UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
For the transition period from _____________ to _____________.
Commission file number 0-29687
Eagle Bancorp
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(Exact name of small business issuer as specified in its charter)
United States 81-0531318
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1400 Prospect Avenue, Helena, MT 59601
----------------------------------------
(Address of principal executive offices)
(406) 442-3080
---------------------------
(Issuer's telephone number)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No[ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common stock, par value $0.01 per share 1,208,172 shares outstanding
--------------------------------------------------------------------------------
As of February 13, 2002
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
EAGLE BANCORP AND SUBSIDIARY
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition (As of
December 31, 2001 (unaudited) and June 30, 2001) .......... 1 and 2
Consolidated Statements of Income (For the three and six
months ended December 31, 2001 and 2000 (unaudited)) ...... 3 and 4
Consolidated Statements of Stockholders' Equity (For the
six months ended December 31, 2001 (unaudited)) ........... 5
Consolidated Statements of Cash Flows (For the six
months ended December 31, 2001 and 2000 (unaudited)) ...... 6 and 7
Notes to Consolidated Financial Statements ................ 8 to 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................... 13 to 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ........................................... 21
Item 2. Changes in Securities ....................................... 21
Item 3. Defaults Upon Senior Securities ............................. 21
Item 4. Submission of Matters to a Vote of Security-Holders ......... 21
Item 5. Other Information ........................................... 21
Item 6. Exhibits and Reports on Form 8-K ............................ 21 to 22
Signatures
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 2001 June 30, 2001
----------------- -------------
(Unaudited) (Audited)
ASSETS
Cash and due from banks ........................ $ 3,669,894 $ 3,427,038
Interest-bearing deposits with banks ........... 6,773,443 4,925,000
Investment securities available for sale,
at market value .............................. 30,701,134 21,603,520
Investment securities held-to-maturity,
at amortized cost ............................ 5,015,869 6,570,794
Federal Home Loan Bank stock, at cost .......... 1,540,200 1,487,300
Mortgage loans held-for-sale ................... 4,875,426 3,033,244
Loans receivable, net of deferred loan fees
and allowance for loan losses ................ 113,108,460 114,977,895
Accrued interest and dividends receivable ...... 898,371 941,117
Mortgage servicing rights, net ................. 1,382,690 1,315,819
Property and equipment, net .................... 6,351,030 6,505,627
Cash surrender value of life insurance ......... 2,192,330 2,140,524
Real estate acquired in settlement of loans,
net of allowance for losses .................. -- --
Other assets ................................... 179,797 195,034
------------ ------------
Total assets ............................... $176,688,644 $167,122,912
============ ============
See accompanying notes to consolidated financial statements.
-1-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Continued)
December 31, 2001 June 30, 2001
----------------- -------------
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposit accounts:
Noninterest bearing .......................... $ 7,158,245 $ 6,486,306
Interest bearing ............................. 137,612,918 127,564,024
Advances from Federal Home Loan Bank ........... 9,393,889 11,443,889
Accrued expenses and other liabilities ......... 1,970,483 1,926,450
------------ ------------
Total liabilities .......................... 156,135,535 147,420,669
------------ ------------
Stockholders' Equity:
Preferred stock (no par value, 1,000,000 shares
authorized, none issued or outstanding) ......
Common stock (par value $0.01 per share;
10,000,000 shares authorized; 1,223,572
shares issued and 1,203,572 outstanding
at December 31, 2001 and June 30, 2001) ...... 12,236 12,236
Additional paid-in capital ..................... 3,862,480 3,845,908
Unallocated common stock held by employee
stock ownership plan ("ESOP") ................ (294,448) (312,848)
Treasury stock, at cost (20,000 shares) ........ (235,000) (235,000)
Retained earnings .............................. 17,018,150 16,220,812
Accumulated other comprehensive income ......... 189,691 171,135
------------ ------------
Total stockholders' equity ................. 20,553,109 19,702,243
------------ ------------
Total liabilities and stockholders' equity . $176,688,644 $167,122,912
============ ============
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,
------------------------ -------------------------
2001 2000 2001 2000
---- ---- ---- ----
Interest and dividend income:
Interest and fees on loans .... $2,364,788 $ 2,301,293 $4,740,808 $ 4,554,478
Interest on deposits with banks 43,974 22,454 110,822 27,599
FHLB stock dividends .......... 24,799 23,131 52,946 45,891
Securities available for sale . 346,750 285,677 649,886 572,916
Securities held to maturity ... 79,430 144,921 170,261 307,044
----------- ----------- ----------- -----------
Total interest and dividend
income ................... 2,859,741 2,777,476 5,724,723 5,507,928
----------- ----------- ----------- -----------
Interest expense:
Deposits ...................... 1,150,361 1,300,006 2,375,050 2,532,623
FHLB advances ................. 175,281 166,431 354,090 311,365
----------- ----------- ----------- -----------
Total interest expense .... 1,325,642 1,466,437 2,729,140 2,843,988
----------- ----------- ----------- -----------
Net interest income ........... 1,534,099 1,311,039 2,995,583 2,663,940
Loan loss provision ........... -- -- -- 15,000
----------- ----------- ----------- -----------
Net interest income after
loan loss provision ...... 1,534,099 1,311,039 2,995,583 2,663,940
----------- ----------- ----------- -----------
Noninterest income:
Net gain on sale of loans ..... 401,039 88,679 572,157 131,278
Demand deposit service charges 128,240 139,150 253,803 273,829
Mortgage loan servicing fees .. 78,831 72,767 94,163 145,361
Net gain on sale of available
for sale securities .......... 1,976 -- 1,976 --
Other ......................... 94,269 100,782 186,478 194,213
----------- ----------- ----------- -----------
Total noninterest income .. 704,355 401,378 1,108,577 744,681
----------- ----------- ----------- -----------
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,
----------------------- ---------------------
2001 2000 2001 2000
---- ---- ---- ----
Noninterest expense:
Salaries and employee benefits ........ $ 698,787 $ 693,695 $1,432,254 $1,362,255
Occupancy expenses .................... 121,788 127,654 235,537 241,705
Furniture and equipment depreciation .. 71,226 83,430 139,370 165,246
In-house computer expense ............. 48,879 45,558 98,378 88,909
Advertising expense ................... 26,389 43,660 57,915 87,595
Amortization of mortgage servicing fees 105,083 25,095 173,792 56,102
Federal insurance premiums ............ 6,088 5,322 12,214 12,394
Postage ............................... 22,019 25,529 51,772 47,196
Legal, accounting, and examination fees 49,177 51,228 72,169 98,916
Consulting fees ....................... 5,880 8,601 13,236 16,476
ATM processing ........................ 12,736 16,222 23,297 30,518
Other ................................. 202,846 190,760 384,766 357,815
---------- ---------- ---------- ----------
Total noninterest expense ......... 1,370,898 1,316,754 2,694,700 2,565,127
---------- ---------- ---------- ----------
Income before provision for income taxes 867,556 395,663 1,409,460 843,494
---------- ---------- ---------- ----------
Provision for income taxes .............. 305,865 124,084 501,107 268,364
---------- ---------- ---------- ----------
Net income .............................. $ 561,691 $ 271,579 $ 908,353 $ 575,130
========== ========== ========== ==========
Basic Earnings per share ................ $ 0.48 $ 0.23 $ 0.78 $ 0.49
========== ========== ========== ==========
Diluted Earnings per share .............. $ 0.47 n.a. $ 0.77 n.a.
========== ========== ========== ==========
Weighted average shares outstanding
(basic eps) ........................... 1,166,010 1,181,412 1,165,434 1,180,835
========== ========== ========== ==========
Weighted average shares outstanding
(diluted eps) ......................... 1,186,010 n.a. 1,185,434 n.a.
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
-4-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
ACCUMULATED
ADDITIONAL UNALLOCATED OTHER
PREFERRED COMMON PAID-IN ESOP TREASURY RETAINED COMPREHENSIVE
STOCK STOCK CAPITAL SHARES STOCK EARNINGS INCOME TOTAL
--------- ------- ---------- ----------- ---------- ----------- ------------- -----------
Balance, June 30, 2001 .................. $ -- $12,236 $3,845,908 $(312,848) $(235,000) $16,220,812 $ 171,135 $19,702,243
Net income ............................ -- -- -- -- -- 908,353 -- 908,353
Other comprehensive income ............ -- -- -- -- -- -- 18,556 18,556
-----------
Total comprehensive income ........ -- -- -- -- -- -- -- 926,909
Dividends paid ($.20 per share) ....... -- -- -- -- -- (111,015) -- (111,015)
ESOP shares allocated or committed
to be released for allocation
(2,300 shares) ...................... -- -- 16,572 18,400 -- -- -- 34,972
------- ------- ---------- --------- --------- ----------- --------- -----------
Balance, December 31, 2001 .............. $ -- $12,236 $3,862,480 $(294,448) $(235,000) $17,018,150 $ 189,691 $20,553,109
======= ======= ========== ========= ========= =========== ========= ===========
See accompanying notes to consolidated financial statements.
-5-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
December 31,
---------------------------
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................... $ 908,353 $ 575,130
Adjustments to reconcile net income to
net cash from operating activities:
Provision for loan losses .................. -- --
Provision for mortgage servicing rights
valuation losses .......................... 58,433 --
Depreciation ............................... 236,267 284,208
Deferred loan fees ......................... -- (5,958)
Net amortization of marketable securities
premium and discounts ..................... 45,916 --
Amortization of capitalized mortgage
servicing rights .......................... 171,126 56,101
Gain on sale of loans ...................... (572,157) (131,278)
Gain on sale of real estate owned .......... -- (8,951)
Net realized (gain) loss on sale of
available-for-sale securities ............. (1,976) --
FHLB & other Dividends reinvested .......... (72,290) (45,800)
Increase in cash surrender value
of life insurance ......................... (51,806) (47,987)
Gain on sale of property & equipment ....... (950) --
Change in assets and liabilities:
(Increase) decrease in assets:
Accrued interest and dividends receivable .. 42,746 (81,905)
Loans held-for-sale ........................ (1,269,859) 414,204
Other assets ............................... 15,238 (827)
Increase (decrease) in liabilities:
Accrued expenses and other liabilities ....... 133,707 (56,576)
Deferred compensation payable ................ 12,044 12,231
Deferred income taxes payable ................ (78,339) 114,894
----------- -----------
Net cash provided by (used in) operating
activities ............................... (423,547) 1,077,486
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities:
Investment securities held-to-maturity ....... (278,708) (501,150)
Investment securities available-for-sale ..... (12,972,116) (1,173,415)
Proceeds from maturities, calls and
principal payments:
Investment securities held-to-maturity ....... 1,827,982 1,474,445
Investment securities available-for-sale ..... 3,382,835 1,032,845
Proceeds from sales of investment securities
available-for-sale ........................... 502,750 --
See accompanying notes to consolidated financial statements.
-6-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Six Months Ended
December 31,
-----------------------------
2001 2000
---- ----
CASH FLOWS FROM INVESTING ACTIVITIES:
(CONTINUED)
Increase in interest bearing deposits
held at banks ............................. (1,848,443) --
Net (increase) decrease in loan
receivable, excludes transfers
to real estate acquired in settlement
of loans .................................. 1,573,005 (5,730,253)
Proceeds from the sale of real estate
aquired in the settlement of loans ........ -- 129,957
Purchase of property and equipment ......... (81,669) (33,908)
Proceeds from sale of equipment ............ 950 --
----------- -----------
Net cash used in investing activities .. (7,893,414) (4,801,479)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in checking and savings
accounts .................................. $10,720,832 $ 2,534,972
Net increase (decrease) in advances to
borrowers for taxes and insurance ......... -- (44,731)
Proceeds from FHLB advances ................ -- 3,625,000
Payments on FHLB advances .................. (2,050,000) (133,334)
Dividends paid ............................. (111,015) (80,511)
----------- -----------
Net cash provided by financing
activities ........................... 8,559,817 5,901,396
----------- -----------
Net increase (decrease) in cash .............. 242,856 2,177,403
CASH AND CASH EQUIVALENTS, beginning
of period ................................... 3,427,038 3,477,650
----------- -----------
CASH AND CASH EQUIVALENTS, end of period ..... $ 3,669,894 $ 5,655,053
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest ... $2,443,441 $ 2,603,029
=========== ===========
Cash paid during the period for income taxes $ 380,152 $ 152,000
=========== ===========
NON-CASH INVESTING ACTIVITIES:
(Increase) decrease in market value of
securities available-for-sale ............ $ (29,985) $ (331,661)
=========== ===========
Mortgage servicing rights capitalized ........ $ 296,430 $ 24,672
=========== ===========
See accompanying notes to consolidated financial statements.
-7-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
------------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with instructions for Form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statements. However, such information reflects all adjustments (consisting of
normal recurring adjustments), which are, in the opinion of management,
necessary for a fair presentation of results for the unaudited interim periods.
The results of operations for the three and six month periods ended December 31,
2001 are not necessarily indicative of the results to be expected for the fiscal
year ending June 30, 2002 or any other period. The unaudited consolidated
financial statements and notes presented herein should be read in conjunction
with the audited consolidated financial statements and related notes thereto
included in Eagle's Form 10-KSB dated June 30, 2001.
-8-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 2. INVESTMENT SECURITIES
------------------------------
Investment securities are summarized as follows:
December 31, 2001 June 30, 2001
------------------------------------------ ------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED FAIR AMORTIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE COST GAINS (LOSSES) VALUE
----------- -------------- ----------- ----------- -------------- -----------
Available-for-sale:
U.S. government and agency
obligations .............. $ 4,705,387 $ 41,933 $ 4,747,320 $ 4,566,644 $ 42,694 $ 4,609,338
Municipal obligations ...... 4,302,471 (92,892) 4,209,579 4,303,574 (58,672) 4,244,902
Corporate obligations ...... 7,459,901 250,681 7,710,582 7,114,917 190,667 7,305,584
Mortgage-backed securities . 10,963,656 55,738 11,019,394 4,029,519 73,726 4,103,245
Collateralized mortgage
obligations .............. 1,032,763 10,996 1,043,759 1,190,586 (4,304) 1,186,282
Corporate preferred stock .. 1,958,692 11,808 1,970,500 150,000 4,169 154,169
----------- --------- ----------- ----------- --------- -----------
Total .................. $30,422,870 $ 278,264 $30,701,134 $21,355,240 $ 248,280 $21,603,520
=========== ========= =========== =========== ========= ===========
Held-to-maturity:
U.S. government and agency
obligations .............. $ 498,014 $ 8,391 $ 506,405 $ 1,395,905 $ 19,267 $ 1,415,172
Municipal obligations ...... 1,356,036 (5,093) 1,350,943 1,078,681 13,070 1,091,751
Mortgage-backed securities . 3,161,819 65,451 3,227,270 4,096,208 54,241 4,150,449
----------- --------- ----------- ----------- --------- -----------
Total .................. $ 5,015,869 $ 68,749 $ 5,084,618 $ 6,570,794 $ 86,578 $ 6,657,372
=========== ========= =========== =========== ========= ===========
-9-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 3. LOANS RECEIVABLE
-------------------------
Loans receivable consist of the following:
December 31, June 30,
2001 2001
(Unaudited) (Audited)
------------ ------------
First mortgage loans:
Residential mortgage (1-4 family) ..... $ 72,618,327 $ 75,961,742
Commercial real estate ................ 10,265,442 9,062,769
Real estate construction .............. 3,657,300 1,981,968
Other loans:
Home equity ........................... 15,189,129 15,698,367
Consumer .............................. 9,709,035 10,362,135
Commercial ............................ 2,499,396 2,720,740
------------ ------------
Total ............................... 113,938,629 115,787,721
Less:
Allowance for loan losses ............. (705,128) (688,282)
Deferred loan fees .................... (125,041) (121,544)
------------ ------------
Total ............................... $ 13,108,460 $114,977,895
============ ============
Loans net of related allowance for loan losses on which the accrual of interest
has been discontinued were $481,000 and $407,000 at December 31, 2001 and June
30, 2001, respectively. Classified assets, including real estate owned, totaled
$1.36 million and $1.50 million at December 31, 2001 and June 30, 2001,
respectively.
The following is a summary of changes in the allowance for loan losses:
Six Months Ended Year Ended
December 31, June 30,
2001 2001
(Unaudited) (Audited)
---------------- -----------
Balance, beginning of period ............ $688,282 $712,165
Reclassification to REO reserve ....... -- (13,725)
Provision charged to operations ....... -- --
Charge-offs ........................... (16,675) (29,037)
Recoveries ............................ 33,521 18,879
-------- --------
Balance, end of period .............. $705,128 $688,282
======== ========
-10-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 4. DEPOSITS
-----------------
Deposits are summarized as follows:
December 31, June 30,
2001 2001
(Unaudited) (Audited)
------------- ------------
Noninterest checking .................... $ 7,158,245 $ 6,486,306
Interest-bearing checking ............... 25,193,351 22,535,586
Passbook ................................ 21,197,459 20,688,121
Money market ............................ 23,978,014 17,399,325
Time certificates of deposit ............ 67,244,094 66,940,992
------------ ------------
Total ............................... $144,771,163 $134,050,330
============ ============
NOTE 5. EARNINGS PER SHARE
---------------------------
Earnings per share for the three months ended December 31, 2001 is computed
using 1,166,010 weighted average shares outstanding. Earnings per share for the
six months ended December 31, 2001 is computed using 1,165,434 weighted average
shares outstanding. Diluted earnings per share is computed by adjusting the
number of shares outstanding by the shares purchased to fund the Company's
restricted stock plan, for which stock was awarded in January 2001, as
determined by the treasury stock method. The weighted average shares outstanding
for the diluted earnings per share calculations are 1,186,010 for the three
months ended December 31, 2001 and 1,185,434 for the six months ended December
31, 2001. Earnings per share for the three months ended December 30, 2000 is
computed using 1,181,412 weighted average shares outstanding. Earnings per share
for the six months ended December 31, 2000 is computed using 1,180,835 weighted
average shares outstanding.
NOTE 6. DIVIDENDS AND STOCK REPURCHASE PROGRAM
-----------------------------------------------
This fiscal year Eagle has paid two dividends of $0.10 per share, on August 24,
2001 and November 16, 2001. Another dividend of $0.10 per share was declared on
January 17, 2002, payable February 15, 2002 to stockholders of record on
February 1, 2002. Eagle Financial MHC, Eagle's mutual holding company, has
waived the receipt of dividends on its 648,493 shares.
A stock repurchase program was announced on December 21, 2000, covering 4% of
the Company's outstanding common stock. Through February 13, 2002, 20,000 shares
had been repurchased. At the annual meeting held October 19, 2000, shareholders
approved stock option and restricted stock plans for the Company covering
aggregate grants of up to 80,511 and 23,003, respectively. The repurchase plan
announced in December is intended to meet the needs of the restricted stock
plan. On January 18, 2002, 4,600 shares of the restricted stock plan vested and
were distributed to the participants.
-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 a valuation performed on
September 30, 2001, a temporary decline in the fair value was determined to have
occurred, and a valuation allowance of $58,433 was established. There was no
valuation allowance at June 30, 2001. The following schedules show the activity
in the mortgage servicing rights and the valuation allowance.
Six Months Twelve Months
Ended Ended
December 31, June 30,
2001 2001
(Unaudited) (Audited)
------------- -------------
Mortgage Servicing Rights
Beginning balance ....................... $1,315,819 $1,338,271
Servicing rights capitalized ............ 299,096 150,029
Servicing rights amortized .............. (173,792) (172,481)
---------- ----------
Ending balance ........................ 1,441,123 1,315,819
---------- ----------
Valuation Allowance
Beginning balance ....................... -- --
Provision ............................... (58,433) --
Adjustments ............................. -- --
---------- ----------
Ending balance ........................ (58,433) --
---------- ----------
Net Mortgage Servicing Rights ............. $1,382,690 $1,315,819
========== ==========
-12-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Note Regarding Forward-Looking Statements
This report contains certain "forward-looking statements." Eagle Bancorp
("Eagle" or the "Company") desires to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995 and is
including this statement for the express purpose of availing itself of the
protections of the safe harbor with respect to all such forward-looking
statements. These forward-looking statements, which are included in Management's
Discussion and Analysis, describe future plans or strategies and include Eagle's
expectations of future financial results. The words "believe," "expect,"
"anticipate," "estimate," "project," and similar expressions identify
forward-looking statements. Eagle's ability to predict results or the effect of
future plans or strategies or qualitative or quantitative changes based on
market risk is inherently uncertain. Factors which could affect actual results
but are not limited to include (i) change in general market interest rates, (ii)
general economic conditions, (iii) local economic conditions, (iv)
legislative/regulatory changes, (v) monetary and fiscal policies of the U.S.
Treasury and Federal Reserve, (vi) changes in the quality or composition of
Eagle's loan and investment portfolios, (vii) demand for loan products, (viii)
deposit flows, (ix) competition, and (x) demand for financial services in
Eagle's markets. These factors should be considered in evaluating the
forward-looking statements. You are cautioned not to place undue reliance on
these forward-looking statements which speak only as of their dates.
Financial Condition
Comparisons of results in this section are between the six months ended December
31, 2001 and June 30, 2001.
Total assets increased by $9.57 million, or 5.73%, to $176.69 million at
December 31, 2001, from $167.12 million at June 30, 2001. Total liabilities
increased by $8.72 million to $156.14 million at December 31, 2001, from $147.42
million at June 30, 2001. Total equity increased $850,000 to $20.55 million at
December 31, 2001 from $19.70 million at June 30, 2001.
Growth in the available-for-sale investment portfolio of $9.10 million accounted
for the majority of the growth in total assets. The investment category with the
largest increase was mortgage-backed securities, which increased $6.92 million.
$4 million of this increase is attributable to the investment of excess
liquidity into a mortgage-backed securities mutual fund. Loans held for sale
increased to $4.88 million at December 31, 2001 from $3.03 million at June 30,
2001. The loan portfolio decreased $1.87 million, or 1.63%, to $113.11 million
at December 31, 2001 from $114.98 million at June 30, 2001. Heavy refinancing
activity and the sale of practically all new originations contributed to the
decline in single-family mortgage loan balances to $72.62 million at December
31, 2001 from $75.96 million at June 30, 2001. The commercial real estate and
construction loan categories showed increased balances, while all other loan
categories showed
-13-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition (continued)
small decreases since June 30, 2001. Total loan originations were $67.88 million
for the six months ended December 31, 2001. Single-family mortgages accounted
for $50.09 million of the total. Commercial real estate loan originations
totaled $5.45 million (including a $3 million construction loan not fully
funded). Home equity and consumer loan originations totaled $4.37 million and
$4.24 million, respectively, for the same period.
Growth in deposits funded asset growth. Deposits have grown $10.72 million, or
8.00%, to $144.77 million at December 31, 2001 from $134.05 million at June 30,
2001. Growth in money market accounts and checking accounts contributed to the
increase in deposits. The balances in Federal Home Loan Bank advances declined
$2.05 million, as an advance matured in December.
The growth in total equity was the result of earnings for the six months of
$908,000 and an increase in the unrealized gain on securities available for sale
of $19,000, offset by the payment of two $0.10 per share regular cash dividends
during the period.
Results of Operations for the Three Months Ended December 31, 2001 and 2000
Net Income
Eagle's net income was $562,000 and $272,000 for the three months ended December
31, 2001, and 2000, respectively. The increase of $290,000, or 106.62%, was
primarily due to increases in non-interest income of $303,000 and net interest
income of $223,000, partially offset by an increase in noninterest expense of
$54,000. Basic earnings per share were $0.48 for the current period, compared to
$0.23 for the previous year's period.
Net Interest Income
Net interest income increased to $1.53 million for the quarter ended December
31, 2001 from $1.31 million for the quarter ended December 31, 2000. This
increase of $223,000 was the result of an increase in interest and dividend
income of $82,000 and a decrease in interest expense of $141,000.
Interest and Dividend Income
Total interest and dividend income was $2.86 million for the quarter ended
December 31, 2001, compared to $2.78 million for the quarter ended December 31,
2000, representing an increase of $82,000, or 2.87%. Interest and fees on loans
increased to $2.36 million for 2001 from $2.30 million for 2000. This increase
of $63,000, or 2.74%, was due primarily to an increase in the average balances
of loans receivable for the quarter ended December 31, 2001. Average balances
for loans receivable, net, for the quarter ended December 31, 2001 were $118.59
million, compared to $113.47 million for the previous year. This represents an
increase of $5.12 million, or 4.51%. Most loan categories had shown increases
from the previous year. The average interest rate earned on loans receivable
decreased by 13 basis points, from 8.11% at
-14-
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, 2001 and 2001
(continued)
Interest and Dividend Income (continued)
December 31, 2000 to 7.98% at December 31, 2001. Interest and dividends on
investment securities available-for-sale (AFS) increased to $347,000 for the
quarter ended December 31, 2001 from $286,000 for quarter ended December 31,
2000, while interest on securities held-to-maturity (HTM) decreased to $79,000
from $145,000. Interest earned from deposits held at other banks increased to
$44,000 for the quarter ended December 31, 2001 from $22,000 for the quarter
ended December 31, 2000.
Interest Expense
Total interest expense decreased to $1.33 million for the quarter ended December
31, 2001, from $1.47 million for the quarter ended December 31, 2000, a decrease
of $141,000,or 9.59%, due to a decrease in interest paid on deposits. Interest
on deposits decreased to $1.15 million for the quarter ended December 31, 2001,
from $1.30 million for the quarter ended December 31, 2000. This decrease of
$150,000, or 11.54%, was the result of a decrease in average rates paid despite
higher balances on deposit accounts. Money market accounts accounted for the
largest gain in balances during the period from December 31, 2000 to December
31, 2001. The decline in interest rates over the past year combined with the
poor performance of the stock market appears to have led consumers to invest in
safe, short-term insured deposits. Average balances in money market accounts
increased from $14.79 million for the quarter ended December 31, 2000 to $23.06
million for the quarter ended December 31, 2001. The average rate paid on money
market accounts also decreased, from 4.11% to 3.01% for the period. Average
rates paid on all interest-bearing deposits declined from 2000 to 2001, with the
average rate paid on all liabilities dropping 84 basis points from the quarter
ended December 31, 2000 to the quarter ended December 31, 2001. The cost of
deposits is expected to continue to decline in the coming quarter, as
certificate of deposit accounts opened in previous quarters are renewed at lower
interest rates. Interest paid on borrowings increased to $175,000 for the
quarter ended December 31, 2001 from $166,000 for the quarter ended December 31,
2000. The increase in borrowing costs was due to an increase in the average
balance of Federal Home Loan Bank advances.
Provision for Loan Losses
Provisions for loan losses are charged to earnings to maintain the total
allowance for loan losses at a level considered adequate by Eagle's subsidiary,
American Federal Savings Bank, to provide for probable loan losses based on
prior loss experience, volume and type of lending conducted by American Federal,
available peer group information, and past due loans in portfolio. The Bank's
policies require the review of assets on a quarterly basis. 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,
2001 or the quarter ended December 31, 2000. This is a reflection of the
continued strong asset quality of American Federal's loan portfolio. Total
classified assets declined to $1.36 million at December 31, 2001 from $1.50
million at June 30, 2001. The Bank currently has no foreclosed property.
-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, 2001 and 2001
(continued)
Noninterest Income
Total noninterest income increased to $704,000 for the quarter ended December
31, 2001, from $401,000 for the quarter ended December 31, 2000, an increase of
$303,000 or 75.56%. This was the result of an increase in net gain on sale of
loans of $312,000. Increased loan originations compared to a year ago
contributed to the increase in income from the sale of loans. Low interest rates
contributed to unusually high levels of refinancing activity, which will likely
decline in the coming quarter, resulting in lower loan originations and income
from the sale of loans. Mortgage loan servicing fees increased slightly to
$79,000 in the quarter ended December 31, 2001 from $73,000 in the quarter ended
December 31, 2000. Demand deposit service charges declined to $128,000 in the
current quarter from $139,000 for the previous year's period due to the decline
in the volume of overdraft charges.
Noninterest Expense
Noninterest expense increased by $54,000 or 4.09% to $1.37 million for the
quarter ended December 31, 2001, from $1.32 million for the quarter ended
December 31, 2000. This increase was primarily due to an increase in
amortization of mortgage service fees of $80,000. The increase was related to
increased prepayment activity on mortgage loans. Advertising expense decreased
$17,000 due to decreased advertising for product promotions.
Income Tax Expense
Eagle's income tax expense was $306,000 for the quarter ended December 30, 2001,
compared to $124,000 for the quarter ended December 31, 2000. The effective tax
rate for the quarter ended December 31, 2001 was 35.25% and was 31.36% for the
quarter ended December 31, 2000. Management expects Eagle's effective tax rate
to be approximately 35%.
Results of Operations for the Six Months Ended December 31, 2001 and 2000
Net Income
Eagle's net income was $908,000 and $575,000 for the six months ended December
31, 2001 and 2000, respectively. The increase of $333,000, or 57.91%, was
primarily due to increases in noninterest income of $364,000 and net interest
income of $332,000, partially offset by an increase in non-interest expense of
$130,000. Basic earnings per share for the period ended December 31, 2001 were
$0.78, compared to $0.49 per share for the period ended December 31, 2000.
Net Interest Income
Net interest income increased to $2.99 million for the six months ended December
31, 2001 from $2.66 million for the six months ended December 31, 2000. This
increase of $332,000 was the result of an increase in interest and dividend
income of $217,000 and a decrease in interest expense of $115,000.
-16-
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, 2001 and 2000
(Continued)
Interest and Dividend Income
Total interest and dividend income was $5.73 million for the six months ended
December 31, 2001, compared to $5.51 million for the same period ended December
31, 2000, representing an increase of $217,000, or 3.94%. Interest and fees on
loans increased to $4.74 million for 2001 from $4.55 million for 2000. This
increase of $186,000, or 4.09%, was due primarily to an increase in the average
balances of loans receivable for the six months ended December 31, 2001. Average
balances for loans receivable, net, for this period were $119.27 million,
compared to $112.13 million for the previous year. This is an increase of $7.14
million, or 6.37%. Most loan categories had shown increases from the previous
year. The average interest rate earned on loans receivable decreased by 17 basis
points, to 7.95% from 8.12%. Interest and dividends on investment securities
available-for-sale (AFS) increased to $650,000 for the six months ended December
31, 2001 from $573,000 for the same period ended December 31, 2000, while
interest on securities held to maturity (HTM) decreased from $307,000 to
$170,000. Most new purchases of securities are placed in the AFS portfolio, and
the HTM portfolio will continue to shrink as the securities in it mature.
Interest earned from deposits held at other banks increased to $111,000 for the
six months ended December 31, 2001 from $28,000 for the six months ended
December 31, 2000 due primarily to higher average balances in these accounts due
to increased liquidity from deposit growth and higher loan sale volume.
Interest Expense
Total interest expense decreased to $2.73 million for the six months ended
December 31, 2001 from $2.84 million for the six months ended December 31, 2000,
a decrease of $115,000, or 4.05%, due to the decrease in interest paid on
deposits. Interest on deposits decreased to $2.37 million for the six months
ended December 31, 2001 from $2.53 million for the six months ended December 31,
2000. This decrease of $158,000, or 6.25%, was the result of a decrease in
average rates paid on deposit accounts despite higher balances on deposit
accounts. Money market accounts accounted for the largest gain in balances
during the period from December 31, 2000 to December 31, 2001. Average balances
in money market accounts increased from $14.78 million at December 31, 2000 to
$21.55 million at December 31, 2001. The average rate paid on money market
accounts decreased, from 4.06% to 3.29%. Average rates paid on all
interest-bearing deposits declined from 2000 to 2001, with the average rate paid
on all liabilities dropping by 59 basis points from the six month period ended
December 31, 2000 to the six month period ended December 31, 2001. The cost of
deposits is expected to continue to decline in the coming months, as certificate
of deposit accounts opened in previous periods are renewed at lower interest
rates. Interest paid on borrowings increased to $354,000 for the six months
ended December 31, 2001 from $311,000 for the same period ended December 31,
2000. The increase in borrowing costs was due to an increase in the average
balance of Federal Home Loan Bank advances.
-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, 2001 and 2000
(Continued)
Provision for Loan Losses
Provisions for loan losses are charged to earnings to maintain the total
allowance for loan losses at a level considered adequate by Eagle's subsidiary,
American Federal Savings Bank, to provide for probable loan losses based on
prior loss experience, volume and type of lending conducted by American Federal,
available peer group information, and past due loans in portfolio. The Bank's
policies require the review of assets on a quarterly basis. The Bank classifies
loans as well as other assets if warranted. While the Bank believes it uses the
best information available to make a determination with respect to the allowance
for loan losses, it recognizes that future adjustments may be necessary. No
provision was made for loan losses for either of the six-month periods ended
December 31, 2001 or December 31, 2000. This is a reflection of the continued
strong asset quality of American Federal's loan portfolio. Total classified
assets declined to $1.36 million at December 31, 2001 from $1.50 million at June
30, 2001. The Bank currently has no foreclosed property.
Noninterest Income
Total noninterest income increased to $1.11 million for the six months ended
December 31, 2001, from $745,000 for the six months ended December 31, 2000, an
increase of $365,000 or 48.99%. This was the result of an increase in net gain
on sale of loans of $441,000. Increased loan originations contributed to the
increase in income from sale of loans. Low interest rates over the past year
have contributed to unusually high levels of refinancing activity, which will
likely decline over the remainder of the year, resulting in lower loan
originations and income from the sale of loans. Mortgage loan servicing fees
declined to $94,000 for the current six-month period compared to $145,000 for
the previous year's period. An independent valuation of the Bank's mortgage
portfolio indicated a temporary decline in the value of the servicing rights in
the amount of $58,000. A provision was made to a valuation allowance in that
amount. Changes to the valuation allowance for mortgage servicing rights are
charged against mortgage loan servicing fees. Demand deposit service charges
declined by $20,000 from the previous year due to a decline in the volume of
overdraft fees.
Noninterest Expense
Noninterest expense increased by $130,000 or 5.08% to $2.69 million for the six
months ended December 31, 2001, from $2.56 million for the six months ended
December 31, 2000. This increase was primarily due to an increase in
amortization of mortgage servicing fees of $118,000 and in salaries and benefits
of $70,000. The increase in amortization of mortgage servicing fees was related
to increased prepayment activity on mortgage loans, while the increase in
salaries was due to merit raises. These increases were partially offset by
decreases of $30,000 in advertising expense and $27,000 in legal and accounting
fees. The decrease in advertising expense was due to decreased product
promotional advertising, while less time spent on matters relating to being a
public company by the Company's counsel led to lower legal fees.
-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, 2001 and 2000
(Continued)
Income Tax Expense
Eagle's income tax expense was $501,000 for the six months ended December 30,
2001, compared to $268,000 for the six months ended December 31, 2000. The
effective tax rate for the six months ended December 31, 2001 was 35.55% and was
31.82% for the six months ended December 31, 2000.
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 liquidity
ratio average was 23.35% and 15.03% at December 31, 2001 and December 31, 2000,
respectively. Liquidity increased due to growth in deposits and the increased
loan sale volume for the period ending December 31, 2001.
The Bank's primary sources of funds are deposits, repayment of loans and
mortgage-backed securities, maturities of investments, funds provided from
operations, and advances from the Federal Home Loan Bank of Seattle. Scheduled
repayments of loans and mortgage-backed securities and maturities of investment
securities are generally predictable. However, other sources of funds, such as
deposit flows and loan prepayments, can be greatly influenced by the general
level of interest rates, economic conditions and competition. The Bank uses
liquidity resources principally to fund existing and future loan commitments. It
also uses them to fund maturing certificates of deposit, demand deposit
withdrawals and to invest in other loans and investments, maintain liquidity,
and meet operating expenses.
Liquidity may be adversely affected by unexpected deposit outflows, higher
interest rates paid by competitors, and similar matters. Management monitors
projected liquidity needs and determines the level desirable, based in part on
commitments to make loans and management's assessment of the bank's ability to
generate funds.
At September 30, 2001 (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. This was due to management's strategy of retaining assets
with shorter maturities while emphasizing longer-term funding sources such as
transaction accounts and FHLB advances. The Bank is well within the guidelines
set forth by its Board of Directors for interest rate risk sensitivity.
-19-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity, Interest Rate Sensitivity and Capital Resources (Continued)
As of December 31, 2001, the Bank's regulatory capital was in excess of all
applicable regulatory requirements. At December 31, 2001, the Bank's tangible,
core, and risk-based capital ratios amounted to 10.9%, 10.9%, and 19.5%,
respectively, compared to regulatory requirements of 1.5%, 3.0%, and 8.0%,
respectively.
At December 31, 2001
--------------------
% of
Amount Assets
------- ------
Tangible capital:
Capital level .............................. $19,119 10.89%
Requirement ................................ 2,633 1.50
------- -----
Excess ..................................... $16,486 9.39%
======= =====
Core capital:
Capital level .............................. $19,119 10.89%
Requirement ................................ 5,265 3.00
------- -----
Excess ..................................... $13,854 7.89%
======= =====
Risk-based capital:
Capital level .............................. $19,802 19.47%
Requirement ................................ 8,136 8.00
------- -----
Excess ..................................... $11,666 11.47%
======= =====
Impact of Inflation and Changing Prices
Our financial statements and the accompanying notes have been prepared in
accordance with accounting principles generally accepted in the United States of
America, which require the measurement of financial position and operating
results in terms of historical dollars without considering the change in the
relative purchasing power of money over time and due to inflation. The impact of
inflation is reflected in the increased cost of our operations. Interest rates
have a greater impact on our performance than do the general levels of
inflation, as demonstrated in the results of the current reporting period.
Interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services.
-20-
EAGLE BANCORP AND SUBSIDIARY
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
Neither the Company nor the Bank is involved in any pending legal
proceedings other than non-material legal proceedings occurring in the
ordinary course of business.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The following matters were voted on at the Annual Meeting of
Stockholders on October 18, 2001:
1. Election of directors for three-year terms expiring in 2004:
For: Abstain:
--------- --------
Robert L. Pennington 1,119,392 1,575
Don O. Campbell 1,118,392 2,575
Charles G. Jacoby 1,119,367 1,600
2. Ratification of appointment of Anderson ZurMuehlen & Co., P.C. as
auditors for the fiscal year ended June 30, 2002:
For: Against: Abstain:
--------- -------- --------
1,116,322 250 4,395
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
None
-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: February 13, 2002 By: /s/ Larry A. Dreyer
-----------------------
Larry A. Dreyer
President/CEO
Date: February 13, 2002 By: /s/ Peter J. Johnson
-----------------------
Peter J. Johnson
Sr. VP/Treasurer
-22-