UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________________ to ________________________.
Commission file number 0-29687
Eagle Bancorp
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(Exact name of small business issuer as specified in its charter)
United States 81-0531318
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1400 Prospect Avenue, Helena, MT 59601
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(Address of principal executive offices)
(406) 442-3080
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(Issuer's telephone number)
Website address: www.americanfederalsavingsbank.com
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No[ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common stock, par value $0.01 per share 1,214,372 shares outstanding
--------------------------------------- ----------------------------
As of May 10, 2004
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
EAGLE BANCORP AND SUBSIDIARY
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
March 31, 2004 (unaudited) and June 30, 2003............1 and 2
Consolidated Statements of Income for the three and
nine months ended March 31, 2004 and 2003 (unaudited)...3 and 4
Consolidated Statements of Changes in Stockholders' Equity
for the nine months ended March 31, 2004 (unaudited)..........5
Consolidated Statements of Cash Flows for the nine
months ended March 31, 2004 and 2003 (unaudited)........6 and 7
Notes to Consolidated Financial Statements .............8 to 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .....................13 to 20
Item 3. Controls and Procedures........................................21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .............................................22
Item 2. Changes in Securities .........................................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
Exhibit 31.1........................................................24 and 25
Exhibit 31.2........................................................26 and 27
Exhibit 32.1...............................................................28
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31 June 30,
2004 2003
------------ ------------
(Unaudited) (Audited)
ASSETS
Cash and due from banks $ 2,928,400 $ 2,966,202
Interest-bearing deposits with banks 5,297,661 7,263,841
------------ ------------
Total cash and cash equivalents 8,226,061 10,230,043
Investment securities available-for-sale,
at market value 92,627,998 76,855,280
Investment securities held-to-maturity,
at amortized cost 1,679,577 2,280,736
Federal Home Loan Bank stock, at cost 1,747,300 1,686,300
Mortgage loans held-for-sale 904,676 6,908,373
Loans receivable, net of deferred loan fees
and allowance for loan losses 89,030,647 93,521,165
Accrued interest and dividends receivable 1,195,936 913,101
Mortgage servicing rights, net 1,831,576 1,291,614
Property and equipment, net 6,447,079 6,392,625
Cash surrender value of life insurance 2,454,549 2,347,232
Real estate acquired in settlement of loans,
net of allowance for losses -- 70,010
Other assets 467,078 561,924
------------ ------------
Total assets $206,612,477 $203,058,403
============ ============
See accompanying notes to consolidated financial statements.
-1-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Continued)
March 31 June 30,
2004 2003
------------- -------------
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposit accounts:
Noninterest bearing $ 8,865,188 $ 7,868,012
Interest bearing 161,437,618 160,556,053
Advances from Federal Home Loan Bank 9,168,889 9,243,889
Accrued expenses and other liabilities 2,000,856 1,893,668
------------- -------------
Total liabilities 181,472,551 179,561,622
------------- -------------
Stockholders' Equity:
Preferred stock (no par value, 1,000,000 shares
authorized, none issued or outstanding) -- --
Common stock (par value $0.01 per share;
10,000,000 shares authorized; 1,223,572 shares
issued; 1,214,372 and 1,209,772 outstanding at
March 31, 2004 and June 30, 2003, respectively) 12,236 12,236
Additional paid-in capital 4,041,414 3,954,432
Unallocated common stock held by employee
stock ownership plan ("ESOP") (211,648) (239,248)
Treasury stock, at cost (9,200 and 13,800 shares at
March 31, 2004 and June 30, 2003, respectively) (134,665) (188,715)
Retained earnings 21,007,973 19,532,409
Accumulated other comprehensive income (loss) 424,616 425,667
------------- -------------
Total stockholders' equity 25,139,926 23,496,781
------------- -------------
Total liabilities and stockholders' equity $ 206,612,477 $ 203,058,403
============= =============
See accompanying notes to consolidated financial statements.
-2-
EAGLE BANCORP AND SUBSIDIARY
QUARTERLY CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------- -----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
Interest and Dividend Income:
Interest and fees on loans $1,535,153 $1,883,542 $4,821,029 $5,881,080
Interest on deposits with banks 7,612 25,361 37,039 98,425
FHLB Stock dividends 17,206 27,253 61,053 78,635
Securities available-for-sale 802,101 575,233 2,068,928 1,773,345
Securities held-to-maturity 21,567 39,540 71,173 132,875
---------- ---------- ---------- ----------
Total interest and dividend income 2,383,639 2,550,929 7,059,222 7,964,360
---------- ---------- ---------- ----------
Interest Expense:
Deposits 610,833 875,780 2,052,755 2,800,103
FHLB Advances 142,979 143,070 433,473 436,812
---------- ---------- ---------- ----------
Total interest expense 753,812 1,018,850 2,486,228 3,236,915
---------- ---------- ---------- ----------
Net Interest Income 1,629,827 1,532,079 4,572,994 4,727,445
Loan loss provision -- -- -- --
---------- ---------- ---------- ----------
Net interest income after loan loss provision 1,629,827 1,532,079 4,572,994 4,727,445
---------- ---------- ---------- ----------
Noninterest income:
Net gain on sale of loans 195,440 574,976 1,001,983 1,381,199
Demand deposit service charges 149,460 121,512 475,596 375,670
Mortgage loan servicing fees 46,883 110,834 880,015 311,757
Net gain on sale of available-for-sale securities 11,070 20,435 12,372 20,435
Other 94,132 97,173 274,404 290,329
---------- ---------- ---------- ----------
Total noninterest income 496,985 924,930 2,644,370 2,379,390
---------- ---------- ---------- ----------
See accompanying notes to consolidated financial statements.
-3-
EAGLE BANCORP AND SUBSIDIARY
QUARTERLY CONSOLIDATED STATEMENTS OF INCOME
(Continued)
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------- -----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
Noninterest expense:
Salaries and employee benefits 823,683 756,254 2,360,528 2,201,454
Occupancy expenses 132,299 125,943 364,926 373,573
Furniture and equipment depreciation 58,960 51,139 180,797 157,510
In-house computer expense 63,339 60,935 179,391 180,903
Advertising expense 32,716 34,676 106,943 117,453
Amortization of mtg servicing fees 118,753 173,306 506,561 487,835
Federal insurance premiums 6,607 6,514 19,401 19,149
Postage 33,926 34,016 93,325 90,910
Legal, accounting, and examination fees 45,425 40,372 117,368 107,164
Consulting fees 1,200 16,936 12,540 38,006
ATM processing 12,287 10,587 38,984 33,490
Other 234,417 199,402 707,331 597,154
---------- ---------- ---------- ----------
Total noninterest expense 1,563,612 1,510,080 4,688,095 4,404,601
---------- ---------- ---------- ----------
Income before provision for income taxes 563,200 946,929 2,529,269 2,702,234
---------- ---------- ---------- ----------
Provision for income taxes 167,041 320,560 783,555 916,110
---------- ---------- ---------- ----------
Net income $ 396,159 $ 626,369 $1,745,714 $1,786,124
========== ========== ========== ==========
Basic earnings per share $ 0.33 $ 0.53 $ 1.48 $ 1.52
========== ========== ========== ==========
Diluted earnings per share $ 0.33 $ 0.53 $ 1.46 $ 1.50
========== ========== ========== ==========
Weighted average shares outstanding (basic eps) 1,186,202 1,176,940 1,182,624 1,174,177
========= ========= ========= =========
Weighted average shares outstanding (diluted eps) 1,196,362 1,191,762 1,195,210 1,190,610
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
-4-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Nine Months Ended March 31, 2004
ACCUMULATED
ADDITIONAL UNALLOCATED OTHER
PREFERRED COMMON PAID-IN ESOP TREASURY RETAINED COMPREHENSIVE
STOCK STOCK CAPITAL SHARES STOCK EARNINGS INCOME TOTAL
----- ----- ------- ------ ----- -------- ------ -----
Balance, June 30, 2003 $ -- $ 12,236 $ 3,954,432 $ (239,248) $(188,715) $ 19,532,409 $425,667 $23,496,781
Net income (unaudited) -- -- -- -- -- 1,745,714 -- 1,745,714
Other comprehensive income (unaudited) -- -- -- -- -- -- (1,051) (1,051)
-----------
Total comprehensive income (unaudited) -- -- -- -- -- -- -- 1,744,663
-----------
Dividends paid ($.48 per share) (unaudited) -- -- -- -- -- (270,150) -- (270,150)
-----------
Restricted stock plan shares allocated
(4,600 shares) -- -- (1,150) -- 54,050 -- -- 52,900
ESOP shares allocated or committed to be
released for allocation (3,450 shares)
(unaudited) -- -- 88,132 27,600 -- -- -- 115,732
------ -------- ------------ ---------- --------- ------------ -------- -----------
Balance, March 31, 2004 (unaudited) $ -- $ 12,236 $ 4,041,414 $ (211,648) $(134,665) $ 21,007,973 $424,616 $25,139,926
====== ======== ============ ========== ========= ============ ======== ===========
See accompanying notes to consolidated financial statements.
-5-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
March 31,
2004 2003
------------ ------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,745,714 $ 1,786,124
Adjustments to reconcile net income to net cash
from operating activities:
Provision for mortgage servicing rights valuation losses (478,411) --
Depreciation 332,624 301,897
Net amortization of marketable securities premium
and discounts 1,166,940 583,845
Amortization of capitalized mortgage servicing rights 506,561 487,835
Gain on sale of loans (1,001,983) (1,381,199)
Gain on sale of real estate owned (596) --
Net realized (gain) loss on sale of available-for-sale securities (12,372) (20,435)
FHLB & other dividends reinvested (96,895) (173,699)
Increase in cash surrender value of life insurance (107,317) (77,133)
Change in assets and liabilities:
(Increase) decrease in assets:
Accrued interest and dividends receivable (282,835) 18,825
Loans held-for-sale 6,919,026 (894,219)
Other assets 94,847 (257,641)
Increase (decrease) in liabilities:
Accrued expenses and other liabilities 224,006 (212,366)
Deferred compensation payable -- 38,049
Deferred income taxes payable -- 383,818
------------ ------------
Net cash provided by operating activities 9,009,309 583,701
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities:
Investment securities available-for-sale (47,125,951) (28,640,513)
Proceeds from maturities, calls and principal payments:
Investment securities held-to-maturity 597,147 914,518
Investment securities available-for-sale 23,643,785 12,205,549
Proceeds from sales of investment securities available-for-sale 6,679,310 1,052,385
Proceeds from the sale of real estate acquired settlement of loans 70,606 --
See accompanying notes to consolidated financial statements.
-6-
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Nine Months Ended
March 31,
2004 2003
------------ ------------
(Unaudited)
CASH FLOWS FROM INVESTING ACTIVITIES (CONTINUED):
Net (increase) decrease in loan receivable, excludes transfers
to real estate acquired in settlement of loans 3,922,403 4,151,405
Purchase of property and equipment (387,080) (344,534)
------------ ------------
Net cash used in investing activities (12,599,780) (10,661,190)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in checking and savings accounts 1,878,739 12,188,908
FHLB advances 1,050,000 --
Payments on FHLB advances (1,125,000) (75,000)
Sale (Purchase) of Treasury Stock 52,900 (8,915)
Dividends paid (270,150) (218,093)
------------ ------------
Net cash provided by financing activities 1,586,489 11,886,900
------------ ------------
Net increase (decrease) in cash and cash equivalents (2,003,982) 1,809,411
CASH AND CASH EQUIVALENTS, beginning of period 10,230,043 10,622,990
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 8,226,061 $ 12,432,401
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest $ 2,496,741 $ 3,252,539
============ ============
Cash paid during the period for income taxes $ 442,650 $ 1,000,104
============ ============
NON-CASH INVESTING ACTIVITIES:
(Increase) decrease in market value of securities available-for-sale $ (84,510) $ (137,660)
============ ============
Mortgage servicing rights capitalized $ 568,112 $ 915,009
============ ============
See accompanying notes to consolidated financial statements.
-7-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
------- ---------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with instructions for Form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statements. However, such information reflects all adjustments (consisting of
normal recurring adjustments) which are, in the opinion of management, necessary
for a fair presentation of results for the unaudited interim periods.
The results of operations for the three and nine month periods ended March 31,
2004 are not necessarily indicative of the results to be expected for the fiscal
year ending June 30, 2004 or any other period. The unaudited consolidated
financial statements and notes presented herein should be read in conjunction
with the audited consolidated financial statements and related notes thereto
included in Eagle's Form 10-KSB dated June 30, 2003.
-8-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 2. INVESTMENT SECURITIES
------- ---------------------
Investment securities are summarized as follows:
March 31, 2004 (Unaudited) June 30, 2003 (Audited)
---------------------------------------- ----------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED FAIR AMORTIZED UNREALIZED FAIR
COST GAINS(LOSSES) VALUE COST GAINS (LOSSES) VALUE
----------- ----------- ----------- ----------- ------------- -----------
Available-for-sale:
U.S. government and
agency obligations $12,114,425 $ 126,154 $12,240,579 $ 5,039,764 $ 111,500 $ 5,151,264
Municipal obligations 9,023,501 306,418 9,329,919 6,851,051 235,534 7,086,585
Corporate obligations 18,911,225 353,132 19,264,357 6,180,404 217,512 6,397,916
Mortgage-backed
securities 19,679,279 1,543 19,680,822 28,032,532 190,352 28,222,884
Mutual Funds 99,693 (171) 99,522 4,696,019 (26) 4,695,993
Collateralized
mortgage obligations 30,000,681 35,059 30,035,740 23,461,474 (7,351) 23,454,123
Common stock 179,293 13,677 192,970 58,645 2,710 61,355
Corporate preferred
stock 1,950,000 (165,911) 1,784,089 1,950,000 (164,840) 1,785,160
----------- ----------- ----------- ----------- ----------- -----------
Total $91,958,097 $ 669,901 $92,627,998 $76,269,889 $ 585,391 $76,855,280
=========== =========== =========== =========== =========== ===========
Held-to-maturity:
Municipal obligations $ 930,730 $ 68,925 $ 999,655 $ 1,031,729 $ 75,173 $ 1,106,902
Mortgage-backed
securities 748,847 40,578 789,425 1,249,007 49,206 1,298,213
----------- ----------- ----------- ----------- ----------- -----------
Total $ 1,679,577 $ 109,503 $ 1,789,080 $ 2,280,736 $ 124,379 $ 2,405,115
=========== =========== =========== =========== =========== ===========
-9-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 3. LOANS RECEIVABLE
------- ----------------
Loans receivable consist of the following:
March 31, June 30,
2004 2003
(Unaudited) (Audited)
------------ ------------
First mortgage loans:
Residential mortgage (1-4 family) $ 45,505,039 $ 45,404,699
Commercial real estate 10,673,630 18,819,234
Real estate construction 4,780,238 3,802,257
Other loans:
Home equity 14,120,329 13,791,769
Consumer 9,668,150 9,278,219
Commercial 4,872,633 3,033,786
------------ ------------
Total 89,620,019 94,129,964
Less: Allowance for loan losses (653,773) (672,841)
Deferred loan fees 64,401 64,042
------------ ------------
Total $ 89,030,647 $ 93,521,165
============ ============
Loans net of related allowance for loan losses on which the accrual of interest
has been discontinued were $546,000 and $610,000 at March 31, 2004 and June 30,
2003, respectively. Classified assets, including real estate owned, totaled
$1.02 million and $1.57 million at March 31, 2004 and June 30, 2003,
respectively.
The following is a summary of changes in the allowance for loan losses:
Nine Months Ended Year ended
March 31, June 30,
2004 2003
(Unaudited) (Audited)
------------ ------------
Balance, beginning of period $ 672,841 $ 702,705
Transfer from interest reserve -- --
Provision charged to operations -- --
Charge-offs (27,861) (37,118)
Recoveries 8,793 7,254
------------ ------------
Balance, end of period $ 653,773 $ 672,841
============ ============
-10-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 4. DEPOSITS
------- --------
Deposits are summarized as follows:
March 31, June 30,
2004 2003
(Unaudited) (Audited)
------------ ------------
Noninterest checking $ 8,865,188 $ 7,868,012
Interest-bearing checking 28,297,759 27,125,488
Passbook 25,582,813 25,762,108
Money market 30,772,722 30,177,605
Time certificates of deposit 76,784,324 77,490,852
------------ ------------
Total $170,302,806 $168,424,065
============ ============
NOTE 5. EARNINGS PER SHARE
------- ------------------
Basic earnings per share for the three months ended March 31, 2004 is computed
using 1,186,202 weighted average shares outstanding. Earnings per share for the
nine months ended March 31, 2004 is computed using 1,182,624 weighted average
shares outstanding. Basic earnings per share for the three months ended March
31, 2003 is computed using 1,176,940 weighted average shares outstanding.
Earnings per share for the nine months ended March 31, 2003 is computed using
1,174,177 weighted average shares outstanding. Diluted earnings per share is
computed using the treasury stock method by adjusting the number of shares
outstanding by the shares purchased. The weighted average shares outstanding for
the diluted earnings per share calculations are 1,196,362 for the three months
ended March 31, 2004 and 1,195,210 for the nine months ended March 31, 2004.
Diluted earnings per share for the three months and six months ended March 31,
2003 is computed using 1,191,762 and 1,190,610 weighted average shares
outstanding, respectively.
NOTE 6. DIVIDENDS AND STOCK REPURCHASE PROGRAM
------- --------------------------------------
This fiscal year Eagle has paid three dividends of $0.16 per share, on August
22, 2003, November 14, 2003 and February 13, 2004. A dividend of $0.16 per share
was declared on April 15, 2004, payable May 14, 2004 to stockholders of record
on April 30, 2004. Eagle Financial MHC, Eagle's mutual holding company, has
waived the receipt of dividends on its 648,493 shares.
At the annual meeting held October 19, 2000, shareholders approved stock option
and restricted stock plans for the Company covering aggregate grants of up to
80,511 and 23,003, respectively. A stock repurchase program was announced on
December 21, 2000, covering 4% of the Company's outstanding common stock, with
the intent of meeting the needs of the restricted stock plan. On January 18,
2002, January 21, 2003 and January 20, 2004, 4,600 shares of the restricted
stock plan vested and were distributed to the participants. By October 24, 2002,
23,000 shares had been repurchased, completing this repurchase program.
-11-
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 6. DIVIDENDS AND STOCK REPURCHASE PROGRAM (CONTINUED)
------- --------------------------------------------------
At their regular meeting of August 21, 2003, the Company's Board of Directors
announced a stock repurchase program for up to 57,500 shares. This represents
approximately 10% of the outstanding common stock held by the public. The
repurchased shares will be held as treasury stock and will be held for general
corporate purposes and/or issuance pursuant to Eagle's benefit plans. As of May
10, 2004 no shares have been purchased under this program.
NOTE 7. MORTGAGE SERVICING RIGHTS
------- -------------------------
The Bank allocates its total cost in mortgage loans between mortgage servicing
rights and loans, based upon their relative fair values, when loans are
subsequently sold or securitized, with the servicing rights retained. Fair
values are generally obtained from an independent third party. Impairment of
mortgage servicing rights is measured based upon the characteristics of the
individual loans, including note rate, term, underlying collateral, current
market conditions, and estimates of net servicing income. If the carrying value
of the mortgage servicing rights exceeds the estimated fair market value, a
valuation allowance is established for any decline, which is viewed to be
temporary. Charges to the valuation allowance are charged against or credited to
mortgage servicing income. Periodic independent valuations of the mortgage
servicing rights are performed. As a result of the valuations, a temporary
decline in the fair value was determined to have occurred, and a valuation
allowance of $278,309 has been established. The following schedules show the
activity in the mortgage servicing rights and the valuation allowance.
Nine months Twelve months
ended ended
March 31, June 30,
2004 2003
(Unaudited) (Audited)
------------ ------------
Mortgage Servicing Rights
Beginning balance $ 2,048,334 $ 1,609,833
Servicing rights capitalized 568,112 1,183,848
Servicing rights amortized (506,561) (745,345)
------------ ------------
Ending balance 2,109,885 2,048,334
------------ ------------
Valuation Allowance
Beginning balance 756,720 21,515
Provision (478,411) 735,205
Adjustments -- --
------------ ------------
Ending balance 278,309 756,720
------------ ------------
Net Mortgage Servicing Rights $ 1,831,576 $ 1,291,614
============ ============
-12-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Note Regarding Forward-Looking Statements
This report contains certain "forward-looking statements." Eagle Bancorp
("Eagle" or the "Company") desires to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995 and is
including this statement for the express purpose of availing itself of the
protections of the safe harbor with respect to all such forward-looking
statements. These forward-looking statements, which are included in Management's
Discussion and Analysis, describe future plans or strategies and include Eagle's
expectations of future financial results. The words "believe," "expect,"
"anticipate," "estimate," "project," and similar expressions identify
forward-looking statements. Eagle's ability to predict results or the effect of
future plans or strategies or qualitative or quantitative changes based on
market risk is inherently uncertain. Factors which could affect actual results
but are not limited to include (i) change in general market interest rates, (ii)
general economic conditions, (iii) local economic conditions, (iv)
legislative/regulatory changes, (v) monetary and fiscal policies of the U.S.
Treasury and Federal Reserve, (vi) changes in the quality or composition of
Eagle's loan and investment portfolios, (vii) demand for loan products, (viii)
deposit flows, (ix) competition, and (x) demand for financial services in
Eagle's markets. These factors should be considered in evaluating the
forward-looking statements. You are cautioned not to place undue reliance on
these forward-looking statements which speak only as of their dates.
Financial Condition
Comparisons in this section are between the nine months ended March 31, 2004 and
June 30, 2003.
Total assets increased by $3.55 million, or 1.75%, to $206.61 million at March
31, 2004, from $203.06 million at June 30, 2003. Total liabilities increased by
$1.91 million to $181.47 million at March 31, 2004, from $179.56 million at June
30, 2003. Total equity increased $1.64 million to $25.14 million at March 31,
2004 from $23.50 million at June 30, 2003.
The growth in assets was primarily in the available-for-sale (AFS) investment
portfolio, which increased $15.77 million, or 20.52%, to $92.63 million at March
31, 2004 from $76.86 million at June 30, 2003. The investment category with the
largest increase was corporate obligations, which increased $12.86 million. The
loan portfolio decreased $4.49 million, or 4.80%, to $89.03 million at March 31,
2004 from $93.52 million at June 30, 2003. Commercial real estate showed the
largest decrease, $8.15 million, due to the sale of a large loan participation.
Other categories showed increases. Total loan originations year-to-date were
$97.69 million, with single family mortgages (including $10.08 million of
construction loans) accounting for $76.12 million of the total. Consumer loan
originations totaled $8.69 million. Home equity loan and commercial loan
originations totaled $6.92 million and $3.26 million, respectively, for the same
period. Loans held for sale decreased to $900,000 at March 31, 2004 from $6.91
million at June 30, 2003.
-13-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition (continued)
Growth in deposits has slowed from previous quarters. Deposits grew $1.88
million, or 1.12%, to $170.30 million at March 31, 2004 from $168.42 million at
June 30, 2003. Checking accounts (both noninterest and interest-bearing) and
money market accounts showed increases, and other deposit types had small
decreases.
The growth in total equity was the result of earnings for the nine months of
$1.75 million offset by the payment of three quarterly $0.16 per share regular
cash dividends and a minimal decrease in other comprehensive income.
Results of Operations for the Three Months Ended March 31, 2004 and 2003
Net Income. Eagle's net income was $396,000 and $626,000 for the three months
ended March 31, 2004, and 2003, respectively. The decrease of $230,000, or
36.74%, was primarily due to a decrease in noninterest income of $428,000 and an
increase in noninterest expense of $54,000, offset by an increase in net
interest income of $98,000. Eagle's tax provision was $154,000 lower in the
current quarter. Basic earnings per share were $0.33 for the current period,
compared to $0.53 for the previous year's period.
Net Interest Income. Net interest income increased $98,000 to $1.63 million for
the current quarter. Total interest and dividend income decreased $167,000,
which was offset by the decrease in interest expense of $265,000.
Interest and Dividend Income. Total interest and dividend income was $2.384
million for the quarter ended March 31, 2004, compared to $2.551 million for the
quarter ended March 31, 2003, representing a decrease of $167,000, or 6.55%.
Interest and fees on loans decreased to $1.53 million for the three months ended
March 31, 2004 from $1.88 million for the same period ended March 31, 2003. This
decrease of $350,000, or 18.62%, was due to the decrease in the average balances
of loans receivable for the quarter ended March 31, 2004 and the decline in the
average interest rate earned on loans. Average balances for loans receivable,
net, for the quarter ended March 31, 2004 were $94.33 million, compared to
$106.24 million for the previous year. This represents a decrease of $11.91
million, or 11.21%. The categories with the largest decreases since last year
are commercial real estate and residential mortgage loans. The average interest
rate earned on loans receivable decreased by 58 basis points, from 7.09% at
March 31, 2003 to 6.51% at March 31, 2004.
Interest and dividends on investment securities available-for-sale (AFS)
increased to $802,000 for the quarter ended March 31, 2004 from $575,000 for the
same quarter last year. Average balances on investments increased to $91.38
million for the quarter ended March 31, 2004, compared to $66.08 million for the
quarter ended March 31, 2003. The average interest rate earned on investments
dropped to 3.61% from 3.72%. Interest on securities held-to-maturity (HTM)
decreased from $40,000 to $22,000. Interest earned from deposits held at other
banks decreased $18,000 for the quarter ended March 31, 2004 compared to the
previous year's quarter, due to the decline in average balances.
-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 March 31, 2004 and 2003
(continued)
Interest Expense. Total interest expense decreased to $754,000 for the quarter
ended March 31, 2004, from $1.019 million for the quarter ended March 31, 2003,
a decrease of $265,000, or 26.01%, entirely due to the decrease in interest paid
on deposits. The decrease was the result of a decrease in average rates paid on
deposit accounts, despite higher balances. All deposit account types showed
decreases in average rates paid and also had increases in average balances in
the current quarter compared to last year's quarter. Average balances in
interest-bearing deposit accounts increased to $160.91 million for the quarter
ended March 31, 2004, compared to $153.79 million for the same quarter in the
previous year. The average rate paid on liabilities declined 43 basis points
from the quarter ended March 31, 2003 to the quarter ended March 31, 2004.
Interest on Federal Home Loan Bank advances was unchanged from the previous
year's quarter.
Provision for Loan Losses. Provisions for loan losses are charged to earnings to
maintain the total allowance for loan losses at a level considered adequate by
Eagle's subsidiary, American Federal Savings Bank (the Bank), to provide for
probable loan losses based on prior loss experience, volume and type of lending
conducted by the Bank, available peer group information, and past due loans in
portfolio. The Bank's policies require the review of assets on a quarterly
basis. The Bank classifies loans as well as other assets if warranted. While the
Bank believes it uses the best information available to make a determination
with respect to the allowance for loan losses, it recognizes that future
adjustments may be necessary. No provision was made for loan losses for either
the quarter ended March 31, 2004 or the quarter ended March 31, 2003. This is a
reflection of the continued strong asset quality of the Bank's loan portfolio.
Total classified assets decreased from $1.57 million at June 30, 2003 to $1.02
million at March 31, 2004. The Bank currently has no foreclosed real estate.
Noninterest Income. Total noninterest income decreased to $497,000 for the
quarter ended March 31, 2004, from $925,000 for the quarter ended March 31,
2003, a decrease of $428,000 or 46.27%. This was primarily the result of a
decrease in the net gain on sale of loans of $380,000, due to lower mortgage
loan origination volume in the current quarter caused principally by a decline
in mortgage loan refinancing activity. Mortgage loan servicing fees also
decreased by $64,000. This was due primarily to a decrease in the value of the
Bank's mortgage servicing rights, which decreased by $89,000. Demand deposit
service charges increased $28,000 for the quarter ended March 31, 2004 to
$149,000 from $121,000 for the quarter ended March 31, 2003. This was due to the
implementation of higher fees since the previous year.
-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 March 31, 2004 and 2003
(continued)
Noninterest Expense. Noninterest expense increased by $54,000, or 3.58%, to
$1.56 million for the quarter ended March 31, 2004, from $1.51 million for the
quarter ended March 31, 2003. This increase was primarily due to increases in
salaries and employee benefits of $67,000 and "other" noninterest expense of
$35,000, partially offset by a decrease in the amortization of mortgage
servicing fees of $55,000. The increase in salaries and benefits was due to
reduced capitalization of salary costs (per FAS 91) related to the decline in
mortgage lending. The increase in "other" noninterest expense was due primarily
to loan expenses related to a reimbursement to the Department of Housing and
Urban Development (HUD). These increases were partially offset by a decrease in
the amortization of mortgage servicing fees of $55,000, which was related to
decreased prepayment activity on mortgage loans. Excluding the mortgage
servicing fee amortization expense produces an increase in expenses of 8.09%.
Other expense categories showed minor changes.
Income Tax Expense. Eagle's income tax expense was $167,000 for the quarter
ended March 31, 2004, compared to $321,000 for the quarter ended March 31, 2003.
The effective tax rate for the quarter ended March 31, 2004 was 29.66% and was
33.85% for the quarter ended March 31, 2003. Management expects Eagle's
effective tax rate to be approximately 31%.
Results of Operations for the Nine Months Ended March 31, 2004 and 2003
Net Income. Eagle's net income was $1.746 million and $1.786 million for the
nine months ended March 31, 2004 and 2003, respectively. The decrease of
$40,000, or 2.24%, was primarily due to an increase in noninterest expense of
$283,000 and a decrease in net interest income of $154,000, partially offset by
an increase in noninterest income of $265,000. Eagle's tax provision was
$132,000 lower in the current nine month period. Basic earnings per share were
$1.48, compared to $1.52 per share for the period ended March 31, 2003.
Net Interest Income. Net interest income decreased to $4.573 million for the
nine months ended March 31, 2004 from $4.727 million for the nine months ended
March 31, 2003. This decrease of $154,000 was the result of a decrease in
interest and dividend income of $905,000, partially offset by a decrease in
interest expense of $751,000.
Interest and Dividend Income. Total interest and dividend income was $7.059
million for the nine months ended March 31, 2004, compared to $7.964 million for
the same period ended March 31, 2003, representing a decrease of $905,000, or
11.36%. Interest and fees on loans decreased to $4.821 million for 2004 from
$5.881 million for 2003. This decrease of $1.060 million, or 18.02%, was due to
a decrease in the average balances of loans receivable for the nine months ended
March 31, 2004 and the decline in the average interest rate earned on loans.
Average balances for loans receivable, net, for this period were $96.00 million,
compared to $105.49 million for the previous year. This is a decrease of $9.49
million, or 9.00%. The average interest rate earned on loans receivable also
decreased by 73 basis points, to 6.70% from 7.43%. Interest and dividends on
securities
-16-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Nine Months Ended March 31, 2004 and 2003
(Continued)
available-for-sale (AFS) increased to $2.069 million for the nine months ended
March 31, 2004 from $1.773 million for the nine months ended March 31, 2003.
Interest on securities held-to-maturity (HTM) decreased to $71,000 from
$133,000. Average balances on investment securities increased to $89.20 million
for the nine months ended March 31, 2004 compared to $62.54 million for the same
period ended March 31, 2003. The average interest rate earned on investments
declined 86 basis points, to 3.20% from 4.06%. Interest earned from deposits
held at other banks decreased to $37,000 for the nine months ended March 31,
2004 from $98,000 for the nine months ended March 31, 2003 due to the drop in
short-term interest rates and lower average balances.
Interest Expense. Total interest expense decreased to $2.486 million for the
nine months ended March 31, 2004 from $3.237 million for the nine months ended
March 31, 2003, a decrease of $751,000, or 23.20%, primarily due to the decrease
in interest paid on deposits. Interest on deposits decreased to $2.053 million
for the nine months ended March 31, 2004 from $2.800 million for the nine months
ended March 31, 2003. This decrease of $747,000, or 26.68%, was the result of a
decrease in average rates paid on deposit accounts despite higher balances in
deposit accounts. Money market accounts and certificates of deposit accounted
for the largest gain in average balances during the period from March 31, 2003
to March 31, 2004. Average balances in certificates of deposit increased to
$77.12 million from $73.33 million. The average rate paid on certificates of
deposit decreased to 2.72% from 3.71%. Average balances in money market accounts
increased to $31.70 million for the nine months ended March 31, 2004 from $28.33
million for the nine months ended March 31, 2003. The average rate paid on money
market accounts decreased to 1.11% from 1.87%. Average rates paid on all
interest-bearing deposits declined from 2003 to 2004, with the average rate paid
on all liabilities declining by 77 basis points from the nine month period ended
March 31, 2003 to the nine month period ended March 31, 2004. Interest paid on
borrowings decreased to $433,000 for the nine months ended March 31, 2004 from
$437,000 for the same period ended March 31, 2003. The decrease in borrowing
costs was due to a decrease 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 (the Bank), to provide for
probable loan losses based on prior loss experience, volume and type of lending
conducted by the Bank, available peer group information, and past due loans in
portfolio. The Bank's policies require the review of assets on a quarterly
basis. The Bank classifies loans as well as other assets if warranted. While the
Bank believes it uses the best information available to make a determination
with respect to the allowance for loan losses, it recognizes that future
adjustments may be necessary. No provision was made for loan losses for either
of the nine month periods ended March 31, 2004 or March 31, 2003. This is a
reflection of the continued strong asset quality of the Bank's loan portfolio.
Total classified assets decreased to $1.02 million at March 31, 2004 from $1.57
million at June 30, 2003. The Bank currently has no foreclosed property.
-17-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Nine Months Ended March 31, 2004 and 2003
(Continued)
Noninterest Income. Total noninterest income increased to $2.644 million for the
nine months ended March 31, 2004, from $2.379 million for the nine months ended
March 31, 2003, an increase of $265,000, or 11.14%. This was primarily due to
the increase in the value of the Bank's mortgage servicing rights, which
increased $478,000 since June 30, 2003. Consequently, mortgage loan servicing
fees increased to $880,000 for the current nine-month period compared to
$312,000 for the same period ended March 31, 2003 in the previous year. Demand
deposit service charges increased to $476,000 for the nine month period ended
March 31, 2004 from $376,000 for the same period ended March 31, 2003. This was
due to implementation of higher fees since the previous year. These increases
were partially offset by the decrease of $379,000 in net gain on sale of loans.
This was due to the decreased mortgage loan origination volume in the current
year. Other categories of noninterest income showed minor changes.
Noninterest Expense. Noninterest expense increased by $283,000, or 6.42% to
$4.688 million for the nine months ended March 31, 2004, from $4.405 million for
the nine months ended March 31, 2003. This increase was primarily due to
increases in salaries and employee benefits of $159,000 and "other" noninterest
expense of $110,000. The increase in salaries and benefit expense was due to
merit pay increases and reduced capitalization of salary costs (per FAS 91)
related to the decline in mortgage lending. The increase in "other" noninterest
expense was due to increased amortization of deferred expenses on consumer loans
and loan expenses related to a reimbursement to the Department of Housing and
Urban Development (HUD). Other categories showed minor changes.
Income Tax Expense. Eagle's income tax expense was $784,000 for the nine months
ended March 31, 2004, compared to $916,000 for the nine months ended March 31,
2003. The effective tax rate for the nine months ended March 31, 2004 was 30.98%
and was 33.90% for the nine months ended March 31, 2003.
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 24.07% and 28.03% for the nine months ended March 31, 2004
and March 31, 2003, respectively. Liquidity decreased due to the reduction in
interest-bearing deposits with banks.
-18-
EAGLE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity, Interest Rate Sensitivity and Capital Resources
The Bank's primary sources of funds are deposits, repayment of loans and
mortgage-backed securities, maturities of investments, funds provided from
operations, and advances from the Federal Home Loan Bank of Seattle. Scheduled
repayments of loans and mortgage-backed securities and maturities of investment
securities are generally predictable. However, other sources of funds, such as
deposit flows and loan prepayments, can be greatly influenced by the general
level of interest rates, economic conditions and competition. The Bank uses
liquidity resources principally to fund existing and future loan commitments. It
also uses them to fund maturing certificates of deposit, demand deposit
withdrawals and to invest in other loans and investments, maintain liquidity,
and meet operating expenses.
Liquidity may be adversely affected by unexpected deposit outflows, higher
interest rates paid by competitors, and similar matters. Management monitors
projected liquidity needs and determines the level desirable, based in part on
commitments to make loans and management's assessment of the bank's ability to
generate funds.
At December 31, 2003 (the most recent report available), the Bank's measure of
sensitivity to interest rate movements, as measured by the OTS, worsened
slightly from the previous quarter. The Bank's capital ratio as measured by the
OTS increased during the same period. The Bank is well within the guidelines set
forth by the Board of Directors for interest rate risk sensitivity.
As of March 31, 2004, the Bank's regulatory capital was in excess of all
applicable regulatory requirements. At March 31, 2004, the Bank's tangible,
core, and risk-based capital ratios amounted to 11.19%, 11.19%, and 18.75%,
respectively, compared to regulatory requirements of 1.5%, 3.0%, and 8.0%,
respectively. See the following table (amounts in thousands):
At March 31, 2004
For Capital
Adequacy
Dollar Purposes
Amount % of Assets
------------ ------------
Tangible capital:
Capital level $ 22,862 11.19%
Requirement 3,065 1.50
------------ -----
Excess $ 19,797 9.69%
============ =====
Core capital:
Capital level $ 22,862 11.19%
Requirement 6,129 3.00
------------ -----
Excess $ 16,733 8.19%
============ =====
Risk-based capital:
Capital level $ 23,499 18.75%
Requirement 10,026 8.00
------------ -----
Excess $ 13,473 10.75%
============ =====
-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 generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the change in the relative purchasing power of money
over time and due to inflation. The impact of inflation is reflected in the
increased cost of our operations. Interest rates have a greater impact on our
performance than do the general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the prices of
goods and services.
-20-
EAGLE BANCORP AND SUBSIDIARY
CONTROLS AND PROCEDURES
Based on their evaluation, the company's Chief Executive Officer, Larry A.
Dreyer, and Chief Financial Officer, Peter J. Johnson, have concluded the
company's disclosure controls and procedures are effective as of March 31, 2004
to ensure that information required to be disclosed in the reports that the
company files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. During the last fiscal
quarter, there have been no significant changes in the company's internal
control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the company's internal control over
financial reporting.
-21-
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
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
a.) Exhibits
31.1 Certification by Larry A. Dreyer, Chief Executive Officer,
pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification by Peter J. Johnson, Chief Financial Officer,
pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification by Larry A. Dreyer, Chief Executive Officer, and
Peter J. Johnson, Chief Financial Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
b.) Reports on Form 8-K
No current reports on Form 8-K were filed during the third quarter of
the 2004 fiscal year. However, on January 15, 2004, the registrant
furnished under Item 12 of Form 8-K a press release announcing its
earnings for the second quarter of the 2004 fiscal year.
-22-
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: May 11, 2004 By: /s/ LARRY A. DREYER
-------------------------------
Larry A. Dreyer
President/CEO
Date: May 11, 2004 By: /s/ PETER J. JOHNSON
-------------------------------
Peter J. Johnson
Sr. VP/Treasurer
-23-