U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
|X| Annual report under section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended June 30, 2000.
|_| Transition report under section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period
from ____________ to ______________.
Commission file number: 0-29687
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Eagle Bancorp
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(Name of small business issuer in its charter)
United States 81-0531318
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1400 Prospect Avenue, Helena, MT 59601
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (406) 442-3080
Securities to be registered under Section 12(b) of the Act:
Title of class Name of exchange on which registered
None N/A
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Securities to be registered under Section 12(g) of the Act:
Common stock, par value $0.01 per share
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|
Issuer's revenues for its most recent fiscal year are $11,603,000
The aggregate market value of the common stock held by non-affiliates, computed
by reference to the closing price as of September 12, 2000, was $4,210,000.
As of September 12, 2000, there were 1,223,572 shares of common stock issued and
outstanding.
Documents Incorporated By Reference
1. Portions of the proxy statement for the annual meeting of stockholders
for the fiscal year ended June 30, 2000 (Part III).
Transitional Small Business Disclosure
Format (Check one):
Yes |_| No |X|
<PAGE>
[LOGO]
EAGLE BANCORP
OF MONTANA
2000
ANNUAL
REPORT
<PAGE>
[PHOTO]
September 15, 2000
To Our Stockholders, Customers, and Friends:
The Board of Directors, management, and staff of Eagle Bancorp and its
wholly owned subsidiary, American Federal Savings Bank, are pleased to present
our annual report on Form 10-KSB for the fiscal year ended June 30, 2000.
During the past year, we successfully completed two of the most labor
intensive projects in our 78 year history. First was the transition to Year
2000, which passed uneventfully in large part due to the countless hours of
dedicated hard work by our Y2K team.
The second was one of the most important advances in our long and
successful history. We completed the reorganization of our community bank into a
two-tier mutual holding company structure along with an initial public stock
offering. The local response in our communities of Helena, Bozeman, Butte, and
Townsend was very gratifying. The sale of stock raised approximately $3.8
million in new investable capital. As a result, we are better positioned to
expand our local lending and investment activities and continue serving the old
and new needs of our customers and communities.
As higher interest rates have decreased the level of new real estate loan
originations from last year, we have more aggressively pursued sound consumer
and commercial loans. We plan to continue this effort by placing a "personal
banker" in our downtown Helena drive-in branch. This "savings satellite" will
then make consumer lending available in a convenient new location and on
Saturday mornings.
Customer convenience is also being pursued by our Internet Banking
Coordinator and committee. We will soon be offering "state of the art" Internet
banking, bill paying, and marketing.
We know that our greatest asset is not listed as a number in this annual
report. Our greatest asset is the trust and loyalty earned by outstanding
personal and professional service to our customers. Since 1922, this has been
accomplished by professional management, an experienced and dedicated Board of
Directors, and well-trained employees.
Our success as a community bank is also a direct result of our local
presence and service to our communities in southcentral Montana.
Your Board of Directors and management are committed to increasing
shareholder value by increasing value for our customers, employees, and
communities. We will continue prudent growth in our deposits and loan portfolios
by delivering outstanding and well priced products and services and by sound
lending practices and continued investments in our communities.
We sincerely appreciate and thank our three most important constituencies
- Stockholders, Customers, and Employees for your confidence, loyalty, and
support as we work together to build on a promising future for Our Community
Bank.
Very Sincerely,
/s/ Larry A. Dreyer
Larry A. Dreyer
President and Chief Executive Officer
<PAGE>
PART I
Item 1. Description of business.
General
Eagle Bancorp is a federally chartered stock holding company. Its charter
was approved on April 4, 2000, when it became the mid-tier stock holding company
for American Federal Savings Bank, a federally chartered stock savings bank
headquartered in Helena, Montana. Eagle Bancorp's principal business is to hold
the capital stock of American Federal Savings Bank. Upon the reorganization and
conversion to stock form of American Federal Savings Bank, Eagle Bancorp issued
575,079 shares of its common stock, par value $.01 per share (the "Common
Stock") to the public at a price of $8 per share. This represents approximately
47% of the issued and outstanding shares of the Common Stock. The remaining
648,493 shares of the Common Stock are held by Eagle Financial MHC, Eagle
Bancorp's mutual holding company.
American Federal Savings Bank was founded in 1922 as a Montana chartered
building and loan association and has conducted operations in Helena since that
time. In 1975, American Federal adopted a federal thrift charter and in the
period thereafter utilized less restrictive federal branching laws to expand its
branch structure. From 1976 to the present, seven new branch facilities were
opened and a new headquarters building in Helena was constructed. We
consolidated several of these facilities and currently have four full service
branches and one drive-up facility. We also have six automated teller machines
located in our market area and we participate in the CashCard ATM network.
Business Strategy
Since our founding in Helena in 1922, we have operated in the southcentral
portion of Montana. Since the advent of NOW accounts and low and no cost
checking or other transaction accounts, we have sought to operate in a fashion
similar to a commercial bank offering these kinds of deposits and changing our
emphasis on home mortgage lending by broadening and diversifying the kind of
loans we offer. As a result of these efforts, we provide full retail banking
services, including one- to four-family residential mortgage loans, home equity
loans, lines of credit, consumer loans, commercial real estate loans and
commercial loans for businesses as well as certificates of deposit, checking
accounts, NOW accounts and savings accounts.
We attract deposits from the general public and use these deposits
primarily to originate loans and to purchase investment and mortgage-backed and
other securities. The principal sources of funds for lending and investing
activities are deposits, Federal Home Loan Bank advances, the repayment, sale
and maturity of loans and sale and maturity of securities. The principal sources
of income are interest on loans and investments. The principal expense is
interest paid on deposits and Federal Home Loan Bank advances.
Market Area
From our headquarters in Helena, Montana, we operate four full service
offices, including our main office, and one drive-in facility. Our
headquarters/main office and our drive-in facility are located in Helena and
full service branches are located in each of Bozeman (opened 1980), Butte
(opened 1979) and Townsend (opened 1979), Montana.
Montana is one of the largest states in terms of land mass but ranks as
one of the least populated states. As of July 1, 1999, it ranked 44th with a
population of 883,000. Helena, where we are headquartered, is the county seat of
Lewis and Clark County which has a population of approximately 54,000 and is
located within 120 miles of four of Montana's other five largest cities:
Missoula, Great Falls, Bozeman and Butte. It is approximately midway
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between Yellowstone and Glacier National Parks. Helena is also Montana's state
capital. Its economy has shown slow growth, in terms of both employment and
income. State government and the numerous offices of the federal government
comprise the largest employment sector. Helena also has significant employment
in the service industries. Specifically, it has evolved into a central health
care center with employment in the medical and the supporting professions as
well as the medical insurance industry. The local economy is also dependent to a
lesser extent upon ranching and agriculture. These have been more cyclical in
nature and remain vulnerable to severe weather conditions, increased
competition, both domestic and international, as well as commodity prices.
Bozeman, where we have a branch, is approximately 95 miles southeast of
Helena. It is located in Gallatin County, which has a population of
approximately 63,000. Bozeman is home to Montana State University and has
achieved its recent growth in part due to the growth of the University as well
as the increased tourism for resort areas in and near Bozeman. Agriculture,
however, remains an important part of Bozeman's economy. Bozeman has also become
an attractive location for retirees, primarily from the West Coast, owing to its
many winter and summer recreational opportunities and the presence of the
University. Residential construction in Bozeman has increased more rapidly than
such construction in Helena and the other cities in which we operate.
Butte, Montana is approximately 64 miles southwest of Helena. We have one
branch in Butte. Butte and the surrounding Silverbow County have a population of
approximately 35,000. Butte's population has declined as a result of the decline
in the mining industry which had afforded many higher paying jobs to residents
of Butte and Silverbow County. Since mining's decrease in the 1980's, population
losses have stabilized and new manufacturing jobs related to production of
materials for computer chips have been created.
Townsend is the smallest community in which we operate. We have one branch
in Townsend. It has a population of about 2,000. Many of its residents commute
to other Montana locations for work. Other employment in Townsend is primarily
in agriculture and services. Townsend is approximately 32 miles southeast of
Helena.
Competition
We face strong competition in our primary market area for the attraction
of retail deposits and the origination of loans. Until recently Montana was a
unit banking state. This means that the ability of Montana state banks to create
branches was either prohibited or significantly restricted. As a result of unit
banking, Montana has a significant number of independent financial institutions
serving a single community in a single location. While the state's population is
approximately 880,000 people, there were approximately 79 credit unions in
Montana as well as five federally chartered thrift institutions, and 85
commercial banks as of December 31, 1999. Our most direct competition for
depositors has historically come from locally owned and out-of-state commercial
banks, thrift institutions and credit unions operating in our primary market
area. The number of such competitor locations has increased significantly in
recent years. Our competition for loans also comes from banks, thrifts and
credit unions in addition to mortgage bankers and brokers. Our principal market
areas can be characterized as markets with moderately increasing incomes, low
unemployment, increasing wealth (particularly in the growing resort areas such
as Bozeman), and moderate population growth.
Lending Activities
General. American Federal Savings Bank primarily originates one- to
four-family residential real estate loans and, to a lesser extent commercial
real estate loans, real estate construction loans, home equity loans, consumer
loans and commercial loans. Commercial real estate loans include loans on
multi-family dwellings and loans on nonresidential property and loans on
developed and undeveloped land. Home equity loans include loans secured by the
borrower's primary residence. Typically, the property securing such loans is
subject to a prior lien. Consumer loans consist of loans secured by collateral
other than real estate, such as automobiles, recreational vehicles and boats,
personal loans and lines of credit and loans made on deposits held by American
Federal. Commercial loans consist of business loans and lines of credit on a
secured and unsecured basis.
Loan Portfolio Composition. The following table analyzes the composition
of American Federal's loan portfolio by loan category at the dates indicated.
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At June 30,
------------------------------------------
2000 1999
------------------- -------------------
(Dollars in thousands)
Percent Percent
of of
Amount Total Amount Total
------ ----- ------ -----
First mortgage loans:
Residential mortgage (1-4
family)(1) ................... $ 74,337 68.66% $ 71,120 72.64%
Commercial real estate ......... 7,784 7.19 6,811 6.96
Real estate construction ....... 1,453 1.34 654 0.67
-------- ------ -------- ------
Total first mortgage
loans ...................... 83,574 77.19 78,585 80.27
-------- ------ -------- ------
Other loans:
Home equity .................... 13,654 12.61 11,867 12.12
Consumer ....................... 8,279 7.65 5,332 5.45
Commercial ..................... 2,758 2.55 2,120 2.16
-------- ------ -------- ------
Total other loans ............ 24,691 22.81 19,319 19.73
-------- ------ -------- ------
Total loans ...................... 108,265 100.00% 97,904 100.00%
-------- ------ -------- ------
Less:
Deferred loan fees ............. 106 131
Allowance for loan losses ...... 712 737
-------- --------
Total loans, net ............... $107,447 $ 97,036
======== ========
----------
(1) Excludes loans held for sale.
----------
Fee Income. American Federal Savings Bank receives lending related fee
income from a variety of sources. Its principal source of this income is from
the origination and subsequent servicing of sold mortgage loans. Fees generated
from mortgage loan servicing, which generally consists of collecting mortgage
payments, maintaining escrow accounts, disbursing payments to investors and
foreclosure processing for loans held by others, were $300,000, and $264,000 for
the years ended June 30, 2000 and 1999, respectively. Other loan related fee
income for contract collections, late charges, credit life commissions and
credit card fees were $87,000 and $94,000 for the years ended June 30, 2000 and
1999, respectively.
Loan Maturity Schedule. The following table sets forth the estimated
maturity of American Federal's loan portfolio at June 30, 2000. Scheduled
principal repayments of loans do not necessarily reflect the actual life of such
assets. The average life of a loan is typically substantially less than its
contractual terms because of prepayments. In addition, due on sale clauses on
loans generally give American Federal Savings Bank the right to declare loans
immediately due and payable in the event, among other things, that the borrower
sells the real property, subject to the mortgage, and the loan is not repaid.
All mortgage loans are shown to be maturing based on the date of the last
payment required by the loan agreement, except as noted. Loans having no stated
maturity, those without a scheduled payment, demand loans and delinquent loans,
are shown as due within six months.
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<TABLE>
<CAPTION>
More than
More than 2 years
Within 6 to 12 1 year to to Over 5
6 Months Months 2 years 5 years years Total
-------- ------ ------- ------- ----- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential mortgage (1-4
family)(1) ............ $ 23 $ 999 $ 203 $ 2,337 $ 71,636 $ 75,198
Commercial real estate .. 70 142 71 682 6,819 7,784
Real estate construction 0 1,453 0 0 0 1,453
Home equity ............. 62 691 371 4,590 7,940 13,654
Consumer ................ 428 523 755 4,919 1,654 8,279
Commercial .............. 136 730 277 411 1,204 2,758
-------- -------- -------- -------- -------- --------
Total Loans(1) ...... $ 719 $ 4,538 $ 1,677 $ 12,939 $ 89,253 $109,126
======== ======== ======== ======== ======== ========
</TABLE>
----------
(1) Includes loans held for sale.
----------
The following table sets forth the dollar amount of all loans, at June 30,
2000, due after June 30, 2001, which have pre-determined interest rates and
which have floating or adjustable interest rates:
<TABLE>
<CAPTION>
Fixed Adjustable Total
----- ---------- -----
(Dollars in thousands)
<S> <C> <C> <C>
Residential mortgage (1-4
family)(1) ................... $ 68,669 $ 5,507 $ 74,176
Commercial real estate ......... 7,047 525 7,572
Real estate construction ....... 0 0 0
Home equity .................... 10,365 2,536 12,901
Consumer ....................... 7,112 216 7,328
Commercial ..................... 1,616 276 1,892
-------- -------- --------
Total .......................... $ 94,809 $ 9,060 $103,869
======== ======== ========
Percent of total ............... 91.27% 8.73% 100.00%
</TABLE>
----------
(1) Includes loans held for sale.
----------
The following table sets forth information with respect to our loan
originations, purchases and sales activity for the periods indicated.
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For the Years Ended June 30,
----------------------------
2000 1999
-------- --------
(In thousands)
Net loans receivable at
beginning of period: ...................... $ 98,103 $ 98,100
Loans originated:
Residential mortgage (1-4
family)(1) .............................. 32,172 71,150
Commercial real estate .................... 2,587 1,645
Real estate construction .................. 4,458 3,643
Home equity ............................... 8,189 9,670
Consumer .................................. 5,336 3,857
Commercial loans .......................... 1,544 1,028
-------- --------
Total loans originated ............... 54,376 90,993
-------- --------
Loans sold:
Whole loans ............................... 15,148 48,243
Participations ............................ 0 0
-------- --------
Total loans sold ..................... 15,148 48,243
-------- --------
Principal repayments ........................ 29,048 42,689
Allowance for losses
(increase) decrease ....................... 25 (58)
Net loan increase (decrease) ................ 10,205 3
-------- --------
Net loans receivable at end of
period .................................... $108,308 $ 98,103
======== ========
----------
(1) Includes loans held for sale.
----------
Residential Lending. American Federal's primary lending activity consists
of the origination of one- to four-family residential mortgage loans secured by
property located in American Federal's market area. Approximately 68.66% of
American Federal's loans as of June 30, 2000, were comprised of such loans.
American Federal Savings Bank generally originates one- to four-family
residential mortgage loans in amounts up to 80% of the lesser of the appraised
value or the selling price of the mortgaged property without requiring private
mortgage insurance. American Federal Savings Bank will originate a mortgage loan
in an amount up to 97% of the lesser of the appraised value or selling price of
a mortgaged property; however, private mortgage insurance is required on the
amount financed in excess of 80%. A mortgage loan originated by American
Federal, whether fixed rate or adjustable rate, can have a term of up to 30
years. American Federal Savings Bank originates fixed rate loans with terms of
8, 10, 12, 15, 20 and 30 years. All 30 year fixed rate loans are sold in the
secondary market. American Federal Savings Bank holds substantially all of its
adjustable rate and its 8, 10 and 12 year fixed rate loans in portfolio; its
fixed rate 15 year loans are held in portfolio or sold in the secondary market
depending on market conditions. The volume of loan sales is dependent on the
volume, type and term of loan originations.
Adjustable rate loans limit the periodic interest rate adjustment and the
minimum and maximum rates that may be charged over the term of the loan. The
majority of these loans are retained in American Federal's portfolio.
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American Federal Savings Bank obtains a significant portion of its
noninterest income from servicing loans sold. American Federal Savings Bank
offers most of the fixed rate loans it originates for sale in the secondary
market on a servicing retained basis. This means that we process the borrower's
payments and send them to the purchaser. The retention of servicing enables
American Federal Savings Bank to increase fee income and maintain a relationship
with the borrower. Servicing income was $300,000 for the year ended June 30,
2000. At June 30, 2000, American Federal Savings Bank had $111.19 million in
loans sold with servicing retained. American Federal Savings Bank does not
ordinarily purchase home mortgage loans from other financial institutions.
Property appraisals on real estate securing American Federal's
single-family residential loans are made by state certified and licensed
independent appraisers approved annually by the board of directors. Appraisals
are performed in accordance with applicable regulations and policies. American
Federal Savings Bank generally obtains title insurance policies on all first
mortgage real estate loans originated. On occasion, refinancings of mortgage
loans are approved using title reports instead of title insurance. Title reports
are also allowed on home equity loans. Borrowers generally remit funds with each
monthly payment of principal and interest, to a loan escrow account from which
American Federal Savings Bank makes disbursements for such items as real estate
taxes and hazard and mortgage insurance premiums as they become due.
Home Equity Loans. American Federal Savings Bank also originates home
equity loans. These loans are secured by the borrowers' primary real estate, but
are typically subject to a prior lien. At June 30, 2000, $13.65 million or
12.61% of our total loans, were home equity loans. Borrowers may use the
proceeds from American Federal's home equity loans for many purposes, including
home improvement, debt consolidation, or other purchasing needs. American
Federal's home equity loans are generally fixed rate, fixed payment loans and
typically have terms of no longer than eight years.
Although home equity loans are secured by real estate, they carry a
greater risk than first lien residential mortgages because of the existence of a
prior lien on the property securing the loan, as well as the flexibility the
borrower has with respect to the loan proceeds. American Federal Savings Bank
attempts to minimize this risk by maintaining conservative underwriting policies
on such loans. We make home equity loans for up to only 85% of appraised value
of the underlying real estate collateral, less the amount of any existing prior
liens on the property securing the loan. Even for home equity loans secured by
real estate, the risk to American Federal Savings Bank is greater than that
inherent in the residential mortgage loan portfolio in that the ultimate
collection of amounts due may depend on whether any value remains after
collection by a holder with a higher priority than American Federal.
Commercial Real Estate. American Federal Savings Bank originates
non-residential commercial real estate mortgage loans, including both developed
and undeveloped land loans, and loans on multi-family dwellings. Commercial real
estate loans make up 7.19% of American Federal's total loan portfolio, or $7.78
million at June 30, 2000. The majority of these loans are non-residential
commercial real estate loans. American Federal's commercial real estate mortgage
loans are primarily permanent loans secured by improved property such as office
buildings, retail stores, commercial warehouses and apartment buildings. The
terms and conditions of each loan are tailored to the needs of the borrower and
based on the financial strength of the project and any guarantors. Generally,
commercial real estate loans originated by American Federal Savings Bank will
not exceed 70% of the appraised value or the selling price of the property,
whichever is less. The average loan size is approximately $95,000 and is
typically made with fixed rates of interest with five to 15 year maturities.
Upon maturity, the loan is repaid or the terms and conditions are renegotiated.
Generally, all originated commercial real estate loans are within American
Federal's market area and all are within the state of Montana. American
Federal's largest commercial single real estate loan had a balance of
approximately $440,000 on June 30, 2000, and was secured by a commercial office
building.
Commercial real estate, multi-family and land loans generally have
significantly greater risk than those that involve 1-4 family residential
mortgage lending. The repayment of these loans typically depends on the
successful operations and income stream of the commercial real estate and the
borrower. Such risks can be significantly affected by economic conditions. In
addition, commercial real estate lending generally requires substantially
greater oversight efforts compared to residential real estate lending.
Real Estate Construction Lending. American Federal Savings Bank also lends
funds for the construction of one- to four-family homes. Real estate
construction loans are made both to individual homeowners
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for the construction of their primary residence and to a lesser extent, to local
builders for the construction of pre-sold houses or houses that are being built
for speculative purposes. Real estate construction loans accounted for $1.45
million or 1.34% of American Federal's loan portfolio at June 30, 2000.
Real estate construction lending is generally considered to involve a
higher degree of credit risk than long term financing of residential properties.
American Federal's risk of loss on a real estate construction loan depends
largely on the accuracy of the initial estimate of the property's value at
completion of construction and the estimated cost of construction. If the
estimate of construction cost and the marketability of the property after the
project is completed prove to be inaccurate, we may be compelled to advance
additional funds to complete the construction. Furthermore, if the final value
of the completed property is less than the estimated amount, the value of the
property might not be sufficient to serve as collateral for the loan.
American Federal Savings Bank limits its exposure for real estate
construction loans made to local builders through periodic credit analysis on
the individual builder and a series of inspections throughout the construction
phase. In addition, American Federal Savings Bank limits the amount and number
of loans made to an individual builder for the construction of pre-sold and
speculative houses based on the financial strength of the builder.
Consumer Loans. As part of its strategy to invest in higher yielding
shorter term loans, American Federal Savings Bank has made significant efforts
to grow its consumer lending portfolio. This portfolio includes personal loans
secured by collateral other than real estate, personal loans and lines of
credit, and loans secured by deposits held by American Federal. As of June 30,
2000, consumer loans totaled $8.28 million or 7.65% of American Federal's total
loan portfolio. These loans consist primarily of auto loans, boat loans,
personal loans and credit lines and deposit account loans. Consumer loans are
originated in American Federal's market area and generally have maturities of up
to 10 years. For loans secured by savings accounts, American Federal Savings
Bank will lend up to 90% of the account balance on single payment loans and up
to 100% for monthly payment loans.
Consumer loans have a shorter term and generally provide higher interest
rates than residential loans. Consumer loans can be helpful in improving the
spread between average loan yield and cost of funds and at the same time improve
the matching of the maturities of rate sensitive assets and liabilities.
Increasing its consumer loans has been a major part of American Federal's
strategy of operating more like a commercial bank than a traditional savings
bank.
Consumer loans may entail greater risks than one- to four-family
residential mortgage loans, particularly consumer loans secured by rapidly
depreciable assets such as automobiles or loans that are unsecured. In such
cases, any repossessed collateral for a defaulted loan may not provide an
adequate source of repayment of the outstanding loan balance, since there is a
greater likelihood of damage, loss or depreciation of the underlying collateral.
Further, consumer loan collections depend on the borrower's continuing financial
stability, and therefore are more likely to be adversely affected by job loss,
divorce, illness or personal bankruptcy. Finally, the application of various
federal laws, including federal and state bankruptcy and insolvency laws, may
limit the amount which can be recovered on such loans after a default. American
Federal Savings Bank limits its consumer loans on new vehicles to 85% of the
purchase price and to 80% of the retail value on used vehicles.
The underwriting standards employed by American Federal Savings Bank for
consumer loans include a determination of the applicant's credit history and an
assessment of the applicant's ability to meet existing obligations and payments
on the proposed loan. The stability of the applicant's monthly income may be
determined by verification of gross monthly income from primary employment, and
additionally from any verifiable secondary income. Creditworthiness of the
applicant is of primary consideration; however, the underwriting process also
includes a comparison of the value of the collateral in relation to the proposed
loan amount.
Commercial Loans. Commercial loans amounted to $2.76 million, or 2.55% of
American Federal's total loan portfolio at June 30, 2000. American Federal's
commercial loans are traditional business loans and are not secured by real
estate. Such loans may be structured as unsecured lines of credit or may be
secured by inventory, accounts receivable or other business assets. While the
commercial loan portfolio amounts to only 2.55% of the total portfolio at June
30, 2000, American Federal Savings Bank intends to increase such lending by
focusing on market segments which it has not previously emphasized, such as
business loans to doctors, lawyers, architects and
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other professionals as well as to small businesses within its market area. Our
management believes that this strategy provides opportunities for growth,
without significant additional cost outlays for staff and infrastructure.
Commercial loans of this nature usually involve greater risk than 1-4
family residential mortgage loans. The collateral we receive is typically
related directly to the performance of the borrower's business which means that
repayment of commercial loans is dependent on the successful operations and
income stream of the borrower's business. Such risks can be significantly
affected by economic conditions. In addition, commercial lending generally
requires substantially greater oversight efforts compared to residential real
estate lending.
Loans to One Borrower. Under federal law, savings institutions have,
subject to certain exemptions, lending limits to one borrower in an amount equal
to the greater of $500,000 or 15% of the institution's unimpaired capital and
surplus. As of June 30, 2000, our largest aggregation of loans to one borrower
was $850,000, consisting of two loans secured primarily by commercial office
buildings. This was well below our federal legal lending limit to one borrower
of approximately $2.57 million at such date. At June 30, 2000, these loans were
current.
Loan Solicitation and Processing. Our customary sources of mortgage loan
applications include repeat customers, walk-ins, and referrals from home
builders and real estate brokers. We also advertise in local newspapers and on
local radio and television. Our branch managers and loan officers located at our
headquarters and in branches, have authority to approve loans when presented
with a completed application. Other loans must be approved at our main offices
as disclosed herein. No loan consultants or loan brokers are currently used by
us for either residential or commercial lending activities.
After receiving a loan application from a prospective borrower, a credit
report and verifications are ordered to confirm specific information relating to
the loan applicant's employment, income and credit standing. When required by
our policies, an appraisal of the real estate intended to secure the proposed
loan is undertaken by an independent fee appraiser. In connection with the loan
approval process, our staff analyze the loan applications and the property
involved. Officers and branch managers are granted lending authority based on
the kind of loan types where they possess expertise and their level of
experience. We have established a series of loan committees to approve any loans
which may exceed the lending authority of particular officers or branch
managers. A quorum of the board of directors is required for approval of any
loan in excess of $500,000.
Loan applicants are promptly notified of the decision by a letter setting
forth the terms and conditions of the decision. If approved, these terms and
conditions include the amount of the loan, interest rate basis, amortization
term, a brief description of real estate to be mortgaged , tax escrow and the
notice of requirement of insurance coverage to be maintained. We generally
require title insurance on first mortgage loans and fire and casualty insurance
on all properties securing loans, which insurance must be maintained during the
entire term of the loan.
Loan Commitments. We generally provide commitments to fund fixed and
adjustable-rate single-family mortgage loans for periods of 60 days at a
specified term and interest rate. The total amount of our commitments to extend
credit as of June 30, 2000, was approximately $3.01 million.
Non-performing Loans and Problem Assets
Collection Procedures. Generally, our collection procedures provide that
when a loan is 15 or more days delinquent, the borrower is notified with a past
due notice. If the loan becomes 30 days delinquent, the borrower is sent a
written delinquent notice requiring payment. If the delinquency continues,
subsequent efforts are made to contact the delinquent borrower, including face
to face meetings and counseling to resolve the delinquency. All collection
actions are undertaken with the objective of compliance with the Fair Debt
Collection Act. In some instances, we may modify the loan or grant a limited
suspension on loan payments to enable the borrower to reorganize his financial
affairs and attempt to work with the borrower to establish a repayment schedule
to cure the delinquency.
For mortgage loans and home equity loans, if the borrower is unable to
cure the delinquency or reach a payment agreement, we will institute foreclosure
actions. If a foreclosure action is taken and the loan is not reinstated, paid
in full or refinanced, the property is sold at judicial sale at which we may be
the buyer if there are no
8
<PAGE>
adequate offers to satisfy the debt. Any property acquired as the result of
foreclosure or by deed in lieu of foreclosure is classified as real estate owned
until such time as it is sold or otherwise disposed of. When real estate owned
is acquired, it is recorded at the lower of the unpaid principal balance of the
related loan or its fair market value less estimated selling costs. The initial
recordation of any loss is charged to the allowance for loan losses. As of June
30, 2000, American Federal Savings Bank had $121,000 of real estate owned
consisting of two single family residential properties located in Butte,
Montana.
Loans are reviewed on a quarterly basis and are placed on non-accrual
status when they are more than 90 days delinquent. Loans may be placed on
non-accrual status at any time if, in the opinion of management, the collection
of additional interest is doubtful. Interest accrued and unpaid at the time a
loan is placed on non-accrual status is charged against interest income.
Subsequent payments are either applied to the outstanding principal balance or
recorded as interest income, depending on the assessment of the ultimate
collectibility of the loan. At June 30, 2000, we had $504,000 of loans that were
non-performing and held on non-accrual status.
Delinquent Loans. The following table provides information regarding
American Federal's loans delinquent 30 to 89 days at June 30, 2000:
Percentage Of Total
Number Amount Delinquent Loans
------ ------ ----------------
(Dollars in thousands)
Loan Type:
Mortgage (1-4 family) .......... 6 $416,412 49.22%
Consumer ....................... 29 289,046 34.17
Commercial ..................... 3 140,523 16.61
-- -------- ------
Total .......................... 38 $845,981 100.00%
== ======== ======
Non-Performing Assets. The following table sets forth information
regarding American Federal's non-performing assets as of the dates indicated.
American Federal Savings Bank does not have any troubled debt restructurings
within the meaning of the Statement of Financial Accounting Standards No. 114.
At June 30,
-------------------------
2000 1999
-------------------------
(Dollars in thousands)
Non-accrual loans ................................ $504 $805
Accruing loans delinquent 90
days or more ................................... 3 0
Real estate owned ................................ 121 0
---- ----
Total ............................................ $628 $805
==== ====
Total non-performing loans as a
percentage of total loan
portfolio ...................................... 0.47% 0.83%
Percentage of total assets ....................... 0.33% 0.54%
The decrease in non-accrual loans during the year ended June 30, 2000, was
attributable primarily to $175,000 in residential loans which were removed from
non-accrual status. During the year ended June 30, 2000, American Federal
Savings Bank foreclosed on two (2) properties.
During the year ended June 30, 2000, approximately $22,000 of interest
would have been recorded on loans accounted for on a non-accrual basis if such
loans had been current according to the original loan agreements for the entire
period. This amount was not included in American Federal's interest income for
the period.
9
<PAGE>
Classified Assets. Management, in compliance with regulatory guidelines,
conducts an internal loan review program, whereby loans are placed or classified
in categories depending upon the level of risk of non-payment or loss. These
categories are special mention, substandard, doubtful or loss. When a loan is
classified as substandard or doubtful, management is required to establish an
allowance for loan losses in an amount that is deemed prudent. When management
classifies a loan as a loss asset, a reserve equal to 100% of the loan balance
is required to be established or the loan is required to be charged-off. The
allowance for loan losses is composed of an allowance for both inherent risk
associated with lending activities and particular problem assets.
An asset is considered "substandard" if it is inadequately protected by
the paying capacity and net worth of the obligor or the collateral pledged, if
any. Substandard assets include those characterized by the distinct possibility
that the insured institution will sustain some loss if the deficiencies are not
corrected. Assets classified as doubtful have all of the weaknesses inherent in
those classified substandard, with the added characteristic that the weaknesses
present make collection or liquidation in full, highly questionable and
improbable, on the basis of currently existing facts, conditions, and values.
Assets classified as loss are those considered uncollectible and of such little
value that their continuance as assets of American Federal Savings Bank without
the establishment of a loss reserve is not warranted. Assets which do not
currently expose the institution to a sufficient degree of risk to warrant
classification in one of the aforementioned categories but possess credit
deficiencies or potential weaknesses are required to be designated special
mention by management. In addition, each loan that exceeds $200,000 and each
group of loans to one borrower that exceeds $200,000 is monitored more closely.
Management's evaluation of the classification of assets and the adequacy
of the allowance for loan losses is reviewed by the Board on a regular basis and
by the regulatory agencies as part of their examination process. The following
table reflects our classified assets.
10
<PAGE>
At June 30,
-----------------------
2000 1999
------ ------
(In thousands)
Residential mortgages
(1-4 family):
Special mention ........................... $ 240 $ 319
Substandard ............................... 689 903
Doubtful .................................. 0 0
Loss ...................................... 0 0
Home equity:
Special mention ........................... 0 0
Substandard ............................... 218 201
Doubtful .................................. 0 0
Loss ...................................... 0 2
Consumer:
Special mention ........................... 0 0
Substandard ............................... 31 21
Doubtful .................................. 0 0
Loss ...................................... 19 24
Commercial:
Special mention ........................... 150 0
Substandard ............................... 89 168
Doubtful .................................. 0 0
Loss ...................................... 10 56
Real estate owned:
Special mention ........................... 0 0
Substandard ............................... 121 0
Doubtful .................................. 0 0
Loss ...................................... 12 0
------ ------
Total classified loans and
real estate owned .......................... $1,579 $1,694
====== ======
Allowance for Loan Losses and Real Estate Owned. American Federal Savings
Bank segregates the loan portfolio for loan losses into the following broad
categories: residential mortgages (1-4 family), commercial real estate, real
estate construction, commercial loans, home equity loans and consumer loans.
American Federal Savings Bank provides for a general allowance for losses
inherent in the portfolio by the above categories, which consists of two
components. General loss percentages are calculated based on historical analyses
and other factors. A supplemental portion of the allowance is calculated for
inherent losses which probably exist as of the evaluation date even though they
might not have been identified by the more objective processes used. This is due
to the risk of error and/or inherent imprecision in the process. This portion of
the allowance is particularly subjective and requires judgments based on
qualitative factors which do not lend themselves to exact mathematical
calculations such as: trends in delinquencies and non-accruals; trends in
volume; terms and portfolio mix; new credit products; changes in lending
policies and procedures; changes in the outlook for the local; regional and
national economy; and peer group comparisons.
At least quarterly, American Federal's management evaluates the need to
establish reserves against losses on loans and other assets based on estimated
losses on specific loans and on any real estate owned when a finding is made
that a loss is estimable and probable. Such evaluation includes a review of all
loans for which full
11
<PAGE>
collectibility may not be reasonably assured and considers; among other matters:
the estimated market value of the underlying collateral of problem loans; prior
loss experience; economic conditions; and overall portfolio quality.
Provisions for losses are charged against earnings in the period they are
established. We had $712,000 in allowances for loan losses at June 30, 2000.
While we believe we have established our existing allowance for loan
losses in accordance with generally accepted accounting principles, there can be
no assurance that regulators, in reviewing our loan portfolio, will not request
that we significantly increase our allowance for loan losses, or that general
economic conditions, a deteriorating real estate market, or other factors will
not cause us to significantly increase our allowance for loan losses, therefore
negatively affecting our financial condition and earnings.
In making loans, we recognize that credit losses will be experienced and
that the risk of loss will vary with, among other things, the type of loan being
made, the creditworthiness of the borrower over the term of the loan and, in the
case of a secured loan, the quality of the security for the loan.
It is our policy to review our loan portfolio, in accordance with
regulatory classification procedures, on at least a quarterly basis.
Additionally, we maintain a program of reviewing loan applications prior to
making the loan and immediately after loans are made in an effort to maintain
loan quality.
The following table sets forth information with respect to our allowance
for loan losses at the dates indicated:
For Years Ended June 30,
------------------------
2000 1999
----- -----
(Dollars in thousands)
Balance at beginning of
period ..................................... $ 737 $ 678
Loans charged-off ............................ (30) (18)
Reclassification to REO
reserve .................................... (12) 0
Recoveries ................................... 2 17
----- -----
Net loans charged-off ........................ (40) (1)
----- -----
Provision for possible loan
losses ..................................... 15 60
----- -----
Balance at end of period ..................... $ 712 $ 737
===== =====
Allowance for loan losses to
total loans ................................ 0.66% 0.76%
Allowance for loan losses to
total non-performing loans ................. 141.27% 91.55%
Net charge-offs to average
loans outstanding during the
period ..................................... (0.04)% (0.00)%
The following table presents our allocation of the allowance for loan
losses by loan category and the percentage of loans in each category to total
loans at the periods indicated.
12
<PAGE>
<TABLE>
<CAPTION>
At June 30,
-----------------------------------------------------------------
2000 1999
------------------------------- -------------------------------
Loans in Percentage Loans in
Percentage Each of Each
of Allowance Category Allowance to Category
to Total to Total Total to
Amount Allowance Loans Amount Allowance Total Loans
------ --------- ----- ------ --------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
First Mortgage Loans :
Residential mortgage (1-4
family) .................. $175 24.58% 68.66% $161 21.84% 72.64%
Commercial real estate ..... 197 27.67 7.19 206 27.95 6.96
Real estate construction ... 1 0.13 1.34 1 0.14 0.67
---- ------ ------ ---- ------ ------
Total mortgage loans 373 52.39 77.19 368 49.93 80.27
---- ------ ------ ---- ------ ------
Other loans:
Home equity ................ 179 25.14 12.61 174 23.61 12.12
Consumer ................... 104 14.61 7.65 92 12.48 5.45
Commercial ................. 56 7.86 2.55 103 13.98 2.16
---- ------ ------ ---- ------ ------
Total other
loans ............ 339 47.61 22.81 369 50.07 19.73
---- ------ ------ ---- ------ ------
Total .............. $712 100.00% 100.00% $737 100.00% 100.00%
==== ====== ====== ==== ====== ======
</TABLE>
13
<PAGE>
Investment Activities
General. Federally chartered savings banks such as American Federal
Savings Bank have the authority to invest in various types of investment
securities, including United States Treasury obligations, securities of various
Federal agencies (including securities collateralized by mortgages),
certificates of deposits of insured banks and savings institutions, municipal
securities, corporate debt securities and loans to other banking institutions.
Eagle maintains liquid assets which may be invested in specified
short-term securities and other investments. Liquidity levels may be increased
or decreased depending on the yields on investment alternatives. They may also
be increased based on management's judgment as to the attractiveness of the
yields then available in relation to other opportunities. Liquidity levels can
also change based on management's expectation of future yield levels, as well as
management's projections as to the short-term demand for funds to be used in
American Federal's loan origination and other activities. Eagle maintains an
investment securities portfolio and a mortgage-backed securities portfolio as
part of its investment portfolio.
Investment Policies. The investment policy of Eagle, which is established
by the board of directors, is designed to foster earnings and liquidity within
prudent interest rate risk guidelines, while complementing American Federal's
lending activities. The policy provides for available for sale, held to maturity
and trading classifications. However, Eagle does not hold any securities for
purposes of trading and does not anticipate doing so in the future. The policy
permits investments in high credit quality instruments with diversified cash
flows while permitting us to maximize total return within the guidelines set
forth in our interest rate risk and liquidity management policy. Permitted
investments include but are not limited to U. S. government obligations,
government agency or government-sponsored agency obligations, state, county and
municipal obligations, and mortgage-backed securities. Collateralized mortgage
obligations guaranteed by government or government-sponsored agencies,
investment grade corporate debt securities, and commercial paper are also
included. We also invest in Federal Home Loan Bank overnight deposits and
federal funds, but these instruments are not considered part of the investment
portfolio.
Our investment policy also includes several specific guidelines and
restrictions to insure adherence with safe and sound activities. The policy
prohibits investments in high risk mortgage derivative products (as defined
within the policy) without prior approval from the board of directors.
Management must demonstrate the business advantage of such investments. In
addition, the policy limits the maximum amount of the investment in a specific
investment category. We do not participate in hedging programs, interest rate
swaps, or other activities involving the use of off-balance sheet derivative
financial instruments. Further, Eagle does not invest in securities which are
not rated investment grade.
The Board through its asset liability committee has charged the Chief
Financial Officer to implement the investment policy. All transactions are
reported to the board of directors monthly, as well as the current composition
of the portfolio, including market values and unrealized gains and losses.
Investment Securities. We maintain a portfolio of investment securities,
classified as either available for sale or held to maturity to enhance total
return on investments. At June 30, 2000, our investment securities were U.S.
government and agency obligations, Small Business Administration pools,
municipal securities, mortgage-backed securities and corporate obligations, all
with varying characteristics as to rate, maturity and call provisions.
Investment securities held to maturity represented 35.01% of Eagle's total
investment portfolio.
Corporate Debt. We invest in corporate securities. Corporate bonds may
offer a higher yield than a U.S. Treasury security of comparable duration. These
debt instruments also may have a higher risk of default due to adverse change in
the creditworthiness of the issuer. Our policy limits investments in corporate
bonds to securities rated investment grade or better.
Mortgage-backed Securities and Small Business Administration Loan Pools.
We invest in mortgage-backed securities to provide earnings, liquidity, cash
flows, and diversification to our overall balance sheet. These mortgage-backed
securities are classified as either available for sale or held to maturity.
These securities are participation certificates issued and guaranteed by the
Government National Mortgage Association, Freddie Mac and Fannie Mae and secured
by interests in pools of mortgages. Mortgage-backed securities typically
14
<PAGE>
represent a participation interest in a pool of single-family or multi-family
mortgages, although we focus investments on mortgage-backed securities secured
by single-family mortgages. Expected maturities will differ from the maturities
actually set forth in the loans in the pools due to scheduled repayments and
because borrowers may have the right to call or prepay obligations with or
without prepayment penalties.
Mortgage-backed securities typically are issued with stated principal
amounts. The securities are backed by pools of mortgages that have loans with
interest rates that are within a set range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate or adjustable
rate mortgage loans. Mortgage-backed securities are generally referred to as
mortgage participation certificates or pass-through certificates. The interest
rate risk characteristics of the underlying pool of mortgages (i.e., fixed-rate
or adjustable-rate) and the prepayment risk, are passed on to the certificate
holder. The life of a mortgage-backed pass-through security is equal to the life
of the underlying mortgages.
Eagle also invests in securities secured by pools of Small Business
Administration loans. The securities are created and serviced by various issuers
and consist of pools of the guaranteed portions of Small Business Administration
business loans which are consolidated by the issuers and which are guaranteed by
the Small Business Administration as to payment of principal and interest. There
is an active secondary market for such securities and American Federal Savings
Bank believes that its investments in such pools are liquid investments.
Collateralized Mortgage Obligations. We also invest in collateralized
mortgage obligations, issued or sponsored by Fannie Mae and Freddie Mac.
Collateralized mortgage obligations are a type of debt security that aggregates
pools of mortgages and mortgage-backed securities and creates different classes
of securities with varying maturities and amortization schedules as well as a
residual interest with each class having different risk characteristics. The
cash flows from the underlying collateral are usually divided into "tranches" or
classes which have descending priorities with respect to the distribution of
principal and interest repayment of the underlying mortgages and mortgage-backed
securities as opposed to pass through mortgage-backed securities where cash
flows are distributed pro rata to all security holders. Unlike mortgage-backed
securities from which cash flow is received and prepayment risk is shared pro
rata by all securities holders, cash flows from the mortgages and
mortgage-backed securities underlying collateralized mortgage obligations are
paid in accordance with a predetermined priority to investors holding various
tranches of such securities or obligations. A particular tranche may carry
prepayment risk which may be different from that of the underlying collateral
and other tranches. Investing in collateralized mortgage obligations allows us
to protect ourselves to a degree from reinvestment risk resulting from
unexpected prepayment activity associated with conventional mortgage-backed
securities. Management believes these securities represent attractive
alternatives relative to other investments due to the wide variety of maturity,
repayment and interest rate options available. At June 30, 2000, 1.21% of our
investment portfolio consisted of collateralized mortgage obligations.
Other Securities. Equity securities owned consist of a $1.39 million
investment in Federal Home Loan Bank of Seattle common stock as of June 30,
2000. As a member of the Federal Home Loan Bank of Seattle, ownership of Federal
Home Loan Bank of Seattle common shares is required. The remaining securities
and deposits provide diversification and complement our overall investment
strategy.
The following table sets forth the carrying value of Eagle's investment
and mortgage-backed securities portfolio at the dates indicated.
15
<PAGE>
<TABLE>
<CAPTION>
At June 30,
--------------------------------------------
2000 1999
------------------- -------------------
Book Percentage Book Percentage
Value Of Total Value of Total
----- -------- ----- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Securities available for sale, at
fair value:
U.S. Government and agency
obligations ..................... $ 4,151 13.96% $ 3,536 9.67%
Corporate obligations ............. 6,062 20.39 5,543 15.16
Municipal obligations ............. 3,056 10.28 3,118 8.53
Collateralized mortgage obligations 361 1.21 570 1.56
Mortgage-backed securities ........ 4,583 15.42 3,823 10.45
Corporate preferred stock ......... 201 0.68 0 0
------- ------ ------- ------
Total securities available-for-sale 18,414 61.94 16,590 45.37
------- ------ ------- ------
Securities held to maturity, at
book value:
U.S. Government and Agency
obligations ..................... 2,888 9.71 6,700 18.32
Mortgage-backed securities ........ 5,965 20.06 6,843 18.72
Municipal obligations ............. 1,070 3.60 955 2.61
------- ------ ------- ------
Total securities held-to-maturity 9,923 33.38 14,498 39.65
------- ------ ------- ------
Total securities ................ 28,337 95.32 31,088 85.02
------- ------ ------- ------
Interest-bearing deposits ......... 0 0.00 4,175 11.42
Federal Home Loan Bank capital
stock, at cost .................. 1,393 4.68 1,301 3.56
------- ------ ------- ------
Total ........................... $29,730 100.00% $36,564 100.00%
======= ====== ======= ======
</TABLE>
The following table sets forth information regarding the carrying values,
weighted average yields and maturities of Eagle's investment and mortgage-backed
securities portfolio at June 30, 2000.
16
<PAGE>
<TABLE>
<CAPTION>
At June 30, 2000
---------------------------------------------------------------------------------------------------
One Year or Less One to Five Years More than Five Years Total Investment Securities
------------------- -------------------- ------------------- ---------------------------------
Annualized Annualized Annualized Annualized
Weighted Weighted Weighted Approximate Weighted
Carrying Average Carrying Average Carrying Average Carrying Market Average
Value Yield Value Yield Value Yield Value Value Yield
----- ----- ----- ----- ----- ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. Government and agency
obligations ................... $ 0 0.00% $ 1,936 6.29% $ 2,215 6.76% $ 4,151 $ 4,151 6.54%
Corporate obligations ........... 1,058 6.00 5,004 6.62 0 0.00 6,062 6,062 6.51
Municipal obligations ........... 0 0.00 0 0.00 3,056 6.82 3,056 3,056 6.82
Collateralized mortgage
obligations ..................... 0 0.00 0 0.00 361 6.49 361 361 6.49
Mortgage-backed securities ...... 0 0.00 0 0.00 4,583 6.73 4,583 4,583 6.73
Corporate preferred stock ....... 0 0.00 0 0.00 201 8.23 201 201 8.23
------- ------- ------- ------- -------
Total securities available for
sale .......................... 1,058 6.00 6,940 6.53 10,416 6.78 18,414 18,414 6.64
------- ------- ------- ------- -------
Securities held to maturity:
U.S. Government and agency
obligations ................... 1,000 6.32 1,888 6.13 0 0.00 2,888 2,859 6.20
Mortgage-backed securities ...... 987 6.44 1,567 6.14 3,411 6.11 5,965 5,800 6.17
Municipal obligations ........... 310 5.80 525 5.84 235 7.20 1,070 1,048 6.13
------- ------- ------- ------- -------
Total securities held to maturity 2,297 6.30 3,980 6.10 3,646 6.18 9,923 9,707 6.17
------- ------- ------- ------- -------
Total securities ................ 3,355 6.21 10,920 6.37 14,062 6.62 28,337 28,121 6.48
------- ------- ------- ------- -------
Federal Home Loan Bank
capital stock ................. 0 0.00 0 0.00 1,393 6.50 1,393 1,393 6.50
------- ------- ------- ------- -------
Total ........................... $ 3,355 6.21% $10,920 6.37% $15,455 6.61% $29,730 $29,514 6.48%
======= ======= ======= ======= =======
</TABLE>
17
<PAGE>
Sources of Funds
General. Deposits are the major source of our funds for lending and other
investment purposes. Borrowings (principally from the Federal Home Loan Bank)
are also used to compensate for reductions in the availability of funds from
other sources. In addition to deposits and borrowings, we derive funds from loan
and mortgage-backed securities principal repayments, and proceeds from the
maturity, call and sale of mortgage-backed securities and investment securities
and from the sale of loans. Loan and mortgage-backed securities payments are a
relatively stable source of funds, while deposit inflows are significantly
influenced by general interest rates and money market conditions.
Deposits. We offer a variety of deposit accounts. Deposit account terms
vary, primarily as to the required minimum balance amount, the amount of time
that the funds must remain on deposit and the applicable interest rate.
Our current deposit products include certificates of deposit accounts
ranging in terms from 90 days to five years as well as checking, savings and
money market accounts. Individual retirement accounts (IRAs) are included in
certificates of deposit.
Deposits are obtained primarily from residents of Helena, Bozeman, Butte
and Townsend. We believe we are able to attract deposit accounts by offering
outstanding service, competitive interest rates, and convenient locations and
service hours. We use traditional methods of advertising to attract new
customers and deposits, including radio, television, print media advertising and
sales training and incentive programs for employees. We do not utilize the
services of deposit brokers and management believes that an insignificant number
of deposit accounts are held by non-residents of Montana.
We pay interest rates on deposits which are competitive in our market.
Interest rates on deposits are set weekly by senior management, based on a
number of factors, including: projected cash flow; a current survey of a
selected group of competitors' rates for similar products; external data which
may influence interest rates; investment opportunities and loan demand; and
scheduled certificate maturities and loan and investment repayments.
Core deposits are deposits which are more stable and somewhat less
sensitive to rate changes. They also represent a lower cost source of funds than
rate sensitive, more volatile accounts such as certificates of deposit. We
believe that our core deposits are our checking, as well as NOW accounts,
passbook and statement savings accounts, money market accounts and IRA accounts.
Based on our historical experience, we include IRA accounts funded by
certificates of deposit as core deposits because they exhibit the principal
features of core deposits in that they are stable and generally are not rate
sensitive. Core deposits amounted to $83.49 million or 67.05% of American
Federal's deposits at June 30, 2000 ($64.23 million or 51.59% if IRA
certificates of deposit are excluded). The presence of a high percentage of core
deposits and, in particular, transaction accounts, is part of our strategy to
restructure our liabilities to more closely resemble the lower cost liabilities
of a commercial bank. However, a significant portion of our deposits remain in
certificate of deposit form. These certificates of deposit, should they mature
and be renewed at higher rates, will result in an increase in our cost of funds.
The following table sets forth American Federal's distribution of deposit
accounts at the dates indicated and the weighted average interest rate on each
category of deposit represented:
18
<PAGE>
<TABLE>
<CAPTION>
At June 30,
------------------------------------------------------------------------
2000 1999
---------------------------------- ---------------------------------
Weighted Weighted
Percent Average Percent Average
Amount of Total Rate Amount of Total Rate
------ -------- ---- ------ -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest checking .... $ 5,732 4.60% 0.00% $ 5,223 4.32% 0.00%
Passbook savings ........ 20,936 16.82 3.00 21,430 17.74 3.00
NOW account/Interest
bearing checking ........ 22,850 18.35 1.50 21,467 17.77 1.50
Money market accounts ... 14,716 11.82 3.97 14,446 11.96 3.61
-------- ------ -------- ------
Total ................... 64,234 51.59 2.42 62,566 51.78 2.38
-------- ------ -------- ------
Certificates of deposit
accounts:
IRA certificates ..... 19,251 15.46 5.36 20,204 16.73 5.03
Step-rate certificates 3,451 2.77 5.29 5,358 4.43 5.04
Other certificates ... 37,577 30.18 5.64 32,694 27.06 5.03
-------- ------ -------- ------
Total certificates of
deposit Accounts ...... 60,279 48.41 5.53 58,256 48.22 5.04
-------- ------ -------- ------
Total ............... $124,513 100.00% 3.93% $120,822 100.00% 3.64%
======== ====== ======== ======
</TABLE>
The following table sets forth the amounts and maturities of our
certificates of deposit as of June 30, 2000, for the maturity dates indicated:
Certificate Of Deposit Maturity
--------------------------------------------------------
(In thousands)
After
June 30, June 30, June 30, June 30,
2001 2002 2003 2003 Total
---- ---- ---- ---- -----
4.01-6% ............ $36,159 $11,581 $ 540 $ 798 $49,078
6.01-8% ............ 7,621 2,773 775 32 11,201
------- ------- ------- ------- -------
Total .............. $43,780 $14,354 $ 1,315 $ 830 $60,279
======= ======= ======= ======= =======
The following table shows the amount of certificates of deposit of
$100,000 or more by time remaining until maturity as of June 30, 2000:
19
<PAGE>
Maturity Period Amount
--------------- ------
(In thousands)
3 months or less............. $1,296
Over 3 to 6 months........... 1,034
Over 6 to 12 months.......... 3,530
Over 12 months............... 1,220
------
Total................. $7,080
======
The following table sets forth the net changes in deposit accounts for the
periods indicated:
Year Ended June 30,
-----------------------------
2000 1999
--------- ---------
(Dollars in thousands)
Opening balance ........................... $ 120,822 $ 114,729
Deposits/Withdrawals, Net ................. (746) 1,914
Interest credited ......................... 4,437 4,179
--------- ---------
Ending balance ............................ $ 124,513 $ 120,822
========= =========
Net increase .............................. $ 3,691 $ 6,093
Percent increase .......................... 3.05% 5.31%
Weighted average cost of
deposits during the period .............. 3.87% 3.76%
Weighted average cost
of deposits at end of period ........... 3.93% 3.64%
Our depositors are primarily residents of the state of Montana. We have no
brokered deposits.
Borrowings. Deposits are the primary source of funds for our lending and
investment activities and for general business purposes. However, as the need
arises or in order to take advantage of funding opportunities, we also borrow
funds in the form of advances from the Federal Home Loan Bank to supplement our
supply of lendable funds and to meet deposit withdrawal requirements. Advances
from the Federal Home Loan Bank are typically secured by our stock in the
Federal Home Loan Bank and a portion of our residential mortgage loans. They may
be secured by other assets (principally securities which are obligations of or
guaranteed by the U.S. Government). Typically, we fund loan demand and
investment opportunities out of current loan and mortgage-backed securities
repayments, investment maturities and new deposits. However, we recently
utilized Federal Home Loan Bank advances to supplement these sources and as a
match against assets in order to better manage interest rate risk.
The following table sets forth information concerning our borrowing from
the Federal Home Loan Bank of Seattle at the end of, and during, the periods
indicated:
20
<PAGE>
At or For the
Year Ended June 30,
-------------------
2000 1999
------- -------
(Dollars in thousands)
Advances from Federal Home Loan Bank:
Average balance ................................. $10,087 $12,892
Maximum balance at any month-end ................ 14,127 14,819
Balance at period end ........................... 8,683 12,574
------- -------
Weighted average interest rate
during the period ............................. 6.43% 6.50%
Weighted average interest rate at
period end .................................... 6.42% 6.48%
Subsidiary Activity
We are permitted to invest in the capital stock of, or originate secured
or unsecured loans to, subsidiary corporations. We do not have any subsidiaries,
except that American Federal Savings Bank is the wholly owned subsidiary of
Eagle Bancorp.
Personnel
As of June 30, 2000, we had 69 full-time employees and six part-time
employees. The employees are not represented by a collective bargaining unit. We
believe our relationship with our employees to be good.
REGULATION
Set forth below is a brief description of laws which relate to the
regulation of American Federal and Eagle Bancorp. The description does not
purport to be complete and is qualified in its entirety by reference to
applicable laws and regulations.
Gramm-Leach-Bliley Financial Services Modernization Act of 1999
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Financial Services Modernization Act of 1999, federal
legislation intended to modernize the financial services industry by
establishing a comprehensive framework to permit affiliations among commercial
banks, insurance companies, securities firms and other financial service
providers. Generally, the Act:
o repeals the historical restrictions and eliminates many federal and
state law barriers to affiliations among banks, securities firms,
insurance companies and other financial service providers;
o provides a uniform framework for the functional regulation of the
activities of banks, savings institutions and their holding
companies;
o broadens the activities that may be conducted by national banks,
banking subsidiaries of bank holding companies and their financial
subsidiaries;
o provides an enhanced framework for protecting the privacy of
consumer information;
21
<PAGE>
o adopts a number of provisions related to the capitalization,
membership, corporate governance and other measures designed to
modernize the Federal Home Loan Bank system;
o modifies the laws governing the implementation of the Community
Reinvestment Act; and
o addresses a variety of other legal and regulatory issues affecting
day-to-day operations and long-term activities of financial
institutions.
Thrift holding companies such as Eagle and mutual holding companies such
as Eagle Financial MHC will be permitted to engage in financial activities in
the same manner as bank holding companies with respect to insurance and
securities activities. In addition, in a change from prior law, thrift holding
companies can be owned, controlled or acquired only by companies engaged in
financially-related activities.
We do not believe that the Act will have a material adverse effect on our
operations in the near-term. However, to the extent that it permits banks,
securities firms and insurance companies to affiliate, the financial services
industry may experience further consolidation. This could result in a growing
number of larger financial institutions that can offer a wider variety of
financial services than we currently offer and that can aggressively compete in
the markets we currently serve.
Regulation of American Federal
General. As a federally chartered, savings association insurance fund
insured savings bank, American Federal Savings Bank is subject to extensive
regulation by the Office of Thrift Supervision and the FDIC. Lending activities
and other investments must comply with federal statutory and regulatory
requirements. American Federal Savings Bank is also subject to reserve
requirements of the Federal Reserve System. Federal regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the Savings Association
Insurance Fund of the FDIC and depositors. This regulatory structure gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement activities and examination policies, including policies
regarding to the classification of assets and the establishment of adequate loan
loss reserves.
The Office of Thrift Supervision regularly examines American Federal
Savings Bank and prepares a report on its examination findings to American
Federal's board of directors. American Federal's relationship with its
depositors and borrowers is also regulated by federal law, especially in such
matters as the ownership of savings accounts and the form and content of
American Federal's mortgage documents.
American Federal Savings Bank must file reports with the Office of Thrift
Supervision and the FDIC concerning its activities and financial condition, and
must obtain regulatory approvals prior to entering into transactions such as
mergers with or acquisitions of other financial institutions. Any change in such
regulations, whether by the Office of Thrift Supervision, the FDIC or the United
States Congress, could have a material adverse impact on Eagle and American
Federal, and their operations.
Insurance of Deposit Accounts. The deposit accounts held by American
Federal Savings Bank are insured by the Savings Association Insurance Fund of
the FDIC to a maximum of $100,000 as permitted by law. Insurance on deposits may
be terminated by the FDIC if it finds an institution has engaged in unsafe or
unsound practices, is in an unsafe or unsound condition to continue operations
or has violated any applicable law, regulation, rule, order or condition imposed
by the FDIC or the institution's primary regulator.
As a member of the Savings Association Insurance Fund, American Federal
Savings Bank paid an insurance premium to the FDIC equal to a minimum of 0.23%
of its total deposits during 1996 and prior years. The FDIC also maintains
another insurance fund, the Bank Insurance Fund, which primarily insures
commercial bank deposits. In 1999, the annual insurance premium for institutions
in the lowest risk category, which included most Bank Insurance Fund members,
was $2,000, regardless of size. The nominal deposit insurance premium for Bank
22
<PAGE>
Insurance Fund members placed Savings Association Insurance Fund members at a
competitive disadvantage to Bank Insurance Fund members.
Effective September 30, 1996, a federal law was enacted which mandated a
one-time special assessment on Savings Association Insurance Fund members such
as American Federal Savings Bank of approximately 0.657% of deposits held on
March 31, 1995. The law had the effect of eliminating the deposit insurance
premium differential. Specifically, beginning January 1, 1997, the deposit
insurance assessment for most Savings Association Insurance Fund members was
reduced to 0.064% of deposits on an annual basis through the end of 1999. During
this same period, Bank Insurance Fund members were assessed approximately 0.013%
of deposits. It is expected that these continuing assessments for both Savings
Association Insurance Fund and Bank Insurance Fund members will be used to repay
outstanding Financing Corporation bond obligations. As a result of these
changes, beginning January 1, 1997, the rate of deposit insurance paid by
American Federal Savings Bank declined from 0.23% of total deposits to .064% of
the total deposits, a reduction of approximately 70%.
Regulatory Capital Requirements. Office of Thrift Supervision capital
regulations require savings institutions to meet three capital standards. The
standards are tangible capital equal to 1.5% of adjusted total assets, core
capital equal to at least 4% of total adjusted assets, and risk-based capital
equal to 8% of total risk- weighted assets. American Federal's capital ratios at
June 30, 2000, are set forth below.
Actual For Capital Adequacy Purposes
--------------------- -----------------------------
Amount Ratio Amount Ratio
(Dollars in thousands)
Tangible ............... $17,149 11.27% $ 2,282 1.5%
Leverage ............... 17,149 11.27 6,086 4.0
Tier 1 risk-based ...... 17,149 18.50 3,709 4.0
Total risk-based ....... 17,861 19.26 7,417 8.0
Tangible capital is defined as core capital less all intangible assets,
less mortgage servicing rights and less investments. Core capital is defined as
common stockholders' equity, noncumulative perpetual preferred stock and
minority interests in the equity accounts of consolidated subsidiaries,
nonwithdrawable accounts and pledged deposits of mutual savings associations and
qualifying supervisory goodwill, less nonqualifying intangible assets, mortgage
servicing rights and investments.
The risk-based capital standard for savings institutions requires the
maintenance of total risk-based capital of 8% of risk-weighted assets.
Risk-based capital is comprised of core and supplementary capital. The
components of supplementary capital include, among other items, cumulative
perpetual preferred stock, perpetual subordinated debt, mandatory convertible
subordinated debt, intermediate-term preferred stock, and the portion of the
allowance for loan losses not designated for specific loan losses. The portion
of the allowance for loan and lease losses includable in supplementary capital
is limited to a maximum of 1.25% of risk-weighted assets. Overall, supplementary
capital is limited to 100% of core capital. A savings association must calculate
its risk-weighted assets by multiplying each asset and off-balance sheet item by
various risk factors as determined by the Office of Thrift Supervision, which
range from 0% for cash to 100% for delinquent loans, property acquired through
foreclosure, commercial loans, and other assets.
Office of Thrift Supervision rules require a deduction from capital for
institutions which have unacceptable levels of interest rate risk. The Office of
Thrift Supervision calculates the sensitivity of an institution's net portfolio
value based on data submitted by the institution in a schedule to its quarterly
Thrift Financial Report and using the interest rate risk measurement model
adopted by the Office of Thrift Supervision. The amount of the interest rate
risk component, if any, is deducted from an institution's total capital in order
to determine if it meets its risk-based capital requirement. Federal savings
institutions with less than $300 million in assets and a risk- based capital
ratio above 12% are exempt from filing the interest rate risk schedule. However,
the Office of Thrift Supervision may
23
<PAGE>
require any exempt institution to file such schedule on a quarterly basis and
may be subject to an additional capital requirement based on its level of
interest rate risk as compared to its peers.
Dividend and Other Capital Distribution Limitations. The Office of Thrift
Supervision imposes various restrictions or requirements on the ability of
savings institutions to make capital distributions, including dividend payments.
Office of Thrift Supervision regulations impose limitations on all capital
distributions by savings institutions, such as cash dividends, payments to
repurchase or otherwise acquire its shares, payments to stockholders of another
institution in a cash-out merger, and other distributions charged against
capital. The rule establishes three tiers of institutions based primarily on an
institution's capital level. An institution that exceeds all capital
requirements before and after a proposed capital distribution and has not been
advised by the Office of Thrift Supervision that it is in need of more than the
normal supervision has the greatest amount of flexibility for determining
dividends. Such institutions can, after prior notice but without the approval of
the Office of Thrift Supervision, make capital distributions during a calendar
year. These distributions can be equal to the greater of 100% of its net income
to date during the calendar year plus the amount that would reduce by one-half
its excess capital divided by its fully phased-in capital requirements at the
beginning of the calendar year. At the institution's discretion, dividends can
also be 75% of its net income over the most recent four-quarter period. Any
additional capital distributions require prior regulatory notice. As of June 30,
2000, American Federal Savings Bank had this level of flexibility with respect
to dividends.
Qualified Thrift Lender Test. Federal savings institutions must meet a
qualified thrift lender test or they become subject to operating restrictions.
Until recently, the chief restriction was the elimination of borrowing rights
from the Federal Home Loan Bank. However, with passage of the Gramm-Leach-Bliley
Financial Modernization Act of 1999 by Congress, the failure to maintain
qualified thrift lender status will not affect borrowing rights with the Federal
Home Loan Bank. Notwithstanding these changes, American Federal Savings Bank
anticipates that it will maintain an appropriate level of investments consisting
primarily of residential mortgages, mortgage-backed securities and other
mortgage-related investment, and otherwise qualify as a qualified thrift lender.
The required percentage of these mortgage-related investments is 65% of
portfolio assets. Portfolio assets are all assets minus intangible assets,
property used by the institution in conducting its business and liquid assets
equal to 10% of total assets. Compliance with the qualified thrift lender test
is determined on a monthly basis in nine out of every twelve months.
Transactions With Affiliates. Generally, federal banking law requires that
transactions between a savings institution or its subsidiaries and its
affiliates must be on terms as favorable to the savings institution as
comparable transactions with non-affiliates. In addition, some transactions can
be restricted to an aggregate percentage of the savings institution's capital.
Collateral in specified amounts must usually be provided by affiliates in order
to receive loans from the savings institution. In addition, a savings
institution may not extend credit to any affiliate engaged in activities not
permissible for a bank holding company or acquire the securities of any
affiliate that is not a subsidiary. The Office of Thrift Supervision has the
discretion to treat subsidiaries of a savings institution as affiliates on a
case-by-case basis.
Liquidity Requirements. All federal savings institutions are required to
maintain an average daily balance of liquid assets equal to a percentage of the
sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. Depending on economic conditions and
savings flows of all savings institutions, the Office of Thrift Supervision can
vary the liquidity requirement from time to time between 4% and 10%. Monetary
penalties may be imposed on institutions for liquidity requirement violations.
Federal Home Loan Bank System. We are a member of the Federal Home Loan
Bank of Seattle, which is one of 12 regional Federal Home Loan Banks. Each
Federal Home Loan Bank serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from funds deposited by
financial institutions and proceeds derived from the sale of consolidated
obligations of the Federal Home Loan Bank System. It makes loans to members
pursuant to policies and procedures established by the board of directors of the
Federal Home Loan Bank.
24
<PAGE>
As a member, we are required to purchase and maintain stock in the Federal
Home Loan Bank of Seattle in an amount equal to at least 1% of our aggregate
unpaid residential mortgage loans, home purchase contracts or similar
obligations at the beginning of each year, or 5% of our outstanding advances,
whichever is larger. We are in compliance with this requirement. The Federal
Home Loan Bank imposes various limitations on advances such as limiting the
amount of real estate related collateral to 30% of a member's capital and
limiting total advances to a member. As a federal savings bank, we were
mandatory members of the Federal Home Loan Bank of Seattle. Under the recently
enacted Gramm-Leach-Bliley Financial Modernization Act of 1999, we are now
voluntary members of the Federal Home Loan Bank of Seattle. We could withdraw or
significantly reduce our required stock ownership in the Federal Home Loan Bank
of Seattle.
Federal Reserve System. The Federal Reserve System requires all depository
institutions to maintain noninterest bearing reserves at specified levels
against their checking, NOW, and Super NOW checking accounts and non-personal
time deposits. The balances maintained to meet the reserve requirements imposed
by the Federal Reserve System may be used to satisfy the Office of Thrift
Supervision liquidity requirements.
Savings institutions have authority to borrow from the Federal Reserve
System "discount window," but Federal Reserve System policy generally requires
savings institutions to exhaust all other sources before borrowing from the
Federal Reserve System.
Regulation of Eagle Bancorp
General. Eagle Bancorp, as a federal stock corporation in a mutual holding
company structure, is deemed a federal mutual holding company within the meaning
of Section 10(o) of the Home Owners Loan act ("HOLA"). Eagle is registered and
files reports with the Office of Thrift Supervision and is subject to regulation
and examination by the Office of Thrift Supervision. In addition, the Office of
Thrift Supervision has enforcement authority over Eagle and any nonsavings
institution subsidiary of Eagle. The Office of Thrift Supervision can restrict
or prohibit activities that it determines to be a serious risk to us. This
regulation is intended primarily for the protection of our depositors and not
for the benefit of stockholders of Eagle.
Federal Taxation
Savings institutions are subject to the Internal Revenue Code of 1986, as
amended, in the same general manner as other corporations. Prior to changes to
the Internal Revenue Code in 1996, thrift institutions enjoyed a tax advantage
over banks with respect to determining additions to its bad debt reserves. All
thrift institutions, prior to 1996, were generally allowed a deduction for
additions to a reserve for bad debts. In contrast, only "small banks" (the
average adjusted bases of all assets of such institution equals $500 million or
less) were allowed a similar deduction for additions to their bad debt reserves.
In addition, while small banks were only allowed to use the experience method in
determining their annual addition to a bad debt reserve, all thrift institutions
generally enjoyed a choice between the percentage of taxable income method and
the experience method, for determining the annual addition to their bad debt
reserve. This choice of methods provided a distinct advantage to thrift
institutions that continually experienced little or no losses from bad debts,
over small banks in a similar situation. The reason is that thrift institutions
in comparison to small banks were generally allowed a greater tax deduction by
using the percentage of taxable income method (rather than the experience
method) to determine their deductible addition to their bad debt reserves.
The Internal Revenue Code was revised in August 1996 to equalize the
taxation of thrift institutions and banks, effective for taxable years beginning
after 1995. All thrift institutions are now subject to the same provisions as
banks with respect to deductions for bad debt. Now only thrift institutions that
are treated as small banks under the Internal Revenue Code may continue to
account for bad debts under the reserve method; however such institutions may
only use the experience method for determining additions to their bad debt
reserve. Thrift institutions that are not treated as small banks may no longer
use the reserve method to account for their bad debts but must now use the
specific charge-off method.
25
<PAGE>
The revisions to the Internal Revenue Code in 1996 also provided that all
thrift institutions must generally recapture any "applicable excess reserves"
into their taxable income, over a six year period beginning in 1996; however,
such recapture may be delayed up to two years if a thrift institution meets a
residential-lending test. Generally, a thrift institution's applicable excess
reserves equals the excess of the balance of its bad debt reserves as of the
close of its taxable year beginning before January 1, 1996, over the balance of
such reserves as of the close of its last taxable year beginning before January
1, 1988. These are known as pre-1988 reserves. American Federal Savings Bank
will be required to recapture $245,000 of applicable excess reserve as of June
30, 2000.
In addition, all thrift institutions must continue to keep track of their
pre-1988 reserves because this amount remains subject to recapture in the future
under the Internal Revenue Code. A thrift institution such as American Federal,
would generally be required to recapture into its taxable income its pre-1988
reserves in the case of excess distributions to, and redemptions of American
Federal's stock and in the case of a reduction in American Federal's outstanding
loans when comparing loans currently outstanding to loans outstanding at the end
of the base year. For taxable years after 1995, American Federal Savings Bank
will continue to account for its bad debts under the reserve method. The balance
of American Federal's pre-1988 reserves equaled $915,000.
Eagle may exclude from its income 100% of dividends received from American
Federal Savings Bank as a member of the same affiliated group of corporations. A
70% dividends received deduction generally applies with respect to dividends
received from corporations that are not members of such affiliated group.
American Federal's federal income tax returns for the last five tax years
have not been audited by the IRS.
State Taxation
American Federal Savings Bank files Montana tax returns. For Montana tax
purposes, savings institutions are presently taxed at a rate equal to 6.75% of
taxable income which is calculated based on federal taxable income, subject to
adjustments (including the addition of interest income on state and municipal
obligations).
American Federal's state tax returns have not been audited for the past
five years by the state of Montana.
Item 2. Description of property.
American Federal's executive office is located at 1400 Prospect Avenue in
Helena, Montana. American Federal Savings Bank conducts its business through
five offices, which are located in Helena, Bozeman, Butte, and Townsend,
Montana. All of its offices are owned. Its principal banking office in Helena
also serves as its executive headquarters and operations center. This office
houses over 50% of American Federal Savings Bank's full-time employees. The
following table sets forth the location of each of American Federal's offices,
the year the office was opened, and the net book value including land,
buildings, computer software and its related equipment and furniture. The square
footage at each location is also shown.
26
<PAGE>
Net Book Value At
June 30, Square
Location Address Opened 2000 Footage
-------- ------- ------ ---- -------
Helena Main 1400 Prospect Ave. 1997 $5,277,000 32,304
Office Helena, MT 59601
Helena Downtown 28 Neill Ave. 1987 $383,000 1,391
Drive-up Helena, MT 59601
Butte Office 3401 Harrison 1979 $648,000 3,890
Butte, MT 59701
Bozeman Office 606 North Seventh 1980 $600,000 5,886
Bozeman, MT 59715
Townsend Office 416 Broadway 1979 $41,000 1,973
Townsend, MT 59644
As of June 30, 2000, the net book value of land, buildings, furniture, and
equipment owned by American Federal, less accumulated depreciation, totaled $6.9
million.
Item 3. Legal proceedings.
American Federal, from time to time, is a party to routine litigation,
which arises in the normal course of business, such as claims to enforce liens,
condemnation proceedings on properties in which American Federal Savings Bank
holds security interests, claims involving the making and servicing of real
property loans, and other issues incident to the business of American Federal.
There were no lawsuits pending or known to be contemplated against American
Federal Savings Bank at June 30, 2000.
Item 4. Submission of matters to a vote of security holders.
None
PART II
Item 5. Market for common equity and related stockholder matters.
The common stock is traded on the OTC Bulletin Board under the symbol
"EBMT." At the close of business on June 30, 2000, there were 1,223,572 shares
of common stock outstanding, held by approximately 630 shareholders of record.
Six Hundred Forty-Eight Thousand, Four Hundred Ninety-Three (648,493) shares are
held by Eagle Financial MHC, Eagle's mutual holding company.
27
<PAGE>
The high bid and low bid prices noted below for the fourth quarter of
fiscal 2000 were obtained from the OTC Bulletin Board. The quotations reflect
interdealer prices without retail markup, markdown or commission, and may not
represent actual transactions.
High Bid Low Bid
-------- -------
Fourth quarter (commencing April 4, 2000) $10 3/8 $8
The closing price of the common stock on June 30, 2000, was $8 5/16. The
Company had not declared any dividends on its common stock as of June 30, 2000.
Item 6. Management's discussion and analysis or plan of operations.
Note Regarding Forward-Looking Statements
This report contains certain "forward-looking statements." Eagle 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 exposure is inherently uncertain.
Factors which could affect actual results but are not limited to (i) change in
general market interest rates, (ii) general economic conditions, (iii)
legislative/regulatory changes, (iv) monetary and fiscal policies of the U.S.
Treasury and the Federal Reserve, (v) changes in the quality or composition of
Eagle's loan and investment portfolios, (vi) demand for loan products, (vii)
deposit flows, (viii) compensation, and (ix) 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.
General
Eagle Bancorp's subsidiary, American Federal Savings Bank, operates as a
community savings bank. We raise money by offering FDIC-insured deposit products
and lending this money, primarily for the purpose of home financing. As of June
30, 2000, 63.57% of our total loans were residential mortgage loans with fixed
rates and 5.09% were residential mortgage loans with adjustable rates. Total
first mortgage loans at June 30, 2000, were $83.57 million or 77.19% of our loan
portfolio. Our other loan products include home equity loans, consumer and
commercial loans. These loans totaled $24.69 million or 22.81% of our total loan
portfolio.
The consolidated financial condition and operating results of Eagle are
primarily dependent on its wholly owned subsidiary, American Federal Savings
Bank. All references to the Company prior to April 4, 2000, except where
otherwise indicated, are to the Bank.
Analysis of Net Interest Income
The Bank's earnings have historically depended upon primarily net interest
income, which is the difference between interest income earned on loans and
investments and interest paid on deposits and any borrowed funds. It is the
single largest component of Eagle's operating income. Net interest income is
affected by (i) the difference between rates of interest earned on loans and
investments and rates paid on interest-bearing deposits and borrowings (the
"interest rate spread") and (ii) the relative amounts of loans and investments
and interest-bearing deposits and borrowings.
28
<PAGE>
The following tables present an analysis of selected aspects of Eagle's
operations during the periods indicated. The first table presents the average
balances of and the interest and dividends earned or paid on each major class of
loans and investments and interest-bearing deposits and borrowings. Nonaccruing
loans are included in balances for all periods. Average balances are daily
average balances. The yields and costs include fees, which are considered
adjustments to yields.
<TABLE>
<CAPTION>
For the Years Ended June 30,
----------------------------------------------------------------
2000 1999
-------------------------------- ------------------------------
(Dollars in thousands)
Average Interest Average Interest
Daily And Yield/ Daily and Yield/
Balance Dividends Rate Balance Dividends Rate
------- --------- ---- ------- --------- ----
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Federal Home Loan Bank
Stock .................. $ 1,337 $ 92 6.88% $ 1,243 $ 94 7.56%
Loans receivable, net(1) . 103,036 8,222 7.98 97,392 8,049 8.26
Investment securities .... 30,014 1,824 6.08 25,362 1,498 5.91
Interest-bearing
deposits with banks ... 1,159 62 5.35 7,661 381 4.97
-------- -------- ---- -------- -------- ----
Total interest-earning assets 135,546 10,200 7.53 131,658 10,022 7.61
Noninterest-earning assets ... 14,968 13,472
-------- --------
Total assets ................. $150,514 $145,130
======== ========
Liabilities and Retained
Earnings:
Interest-bearing
liabilities:
Deposit accounts:
Money market .......... $ 15,430 $ 587 3.80 $ 12,441 $ 434 3.49
Passbook .............. 20,913 630 3.01 20,393 614 3.01
Checking .............. 22,398 301 1.34 21,406 298 1.39
Certificates of
deposit ............. 57,936 2,998 5.17 56,926 3,009 5.29
Advances from Federal
Home Loan Bank ...... 10,087 649 6.43 12,892 838 6.50
-------- -------- ---- -------- -------- ----
Total interest-bearing
liabilities ................ 126,764 5,165 4.07 124,058 5,193 4.19
Other noninterest-bearing
liabilities ................ 2,435 2,380
Noninterest checking ......... 5,946 4,818
-------- --------
Total liabilities ............ 135,145 131,256
Total equity ................. 15,369 13,874
-------- --------
Total liabilities and equity . $150,514 $145,130
======== ========
Net interest income .......... $ 5,035 $ 4,829
======== ========
Net interest rate spread(2) .. 3.46% 3.42%
==== ====
Net interest margin(3) ....... 3.71% 3.67%
==== ====
Total interest-earning assets
to total interest-bearing
liabilities ................ 106.93% 106.13%
====== ======
</TABLE>
----------
(1) Includes loans available for sale and nonaccruing loans.
(2) Net interest rate spread represents the difference between the average yield
on interest-earnings loans and investments and the average rate on
interest-bearing deposits and borrowings.
(3) Net interest margin represents income before the provision for loan losses
divided by average interest-earning loans and investments.
29
<PAGE>
Rate/Volume Analysis
The following table sets forth information regarding changes in our
interest income and interest expense for the periods indicated. For each
category of our loans and investments and our interest-earning deposits and
borrowings, information is provided on changes attributable to change in volume
(change in volume multiplied by the old rate). The table also provides
information on change in rate (changes in rate multiplied by old volume). The
combined effects of changes in rate and volume have been allocated
proportionately to the change due to rate and the change due to volume.
For the Years Ended June 30,
Increase (Decrease)
------------------------------
2000 vs. 1999
------------------------------
Due to
------------------------------
Volume Rate Net
------ ---- ---
Interest earning assets:
Loans receivable, net ................. $ 453 ($280) $ 173
Investment securities ................. 282 44 326
Interest-bearing deposits
with banks .......................... (346) 27 (319)
Other earning assets .................. 7 (9) (2)
----- ----- -----
Total interest earning assets ........... 396 (218) 178
----- ----- -----
Interest-bearing liabilities:
Passbook, money market
and checking accounts ............... 114 58 172
Certificates of deposit ............... 55 (66) (11)
Borrowings(1) ......................... (180) (9) (189)
----- ----- -----
Total interest-bearing
liabilities ........................... (11) (17) (28)
----- ----- -----
Change in net interest income ........... $ 407 ($201) $ 206
===== ===== =====
----------
(1) Includes advances from the Federal Home Loan Bank of Seattle.
Financial Condition
Total assets increased by $4.14 million, or 2.78%, from $148.89 million at
June 30, 1999, to $153.03 million at June 30, 2000. Total liabilities decreased
by $300,000 from $135.00 million at June 30, 1999, to $134.70 million at June
30, 2000. The consistency in asset size reflects the relatively moderate growth
in the economy in Eagle's market area.
While total assets increased only 2.78%, the composition of our assets
changed significantly. Total cash and cash equivalents decreased from $6.74
million at June 30, 1999, to $3.48 million at June 30, 2000, a decline of $3.26
million, or 48.41%. This decline was the result of interest-bearing deposits
with banks decreasing from $4.18 million at June 30, 1999, to zero at June 30,
30
<PAGE>
2000. The decrease in interest-bearing deposits was used to fund loan demand.
Increased portfolio lending, combined with fewer loans sold and slower deposit
growth, contributed to the need to reduce the balances of interest-bearing
deposits with banks and investment securities held-to-maturity ("HTM").
Investment securities HTM declined from $14.50 million at June 30, 1999, to
$9.92 million at June 30, 2000, a decrease of $4.58 million, or 31.59%. Net
loans receivable increased $10.41 million, or 10.73%, from $97.04 million at
June 30, 1999, to $107.45 million at June 30, 2000. Management's decision to
grow the loan portfolio was accomplished by retaining 15 year and shorter
maturity loans in portfolio, along with marketing adjustable rate loans with
fixed rate features - loans that have fixed rates for 3, 5, 7, or 10 years
before becoming adjustable. These loans have been priced competitively and have
been well received by the borrowing public, helping to offset part of the
decline in mortgage loan originations experienced during the year. Investment
securities available-for-sale ("AFS") increased $1.82 million or 10.99% from
$16.59 million at June 30, 1999, to $18.41 million at June 30, 2000. The
increase is largely attributable to Eagle investing its portion of the stock
offering proceeds.
While total liabilities decreased slightly, interest-bearing deposits
increased from $115.60 million at June 30, 1999, to $118.78 million at June 30,
2000, an increase of $3.18 million, or 2.75%. This increase was the result of
the promotion of "special rate" certificate of deposit offers, primarily during
the fourth quarter. Certificates of deposit increased $2.02 million, or 3.47%,
from $58.26 million at June 30, 1999, to $60.28 million at June 30, 2000. This
increase was offset by a decrease in advances from the Federal Home Loan Bank
from $12.57 million at June 30, 1999, to $8.68 million at June 30, 2000, a
decrease of $3.89 million, or 30.95%. This decrease was the result of the Bank
paying down its existing advances while funding loan demand through stock
offering proceeds and changes in the composition of assets.
Total shareholders' equity was $18.33 million at June 30, 2000, an
increase of $4.44 million. This increase was primarily attributable to the
offering proceeds, offset by an increase in accumulated other comprehensive loss
and the unallocated ESOP shares, which are presented as a reduction of total
shareholders' equity.
Comparison of Operating Results for the Years Ending June 30, 2000 and 1999
Net Income. American Federal Savings Bank had net income of $1.06 million
for the year ended June 30, 2000, compared to net income of $1.25 million for
the year ended June 30, 1999. This decrease of $194,000, or 15.52%, was
primarily due to a decrease in noninterest income from $1.80 million for the
year ended June 30, 1999, to $1.40 million for the year ended June 30, 2000.
Income before the provision for income taxes decreased from $1.96 million for
the year ended June 30, 1999, to $1.56 million for the year ended June 30, 2000,
a decrease of $403,000, or 20.56%.
Net Interest Income. Net interest income increased from $4.83 million for
year ended June 30, 1999, to $5.04 million for the year ended June 30, 2000.
This increase of $206,000, or 4.27%, was the result of an increase of
approximately $179,000 in total interest and dividend income, and a decrease of
$28,000 in total interest expense.
Interest and Dividend Income. Total interest and dividend income was
$10.20 million for the year ended June 30, 2000, compared to $10.02 million for
the year ended June 30, 1999, representing an increase of $178,000, or 1.78%.
Interest and fees on loans increased from $8.05 million for the year ended June
30, 1999, to $8.22 million for the year ended June 30, 2000. This increase of
$173,000, or 2.15%, was due primarily to an increase in the average balances of
loans receivable for the year ended June 30, 2000. Average balances for loans
receivable, net, for the year ended June 30, 2000, were $103.04 million,
compared to $97.39 million for the previous year. This represents an increase of
$5.65 million, or 5.80%. At June 30, 2000, all loan categories had shown
increases from the prior year. A decline in the average interest rate on loans
receivable, from 8.26% for the year ended June 30, 1999, compared to 7.98% for
the year ended June 30, 2000, partially offset the increase due to higher
balances. Interest and dividends on investment securities AFS increased from
$0.73 million for the year ended June 30, 1999, to $1.05 million for year ended
June 30, 2000, an increase of $325,000, or 44.64%. This increase was the result
of increased balances in the AFS portfolio during the year and the purchase of
securities by Eagle with a portion of the stock offering proceeds. This was
somewhat offset by a decrease in interest earned from deposits held at other
banks, which decreased from $381,000 for the year ended June 30, 1999 to $62,000
for the year ended June 30, 2000. The lower average balances in these accounts
resulted from funding the increase in loans receivable.
31
<PAGE>
Interest Expense. Total interest expense decreased from $5.19 million for
the year ended June 30, 1999, to $5.17 million for the year ended June 30, 2000,
a decrease of $28,000. Interest on deposits increased from $4.36 million for the
year ended June 30, 1999, to $4.52 million for the year ended June 30, 2000.
This increase of $161,000, or 3.69%, was the result of an increase on average
rates paid and an increase in balances in deposit accounts. Money market
accounts had the largest gain in balances during the year. The Premier Money
Market Account, which pays higher interest rates on higher balances, continued
to be successful in the year ended June 30, 2000. Average balances in all money
market accounts increased from $12.44 million during fiscal 1999 to $15.43
during fiscal 2000. The average rate paid on the accounts also increased, from
3.49% in 1999 to 3.80% in 2000. The increase in deposit interest expense was
offset by a decrease in borrowings from the Federal Home Loan Bank of Seattle,
resulting in a decrease in interest paid on borrowings from $838,000 for the
year ended June 30, 1999, to $649,000 for the year ended June 30, 2000.
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 management 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. Our policies require
the review of assets on a quarterly basis. We classify loans as well as other
assets if warranted. While we believe we use the best information available to
make a determination with respect to the allowance for loan losses, we recognize
that future adjustments may be necessary. We provided $15,000 for loan losses
for the year ended June 30, 2000, compared to $60,000 for the year ended June
30, 1999. 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. We believe conservative underwriting practices and early
identification of problem loans help keep non-performing loans at a low level.
We continue to monitor our loan portfolio and will increase or decrease the
provision for loan losses as our portfolio size and composition changes or we
note an increase in non-performing loans or change in economic conditions, which
may cause an increase in non-performing loans. One such factor, which was
identified in the fourth quarter, was the announcement of a temporary closure of
the open pit mining operations in Butte, Montana. Together with the announcement
earlier in the year of the sale of Montana Power Company and the likelihood of a
decline in the number of high paying jobs in Butte, this has had a dampening
effect on the overall economy in Butte. Although these announcements did not
contribute to the two foreclosures in Butte, they may affect the resale of the
foreclosed properties there.
Noninterest Income. Total noninterest income decreased from $1.80 million
for the year ended June 30, 1999, to $1.40 million for the year ended June 30,
2000, a decrease of $400,000 or 22.17%. This change was the result of a decrease
in net gains on sale of loans, from $714,000 for the year ended June 30, 1999,
to $275,000 for the year ended June 30, 2000, a decrease of $439,000 or 61.48%.
This decrease was attributable to decreased loan originations during the year
ended June 30, 2000 and management's decision to increase the loan portfolio by
retaining mortgage loans with maturities of 15 years or less. Loan originations
decreased significantly due to the rise in interest rates during the period,
which in turn contributed to a sharp reduction in the amount of loans originated
for refinancing purposes. Noninterest income was also reduced by an increase in
the net loss on sale of available for sale securities from $6,000 for the year
ended June 30, 1999, to $30,000 for the year ended June 30, 2000. These
reductions were offset somewhat by an increase in demand deposit service
charges, which increased from $463,000 for the year ended June 30, 1999, to
$502,000 for the year ended June 30, 2000, an increase of $39,000 or 8.31%. This
increase was due to raising the charges for checks written on insufficient funds
or NSF charges. Mortgage loan servicing fees also increased from $264,000 for
the year ended June 30, 1999, to $300,000 for the year ended June 30, 2000, an
increase of $36,000 or 12.00%. This increase was the result of a larger
portfolio of sold loans during the most recent fiscal year, compared to 1999.
Mortgage loan servicing fees likely will not increase in the future until
interest rates decline and loan sales return to higher levels.
Noninterest Expense. Noninterest expense increased by $255,000 or 5.53%
from $4.61 million for the year ended June 30, 1999, to $4.87 million for the
year ended June 30, 2000. This increase was primarily due to an increase in
salaries and employee benefits from $2.42 million for the year ended June 30,
1999, to $2.68 million for the year ended June 30, 2000, an increase of
$256,000, or 10.57%. The increase in salaries and benefits was due to a decrease
in mortgage loan originations which accelerated recognition of salary related
loan origination costs. Normal merit raises also contributed to the increase in
salary costs. Furniture and equipment depreciation expense increased from
$289,000 for the year ended June 30, 1999, to $322,000 for the year ended June
30, 2000, for an
32
<PAGE>
increase of $33,000 or 11.42%. This increase was attributable to having a full
year's worth of depreciation on the Windows NT system, which was installed in
the middle of fiscal year 1999, plus depreciation on equipment added for the
remodeling of the Butte office. "Other" noninterest expenses also increased from
$640,000 for the year ended June 30, 1999, to $679,000 for the year ended June
30, 2000. This increase was primarily the result of consumer loan and credit
card expenses, due to the expansion into student loans and credit card bonus
point redemptions. These increases were somewhat offset by slight decreases in
data processing expense, advertising expense, amortization of mortgage servicing
rights and federal deposit insurance premiums.
Income Tax Expense. Income tax expense was $708,000 for the year ended
June 30, 1999, compared to $498,000 for the year ended June 30, 2000. The
effective tax rate for the year ended June 30, 1999, was 36.10% and was 32.00%
for the year ended June 30, 2000. The effective tax rate is lower in 2000
primarily due to the purchase of approximately $3.31 million of tax-free
municipal bonds in the fourth quarter of fiscal 1999.
Liquidity and Capital Resources
We are required to maintain minimum levels of liquid assets as defined by
Office of Thrift Supervision regulations. This requirement, which varies from
time to time depending upon economic conditions and deposit flows, is based upon
a percentage of our deposits and short-term borrowings. Our liquidity ratio
average was 14.48% and 20.27% at June 30, 2000, and June 30, 1999, respectively,
which is above the minimum levels required by the OTS.
Our 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. We use our
liquidity resources principally to fund existing and future loan commitments. We
also use them to fund maturing certificates of deposit, demand deposit
withdrawals and to invest in other loans and investments, maintain liquidity,
and meet operating expenses.
Net cash provided by our operating activities, which is primarily
comprised of cash transactions affecting net income, was $1.57 million for the
year ended June 30, 2000, and $2.90 million for the year ended June 30, 1999.
The change was primarily a result of a decrease in the amount of loans held for
sale.
Net cash used in our investing activities, which is primarily comprised of
cash transactions from our investment securities and mortgage-backed securities
portfolios and our loan portfolio, was $8.10 million for the year ended June 30,
2000, and $6.60 million for the year ended June 30, 1999. The increase in cash
used was due mainly to a large increase in loans receivable, $10.43 million in
2000 compared to $1.93 million in 1999. This was partially offset by smaller
purchases of investment securities and mortgage-backed securities (net of
proceeds from maturities and principal repayments).
Net cash provided by our financing activities, which is primarily cash
transactions from net increases in deposits and net Federal Home Loan Bank
advances, totaled $3.27 million for the year ended June 30, 2000, and $3.66
million for the year ended June 30, 1999. This decrease in cash provided was the
result of more advances being paid down combined with a smaller increase in
deposit accounts than the previous year. These amounts were partially offset by
the net proceeds from the stock offering.
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
our commitments to make loans and management's assessment of our ability to
generate funds.
33
<PAGE>
Impact of Inflation and Changing Prices
Our financial statements and the accompanying notes, which are found in
Item 7, 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 effects of 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.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" which, when originally issued, was required to be
adopted by American Federal Savings Bank as of July 1, 1999. However, in June
1999, FASB issued Statement of Financial Accounting Standards No. 137 which
defers the effective date of Statement No. 133 by one year to July 1, 2000.
Statement of Financial Accounting Standards No. 133 establishes accounting and
reporting standards for derivative financial instruments and for hedging
activities. Upon adoption of Statement of Financial Accounting Standards No.
133, all derivatives must be recognized at fair value as either assets or
liabilities in the statement of financial position. Changes in the fair value of
derivatives not designed as hedging instruments are to be recognized currently
in earnings or are to be recognized as a component of other comprehensive
income, depending on the intended use of the derivatives and the resulting
designations. Upon adoption, retroactive application of this statement to
financial statements of prior periods is not permitted. We are currently in the
process of evaluating the impact of Statement of Financial Accounting Standards
No. 133 on our consolidated financial position and results of operations.
Item 7. Financial statements.
C O N T E N T S
PAGE
----
INDEPENDENT AUDITORS' REPORTS
ON THE FINANCIAL STATEMENTS........................................F-l and F-2
FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition.....................F-3 and F-4
Consolidated Statements of Income..................................F-5 and F-6
Consolidated Statements of Changes in Stockholders' Equity.................F-7
Consolidated Statements of Cash Flows..............................F-8 and F-9
Notes to Financial Statements.....................................F-10 to F-37
<PAGE>
[LETTERHEAD OF AZ & COMPANY]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Eagle Bancorp
Helena, Montana 59601
We have audited the accompanying consolidated statement of financial condition
of Eagle Bancorp and subsidiary as of June 30, 2000, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit. The
financial statements of American Federal Savings Bank as of June 30, 1999 were
audited by other auditors whose report dated October 26, 1999 expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Eagle Bancorp and
subsidiary as of June 30, 2000, and the results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Anderson ZurMuehler & Co., P.C.
Helena, Montana
July 14, 2000 (except for Note 20, as to
which the date is July 21, 2000)
F-1
<PAGE>
[LETTERHEAD OF MOSS-ADAMS LLP]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
American Federal Savings Bank
We have audited the accompanying statement of financial condition of American
Federal Savings Bank (the "Bank") as of June 30, 1999, and the related
statements of income, retained earnings and accumulated other comprehensive
income, and cash flows for the year ended June 30, 1999. These financial
statements are the responsibility of the Bank's management. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Federal Savings Bank
as of June 30, 1999, and the results of its operations and its cash flows for
the year ended June 30, 1999, in conformity with generally accepted accounting
principles.
/s/ Moss Adams LLP
Moss Adams LLP
Portland, Oregon
October 26, 1999
F-2
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 2000 and 1999
--------------------------------------------------------------------------------
ASSETS 2000 1999
------ ---- ----
Cash and due from banks $ 3,477,650 $ 2,566,171
Interest-bearing deposits with banks -- 4,175,000
------------ ------------
Total cash and cash equivalents 3,477,650 6,741,171
Investment securities available-for-sale,
at market value 18,414,219 16,590,332
Investment securities held-to-maturity
market value of $9,707,019 and
$14,409,769 at June 2000 and 1999,
respectively 9,922,687 14,497,696
Federal Home Loan Bank stock, at cost 1,393,000 1,301,200
Mortgage loans held-for-sale 861,290 1,066,384
Loans receivable, net of deferred loan fees
and allowance for loan losses 107,447,437 97,036,135
Accrued interest and dividends receivable 832,204 739,071
Mortgage servicing rights 1,338,271 1,279,041
Property and equipment, net 6,962,081 7,361,072
Cash surrender value of life insurance 2,040,973 1,948,570
Real estate acquired in settlement of loans,
net of allowance for losses 121,006 --
Other assets 219,857 330,700
------------ ------------
Total assets $153,030,675 $148,891,372
============ ============
The Notes to Financial Statements are an integral part of these statements.
F-3
<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND EQUITY 2000 1999
---------------------- ---- ----
<S> <C> <C>
LIABILITIES
Deposit accounts:
Noninterest-bearing $ 5,732,528 $ 5,222,747
Interest-bearing 118,780,477 115,598,941
Advances from Federal Home Loan Bank 8,682,778 12,574,445
Accrued expenses and other liabilities 1,505,750 1,601,720
------------ ------------
Total liabilities 134,701,533 134,997,853
------------ ------------
COMMITMENTS AND CONTINGENCIES
(Note 14)
EQUITY
Preferred stock (no par value, 1,000,000 shares
authorized; none issued or outstanding)
Common stock (par value $0.01 per share;
10,000,000 shares authorized; 1,223,572
shares issued and outstanding at June 30, 2000) 12,236 --
Additional paid-in capital 3,831,887 --
Unallocated common stock held by employee
stock ownership plan ("ESOP") (349,648) --
Retained earnings (substantially restricted) 15,158,415 14,099,920
Accumulated other comprehensive (loss) income (323,748) (206,401)
------------ ------------
Total equity 18,329,142 13,893,519
------------ ------------
Total liabilities and equity $153,030,675 $148,891,372
============ ============
</TABLE>
F-4
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans $ 8,222,045 $ 8,048,779
Interest on deposits with banks 62,172 381,255
Federal Home Loan Bank stock dividends 91,947 93,925
Interest and dividends on investment
securities available-for-sale 1,053,419 728,099
Interest and dividends on investment
securities held-to-maturity 770,953 769,918
------------ ------------
Total interest and dividend income 10,200,536 10,021,976
------------ ------------
Interest expense:
Deposits 4,516,301 4,355,392
Federal Home Loan Bank advances 648,942 837,692
------------ ------------
Total interest expense 5,165,243 5,193,084
------------ ------------
Net interest income 5,035,293 4,828,892
Loan loss provision 15,000 60,000
------------ ------------
Net interest income after loan loss provision 5,020,293 4,768,892
------------ ------------
Non-interest income:
Demand deposit service charges 501,824 463,320
Net gain on sale of loans 274,748 714,369
Mortgage loan servicing fees 300,320 264,260
Net (loss) gain on sale of available-
for-sale securities (30,355) (6,039)
Other 356,100 365,808
------------ ------------
Total non-interest income 1,402,637 1,801,718
------------ ------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-5
<PAGE>
--------------------------------------------------------------------------------
2000 1999
---- ----
Non-interest expenses:
Salaries and employee benefits $2,677,677 $2,421,586
Occupancy 435,346 430,805
Furniture and equipment depreciation 322,049 289,246
Data processing 150,672 164,454
Advertising 126,261 160,297
Amortization of mortgage servicing rights 124,713 149,147
Federal insurance premiums 48,993 68,384
Consulting 34,893 40,168
Postage 100,205 98,709
ATM processing 72,779 69,407
Legal, accounting, and examination fees 93,886 78,861
Other 678,779 639,723
---------- ----------
Total non-interest expense 4,866,253 4,610,787
---------- ----------
Income before provision for income taxes 1,556,677 1,959,823
Provision for income taxes 498,182 707,571
---------- ----------
Net income $1,058,495 $1,252,252
========== ==========
Basic earnings per common share, from
date of stock offering (April 4, 2000) $ .26
==========
F-6
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONAL UNALLOCATED
PREFERRED COMMON PAID-IN ESOP
STOCK STOCK CAPITAL SHARES
----- ----- ------- ------
<S> <C> <C> <C> <C>
Balance, July 1, 1998 $ -- $ -- $ -- $ --
Net income -- -- -- --
Other comprehensive loss -- -- -- --
Total comprehensive income -- -- -- --
Balance, June 30, 1999 -- -- -- --
Net income -- -- -- --
Other comprehensive loss -- -- -- --
----- ------- ----------- ---------
Total comprehensive income
Issuance of 1,223,572 common shares -- 12,236 3,841,450 --
Initial capitalization of Eagle Financial, MHC -- -- (10,000) --
Shares purchased by ESOP (46,006 shares) -- -- -- (368,048)
ESOP shares allocated or committed to be
released for allocation (2,300 shares) -- -- 437 18,400
----- ------- ----------- ---------
Balance, June 30, 2000 $ -- $12,236 $ 3,831,887 $(349,648)
===== ======= =========== =========
<CAPTION>
ACCUMULATED
OTHER
RETAINED COMPREHENSIVE
EARNINGS INCOME TOTAL
-------- ------ -----
<S> <C> <C> <C>
Balance, July 1, 1998 $12,847,668 $ 7,410 $ 12,855,078
Net income 1,252,252 -- 1,252,252
Other comprehensive loss -- (213,811) (213,811)
------------
Total comprehensive income -- -- 1,038,441
----------- --------- ------------
Balance, June 30, 1999 14,099,920 (206,401) 13,893,519
Net income 1,058,495 1,058,495
Other comprehensive loss (117,347) (117,347)
------------
Total comprehensive income 941,148
------------
Issuance of 1,223,572 common shares -- -- 3,853,686
Initial capitalization of Eagle Financial, MHC -- -- (10,000)
Shares purchased by ESOP (46,006 shares) -- -- (368,048)
ESOP shares allocated or committed to be
released for allocation (2,300 shares) -- -- 18,837
----------- --------- ------------
Balance, June 30, 2000 $15,158,415 $(323,748) $ 18,329,142
=========== ========= ============
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-7
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
Years Ended June 30, 2000 and 1999
Increase (Decrease) in Cash
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,058,495 $1,252,252
Adjustments to reconcile net income to
net cash from operating activities:
Provision for loan losses 15,000 60,000
Depreciation 515,262 479,053
Deferred loan fees (24,487) (82,211)
Amortization of marketable
securities premiums and discounts 80,276 107,971
Amortization of capitalized mortgage servicing rights 124,713 142,797
Gain on sale of loans (274,748) (714,369)
Net realized (gain) loss on sale
of available-for-sale securities 30,355 6,039
Dividends reinvested (91,800) (103,460)
Increase in cash surrender value of life insurance (92,403) (90,919)
Change in assets and liabilities:
(Increase) decrease in assets:
Accrued interest and dividends receivable (93,133) 29,945
Loans held-for-sale 205,094 1,984,443
Prepaid expenses 53,049 130,873
Prepaid income taxes 79,701 (79,701)
Other assets (3,070) 13,485
Increase (decrease) in liabilities:
Accrued expenses and other liabilities (28,441) (1,248)
Deferred compensation payable 18,297 18,913
Deferred income taxes payable (14,297) (57,000)
Current income taxes payable 7,188 (195,223)
---------- ----------
Net cash provided by operating activities 1,565,051 2,901,640
---------- ----------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-8
<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities:
Investment securities held-to-maturity $ (722,500) $(3,072,558)
Investment securities available-for-sale (3,304,829) (8,053,726)
Mortgage-backed securities held-to-maturity (326,242) (5,690,290)
Mortgage-backed securities available-for-sale (1,995,580) (2,403,587)
Proceeds from maturities, calls and principal payments:
Investment securities held-to-maturity 4,415,000 2,600,000
Investment securities available-for-sale 965,890 6,624,274
Mortgage-backed securities held-to-maturity 1,220,594 3,013,994
Mortgage-backed securities available-for-sale 1,162,332 794,194
Proceeds from sales of investment securities
available-for-sale 1,035,160 2,028,122
Net (increase) decrease in loans receivable, excludes
transfers to real estate acquired in settlement of loans (10,432,016) (1,930,354)
Proceeds from the sale of real estate acquired in the
settlement of loans -- 159,000
Purchase of property and equipment (116,270) (673,133)
------------ -----------
Net cash used in investing activities (8,098,461) (6,604,064)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on mortgage payable -- (138,029)
Net increase in checking and savings accounts 3,691,317 6,087,066
Net increase (decrease) in short-term borrowings (5,399) (26,314)
Net increase (decrease) in FHLB advances (3,891,667) (2,266,666)
Net proceeds from stock offering 3,853,686 --
Capitalization of Eagle MHC (10,000) --
Loan for purchase of ESOP shares (368,048) --
------------ -----------
Net cash provided by financing activities 3,269,889 3,656,057
------------ -----------
Net increase (decrease) in cash (3,263,521) (46,367)
CASH AND CASH EQUIVALENTS, beginning of year 6,741,171 6,787,538
------------ -----------
CASH AND CASH EQUIVALENTS, end of year $ 3,477,650 $ 6,741,171
============ ===========
</TABLE>
F-9
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE l. REORGANIZATION AND STOCK OFFERING
On April 4, 2000, American Federal Savings Bank (the "Bank") completed its
reorganization into a mutual holding company structure (the "Reorganization").
As part of the Reorganization, the Bank converted from a federally-chartered
mutual savings bank to a federally-chartered stock savings bank (the
"Conversion"). The Bank became the wholly-owned subsidiary of Eagle Bancorp,
which became the majority-owned subsidiary of Eagle Financial, MHC (the "Mutual
Holding Company"). Collectively, Eagle Bancorp, and the Bank are referred to
herein as "the Company".
Eagle Bancorp, issued a total of 1,223,572 common shares on April 4, 2000,
consisting of 575,079 shares (or 47%) sold to the public (the "Offering") and
648,493 shares (or 53%) issued to the Mutual Holding Company. The net proceeds
from the sale of shares to the public amounted to $3,853,686, representing gross
proceeds of $4,600,632 less offering costs of $746,946. Eagle Bancorp, utilized
net proceeds of $2,000,000 to make a capital contribution to the Bank and
$10,000 to capitalize the Mutual Holding Company.
The Company's Employee Stock Ownership Plan ("ESOP"), which purchased shares in
the Offering, was authorized to purchase up to 8% of the shares sold in the
Offering, or 46,006 shares. The ESOP completed its purchase of all such
authorized shares in the Offering, at a total cost of $368,048.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Bank is a federally chartered savings bank subject to the regulations of the
Office of Thrift Supervision. The Bank is a member of the Federal Home Loan Bank
System and its deposit accounts are insured to the applicable limits by the
Federal Deposit Insurance Corporation ("FDIC").
The Bank is headquartered in Helena, Montana, and operates additional branches
in Butte, Bozeman, and Townsend, Montana. The Bank's market area is concentrated
in south central Montana, to which it primarily offers commercial, residential,
and consumer loans. The Bank's principal business is accepting deposits and,
together with funds generated from operations and borrowings, investing in
various types of loans and securities.
Basis of Financial Statement Presentation:
The consolidated financial statements include the accounts of Eagle Bancorp, and
the Bank. Prior to the Reorganization and Offering, Eagle Bancorp had no
operations other than those of an organizational nature. Intercompany
transactions and balances are eliminated in consolidation.
F-10
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets, liabilities, income and expense.
Actual results could differ significantly from these estimates.
Significant estimates are necessary in determining the recorded value of the
allowance for loan losses and available-for-sale securities. Management believes
the assumptions used in arriving at these estimates are appropriate.
Cash and Cash Equivalents:
For purposes of reporting cash flows, cash and cash equivalents include cash,
interest-bearing deposits with correspondent banks, and federal funds sold.
The Company maintains cash balances at several banks. Accounts at each
institution are insured by the FDIC up to $100,000. No account balances were
held with correspondent banks that were in excess of FDIC insured levels.
Investment Securities:
The Company designated debt and equity securities as held-to-maturity,
available-for-sale, or trading.
Held-to-maturity -- Investment securities that management has the positive
intent and ability to hold until maturity are classified as held-to-maturity and
are carried at their remaining unpaid principal balance, net of unamortized
premiums or unaccreted discounts. Premiums are amortized and discounts are
accreted using the interest method over the period remaining until maturity.
Available-for-sale -- Investment securities that will be held for indefinite
periods of time, including securities that may be sold in response to changes in
market interest or prepayment rates, need for liquidity, and changes in the
availability of and the yield of alternative investments, are classified as
available-for-sale. These assets are carried at fair value. Unrealized gains and
losses, net of tax, are reported as other comprehensive income. Gains and losses
on the sale of available-for-sale securities are determined using the specific
identification method.
Declines in the fair value of individual held-to-maturity and available-for-sale
securities below their cost that are other than temporary are recognized by
write-downs of the individual securities to their fair value. Such write-downs
would be included in earnings as realized losses.
Trading -- No investment securities were designated as trading at June 30, 2000
and 1999.
F-11
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Federal Home Loan Bank Stock:
The Company's investment in Federal Home Loan Bank (FHLB) stock is a restricted
investment carried at par value ($100 per share), which approximates its fair
value. As a member of the FHLB system, the Company is required to maintain a
minimum level of investment in FHLB stock based on specific percentages of its
outstanding FHLB advances. The Company may request redemption at par value of
any stock in excess of the amount it is required to hold. Stock redemptions are
made at the discretion of the FHLB.
Mortgage Loans Held-for-Sale:
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value, determined in aggregate.
Net unrealized losses, if any, are recognized in a valuation allowance by a
charge to income.
Loans Receivable:
Loans receivable that management has the intent and ability to hold until
maturity are reported at the outstanding principal balance adjusted for any
charge-offs, the allowance for loan losses, and any deferred fees or costs on
originated loans and unamortized premiums or unaccreted discounts on purchased
loans. Loan origination fees, net of certain direct origination costs are
deferred and amortized over the contractual life of the loan, as an adjustment
of the yield, using the interest method.
Impaired Loans and Related Income:
A loan is considered impaired when management determines that it is probable
that all contractual amounts of principal and interest will not be paid as
scheduled in the loan agreement. These loans may include nonaccrual loans past
due 90 days or more, loans restructured in the current year, and other loans
that management considers to be impaired.
When a loan is placed on nonaccrual status, all interest previously accrued but
not collected is reversed and charged against interest income. Income on
nonaccrual loans is then recognized only when the loan is brought current, or
when, in the opinion of management, the borrower has demonstrated the ability to
resume payments of principal and interest. Interest income on restructured loans
is recognized pursuant to the terms of new loan agreements. Interest income on
other impaired loans is monitored and based upon the terms of the underlying
loan agreement. However, the recorded net investment in impaired loans,
including accrued interest, is limited to the present value of the expected cash
flows of the impaired loan, the observable fair market value of the loan, or the
fair value of the loan's collateral.
F-12
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Provision for Loan Losses:
The allowance for loan losses is increased by the provision for loan losses
charged to operations and is decreased by loan charge-offs, net of recoveries.
Management estimates the provision for loan losses by evaluating known and
inherent risks in the loan portfolio. These factors include changes in the size
and composition of the loan portfolio, actual loan loss experience, current
economic conditions, detailed analysis of individual loans for which full
collectibility may not be assured, determination of the existence and realizable
value of the collateral, and guarantees securing the loans. The allowance is
based upon market factors and trends which extend beyond the Company's control,
and which may result in losses or recoveries differing significantly from those
provided for in the financial statements.
A material estimate that is particularly susceptible to significant change
relates to the determination of the allowance for losses on loans and the
valuation of real estate acquired in connection with the foreclosures or in
satisfaction of loans. In connection with the determination of the estimated
losses on loans and foreclosed assets held-for-sale, management obtains
independent appraisals for significant properties.
The majority of the Company's loan portfolio consists of commercial real estate
loans and single-family residential loans secured by real estate in south
central Montana. Real estate prices in this market have been stable. However,
the ultimate collectibility of a substantial portion of the Company's loan
portfolio may be susceptible to changes in local market conditions in the
future.
Mortgage Servicing Rights:
The Company 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 through quoted market prices. 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. The Company accounts
for its recorded value, and possible impairment of mortgage servicing rights, on
a loan-by-loan basis.
The cost allocated to mortgage servicing rights is amortized in proportion to,
and over the estimated period of, net servicing income.
F-13
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Real Estate Owned:
Real estate properties acquired through, or in lieu of, loan foreclosure are
initially recorded at the lower of the unpaid principal balance of the related
loan or the fair market value of the real estate acquired less estimated selling
costs. After foreclosure, management performs subsequent valuations, and the
carrying value of a real estate owned property is adjusted by a charge to
expense to reflect any subsequent declines in estimated fair value. Fair value
estimates are based on recent appraisals and other available information.
Routine holding costs are charged to expense as incurred, while significant
improvements are capitalized. Gains and losses on sales of real estate owned are
recognized upon disposition.
Property and Equipment:
Property and equipment is recorded at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the expected useful
lives of the assets, ranging from 3 to 35 years. The costs of maintenance and
repairs are expensed as incurred, while major expenditures for renewals and
betterments are capitalized.
Income Taxes:
Income taxes are accounted for under the asset and liability method.
Accordingly, deferred taxes are recognized for the estimated future tax effects
attributable to "temporary differences" between the financial statement carrying
amounts and the tax basis of existing assets and liabilities. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which the temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax laws or rates is recognized in income tax expense in the period
that includes the enactment date of the change.
A deferred tax liability is recognized for all temporary differences that will
result in future taxable income. A deferred tax asset is recognized for all
temporary differences that will result in future tax deductions, subject to
reduction of the asset by a valuation allowance in certain circumstances. This
valuation allowance is recognized if, based on an analysis of available
evidence, management determines that it is more likely than not that some
portion or all of the deferred tax asset will not be realized. The valuation
allowance is subject to ongoing adjustment based on changes in circumstances
that affect management's judgement about the realizability of the deferred tax
asset. Adjustments to increase or decrease the valuation allowance are charged
or credited, respectively, to income tax expense.
Advertising Costs:
The Bank expenses advertising costs as they are incurred. Advertising costs were
$126,261, and $160,297 for the years ended June 30, 2000 and 1999, respectively.
F-14
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Employee Stock Ownership Plan:
Compensation expense recognized for the Company's ESOP equals the fair value of
shares that have been allocated or committed to be released for allocation to
participants. Any difference between the fair value of the shares at the time
and the ESOP's original acquisition cost is charged or credited to stockholders'
equity (additional paid-in capital). The cost of ESOP shares that have not yet
been allocated or committed to be released is deducted from stockholders'
equity.
Earnings Per Share:
In accordance with SFAS No. 128, Earnings Per Share, basic earnings per share
excludes dilution and is computed by dividing net income applicable to common
stock by the weighted average number of common shares outstanding for the
period. Basic earnings per share presented in the fiscal 2000 consolidated
statement of income is for the three-month period following the Offering, based
on net income of $301,995 for that period and 1,178,414 average outstanding
common shares. For purposes of computing earnings per share, outstanding common
shares include all shares issued to the Mutual Holding Company but exclude ESOP
shares that have not been allocated or committed to be released for allocation
to participants. At June 30, 2000, the Company had no outstanding stock options
or other contracts that could result in the issuance of additional common shares
and, accordingly, diluted earnings per share is not applicable.
Impact of New Accounting Standards:
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, which was to be adopted by the Company as of
July 1, 1999. However, in June 1999, FASB issued SFAS No. 137, which defers the
effective date of this statement by one year. SFAS No. 133 establishes
accounting and reporting standards for derivative financial instruments and for
hedging activities. Upon adoption of the Statement, all derivatives must be
recognized at fair value as either assets or liabilities in the statement of
financial condition. Changes in the fair value of derivatives not designed as
hedging instruments are to be recognized currently in earnings or are to be
recognized as a component of other comprehensive income, depending on the
intended use of the derivatives and the resulting designations. Upon adoption,
retroactive application of this Statement to financial statements of prior
periods is not permitted. Management has determined that the impact of adopting
SFAS No. 133 will not be significant to its financial condition and results of
operations.
F-15
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassifications:
Certain items in the 1999 financial statements have been reclassified to conform
to the presentation in the 2000 financial statements. These reclassifications
have no effect on the Bank's previously reported financial position or results
of operation.
NOTE 3. REGULATORY CAPITAL REQUIREMENTS
The Company is subject to various regulatory capital requirements administered
by federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory -- and possibly additional discretionary -- actions
by regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of the Company's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company's capital amounts and
classifications are also subject to qualitative judgements by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
table on the following page) of tangible and core capital (as defined in the
regulations) to total adjusted assets (as defined), and of risk-based capital
(as defined) to risk-weighted assets (as defined). Management believes, as of
June 30, 2000 and 1999, that the Company meets all capital adequacy requirements
to which it is subject.
The most recent notification from the Office of Thrift Supervision (OTS) (as of
November 29, 1999) categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well-capitalized,
the Bank must maintain minimum tangible, core, and risk-based ratios as set
forth in the table below. Sine the most recent notification from the OTS, the
Bank's ratios have improved. As a result, management believes that the Bank
would be considered well-capitalized by the OTS at June 30, 2000 and 1999,
respectively.
F-16
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 3. REGULATORY CAPITAL REQUIREMENTS (CONTINUED)
The Bank's actual capital amounts (in thousands) and ratios are presented in the
table below.
<TABLE>
<CAPTION>
TO BE CONSIDERED
WELL CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------- ------------------ ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 2000:
Tangible $17,149 11.27% $2,282 1.5% N/A N/A
Leverage $17,149 11.27% $6,086 4.0% $7,607 5.0%
Tier 1 risk-based $17,149 18.50% $3,709 4.0% $5,563 6.0%
Total risk-based $17,861 19.26% $7,417 8.0% $9,272 10.0%
As of June 30, 1999:
Tangible $14,100 9.46% $2,236 1.5% N/A N/A
Leverage $14,100 9.46% $5,964 4.0% $7,455 5.0%
Tier 1 risked-based $14,100 16.49% $3,420 4.0% $5,130 6.0%
Total risk-based $14,837 17.35% $6,840 8.0% $8,550 10.0%
</TABLE>
A reconciliation of capital (in thousands) determined by generally accepted
accounting principles to capital defined for regulatory purposes, is as follows:
June 30,
-----------------------
2000 1999
------- -------
Capital determined by generally
accepted accounting principles $16,830 $13,894
Unrealized loss on securities
available-for-sale 319 206
------- -------
Tier I (core) capital 17,149 14,100
Allowance for loan loses 712 737
------- -------
Total risk based capital $17,861 $14,837
======= =======
Dividend Limitations
Under OTS regulations that became effective April 1, 1999, savings associations
such as the Bank generally may declare annual cash dividends up to an amount
equal to net income for the current year plus net income retained for the two
preceding years. Dividends in excess of such amount required OTS approval. The
Bank has not paid any dividends to the Company through June 30, 2000. The
Company had not paid any dividends to its shareholders through June 30, 2000.
F-17
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 3. REGULATORY CAPITAL REQUIREMENTS (CONTINUED)
Liquidation Rights
All depositors who had liquidation rights with respect to the Bank as of the
effective date of the Reorganization continue to have such rights solely with
respect to the Mutual Holding Company, as long as they continue to hold deposit
accounts with the Bank. In addition, all persons who become depositors of the
Bank subsequent to the Reorganization will have liquidation rights with respect
to the Mutual Holding Company.
NOTE 4. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Company is required to maintain cash reserves on deposit with the Federal
Reserve Bank based on deposits.
As of June 30, 2000 and 1999, the Company was required to have aggregate cash
deposits with the Federal Reserve Bank of approximately $351,000 and $290,000,
respectively.
NOTE 5. INVESTMENT SECURITIES
The Company's investment policy requires that the Company purchase only
high-grade investment securities. Municipal obligations are categorized as "AAA"
or better by a nationally recognized statistical rating organization. These
ratings are achieved because the securities are backed by the full faith and
credit of the municipality and also supported by third-party credit insurance
policies. Mortgage backed securities and collateralized mortgage obligations are
issued by government sponsored corporations, including Federal Home Loan
Mortgage Corporation, Federal National Mortgage Association, and the Guaranteed
National Mortgage Association. The amortized cost and estimated fair values of
securities, together with unrealized gains and losses, are as follows:
F-18
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 5. INVESTMENT SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
June 30, 2000
---------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
----------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. government and
agency obligations $ 4,250,803 $ -- $ (99,656) $ 4,151,147
Municipal obligations 3,307,967 -- (251,657) 3,056,310
Corporate obligations 6,184,453 -- (122,998) 6,061,455
Mortgage-backed
securities 4,623,260 -- (40,258) 4,583,002
Collateralized
mortgage obligations 372,372 -- (11,067) 361,305
Corporate preferred
stock 201,398 -- (398) 201,000
----------- ---------- --------- -----------
Total $18,940,253 $ -- $(526,034) $18,414,219
=========== ========== ========= ===========
Held-to-maturity:
U.S. government and
agency obligations $ 2,888,392 $ -- $ (29,659) $ 2,858,733
Municipal obligations 1,069,806 -- (21,234) 1,048,572
Mortgage-backed
securities 5,964,489 -- (164,775) 5,799,714
----------- ---------- --------- -----------
Total $ 9,922,687 $ -- $(215,668) $ 9,707,019
=========== ========== ========= ===========
<CAPTION>
June 30, 1999
-----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
----------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. government and
agency obligations $ 3,609,163 $20,760 $ (93,811) $ 3,536,112
Municipal obligations 3,309,422 -- (191,723) 3,117,699
Corporate obligations 5,620,621 -- (77,047) 5,543,574
Mortgage-backed
securities 3,809,157 14,167 -- 3,823,324
Collateralized mortgage
obligations 577,337 -- (7,714) 569,623
----------- ------- --------- -----------
Total $16,925,700 $34,927 $(370,295) $16,590,332
=========== ======= ========= ===========
Held-to-maturity:
U.S. government and
agency obligations $ 6,699,734 $ 4,323 $ -- $ 6,704,057
Municipal obligations 954,704 -- (10,110) 944,594
Mortgage-backed
securities 6,843,258 -- (82,140) 6,761,118
----------- ------- --------- -----------
Total $14,497,696 $ 4,323 $ (92,250) $14,409,769
=========== ======= ========= ===========
</TABLE>
F-19
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 5. INVESTMENT SECURITIES (CONTINUED)
Gross realized losses on securities available-for-sale were $30,355 and $6,039
for the years ended June 30, 2000 and 1999, respectively.
The amortized cost and estimated fair value of securities at June 30, 2000 by
contractual maturity are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
June 30, 2000
-------------------------------------------------------
HELD-T0-MATURITY AVAILABLE-FOR-SALE
SECURITIES SECURITIES
------------------------- --------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---- ----- ---- -----
<S> <C> <C> <C> <C>
Due in one year $1,310,441 $1,304,312 $ 1,064,776 $ 1,057,438
Due after one year
through five years 2,412,757 2,372,980 7,112,078 6,940,267
Due after five years
through ten years 110,000 103,750 1,000,000 941,565
Due after ten years 125,000 126,263 4,566,369 4,330,138
---------- ---------- ----------- -----------
3,958,198 3,907,305 13,743,223 13,269,408
Preferred stock 201,398 201,000
Mortgaged-backed
securities 5,964,489 5,799,714 4,623,260 4,582,506
Collateralized
mortgage
obligations -- -- 372,372 361,305
---------- ---------- ----------- -----------
Total $9,922,687 $9,707,019 $18,940,253 $18,414,219
========== ========== =========== ===========
</TABLE>
A federal agency obligation bond with amortized cost of approximately $501,000
has been pledged to the Federal Reserve Bank to serve as collateral for the
Company's treasury, tax, and loan account at June 30, 2000 and 1999. All other
securities are held at the Federal Home Loan Bank for safekeeping. Bank-owned
investments totaling $27,143,926 as of June 30, 2000, are pledged as collateral
for the advances from the Federal Home Loan Bank as described in Note 10.
F-20
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 6. LOANS RECEIVABLE
Loans receivable consist of the following:
June 30,
------------------------------
2000 1999
------------ -----------
First mortgage loans
Residential mortgage (1 - 4 family) $ 74,336,713 $71,119,512
Commercial real estate 7,784,333 6,811,426
Real estate construction 1,453,371 654,046
Other loans
Home Equity 13,654,250 11,867,266
Consumer 8,279,048 5,331,388
Commercial 2,757,708 2,119,684
------------ -----------
Total 108,265,423 97,903,322
Less: Allowance for loan losses (712,165) (736,624)
Deferred loan fees, net (105,821) (130,563)
------------ -----------
Total $107,447,437 $97,036,135
============ ===========
Loans net of related allowance for loan losses on which the accrual of interest
has been discontinued were $504,494 and $804,828 at June 30, 2000 and 1999,
respectively. Interest income not accrued on these loans and cash received on
interest income were immaterial for the years ended June 30, 2000 and 1999. The
allowance for loan losses on nonaccrual loans as of June 30, 2000 and 1999 was
$24,321 and $28,898, respectively. The Company expects to collect all amounts
due on nonaccrual loans, including interest accrued at contractual rates,
accordingly there are no loans considered impaired at June 30, 2000 and 1999.
The following is a summary of changes in the allowance for loan losses:
Years Ended June 30,
-------------------------
2000 1999
-------- --------
BALANCE, beginning of period $736,624 $678,410
Reclassification to REO reserve (11,519) --
Provision charged to operations 15,000 60,000
Charge-offs (30,623) (18,330)
Recoveries 2,683 16,544
-------- --------
BALANCE, end of period $712,165 $736,624
======== ========
F-21
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 6. LOANS RECEIVABLE (CONTINUED)
Loans are granted to directors and officers of the Company in the ordinary
course of business. Such loans are made in accordance with policies established
for all loans of the Company, except that directors, officers, and employees may
be eligible to receive discounts on loan origination costs.
Loans receivable from directors and senior officers of the Company at June 30,
2000 and 1999, were $80,927 and $88,538, respectively. Interest income from
these loans was $7,092 and $6,947 for the years ended June 30, 2000 and 1999,
respectively.
NOTE 7. MORTGAGE SERVICING RIGHTS
The Company is servicing loans for the benefit of others totaling approximately
$111,194,000 and $108,931,000 at June 30, 2000 and 1999, respectively. Servicing
loans for others generally consists of collecting mortgage payments, maintaining
escrow accounts, disbursing payments to investors, and foreclosure processing.
Custodial escrow balances maintained in connection with the foregoing loan
servicing, and included in demand deposits, were approximately $524,000 at both
June 30, 2000 and 1999.
The following is a summary of activity in mortgage servicing rights:
Years Ended June 30,
-------------------------------
2000 1999
----------- -----------
BALANCE, beginning of period $ 1,279,041 $ 751,573
Mortgage servicing rights capitalized 179,012 676,615
Amortization of mortgage servicing
rights (119,782) (149,147)
----------- -----------
BALANCE, end of period $ 1,338,271 $ 1,279,041
=========== ===========
No write-offs of mortgage servicing rights have occurred during the years ended
June 30, 2000 and 1999. Management has assessed the need for a valuation
allowance and determined that none is required.
F-22
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 8. PROPERTY AND EQUIPMENT
Property and equipment and related depreciation are summarized by major
classification as follows:
June 30,
------------------------------
2000 1999
----------- -----------
Land, buildings, and improvements $ 7,737,700 $ 7,723,090
Furniture and equipment 2,820,932 2,719,272
----------- -----------
Total 10,558,632 10,442,362
Accumulated depreciation (3,596,551) (3,081,290)
----------- -----------
Total $ 6,962,081 $ 7,361,072
=========== ===========
Depreciation expense totaled $515,262 and $479,053 for the years ended June 30,
2000 and 1999, respectively.
NOTE 9. DEPOSITS
Deposits are summarized as follows:
June 30,
-----------------------------
2000 1999
------------ ------------
Noninterest checking $ 5,732,528 $ 5,222,747
Interest-bearing checking (1.50%, 1.50%) 22,849,549 21,466,834
Passbook (3.00%, 3.00%) 20,936,122 21,429,656
Money market (3.97%, 3.71%) 14,716,098 14,445,816
Time certificates of deposit (4.50% - 7.70%) 60,278,708 58,256,635
------------ ------------
$124,513,005 $120,821,688
============ ============
The weighted average cost of funds was 3.95% and 3.66% at June 30, 2000 and
1999, respectively.
Time certificates of deposit maturities at June 30, 2000 are as follows:
Within one year $43,779,720
One to two years 14,354,098
Two to three years 1,315,271
Four to five years 635,799
Thereafter 193,820
-----------
Total $60,278,708
===========
F-23
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 9. DEPOSITS (CONTINUED)
Interest expense on deposits is summarized as follows:
Years Ended June 30,
-----------------------------
2000 1999
---------- ----------
Checking $ 467,060 $ 298,129
Passbook 630,993 614,071
Money market 419,289 434,360
Time certificates of deposit 2,998,959 3,008,832
---------- ----------
Total $4,516,301 $4,355,392
========== ==========
At June 30, 2000 and 1999, the Company held $14,912,000 and $8,659,000,
respectively, in deposit accounts of $100,000 or more. Deposit accounts in
excess of $100,000 are not insured by the FDIC.
Directors' and senior officers' deposit accounts at June 30, 2000 and 1999, were
$320,776 and $485,045, respectively.
NOTE 10. ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank mature as follows:
June 30,
--------------------------------
Maturing period 2000 1999
--------------- ---------- -----------
Line of credit $1,375,000 $ --
Within one year 266,667 2,266,667
One to two years 266,667 266,667
Two to three years 266,667 2,266,667
Three to four years 266,666 2,266,667
Four to five years 5,197,222 266,667
Thereafter 1,043,889 5,241,110
---------- -----------
$8,682,778 $12,574,445
========== ===========
F-24
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 10. ADVANCES FROM THE FEDERAL HOME LOAN BANK (CONTINUED)
Two advances require combined annual principal payments of $266,667. The
remaining advances are due at maturity. One advance is subject to a quarterly
put option that would allow the FHLB to require the Company to repay the advance
ahead of its scheduled maturity. The next put date is October 14, 2000. The
advances are subject to prepayment penalties. The interest rates on advances are
fixed. The weighted average interest rate for advances at June 30, 2000 and 1999
was 6.42% and 6.48%, respectively. The weighted average amount outstanding was
$10,087,000 and $12,892,000 for the years ended June 30, 2000 and 1999,
respectively.
The maximum amount outstanding at any month-end was $14,127,222 and $14,818,889
during the years ended June 30, 2000 and 1999, respectively.
The advances are collateralized by U.S. Federal agency securities subject to
various pledge requirements. At June 30, 2000 and 1999, the Company exceeded the
collateral requirements of the FHLB. The Company's investment in FHLB stock is
also pledged as collateral on these advances.
The total FHLB funding line available to the Company at June 30, 2000, was 25%
of total assets, or approximately $37,957,500.
NOTE 11. INCOME TAXES
The components of the Company's income tax provision (benefit) are as follows:
Years Ended June 30,
------------------------------
2000 1999
-------- --------
Current:
U.S. federal $421,361 $522,695
Montana 87,821 112,876
-------- --------
509,182 635,571
-------- --------
Deferred:
U.S. federal (15,000) 65,000
Montana 4,000 7,000
-------- --------
11,000 72,000
-------- --------
Total $498,182 $707,571
======== ========
F-25
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 11. INCOME TAXES (CONTINUED)
The nature and components of deferred tax assets and liabilities are as follows:
June 30,
-----------------------
2000 1999
-------- --------
Deferred tax assets:
Deferred compensation $223,000 $215,000
Allowance for loan losses (state only) 48,000 50,000
Deferred loan fees 41,000 53,000
Securities available-for-sale 202,000 129,000
Other 41,000 37,000
-------- --------
Total deferred tax assets 555,000 484,000
-------- --------
Deferred tax liabilities:
Accumulated depreciation 184,000 218,000
FHLB stock 424,000 387,000
Interest receivable 1,000 4,000
Allowance for loan losses (Federal only) 113,000 138,000
Other 16,000 5,000
-------- --------
Total deferred tax liabilities 738,000 752,000
-------- --------
Net deferred tax liability $183,000 $268,000
======== ========
The Company believes, based upon the available evidence, that all deferred tax
assets will be realized in the normal course of operations. Accordingly, these
assets have not been reduced by a valuation allowance.
A reconciliation of the Company's effective income tax provision to the
statutory federal income tax rate is as follows:
Years Ended June 30,
-----------------------------
2000 1999
--------- ---------
Federal income taxes at the
statutory rate of 34% $ 529,270 $ 666,340
State income taxes, net of
federal income tax benefit 65,300 77,700
Nontaxable income (88,870) (25,264)
Other, net (7,518) (11,205)
--------- ---------
Income tax expense $ 498,182 $ 707,571
========= =========
Effective tax rate 32.0% 36.1%
========= =========
F-26
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 11. INCOME TAXES (CONTINUED)
Prior to January 1, 1987, the Company was allowed a special bad debt deduction
limited generally in the current year to 32% (net of preference tax) of
otherwise taxable income and subject to certain limitations based on aggregate
loans and savings account balances at the end of the year. If the amounts that
qualified as deductions for federal income tax purposes are later used for
purposes other than for bad debt losses, they will be subject to federal income
tax at the then current corporate rate. Retained earnings include approximately
$915,000 at June 30, 2000 and 1999, for which federal income tax has not been
provided.
NOTE 12. COMPREHENSIVE INCOME
The Company has adopted SFAS No. 130, Reporting Comprehensive Income, which
establishes standards for the reporting and display of comprehensive income (and
its components) in financial statements. Comprehensive income represents the sum
of net income and items of "other comprehensive income" that are reported
directly in stockholders' equity, such as the change during the period in the
after-tax net unrealized gain or loss on securities available-for-sale. In
accordance with SFAS No. 130, the Company has reported its comprehensive income
for fiscal 2000 and 1999 in consolidated statements of changes in stockholders'
equity.
The Company's other comprehensive income or loss, which is attributable to gains
and losses on securities available-for-sale, is summarized as follows for the
years ended June 30:
2000 1999
---- ----
Net unrealized holding (loss) gain
arising during the year, net of
related income taxes of $60,539
and $135,917, respectively $(136,029) $(217,528)
Reclassification adjustment for net
realized loss included in net income,
net of related income taxes of ($11,673)
and ($2,322), respectively 18,682 3,717
--------- ---------
Other comprehensive (loss) income $(117,347) $(213,811)
========= =========
F-27
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 12. COMPREHENSIVE INCOME (CONTINUED)
The Company's accumulated other comprehensive (loss) income, which is included
in stockholders' equity, represents the net unrealized (loss) gain on securities
available-for-sale of $(526,034) and $(335,368) at June 30, 2000 and 1999,
respectively, less related deferred income taxes of $202,286 and $128,967,
respectively.
NOTE 13. EMPLOYEE BENEFITS
Profit Sharing Plan:
The Company provides a noncontributory profit sharing plan for eligible
employees who have completed one year of service. The amount of the Company's
annual contribution, limited to a maximum of 15% of qualified employees'
salaries, is determined by the Board of Directors. Profit sharing expense was
$165,355 and $169,185 for the years ended June 30, 2000 and 1999, respectively.
The Company's profit sharing plan includes a 401(k) feature. At the discretion
of the Board of Directors, the Company may match up to 50% of participants'
contributions up to a maximum of 3% of participants' salaries. For the years
ended June 30, 2000 and 1999, the Company's match totaled $22,243 and $17,937,
respectively.
Deferred Compensation Plans:
The Company has entered into a deferred compensation agreement for the benefit
of a previous director/employee. The agreement provides for payment of $2,000
per month for the employee's and spouse's lifetime. The liability was $40,799
and $60,644 at June 30, 2000 and 1999, respectively, based upon the present
value of the payments over the expected lifetime of the beneficiaries,
discounted at 8%.
The Company has entered into deferred compensation contracts with current key
employees. The contracts provide fixed benefits payable in equal annual
installments upon retirement. The Company purchased life insurance contracts
that may be used to fund the payments. The charge to expense is based on the
present value computations of anticipated liabilities. For the years ended June
30, 2000 and 1999, the total expense was $75,090 and to $83,513, respectively.
F-28
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 13. EMPLOYEE BENEFITS (CONTINUED)
Employee Stock Ownership Plan:
In connection with the Reorganization and Offering, the Company established an
ESOP for eligible employees who meet certain age and service requirements. The
ESOP borrowed $368,048 from Eagle Bancorp and used the funds to purchase 46,006
shares of common stock in the Offering. The Bank makes periodic contributions to
the ESOP sufficient to satisfy the debt service requirements of the loan that
has a ten-year term and bears interest at 8%. The ESOP uses these contributions,
and any dividends received by the ESOP on unallocated shares, to make principal
and interest payments on the loan.
Shares purchased by the ESOP are held in a suspense account by the plan trustee
until allocated to participant accounts. Shares released from the suspense
account are allocated to participants on the basis of their relative
compensation in the year of allocation. Participants become vested in the
allocated shares over a period not to exceed seven years. Any forfeited shares
are allocated to other participants in the same proportion as contributions.
Total ESOP expense of $18,837 was recognized in fiscal 2000 for 2,300 shares
committed to be released to participants during the six months ended June 30,
2000 with respect to the plan year ending December 31, 2000. The cost of the
43,706 ESOP shares that have not yet been allocated or committed to be released
to participants is deducted from stockholders' equity ($349,648 at June 30,
2000). The fair value of these shares was approximately $363,000 at that date.
NOTE 14. COMMITMENTS AND CONTINGENCIES
The Company is involved in certain claims and legal actions arising in the
ordinary course of business. Management, after consultation with legal counsel,
does not anticipate losses on any of these claims or actions that would have a
material adverse effect on the consolidated financial statements.
F-29
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 15. SUPPLEMENTAL CASH FLOW INFORMATION
2000 1999
---- ----
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for interest $5,222,385 $5,199,828
========== ==========
Cash paid during the year for income taxes $ 422,000 $ 905,900
========== ==========
NON-CASH INVESTING ACTIVITIES:
Real estate acquired through the settlement
of loans $ 131,360 $ --
========== ==========
(Increase) decrease in market value of
securities available-for-sale $ 190,666 $ 347,406
========== ==========
Mortgage servicing rights capitalized $ 183,943 $ 670,265
========== ==========
NOTE 16. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
All financial instruments held or issued by the Company are held or issued for
purposes other than trading. In the ordinary course of business, the Company
enters into off-balance-sheet financial instruments consisting of commitments to
extend credit and forward delivery commitments for the sale of whole loans to
the secondary market.
Commitments to extend credit -- In response to marketplace demands, the Company
routinely makes commitments to extend credit for fixed rate and variable rate
loans with or without rate lock guarantees. When rate lock guarantees are made
to customers, the Company becomes subject to market risk for changes in interest
rates that occur between the rate lock date and the date that a firm commitment
to purchase the loan is made by a secondary market investor. Generally, as
interest rates increase, the market value of the loan commitment goes down. The
opposite effect takes place when interest rates decline.
Commitments to extend credit are agreements to lend to a customer as long as the
borrower satisfies the Company's underwriting standards and related provisions
of the borrowing agreements. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee. The Company's
exposure to credit loss in the event of nonperformance by the other party to
financial instrument for commitments to extend credit is represented by the
contractual notional amount of those commitments. The Company uses the same
credit policies in making commitments to extend credit as it does for
on-balance-sheet instruments. Collateral is required for substantially all
loans, and normally consists of real property. The Company's experience has been
that substantially all loan commitments are completed or terminated by the
borrower within 3 to 12 months.
F-30
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 16. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED)
Forward delivery commitments -- The Company uses mandatory sell forward delivery
commitments to sell whole loans. These commitments are also used as a hedge
against exposure to interest-rate risks resulting from rate locked loan
origination commitments and certain mortgage loans held-for-sale. Gains or
losses incurred in completing these commitments offset corresponding gains and
losses in the items hedged, and are deferred and recognized in the statement of
income when the contract is closed and the related assets are sold. Credit risks
on these instruments arise when the Company's position in these securities
becomes positive (i.e. "in-the-money") and the Company is a net creditor to the
counterparty to the agreement. To manage this risk, the Company only enters into
these agreements with major, well-known financial institutions. Gains and losses
resulting from such financial instruments are recorded when they are funded or
settled.
The notional amount of the Company's commitments to extend credit at fixed and
variable interest rates were approximately $3,013,000 and $6,700,000 at June 30,
2000 and 1999, respectively. Fixed rate commitments are extended at rates
ranging from 6.00% to 8.75% and 5.875% to 7.9% at June 30, 2000 and 1999,
respectively. The Company has lines of credit representing credit risk of
approximately $7,703,000 and $7,089,000 at June 30, 2000 and 1999, respectively,
of which approximately $3,185,000 and $3,115,000 had been drawn at June 30, 2000
and 1999, respectively. The Company has credit cards issued representing credit
risk of approximately $1,773,000 and $1,277,000 at June 30, 2000 and 1999,
respectively, of which approximately $280,000 and $210,000 had been drawn at
June 30, 2000 and 1999, respectively.
The Company also made commitments as of June 30, 2000 and 1999 to deliver
approximately $861,000 and $2,700,000, respectively, in loans to various
investors, all at fixed interest rates ranging from 6.00% to 8.625% and 5.875%
and 7.875% at June 30, 2000 and 1999, respectively.
NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts of financial instrument have been determined by
the Company using available market information and appropriate valuation
methodologies. However, considerable judgement is necessarily required to
interpret data to develop the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts the
Company could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
F-31
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
<TABLE>
<CAPTION>
June 30,
-------------------------------------------------------------
2000 1999
----------------------------- ---------------------------
CARRYING ESTMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and cash
equivalents $ 3,477,650 $ 3,477,650 $ 6,741,171 $ 6,741,171
Investment securities
available-for-sale 18,414,219 18,414,219 16,590,332 16,590,332
Investment securities
held-to-maturity 9,922,687 9,707,019 14,497,696 14,409,769
Federal Home Loan
Bank stock 1,393,000 1,393,000 1,301,200 1,301,200
Mortgage loans
held-for-sale 861,290 858,415 1,066,384 1,086,219
Loans receivable, net 107,447,437 106,736,000 97,036,135 97,990,000
Mortgage servicing
rights 1,338,271 1,341,453 1,279,041 1,394,000
Cash surrender value
of life insurance 2,040,973 2,040,973 1,948,570 1,948,570
FINANCIAL LIABILITIES:
Deposits 64,234,297 64,234,297 62,565,053 62,565,053
Time certificates
of deposit 60,278,708 60,255,000 58,256,635 58,475,000
Advances from Federal
Home Loan Bank 8,682,778 8,656,000 12,574,445 12,755,000
</TABLE>
The following methods and assumptions were used by the Company in estimating the
fair value of the following classes of financial instruments.
Cash and cash equivalents - The carrying amounts for approximate fair value due
to the relatively short period of time between the origination of these
instruments and their expected realization.
Investment securities and stock in the FHLB - The fair value of investment
securities is estimated based on bid prices published in financial newspapers or
bid quotations received from securities dealers. The fair value of stock in the
FHLB approximates redemption value.
Loans receivable and mortgage loans held-for-sale - Fair values are estimated by
stratifying the loan portfolio into groups of loans with similar financial
characteristics. Loans are segregated by type such as real estate, commercial,
and consumer, with each category further segmented into fixed and adjustable
rate interest terms.
F-32
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
For mortgage loans, including loans held-for-sale, the Company uses the
secondary market rates in effect for loans that have similar characteristics.
The fair value of other fixed rate loans is calculated by discounting scheduled
cash flows through the anticipated maturities adjusted for prepayment estimates.
Adjustable interest rate loans are assumed to approximate fair value because
they generally reprice within the short term.
Fair values are adjusted for credit risk based on assessment of risk identified
with specific loans, and risk adjustments on the remaining portfolio based on
credit loss experience.
Assumptions regarding credit risk are judgmentally determined using specific
borrower information, internal credit quality analysis, and historical
information on segmented loan categories for non-specific borrowers.
Mortgage servicing rights -- Fair values are estimated by stratifying the
mortgage servicing portfolio into groups of loans with similar financial
characteristics, such as loan type, interest rate, and expected maturity. When
applicable, the Company obtains bid quotations from secondary market investors
who regularly purchase mortgage servicing rights. If quoted market price
estimates are unavailable, the Company compares the discounted expected future
cash flows to be received from servicing loans to the future cash flows required
to service the loans. Assumptions regarding loan payoffs are determined using
historical information on segmented loan categories for nonspecific borrowers.
Cash surrender value of life insurance -- The carrying amount for cash surrender
value of life insurance approximates fair value as policies are recorded at
redemption value.
Deposits and time certificates of deposit -- The fair value of deposits with no
stated maturity, such as checking, passbook, and money market, is equal to the
amount payable on demand. The fair value of time certificates of deposit is
based on the discounted value of contractual cash flows. The discount rate is
estimated using the rates currently offered for deposits of similar maturities.
Advances from the FHLB -- The fair value of the Company's short-term advances
are estimated using discounted cash flow analysis based on the interest rate
that would be effective June 30, 2000, if the advances repriced according to
their stated terms.
F-33
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 18. CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
Set forth below is the condensed statement of financial condition of Eagle
Bancorp at June 30, 2000, together with the related condensed statements of
income and cash flows for the period from April 4, 2000 through June 30, 2000.
Condensed Statement of Financial Condition
Assets
Cash and cash equivalents $ 284,475
Securities available-for-sale 1,192,980
Investment in American Federal Savings Bank 16,829,523
Other assets 32,252
-----------
Total assets $18,339,230
===========
Liabilities
Accounts payable and accrued expenses 10,088
Stockholders' Equity 18,329,142
-----------
Total liabilities and stockholders' equity $18,339,230
===========
Condensed Statement of Income
Interest income $ 21,866
Noninterest expense 2,500
-----------
Income before income taxes 19,366
Income tax expense 10,139
-----------
Income before equity in undistributed earnings
American Federal Savings Bank 9,227
Equity in undistributed earnings American Federal
Bank 292,768
-----------
Net income $ 301,995
===========
F-34
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 18. CONDENSED PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
Condensed Statement of Cash Flows
Cash Flows from Operating Activities:
Net income $ 301,995
Adjustments to reconcile net income to net cash used
in operating activities:
Equity in undistributed earnings of American Federal
Savings Bank (292,768)
Other adjustments, net (1,269)
-----------
Net cash used in operating activities 7,958
-----------
Cash Flows from Investing Activities:
Cash contribution to American Federal Savings Bank (2,000,000)
Purchase of securities:
Investment securities available-for-sale (798,481)
Mortgage-backed securities available-for-sale (411,904)
Proceeds from maturities, calls and principal payments:
Mortgage-backed securities available-for-sale 11,264
-----------
Net cash used in investing activities (3,199,121)
-----------
Cash Flows from Financing Activities:
Net proceeds from stock offering 3,853,686
Initial capitalization of Eagle Financial, MHC (10,000)
ESOP shares loan (368,048)
-----------
Net cash provided by financing activities 3,475,638
-----------
Net increase in cash and cash equivalents 284,475
Cash and cash equivalents at beginning of period --
-----------
Cash and cash equivalents at end of period $ 284,475
===========
F-35
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 19. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a condensed summary of quarterly results of operations for the
years ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Year ended June 30, 2000
<S> <C> <C> <C> <C>
Interest and
dividend income $2,507,974 $2,529,674 $2,534,326 $2,628,562
Interest expense 1,288,004 1,277,440 1,285,926 1,313,873
---------- ---------- ---------- ----------
Net interest income 1,219,970 1,252,234 1,248,400 1,314,689
Provision for loan
losses 15,000 -- --
Non-interest income 332,373 357,620 338,497 374,147
Non-interest expense 1,208,664 1,204,688 1,215,108 1,237,793
---------- ---------- ---------- ----------
Income before income
tax expense 328,679 405,166 371,789 451,043
Income tax expense 120,117 110,017 119,000 149,048
---------- ---------- ---------- ----------
Net income $ 208,562 $ 295,149 $ 252,789 $ 301,995
========== ========== ========== ==========
Basic earnings per common share $ .26
==========
Year ended June 30, 1999
Interest and
dividend income $2,582,377 $2,539,020 $2,466,967 $2,433,612
Interest expense 1,344,788 1,324,024 1,253,179 1,271,093
---------- ---------- ---------- ----------
Net interest income 1,237,589 1,214,996 1,213,788 1,162,519
Provision for loan
losses 15,000 15,000 15,000 15,000
Non-interest income 455,133 469,843 463,675 413,067
Non-interest expense 1,135,948 1,128,219 1,128,636 1,217,984
---------- ---------- ---------- ----------
Income before income
tax expense 541,774 541,620 533,827 342,602
Income tax expense 201,800 186,636 205,300 113,835
---------- ---------- ---------- ----------
Net income $ 339,974 $ 354,984 $ 328,527 $ 228,767
========== ========== ========== ==========
</TABLE>
Basic earnings per common share - not applicable
F-36
<PAGE>
EAGLE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 20. SUBSEQUENT EVENT
The Board announced on July 21, 2000 the declaration of a cash dividend of $.07
per share for the fourth quarter. The dividend is the first dividend Eagle has
declared since its formation. It is payable August 25, 2000 to shareholders of
record at the close of business August 4, 2000. Eagle Financial MHC, Eagle's
mutual holding company, has filed a notice with the Office of Thrift Supervision
(the "OTS") seeking the OTS' non-objection to its waiver of this dividend on the
648,493 shares of Eagle that Eagle Financial MHC holds. No dividend will be paid
if the OTS objects to the waiver.
F-37
<PAGE>
Item 8. Changes in and disagreements with accountants on accounting and
financial disclosure.
Eagle changed its independent auditors during the fiscal year ended June
30, 2000. The information required by Item 8 of this part is presented in the
proxy statement issued by the Board of Directors in connection with the annual
meeting of stockholders to be held October 19, 2000, which information is hereby
incorporated by reference into this annual report.
PART III
The information required by Items 9, 10, 11 and 12 of this part is
presented in the proxy statement issued by the Board of Directors in connection
with the annual meeting of stockholders to be held October 19, 2000, which
information is hereby incorporated by reference into this annual report.
Item 13. Exhibits and reports on Form 8-K.
A. (1) The following documents are filed as part of this report: The
audited Consolidated Statements of Financial Condition of Eagle Bancorp and
subsidiary as of June 30, 2000, and June 30, 1999, and the related Consolidated
Statements of Income, Consolidated Statements of Changes in Stockholder Equity,
and
34
<PAGE>
Consolidated Statements of Cash Flows for the years then ended, together with
the related notes and independent auditor's reports.
(2) Schedules omitted as they are not applicable.
B. Exhibits
* 2.1 Amended and Restated Plan of Mutual Holding Company Reorganization
and Stock Issuance
* 3.1 Charter of Eagle Bancorp
* 3.2 Bylaws of Eagle Bancorp
* 4 Form of Stock Certificate of Eagle Bancorp
*10.1 Employee Stock Ownership Plan and Trust
*10.2 Employment Contract of Larry A. Dreyer
16.1 Letter of Moss Adams LLP
21.1 Subsidiaries of Registrant
23.1 Consent of Anderson ZurMuehlen & Co., P.C.
23.2 Consent of Moss Adams LLP
27.1 Financial Data Schedule
----------
* Incorporated by reference to the identically number exhibit of the
Registration Statement on Form SB-2 (File No. 333-93077) filed with the SEC on
December 20, 1999.
----------
C. Reports on Form 8-K
1. Registrant filed a report on Form 8-K on April 27, 2000. This
report disclosed a change in certifying accountant pursuant to Item 4.
35
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
causes this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
EAGLE BANCORP
/s/
--------------------------------------
Larry A. Dreyer
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ President, Chief Executive 9/12/00
------------------------------- Officer and Director ------------------
Larry A. Dreyer (Principal Executive
Officer)
/s/ Senior Vice President 9/12/00
------------------------------- And Treasurer (Principal ------------------
Peter J. Johnson Financial/Accounting
Officer)
/s/ Chairman 9/12/00
------------------------------- ------------------
Robert L. Pennington
/s/ Vice Chairman 9/12/00
------------------------------- ------------------
Charles G. Jacoby
/s/ Director 9/12/00
------------------------------- ------------------
Don O. Campbell
/s/ Director 9/12/00
------------------------------- ------------------
Teresa Hartzog
/s/ Director 9/12/00
------------------------------- ------------------
James Maierle
/s/ Director 9/12/00
------------------------------- ------------------
Thomas P. McCarvel
<PAGE>
SHAREHOLDER INFORMATION
STOCK LISTING
Symbol: EBMT
OTC Bulletin Board
SHAREHOLDER SERVICES AGENT
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07106-3572
(800) 368-5948
www.rtco.com
SHAREHOLDER CONTACT
Deborah M. Willey
American Federal Savings Bank
1400 Prospect Avenue
Helena, MT 59601
(406) 442-3080
[email protected]
INVESTOR INFORMATION
Copies of reports filed with the Securities and Exchange Commission are
available without charge through the Internet at www.sec.gov or through the
Shareholder Contact shown above.
EXECUTIVE OFFICES
1400 Prospect Avenue
Helena, MT 59601
(406) 442-3080
DIRECTORS
DON O. CAMPBELL
Retired
LARRY A. DREYER
President/Chief Executive Officer
Eagle Bancorp
TERESA HARTZOG
Retired
CHARLES G. JACOBY
Vice Chairman of the Board
THOMAS J. McCARVEL
Vice President
Carroll College
JAMES A. MAIERLE
President
Morrison-Maierle, Inc
ROBERT L. PENNINGTON
Chairman of the Board
OFFICERS
LARRY A. DREYER
President/Chief Executive Officer
PETER J. JOHNSON
Senior Vice President/Treasurer
MICHAEL C. MUNDT
Senior Vice President/Lending
JOANNE Y. SANDERSON
Senior Vice President/Operations
