199,000 and in
"other" noninterest expense of $32,000. The decrease in amortization of mortgage
servicing fees was related to decreased prepayment activity on mortgage loans
for the six month period. The decrease in "other" noninterest expense was due
primarily to lower loan expenses. Salaries and benefit expenses increased
$79,000 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 $36,000 due to the purchase of new computer
equipment for check imaging. Other categories of noninterest expense showed
modest changes.
Income Tax Expense. Eagle's income tax expense was $290,000 for the six months
ended December 31, 2004, compared to $616,000 for the six months ended December
31, 2003. The effective tax rate for the six months ended December 31, 2004 was
23.81% and was 31.36% for the six months ended December 31, 2003. The current
period's tax expense was lower due to adjusting for the previous fiscal year's
income tax expense.
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 15.81% and 25.09% for the months ended December 31, 2004 and
December 31, 2003, respectively. Liquidity decreased due to the decreased
investment balances and the pledging of certain securities as collateral for
FHLB borrowings.
-19-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity, Interest Rate Sensitivity and Capital Resources
The Bank's primary sources of funds are deposits, repayment of loans and
mortgage-backed securities, maturities of investments, funds provided from
operations, and advances from the Federal Home Loan Bank of Seattle. Scheduled
repayments of loans and mortgage-backed securities and maturities of investment
securities are generally predictable. However, other sources of funds, such as
deposit flows and loan prepayments, can be greatly influenced by the general
level of interest rates, economic conditions and competition. The Bank uses
liquidity resources principally to fund existing and future loan commitments. It
also uses them to fund maturing certificates of deposit, demand deposit
withdrawals and to invest in other loans and investments, maintain liquidity,
and meet operating expenses.
Liquidity may be adversely affected by unexpected deposit outflows, higher
interest rates paid by competitors, and similar matters. Management monitors
projected liquidity needs and determines the level desirable, based in part on
commitments to make loans and management's assessment of the bank's ability to
generate funds.
At September 30, 2004 (the most recent report available), the Bank's measure of
sensitivity to interest rate movements, as measured by the OTS, improved from
the previous quarter. The Bank's capital ratio as measured by the OTS increased
during the same period. The Bank is well within the guidelines set forth by the
Board of Directors for interest rate risk sensitivity.
As of December 31, 2004, the Bank's regulatory capital was in excess of all
applicable regulatory requirements. At December 31, 2004, the Bank's tangible,
core, and risk-based capital ratios amounted to 11.95%, 11.95%, and 18.77%,
respectively, compared to regulatory requirements of 1.5%, 3.0%, and 8.0%,
respectively. See the following table (amounts in thousands):
(Unaudited)
At December 31, 2004
-------------------------
For Capital
Adequacy
Dollar Purposes
Amount % of Assets
------- -----
Tangible capital:
Capital level $23,928 11.95%
Requirement 3,005 1.50
------- -----
Excess $20,923 10.45%
======= =====
Core capital:
Capital level $23,928 11.95%
Requirement 6,009 3.00
------- -----
Excess $17,919 8.95%
======= =====
Risk-based capital:
Capital level $24,501 18.77%
Requirement 10,444 8.00
------- -----
Excess $14,057 10.77%
======= =====
-20-
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.
Application of Critical Accounting Policies
There are a number of accounting estimates performed by the Company in preparing
its financial statements. Some of the estimates are developed internally, while
others are obtained from independent third parties. Examples of estimates using
external sources are the fair market value of investment securities, fair value
of mortgage servicing rights, deferred compensation, and appraised value of
foreclosed properties. It is management's assertion that the external sources
have access to resources, methodologies, and markets that provide adequate
assurances that no material impact would occur due to changes in assumptions.
The following accounting estimates are performed internally:
Allowance for Loan and Lease Losses (ALLL)- Management applies its knowledge of
current local economic and real estate market conditions, historical experience,
loan portfolio composition, and the assessment of delinquent borrowers'
situations, to determine the adequacy of its ALLL reserve. These factors are
reviewed by the Bank's federal banking regulator and the Company's external
auditors on a regular basis. The current level of the ALLL reserve is deemed to
be more than adequate given the above factors, with no material impact expected
due to a difference in the assumptions.
Deferred Loan Fees - Management applies time study and statistical analysis to
determine loan origination costs to be capitalized under FAS 91. The analysis is
reviewed by the Company's external auditors for reasonableness. No material
impact is expected if different assumptions are used, as many of our loans have
a short duration.
Deferred Tax Assets - Management expects to realize the deferred tax assets due
to the continue profitability of the Company.
Fair Value of Other Financial Instruments - Management uses an internal model to
determine fair value for its loan portfolio and certificates of deposit. The
assumptions entail spreads over the Treasury yield curve at appropriate maturity
benchmarks. Assumptions incorporating different spreads would naturally deliver
varying results, however due to short-term nature of the loan portfolio and
certificates of deposit, changes in the results would be mitigated. Currently,
the fair value is only presented as footnote information, and changes due to new
assumptions would not, in management's opinion, affect the reader's opinion of
the Company's financial condition.
Economic Life of Fixed Assets - Management determines the useful life of its
buildings, furniture, and equipment for depreciation purposes. These estimates
are reviewed by the Company's external auditors for reasonableness. No material
impact is expected if different assumptions were to be used.
-21-
EAGLE BANCORP AND SUBSIDIARY
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 December 31,
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.
-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. 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
------ ---------- --------- ----------- -----------
October 2004 None N/A N/A
10-1-04 to
10-31-04
November 2004 33,500 $34.55 57,500 --
11-1-04 to
11-30-04
December 2004 None N/A N/A
12-1-04 to
12-31-04
Total 33,500 $34.55 57,500 --
*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. The
purchases in November 2004 completed the program. The Company publicly
announced a subsequent stock repurchase program on January 20, 2005.
This program also authorized the Company to acquire up to 57,500
shares of common stock with the price subject to market conditions.
Item 3. Defaults Upon Senior Securities.
Not applicable.
-23-
EAGLE BANCORP AND SUBSIDIARY
Part II - OTHER INFORMATION (CONTINUED)
Item 4. Submission of Matters to a Vote of Security Holders.
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.
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.
a.) Reports on Form 8-K
On October 21, 2004, the registrant furnished under Item 12 of
Form 8-K a press release announcing its earnings for the first
quarter of the 2005 fiscal year.
On October 26, 2004, the registrant filed a Form 8-K announcing
the establishment of a split-dollar benefit plan with twelve
officers of the Bank. The plan was filed with the registrant's
September 30, 2004 10-QSB.
-24-
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: February 10, 2005 By: /s/ Larry A. Dreyer
-------------------
Larry A. Dreyer
President/Chief Executive Officer
Date: February 10, 2005 By: /s/ Peter J. Johnson
--------------------
Peter J. Johnson
Chief Financial Officer
-25-