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 September 30, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
For the transition period from to .
---------------- ------------------
Commission file number 0-29687
Eagle Bancorp
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(Exact name of small business issuer as specified in its charter)
United States 81-0531318
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1400 Prospect Avenue, Helena, MT 59601
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(Address of principal executive offices)
(406) 442-3080
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(Issuer's telephone number)
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 1,205,172 shares outstanding
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As of November 8, 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
September 30, 2002 (unaudited) and June 30, 2002............1 and 2
Consolidated Statements of Income for the three
months ended September 30, 2002 and 2001 (unaudited)........3 and 4
Consolidated Statements of Stockholders' Equity for the
three months ended September 30, 2002 (unaudited).................5
Consolidated Statements of Cash Flows for the three
months ended September 30, 2002 and 2001 (unaudited)........6 and 7
Notes to Consolidated Financial Statements .................8 to 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .........................14 to 20
Item 3. Controls and Procedures............................................21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................22
Item 2. Changes in Securities and Use of Proceeds..........................22
Item 3. Defaults Upon Senior Securities....................................22
Item 4. Submission of Matters to a Vote of Security-Holders................22
Item 5. Other Information..................................................22
Item 6. Exhibits and Reports on Form 8-K...................................22
Signatures ...................................................................23
Certifications Pursuant to Section 302 (a)
of the Sarbanes-Oxley Act of 2002........................................24-27
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 2002 June 30, 2002
------------------ -------------
(Unaudited) (Audited)
ASSETS
Cash and due from banks $ 3,014,300 $ 2,836,853
Interest-bearing deposits with banks 7,886,647 7,786,136
------------ ------------
Total cash and cash equivalents 10,900,947 10,622,989
------------ ------------
Investment securities available-for-sale,
at market value 58,193,714 50,153,872
Investment securities held-to-maturity,
at amortized cost 3,568,632 3,875,124
Federal Home Loan Bank stock, at cost 1,610,100 1,586,200
Mortgage loans held-for-sale 2,215,846 1,352,121
Loans receivable, net of deferred loan fee
and allowance for loan losses 103,151,452 105,623,213
Accrued interest and dividends receivable 1,005,851 998,378
Mortgage servicing rights 1,691,547 1,588,318
Property and equipment, net 6,245,208 6,291,382
Cash surrender value of life insurance 2,270,510 2,244,453
Real estate acquired in settlement of loans,
net of allowance for losses -- --
Other assets 520,428 245,417
------------ ------------
Total assets $191,374,235 $184,581,467
============ ============
See accompanying notes to consolidated financial statements.
-1-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Continued)
September 30, 2002 June 30, 2002
------------------ -------------
(Unaudited) (Audited)
LIABILITIES
Deposit accounts:
Noninterest bearing $ 8,140,067 $ 6,835,235
Interest bearing 148,905,276 144,769,504
Advances from Federal Home Loan Bank 9,318,889 9,343,889
Accrued expenses and other liabilities 2,664,738 1,929,962
------------- -------------
Total liabilities 169,028,970 162,878,590
------------- -------------
EQUITY
Preferred stock (no par value, 1,000,000 shares
authorized, none issued or outstanding) -- --
Common stock (par value $0.01per share;
10,000,000 shares authorized; 1,223,572
shares issued; 1,206,472 and 1,208,172
shares outstanding at September 30, 2002
and June 30, 2002, respectively) 12,236 12,236
Additional paid-in capital 3,899,872 3,885,903
Unallocated common stock held by employee
stock ownership plan ("ESOP") (266,848) (276,048)
Treasury stock, at cost (17,100 and 15,400
shares at September 30, 2002 and
June 30, 2002, respectively) (214,100) (180,950)
Retained earnings 18,502,225 17,957,601
Accumulated other comprehensive income 411,880 304,135
------------- -------------
Total stockholders' equity 22,345,265 21,702,877
------------- -------------
Total liabilities and stockholders' equity $191,374,235 $ 184,581,467
============ =============
See accompanying notes to consolidated financial statements.
-2-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
-----------------------------
Sept. 30 (unaudited) Sept. 30
-----------------------------
2002 2001
---- ----
Interest and Dividend Income:
Interest and fees on loans $2,070,579 $2,376,020
Interest on deposits with banks 32,645 66,848
Securites held-to-maturity 49,320 90,831
Securities available-for-sale 608,517 303,136
FHLB Stock dividends 23,989 28,147
---------- ----------
Total interest and dividend income 2,785,050 2,864,982
---------- ----------
Interest Expense:
Deposits 978,026 1,224,689
FHLB Advances 147,082 178,809
---------- ----------
Total interest expense 1,125,108 1,403,498
---------- ----------
Net Interest Income 1,659,942 1,461,484
Loan loss provision -- --
---------- ----------
Net interest income after loan loss provision 1,659,942 1,461,484
---------- ----------
Noninterest income:
Net gain on sale of loans 309,163 171,118
Demand deposit service charges 128,860 125,563
Mortgage loan servicing fees 96,072 15,332
Net gain (loss) on sale of available for sale
securities -- --
Other 100,920 92,209
---------- ----------
Total noninterest income 635,015 404,222
---------- ----------
See accompanying notes to consolidated financial statements
-3-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Continued)
Three Months Ended
-----------------------------
Sept. 30 (unaudited) Sept. 30
-----------------------------
2002 2001
---- ----
Noninterest expense:
Salaries and employee benefits 723,224 733,467
Occupancy expenses 129,941 113,749
Furniture and equipment depreciation 53,297 68,144
Inhouse computer expense 54,836 49,499
Advertising expense 33,295 31,526
Amortization of mtg servicing fees 97,828 68,709
Federal insurance premiums 6,276 6,126
Postage 28,162 29,753
Legal,accounting, and examination fees 26,716 22,992
Consulting fees 5,880 7,356
ATM processing 11,589 10,561
Other 182,711 181,920
---------- ----------
Total noninterest expense 1,353,755 1,323,802
---------- ----------
Income before provision for income taxes 941,202 541,904
---------- ----------
Provision for income taxes 323,820 195,242
---------- ----------
Net income $ 617,382 $ 346,662
========== ==========
Basic earnings per common share $ 0.53 $ 0.30
========== ==========
Diluted earnings per common share $ 0.52 $ 0.29
========== ==========
Weighted average shares outstanding (basic eps) 1,173,041 1,164,857
========== ==========
Weighted average shares outstanding (diluted eps) 1,189,457 1,184,857
========== ==========
See accompanying notes to consolidated financial statements
-4-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Months Ended September 30, 2002
(Unaudited)
ACCUMULATED
ADDITIONAL UNALLOCATED OTHER
PREFERRED COMMON PAID-IN ESOP TREASURY RETAINED COMPREHENSIVE
STOCK STOCK CAPITAL SHARES STOCK EARNINGS INCOME TOTAL
----- ----- ------- ------ ----- -------- ------ -----
Balance, June 30, 2002 $-- $ 12,236 $ 3,885,903 $ (276,048) $ (180,950) $ 17,957,601 $ 304,135 $ 21,702,877
Net income -- -- -- -- -- 617,382 -- 617,382
Other comprehensive income -- -- -- -- -- -- 107,745 107,745
------------
Total comprehensive income -- -- -- -- -- -- -- 725,127
------------
Dividends paid ($.13 per share) -- -- -- -- -- (72,758) -- (72,758)
------------
Treasury stock purchased (1,700
shares @ $19.50/sh) -- -- -- -- (33,150) -- -- (33,150)
------------
ESOP shares allocated or committed
to be released for allocation
(1,150 shares) -- -- 13,969 9,200 -- -- -- 23,169
--- --------- ----------- ---------- ---------- ------------ ---------- ------------
Balance, September 30, 2002 $-- $ 12,236 $ 3,899,872 $ (266,848) $ (214,100) $ 18,502,225 $ 411,880 $ 22,345,265
=== ========= =========== ========== ========== ============ ========== ============
See accompanying notes to consolidated financial statements
-5-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
September 30,
2002 2001
---- ----
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 617,382 $ 346,662
Adjustments to reconcile net income to net cash from operating activities
Provision for mortgage servicing rights valuation losses -- 58,433
Depreciation 101,295 132,172
Net amortization of marketable securities premium and discounts 121,982 --
Amortization of capitalized mortgage servicing rights 97,828 66,044
Gain on sale of loans (309,163) (171,118)
FHLB & other dividends reinvested (60,084) (26,200)
Increase in cash surrender value of life insurance (26,057) (25,856)
Change in assets and liabilities:
(Increase) decrease in assets:
Accrued interest and dividends receivable (7,473) (83,515)
Loans held-for-sale (548,068) (1,430,918)
Other assets (275,011) (94,831)
Increase (decrease) in liabilities:
Accrued expenses and other liabilities 354,496 589,954
Deferred compensation payable 12,306 6,242
Deferred income taxes payable 323,819 (54,735)
------------ ------------
Net cash provided by (used in) operating activities 403,252 (687,666)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities:
Investment securities available-for-sale (10,415,566) (3,882,047)
Proceeds from maturities, calls and principal payments:
Investment securities held-to-maturity 303,595 500,112
Investment securities available-for-sale 2,461,397 2,160,335
Net (increase) decrease in loan receivable, excludes
transfers to real estate acquired in settlement of loans 2,270,704 (2,812,060)
Purchase of property and equipment (55,121) (10,496)
------------ ------------
Net cash used in investing activities (5,434,991) (4,044,156)
------------ ------------
See accompanying notes to consolidated financial statements
-6-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Three Months Ended
September 30,
2002 2001
---- ----
(unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in checking and savings accounts 5,440,605 4,221,168
Payments on FHLB advances (25,000) (25,000)
Sale (Purchase) of Treasury Stock (33,150)
Dividends paid (72,758) (55,507)
---------- ---------
Net cash provided by financing activities 5,309,697 4,140,661
---------- ---------
Net increase (decrease) in cash 277,958 (591,161)
CASH AND CASH EQUIVALENTS, beginning of period 10,622,989 8,352,038
---------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 10,900,947 $ 7,760,877
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest $ 1,131,334 $ 1,348,980
============ ============
Cash paid during the period for income taxes $ 1,084 $ 76,088
============ ============
NONCASH INVESTING ACTIVITIES:
(Increase) decrease in market value of
securities available-for-sale $ (168,572) $ (206,079)
============ ============
Mortgage servicing rights capitalized $ 201,058 $ 66,786
============ ============
See accompanying notes to consolidated financial statements
-7-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with instructions for Form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statements. However, such information reflects all adjustments (consisting of
normal recurring adjustments) which are, in the opinion of management, necessary
for a fair presentation of results for the unaudited interim periods.
The results of operations for the three month period ended September 30, 2002
are not necessarily indicative of the results to be expected for the fiscal year
ending June 30, 2003 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, 2002.
-8-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 2. INVESTMENT SECURITIES
Investment securities are summarized as follows:
September 30, 2002 (Unaudited) June 30, 2002 (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 $ 6,859,505 $ 161,297 $ 7,020,802 $ 6,963,730 $ 70,249 $ 7,033,979
Municipal obligations 4,300,927 109,159 4,410,086 4,301,732 (10,233) 4,291,499
Corporate obligations 8,029,009 231,001 8,260,010 8,548,317 177,158 8,725,475
Mortgage-backed
securities 13,843,244 38,990 13,882,234 6,505,009 64,995 6,570,004
Mutual Funds 4,611,563 4,608 4,616,171 4,575,378 10 4,575,388
Collateralized
mortgage obligations 17,953,011 145,939 18,098,950 16,829,068 183,960 17,013,028
Corporate preferred
stock 1,952,458 (46,997) 1,905,461 1,955,215 (10,716) 1,944,499
----------- ----------- ----------- ----------- ----------- -----------
Total $57,549,717 $ 643,997 $58,193,714 $49,678,449 $ 475,423 $50,153,872
=========== =========== =========== =========== =========== ===========
Held-to-maturity:
Municipal obligations $ 1,353,784 $ 67,482 $ 1,421,266 $ 1,354,531 $ 37,458 $ 1,391,989
Mortgage-backed
securities 2,214,848 91,045 2,305,893 2,520,593 90,112 2,610,705
----------- ----------- ----------- ----------- ----------- -----------
Total $ 3,568,632 $ 158,527 $ 3,727,159 $ 3,875,124 $ 127,570 $ 4,002,694
=========== =========== =========== =========== =========== ===========
-9-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 3. LOANS RECEIVABLE
Loans receivable consist of the following:
September 30, June 30,
2002 2002
(Unaudited) (Audited)
------------ ------------
First mortgage loans:
Residential mortgage (1-4 family) $ 63,063,771 $ 66,958,637
Commercial real estate 9,156,505 9,454,674
Real estate construction 3,159,484 2,931,032
Other loans:
Home equity 14,671,430 14,235,907
Consumer 10,697,251 10,023,869
Commercial 3,219,205 2,842,782
-------------- --------------
Total 103,967,646 106,446,901
Less:
Allowance for loan losses (697,481) (702,705)
Deferred loan fees (118,713) (120,983)
-------------- --------------
Total $ 103,151,454 $ 105,623,213
============== ==============
Loans net of related allowance for loan losses on which the accrual of interest
has been discontinued were $466,000 and $528,000 at September 30, 2002 and June
30, 2002, respectively. Classified assets, including real estate owned, totaled
$1.33 million and $1.66 million at September 30, 2002 and June 30, 2002,
respectively.
The following is a summary of changes in the allowance for loan losses:
Three Months Ended Year Ended
September 30, June 30,
2002 2002
(Unaudited) (Audited)
-------------- --------------
Balance, beginning of period $ 702,705 $ 688,282
Transfer from interest reserve - 6,510
Provision charged to operations - -
Charge-offs (6,871) (29,390)
Recoveries 1,647 35,303
-------------- --------------
Balance, end of period $ 697,481 $ 702,705
============== ==============
-10-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4. DEPOSITS
Deposits are summarized as follows:
September 30, June 30,
2002 2002
(Unaudited) (Audited)
----------- -----------
Noninterest checking 8,140,067 6,835,235
Interest-bearing checking 25,564,201 24,908,989
Passbook 22,973,609 22,464,984
Money market 27,738,407 27,568,930
Time certificates of deposit 72,629,059 69,826,601
----------- -----------
Total 157,045,343 151,604,739
=========== ===========
NOTE 5. EARNINGS PER SHARE
Basic earnings per share for the three months ended September 30, 2002 is
computed using 1,173,041 weighted average shares outstanding. Diluted earnings
per share 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 1,189,457 for the three months ended September 30, 2002. Basic
earnings per share for the three months ended September 30, 2001 is computed
using 1,164,857 weighted average shares outstanding. Diluted earnings per share
for the three months ended September 30, 2001 is computed using 1,184,857
weighted average shares outstanding.
-11-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 6. DIVIDENDS AND STOCK REPURCHASE PROGRAM
This fiscal year Eagle has paid one dividend of $0.13 per share, on August 23,
2002. A dividend of $0.13 per share was declared on October 17, 2002, payable
November 15, 2002 to stockholders of record on November 1, 2002. Eagle Financial
MHC, Eagle's mutual holding company, has waived the receipt of dividends on its
648,493 shares.
At the annual meeting held October 19, 2000, shareholders approved stock option
and restricted stock plans for the Company covering aggregate grants of up to
80,511 and 23,003 shares, respectively. A stock repurchase program was announced
on December 21, 2000, covering 4% of the Company's outstanding common stock,
with the intent of meeting the needs of the restricted stock plan. On January
18, 2002, 4,600 shares of the restricted stock plan vested and were distributed
to the participants. Through November 8, 2002, 23,000 shares had been
repurchased, completing the repurchase program.
-12-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 7. MORTGAGE SERVICING RIGHTS
The Bank allocates its total cost in mortgage loans between mortgage servicing
rights and loans, based upon their relative fair values, when loans are
subsequently sold or securitized, with the servicing rights retained. Fair
values are generally obtained from an independent third party. Impairment of
mortgage servicing rights is measured based upon the characteristics of the
individual loans, including note rate, term, underlying collateral, current
market conditions, and estimates of net servicing income. If the carrying value
of the mortgage servicing rights exceeds the estimated fair market value, a
valuation allowance is established for any decline, which is viewed to be
temporary. Charges to the valuation allowance are charged against or credited to
mortgage servicing income. Periodic independent valuations of the mortgage
servicing rights are performed. As a result of valuations performed on September
30, 2001 and May 31, 2002, a temporary decline in the fair value was determined
to have occurred, and a valuation allowance of $21,515 has been established. The
following schedules show the activity in the mortgage servicing rights and the
valuation allowance.
Three months Twelve months
ended ended
September 30, June 30,
2002 2002
(Unaudited) (Audited)
------------- --------------
Mortgage Servicing Rights
Beginning balance $ 1,609,833 $ 1,315,819
Servicing rights capitalized 201,057 618,085
Servicing rights amortized (97,828) (324,071)
----------- -----------
Ending Balance 1,713,062 1,609,833
----------- -----------
Valuation Allowance
Beginning balance 21,515 --
Provision -- 21,515
Adjustments -- --
Ending balance 21,515 21,515
----------- -----------
Net Mortgage Servicing Rights $ 1,691,547 $ 1,588,318
=========== ===========
-13-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Note Regarding Forward-Looking Statements
This report contains certain "forward-looking statements." Eagle Bancorp
("Eagle" or the "Company") desires to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995 and is
including this statement for the express purpose of availing itself of the
protections of the safe harbor with respect to all such forward-looking
statements. These forward-looking statements, which are included in Management's
Discussion and Analysis, describe future plans or strategies and include Eagle's
expectations of future financial results. The words "believe," "expect,"
"anticipate," "estimate," "project," and similar expressions identify
forward-looking statements. Eagle's ability to predict results or the effect of
future plans or strategies or qualitative or quantitative changes based on
market risk is inherently uncertain. Factors which could affect actual results
but are not limited to include (i) change in general market interest rates, (ii)
general economic conditions, (iii) local economic conditions, (iv)
legislative/regulatory changes, (v) monetary and fiscal policies of the U.S.
Treasury and Federal Reserve, (vi) changes in the quality or composition of
Eagle's loan and investment portfolios, (vii) demand for loan products, (viii)
deposit flows, (ix) competition, and (x) demand for financial services in
Eagle's markets. These factors should be considered in evaluating the
forward-looking statements. You are cautioned not to place undue reliance on
these forward-looking statements which speak only as of their dates.
Financial Condition
Comparisons of quarterly results in this section are between the three months
ended September 30, 2002 and June 30, 2002.
Total assets increased by $6.79 million, or 3.68%, to $191.37 million at
September 30, 2002, from $184.58 million at June 30, 2002. Total liabilities
increased by $6.15 million to $169.03 million at September 30, 2002, from
$162.88 million at June 30, 2002. Total equity increased $650,000 to $22.35
million at September 30, 2002 from $21.70 million at June 30, 2002.
The growth in assets was primarily in the available-for-sale (AFS) investment
portfolio, which increased $8.04 million, or 16.03%, to $58.19 million at
September 30, 2002 from $50.15 million at June 30, 2002. The investment category
with the largest increase was mortgage-backed securities, which increased $7.31
million. The loan portfolio decreased $2.47 million, or 2.34%, to $103.15
million at September 30, 2002 from $105.62 million at June 30, 2002. Continued
refinancing activity and the sale of predominantly all new originations
contributed to the decline in single-family mortgage loans to $63.06 million at
September 30, 2002 from $66.96 million at June 30, 2002. Commercial real estate
loans declined slightly, while all other loan
-14-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition (continued)
categories showed moderate increases. Total loan originations were $32.01
million for the three months ended September 30, 2002, with single family
mortgages (including $1.33 million of construction loans) accounting for $25.53
million of the total. Consumer loan and home equity loan originations totaled
$2.91 million and $2.61 million, respectively, for the same period. Loans held
for sale increased to $2.22 million at September 30, 2002 from $1.35 million at
June 30, 2002.
Growth in deposits funded asset growth. Deposits grew $5.44 million, or 3.59%,
to $157.05 million at September 30, 2002 from $151.61 million at June 30, 2002.
Growth in certificates of deposit and non-interest checking contributed to the
increase in deposits. Other deposit types showed modest increases.
The growth in total equity was the result of earnings for the three months of
$617,000 and an increase in the unrealized gain on securities available for sale
of $108,000. This was partially offset by the payment of a $0.13 per share
regular cash dividend.
Results of Operations for the Three Months Ended September 30, 2002 and 2001
Net Income. Eagle's net income was $617,000 and $347,000 for the three months
ended September 30, 2002, and 2001, respectively. The increase of $270,000, or
77.81%, was primarily due to increases in noninterest income of $231,000 and net
interest income of $198,000, partially offset by increases in noninterest
expense of $30,000 and income tax expense of $129,000. Basic earnings per share
were $0.53 for the current period, compared to $0.30 for the previous year's
period.
Net Interest Income. Net interest income increased to $1.66 million for the
quarter ended September 30, 2002 from $1.46 million for the quarter ended
September 30, 2001. This increase of $198,000 was the result of a decrease in
interest expense of $278,000, partially offset by the decrease in interest and
dividend income of $80,000.
Interest and Dividend Income. Total interest and dividend income was $2.78
million for the quarter ended September 30, 2002, compared to $2.86 million for
the quarter ended September 30, 2001, representing a decrease of $80,000, or
2.80%. Interest and fees on loans decreased to $2.07 million for the three
months ended September 30, 2002 from $2.38 million for the same
-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 September 30, 2002 and 2001
(continued)
period ended September 30, 2001. This decrease of $310,000, or 13.03%, was due
primarily to the decrease in the average balances of loans receivable for the
quarter ended September 30, 2002 and the decline in the average interest rate
earned on loans. Average balances for loans receivable, net, for the quarter
ended September 30, 2002 were $107.18 million, compared to $119.94 million for
the previous year. This represents a decrease of $12.76 million, or 10.64%. All
loan categories except real estate construction and commercial loans have shown
decreases from the previous year. The average interest rate earned on loans
receivable decreased by 19 basis points, from 7.92% at September 30, 2001 to
7.73% at September 30, 2002. Interest and dividends on investment securities
available-for-sale (AFS) increased to $609,000 for the quarter ended September
30, 2002 from $303,000 for the same quarter last year. Average balances on
investments increased significantly, to $57.66 million for the quarter ended
September 30, 2002, compared to $28.01 million for the quarter ended September
30, 2001. The average interest rate earned on investments dropped to 4.57% from
5.63%. Interest on securities held to maturity (HTM) decreased from $91,000 to
$49,000 as new purchases are placed in the AFS portfolio. Interest earned from
deposits held at other banks decreased to $33,000 for the quarter ended
September 30, 2002 from $67,000 for the quarter ended September 30, 2001, due to
the significant drop in short-term interest rates.
Interest Expense. Total interest expense decreased to $1.12 million for the
quarter ended September 30, 2002, from $1.40 million for the quarter ended
September 30, 2001, a decrease of $278,000, or 19.86%, primarily due to a
decrease in interest paid on deposits. Specifically, interest on deposits
decreased to $978,000 for the quarter ended September 30, 2002, from $1.22
million for the quarter ended September 30, 2001. This decrease of $246,000, or
20.16%, was the result of a decrease in average rates paid on deposit accounts,
despite higher balances. All deposit accounts showed decreases in average rates
paid and also had increases in average balances in the current quarter compared
to last year's quarter. Money market accounts and certificates of deposit
incurred the largest increases in balances. The decline in interest rates over
the past year combined with the poor performance of the stock market appears to
have caused consumers to invest in safe, short-term insured deposits. Average
balances in interest-bearing deposit accounts increased to $146.52 million for
the quarter ended September 30, 2002, compared to $129.42 million for the same
quarter in the previous year. The average rate paid on liabilities decreased 110
basis points from the quarter ended September 30, 2001 to the quarter ended
September 30, 2002. Interest paid on borrowings decreased to $147,000 for the
quarter ended September 30, 2002 from $179,000 for the quarter ended September
30, 2001. The decrease in borrowing costs was due to a decrease in the average
balance of Federal Home Loan Bank advances.
-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 September 30, 2002 and 2001
(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
the quarter ended September 30, 2002 or the quarter ended September 30, 2001.
This is a reflection of the continued strong asset quality of American Federal's
loan portfolio, as non-performing loan ratios continue to be below peer
averages. Total classified assets declined from $1.66 million at June 30, 2002
to $1.33 million at September 30, 2002. The Bank currently has no foreclosed
real estate.
Noninterest Income. Total noninterest income increased to $635,000 for the
quarter ended September 30, 2002, from $404,000 for the quarter ended September
30, 2001, an increase of $231,000 or 57.18%. This was the result of an increase
in net gain on sale of loans of $138,000. Increased loan originations compared
to a year ago contributed to the increase in income from sale of loans. In
addition, mortgage loan servicing fees increased to $96,000 for the current
quarter from $15,000 for the previous year's quarter. An independent valuation
of the Bank's mortgage servicing portfolio that was performed in September 2001
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, causing the lower amount of income in the
quarter ended September 30, 2001. A subsequent valuation performed in May 2002
determined that the temporary decline had decreased to $21,515, and the
valuation allowance was adjusted accordingly. The other categories of
noninterest income registered small increases.
Noninterest Expense. Noninterest expense increased by $30,000 or 2.27% to $1.35
million for the quarter ended September 30, 2002, from $1.32 million for the
quarter ended September 30, 2001. This increase was primarily due to an increase
in amortization of mortgage servicing fees of $29,000. The increase in
amortization of mortgage servicing fees was related to increased prepayment
activity on mortgage loans. Occupancy expenses increased $16,000 due to higher
maintenance costs. Furniture and equipment depreciation expense decreased
$15,000 due to equipment becoming fully depreciated.
-17-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Three Months Ended September 30, 2002 and 2001
(continued)
Income Tax Expense. Eagle's income tax expense was $324,000 for the quarter
ended September 30, 2002, compared to $195,000 for the quarter ended September
30, 2001. The effective tax rate for the quarter ended September 30, 2002 was
34.43% and was 35.98% for the quarter ended September 30, 2001. Management
expects Eagle's effective tax rate to be approximately 35%.
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 23.39% and 16.60% for the months ended September 30, 2002
and September 30, 2001, respectively. Liquidity increased due to growth in
deposits and the increased loan sale volume for the period ended September 30,
2002.
The Bank's primary sources of funds are deposits, repayment of loans and
mortgage-backed securities, maturities of investments, funds provided from
operations, and advances from the Federal Home Loan Bank of Seattle. Scheduled
repayments of loans and mortgage-backed securities and maturities of investment
securities are generally predictable. However, other sources of funds, such as
deposit flows and loan prepayments, can be greatly influenced by the general
level of interest rates, economic conditions and competition. The Bank uses
liquidity resources principally to fund existing and future loan commitments. It
also uses them to fund maturing certificates of deposit, demand deposit
withdrawals and to invest in other loans and investments, maintain liquidity,
and meet operating expenses.
Liquidity may be adversely affected by unexpected deposit outflows, higher
interest rates paid by competitors, and similar matters. Management monitors
projected liquidity needs and determines the level desirable, based in part on
commitments to make loans and management's assessment of the bank's ability to
generate funds.
-18-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity, Interest Rate Sensitivity and Capital Resources (continued)
At June 30, 2002 (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 also 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 September 30, 2002, the Bank's regulatory capital was in excess of all
applicable regulatory requirements. At September 30, 2002, the Bank's tangible,
core, and risk-based capital ratios amounted to 10.88%, 10.88%, and 19.82%,
respectively, compared to minimum regulatory requirements of 1.5%, 3.0%, and
8.0%, respectively. See the following table (amounts in thousands):
At September 30, 2002
---------------------
Dollar % of
Amount Assets
------ ------
Tangible capital:
Capital level $ 20,622 10.88%
Requirement 2,844 1.50
------------ ---------
Excess $ 17,778 9.38%
============ =========
Core capital:
Capital level 20,622 10.88%
Requirement 5,688 3.00
------------ ---------
Excess $ 14,934 7.88%
============ =========
Risk-based capital:
Capital level 21,292 19.82%
Requirement 8,596 8.00
------------ ---------
Excess $ 12,696 11.82%
============ =========
-19-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Impact of Inflation and Changing Prices
Our financial statements and the accompanying notes have been prepared in
accordance with accounting principles generally accepted in the United States of
America, which require the measurement of financial position and operating
results in terms of historical dollars without considering the change in the
relative purchasing power of money over time and due to inflation. The impact of
inflation is reflected in the increased cost of our operations. Interest rates
have a greater impact on our performance than do the general levels of
inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the prices of goods and services.
-20-
EAGLE BANCORP AND SUBSIDIARY
CONTROLS AND PROCEDURES
Based on their evaluation as of a date within 90 days prior to the filing of
this Form 10-QSB, the company's Chief Executive Officer, Larry A. Dreyer, and
Treasurer, Peter J. Johnson, have concluded the company's disclosure controls
and procedures are effective 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.
There have been no significant changes in the company's internal controls or in
other factors that could significantly affect those controls subsequent to the
date of their evaluation.
-21-
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 proxy statement for the Annual Meeting of Stockholders was
mailed on September 13, 2002. The following matters were voted on
at the meeting held on October 17, 2002:
1. Election of directors for three-year terms expiring in 2005:
For: Against:
---- --------
Larry A. Dreyer 1,122,165 1,033
Teresa L. Hartzog 1,122,640 558
2. Ratification of appointment of Anderson ZurMuehlen & Co., P.C. as
auditors for the fiscal year ended June 30, 2003:
For: Against: Abstain:
---- -------- --------
1,122,083 775 340
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
a.) Exhibits
Certifications pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
b.) Reports on Form 8-K
None.
-22-
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
EAGLE BANCORP
Date: November 8, 2002 By: __________________________
Larry A. Dreyer
President/CEO
Date: November 8, 2002 By: __________________________
Peter J. Johnson
Sr. VP/Treasurer
-23-
EAGLE BANCORP AND SUBSIDIARY
CERTIFICATION PURSUANT TO
SECTION 302 (a) OF THE SARBANES-OXLEY ACT OF 2002
I, Larry A. Dreyer, Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Eagle Bancorp;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
-24-
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 8, 2002
Larry A. Dreyer
President and Chief Executive Officer
-25-
EAGLE BANCORP AND SUBSIDIARY
CERTIFICATION PURSUANT TO
SECTION 302 (a) OF THE SARBANES-OXLEY ACT OF 2002
I, Peter J. Johnson, Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Eagle Bancorp;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusion about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
-26-
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 8, 2002
Peter J. Johnson
Sr. VP/Treasurer and Chief Financial
Officer
-27-