<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED] For the fiscal year ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ................. to .................
Commission file number: 0-14379
EAGLE BANCSHARES, INC.
--------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Georgia 58-1640222
--------------------------------- ----------------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4305 Lynburn Drive, Tucker, Georgia 30084-4441
--------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code 404-908-6690
------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $1.00
National Association of Securities Dealers Automated Quotation System
(Name of each exchange on which registered.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 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
---- ----
Indicate by a check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not 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-K
or any amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant as of June 9, 1995.
Common Stock, $1.00 par value - $34,024,455 based upon the closing
price on June 9, 1995, using beneficial ownership of stock rules adopted
pursuant to Section 13 of the Securities Exchange Act of 1934 to exclude voting
stock owned by directors and certain executive officers, some of whom may not
be held to be affiliates upon judicial determination.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock as of June 9, 1995. Common Stock $1.00 par value - 1,554,600
shares outstanding
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the fiscal year
ended March 31, 1995 ("Annual Report to Stockholders"). (Parts I, II and IV)
Portions of the definitive proxy statement for the 1995 annual meeting
of Stockholders to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A within 120 days of the Registrant's fiscal year end.
(Part III)
Index of Exhibits on Page 52
<PAGE> 2
EAGLE BANCSHARES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 1995
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page
Number Number
- ------ ------
<S> <C> <C>
Part I
1. Business.............................................................................................. 3
2. Properties.............................................................................................44
3. Legal Proceedings......................................................................................45
4. Submission of Matters to a Vote of
Security Holders....................................................................................45
Part II
5. Market for the Registrant's Common Equity
and Related Stockholder Matters.....................................................................45
6. Selected Financial Data...............................................................................45
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations......................................................45
8. Financial Statements and Supplementary Data...........................................................45
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................................................................46
Part III
10. Directors and Executive Officers of the Registrant....................................................46
11. Executive Compensation................................................................................46
12. Security Ownership of Certain Beneficial Owners
and Management........................................................................................47
13. Certain Relationships and Related Transactions........................................................47
Part IV
14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K...................................................................................48
Signatures.........................................................................................51
Index of Exhibits..................................................................................52
</TABLE>
2
<PAGE> 3
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Eagle Bancshares, Inc., ("Eagle", "Eagle Bancshares" or the
"Company"), a unitary savings and loan holding company, was formed as a Georgia
corporation in September, 1985 and acquired 100% of the common stock of Tucker
Federal Savings and Loan Association ("Tucker Federal" or the "Association") in
March, 1986. In November, 1991, Eagle Real Estate Advisors was formed as a real
estate services subsidiary of the Company. Eagle Bancshares has not engaged in
any material operations and its primary asset is the common stock of Tucker
Federal.
Tucker Federal is a federally chartered savings and loan association,
which converted from mutual to stock form in March, 1986. Tucker Federal was
organized in 1956 and is headquartered in Tucker, Georgia. Deposits are
federally insured by the Savings Association Insurance Fund of the Federal
Deposit Insurance Corporation. Tucker Federal has nine branches in DeKalb,
Fulton and Gwinnett Counties, Georgia. At March 31, 1995, Eagle had total
assets of $457.3 million, total deposits of $286.3 million and shareholders'
equity of $33.6 million.
Until 1989, Tucker Federal was engaged primarily in the traditional
business of thrift institutions. This consists principally of taking deposits
from the general public and making loans secured by first mortgage liens on
residential and other real estate. Over the next three years the Company
developed a significant mortgage banking business in addition to its
traditional thrift activities. In July, 1989, Eagle Service Corporation, a
wholly-owned subsidiary of the Association, began originating and selling
single-family first mortgage loans as Atlanta Mortgage Services. In November,
1992, Tucker Federal acquired the Prime Lending mortgage banking operations in
Augusta, Savannah, Macon, and Warner Robins, Georgia, and North Augusta, South
Carolina. In December 1993, Eagle A.R.M.S., Inc. was incorporated to perform
collection procedures on judgments, deficiencies and charge-offs in a
partnership with the Resolution Trust Corporation.
Mortgage banking and retail banking complement each other. The retail
banking segment provides funding for investment in loans and securities while
the mortgage banking segment primarily generates fee income. The Company's
construction lending complements its permanent first mortgage originations and
provides additional competitive advantage.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Mortgage Banking Activities - Effective April 1, 1995, management
formed a new operating subsidiary, PrimeEagle Mortgage ("PrimeEagle") and
consolidated all of the Association's real estate lending activities into this
business unit. This division generates revenues by originating construction
loans, permanent mortgage loans and Small Business Administration ("SBA") loans
and selling the permanent mortgage and SBA loans to investors. PrimeEagle
originates single family mortgage loans from its thirteen retail mortgage
origination offices in Atlanta, Augusta, Hinesville, Savannah, Warner Robins
and Stockbridge, Georgia; Aiken, Columbia, North Augusta and Sumter, South
Carolina; Chattanooga, Tennessee; and Jacksonville and St. Augustine, Florida.
PrimeEagle's geographic expansion continues to focus on emerging
markets in the Southeast. Equally important, however, is finding experienced
managers and highly trained staff to provide local market knowledge and
superior customer service.
3
<PAGE> 4
The Company provides construction financing in each of its markets and
obtains significant benefits by coordinating the efforts of our construction
lending and permanent lending operations. Construction loans, which are
generally floating rate and short-term, generate increased earnings in a rising
interest rate market. For this reason the profitability of our construction
financing activities increased significantly over the year. The Company's
permanent mortgage products are primarily used for purchasing and refinancing
single family homes and produce fee income for Tucker Federal. Non-interest
revenues are also earned as a result of the Company's construction lending
activities.
Net income in this segment decreased 26 percent from $2.9 million in
1994 to $2.1 million in 1995. Identifiable assets increased 20 percent from $99
million at year end 1994 to $118 million at year end 1995. Within this segment,
however, net income generated from construction lending has increased while net
income from traditional mortgage banking activities has decreased
significantly. The increase in construction lending income and the decrease in
mortgage banking income was a result of higher interest rates which affected
the volume of mortgage originations in the Company's market areas.
Additionally, as mortgage refinance activities declined, the Company
experienced significant competition and a resulting squeeze on its origination
margin.
PrimeEagle Mortgage also generates revenues through fees for various
services including loan application and origination as well as through the gain
or loss on sale of loans to third parties and from the sale of mortgage
servicing rights. Service release premiums are the largest component of
mortgage production fees. Fluctuations in the value of servicing rights impact
management's decision to retain or sell servicing. During fiscal 1995, the
Company sold substantially all of its permanent loans on a servicing released
basis.
Retail Banking Activities - The retail banking group sells and
services a complete line of retail financial products for consumers and small
businesses. This segment currently operates nine branch locations.
Additionally, this segment includes management of all checking and item
processing activities. In order to expand its retail franchise, the Company is
currently nearing completion of a new branch location in Cherokee County,
Georgia, called Towne Lake. Net income for this group increased substantially
from $2.7 million for the year ending 1994 to $4.7 million for the year ending
1995. The identifiable assets associated with this segment also increased 57
percent from $287 million to $450 million. Capital expenditures of $2.3 million
are allocated to this segment primarily for construction of the Association's
new branch at Towne Lake in Cherokee County, Georgia, and investments in
technology. Increased revenues of this area are a result of adding adjustable
rate loans to its portfolio and maintaining a constant interest spread.
The Association competes for deposits with many financial institutions
that are larger and have greater financial resources. We attempt to identify
specific needs of the target markets and design financial products and services
to fill those needs. Currently, we offer a wide variety of insured savings
programs and non-insured investment products. We provide a level of personal
service to each customer that is not available in larger national financial
institutions. Management believes the service we provide to our customers can
provide a platform for the sale of a variety of services.
For further information concerning the Company's two industry segments see
NARRATIVE DESCRIPTION OF THE BUSINESS and Note 11 to the consolidated
financial statements.
4
<PAGE> 5
(c) NARRATIVE DESCRIPTION OF BUSINESS
THE COMPANY At March 31, 1995, the assets of the Company consisted of
all of the shares of the Association's capital stock and $2.8 million in cash
and other assets. See Note 15 to consolidated financial statements for further
information concerning Eagle. The Company has no significant source of income
other than from the Association.
The Company is a unitary savings and loan holding company. The holding
company structure provides the Company with the ability to expand and diversify
the financial services offered through the Association and its subsidiaries. As
a holding company, Eagle Bancshares has greater flexibility than the
Association to diversify its business activities, through existing or newly
formed subsidiaries, or through acquisition or merger. As long as the Company
remains a unitary savings and loan holding company and the Association remains
a "qualified thrift lender", there is greater flexibility in the activities in
which the Company may engage.
THE ASSOCIATION The Association is primarily engaged in the business
of obtaining funds in the form of savings deposits and investing such funds in
construction and permanent first mortgage loans on residential and commercial
real estate and in various types of consumer and other loans, mortgage-backed
securities, and investment and money market securities. Tucker Federal's
earnings are largely dependent upon the difference between the income it
receives from its loans and investment securities less its cost of funds (net
interest income). Traditionally, the Association's cost of funds is sensitive
to changes in short-term interest rates since most deposits are shorter term
savings accounts bearing interest rates determined by current market
conditions.
Tucker Federal has attempted to counter the volatile cost of its funds
and mismatch between its relatively long-term, fixed rate assets and
short-term, rate sensitive liabilities by adopting a strategy designed to
improve and stabilize net interest margin and its operational results. The
principal objectives of this strategy are to manage the Company's assets to
reduce the potential adverse effects of interest rate volatility on earnings
and to diversify the Company's sources of income. Elements of this strategy
include: selling substantially all conforming, long-term, fixed-rate mortgage
originations, increasing the Association's portfolio of adjustable rate loans,
pricing deposit products to encourage longer term liabilities, originating and
acquiring shorter term, higher yielding loan products which meet our
underwriting criteria, and actively managing the Company's interest rate risk
exposure.
Part of the strategy for reducing interest rate risk revolves around
increasing the percentage of shorter term floating rate loans in Tucker
Federal's portfolio. Management has accomplished this by originating
residential construction and adjustable rate permanent mortgage loans. The
acquisition of the Prime Lending division during fiscal 1993 has increased the
Company's ability to originate construction loans which meet the Company's
underwriting criteria. The Company increased the volume of residential
construction lending during fiscal 1993 and this trend continued through fiscal
1995. During fiscal year 1995 the Company originated $182 million of
construction loans up from $177 million in fiscal 1994. The trend in rapid
repayment of construction loans continued in fiscal 1995 with $140 million of
repayments or 87% of originations versus $123 million of repayments in fiscal
1994. Construction loans offer the Company a short-term floating interest rate
asset which will decrease the impact of rising interest rates on net income and
equity. Construction loans can also be a very effective tool to help secure
permanent mortgage financing from the builders' customers.
5
<PAGE> 6
MARKET AREA The Company operates branches in the Georgia counties of
DeKalb, Fulton and Gwinnett. Its deposit area covers one of the fastest growing
areas in the country. The Company's broader market is metropolitan Atlanta,
Georgia, a fifteen county Standard Metropolitan Statistical Area region with a
high growth rate of business and accompanying population expansion. The Company
has plans to expand its branch locations in the metro Atlanta area into
Cherokee and Gwinnett Counties, and began construction of a branch location in
Cherokee County called Towne Lake.
The Company offers mortgage loans in metro Atlanta and in emerging
Southeastern cities. During fiscal 1995 loan originations were conducted in the
Tucker Federal main office and Atlanta Mortgage Services office in Atlanta and
Stockbridge and in offices of the Prime Lending division in Augusta,
Hinesville, Savannah, and Warner Robins, Georgia, and North Augusta, South
Carolina and Chattanooga, Tennessee. During fiscal 1995, the Company added
Prime Lending offices in Aiken, Columbia and Sumter, South Carolina and
Jacksonville and St. Augustine, Florida. The Company's goal is to continue
geographic expansion by focusing on the emerging markets of the Southeast and
to become the leading originator in the markets served. The Association
generally makes construction loans in the markets where it operates mortgage
origination offices in order to take advantage of the interrelationships of
those two activities. In each market, management follows the same stringent
underwriting and construction monitoring procedures.
We believe the prospects for our deposit and lending areas will
continue to strengthen in the future. The acquisition of the Prime Lending
division in fiscal 1993 broadened the Company's mortgage lending area outside
of the metropolitan Atlanta market. Prime Lending's markets have not grown at
as rapid a pace as metro Atlanta, however they have experienced, over time,
more consistent growth and generally face less direct competition for loans.
Many of Prime Lending's markets are impacted by military bases and their
resulting housing requirements. Over fiscal 1993, 1994, and 1995, the overall
base populations of the Company's markets increased. Military base closures in
these markets could adversely effect these markets.
COMPETITION Tucker Federal faces strong competition in attracting
deposits and making loans. Its most direct competition for deposits is
commercial banks and retail brokerage houses in its market area. The
Association also faces competition for investor's funds from more distant
depository institutions that advertise locally or through national media, and
other short-term money funds, as well as corporate and government securities.
Over the past three years there has been considerable consolidation in
the Company's market as local competitors have been purchased by out-of-state
institutions. The Association is now the largest savings and loan in the
Atlanta area. As a result, the Company has attracted quality experienced
employees as well as a group of customers who prefer a more personalized level
of service. Additionally, the Company has successfully become one of Georgia's
leading residential construction lenders as a result of the acquisition of
former active participants in this market.
Tucker Federal competes for deposits principally by attempting to
identify specific needs of its target market and offer a high level of customer
service. Analysis of product needs is generated through dialogue with customers
and staff. The Association offers a wide variety of savings programs including
passbooks, NOW checking accounts, certificates of deposit ranging from three
months to five years in maturity, tax deferred retirement programs, tax
deferred certificates of deposit and small savers plans.
6
<PAGE> 7
The employees' commitment to service is another important factor in
attracting deposits. The goal of Tucker Federal is to render superior personal
service through convenient branch and main office locations and hours of
operation. All of Tucker Federal's branches are open on Saturdays for customer
convenience. The Association does not rely on any individual, group or entity
for a material portion of its deposits.
Tucker Federal's competition for loans comes from mortgage companies,
other thrift institutions and commercial banks. The trend in acquisitions of
the Company's thrift competitors by out-of-state institutions has eliminated
several active construction lenders in the metropolitan Atlanta area. The
Company competes for loan originations through the quality of services it
provides borrowers, real estate brokers and builders, not just the interest
rate and terms of its loans. The competition for loans varies from time to time
depending on the general availability of lendable funds and credit, general and
local economic conditions, interest rate levels, conditions in the local real
estate market and other factors which are not readily predictable. Management
attempts to receive interest rates and loan fees commensurate with the level of
risk it accepts. Management believes that providing superior service can allow
improved loan pricing. The expansion of the Company's mortgage origination
offices has been targeted toward markets with solid growth prospects which are
underserved by the Company's competitors. No market is entered, however,
without an experienced manager and highly trained staff.
INTEREST RATE COMPARISON AND PROFITABILITY
Net interest income (the difference between the interest earned on
assets and the interest paid on deposits and liabilities) is the principal
source of the Company's earnings. The Company actively manages this income
source to provide the largest possible amount of income while balancing
interest rate, credit and liquidity risk.
Two key ratios in the banking industry are used to measure relative
profitability of net interest income. The spread is the difference between the
yield on earning assets and the rate paid on interest bearing liabilities. The
net interest margin is net interest income as a percent of average total
earning assets. It is similar to the spread, except that it takes into account
the positive impact of investing non-interest bearing funds. The Company's net
interest spread and net interest margin have improved over the previous three
years primarily due to the low interest rate environment experienced as well as
management's ability to restructure the Company's interest rate sensitive
assets and liabilities.
The Company has an Asset Liability Committee ("ALCO") made up of
senior management of Tucker Federal. The ALCO makes all tactical and strategic
decisions with respect to the sources and uses of funds which effect net
interest income and therefore net interest spread and net interest margin.
Those decisions are based upon policies established by the Association's Board
of Directors which are designed to meet three goals - improve interest rate
spread, maintain adequate liquidity and manage interest rate risk.
The ALCO has developed a program of action which includes, among other things,
the following:
(1) selling substantially all conforming, long term, fixed rate mortgage
originations,
(2) pricing deposit products to encourage longer term liabilities,
(3) originating and retaining for the portfolio, shorter term, higher yielding
loan products which meet the Company's underwriting criteria,
7
<PAGE> 8
(4) repaying high cost funding sources, where possible, and
(5) actively managing the Company's gap and interest rate risk exposure.
During fiscal 1995, the Company also introduced strategies to increase core
earnings which included increasing assets by retaining permanent adjustable
rate mortgages, maintaining steady construction and lease originations and
investing in three real estate developments. The Average Balance Sheet shows
the Company's average assets and liabilities and their associated yield and
cost over the past three years. The net interest margin remained stable during
1995 at 4.79 percent, compared to 4.80 percent in 1994 and up from 4.12 percent
in 1993. Correspondingly, spread improved from 3.74 percent in 1993 to 4.43
percent in 1994 and remained constant at 4.46 percent in 1995. Net interest
income consistently increased for the past three years and increased $1.7
million from 1994 to 1995. The general upward trend in market interest rates
contributed to a 30 basis point increase in the yield on interest earning
assets from 8.81 percent in fiscal 1994 to 9.11 percent for 1995 and a 27 basis
point increase in the cost of interest bearing liabilities from 4.38 percent to
4.65 percent. The increase in interest received on loans is primarily
attributable to the Company's ability to expand its loan portfolio through
originations of residential construction, short term leases and adjustable rate
permanent mortgage loans. In this way, the Company is able to improve its
spread while limiting exposure to rising interest rates due to the variable
rates and short term commitments these loans represent. Interest on
mortgage-backed securities has decreased as a result of the trend of advance
repayments of higher coupon mortgages and management's sale of selected
mortgage-backed securities during fiscal 1993, 1994 and 1995. Management's
decision to sell securities in 1993 and 1994 was based primarily on the trend
of rapid prepayments that were being experienced as a result of record mortgage
refinances.
Interest expense increased $3.1 million from $12.5 million in 1994 to
$15.6 million in 1995. This is primarily the result of an increase in deposits
and FHLB advances. During fiscal 1994, the Association repaid $7.5 million of
8.45 percent Federal Home Loan Bank advances. This transaction is reflected in
the financial statements as an extraordinary item. The prepayment penalty, net
of state and federal income taxes, was $427,000.
The excess of interest earning assets versus interest bearing
liabilities repricing or maturing in a given period of time is commonly
referred to as gap. The Association's ALCO has continued to shift the
Association's gap throughout the year. The Association's gap position is
evaluated continuously and discussed by the ALCO in bi-weekly meetings. The
Association has a negative gap of 23.59 percent as of March 31, 1995 for the
ensuing one year horizon. Part of the ALCO strategy for reducing interest rate
risk revolves around increasing the percentage of shorter term floating rate
loans in the Company's portfolio. This has been accomplished by originating
residential construction and adjustable rate permanent loans. The Association
continues to originate consumer loans, second mortgage loans and equipment
lease financing loans. In general, these loans have short maturities and
floating interest rates.
8
<PAGE> 9
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET
- ----------------------------------------------------------------------------------------------------------------------------
Year ended March 31, 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
AVERAGE YIELD/ Average Yield/
(dollars in thousands) BALANCE INTEREST COST Balance Interest Cost
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
- ----------------------------------------------------------------------------------------------------------------------------
Loans* $279,367 $26,330 9.42% $233,976 $21,906 9.36%
Mortgage-backed securities 26,454 1,939 7.33% 41,891 3,135 7.48%
FHLB stock 4,040 272 6.73% 3,277 174 5.31%
Taxable investments 34,002 2,663 7.83% 29,524 2,204 7.47%
Tax-exempt investment securities 15,958 1,650 10.34% - - -
Interest earning deposits and Federal
funds 1,645 74 4.56% 3,838 110 2.87%
- ----------------------------------------------------------------------------------------------------------------------------
Total interest earning assets 361,466 32,928 9.11% 312,506 27,529 8.81%
Non-interest earning assets 18,886 15,637
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $380,352 $328,143
============================================================================================================================
LIABILITIES AND EQUITY
- ----------------------------------------------------------------------------------------------------------------------------
Passbook accounts $ 52,850 $ 1,425 2.70% $ 53,784 $ 1,435 2.67%
NOW 28,346 484 1.71% 22,123 383 1.73%
Money Market 20,993 300 1.43% 12,729 311 2.44%
Certificates of Deposit 165,708 9,416 5.68% 149,569 7,877 5.27%
- ----------------------------------------------------------------------------------------------------------------------------
Total Deposits 267,897 11,625 4.34% 238,205 10,006 4.20%
Advances 68,272 4,006 5.87% 48,265 2,526 5.23%
CMO - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 336,169 15,631 4.65% 286,470 12,532 4.38%
Non-interest bearing liabilities 11,915 13,328
Stockholders' equity 32,268 28,345
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity $380,352 $328,143
============================================================================================================================
Net interest income/rate spread $17,297 4.46% $14,997 4.43%
Taxable-equivalent adjustment (586) -
============================================================================================================================
Net interest income, actual $16,711 $14,997
Net interest earning assets/net
interest margin $ 25,297 4.79% $ 26,036 4.80%
============================================================================================================================
Interest earning assets as a
percentage of interest bearing
liabilities 107.52% 109.09%
============================================================================================================================
<CAPTION>
Year ended March 31, 1993
- ---------------------------------------------------------------------------------
AVERAGE YIELD/
(dollars in thousands) BALANCE INTEREST COST
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
- ---------------------------------------------------------------------------------
Loans* $191,178 $19,371 10.13%
Mortgage-backed securities 70,486 5,673 8.05%
FHLB stock 3,060 183 5.98%
Taxable investments 24,954 1,906 7.64%
Tax-exempt investment securities - - -
Interest earning deposits and Federal
funds 6,730 308 4.58%
- ---------------------------------------------------------------------------------
Total interest earning assets 296,408 27,441 9.26%
Non-interest earning assets 12,165
- ---------------------------------------------------------------------------------
Total assets $308,573
=================================================================================
LIABILITIES AND EQUITY
- ---------------------------------------------------------------------------------
Passbook accounts $ 47,660 $ 1,707 3.58%
NOW 18,058 455 2.52%
Money Market 13,500 416 3.08%
Certificates of Deposit 144,707 8,830 6.10%
- ---------------------------------------------------------------------------------
Total Deposits 223,925 11,408 5.09%
Advances 49,872 3,215 6.45%
CMO 2,392 618 25.84%
- ---------------------------------------------------------------------------------
Total interest bearing liabilities 276,189 15,241 5.52%
Non-interest bearing liabilities 7,988
Stockholders' equity 24,396
- ---------------------------------------------------------------------------------
Total liabilities and equity $308,573
=================================================================================
Net interest income/rate spread $12,200 3.74%
Taxable-equivalent adjustment -
=================================================================================
Net interest income, actual $12,200
Net interest earning assets/net
interest margin $ 20,219 4.12%
=================================================================================
Interest earning assets as a
percentage of interest bearing
liabilities 107.32%
=================================================================================
</TABLE>
*Non-accrual loans are included in average balances and income on such loans,
if recognized, is recorded on a cash basis.
9
<PAGE> 10
GAP ANALYSIS
The following table presents the Company's interest sensitivity gap between
interest-earning assets and interest-bearing liabilities at March 31, 1995.
Assets and liabilities having no stated schedule of repayments and no stated
maturity are reported as due in less than three months, except equity
securities which are reported due after five years.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
MORE THAN 3 MORE THAN 1 MORE THAN 3
LESS THAN MONTHS TO 1 YEAR TO 3 YEARS TO 5 AFTER
(dollars in thousands) 3 MONTHS YEAR YEARS YEARS 5 YEARS TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets re-pricing:
- ---------------------------------------------------------------------------------------------------------------------------------
Loans receivable, net plus loan loss reserves $103,573 $ 54,495 $ 37,766 $ 42,549 $ 68,885 $307,268
Investment securities held to maturity 7,609 2,400 13,932 16,458 17,200 57,599
Securities available for sale - - 345 155 20,439 20,939
Loans receivable held for sale* 41,220 - - - - 41,220
FHLB stock - - - - 5,984 5,984
Interest bearing deposit 144 - - - - 144
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $152,546 $ 56,895 $ 52,043 $ 59,162 $112,508 $433,154
- ---------------------------------------------------------------------------------------------------------------------------------
Interest bearing liabilities re-pricing:
- ---------------------------------------------------------------------------------------------------------------------------------
Deposits $110,071 $ 97,459 $ 41,109 $ 37,359 $ 317 $286,315
Borrowings 109,507 295 1,832 8,146 173 119,953
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $219,578 $ 97,754 $ 42,941 $ 45,505 $ 490 $406,268
- ---------------------------------------------------------------------------------------------------------------------------------
Gap ($67,032) ($40,859) $ 9,102 $ 13,657 $112,018 $ 26,886
Cumulative Gap ($67,032) ($107,891) ($98,789) ($85,132) $ 26,886
=================================================================================================================================
Cumulative Gap as a percentage of total assets -14.66% -23.59% -21.60% -18.62% 5.88%
=================================================================================================================================
</TABLE>
*Represents loans committed to sell in less than 3 months.
10
<PAGE> 11
The rate volume analysis below explains the components of net interest income
for the periods indicated. For each category of interest earning assets and
interest bearing liabilities, information is provided on changes attributed to
(1) changes in rate (difference in rate x prior period volume), (2) changes in
volume (difference in volume x prior period rate), and (3) changes in
rate-volume (difference in rate x difference in volume). The net change
attributable to both volume and rate, which cannot be segregated, has been
allocated proportionately to change due to volume and change due to rate.
RATE/VOLUME ANALYSIS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
(dollars in thousands) 1995 COMPARED TO 1994
- --------------------------------------------------------------------------------------------------------
Increase (decrease) due to RATE VOLUME TOTAL
- --------------------------------------------------------------------------------------------------------
Interest income on interest earning assets:
<S> <C> <C> <C>
Loans $ 141 $ 4,283 $ 4,424
Mortgage-backed securities (66) (1,130) (1,196)
Taxable investment securities 110 349 459
Tax-exempt investment securities* 1,649 - 1,649
Interest earnings deposits and Federal funds 46 (81) (35)
FHLB stock 54 44 98
- --------------------------------------------------------------------------------------------------------
Total 1,934 3,465 5,399
- --------------------------------------------------------------------------------------------------------
Interest expense on interest bearing liabilities:
Deposits 342 1,277 1,619
FHLB advances 338 1,142 1,480
Collateralized mortgage obligations - - -
- --------------------------------------------------------------------------------------------------------
Total 680 2,419 3,099
========================================================================================================
Net change in net interest income $ 1,254 $ 1,046 $ 2,300
========================================================================================================
<CAPTION>
- --------------------------------------------------------------------------------------------------------
(dollars in thousands) 1994 Compared to 1993
- --------------------------------------------------------------------------------------------------------
Increase (decrease) due to Rate Volume Total
- --------------------------------------------------------------------------------------------------------
Interest income on interest earning assets:
<S> <C> <C> <C>
Loans $ (1,556) $ 4,091 $ 2,535
Mortgage-backed securities (371) (2,167) (2,538)
Taxable investment securities (43) 341 298
Tax-exempt investment securities* - - -
Interest earnings deposits and Federal funds (106) (91) (197)
FHLB stock (22) 12 (10)
- --------------------------------------------------------------------------------------------------------
Total (2,098) 2,186 88
- --------------------------------------------------------------------------------------------------------
Interest expense on interest bearing liabilities:
Deposits (2,087) 685 (1,402)
FHLB advances (592) (97) (689)
Collateralized mortgage obligations - (618) (618)
- --------------------------------------------------------------------------------------------------------
Total (2,679) (30) (2,709)
========================================================================================================
Net change in net interest income $ 581 $ 2,216 $ 2,797
========================================================================================================
</TABLE>
*Reflects taxable-equivalent adjustments using the statutory federal and state
income tax rate of 39% in adjusting interest on tax-exempt investment
securities to a taxable-equivalent basis.
11
<PAGE> 12
LENDING ACTIVITIES
Over the previous five years the Company's net loans receivable
portfolio has grown 119 percent. This growth has occurred primarily in the
previous three years in construction loans, loans held for sale and leases.
During fiscal 1995 the Company increased residential mortgage loans 69 percent.
This was accomplished primarily by electing to retain adjustable rate mortgages
for the portfolio. The Company's primary lending activity is conducted through
the mortgage banking segment and includes the origination of construction loans
and conventional, FHA and VA permanent loans secured by first mortgages on
residential properties, principally one-to-four family owner occupied
residences. The Company's residential loan originations in Atlanta are
conducted through the Association and Atlanta Mortgage Services and outside
metropolitan Atlanta through Prime Lending offices. Substantially all permanent
loans originated by Atlanta Mortgage Services and Prime Lending are
underwritten in accordance with standards and requirements acceptable to
Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage
Corporation ("FHLMC"), FHA and VA. Substantially all fixed rate loans were sold
to third party investors while adjustable rate mortgages were retained in the
Association's portfolio. In addition, the mortgage banking segment originates
construction loans on residential real estate in order to capture the permanent
mortgage when the builder sells the house. This provides an advantage to the
mortgage banking segment and reduces dependence on refinances.
In fiscal 1993, the Company began an equipment leasing operation
designed primarily to provide financing for investment grade (Baa/BBB or
better) and middle market credits. The residual value of the equipment is not
considered as part of the Company's return. The Company looks to rental
payments to provide its return. Each lease is approved by the Association's
Loan Committee based upon the credit quality of the lessee. Collateral value of
equipment is not considered a material portion of the credit analysis of the
lease rather the lessee's cash flow and ability to make rental payments is of
most importance. At March 31, 1995, the average duration of these leases is 24
months and lease financing loans represent 8.00 percent of the total loan
portfolio.
12
<PAGE> 13
<TABLE>
<CAPTION>
LOAN PORTFOLIO MIX
AT MARCH 31,
- --------------------------------------------------------------------------------------------------------------
1995 1994 1993
(dollars in thousands) AMOUNT % Amount % Amount %
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Real Estate--construction loans
Construction $123,995 30.43% $102,983 34.18% $ 65,870 26.26%
Acquisition & Development 30,517 7.49% 23,771 7.89% 13,059 5.20%
Real Estate--mortgage loans
Non-residential 15,852 3.89% 19,578 6.50% 24,355 9.71%
Residential 150,784 37.00% 88,941 29.52% 90,349 36.02%
Home equity and second
mortgages 10,250 2.52% 10,701 3.55% 12,899 5.14%
Loans Held for Sale 41,220 10.11% 23,641 7.85% 23,462 9.35%
- --------------------------------------------------------------------------------------------------------------
Total real estate loans 372,618 91.44% 269,615 89.49% 229,994 91.68%
- --------------------------------------------------------------------------------------------------------------
Other loans:
Leases 32,582 8.00% 29,364 9.75% 18,808 7.50%
Consumer and other 2,321 0.56% 2,305 0.76% 2,054 0.82%
- --------------------------------------------------------------------------------------------------------------
Total other loans 34,903 8.56% 31,669 10.51% 20,862 8.32%
- --------------------------------------------------------------------------------------------------------------
Total gross loans receivable 407,521 100.00% 301,284 100.00% 250,856 100.00%
- --------------------------------------------------------------------------------------------------------------
Less:
Undisbursed portion of loans
in process (56,780) (52,054) (31,460)
Deferred loan origination fees (1,547) (1,176) (1,037)
Unearned income (593) (1,190) (1,782)
Reserve for loan losses (3,362) (3,349) (2,420)
Unearned discount on loans
purchased (113) (148) (580)
- --------------------------------------------------------------------------------------------------------------
Loans receivable, net* $345,126 $243,367 $213,577
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------
1992 1991
(dollars in thousands) Amount % Amount %
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real Estate--construction loans
Construction $ 23,156 12.36% $ 9,003 5.40%
Acquisition & Development 4,500 2.40% 545 0.33%
Real Estate--mortgage loans
Non-residential 11,429 6.10% 9,107 5.46%
Residential 118,617 63.30% 126,547 75.90%
Home equity and second
mortgages 13,435 7.17% 13,940 8.36%
Loans Held for Sale 13,708 7.32% 5,306 3.18%
- -------------------------------------------------------------------------------------
Total real estate loans 184,845 98.65% 164,448 98.63%
- -------------------------------------------------------------------------------------
Other loans:
Leases - - - -
Consumer and other 2,539 1.35% 2,287 1.37%
- -------------------------------------------------------------------------------------
Total other loans 2,539 1.35% 2,287 1.37%
- -------------------------------------------------------------------------------------
Total gross loans receivable 187,384 100.00% 166,735 100.00%
- -------------------------------------------------------------------------------------
Less:
Undisbursed portion of loans
in process (9,870) (3,749)
Deferred loan origination fees (1,221) (1,112)
Unearned income (2,572) (3,266)
Reserve for loan losses (892) (763)
Unearned discount on loans
purchased (380) (101)
- -------------------------------------------------------------------------------------
Loans receivable, net* $172,449 $157,744
- -------------------------------------------------------------------------------------
</TABLE>
*Includes loans receivable held for sale
13
<PAGE> 14
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
The following table sets forth certain information at March 31, 1995, regarding
the dollar amount of loans maturing in the Association's net loan portfolio
based on their contractual terms to maturity. Demand loans having no stated
schedule of repayment and no stated maturity, and overdrafts are reported as
due in one year.
<TABLE>
<CAPTION>
March 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
ONE YEAR ONE YEAR TO FIVE AFTER
(dollars in thousands) OR LESS YEARS FIVE YEARS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real estate mortgage loans:
Fixed rates $ 1,003 $ 7,713 $ 43,359 $ 52,075
Adjustable rates 2,138 5,697 116,976 124,811
Real estate construction, net:
Adjustable rates 84,913 12,819 - 97,732
Investment in commercial leases:
Fixed rates 1,783 30,224 575 32,582
Consumer--Fixed rates 207 403 391 1,001
Loans on savings--Fixed rates 1,320 - - 1,320
- ------------------------------------------------------------------------------------------------------------------------------------
Total $91,364 $56,856 $161,301 $309,521
- ------------------------------------------------------------------------------------------------------------------------------------
Less: Unearned income 593
Deferred loan origination fees 1,547
Reserve for loan losses 3,362
Unearned discount on loans purchased 113
====================================================================================================================================
Total $303,906
====================================================================================================================================
The next table sets forth the dollar amount of all loans due after one year
from March 31, 1995, which have predetermined interest rates and have floating
or adjustable rates. (dollars in thousands)
<CAPTION>
PREDETERMINED FLOATING OR
RATES ADJUSTABLE RATES
<S> <C> <C>
Real estate-mortgage $51,072 $122,673
Real estate-construction, net - 12,819
Commercial leases 30,799 -
Consumer 794 -
Loans on savings - -
- -----------------------------------------------------------------------------------------------------
Total $82,665 $135,492
</TABLE>
Note: The above information was compiled based upon contractual terms to
maturity. The actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
14
<PAGE> 15
LOAN PORTFOLIO AND CONCENTRATIONS
Seventy-eight percent of the Company's loans receivable are first
mortgage loans secured by residential real estate. One-to-four family home
mortgages are generally believed to be a conservative investment. Therefore,
the Company's high concentration of residential first mortgages tends to reduce
its level of delinquencies and problem loans.
The acquisition of the Prime Lending division broadened the Company's
mortgage lending area from metropolitan Atlanta to emerging cities in the
Southeastern United States. Although Prime Lending's markets have not grown at
as rapid a pace as metro Atlanta, they have experienced over time more
consistent growth. Many of Prime Lending's markets are impacted by military
bases and their resulting housing requirements. Over fiscal 1993, 1994 and
1995, the base populations in the Company's markets increased. Total exposure
to each market area is monitored monthly. The factors considered, among other
things, are housing inventory, economic prospects of major employers,
likelihood of job growth or contraction and general economic conditions. The
broadening of the Company's lending area reduces its concentration of metro
Atlanta loans and dependence on the economic prospects of Atlanta.
In accordance with the Company's business plan, the volume of
construction lending has increased in each of the previous three years. The
Company understands the risks inherent in interim construction financing and
has designed an efficient organization to properly mitigate those risks through
strict underwriting and closely monitoring the process. Underwriting criteria
consider, among other things, the track record and financial condition of the
builder, the demand for the type of house to be constructed including a
marketing survey of inventory levels by price range and location, the
feasibility of house plans and costs and growth prospects for the economy. The
Company has a statewide construction inspection and appraisal network. Its
staff closely monitors construction progress and draws throughout the process.
Approximately, thirty percent of the Company's construction loan portfolio are
on pre-sold. In addition, no single customer accounted for more than 2 percent
of the Company's loans in 1995, 1994 or 1993.
PROVISION FOR LOAN LOSSES AND RISK ELEMENTS
The Company decreased the provision for loan losses from $1.0 million
for fiscal 1994 to $643,000 for fiscal 1995. The decrease in the provision was
a result of management's continuing evaluation of the inherent risks in the
Company's existing loan portfolio. Since the Company's historical charge-offs
have been low, the allocation of reserves to specific loan categories is based
upon management's analysis of the current inherent risk of each loan category,
not historical patterns. Construction loans represent a larger percentage of
Tucker Federal's loan portfolio than many of its peers. Management believes
however that its strict underwrinting criteria, construction monitoring process
as well as the local market knowledge of our construction personnel tend to
reduce the risk of delinquencies and problem loans. Despite higher credit
risks, construction loans offer the Company a short term variable interest rate
asset which assists in the Asset and Liability Committee's goals of decreasing
the impact of rising interest rates on net income and equity. Construction
loans can also be an effective tool to help secure permanent mortgage financing
from home purchases. The Company has developed a construction inspection and
appraisal network that closely monitors construction progress and loan
disbursements throughout the process. At March 31, 1995, the Company had only
three construction loans with a combined disbursed balance of $131,000 that
were more than sixty days delinquent. Management and the Association's Asset
Classification
15
<PAGE> 16
Committee, along with regulators, closely monitor total exposure to each market
area and price range in determining the appropriate concentrations of
construction loans. The broadening of the Company's lending area has reduced
its dependence on the economic prospects of the Atlanta metro area.
Additionally, the Association has an Asset Classification Committee,
comprised of representatives of management, which undertakes an ongoing asset
classification program to serve as an early warning system in identifying and
determining the magnitude of potential problem assets and which reports at
least quarterly to the Board of Directors. The Asset Classification Committee
considers numerous factors in identifying potential problem loans including,
among other factors, the estimated value of the underlying collateral, economic
conditions that may effect the borrowers ability to repay, past payment
experience and general market conditions. The addition of $1.5 million during
fiscal 1993, to the reserve for loan losses is the result of two transactions.
First, on July 9, 1992, Tucker Federal, purchased approximately $7,148,000
(face value) of loans from the Resolution Trust Corporation ("RTC") at a
purchase price of $5,899,000. This transaction consisted of 43 loans secured by
commercial real estate substantially all of which are located in the Atlanta
metropolitan area. Each of these loans are performing loans secured by first
mortgage liens. These loans are primarily collateral dependent and some of the
loans had certain documentation deficiencies. In addition, commercial real
estate loans generally have a higher risk of default than the majority of the
Association's purchased portfolio of residential real estate loans. Therefore,
based on management's analysis of the inherent risks associated with the loans
purchased, the increased concentration of the Association's portfolio in
commercial real estate loans and the condition of the commercial real estate
market at the time of the purchase, $1,249,000 was recorded as a reserve for
potential loan losses. The aforementioned commercial loans were purchased in
July 1992, in a questionable real estate market. After 32 months of payment
experience all loans remain fully performing. Therefore, based upon the
specific payment experience of these loans, overall improvement in market
conditions for commercial real estate, and improved collateral values the Asset
Classification Committee did not consider classification appropriate nor did
the Association consider these loans to be potential problem loans.
On November 29, 1992, the Association purchased a portfolio of
construction loans from the RTC. The Association purchased $11,345,000 (face
value) of construction loans at a purchase price of $10,706,000. This
transaction consisted of 216 construction loans located outside the
metropolitan Atlanta area. Management performed detailed due diligence and
determined certain loans were higher risk due to market conditions, credit
worthiness of the borrowers, and the age of the loans. This analysis indicated
that approximately $250,000 should be recorded as a reserve for potential loan
losses. The remaining discount is being accreted over the remaining life of the
loans. Because the aforementioned construction loans were at a market rate of
interest exclusive of the discount, management believes the discount is
attributable to the credit risk. Additionally, many of the construction loans
purchased associated with the $250,000 reserve discussed above have been repaid
and the balance are fully performing and the Asset Classification Committee did
not consider classification appropriate.
The Company's policy is to maintain a reserve for loan losses at a
level believed by management to be adequate to absorb potential losses.
Management considers numerous factors in determining the provision for loan
losses including among other things the estimated value of the underlying
collateral, the nature and volume of the portfolio, loan concentrations,
specific problem loans, economic conditions that may effect the borrower's
ability to repay and such other factors as, in management's judgment, deserve
recognition under existing
16
<PAGE> 17
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the reserve for loan losses.
Such agencies may require the Company to recognize additions to the reserve
based on their judgements with regard to information available to them at the
time of their examination. Management is not aware of any loans classified for
regulatory purposes as loss, doubtful, substandard, or special mention that
have not been disclosed which 1) represent or result from trends or
uncertainties which management reasonably expects will materially impact future
operating results, liquidity, or capital resources, or 2) represent material
credits about which management is aware of any information which causes
management to have serious doubts as to the ability of such borrower to comply
with the loan repayment terms.
At March 31, 1995, the reserve for loan losses as a percentage of
average loans outstanding was 1.2 percent. Charge-offs in fiscal 1995 were
$684,000 versus $104,000 in fiscal 1994 and $635,000 in 1993. The reserve for
loan losses remained virtually unchanged from $3.35 million at March 31, 1994,
to $3.36 million at March 31, 1995. In fiscal 1995, charge-offs represented .23
percent of average loans receivable versus .03 percent for fiscal 1994 and .33
percent in 1993.
NON-PERFORMING ASSETS
Non-performing assets are comprised of non-accrual loans and real
estate acquired in the settlement of loans ("REO"). Loans that become ninety
days past due are classified as non-accrual. An allowance is provided for all
interest greater than ninety days past due and such loans are classified as
nonaccrual if the financial condition of the borrower raises significant
concern with regard to the ability of the borrower to service debt in
accordance with current loan terms. REO is considered held for sale and is
carried at fair value adjusted for estimated costs to sell. Such determination
is made on an individual asset basis. Any excess of the loan balance at the
time of foreclosure over the fair value of the real estate held as collateral
is treated as a loan charge-off. A provision for estimated losses on REO is
charged to earnings when a subsequent decline in value occurs. The notable
trend relating to non-accrual loans and REO is that problem assets have
remained less than 3 percent of total assets for the previous five years. In
addition, total problem assets as a percent of total assets has been less than
one percent for the previous two years. The ratio of the reserve for loan
losses to problem assets has exceeded 150% at March 31, 1995 and 1994. At March
31, 1995, the Company had REO of only $615,000 versus REO of $671,000 at March
31, 1994. The Company had non-accrual loans of $603,000 at March 31, 1995
versus $787,000 at March 31, 1994. These loans are composed primarily of first
mortgage loans on single family residences.
17
<PAGE> 18
<TABLE>
<CAPTION>
ANALYSIS OF THE RESERVE FOR LOAN LOSSES
- --------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserve for loan losses,
beginning of year $ 3,349 $ 2,420 $ 892 $ 763 $ 757
Charge-offs:
Real estate-construction 149 - 184 - 414
Real estate-mortgage 521 101 432 305 12
Consumer and other 14 3 19 2 15
Commercial leases - - - - -
- --------------------------------------------------------------------------------------------------------------------------------
Total charge-offs 684 104 635 307 441
Recoveries 54 33 5 38 1
- --------------------------------------------------------------------------------------------------------------------------------
Net charge-offs 630 71 630 269 440
Reserve on purchased loans - - 1,528 - -
Provision for loan losses 643 1,000 630 398 446
================================================================================================================================
Reserve for loan losses, end of year $ 3,362 $ 3,349 $ 2,420 $ 892 $ 763
================================================================================================================================
Average loans outstanding for the period $279,367 $233,976 $191,178 $163,136 $150,377
================================================================================================================================
Ratio of net charge-offs to average loans .23% .03% .33% .16% .29%
- --------------------------------------------------------------------------------------------------------------------------------
ALLOCATION OF THE RESERVE FOR LOAN LOSSES
- -----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
% OF LOANS % OF LOANS % OF LOANS % OF LOANS % OF LOANS
IN EACH IN EACH IN EACH IN EACH IN EACH
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
DOLLAR TO TOTAL DOLLAR TO TOTAL DOLLAR TO TOTAL DOLLAR TO TOTAL DOLLAR TO TOTAL
(dollars in thousands) AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at end of period
applicable to:
Real Estate-
First mortgage loans $ 639 51% $ 507 43% $ 345 55% $255 77% $266 85%
Second mortgage loans 148 2% 350 4% 129 5% 120 7% 77 8%
Construction 1,008 38% 934 42% 460 31% 109 15% 54 6%
Commercial leases 296 8% 308 10% 188 8% - - - -
Consumer and other 10 1% 10 1% 10 1% 19 1% 21 1%
Unallocated 1,261 - 1,240 - 1,288 - 389 - 345 -
- -----------------------------------------------------------------------------------------------------------------------------------
Total $3,362 100% $3,349 100% $2,420 100% $892 100% $763 100%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
NON-ACCRUAL LOANS & REAL ESTATE OWNED
<TABLE>
<CAPTION>
Non-accrual, Past Due and Restructured Loans
- ----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans
Residential real estate $ 603 $ 780 $2,057 $1,051 $ 377
Commercial real estate - - - - 1,224
Installment - 7 - 87 -
- ----------------------------------------------------------------------------------------------------------------------------------
Total non-accrual 603 787 2,057 1,138 1,601
- ----------------------------------------------------------------------------------------------------------------------------------
Potential problem loans 954 - 2,165 - 2,063
Loans contractually delinquent 90
days which still accrue interest - - - - -
Troubled debt restructurings - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Total non-accrual and problem loans 1,557 787 4,222 1,138 3,664
- ----------------------------------------------------------------------------------------------------------------------------------
Real estate owned, net 615 671 2,137 3,696 3,486
- ----------------------------------------------------------------------------------------------------------------------------------
Total problem assets $2,172 $1,458 $6,359 $4,834 $7,150
- ----------------------------------------------------------------------------------------------------------------------------------
Total problem assets/Total assets .47% .46% 1.98% 1.60% 2.55%
- ----------------------------------------------------------------------------------------------------------------------------------
Total problem assets/Net loans plus
reserves .71% .65% 3.30% 2.79% 4.51%
- ----------------------------------------------------------------------------------------------------------------------------------
Reserve for loan losses/Problem assets 154.79% 229.70% 38.06% 18.45% 10.67%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
INVESTMENT SECURITIES
Federally chartered thrift institutions have the authority to invest
in various types of liquid assets. These assets include, among others, United
States Treasury and Federal Agency obligations, certain certificates of
deposit, bankers' acceptances, and Federal Funds. Subject to various
restrictions, investments may also be made in mortgage-backed securities,
commercial paper and corporate debt and equity securities. During 1995,
investment securities increased 41 percent over the prior year. At March 31,
1994 the Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". Under SFAS No. 115, the Company classifies its securities
in one of three categories: trading, available for sale, or held to maturity.
With the adoption of SFAS No. 115, the Company has reported the effect of the
change in the method of accounting for investments in debt securities as a
separate component of equity, net of income taxes. The unrealized holding gains
on securities available for sale, net of income taxes, amounted to $46,000 at
March 31, 1995. In conjunction with the adoption of SFAS No. 115, the Company
transferred securities previously accounted for at amortized cost totaling
$20,259,000 to available for sale at March 31, 1994.
Included in other securities at March 31, 1995 and 1994, are $5.0
million and $5.7 million respectively, of high quality residential mortgage
pass through certificates issued by the RTC. These securities are rated Aa2 by
Moody's and AA by Standard and Poors. The Company holds no investment
securities by any single issuer, other than mortgage-backed securities issued
by an agency of the United States government, which equal or exceed 10% of
stockholders' equity at March 31, 1995, 1994 or 1993.
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
(dollars in thousands)
- -----------------------------------------------------------------------------------------------------------
MARCH 31,
- -----------------------------------------------------------------------------------------------------------
Investment Securities Held to Maturity: 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
US Treasury and US Government Agencies $24,799 17,860 22,794
Mortgage-backed securities 10,009 11,388 35,085
Corporate bonds 10,376 2,463 7,742
Other debt securities 12,415 2,972 7,174
Equity securities - - 964
- -----------------------------------------------------------------------------------------------------------
Total $57,599 34,683 73,759
- -----------------------------------------------------------------------------------------------------------
Securities Available for Sale:
Mortgage-backed securities $14,093 17,911 14,184
Equity securities-preferred stock 6,846 2,972 -
- -----------------------------------------------------------------------------------------------------------
Total $20,939 20,883 14,184
- -----------------------------------------------------------------------------------------------------------
Total Investment Securities:
US Treasury and US Government agencies $24,799 17,860 22,794
Mortgage-backed securities 24,102 29,299 49,269
Corporate bonds 10,376 2,463 7,742
Other debt securities 12,415 2,972 7,174
Equity securities 6,846 2,972 964
- -----------------------------------------------------------------------------------------------------------
Total $78,538 55,566 87,943
- -----------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
MATURITIES OF INVESTMENT SECURITIES AND AVERAGE YIELDS
- ------------------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES HELD TO SECURITIES AVAILABLE FOR SALE
MATURITYMARCH 31, 1995 MARCH 31, 1995
- ------------------------------------------------------------------------------------------------------------
WEIGHTED ESTIMATED FAIR WEIGHTED
(dollars in thousands) AMORTIZED COST AVERAGE YIELD VALUE AVERAGE YIELD
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
US Treasury and US Government Agencies:
Within 1 year - - - -
1-5 years $24,799 7.03% - -
5-10 years - - - -
More than 10 years - - -
- ------------------------------------------------------------------------------------------------------------
Total $24,799 7.03% 0 0.00%
- ------------------------------------------------------------------------------------------------------------
Mortgage--backed securities:
Government National Mortgage
Association
Within 1 year - - - -
1 to 5 years - - - -
5 to 10 years - - - -
More than 10 years 4,168 5.61% 296 8.00%
- ------------------------------------------------------------------------------------------------------------
Total $ 4,168 5.61% $ 296 8.00%
- ------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.
Within 1 year - - - -
1 to 5 years - - 155 8.25%
5 to 10 years - - - -
More than 10 years 881 5.73% 8,878 8.60%
- ------------------------------------------------------------------------------------------------------------
Total $ 881 5.73% $ 9,033 8.59%
- ------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corporation
Within 1 year - - - -
1 to 5 years - - 345 7.03%
5 to 10 years - - 526 8.50%
More than 10 years - - 3,893 8.50%
- ------------------------------------------------------------------------------------------------------------
Total 0 0.00% $ 4,764 8.39%
- ------------------------------------------------------------------------------------------------------------
Other:
Within 1 year - - - -
1 to 5 years - - - -
5 to 10 years - - - -
More than 10 years 17,375 7.42% - -
- ------------------------------------------------------------------------------------------------------------
Total $17,375 7.42% 0 0.00%
- ------------------------------------------------------------------------------------------------------------
Corporate Debt:
Within 1 year - - - -
1 to 5 years 5,591 7.64% - -
5 to 10 years 2,861 8.40% - -
More than 10 years 1,924 7.69% - -
- ------------------------------------------------------------------------------------------------------------
Total $10,376 7.86% 0 0.00%
- ------------------------------------------------------------------------------------------------------------
Preferred Stock:
Within 1 year - - - -
1 to 5 years - - - -
5 to 10 years - - - -
More than 10 years - - 6,846 8.05%
- ------------------------------------------------------------------------------------------------------------
Total 0 0.00% $ 6,846 8.05%
- ------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES:
WITHIN 1 YEAR - - - -
1 TO 5 YEARS 30,390 7.14% 500 7.41%
5 TO 10 YEARS 2,861 8.40% 526 8.50%
MORE THAN 10 YEARS 24,348 7.07% 19,913 8.38%
============================================================================================================
TOTAL $57,599 7.17% $20,939 8.36%
============================================================================================================
</TABLE>
21
<PAGE> 22
DEPOSITS
Deposits are the Company's major funding source. During fiscal 1995,
total deposits grew 17.19 percent from $244.3 million to $286.3 million. The
Association uses traditional marketing methods to attract new customers. Its
deposit network is served out of nine branches located in the northeast,
metropolitan Atlanta counties of DeKalb, Gwinnett and Fulton. During the fiscal
year ending March 31, 1995, the number of savings accounts at the Association
grew 18 percent from 34,492 to 40,698 accounts. The majority of those
additional accounts are a result of the continued trend in consolidation of
financial institutions in the metro Atlanta market and the desire of customers
to deal with an independent, local financial institution. In addition, in April
1994, the Association purchased the insured deposits of approximately $22.1
million of a branch of Southern Federal Savings Association of Georgia from the
Resolution Trust Corporation.
The growth in deposits was primarily in certificates of deposit with
maturities one year or less which grew 54 percent from $81.2 million at March
31, 1994 to $124.7 million at March 31, 1995. Certificates of deposit $100,000
and greater were 8.6 percent of total deposits at March 31, 1994, and 9.7
percent at March 31, 1995. In addition, at March 31, 1995, 36.5 percent of
certificates of deposit with balances $100,000 and more have maturities of over
12 months. The Association does not advertise for deposits outside of its local
market area. At the same time, the weighted average interest rate on deposits
at March 31, 1995 increased 81 basis points from 4.06 percent to 4.87 percent.
Demand deposits including NOW accounts, passbook accounts and money market
accounts were 29 percent of the Association's deposits at March 31, 1995.
MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSIT
OF $100,000 OR MORE
(in thousands)
<TABLE>
<CAPTION>
CERTIFICATES OF
DEPOSIT
MARCH 31, 1995
- ------------------------------------------------------------------------
<S> <C>
3 months or less $ 2,810
Over 3 months through 6 months 4,425
Over 6 months through 12 months 10,403
Over 12 months 10,156
- ------------------------------------------------------------------------
Total outstanding $27,794
- ------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
DEPOSIT MIX
The following table exhibits the Company's composition of deposits at March 31
for the years indicated.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
At March 31, 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) AMOUNT % OF TOTAL Amount % of Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2.25% NOW accounts $ 28,244 9.9% $ 24,609 10.1%
2.50% Passbook accounts 43,761 15.3% 52,655 21.6%
2.50% Money Markets 10,836 3.8% 12,487 5.1%
Certificate accounts less than $100,000
2.75%--5.99% 87,352 30.5% 99,644 40.8%
6.00%--7.99% 74,873 26.2% 17,378 7.1%
8.00%--9.99% 13,318 4.6% 15,997 6.5%
10.00%--12.00% 137 0.0% 559 0.2%
Certificate accounts $100,000 and greater
ranging between 3.10%--12.00% 27,794 9.7% 20,968 8.6%
===============================================================================================================================
Total $286,315 100.0% $244,297 100.0%
===============================================================================================================================
AVERAGE DEPOSIT BALANCES AND RATES
The following table exhibits the average amount of deposits and weighted
average rate by the categories indicated.
- ----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
(dollars in thousands) RATE AMOUNT RATE AMOUNT RATE AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------------
Demand deposits:
Passbook accounts 2.70% $ 52,850 2.67% $ 53,784 3.58% $ 47,660
NOW checking accounts 1.71% 28,346 1.73% 22,123 2.52% 18,058
Money market accounts 1.43% 20,993 2.44% 12,729 3.08% 13,500
Certificates of deposit 5.68% 165,708 5.27% 149,569 6.10% 144,707
- ----------------------------------------------------------------------------------------------------------------------------------
Total 4.34% $267,897 4.20% $238,205 5.09% $223,925
==================================================================================================================================
</TABLE>
23
<PAGE> 24
BORROWINGS
The Federal Home Loan Bank system functions as a reserve credit
facility for thrift institutions and certain other member home financing
institutions. Tucker Federal utilizes advances from the Federal Home Loan Bank
to fund a portion of its assets. At March 31, 1995, advances were $117.1
million up from $30.8 million at March 31, 1994. The weighted average interest
rate on these borrowings was 6.77 percent and 5.76 percent at March 31, 1995
and 1994, respectively. Increased borrowings during fiscal 1995 were used
primarily to fund the origination of adjustable rate mortgages for the
portfolio. During the third quarter of fiscal 1994, the Company recorded an
extraordinary charge of $427,000 (net of income tax benefit of $261,000) due to
the early extinguishment of $7.5 million of certain Federal Home Loan Bank
advances. This enabled the Company to reduce its cost of funds.
The table below exhibits the amount of short term borrowings
outstanding as well as the weighted average rate at the end of the year. In
addition, the maximum amounts outstanding during the year with the weighted
average rate and the average balance for the year with the weighted average
rate.
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
=============================================================================================================
(dollars in thousands) At March 31, Maximum Average
- ------------------------------------------------------------------------------------------------------------
1995:
<S> <C> <C> <C>
Balances outstanding $108,643 $111,170 $49,355
Weighted average rate 6.78% 6.54% 5.79%
- ------------------------------------------------------------------------------------------------------------
1994:
Balances outstanding $3,750 $14,284 $7,435
Weighted average rate 4.00% 4.00% 3.35%
- ------------------------------------------------------------------------------------------------------------
1993:
Balances outstanding $ 500 $19,500 $7,913
Weighted average rate 3.65% 3.60% 3.63%
============================================================================================================
</TABLE>
COLLATERALIZED MORTGAGE OBLIGATIONS
In December 13, 1984, the Association issued $35,750,000 of 11.25%
bonds due November 1, 2004. These bonds were secured by FNMA mortgage-backed
securities. On November 1, 1992, the Company repaid the balance of these bonds
without penalty. The repayment of these bonds, which carried a higher interest
rate, has improved the Company's spread.
24
<PAGE> 25
SUPERVISION AND REGULATION
GENERAL
The Company is a savings and loan holding company and, as such, is
subject to regulation, examination, supervision and reporting requirements of
the OTS and the Georgia Department of Banking and Finance ("DBF"). Tucker
Federal is a federally chartered savings institution and is a member of the
Federal Home Loan Bank System (the "FHLB System"), subject to examination and
supervision by the OTS and the FDIC, and subject to regulations of the Board of
Governors of the Federal Reserve System ("Federal Reserve") governing reserve
requirements. To the extent that the following information describes statutory
and regulatory provisions, it is qualified in its entirety by reference to the
particular statutory and regulatory provisions. Any change in applicable laws
or regulations may have a material effect on the business and prospects of the
Company or the Association.
RECENT LEGISLATION
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") made a number of reforms affecting the federal depository insurance
funds and the operations of federally insured banks and savings institutions
and their affiliates. The principal provisions of the FDICIA affecting Tucker
Federal include the Qualified Thrift Lender Test (see "Federal Thrift
Regulation - Qualified Thrift Lender Test" herein), restrictions on loans to
insiders (see "Federal Thrift Regulation - Transactions with Affiliates"
herein), auditing and accounting requirements of savings institutions, real
estate lending requirements and the powers and authority of the federal
regulators, including the OTS (see "Federal Thrift Regulation - Regulatory
Capital Requirements" herein).
In FDICIA, Congress delegated broad rulemaking powers and duties to
federal financial institution regulators, including the OTS. The additional
supervisory powers and regulations mandated by FDICIA include a "prompt
corrective action" program based upon five regulatory categories in which all
banks and thrifts are placed, based in large measure on the capital position of
the institution (see "Federal Thrift Regulation - Prompt Corrective Regulatory
Action" herein). Regulators are empowered to take increasingly harsh action as
the financial condition of an institution declines. Various other sections of
FDICIA impose substantial new auditing and reporting requirements and expand
the roles of independent accountants and outside directors.
The Georgia Interstate Banking Act was amended in the 1994 session of
the General Assembly to eliminate, effective July 1, 1995, the restrictions
that limited eligible out-of-state acquirors of Georgia banks and bank holding
companies to those financial institutions which held 80% of their total
deposits within the "Southern Region" comprised of 11 southern states plus the
District of Columbia. The amended Georgia Interstate Banking Act will permit
25
<PAGE> 26
the acquisition of a Georgia financial institution or holding company by any
out-of-state bank holding company which has its "principal place of business"
in any state that would permit a Georgia-based bank holding company controlling
only a Georgia bank to acquire a bank in that state. The 1994 amendments also
include an "opt out" provision permitting the board of directors of a Georgia
bank or Georgia bank holding company to adopt a resolution to except the
institution from being acquired by an out-of-state bank holding company
pursuant to the provisions of the Georgia Interstate Banking Act.
In September 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 was enacted, generally applying to commercial banks and
traditional savings banks, not to OTS regulated savings associations. The Act
allows bank holding companies, beginning one year after the enactment of the
legislation (i.e., September 29, 1995), to acquire existing banks across state
lines, regardless of state statutes. The Act provides a concentration
limitation with a nationwide limitation of 10% of total deposits of insured
depository institutions in the United States and 30% of total deposits of
insured depository institutions in a specific state (where the state has not
set a different level). Beginning in June 1997, a bank may also engage in
interstate branching by consolidating interstate subsidiaries into branches and
merging with a bank across state lines to the extent that the applicable states
have not "opted out" of interstate branching prior to the effective date of the
branching provisions. States may also elect to permit interstate branching
prior to June 1997. The Act also would permit de novo branching to the extent
that a particular state opts into the de novo branching provisions.
In September 1994, Congress also passed the Riegle Community
Development and Regulatory Improvement Act of 1994 which provides for the
creation of a Community Development Financial Institution Fund to promote
economic revitalization and community development through investment in and
assistance to "community development financial institutions." Banks and savings
institutions may enter into a "community partnership" with a community
development financial institution. The Act also includes provisions designed to
enhance small business capital formation and to enhance disclosure with regard
to high-cost mortgages for the protection of consumers. In addition, the Act
contains more than 50 regulatory relief provisions that apply to banks and
savings institutions including the coordination of examinations by various
federal agencies, coordination of frequency and types of reports financial
institutions are required to file and reduction of examinations for well
capitalized institutions.
FEDERAL SAVINGS AND LOAN HOLDING COMPANY REGULATION
As the owner of all of the stock of Tucker Federal, the Company is a
savings and loan holding company subject to regulation by the OTS under the
Home Owners' Loan Act (the "HOLA"). As a unitary savings and loan holding
company owning only one savings institution, the Company generally is allowed
to engage and invest in a broad range of business
26
<PAGE> 27
activities not permitted to commercial bank holding companies or multiple
savings and loans holding companies, provided that Tucker Federal continues to
qualify as a "qualified thrift lender." See "- Federal Thrift Regulation -
Qualified Thrift Lender Test" herein. In the event of any acquisition by the
Company of another savings association subsidiary, except for a supervisory
acquisition, the Company would become a multiple savings and loan holding
company and would be subject to limitations on the types of business activities
in which it could engage.
The Company is prohibited from directly or indirectly (i) acquiring
control of any savings association or savings and loan holding company without
the prior written approval from the OTS; (ii) acquiring another savings
association or savings and loan holding company, or all or substantially all of
the assets of any such association or holding company, without the prior
written approval from the OTS; (iii) acquiring more than 5% of the voting stock
of any savings association or savings and loan holding company which is not a
subsidiary; or (iv) acquiring control of a financial institution the deposits
of which are not insured by the FDIC. Control of a savings association or a
savings and loan holding company is conclusively presumed to exist if, among
other things, a person acquires more than 25% of any class of voting stock of
the association or holding company or controls in any manner the election of a
majority of the directors of the association or the holding company. Control of
a savings association is rebuttably presumed to exist if, among other things, a
person (i) acquires more than 10% of any class of voting stock or more than 25%
of any class of stock of the association and (ii) is subject to any of certain
specified "control factors."
FEDERAL THRIFT REGULATION
COMMUNITY REINVESTMENT ACT
The Community Reinvestment Act of 1977 ("CRA") requires the federal
bank regulatory agencies to encourage financial institutions to meet the credit
needs of low- and moderate-income borrowers in their local communities.
Historically, each institution was required to prepare and make available a CRA
Statement for each of its local communities that included a delineation of the
communities served and a list of the specified types of credit offered to the
communities. Additionally, each institution was required to maintain for public
inspection a public comment file that included written comments from the public
on its CRA Statement or its performance in meeting community credit needs.
On May 4, 1995, the federal bank regulatory agencies published final
amended regulations promulgated pursuant to the CRA. The final regulations
eliminate the 12 assessment factors under the former regulation and replace
them with performance tests. Institutions are no longer required to prepare CRA
Statements or extensively document director participation, marketing efforts or
the ascertainment of community credit needs. Under the final rule, an
institution's size and business strategy determines the type of
27
<PAGE> 28
examination that it will receive. Large, retail-oriented institutions will be
examined using a performance-based lending, investment and service test. Small
institutions will be examined using a streamlined approach. Wholesale and
limited purpose institutions will be examined under a community development
test. All institutions have the option of being evaluated under a strategic
plan formulated with community input and pre-approved by the applicable bank
regulatory agency.
Public disclosure of written CRA evaluations of financial institutions
made by regulatory agencies is required under the CRA, to promote enforcement
of CRA requirements by providing the public with the status of a particular
institution's community reinvestment record. Tucker Federal received a
"satisfactory" rating on the most recent performance evaluation of its CRA
efforts by the OTS.
Congress and various federal agencies responsible for implementing
fair lending laws have been increasingly active with regard to discriminatory
lending practices. In March 1994, those federal agencies announced a Joint
Policy Statement detailing specific discriminatory practices prohibited under
the Equal Opportunity Act and the Fair Housing Act. In the Policy Statement,
three methods of proving lending discrimination were identified: (i) overt
evidence of discrimination, where a lender blatantly discriminates on a
prohibited basis; (ii) evidence of disparate treatment, when a lender treats
applicants differently based upon a prohibited factor, even where there is no
showing that the treatment was motivated by intention to discriminate; and
(iii) evidence of disparate impact, when a lender applies a practice uniformly
to all applicants, but the practice has a discriminatory effect, even where
such practices are neutral in appearance and applied equally. Lenders are
particularly uncertain about the application of the "disparate impact" criteria
by virtue of the vague nature of the Policy Statement. The Policy Statement
notes that "the precise contours of the law on disparate impact as it applies
to lending discrimination are under development."
FEDERAL HOME LOAN BANK SYSTEM
GENERAL Tucker Federal is a member of the FHLB System, which consists
of 12 regional Federal Home Loan Banks ("FHLBs") subject to supervision and
regulation by the Federal Housing Finance Board ("FHFB"). The FHLBs maintain
central credit facilities primarily for member institutions.
Tucker Federal, as a member of the FHLB of Atlanta, is required to
acquire and hold shares of capital stock in the FHLB of Atlanta in an amount at
least equal to the greater of: (i) 1% of the aggregate outstanding principal
amount of its unpaid residential mortgage loans, home purchase contracts and
similar obligations as of the beginning of each year, (ii) 5% of its advances
(borrowings) from the FHLB of Atlanta, or (iii) $500. Tucker Federal is in
compliance with this requirement with an investment in FHLB of Atlanta stock at
March 31, 1995 of $5,984,000.
28
<PAGE> 29
ADVANCES FROM FEDERAL HOME LOAN BANK Each FHLB serves as a reserve or
central bank for its member institutions within its assigned regions. It is
funded primarily from proceeds derived from the sale of obligations of the FHLB
System. A FHLB makes advances (i.e., loans) to members in accordance with
policies and procedures established by its Board of Directors. Tucker Federal
is authorized to borrow funds from the FHLB of Atlanta to meet demands for
withdrawals of savings deposits, to meet seasonal requirements and for the
expansion of its loan portfolio. Advances may be made on a secured or unsecured
basis depending upon a number of factors, including the purpose for which the
funds are being borrowed and existing advances. Interest rates charged for
advances vary depending upon maturity, the cost of funds to the regional FHLB
and the purpose of the borrowing. As of March 31, 1995, Tucker Federal had
advances from the FHLB of Atlanta totaling $117,143,000 at interest rates
ranging from 6.23% to 6.97%.
As required by the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA"), the FHFB adopted a final regulation on
October 15, 1991, establishing standards of community investment or service for
FHLB members to maintain continued access to long-term advances. This Community
Support Regulation ("CSR") requires a FHLB review of a member's community
support activities, including the member's public evaluation under the CRA and
information on efforts to assist first-time home buyers. Members with
"outstanding" or "satisfactory" CRA evaluations generally will be considered to
have satisfied the community support requirements of the CSR. Members with less
satisfactory CRA ratings are required to fulfill a community support action
plan, with measurable goals for the following year, in order to maintain
eligibility for long-term FHLB advances. Tucker Federal meets the standard for
community support under the CSR.
QUALIFIED THRIFT LENDER TEST
Historically, the amount of advances which might be obtained by a
member institution from the FHLB has been subject to the institution's
compliance with a qualified thrift lender ("QTL") test. Pursuant to FIRREA, as
of July 1, 1991, a savings institution was required to have "Qualified Thrift
Investments" equal to 70% of its "Portfolio Assets" on a regular basis for each
two-year period beginning July 1, 1991. In order to remain in compliance,
Tucker Federal must maintain 65% of its total Portfolio Assets in Qualified
Thrift Investments. Contrary to prior regulations, this level must be
maintained on a monthly average basis in nine out of every twelve months. For
purposes of the Qualified Thrift Lender Test, "Portfolio Assets" equal total
assets minus (i) goodwill and other intangible assets, (ii) the value of
property used by an institution in the conduct of its business and (iii) assets
of the type used to meet liquidity requirements in an amount not exceeding 20%
of the savings institution's total assets. "Qualified Thrift Investments"
include (i) loans made to purchase, refinance, construct, improve or repair
domestic residential
29
<PAGE> 30
or manufactured housing, (ii) home equity loans, (iii) securities backed by or
representing an interest in mortgages on domestic residential or manufactured
housing, (iv) obligations issued by the federal deposit insurance agencies and
(v) shares of FHLB stock owned by the savings institution. Subject to a
20%-of-Portfolio Assets limitation, Qualified Thrift Investments also include
50% of the dollar amount of domestic residential mortgage loans originated and
sold within 90 days of origination, consumer loans (up to a maximum of 10% of
Portfolio Assets), investments in certain subsidiaries, loans for the purchase
or construction of schools, churches, nursing homes and hospitals, shares of
stock issued by the FHLMC or the FNMA and 200% of investments and loans for
low-to-moderate income housing and certain other community oriented
investments.
A savings institution that does not meet the Qualified Thrift Lender
test must either convert to a bank charter or comply with the restrictions
imposed for noncompliance. If the institution converts to a bank charter, it
will continue to pay SAIF insurance assessments and any applicable exit and
entrance fees before converting to BIF insurance. If the institution does not
convert to a bank charter, it must comply with the following additional
restrictions on the operations of the institution: (i) the institution may not
engage in any new activity or make any new investment, directly or indirectly,
unless such activity or investment is permissible for both a national bank and
a savings institution; (ii) the branching powers of the institution shall be
restricted to those of a national bank; (iii) the institution generally will
not be eligible to obtain any advances from its FHLB; and (iv) payment of
dividends by the institution shall be subject to the rules regarding payment of
dividends by a national bank. A savings institution that has not converted to a
bank charter within three years after failing to qualify as a Qualified Thrift
Lender may not retain any investment or engage in any activity not permitted
for both a national bank and a savings institution and must also repay all FHLB
System advances. Tucker Federal's Qualified Thrift Investments as of March 31,
1995 were approximately $318,750,000 million, or 75.77% of its portfolio assets
at that date. Tucker Federal expects to remain in compliance with the QTL test.
LIQUIDITY REQUIREMENTS
Federal regulations require a member savings institution to maintain
an average daily balance of liquid assets (which includes cash, certain time
deposits, certain bankers' acceptances, certain corporate debt securities and
highly-rated commercial paper, securities of certain mutual funds, balances
maintained in a Federal Reserve Bank and specified United States Government,
state or federal agency obligations) equal to a monthly average of not less
than a specified percentage, currently 5%, of its net withdrawable savings
deposits plus short-term borrowings. These regulations also require each member
institution to maintain an average daily balance of short-term liquid assets at
a specified minimum percentage, currently 1%, of the total of its net
withdrawable accounts and borrowings payable in one year or less. At March 31,
1995, the short-term and long-term liquidity ratios of Tucker Federal were
1.62% and 3.69%, respectively.
30
<PAGE> 31
INSURANCE OF ACCOUNTS
GENERAL Deposits at Tucker Federal are insured to a maximum of
$100,000 for each insured depositor by the FDIC through the Savings Association
Insurance Fund ("SAIF"). As an insurer, the FDIC issues regulations, conducts
examinations and generally supervises the operations of its insured
institutions (institutions insured by the FDIC hereinafter are referred to as
"insured institutions"). Any insured institution which does not operate in
accordance with or conform to FDIC regulations, policies and directives may be
sanctioned for non-compliance. For example, proceedings may be instituted
against an insured institution if the institution or any director, officer or
employee thereof engages in unsafe or unsound practices, including the
violation of applicable laws and regulations.
The FDIC has the authority to suspend or terminate insurance of
deposits upon the finding that the institution has engaged in unsafe or unsound
practices, is operating in an unsafe or unsound condition, or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC. If
insurance of accounts is terminated by the FDIC, the deposits in the
institution will continue to be insured by the FDIC for a period of two years
following the date of termination. The FDIC requires an annual audit by
independent accountants and also periodically makes its own examinations of
insured institutions. The FDIC may revalue assets of an institution based upon
appraisals, and require establishment of specific reserves in amounts equal to
the difference between such revaluation and the book value of the assets.
Pursuant to FIRREA, an insured institution may not convert from one
insurance fund to the other without the advance approval of the FDIC. When a
conversion is permitted, each insured institution participating in the
conversion must pay an "exit fee" to the insurance fund it is leaving and an
"entrance fee" to the insurance fund it is entering. FIRREA established a
"moratorium" on such conversions, however, until the later of August 9, 1994 or
the date on which the SAIF first meets or exceeds its designated reserve ratio.
To date, the SAIF has not met the designated reserve ratio for the fund and
currently is not expected to do so until 2002.
The FDIC is allowed to approve a conversion, however, under certain
exceptions to the moratorium. FIRREA also provides, generally, that the
moratorium on insurance fund conversions shall not be construed to prohibit a
SAIF member from converting to a bank charter during the moratorium, as long as
the resulting bank remains a SAIF member during that period. Similarly, FIRREA
also provides that, under certain circumstances, bank holding companies may
merge or consolidate the assets and liabilities of savings institutions with,
or transfer such assets and liabilities to, any subsidiary bank which is a
member of the BIF with the approval of the appropriate federal banking agency
and the Federal Reserve.
31
<PAGE> 32
INSURANCE PREMIUMS AND REGULATORY ASSESSMENTS As an insurer, the FDIC
issues regulations, conducts examinations and generally supervises the
operations of its insured members. FDICIA directed the FDIC to establish a
risk-based premium system under which each premium assessed against Tucker
Federal would generally depend upon the amount of Tucker Federal's deposits and
the risk that it poses to the SAIF. The FDIC was further directed to set
semiannual assessments for insured depository institutions to maintain the
reserve ratio of the SAIF at 1.25% of estimated insured deposits. The FDIC may
designate a higher reserve ratio if it determines there is a significant risk
of substantial future loss to the particular fund. Under the FDIC's
risk-related insurance regulations, an institution is classified according to
capital and supervisory factors. Institutions are assigned to one of three
capital groups: "well capitalized," "adequately capitalized" or "under
capitalized." Within each capital group, institutions are assigned to one of
three supervisory subgroups. There are nine combinations of groups and
subgroups (or assessment risk classifications) to which varying assessment
rates are applicable. These rates range from $.23 per $100 of domestic deposits
to $.31 per $100 of domestic deposits. Tucker Federal's risk classification is
"well capitalized" based on March 31, 1995 data, and its SAIF assessment rate
is .23% for 1995, resulting in an expense of approximately $607,000 for 1995.
In February 1995, the FDIC issued a proposal to lower the deposit
insurance premium paid by BIF insured institutions to $.04 per $100 of deposits
for the highest rated institutions to $.31 per $100 of deposits for the weakest
institutions. Under the proposal, SAIF premiums would remain the same. The
proposal would cause the Company to be at a cost disadvantage to BIF insured
institutions. In addition, the FDIC is considering a range of other proposals
related to the BIF and SAIF funds. Under some of these proposals, SAIF insured
institutions could be subject to a special assessment.
In addition to deposit insurance premiums, savings institutions also
must bear a portion of the administrative costs of the OTS through an
assessment based on the level of total assets of each insured institution and
which differentiates between troubled and nontroubled savings institutions.
During 1995, Tucker Federal paid $84,000 to the OTS for such assessments.
Additionally, the OTS assesses fees for the processing of various applications.
REGULATORY CAPITAL REQUIREMENTS
GENERAL OTS capital regulations pursuant to FIRREA became effective on
December 7, 1989, and established capital standards applicable to all savings
institutions. They include a core capital requirement, a tangible capital
requirement and a risk-based capital requirement. Subject to certain exceptions
and a phase-in period, each of these capital standards must be no less
stringent than the capital standards applicable to national banks, although the
risk-based capital requirement for savings institutions may deviate from the
risk-based capital standards applicable to national banks to reflect interest
rate risk or other risks if the deviations in the aggregate do not result in
materially lower levels of capital being required of savings
32
<PAGE> 33
institutions than would be required of national banks. The following table
reflects Tucker Federal's compliance with its regulatory capital requirements
at March 31, 1995
<TABLE>
<CAPTION>
Tucker Federal Capital
OTS Requirement Excess Capital
- --------------------------------------------------------------------------------------------------------
% of % of % of
(dollars in thousands) Dollars assets Dollars assets Dollars assets
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $ 6,768 1.5% $29,616 6.6% $22,848 5.1%
Core capital 13,600 3.0% 29,616 6.6% 16,016 3.6%
Risk-based capital 25,093 8.0% 32,977 10.5% 7,884 2.5%
</TABLE>
FDICIA establishes five classifications for institutions based upon the capital
requirements. Each appropriate federal banking agency, such as the OTS for
Tucker Federal, must establish by regulation the parameters of each such
classification. Based on final regulations promulgated by the OTS, Tucker
Federal is considered well capitalized. Failure to maintain that status could
result in greater regulatory oversight or restrictions on Tucker Federal's
activities.
CORE CAPITAL AND TANGIBLE CAPITAL The OTS requires a savings
institution to maintain "core capital" in an amount not less than 3.0% of the
savings institution's adjusted total assets. Unless the OTS adopts a more
stringent definition, "core capital" means core capital as defined by the
Office of the Comptroller of the Currency for national banks (generally, common
stockholders' equity, noncumulative perpetual preferred stock and related
surplus, nonwithdrawable accounts and pledged deposits, and minority interests
in consolidated subsidiaries, less certain intangible assets), less any
unidentifiable intangible assets, (except (i) purchased mortgage servicing
rights valued at the lower of 90% of fair market value, 90% of original cost,
or the amortized book value as determined under generally accepted accounting
principles, and (ii) qualifying supervisory goodwill) and investments in
certain "non-permissible subsidiaries" as determined by regulation. The amount
of qualifying supervisory goodwill that may be included in core capital was
phased out between January 1992 and January 1995, and as of January 1, 1995,
will no longer be included in core capital. At March 31, 1995, Tucker Federal
had no supervisory goodwill.
The tangible capital requirement requires a savings institution to
maintain tangible capital in an amount not less than 1.5% of its adjusted total
assets. "Tangible capital" means core capital less (i) any intangible assets
(including supervisory goodwill, but not including readily marketable purchased
mortgage servicing rights included in core capital) and (ii) amounts invested
in, and loaned to, subsidiaries engaged in activities not permissible for a
national bank.
Prior to July 1994, a declining percentage of the aggregate amount of
investments in and extensions of credit to a savings institution's subsidiaries
engaged in activities not
33
<PAGE> 34
permissible for a national bank, with certain exceptions, may be included in
capital. Commencing July 1, 1994, however, such investments and extensions of
credit generally must be deducted from the savings institution's capital in
determining compliance with the capital requirements. Tucker Federal had no
investments in or extensions of credit to subsidiaries engaged in
non-permissible activities at March 31, 1995.
Most national banks will be required to maintain a level of core
capital of at least 100 to 200 basis points above the 3.0% minimum level.
Because OTS capital standards may not be less stringent than those for national
banks, savings institutions will be required to maintain core capital levels at
least as high as national banks. At March 31, 1995, Tucker Federal's core
capital and its tangible capital was 6.6%.
RISK-BASED CAPITAL The OTS capital regulations required savings
institutions to maintain a ratio of total capital to total risk-weighted assets
of 8.0%. Total capital, for purposes of the risk-based capital requirement,
equals the sum of core capital plus supplementary capital, which includes,
among other things, cumulative preferred stock, mandatory convertible
securities, subordinated debt and allowance for loan and lease losses of up to
1.25% of total risk-weighted assets. The amount of supplementary capital
counted towards satisfaction of the total capital requirement may not exceed
100% of core capital. In determining total risk-weighted assets for purposes of
the risk-based capital requirements, (i) each off-balance sheet item must be
converted to an on-balance sheet credit equivalent amount by multiplying the
face amount of each such item by a credit conversion factor ranging from 0% to
100% (depending upon the nature of the item); (ii) the credit equivalent amount
of each off-balance sheet item and each on-balance sheet asset must be
multiplied by a risk factor ranging from 0% to 100% (again depending on the
nature of the item); and (iii) the resulting amounts are added together and
constitute total risk-weighted assets. A proposed OTS modification of this
regulation would discontinue consideration of the factor described in clause
(i), above, in determining total risk-weighted assets for purposes of the
risk-based capital requirements. As of March 31, 1995, Tucker Federal's ratio
of total capital to total risk-weighted assets was 10.5%.
FDICIA directs the OTS and other federal banking agencies to revise
their risk-based capital standards to ensure that the standards (i) take
adequate account of interest rate risk, concentration of credit risk and the
risks of nontraditional activities, and (ii) reflect the actual performance and
expected risk of loss of multifamily mortgages. Effective January 1, 1994,
savings institutions with an "above-normal" degree of interest rate risk are
required to maintain an additional amount of capital. The test of
"above-normal" is determined by postulating a 200 basis point shift (increase
or decrease) in interest rates and determining the effect on the market value
of an institution's portfolio equity. If the decline is less than 2%, no
addition to risk-based capital is required (i.e., an institution has only a
normal degree of interest rate risk). If the decline is greater than 2%, the
institution must add additional capital equal to one-half the difference
between its measured interest rate risk and 2% multiplied by the market value
of
34
<PAGE> 35
its assets. Management believes that Tucker Federal's interest rate risk is
within the normal range. Effective January 17, 1995, the OTS also revised its
risk-based capital standards to provide that a savings association's
concentration of credit risk and risks arising from nontraditional activities,
as well as the institution's ability to manage those risks, would also be
considered in determining whether a higher individual capital requirement
should be imposed.
CAPITAL DISTRIBUTIONS In addition to the above restrictions, the OTS
has issued a regulation limiting "capital distributions" by OTS-regulated
savings institutions (the "Capital Distribution Regulation"). Capital
distributions are defined to include, in part, dividends, stock repurchases and
cash-out mergers. The Capital Distribution Regulation permits a "Tier 1"
association to make capital distributions during a calendar year up to the
higher of (i) 100% of its net income to date plus the amount that would reduce
by one-half its surplus capital ratio at the beginning of the calendar year, or
(ii) 75% of its net income over the most recent four-quarter period. Any
distributions in excess of that amount require prior OTS notice, with the
opportunity for the OTS to object to the distribution. A Tier 1 association is
defined as an association that has, on a pro forma basis after the proposed
distribution, capital equal to or greater than the OTS fully phased-in capital
requirements. An association meeting the Tier 1 capital criteria but that has
been notified that it is in need of more than normal supervision will be
treated as a Tier 2 or Tier 3 association unless the OTS determines that such
treatment is not necessary to ensure the association's safe and sound
operation.
A "Tier 2" association is authorized, without OTS approval, to make
capital distributions during a calendar year of up to 75% of its net income
over the most recent four-quarter period if its current capital satisfies the
8% fully phased-in risk-based capital requirement, and 50% of its net income
over the most recent four-quarter period if its current capital satisfies the
7.2% risk-based capital requirement that became effective on January 1, 1991.
Any prior distributions by a Tier 2 association in the preceding four quarters
must be deducted from the total amount of distributions allowable, and any
distribution in excess of these amounts must be approved in advance by the OTS.
A Tier 2 association is an association that has, on a pro forma basis after the
proposed distribution, capital equal to or in excess of its minimum capital
requirement but does not meet the fully phased-in capital requirement. The
current minimum risk-based capital requirement applicable to savings
institutions is the 8% fully phased-in capital requirement.
A "Tier 3" association is not authorized to make any capital
distribution without prior written approval from the OTS, unless the capital
distribution is consistent with the association's capital plan filed with and
approved by the OTS. A Tier 3 association is defined as an association that has
current capital less than its minimum capital requirement.
35
<PAGE> 36
The Capital Distribution Regulation requires that associations provide
the applicable OTS District Director with a 30-day advance written notice of
all proposed capital distributions, whether or not advance approval is required
by the regulation.
The Company currently pays cash dividends on its Common Stock on a
quarterly basis. Because the Common Stock of the Association is the Company's
only significant asset, however, the ability of the Company to pay dividends on
its Common Stock is dependent upon the Association paying a dividend on the
Common Stock of the Association to the Company. The Association currently is in
compliance with the fully phased-in regulatory capital requirements and
therefore is a Tier 1 institution. The Board of Directors of the Association,
however, periodically reviews its dividend policy, and any payment of cash
dividends on the Common Stock of the Association in the future will depend upon
the Association's debt and equity structure, earnings and other factors,
including economic conditions, regulatory restrictions and the tax
considerations noted below.
Earnings appropriated to bad debt reserves established for federal
income tax purposes may not be used for the payment of dividends without
potential adverse tax consequences. See "Taxation" herein.
PROMPT CORRECTIVE REGULATORY ACTION
FDICIA requires the federal banking regulators to take prompt
corrective action if an institution fails to satisfy certain minimum capital
requirements. Under FDICIA, capital requirements would include a leverage
limit, a risk-based capital requirement, and any other measure of capital
deemed appropriate by the Federal bank regulatory agencies for measuring the
capital adequacy of an insured depository institution. All institutions,
regardless of their capital levels, would be restricted from making any capital
distribution or paying any management fees that would cause the institution to
fail to satisfy the minimum levels for any of its capital requirements. An
institution that fails to meet the minimum level for any relevant capital
measure (an "undercapitalized institution") may be: (i) subject to increased
monitoring by the appropriate federal banking regulator; (ii) required to
submit an acceptable capital restoration plan within 45 days; (iii) subject to
asset growth limitations; and (iv) required to obtain prior regulatory approval
for acquisitions, branching and new lines of businesses. The capital
restoration plan must include a guarantee by the institution's holding company
that the institution will comply with the plan until it has been adequately
capitalized on average for four consecutive quarters, under which the holding
company would be liable up to the lesser of 5% of the institution's total
assets or the amount necessary to bring the institution into capital compliance
as of the date it failed to comply with its capital restoration plan. A
significantly undercapitalized institution, as well as any undercapitalized
institution that did not submit an acceptable capital restoration plan, may be
subject to regulatory demands for recapitalization, broader application of
restrictions on transactions with affiliates, limitations on interest rates
paid on deposits, restrictions on asset growth and other activities, possible
replacement of
36
<PAGE> 37
directors and officers, and restrictions on capital distributions by any bank
holding company controlling the institution. Any company controlling the
institution may also be required to divest the institution. The senior
executive officers of the institution could not receive bonuses or increases in
compensation without prior approval and the institution would be prohibited
from making payments of principal or interest on its subordinated debt. If an
institution's ratio of tangible capital to total assets falls below a level
established by the appropriate federal bank regulatory agency, which may not be
less than 2% tangible equity nor more than 65% of the minimum leverage capital
level otherwise required (the "critical capital level"), the institution will
be subject to conservatorship or receivership within 90 days unless periodic
determinations are made that forbearance from such action would better protect
the deposit insurance funds. Unless appropriate findings and certifications are
made by the appropriate bank regulatory agencies, a critically undercapitalized
institution must be placed in receivership if it remains critically
undercapitalized on average during the calendar quarter beginning 270 days
after the date it became critically undercapitalized. These new capital
requirements and applicable federal banking regulations became effective one
year after enactment of FDICIA (i.e., December 19, 1992). If a savings
institution is in compliance with an approved capital plan on the date of
enactment of FDICIA, however, it will not be required to submit a capital
restoration plan if it is undercapitalized or becomes subject to the
restrictions applicable to significantly and critically undercapitalized
institutions prior to July 1, 1994.
STANDARDS FOR SAFETY AND SOUNDNESS
FDICIA requires the Federal bank regulatory agencies to prescribe, by
regulation, standards for all insured depository institutions and depository
institution holding companies relating to: (i) internal controls, information
systems and internal audit systems; (ii) loan documentation; (iii) credit
underwriting; (iv) interest rate risk exposure; (v) asset growth; and (iv)
compensation, fees and benefits. The compensation standards would prohibit
employment contracts, compensation or benefit arrangements, stock option plans,
fee arrangements or other compensatory arrangements that would provide
excessive compensation, fees or benefits or could lead to material financial
loss. In addition, the federal bank regulatory agencies would be required to
prescribe by regulation standards specifying: (i) maximum classified assets to
capital ratios; (ii) minimum earnings sufficient to absorb losses without
impairing capital; and (iii) to the extent feasible, a minimum ratio of market
value to book value for publicly traded shares of depository institutions and
depository institution holding companies. On November 18, 1993, the Federal
bank regulatory agencies published for comment proposed regulations regarding
such standards for safety and soundness.
FEDERAL RESERVE SYSTEM REQUIREMENTS The FRB requires depository
institutions to maintain non-interest-bearing reserves against their deposit
transaction accounts, non-personal time deposits (transferrable or held by a
person other than a natural person) with an original maturity of less than one
and one-half years and certain money market deposit accounts. Federal Reserve
regulations currently require financial institutions to maintain average daily
37
<PAGE> 38
reserves equal to 3% on the first $51.9 million of net transactions, plus 10%
on the remainder. The balances maintained to meet the reserve requirements
imposed by the FRB may be used to satisfy liquidity requirements imposed by the
OTS. Members of the FHLB System also are authorized to borrow from the FRB
"discount window" subject to restrictions imposed by FRB regulations. Federal
Reserve policy, however, generally requires that a savings institution exhaust
its FHLB resources before borrowing from the Federal Reserve. Tucker Federal
had no discount window borrowings from the Federal Reserve as of March 31,
1995.
LOANS TO ONE BORROWER
In general, FIRREA subjects savings institutions to the loans-to-one
borrower restrictions applicable to national banks. With certain exceptions,
the statutory provision limiting the ability of national banks to make loans to
a single borrower is now applicable to savings institutions in the same manner
and to the same extent as it applies to national banks. In general, national
banks may make loans to one borrower equal to 15% of the bank's unimpaired
capital and unimpaired surplus, plus an additional 10% of capital and surplus
for loans secured by readily marketable collateral. The Association's loans to
one borrower limitation at March 31, 1995 under the calculation was in excess
of $5,500,000. FIRREA provides for certain exceptions to this general
requirement. A savings institution may make loans to one borrower of up to
$500,000 for any purpose. A savings institution may make loans to one borrower
of up to the lesser of $30 million or 30% of unimpaired capital and unimpaired
surplus to develop domestic residential housing units if the purchase price per
single family unit is $500,000 or less, the OTS approves the making of the
loans, the institution is and continues to be in compliance with its fully
phased-in capital requirements, the loans comply with applicable loan-to-value
requirements and loans to all borrowers made under this higher limit do not, in
the aggregate, exceed 150% of the institution's unimpaired capital and
unimpaired surplus. A savings institution may not utilize more than one of
these exceptions with respect to the same borrower. FIRREA also provides that a
savings institution can make loans to one borrower in amounts up to 50% of
unimpaired capital and unimpaired surplus to finance the sale of real property
acquired in satisfaction of debts previously contracted in good faith. However,
pursuant to its authority to impose more stringent requirements on savings
institutions to protect safety and soundness, the OTS has promulgated a rule
limiting loans to one borrower to finance the sale of real property acquired in
satisfaction of debts to 15% of unimpaired capital and surplus. The rule
provides, however, that purchase money mortgages received by a savings
institution to finance the sale of such real property do not constitute "loans"
(provided the savings institution does not advance new funds to the borrower
and the institution is not placed in a more detrimental position holding the
loan than holding the real estate) and, therefore, are not subject to the loan
to one borrower limitations. Tucker Federal is currently in compliance with the
limitations on loans to one borrower.
38
<PAGE> 39
CHANGE OF CONTROL
FIRREA extended the scope of the Change in Bank Control Act ("CIBCA")
to savings institutions and savings and loan holding companies and concurrently
repealed the Change in Savings and Loan Control Act of 1978. The CIBCA now
requires persons who at any time intend to acquire control of an insured
savings institution to give 60 days' prior written notice to the "appropriate
Federal banking agency." The OTS is the "appropriate Federal banking agency"
for savings institutions and savings and loan holding companies. Any company
that acquires such control becomes a "savings and loan holding company" subject
to registration, examination and regulation by the OTS. Control for these
purposes exists when the acquiring party has voting control of more than 25% of
the institution's voting stock or the power to direct the management or
policies of an institution.
Under existing OTS regulations, control of a savings association is
conclusively presumed to exist if, among other things, a person (including a
group acting in concert) acquires more than 25% of any class of voting stock of
the association or controls in any manner the election of a majority of the
directors of the association. Control of a savings association is rebuttably
presumed to exist if, among other things, a person (i) acquires more than 10%
of any class of voting stock or more than 25% of any class of stock and (ii)
any of the following "control factors" exist: (1) the acquiror would be one of
the two largest holders of any class of voting stock; (2) the acquiror would
hold more than 25% of the total shareholders' equity; (3) the acquiror would
hold more than 35% of the combined debt securities and shareholders' equity;
(4) the acquiror is party to any agreement (i) pursuant to which the acquiror
possesses a material economic stake resulting from a profit-sharing
arrangement, use of common names, facilities or personnel, or the provision of
essential services; or (ii) that enables the acquiror to influence a material
aspect of the management or policies, other than agreements to which the
insured institution is a party where the restrictions are customary under the
circumstances and in the case of an acquisition agreement, apply only during
the period the acquiror is seeking OTS approval to acquire the institution,
prohibit transactions between the acquiror and the insured institution and
their respective affiliates without regulatory approval during the pendency of
the application process, and contain no material forfeiture provisions
applicable in the event the acquisition is not approved or not approved by a
specified date; (5) the acquiror would have the ability, other than through the
holding of revocable proxies, to direct the votes of more than 25% of a class
of the voting stock or to vote more than 25% of a class of voting stock in the
future upon the occurrence of a future event; (6) the acquiror would have the
power to direct the disposition of more than 25% of the voting stock in a
manner other than a widely dispersed or public offering; (7) the acquiror
and/or the acquiror's representatives or nominees would constitute more than
one member of the board of directors, or (8) the acquiror or a nominee or
management official of the acquiror would serve as the chairman of the board of
directors, chairman of the executive committee, chief executive officer, chief
financial officer or in any position with similar policy-making authority.
There are also rebuttable presumptions in the regulations concerning
39
<PAGE> 40
whether a group "acting in concert" exists, including presumed action in
concert among members of an "immediate family."
NONRESIDENTIAL REAL ESTATE LOANS LIMIT
The pre-FIRREA limit for investments by a savings institution in
nonresidential real estate (i.e., loans secured by nonresidential real
property) was 40% of assets. The post-FIRREA limit is 400% of the savings
institution's total capital. Management of Tucker Federal believes that this
limit does not affect Tucker Federal's lending activities.
INVESTMENT PORTFOLIO POLICY
Effective April 1, 1990, the OTS implemented a rule to clarify the
application of GAAP to investments held by savings institutions. Under this
rule, savings institutions, including Tucker Federal, are required to classify
their securities in one of three categories: securities purchased or held for
investment, for sale or for trading. Securities held for investment may be
carried at amortized cost if the institution has documented the intent and
ability to hold the securities until maturity. Those being held for sale must
be carried at the lower of cost or market. Those securities held for trading
must be valued at market value. Furthermore, the rule requires the boards of
directors of savings institutions to adopt an investment policy and monitor the
institution's compliance with the policy.
CORPORATE DEBT SECURITIES BELOW INVESTMENT GRADE
FIRREA prohibits savings institutions and their subsidiaries from
acquiring or retaining any corporate debt security that, at the time of
acquisition, is not rated in one of the four highest rating categories by at
least one nationally recognized statistical rating organization. A transition
rule provides that any such security held on August 9, 1989 must be divested as
quickly as can be prudently done, as determined by the FDIC, consistent with
safety and soundness and in light of relevant market conditions, and in any
event not later than July 1, 1994. No such securities may be acquired after
August 9, 1989, other than by an affiliate (or in the case of a mutual savings
institution, a separately capitalized subsidiary). Affiliates, by definition,
must be separately capitalized and will be subject to appropriate "fire wall"
protections under other provisions of law, such as Section 23A of the Federal
Reserve Act. Legislative history states the Congressional intent that
securities subject to divestment under this provision not be treated, for
regulatory accounting purposes, as securities "held for sale." Tucker Federal
does not own any corporate debt securities below investment grade.
BROKERED DEPOSITS
Under current law, as interpreted by the FDIC, an insured depository
institution that is not "well capitalized" may not accept funds obtained
directly or indirectly by or through a
40
<PAGE> 41
deposit broker for deposit into one or more deposit accounts. The FDIC is
authorized to waive this prohibition on a case-by-case basis but only upon
finding that the institution is adequately capitalized and that such use of
brokered deposits does not constitute an unsafe or unsound practice. FDIC
regulations define a "well capitalized depository institution" as an
institution that (i) has a ratio of total capital to risk-weighted assets of
not less than 10%; (ii) has a ratio of Tier 1 capital to risk-weighted assets
of not less than 6%; (iii) has a ratio of Tier 1 capital to total book assets
of not less than 5%; and (iv) is not subject to any written agreement, order,
capital directive, or prompt corrective action directive issued by the OTS to
meet and maintain a specific capital level for any measure of capital.
TRANSACTIONS WITH AFFILIATES
Pursuant to FIRREA, savings institutions must comply with Sections 23A
and 23B of the Federal Reserve Act ("Sections 23A and 23B") relative to
transactions with affiliates in the same manner and to the same extent as if
the savings institution were a Federal Reserve member bank. Generally, Sections
23A and 23B: (i) limit the extent to which the insured association or its
subsidiaries may engage in certain covered transactions with an affiliate to an
amount equal to 10% of such institution's capital and surplus, and contain an
aggregate limit on all such transactions with all affiliates in an amount equal
to 20% of such capital and surplus and (ii) require that all such transactions
be on terms substantially the same, or at least as favorable to the institution
or subsidiary, as those provided to a non-affiliate. The term "covered
transaction" includes the making of loans, purchase of assets, issuance of a
guarantee and other similar types of transactions.
Four additional rules apply to savings institutions under FIRREA.
Tucker, a savings institution may not make any loan or other extension of
credit to an affiliate unless that affiliate is engaged only in activities
permissible for bank holding companies. Second, a savings institution may not
purchase or invest in securities issued by an affiliate (other than securities
of a subsidiary). Third, a savings institution and its subsidiaries may not
purchase a low quality asset from an affiliate unless the institution or
subsidiary, pursuant to an independent credit evaluation, committed to purchase
the assets prior to the time the asset was acquired by the affiliate. Finally,
the OTS may, for reasons of safety and soundness, impose more stringent
restrictions on savings institutions but may not exempt transactions from or
otherwise abridge Sections 23A or 23B. Exemptions from Sections 23A or 23B may
be granted only by the Federal Reserve as is currently the case with respect to
all FDIC-insured banks.
FIRREA also makes Section 22(h) of the Federal Reserve Act, governing
loans to insiders, applicable to savings institutions and authorizes the OTS to
impose additional loan-to-insider restrictions upon savings institutions on a
case-by-case basis. In general, Section 22(h), which was substantially amended
by the FDICIA, prohibits a bank from making loans or extending credit: (i) to
any executive officer, director or principal shareholder of the bank,
41
<PAGE> 42
the bank's holding company or any subsidiary of the bank's holding company or
to any related interest of such a person, where the loan amount or extension of
credit, when aggregated with other loans to that person and all related
interests of that person, would exceed 15% of a bank's unimpaired capital and
unimpaired surplus for loans that are not fully secured by "readily marketable
collateral" and an additional 10% of such capital and surplus for loans fully
secured by such collateral; and (ii) to any of such executive officers,
directors, principal shareholders or related interests in an amount exceeding
that prescribed in a regulation issued by the appropriate Federal banking
agency, unless the loan or extension of credit is pre-approved by a majority of
the entire board of directors with the interested party abstaining from
participating directly or indirectly in the voting. The current "prior
approval" aggregate loan amount per insider under the Federal Reserve's
applicable regulation is the higher of $25,000 or 5% of the institution's
unimpaired capital and unimpaired surplus.
Section 22(h) also (i) requires that all such insider loans or
extensions of credit be made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons and may not involve more than the normal risk
of repayment or present other unfavorable features and (ii) establishes an
aggregate limit on the total amount of credit that a bank may extend to all
executive officers, directors, principal shareholders and related interests,
which limit is equal to the bank's unimpaired capital and unimpaired surplus.
Section 22(h) authorizes the Federal Reserve to establish a more stringent
aggregate limit by regulation and to make exceptions to the aggregate limit
under certain circumstances. Additionally, with certain exceptions, Section
22(h) prohibits a bank from paying an overdraft on an account of an executive
officer or director at such bank. FDICIA also makes Section 22(g) of the
Federal Reserve Act applicable to savings institutions. Section 22(g) sets
forth additional restrictions on a bank's ability to extend credit to its
executive officers. At March 31, 1995, Tucker Federal was in compliance with
the restrictions on loans to insiders.
REGULATORY AND CRIMINAL ENFORCEMENT PROVISIONS OF FIRREA
FIRREA contains several changes to existing regulatory and criminal
enforcement provisions. The major applicable provisions expand the reach of the
bank regulatory agencies' civil enforcement authority to include, in addition
to directors, officers, employees and agents, any "institution-affiliated
party" of a depository institution; clarify and enhance the authority of the
agencies to order restitution or reimbursement in a cease-and-desist order;
unify removal provisions by the regulators and allow the agencies to proceed
with a removal or prohibition action when an institution has been harmed
without requiring the agencies to quantify the harm or prejudice; authorize the
agencies to take enforcement actions against culpable institution-affiliated
parties who depart from an institution within six years of the departure date;
increase the maximum amount for civil money penalties ("CMPs") and expand the
grounds for imposing them; increase the criminal penalty to up to $1 million
and five years' imprisonment for violations of a removal order; impose a
three-tier level of CMPs for both failure to file or
42
<PAGE> 43
the late filing of call reports and other information and filing any false
or misleading report or information; permit the FDIC to take particular
enforcement actions against savings institutions if, after the FDIC notifies
the OTS, the OTS does not itself take such action; require publication of
formal enforcement orders issued by the agencies; shorten the period from 120
days to 30 days for agency notice for termination of deposit insurance; and
increase the maximum prison term for banking-related offenses. Additionally,
the Comprehensive Thrift and Bank Fraud Prosecution and Taxpayer Recovery Act
of 1990 further enhanced the ability of financial institution regulators and
the United States Department of Justice to prosecute financial
institution-related crimes and to recover from those involved in such crimes.
CONSUMER PROTECTION AND OTHER LAWS AND REGULATIONS
Tucker Federal is also subject to various laws and regulations dealing
generally with consumer protection matters including without limitation the
Equal Credit Opportunity Act and Regulation B, the Electronic Funds Transfer
Act and Regulation E, the Truth in Lending Act and Regulation Z, the Truth in
Savings Act and Regulation DD, the Expedited Funds Availability Act and
Regulation CC, the Association Secrecy Act and fair housing laws. Tucker
Federal may be subject to potential liability under these laws and regulations
for material violations.
STATE REGULATION
As a federally chartered savings institution, Tucker Federal generally
is not subject to those provisions of Georgia law governing state chartered
financial institutions or to the jurisdiction of the Department of Banking and
Finance ("DBF"). The DBF interprets the Georgia Bank Holding Company Act,
however, to require the prior approval of the DBF for any acquisition of
control of any savings institution (whether chartered by state or federal
authority) located in Georgia.
The DBF also interprets the Georgia Bank Holding Company Act to
include savings and loan holding companies as "bank holding companies", thus
giving the DBF the authority to make examinations of the Company and any
subsidiaries and to require periodic and other reports. Existing DBF
regulations do not restrict the business activities or investments of the
Company or Tucker Federal.
State usury laws are applicable to federally insured institutions with
regard to loans made within Georgia. Generally speaking, Georgia law does not
establish ceilings on interest rates although certain specialized types of
lending in which Tucker Federal engages, such as making loans of $3,000 or
less, are subject to interest rate limitations.
43
<PAGE> 44
PERSONNEL As of March 31, 1995, the Company and the Association had 339
employees, including 296 full-time and 43 part-time employees. The employees
are not represented by a collective bargaining unit. The Company and the
Association believe a favorable relationship exists with their employees.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.
Not Applicable.
ITEM 2. PROPERTIES
The principal executive offices of the Company are located at 4305
Lynburn Drive in Tucker, Georgia and are owned by the Association.
The main office of Tucker Federal Savings and Loan Association is
located at 2355 Main Street in Tucker, Georgia. The Association conducts its
business through nine branch locations in DeKalb, Fulton and Gwinnett counties
in Georgia. Two of the branch locations are leased under operating leases. The
Roswell office lease expires in November 1995 and has no option to renew. The
Northlake office ground lease expires in 2002 and has an option to renew. The
remaining branch properties are owned by the Association. In addition, the
Association purchased property and is constructing another branch located in
Cherokee County, Georgia, called Towne Lake. Management anticipates this
location will be completed and open for business within the year.
The Prime Lending division of Tucker Federal operates eleven mortgage
origination offices located Aiken, Columbia, North Augusta and Sumter, South
Carolina, Jacksonville and St. Augustine, Florida, Augusta, Hinesville,
Savannah and Warner Robins Georgia and Chattanooga, Tennessee. Each of these
offices are leased under operating leases. The Augusta office is under a month
to month lease. The Savannah office has a three year lease which expires in
1997 and has an option to renew. The Hinesville office has a five year lease
which expires in 1998 and has an option to terminate. The Warner Robins office
lease expires in 1995 and has an option to renew. The Chattanooga office lease
expires in 1995. The Aiken office lease expires in 1996. The St. Augustine and
Jacksonville office leases expire in 1996.
Atlanta Mortgage Services ("AMS") has leased offices located in
Atlanta and Stockbridge, Georgia. The AMS office in Atlanta is leased under an
operating lease until 1998 and has an option to renew. The Stockbridge lease
expires in 1996 and is renewable.
AT&T Global Information Systems maintains all accounting records for
the Association's deposits and loans. The Association's general ledger and
other accounting needs are met with micro computers. The net book value of the
Company's investment in premises and equipment less accumulated depreciation
totaled $8.3 million at March 31, 1995. See Note 4 to Consolidated Financial
Statements.
44
<PAGE> 45
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company,
the Association or any subsidiary is a party or to which any of their property
is subject, other than ordinary, routine litigation incident to their
respective businesses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended March 31, 1995.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information contained under the section captioned "Common Stock
Prices and Dividends" in the Company's 1995 Annual Report to Stockholders ("the
Annual Report") is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information contained in the table captioned "Selected
Consolidated Financial Data" in the Annual Report is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information contained in the section captioned "Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations" in the Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and the Report of Independent
Public Accountants contained in the section captioned "Financial Statements" in
the Annual Report, and the supplementary financial data contained in the
section captioned "Selected Quarterly Financial Data (Unaudited)" in the Annual
Report, are incorporated herein by reference. The report of Independent Public
Accountants on the Consolidated Financial Statements for the years ended March
31, 1994 and 1993 is included as exhibit 13.1.
45
<PAGE> 46
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
KPMG Peat Marwick LLP was engaged as independent accountants to the
Company for the fiscal year ended March 31, 1994. On June 28, 1994, the Board
of Directors changed the Company's independent accountants for the fiscal year
ended March 31, 1995 from KPMG Peat Marwick LLP to Arthur Andersen LLP, which
appointment was ratified by the shareholders of the Company.
The accountants report on the financial statements of the Company for
the fiscal year ended March 31, 1994 did not contain an adverse opinion or
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope or accounting principles. The accountants report was modified, in
fiscal year 1994, due to the adoption of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes" on April 1, 1993, and
the adoption of SFAS No. 115, " Accounting for Certain Investments in Debt and
Equity Securities" at March 31, 1994. For the fiscal year ended March 31, 1994
and the subsequent interim period preceding such change of independent
accountants, there were no disagreements with KPMG Peat Marwick LLP on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure. During the fiscal year ended March 31, 1994 and
the subsequent interim period preceding such change of independent accountants,
there were no "reportable events" as that term is defined in the regulations of
the Commission.
In addition, the Company did not during its two most recent fiscal
years prior to engaging Arthur Andersen LLP consult with Arthur Andersen LLP
regarding the application of accounting principles to a specific transaction or
the type of audit opinion that might be rendered on the financial statements of
the Company.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning the Board of Directors and the Executive
Officers of the Company and the Association, the information contained under
the section captioned "PROPOSAL ONE-Election of Directors" in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders (the "Proxy
Statement") is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the section captioned "PROPOSAL
ONE-Election of Directors; Compensation of Executive Officers" in the Proxy
Statement is incorporated herein by reference.
46
<PAGE> 47
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the sections captioned "PROPOSAL
ONE-Election of Directors" and "Ownership of Equity Securities", of the Proxy
Statement are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the section captioned "PROPOSAL
ONE-Election of Directors" and "Compensation of Executive Officers - Certain
Transactions" of the Proxy Statement is incorporated herein by reference.
47
<PAGE> 48
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
A. Financial Statements
1. Reports of Independent Public Accountants
Arthur Andersen LLP
KPMG Peat Marwick LLP
2. Eagle Bancshares, Inc. and Subsidiaries
Consolidated Statements of Financial Condition as of
March 31, 1995 and 1994
Consolidated Statements of Operations for the Years
Ended March 31, 1995, 1994, and 1993
Consolidated Statements of Stockholders' Equity for
the Years Ended March 31, 1995, 1994, and 1993
Consolidated Statements of Cash Flows for the Years
Ended March 31, 1995, 1994, and 1993
Notes to Consolidated Financial Statements
B. FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted as the required information is either
inapplicable or included in the Notes to Consolidated Financial Statements.
48
<PAGE> 49
C. Exhibits
3 (a) Restated Articles of Incorporation of Eagle
Bancshares, Inc. (Incorporated by reference from
Registrant's report on Form 10-Q for the quarter
ended December 31, 1988 filed as Exhibit 3).
3 (b) Bylaws of Eagle Bancshares, Inc. as
amended October 3, 1991. (Incorporated
by reference from the Registrant's report
on Form 10-Q for the quarter ended
September 30, 1991 filed as Exhibit 3(b)).
3 (c) Articles of Amendment to Restated Articles of
Incorporation adopted September 19, 1991
(Incorporated by reference from Registrant's report
on Form 10-Q for the quarter ended September 30,
1991 filed as Exhibit 3 (a)).
10 (a) Restatement and Amendment by the Entirety of the
Tucker Federal Savings and Loan Association Profit
Sharing Plan (Incorporated by reference from the
Registrant's Annual Report on Form 10-K for the year
ended March 31,1988 filed as Exhibit 10 (a)).
10 (b) Eagle Bancshares, Inc. Stock Option and
Incentive Plan (Incorporated by reference
from the Registrant's Registration
Statement on Form S-8, filed as
Exhibit 10.1) *
10 (c) Tucker Federal Savings and Loan Association
Employee Stock Ownership Plan (Incorporated by
reference from the Registrant's Annual Report on
Form 10-K for the year ended March 31, 1990 filed as
Exhibit 10 (c)). *
10 (d) Second Amendment to the Tucker Federal Savings
and Loan Association Profit
49
<PAGE> 50
Sharing Plan (Incorporated by reference from the
Registrant's Annual Report on Form 10-K for the
year ended March 31, 1990 filed as Exhibit 10 (d)).*
10 (e) Employment Agreement between Richard B. Inman, Jr.
and Tucker Federal Savings and Loan Association*
10 (f) Employment Agreement between Betty Petrides
and Tucker Federal Savings and Loan Association *
10 (g) Employment Agreement between Conrad J. Sechler, Jr.
and Eagle Service Corporation*
10 (h) Tucker Federal Savings and Loan Association
Directors' Retirement Plan*
10 (i) Eagle Bancshares, Inc. 1994 Directors Stock Option Incentive
Plan*
11 Computation of per share earnings
13 Eagle Bancshares, Inc. 1995 Annual Report to Stockholders
13.1 KPMG Peat Marwick LLP report on March 31, 1994 and 1993
consolidated Financial Statements
21 Subsidiaries of the Registrant
23 Consents of Independent Public Accountants
a) Arthur Andersen LLP
27 Financial Data Schedule (for SEC use only)
* THE REFERENCED EXHIBIT IS A COMPENSATORY CONTRACT, PLAN OR
ARRANGEMENT.
d. Reports on Form 8-K
None
50
<PAGE> 51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly issued this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
EAGLE BANCSHARES, INC.
June 28, 1995 By: /s/ Conrad J. Sechler, Sr.
---------------------------
Conrad J. Sechler, Sr.
Chief Executive Officer and
Duly Authorized Representative
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
June 28, 1995 By: /s/ Zelma B. Martin
--------------------
Zelma B. Martin
Principal Financial and
Accounting Officer
June 28, 1995 By: /s/ Conrad J. Sechler, Sr.
---------------------------
Conrad J. Sechler, Sr.
Chairman of the Board
June 28, 1995 By: /s/ Charles J. Alford, Jr.
---------------------------
Charles J. Alford, Jr.
Director
June 28, 1995 By: /s/ Richard B. Inman, Jr.
---------------------------
Richard B. Inman, Jr.
Director
June 28, 1995 By: /s/ Conrad J. Sechler, Jr.
---------------------------
Conrad J. Sechler, Jr.
Director
51
<PAGE> 52
EAGLE BANCSHARES, INC.
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page No.
- ------- ----------- --------
<S> <C>
3 (a) Restated Articles of Incorporation of
Eagle Bancshares, Inc. (Incorporated
by reference from Registrant's report
on Form 10-Q for the quarter ended
December 31, 1988 filed as Exhibit 3).
3 (b) Bylaws of Eagle Bancshares, Inc. as
amended October 3, 1991. (Incorporated
by reference from the Registrant's report
on Form 10-Q for the quarter ended
September 30, 1991 filed as Exhibit 3(b)).
3 (c) Articles of Amendment to Restated Articles of
Incorporation adopted September 19, 1991
(Incorporated by reference from Registrant's
report on Form 10-Q for the quarter ended
September 30, 1991 filed as Exhibit 3 (a)).
10 (a) Restatement and Amendment by the Entirety of the
Tucker Federal Savings and Loan Association
Profit Sharing Plan (Incorporated by reference
from the Registrant's Annual Report on Form 10-K
for the year ended March 31,1988 filed as Exhibit 10 (a)).
10 (b) Eagle Bancshares, Inc. Stock Option and
Incentive Plan (Incorporated by reference
from the Registrant's Registration
Statement on Form S-8, filed as
Exhibit 10.1) *
10 (c) Tucker Federal Savings and Loan
Association Employee Stock Ownership
Plan (Incorporated by reference from
the Registrant's Annual Report on Form
10-K for the year ended March 31, 1990 filed as
Exhibit 10 (c)). *
</TABLE>
52
<PAGE> 53
<TABLE>
<S> <C>
10 (d) Second Amendment to the Tucker Federal
Savings and Loan Association Profit
Sharing Plan (Incorporated by reference
from the Registrant's Annual Report on Form
10-K for the year ended March 31, 1990 filed as
Exhibit 10 (d)). *
10 (e) Employment Agreement between Richard B. Inman, Jr.
and Tucker Federal Savings and Loan Association*
10 (f) Employment Agreement between Betty Petrides
and Tucker Federal Savings and Loan Association *
10 (g) Employment Agreement between Conrad J. Sechler, Jr.
and Eagle Service Corporation*
10 (h) Tucker Federal Savings and Loan Association
Directors' Retirement Plan*
10 (i) Eagle Bancshares, Inc. 1994 Directors Stock Option Incentive Plan*
11 Computation of per share earnings
13 Eagle Bancshares, Inc. 1995 Annual Report to Stockholders
13.1 KPMG Peat Marwick LLP report on March 31, 1994 and 1993
consolidated Financial Statements
21 Subsidiaries of the Registrant
23 Consents of Independent Public Accountants
a) Arthur Andersen LLP
27 Financial Data Schedule (for SEC use only)
</TABLE>
53
<PAGE> 1
EXHIBIT 11. COMPUTATION OF PER SHARE EARNINGS
Weighted average common and common equivalent shares for the years ended March
31, 1995, 1994, and 1993 are computed as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------------------------
<S> <C> <C> <C>
Primary:
Net income $2.68 $3.41 $2.76
- --------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 1,529,662 1,484,412 1,474,000
Common shares assumed outstanding to reflect dilutive
effect of common stock options 20,668 45,853 0
- --------------------------------------------------------------------------------------------------------------------
Weighted average shares and common equivalent shares
outstanding 1,550,330 1,530,265 1,474,000
- --------------------------------------------------------------------------------------------------------------------
Fully diluted:
Net income $2.68 $3.40 $2.76
- --------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 1,529,662 1,484,412 1,474,000
Common shares assumed outstanding to reflect dilutive
effect of common stock options 22,734 47,184 0
- --------------------------------------------------------------------------------------------------------------------
Weighted average shares and common equivalent shares
outstanding 1,552,396 1,531,596 1,474,000
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The dilutive effect of common stock equivalents on earnings per share is less
than 3% for the year ending March 31, 1995; therefore, simple weighted average
shares outstanding are used in computing earnings per share.
54
<PAGE> 1
EXHIBIT 13
________________________________________________________________________________
EAGLE BANCSHARES, INC.
1995 ANNUAL REPORT
________________________________________________________________________________
Table of Contents
<TABLE>
<S> <C>
Corporate Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . 3
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Segment Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Comparison of Fiscal Years ended March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Analysis of Earnings Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Net Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Provision for Loan Losses and Asset Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Other Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Income Tax Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Investment Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Loan Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Real Estate Held for Development and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Deposits and Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Comparison of Fiscal Years ended March 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Comparison of Fiscal Years ended March 31, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Impact of Inflation and Changing Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Common Stock Prices and Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Selected Quarterly Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Consolidated Financial Statements as of March 31, 1995, 1994
and 1993 together with Auditors's Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
Form 10-K
A copy of Form 10-K, including financial statement schedules, as filed with the
Securities and Exchange Commission, will be furnished without charge to
stockholders as of the record date upon written request to:
Secretary
Eagle Bancshares, Inc.
4305 Lynburn Drive
Tucker, Georgia 30084
<PAGE> 2
________________________________________________________________________________
CORPORATE PROFILE
________________________________________________________________________________
Eagle Bancshares, Inc. ("Eagle", "Eagle Bancshares" or the "Company"), a
unitary savings and loan holding company, was formed as a Georgia corporation
in September 1985 to acquire 100% of the common stock of Tucker Federal Savings
and Loan Association ("Tucker", "Tucker Federal", or the "Association").
Tucker Federal is a federally chartered stock savings and loan
association, which converted from mutual to stock form in March 1986. Tucker
Federal was organized in 1956 and is headquartered in Tucker, Georgia. Its
deposits are federally insured by the Savings Association Insurance Fund of the
Federal Deposit Insurance Corporation. Tucker Federal has branch locations in
Dekalb, Fulton, Cherokee and Gwinnett Counties, Georgia.
Eagle Bancshares is primarily engaged in two interrelated businesses:
mortgage banking and retail banking. This consists of taking deposits from the
general public and making loans secured by first mortgage liens on residential
and other real estate and consumer loans and commercial leases. In July 1989,
Eagle Service Corporation, a wholly owned subsidiary of the Association, began
originating and selling single family first mortgage loans as Atlanta Mortgage
Services. In November 1992, Tucker Federal acquired the Prime Lending mortgage
banking operations in Augusta, Savannah and Warner Robins, Georgia, and North
Augusta, South Carolina.
Eagle Real Estate Advisors, a wholly owned subsidiary of the Company,
was formed in October 1991 as a real estate services subsidiary. Eagle Real
Estate Advisors performs third party real estate brokerage and development
activities and assists Tucker Federal and Eagle Bancshares in its real estate
acquisition an disposition activities.
1
<PAGE> 3
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL DATA
------------------------------------------------------------------------------
(dollars in thousands except per share data)
Year Ending March 31,
------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income $ 16,711 $ 14,997 $ 12,200 $ 7,793 $ 5,819
Provision for loan
losses 643 1,000 630 398 446
Other income 6,347 9,250 5,794 1,866 1,914
Other expense 16,035 14,740 11,026 6,833 6,214
Income after tax 4,101 5,318 4,069 1,638 778
Net income 4,101 5,211 4,069 1,638 778
------------------------------------------------------------------------------
PER SHARE DATA:
Income after tax-
primary(1) $ 2.68 $ 3.48 $ 2.76 $ 1.07 $ 0.50
Income after tax-fully
diluted(1) 2.68 3.47 2.76 1.07 0.50
Net income-primary(2) 2.68 3.41 2.76 1.07 0.50
Net income-fully
diluted 2.68 3.40 2.76 1.07 0.50
Dividends .94 .62 .40 .10 NA
Book value 21.79 20.40 17.52 15.11 13.88
------------------------------------------------------------------------------
FINANCIAL RATIOS (%)
Net interest margin-
taxable equivalent 4.79 4.80 4.12 2.80 2.12
Return on average
assets(1) 1.08 1.62 1.32 .57 .27
Return on average
equity(1) 12.71 18.76 16.68 7.46 3.68
Equity to assets 7.35 9.62 8.03 7.41 7.72
Dividend payout 35.07 18.18 14.49 9.35 NA
------------------------------------------------------------------------------
ASSET QUALITY RATIOS (%)
Non-performing assets/
Total assets 0.27 0.46 1.30 1.60 1.82
Reserve for loan
losses/
Net loans plus
reserves 0.96 1.36 1.13 0.51 0.48
Reserve for loan
losses/
Non-performing assets 276.03 229.70 57.70 18.45 15.00
------------------------------------------------------------------------------
MARKET PRICE:
High $ 26 1/2 $ 24 3/4 $ 18 1/2 $ 9 $ 7 1/4
Low 19 1/2 15 3/4 8 6 3 3/4
------------------------------------------------------------------------------
AT MARCH 31,
Total assets $457,317 $320,385 $321,597 $302,17 $279,860
Loans, net(3) 345,126 243,367 213,577 172,449 157,744
Reserve for loan losses 3,362 3,349 2,420 892 763
Non-performing assets 1,218 1,458 4,194 4,834 5,087
Deposits 286,315 244,297 228,633 219,825 206,132
Borrowings 119,953 30,750 47,500 55,992 48,694
Shareholders' equity 33,636 30,832 25,823 22,376 21,604
------------------------------------------------------------------------------
</TABLE>
(1) Before extraordinary item and cumulative effect of accounting
change.
(2) Weighted average shares of common stock outstanding include
dilutive effects for fiscal 1994 only.
(3) Includes loans receivable held for sale.
2
<PAGE> 4
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
OVERVIEW
Eagle Bancshares, Inc.'s principal subsidiary, Tucker Federal
Savings and Loan Association, is the largest thrift in the
metropolitan Atlanta area and the third largest in Georgia in
terms of asset size. Eagle Bancshares also has a wholly owned
subsidiary, Eagle Real Estate Advisors, which provides third
party real estate brokerage and development expertise.
Net income for fiscal 1995 was $4,101,000 versus
$5,211,000 for fiscal 1994, a decrease of 21 percent. This
decrease is largely due to declining fees earned from
mortgage banking operations and fewer gains on the sale of
mortgage-backed securities. Earnings per share declined from
$3.41 For the year ending March 31, 1994, to $2.68 For the
year ending March 31, 1995. The Company achieved a return on
average assets of 1.08 Percent for fiscal 1995 versus 1.62
Percent for fiscal 1994. Return on average equity was 12.71
Percent for fiscal 1995 versus 18.76 Percent for fiscal 1994.
The Board of Directors increased quarterly dividends
from $.22 Per share for the first quarter to $.25 Per share
for the fourth quarter. Although this increase occurred
during a year of declining earnings, management believes that
the current 35 percent dividend payout ratio provides
significant protection for this level of dividends in the
future.
As a result of rising interest rates during fiscal
1995, the Company experienced a significant decline in
mortgage banking activities in all of its markets. Management
introduced alternate strategies to increase core earnings.
These strategies included increasing assets by retaining
permanent adjustable rate mortgages, maintaining steady
construction and lease originations and investing in three
real estate developments. In addition, during the year, as
mortgage origination activity declined, management initiated
two reductions in force in the mortgage banking segment.
The Company's total assets grew 43 percent from $320
million at March 31, 1994, to $457 million at March 31, 1995.
This asset growth was accomplished primarily by electing to
retain $83 million of adjustable rate mortgages for our
portfolio. This growth was funded with additional advances
from the Federal Home Loan Bank
3
<PAGE> 5
- --------------------------------------------------------------------------------
("FHLB") and deposits. During the year, deposits grew 17
percent from $244 million at March 31, 1994, to $286 million
at March 31, 1995. Over the same period, the Company
increased its advances from the Federal Home Loan Bank $86
million from $31 million at March 31, 1994, to $117 million
at March 31, 1995. The balance of the asset growth was funded
with the increase in shareholders' equity which grew from $31
million at March 31, 1994, to $34 million at March 31, 1995.
The result of these strategic actions was to increase
net interest income which somewhat mitigated the decline in
mortgage banking fees. Net interest income grew from
$14,997,000 in 1994 to $16,711,000 in 1995. The Company's net
interest margin remained virtually unchanged at 4.79 Percent;
however, management expects the net interest margin to
decline throughout fiscal 1996.
At March 31, 1995, non-performing assets represented
.27 Percent of total assets versus .46 Percent for the year
ending March 31, 1994. At the same time, the reserve for loan
losses stayed at $3.3 million which represented 276 percent
of non-performing assets. At March 31, 1994, the reserve for
loan losses stood at $3.3 million which represented 230
percent of non-performing assets.
Non-interest income declined $2.9 million from
$9,250,000 for fiscal 1994 to $6,347,000 for fiscal 1995.
This decline was primarily caused by the $2.9 million decline
in mortgage production fees which fell from $6,100,000 in
fiscal 1994 to $3,236,000 in fiscal 1995. These fees declined
as a result of lower origination volume as well as
intensified competition for mortgage originations.
Other expenses increased 8.8 Percent from $14,740,000
to $16,035,000. The increased expenses occurred across all
categories including salaries and employee benefits,
occupancy, data processing expenses and federal insurance
premiums. The only declining category in other expenses was
Tucker's provision for losses on real estate owned which was
$136,000 in fiscal 1994 and $10,000 in fiscal 1995.
The ratio of shareholders' equity to total assets fell
from 9.62 Percent at March 31, 1994, to 7.35 Percent at March
31, 1995. This leveraging was necessary to maintain earnings
levels by increasing. Net interest income. The level of
excess risk based capital at Tucker also decreased from $12.5
million at fiscal year end 1994 to $7.9 million at fiscal
year end 1995. This decline is attributable to growth in
assets and dividends of $3.3 million paid to eagle which were
invested in real estate held for development and sale.
Management believes the $6.6 million of investments in real
estate held for development and sale will exceed return on
equity criteria and will have a positive impact on the
earnings of the company in the future.
4
<PAGE> 6
- --------------------------------------------------------------------------------
SEGMENT DISCUSSION
Eagle has identified two lines of business
for the purposes of management reporting. These
reports are compiled using management's best judgment
to allocate revenues and expenses, and consequently
this process is dynamic and subjective. The Company
includes construction lending activities and the
origination and sale of first mortgage loans in the
mortgage banking segment. The cost of funds assigned
to this segment is based on the average outstanding
loan balance for the period at a rate based upon the
Association's weighted average cost of funds adjusted
for the risk associated with each type of loan. The
retail banking segment retains loans for its
portfolio and funds these loans through deposits and
borrowings from the FHLB. The retail banking segment
has shown significant growth during the year by
retaining adjustable rate first mortgage loans in the
portfolio.
RETAIL BANKING ACTIVITIES
The retail banking group sells and services a
complete line of retail financial products for
consumers and small businesses. This segment
currently operates nine branch locations.
Additionally, this segment includes management of all
checking and item processing activities. In order to
expand its retail franchise, the Company is currently
nearing completion of a new branch location in
Cherokee County, Georgia, called Towne Lake. Net
income for this group increased substantially from
$2.7 million for the year ending 1994 to $4.7 million
for the year ending 1995. The identifiable assets
associated with this segment also increased 57
percent from $287 million to $450 million. Capital
expenditures of $2.3 million are allocated to this
segment primarily for construction of the
Association's new branch at Towne Lake in Cherokee
County, Georgia, and investments in technology.
Increased revenues of this area are a result of
adding adjustable rate loans to the portfolio. This
resulted in a return on average assets for the year
of 1.27 percent for the Association's retail banking
activities.
Line of Business Analysis
Net Income - Retail Banking
($ in 000's)
[GRAPH]
(The graph exhibits net income for the retail banking
segment for the previous three years.)
5
<PAGE> 7
- --------------------------------------------------------------------------------
Line of Business Analysis
Assets - Retail Banking
($ in 000's)
[GRAPH]
(The graph exhibits assets for the retail banking
segment for the previous three years.)
The Association competes for deposits with
many financial institutions that are larger and have
greater financial resources. We attempt to identify
specific needs of the target markets and design
financial products and services to fill those needs.
Currently, we offer a wide variety of insured savings
programs and non-insured investment products. We
provide a level of personal service to each customer
that is not available in larger national financial
institutions. Management believes the service we
provide to our customers can provide a platform for
the sale of a variety of services.
MORTGAGE BANKING SEGMENT - PRIMEEAGLE MORTGAGE
Line of Business Analysis
Net Income - PrimeEagle Mortgage
($ in 000's)
[GRAPH]
(The graph exhibits net income for the mortgage
banking segment for the previous three years.)
Effective April 1, 1995, management formed a
new operating subsidiary, PrimeEagle Mortgage
("PrimeEagle") and consolidated all of the
Association's real estate lending activities into
this business unit. This division generates revenues
by originating construction loans, permanent mortgage
loans and Small Business Administration ("SBA") loans
and then selling the permanent mortgage and SBA loans
to investors. PrimeEagle originates single family
mortgage loans from its thirteen retail mortgage
origination offices in Atlanta, Augusta, Hinesville,
Savannah, Warner Robins and Stockbridge, Georgia;
Aiken, Columbia, North Augusta and Sumter, South
Carolina; Chattanooga, Tennessee; and Jacksonville
and St. Augustine, Florida.
PrimeEagle's geographic expansion continues
to focus on emerging markets in the Southeast.
Equally important, however, is finding experienced
managers and highly trained staff to provide local
market knowledge and superior customer service.
6
<PAGE> 8
- --------------------------------------------------------------------------------
Line of Business Analysis
Assets - PrimeEagle Mortgage
($ in 000's)
[GRAPH]
(The graph exhibits assets for the mortgage banking
segment for the previous three years.)
The Company provides construction financing
in each of its markets and obtains significant
benefits by coordinating the efforts of our
construction lending and permanent lending
operations. Construction loans, which are generally
floating rate and short-term, generate increased
earnings in a rising interest rate market. For this
reason the profitability of our construction
financing activities increased significantly over
the year. The Company's permanent mortgage products
are primarily used for purchasing and refinancing
single family homes. Non-interest revenues are also
earned as a result of the Company's construction
lending activities.
Net income in this segment decreased 26
percent from $2.9 million in 1994 to $2.1 million in
1995. Identifiable assets increased 20 percent from
$99 million at year end 1994 to $118 million at year
end 1995. This produced a return on average assets
for PrimeEagle Mortgage of 1.9 percent in fiscal
1995. Within this segment, however, net income
generated from construction lending has increased
while net income from traditional mortgage banking
activities has decreased significantly. The decrease
in mortgage banking income was a result of higher
interest rates which effected the volume of mortgage
originations in the Company's market areas.
Additionally, as refinance activities declined the
Company experienced significant competition and a
resulting squeeze on its origination margin.
PrimeEagle Mortgage also generates revenues
through fees for various services including loan
application and origination as well as through the
gain or loss on sale of loans to third parties and
from the sale of mortgage servicing rights. Service
release premiums are the largest component of
mortgage production fees. Fluctuations in the value
of servicing rights impact management's decision to
retain or sell servicing. During fiscal 1995, the
Company sold substantially all of its permanent loans
on a servicing released basis.
7
<PAGE> 9
- --------------------------------------------------------------------------------
COMPARISON OF FISCAL YEARS ENDED MARCH 31, 1995 AND 1994
ANALYSIS OF EARNINGS PERFORMANCE
The Company's net income for its year ending
March 31, 1995, of $4,101,000 was $1.1 million below
net income for 1994 of $5,211,000. Management
consciously increased asset size and grew the Company
to increase net interest income in order to make up
for the decline in mortgage banking revenues. Net
interest income is the largest component of net
income and managing interest rate risk is fundamental
to the banking industry. Tucker manages the
inherently different maturity and re-pricing
characteristics of its loans and deposits to achieve
a desired interest rate sensitivity position and to
limit the Company's exposure to interest rate risk.
The Asset and Liability Committee ("ALCO") has
primary responsibility for this. ALCO meets regularly
to review interest rate sensitivity and liquidity
positions of the Association. Funding positions are
kept within predetermined limits designed to insure
that the interest rate risk of the Association is
properly managed.
Management utilizes a simulation model to
measure interest rate risk and manage its exposure to
interest rate risk. Mortgage-backed securities and
fixed rate real estate loans are managed based upon
estimated prepayment speeds for these categories,
rather than contractual maturity. During periods when
market rates generally rise, the Association
experiences a widening net interest margin. In the
case of falling interest rates, the Company
experiences pressure on its net interest margin as
the rates of interest earned on loans and investment
assets tend to fall at a quicker pace than the rates
paid on Tucker's deposits.
NET INTEREST INCOME
Net Interest Spread
[GRAPH]
(The graph exhibits the Company's net interest spread
for the previous five years.)
Net interest income is the difference between
interest income and interest expense. Eagle's net
interest income was $16,711,000 for the year ending
March 31, 1995, versus $14,997,000 for the year
ending March 31, 1994. The primary reason for the
increase in net interest income was the growth in the
Company's loan portfolio.
Two key ratios in the banking industry are
the spread (the difference between the yield on
earning assets and the rate paid on interest bearing
liabilities) and the net interest margin (net
interest income as a percent of average total earning
assets). The net interest margin remained stable
during 1995 at 4.79 percent compared to 4.80
8
<PAGE> 10
- --------------------------------------------------------------------------------
percent for 1994. The net interest spread also
remained constant at 4.46 percent during 1995
compared to 4.43 percent during 1994. This was
accomplished because the overall interest earned on
interest earning assets increased 30 basis points
from 8.81 percent during 1994 to 9.11 percent during
1995. Additionally, the cost of interest bearing
liabilities increased 27 basis points from 4.38
percent during 1994 to 4.65 percent during 1995.
The overall yield increased primarily because
the Company has a significant investment in
construction loans tied to the prime rate of
interest. The prime rate increased six times
throughout the year. In addition, during the year
the Company invested in securities which on a tax
equivalent basis yield approximately 10.34 percent.
The Association's cost of deposits increased
14 basis points from 4.20 percent during 1994, to
4.34 percent during 1995. A significant portion of
the Association's growth was funded through advances
from the Federal Home Loan Bank. Over fiscal 1995,
the cost of advances increased from 5.23 percent
during 1994 to 5.87 percent during 1995. During the
fourth quarter, the Company began to experience
pressure on the net interest margin as the cost of
interest bearing liabilities increased. Management
anticipates that the Company will continue to
experience pressure on borrowing rates into the
future and the net interest margin in fiscal 1996 is
expected to continue to decline.
THE PROVISION FOR LOAN LOSSES AND ASSET QUALITY
<TABLE>
<CAPTION>
-----------------------------------------------
Provision for Loan Losses
($ in 000's)
1993 1994 1995
-----------------------------------------------
<S> <C> <C> <C>
Provision for Loan
Losses $ 630 $1,000 $ 643
Net Charge-Offs (630) (71) (630)
Reserve at Year End 2,420 3,349 3,362
-----------------------------------------------
</TABLE>
The Company decreased its provision for loan
losses from $1 million for fiscal 1994 to $643
thousand for fiscal 1995. This decrease was the
result of management's continuing evaluation of the
inherent risks in the Company's existing loan
portfolio.
The Association's policy is to maintain
reserves for loan losses at a level believed by
management to be adequate to absorb potential losses.
Management and the Association's Asset Classification
Committee,
Reserve for Loan Losses
and Problem Assets
($ in 000's)
[GRAPH]
(The graph exhibits the relationship between the
reserve for loan losses and problem assets for the
previous five years.)
9
<PAGE> 11
- --------------------------------------------------------------------------------
along with internal auditors and regulators, closely
monitor total exposure to each market area and type
of loan in determining the appropriate concentration
of lending. Management considers numerous factors in
determining the provision for loan losses including
the estimated value of underlying collateral, the
nature and volume of the portfolio, loan
concentrations, specific loan problems, economic
conditions that may affect the borrowers ability to
repay and such other factors as, in management's
judgment, deserve recognition under existing
conditions. In addition, various regulatory agencies,
as an integral part of their examination process,
periodically review the reserve for loan losses. Such
agencies require the Company to recognize additions
to the reserve based on judgments with regard to
information available to them at the time of their
examination. Management is not aware of any loans
classified for regulatory purposes as loss, doubtful
or substandard that has not been disclosed which 1)
represent or result from trends or uncertainties
which management reasonably expects will materially
impact future operating results, liquidity, or
capital resources, or 2) represent material credits
about which management is aware of any information
which causes management to have serious doubts as to
the ability of such borrower to comply with the loan
repayment terms.
Problem Assets
($ in 000's)
[GRAPH]
(The graph exhibits the composition of problem assets
for the previous five years.)
Total problem assets which include
non-accrual loans, loans classified by the Asset
Classification Committee and real estate owned
increased from $1,458,000 at March 31, 1994, to
$2,172,000 at March 31, 1995. At March 31, 1995, the
Association had non-accrual loans of $603,000 versus
$787,000 at March 31, 1994. Interest income not
recognized on these loans amounted to $40,000 during
1995, and $26,000 during 1994. Approximately 75
percent of all non-accrual loans were first mortgages
on single family residential real estate. In
addition, at March 31, 1995, Tucker's Asset
Classification Committee classified $954,000 of loans
as potential problem loans. At March 31, 1994, Tucker
had no loans classified as potential problems. Real
estate owned decreased to $615,000 at March 31, 1995,
from $671,000 at March 31, 1994. Total problem assets
as a percent of total assets have remained stable at
.47 percent when compared to the prior year of .46
percent. The five year trend of total problem assets
to total assets shown by the graph above exhibits the
progress management has made in reducing problem
assets. This decrease has been accomplished in a time
of significant asset growth.
10
<PAGE> 12
- --------------------------------------------------------------------------------
Loans Sold in the Secondary Market
and Mortgage Production Fees
($ in 000's)
[GRAPH]
(The graph exhibits the relationship between loans
sold in the secondary market and mortgage production
fees for the previous three years.)
OTHER INCOME
Other income decreased from $9.3 million in
1994 to $6.3 million in 1995, a 31 percent decrease.
The largest portion of Eagle's non-interest income is
generated by mortgage banking activities and mortgage
production fees. Mortgage production fees represented
66 percent of total other income for the year ending
March 31, 1994, versus 51 percent for the year ending
March 31, 1995. These fees are directly correlated to
the volume of loans originated and sold. Loans sold
in the secondary market decreased from $504 million
during fiscal 1994 to $281 million in fiscal 1995.
This declining trend was a result of rising interest
rates which caused a decrease in refinances during
fiscal 1995 and, therefore, lower permanent mortgage
originations.
During fiscal 1995, the Company recognized
gains of $891,000 on the sale of loans. This is
primarily attributable to the sale of the guaranteed
portions of SBA loans and the sale of multi-family
loans acquired from the Resolution Trust Corporation.
Service charges increased 30 percent from $460,000 to
$597,000. This is primarily the result of the
increase in the number of checking accounts and the
fees generated by the Company's retail banking
segment. During fiscal 1994, the Company recognized
$959,000 of gains on the sale of certain
mortgage-backed securities, compared to only $14,000
in fiscal 1995. Management does not rely on gains on
the sale of mortgage-backed securities as a
continuing source of income.
OTHER EXPENSES
Sixty percent of the Company's other expenses
are salaries and employee benefits. For the fiscal
year ending March 31, 1995, salaries and employee
benefits increased seven percent from $8,966,000 to
$9,629,000. This increase is caused by the additional
processing required for the growth in loans and
customers. The ratio of total assets to payroll
dollars increased from $35.73 in assets per payroll
dollar at March 31, 1994, to $47.49 of assets per
payroll dollar for the year ending March 31, 1995.
During the year, the Company added mortgage
banking offices in Columbia and Sumter, South
Carolina, purchased property for additional branch
sites and began construction of its Towne Lake
Branch. The Company's net occupancy expense
increased from $1,494,000 for the fiscal year ending
March 31, 1994, to $1,889,000 for
11
<PAGE> 13
- --------------------------------------------------------------------------------
the fiscal year ending March 31, 1995, as a result of
rent escalation and increased property taxes. The
Company's data processing expense continues to
increase as a result of the growth in the number of
checking accounts and the loan servicing portfolio.
Management continues to make every effort to reduce
controllable expenses.
INCOME TAX EXPENSE
The effective income tax rate for 1995 was
35.7 percent compared to 37.5 percent for 1994. The
major factor contributing to this decrease is the tax
benefit received from certain investment securities.
A complete analysis of income taxes can be found in
Note 8 to the Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The ALCO manages the Company's liquidity
needs. Under current regulations, the Association is
required to maintain liquid assets at 5 percent or
more of its net withdrawal deposits plus short term
borrowings. For the month of March, 1995, the
Association maintained an average liquidity level of
5.3 percent versus 9.5 percent for the month of March
1994. At March 31, 1995, the Company had commitments
to originate fixed rate mortgage loans of
approximately $3.3 million and commitments to
originate variable rate mortgage loans of
approximately $2.4 million with terms of up to thirty
years and interest rates ranging from 6.5 percent to
11 percent. The Company had commitments to sell
mortgage loans of approximately $41.2 million at
March 31, 1995. In addition, the Company is committed
to loan funds on unused variable rate lines of credit
of approximately $7.1 million at March 31, 1995. The
Company's funding sources for these commitments
include deposits and FHLB advances.
The Company's assets stood at $457,317,000 at
March 31, 1995, a 43 percent increase from
$320,385,000 at March 31, 1994. The majority of the
increase in assets was in loans receivable,
investment securities and real estate held for
development and sale. Substantially all of this
growth was funded with growth in deposits and FHLB
advances. The graph exhibits the composition of the
Company's earning assets for the previous three
years.
Earning Asset Mix
($ in 000's)
[GRAPH]
(The graph exhibits the composition of the Company's
earning assets for the previous three years.)
12
<PAGE> 14
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES
Beginning March 31, 1994, pursuant to
Statement of Financial Accounting Standard
("SFAS")No. 115, the Company classified its
securities in one of three categories: trading,
available for sale, or held to maturity. Trading and
available for sale securities are recorded at fair
value. Held to maturity securities are recorded at
amortized cost, adjusted for the amortization or
accretion of premiums or discounts. Unrealized
holding gains and losses on trading securities are
included in earnings. Unrealized holding gains and
losses, net of the related tax effect, on securities
available for sale are excluded from earnings and are
reported as a separate component of shareholders'
equity until realized. At March 31, 1995, the Company
had no investment securities classified as trading
securities.
At March 31, 1995, the Company had total
investments in securities of $78,538,000 versus
$55,566,000 at March 31, 1994. The investment
securities portfolio at March 31, 1995, was comprised
of $57,599,000 of investment securities held to
maturity at amortized cost. Eagle has the ability and
it is management's intent to hold these securities to
maturity for investment purposes. In addition, the
Company had $20,939,000 of investment securities
available for sale at estimated market value at March
31, 1995. Investment securities available for sale
had a net unrealized gain as shown in the Company's
shareholders' equity section of $46,000 at March 31,
1995, versus $387,000 at March 31, 1994. Investment
securities available for sale are primarily comprised
of mortgage-backed securities and investments in
equity securities, principally preferred stock. (See
Note 2 to the Consolidated Financial Statements for
further information on investment securities.)
During 1995, the Company's weighted average
yield (calculated on a taxable equivalent basis) for
the aggregate investment portfolio was 8.18 percent
versus 7.48 percent during 1994. The increase in
yield is primarily due to the purchase of
approximately $15 million of investments which have
certain tax exempt qualities.
LOAN PORTFOLIO
Net loans receivable increased 38 percent
from $219,726,000 at March 31, 1994, to $303,906,000
at March 31,1995. A large portion of the increase
came in the area of adjustable rate real estate
mortgage loans, which increased from $65,419,000 to
$119,653,000 at March 31, 1994 and 1995,
respectively. As stated elsewhere in this report,
this 83 percent increase was attributable to
management's decision to increase the Company's loan
portfolio and the ability of our mortgage banking
operations to originate adjustable rate mortgages.
Additionally, the Company increased its construction
loans from $126,754,000 at March 31, 1994, to
$154,512,000 at March 31, 1995.
13
<PAGE> 15
- --------------------------------------------------------------------------------
1994 Loan Portfolio Mix
($ in 000's)
[GRAPH]
(The graph exhibits the composition of the Company's
loan portfolio at March 31, 1994.)
Disbursed real estate construction loans
represented approximately 32 percent of the net
loans receivable. This percentage is relatively high
when compared with the Association's peers.
Management believes, however, that as a result of its
relationships with established builders and its tight
underwriting guidelines, we can effectively mitigate
risk involved in construction lending. Finally, our
expertise in the construction monitoring process
significantly reduces the risk associated with
construction lending through a closely monitored draw
program and the knowledge of local market conditions.
Additionally, our focus on first time and move-up
homes also reduces credit risk as a result of the
broad base of customers and the shorter construction
cycles for this product. Shown above are graphs
representing the Company's loan mix for the previous
two years.
1995 Loan Portfolio Mix
($ in 000's)
[GRAPH]
(The graph exhibits the composition of the Company's
loan portfolio at March 31, 1995.)
Investments in commercial leases stood at
$32,582,000 at March 31, 1995 versus $29,364,000 at
March 31, 1994. A majority of these leases are to
investment grade and middle market companies for
computer and technology products. During the course
of the year, the Company originated approximately $25
million and sold approximately $10 million in
commercial leases recognizing a gain on sale of
leases of $217,000.
The average yield of the Company's loan
portfolio was 9.42 percent for 1995 versus 9.36
percent for 1994. The increase in yield on the
Company's loan portfolio is principally attributable
to the significant investment in construction loans
which are tied to the prime rate of interest.
14
<PAGE> 16
- --------------------------------------------------------------------------------
REAL ESTATE HELD FOR DEVELOPMENT AND SALE
In fiscal 1995, the Company invested $6.6
million in real estate held for development and sale.
The majority of this activity was conducted through
the Company's subsidiary, Eagle Real Estate Advisors,
Inc. The Company invested $3.6 million in a 325 lot
subdivision development in Forsyth County and $1.5
million in a 48 lot subdivision in Cobb County.
Additionally, the Company invested $1.5 million in a
60 unit affordable housing development in Fulton
County. Management believes that profits and tax
credits provided by these investments may
significantly contribute to the Company's net income
in the future.
Liability Mix
($ in 000's)
[GRAPH]
(The graph exhibits the composition of the Company's
liabilities for the previous three years.)
DEPOSITS AND BORROWINGS
As the graph indicates, total deposits grew
17.2 percent from $244 million at March 31, 1994, to
$286 million at March 31, 1995, and borrowings
increased from $30.8 million to $119.9 million over
the same period. Core deposits increased 15.8 percent
from $223 million at March 31, 1994, to $258 million
at March 31, 1995. Core deposits include demand
deposits, regular savings, money market accounts and
certificates of deposit less than $100 thousand. The
Association uses traditional marketing methods to
attract new customers. Its deposit network is served
out of nine branch locations in the Northeast
metropolitan Atlanta counties of DeKalb, Gwinnett and
Fulton. The trend in consolidation of financial
institutions in metro Atlanta and the desire of
customers to deal with an independent local financial
institution continues to provide attractive deposit
sources for Tucker Federal. In addition, in April
1994, the Association purchased $22.1 million of the
insured deposits of a branch of Southern Federal
Savings and Loan Association from the Resolution
Trust Corporation for a deposit premium of $1.5
million. This deposit premium will be amortized over
a period of ten years using an accelerated method of
amortization.
A majority of the Company's growth in
deposits came in the area of time deposits with a
maturity of one year or less. Over the course of the
year, the weighted average interest rate on the
Company's total deposits increased 14 basis points
from 4.20 percent for 1994 to 4.34 percent for 1995.
A continued rising trend in interest rates could
cause the Company's cost of deposits to continue to
escalate in fiscal 1996. As a result of the
maturities of the Association's certificates of
deposit, changes in the cost of Tucker's deposits
generally lags the movement in general market
interest rates by three
15
<PAGE> 17
- --------------------------------------------------------------------------------
to six months. Therefore, management believes the
cost of deposits will continue to increase through a
portion of fiscal year 1996.
The Federal Home Loan Bank system functions
as a reserve credit facility for thrift institutions
and certain other member home financing institutions.
Other borrowings at March 31, 1995, consist primarily
of FHLB advances of $117,143,000, a 281 percent
increase over the prior year. During the year, Tucker
borrowed approximately $250 million from the FHLB and
repaid approximately $161 million of FHLB advances.
At March 31, 1995, the Company had approximately $109
million of FHLB advances and other borrowings due
within one year. For further information on the
Company's borrowings, see Note 7 to the Consolidated
Financial Statements.
CAPITAL
Shareholders' equity increased 9.09 percent
from $30,832,000 at March 31, 1994, to $33,636,000 at
March 31, 1995. The primary source of growth in
shareholders' equity during fiscal 1995 was the
retention of net income. The Company's consolidated
statement of stockholders' equity details changes to
this account for the years ending March 31, 1995,
1994 and 1993.
The Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") established five
capital categories for financial institutions. The
Office of Thrift Supervision placed each thrift into
one of five categories; well capitalized, adequately
capitalized, under capitalized, significantly under
capitalized, and critically under capitalized. These
classifications are based on the Association's level
of risk based capital, leverage ratios and its
supervisory ratings. FDICIA defines "well
capitalized" banks as entities having a risk based
capital ratio of 10 percent or higher, a tier one
risk based capital ratio of 6 percent or higher and a
leveraged ratio of 5 percent or higher. At March 31,
1995, the Association is classified as "well
capitalized" under the FDICIA regulations.
Shown in the table are the Association's
regulatory capital requirements, Tucker's actual
capital and the level of surplus capital by category.
The Association has historically maintained capital
substantially in excess of the minimum requirement.
<TABLE>
<CAPTION>
AT MARCH 31, 1995 OTS Requirement Tucker Federal's Capital Excess Capital
--------------- ------------------------ --------------
Dollars % of Assets Dollars % of Assets Dollars % of Assets
------- ----------- ------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $ 6,768 1.5% $29,616 6.6% $22,848 5.1%
Core capital 13,600 3.0% 29,616 6.6% 16,016 3.6%
Risk-based capital 25,093 8.0% 32,977 10.5% 7,884 2.5%
</TABLE>
In fiscal 1995, the Association utilized excess
capital through asset growth and paid over the course
of the year $3,300,000 in dividends to the Company. A
major portion of those dividends were invested in
real estate held for development and sale.
Additionally,
16
<PAGE> 18
- --------------------------------------------------------------------------------
$1,446,000 of these funds were paid to the Company's
shareholders in the form of cash dividend payments.
Management's objectives are to maintain a level of
capitalization which meets regulatory requirements,
is sufficient to take advantage of profitable growth
opportunities and promotes depositor and investor
confidence.
COMPARISON OF FISCAL YEARS ENDED MARCH 31, 1994 AND 1993
RESULTS OF OPERATIONS
Income before extraordinary item and
cumulative effect of change in accounting principle
increased 31 percent to $5.3 million from $4.1
million in 1993. Return on average assets before
extraordinary item and cumulative effect of change in
accounting principle for 1994 was 1.62 percent and
return on average equity before extraordinary item
and cumulative effect of change in accounting
principle was 18.76 percent. This compares to return
on average assets of 1.32 percent and return on
average equity of 16.68 percent for 1993.
Record net income in fiscal year 1994 can be
attributed to a 23 percent increase in net interest
income and a 60 percent increase in other income. The
increase in net interest income is a result of an
improved net interest margin. The increase in other
income is primarily attributable to an 81 percent
increase in mortgage production fees generated by
record origination volume at the Company's mortgage
banking segment. Other expenses increased 34 percent
and the provision for loan losses increased 59
percent over 1993.
The Company adopted the provision of
Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes" and has reported the
cumulative effect of that change in method of
accounting for income taxes of $320,000 in the
consolidated statements of income for the year ended
March 31, 1994. During the third quarter of fiscal
1994, the Association repaid $7.5 million of 8.45
percent Federal Home Loan Bank advances. This
transaction is reflected in the 1994 financial
statements as an extraordinary item. The prepayment
penalty, net of state and federal income taxes, was
$427,000. Net income (after extraordinary item and
cumulative effect of the change in accounting
principle) was $5.2 million, reflecting a 28 percent
increase over 1993 net income. Income before
extraordinary item and cumulative effect of change in
accounting principle per primary share was $3.48
compared to $2.76 in 1993. Net income per primary
share (after extraordinary item and cumulative effect
of the change in accounting principle) was $3.41
reflecting a 24 percent increase over 1993 net income
per share. Income before extraordinary item and
cumulative effect of change in accounting principle
per fully diluted share was $3.47 compared to $2.76
in 1993. Net income per fully diluted share (after
extraordinary item and cumulative effect of the
17
<PAGE> 19
- --------------------------------------------------------------------------------
change in accounting principle) was $3.40 reflecting
a 23 percent increase over 1993 net income per fully
diluted share.
NET INTEREST INCOME
The general decline in market interest rates
contributed to a 45 basis point decline in the yield
on interest earning assets from 9.26 percent in
fiscal 1993 to 8.81 percent in fiscal 1994 and a 114
basis point decline in the cost of interest bearing
liabilities from 5.52 percent to 4.38 percent. The
decrease in the cost of interest bearing liabilities
is also attributable to attracting additional
deposits and repaying some higher cost borrowings.
The increase in interest received on loans is
primarily attributable to the Company's ability to
expand its loan portfolio through originations of
residential construction, short term leases and, to a
lesser extent, adjustable rate permanent mortgage
loans. In this way, the Company is able to improve
its spread while reducing exposure to rising interest
rates due to the short term rate commitments these
loans represent.
The net interest margin improved in 1994 to
4.80 percent from 4.12 percent in 1993. Net interest
income increased by $2.8 million. Correspondingly,
spread improved from 3.74 percent in 1993 to 4.43
percent in 1994.
Interest on mortgage-backed securities
decreased as a result of management's sale of
selected mortgage-backed securities during fiscal
1994. Management's decision to sell those securities
was based primarily on the trend of rapid prepayments
that were being experienced as a result of record
mortgage refinances. Total investment securities
decreased from $87.9 million to $55.6 million and, as
a result, interest on mortgage-backed and investment
securities declined from $8.1 million for 1993 to
$5.6 million for 1994.
Interest expense declined $2.7 million from
$15.2 million in 1993 to $12.5 million in 1994. This
is a result of two factors; first the trend of
declining interest rates and second, the repricing of
the Association's deposits at lower rates and the
repayment of other borrowings at higher rates.
PROVISION FOR LOAN LOSSES
During 1994, the Company increased the
provision for loan losses 59 percent to $1.0 million
from $630,000 in 1993. The increase in the provision
was a result of management's continuing evaluation of
the change in the Company's loan mix. At March 31,
1994, the reserve for loan losses as a percentage of
average loans outstanding was 1.4 percent.
Charge-offs improved in fiscal 1994 and were $104,000
versus $635,000 in fiscal 1993. As a result of the
decrease in charge-offs and increase in the
provision, the reserve for loan losses increased
$930,000 from $2.42 million at March 31, 1993, to
$3.35 million at March 31, 1994. In fiscal 1994,
charge-offs net of
18
<PAGE> 20
- --------------------------------------------------------------------------------
recoveries represented .03 percent of average loans
receivable versus .33 percent for fiscal 1993.
OTHER INCOME
Other income increased 60 percent to $9.3
million from $5.8 million primarily due to the
increase in mortgage production fees. Mortgage
production fees increased 81 percent to $6.1 million
in 1994 from $3.4 million in 1993. This trend was
directly attributable to increased permanent loan
origination volume, which rose to over $500 million
in 1994 from $287 million in 1993.
In fiscal 1994, the Company sold
approximately $13.6 million of mortgage-backed
securities from its available for sale portfolio and
recognized $959,000 in gains on the sales.
Management's decision to sell those securities was
based primarily on the rapid prepayments that were
being experienced as a result of record mortgage
refinances. Management does not rely on the sale of
loans and mortgage-backed securities as a continuing
source of income.
OTHER EXPENSES
In 1994 other expenses increased from $11.0
million to $14.7 million, primarily due to an
increase in salaries and related expense of $2.7
million from 1993 to 1994. The increase reflects
additional personnel and higher performance bonuses
due to stronger earnings in 1994.
INCOME TAX EXPENSE
The effective income tax rate for 1994 was
37.5 percent compared to the effective rate for 1993
of 35.8 percent. The major factor contributing to
this increase is the payment of state income taxes
during the year at a rate of 6 percent, as all state
net operating loss carry forwards were fully utilized
in 1993.
COMPARISON OF FISCAL YEARS ENDED MARCH 31, 1993 AND 1992
RESULTS OF OPERATIONS
Net income increased in fiscal 1993 by 148.4
percent to $4.1 million compared to $1.6 million in
fiscal 1992. This improvement is due principally to
an improvement in the interest rate spread and
increased mortgage production fees. In November 1992,
Tucker acquired the assets and hired the employees of
the Prime Lending Division of Southern Federal. Net
interest income increased 56.6 percent from $7.8
million in fiscal 1992 to $12.2 million in fiscal
1993. Additionally, mortgage production fees improved
260.2 percent from $937,000 in fiscal 1992, to $3.4
million in fiscal 1993, due to increased loan
origination volume at Atlanta Mortgage Services and
the acquisition of the Prime Lending Division.
19
<PAGE> 21
- --------------------------------------------------------------------------------
NET INTEREST INCOME
Net interest income increased in fiscal 1993
by $4.4 million compared to fiscal 1992. The yield on
interest earning assets decreased by 29 basis points
while the cost of interest bearing liabilities
decreased by 163 basis points. The reason for the
decrease in yield on interest earning assets was the
continued decline in market rates. The improvement in
the Association's interest rate spread is primarily
attributable to management's ability to obtain lower
cost deposits and advances, the greater diversity of
the investment and loan portfolio and the repayment
of the Company's collateralized mortgage obligations.
The Association's interest rate spread improved from
240 basis points for the year ended March 31, 1992 to
374 basis points for the fiscal year ended March 31,
1993. This was attributable to the minor decrease in
the rate earned on interest earning assets from 9.55
percent in fiscal year 1992 to 9.26 percent in fiscal
1993, compared to the substantial decrease in the
cost of interest bearing liabilities, which decreased
from 7.15 percent in fiscal year 1992 to 5.52 percent
in fiscal year 1993. This was caused primarily by the
159 basis point decrease in cost of deposits from
1992 to 1993.
PROVISION FOR LOAN LOSSES
The provision for loan losses totaled
$630,000, in fiscal 1993 compared to $398,000 in
fiscal 1992. The increase in the provision in fiscal
1993 was a result of management's continuing
evaluation of the change in the Company's loan mix
and the increase in levels of non-performing assets
and charge-offs. At March 31, 1993, the reserve for
loan losses as a percentage of average loans
outstanding was 1.3 percent versus .6 percent at
March 31, 1992. Charge-offs, net of recoveries,
totaled $630,000 in fiscal 1993, up from $269,000 in
fiscal 1992. In fiscal 1993, charge-offs net of
recoveries represented .33 percent of average loans
outstanding during the period versus .16 percent for
fiscal year 1992.
OTHER INCOME
Other income increased 210.5 percent from
$1.9 million in fiscal 1992 to $5.8 million in fiscal
1993. The reasons for the increase in other income
include higher mortgage production fees and gains on
the sales of loans and mortgage-backed securities.
The addition of the Prime Lending Division during the
year coupled with the high demand for refinancing has
resulted in higher fee income. During fiscal 1993,
the Company sold mortgage-backed securities with a
principal balance of approximately $14.0 million. The
Association recognized a gain on the sale of those
securities of $892,000 for fiscal 1993. The
Association recognized no gains on sale of loans and
mortgage-backed securities for fiscal 1992.
20
<PAGE> 22
- --------------------------------------------------------------------------------
OTHER EXPENSES
Other expenses increased 61.4 percent from
$6.8 million for fiscal year 1992, to $11.0 million
for fiscal year 1993. The majority of this increase
relates to salaries and employee benefits. This
increase is attributable to the addition of 80
employees of the Prime Lending Division.
Additionally, during the year, management set aside
$489,000 as a provision for future losses on the
disposition of real estate owned. The provision for
real estate owned is charged to operations when a
decline in the value occurs.
INCOME TAX EXPENSE
The effective income tax rate for fiscal 1993
was 35.8 percent compared to 32.5 percent in fiscal
1992. This effective income tax rate was impacted by
several factors including the disparity between the
tax and book loan loss provisions.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data
presented herein 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 changes in the relative
purchasing power of money, due to inflation. Unlike
most industrial companies, virtually all of the
assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates have
a more significant impact on a financial
institution's performance than the effect of general
levels of inflation. Interest rates do not
necessarily move in the same direction or in the same
magnitude as the prices of goods and services. In the
current interest rate environment, liquidity and the
maturity structure of the Association's assets and
liabilities are critical to the maintenance of
acceptable performance levels.
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," and SFAS No. 118, "Accounting
by Creditors for Impairment of a Loan-Income
Recognition and Disclosures," will be required to be
adopted by the Company during its fiscal year
beginning April 1, 1995. SFAS Nos. 114 and 118
require impaired loans to be measured based on the
present value of expected future cash flows,
discounted at the loan's effective interest rate, or
at the loan's observable market price or the fair
value of collateral-dependent. The Company has not
yet determined the actual impact of SFAS Nos. 114 and
118 on its financial statements. However, based on
the Company's current accounting policies related to
providing for losses on problem loans and its present
level of non-performing loans, the Company's
management does not believe that the impact of SFAS
Nos. 114 and 118 will be significant to the financial
statements.
21
<PAGE> 23
- --------------------------------------------------------------------------------
In May 1995, the Financial Accounting
Standards Board issued SFAS No. 122, "Accounting for
Mortgage Servicing Rights." SFAS No. 122 addresses
the accounting for purchased and originated mortgage
serving rights and is effective for fiscal years
beginning after December 15, 1995. The Company's
management is currently evaluating the impact SFAS
No. 122 will have on its financial statements.
COMMON STOCK PRICES AND DIVIDENDS
Since September 2, 1986, the Company's stock
has been included in the National Association of
Securities Dealers Automated Quotation (NASDAQ)
National Market System, under the symbol "EBSI".
As of June 9, 1995, there were 632
stockholders of record. This does not reflect the
number of persons or entities who hold their stock in
nominee or "street name" through various brokerage
firms. The following table presents quarterly
information, for the fiscal years indicated, of the
high and low closing sales prices of Eagle
Bancshares, Inc. common stock reported by the NASDAQ
National Market System.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
Common Stock Prices Fiscal 1995 Fiscal 1994 Fiscal 1993
High Low High Low High Low
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $24 1/4 $22 1/4 $18 1/2 $15 3/4 $ 9 1/2 $8
Second Quarter 26 1/2 23 20 1/2 15 3/4 15 9
Third Quarter 25 1/2 19 1/2 22 19 1/2 13 1/2 12
Fourth Quarter 24 1/4 20 1/4 24 3/4 21 18 1/2 13
---------------------------------------------------------------------------------------------------------------
</TABLE>
DIVIDENDS
During fiscal year 1995, the Company's Board
of Directors declared four quarterly dividends
totaling $.94 per share annually. The first quarter
dividend of $.22 was declared June 28, 1994, to
shareholders of record July 11, 1994. The second
quarter dividend of $.23 was declared September 27,
1994, to shareholders of record October 7, 1994. The
third quarter dividend of $.24 was declared December
27, 1994, to shareholders of record January 9, 1995.
The fourth quarter dividend of $.25 was declared
March 28, 1995, to shareholders of record April 7,
1995.
During fiscal year 1994, the Company's Board
of Directors declared four quarterly dividends
totaling $.62 per share annually. The first quarter
dividend of $.11 was declared June 8, 1993, to
shareholders of record July 5, 1993. The second
quarter dividend of $.14 was declared September 21,
1993 to shareholders of record October 4, 1993. The
third quarter dividend of $.17 was declared December
27, 1993, to shareholders of record January 10, 1994.
The fourth quarter dividend of $.20 was declared
March 15, 1994, to shareholders of record April 4,
1994.
During fiscal year 1993, the Company's Board
of Directors declared four quarterly dividends
totaling $.40 per share annually. The first quarter
dividend of $.10 was declared June 8, 1992, to
shareholders of record July 10, 1992. The second
quarter
22
<PAGE> 24
- --------------------------------------------------------------------------------
dividend of $.10 was declared October 30, 1992, to
shareholders of record October 30, 1992. The third
quarter dividend of $.10 was declared November 30,
1992, to shareholders of record January 5, 1993. The
fourth quarter dividend of $.10 was declared March
23, 1993, to shareholders of record April 9, 1993.
The ability of the Company to pay cash
dividends to shareholders is directly dependent upon
the ability of the Association to pay cash dividends
to the Company. There are regulatory limitations on
the ability of the Association to pay cash dividends
to the Company. Despite these restrictions management
expects to continue to pay dividends for the
foreseeable future.
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA
Year ended March 31,
(in thousands except per share data, unaudited)
- ---------------------------------------------------------------------------------------------------------------
1995 1994
4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $9,250 $8,385 $7,673 $7,034 $6,404 $7,362 $6,931 $6,832
Interest expense 4,955 4,079 3,496 3,101 2,852 3,159 3,237 3,284
- --------------------------------------------------------------------------------------------------------------
Net interest income 4,295 4,306 4,177 3,933 3,552 4,203 3,694 3,548
Provision for loan losses 96 176 189 182 164 360 273 203
- --------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan
losses 4,199 4,130 3,988 3,751 3,388 3,843 3,421 3,345
Other income 1,402 1,329 1,940 1,676 1,126 3,673 2,619 1,832
Other expenses 4,165 3,870 4,022 3,978 2,993 4,427 3,838 3,482
- --------------------------------------------------------------------------------------------------------------
Income before income
taxes 1,436 1,589 1,906 1,449 1,521 3,089 2,202 1,695
Income tax expense 417 585 727 550 579 1,162 802 646
- --------------------------------------------------------------------------------------------------------------
Income before
extraordinary
item and cumulative
effect of
accounting principle 1,019 1,004 1,179 899 942 1,927 1,400 1,049
- --------------------------------------------------------------------------------------------------------------
Extraordinary item, net - - - - - (427) - -
- --------------------------------------------------------------------------------------------------------------
Cumulative effect of
change in accounting
principle - - - - - - - 320
- --------------------------------------------------------------------------------------------------------------
Net income $1,019 $1,004 $1,179 $ 899 $ 942 $1,500 $1,400 $1,369
==============================================================================================================
Net income per share $ .66 $ .65 $ .75 $ .58 $ .62 $ .98 $ .95 $ .93
==============================================================================================================
</TABLE>
23
<PAGE> 25
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1995, 1994 AND 1993
TOGETHER WITH
AUDITORS' REPORT
24
<PAGE> 26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Eagle Bancshares, Inc.:
We have audited the accompanying consolidated statements of financial condition
of EAGLE BANCSHARES, INC. (A GEORGIA CORPORATION) AND SUBSIDIARIES as of March
31, 1995 and the related consolidated statements of income, stockholders'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit. The
consolidated financial statements of Eagle Bancshares, Inc. and subsidiaries as
of March 31, 1994 and for each of the two years ended March 31, 1994 were
audited by other auditors whose report dated April 29, 1994 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 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Eagle Bancshares,
Inc. and subsidiaries as of March 31, 1995 and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
As discussed in Note 1, effective March 31, 1994, the Company changed its
method of accounting for investment securities and effective April 1, 1993, the
Company changed its method of accounting for income taxes.
Arthur Andersen LLP
Atlanta, Georgia
May 12, 1995
25
<PAGE> 27
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS 1995 1994
=============================================================================================== ========= =========
<S> <C> <C>
Cash and amounts due from banks $ 6,214 $ 6,194
Interest-bearing deposits 144 1,664
Securities available for sale (Note 2) 20,939 20,883
Investment securities held to maturity, approximate market value of $56,701 and $35,561 in 1995
and 1994, respectively (Notes 2 and 7) 57,599 34,683
Loans receivable held for sale, approximate market value of $41,526 and $23,946 in 1995
and 1994, respectively (Note 3) 41,220 23,641
Loans receivable, net (Notes 3 and 7) 303,906 219,726
Stock in Federal Home Loan Bank, at cost (Note 7) 5,984 3,341
Premises and equipment, net (Note 4) 8,299 6,417
Real estate held for development and sale 6,620 0
Real estate acquired in settlement of loans, net 615 671
Accrued interest receivable 2,996 1,721
Other assets 2,781 1,444
--------- ---------
Total assets $ 457,317 $ 320,385
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
===============================================================================================
Liabilities:
Deposits (Note 6) $ 286,315 $ 244,297
Advance payments by borrowers for property taxes and insurance 2,187 954
Federal Home Loan Bank advances and other borrowings (Note 7) 119,953 30,750
Deferred income taxes (Note 8) 441 420
Drafts outstanding 10,778 9,158
Accrued expenses and other liabilities 4,007 3,974
--------- ---------
Total liabilities 423,681 289,553
--------- ---------
Commitments (Note 3)
Stockholders' equity (Notes 9, 10, and 13):
Common stock, $1 par value; 10,000,000 shares authorized, 1,694,500
and 1,662,000 shares issued in 1995 and 1994, respectively 1,695 1,662
Additional paid-in capital 8,200 7,763
Retained earnings 25,075 22,420
Net unrealized gain on investment securities available for sale 46 387
Employee Stock Ownership Plan debt (Note 9) (11) (141)
Unamortized restricted stock (293) (183)
Treasury stock, at cost; 150,900 shares in 1995 and 1994 (1,076) (1,076)
--------- ---------
Total stockholders' equity 33,636 30,832
--------- ---------
Total liabilities and stockholders' equity $ 457,317 $ 320,385
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
26
<PAGE> 28
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 1995, 1994, AND 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1994 1993
======== ======== ========
<S> <C> <C> <C>
INTEREST INCOME:
Interest on loans $ 26,330 $ 21,906 $ 19,371
Interest on mortgage-backed securities 1,939 3,135 5,673
Interest on securities and other interest-earning assets 4,073 2,488 2,397
-------- -------- --------
Total interest income 32,342 27,529 27,441
-------- -------- --------
INTEREST EXPENSE:
Interest on deposits (Note 6) 11,625 10,006 11,408
Interest on FHLB advances and other borrowings 4,006 2,526 3,833
-------- -------- --------
Total interest expense 15,631 12,532 15,241
-------- -------- --------
Net interest income 16,711 14,997 12,200
Provision for loan losses (Note 3) 643 1,000 630
-------- -------- --------
Net interest income after provision for loan losses 16,068 13,997 11,570
-------- -------- --------
OTHER INCOME:
Mortgage production fees 3,236 6,100 3,375
Gain on sale of loans 891 188 221
Service charges 597 460 349
Gain on sale of mortgage-backed securities (Note 2) 14 959 892
Miscellaneous 1,609 1,543 957
-------- -------- --------
Total other income 6,347 9,250 5,794
-------- -------- --------
OTHER EXPENSES:
Salaries and employee benefits (Note 9) 9,629 8,966 6,287
Net occupancy expense 1,889 1,494 1,036
Data processing expense 817 673 484
Federal insurance premiums 607 532 479
Marketing expense 387 283 272
Provision for losses on real estate acquired in settlement of loans 10 136 489
Miscellaneous 2,696 2,656 1,979
-------- -------- --------
Total other expenses 16,035 14,740 11,026
-------- -------- --------
Income before income taxes, extraordinary item, and cumulative effect of
change in accounting principle 6,380 8,507 6,338
Income tax expense (Note 8) 2,279 3,189 2,269
-------- -------- --------
Income before extraordinary item and cumulative effect of change in 4,101 5,318 4,069
accounting principle
Extraordinary item--loss related to early extinguishment of debt, net of income tax 0 (427) 0
benefit of $261 (Note 7)
Cumulative effect of change in accounting for income taxes (Note 8) 0 320 0
-------- -------- --------
NET INCOME $ 4,101 $ 5,211 $ 4,069
======== ======== ========
PRIMARY EARNINGS PER SHARE OF COMMON STOCK (NOTE 14):
Income before extraordinary item and cumulative effect of change in accounting $ 2.68 $ 3.48 $ 2.76
principle
Extraordinary item, net (0.28)
Cumulative effect of change in accounting principle 0.21
-------- -------- --------
NET INCOME $ 2.68 $ 3.41 $ 2.76
======== ======== ========
FULLY DILUTED EARNINGS PER SHARE OF COMMON STOCK (NOTE 14):
Income before extraordinary item and cumulative effect of change in accounting $ 2.68 $ 3.47 $ 2.76
principle
Extraordinary item, net (0.28)
Cumulative effect of change in accounting principle 0.21
-------- -------- --------
NET INCOME $ 2.68 $ 3.40 $ 2.76
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
27
<PAGE> 29
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1995, 1994, AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET
UNREALIZED
GAIN IN
INVESTMENT
COMMON STOCK ADDITIONAL SECURITIES UNAMORTIZED TOTAL
-------------- PAID-IN RETAINED AVAILABLE RESTRICTED ESOP TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS FOR SALE STOCK DEBT STOCK EQUITY
====== ====== ========== ======== ========== =========== ==== ======== =============
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1992 1,625 $1,625 $7,367 $14,655 $ 0 $ 0 $(252) $(1,019) $22,376
Purchase of treasury stock
(6,900 shares) (57) (57)
Cash dividends declared
($.40 per share) (590) (590)
Principal reduction of ESOP 25 25
debt
Net income 4,069 4,069
------ ------ ------ ------- ------ ------ ----- ------- -------
BALANCE AT MARCH 31, 1993 1,625 1,625 7,367 18,134 0 0 (227) (1,076) 25,823
Cash dividends declared
($.62 per share) (925) (925)
Principal reduction of ESOP 86 86
debt
Issuance of restricted
stock (15,000 shares) 15 15 278 (293) 0
(Note 9)
Amortization of restricted
stock (Note 9) 110 110
Stock options exercised 22 22 118 140
(22,000 shares)
Net unrealized gain on
securities available for 387 387
sale
Net income 5,211 5,211
------ ------ ------ ------- ------ ------ ----- ------- -------
BALANCE AT MARCH 31, 1994 1,662 1,662 7,763 22,420 387 (183) (141) (1,076) 30,832
Cash dividends declared
($.94 per share) (1,446) (1,446)
Principal reduction of ESOP 130 130
debt
Issuance of restricted
stock (15,000 shares) 15 15 323 (338) 0
(Note 9)
Amortization of restricted
stock (Note 9) 228 228
Stock options exercised 18 18 114 132
(17,500 shares)
Change in net unrealized
gain on securities
available for sale, net
of taxes (341) (341)
Net income 4,101 4,101
------ ------ ------ ------- ------ ------ ----- ------- -------
BALANCE AT MARCH 31, 1995 1,695 $1,695 $8,200 $25,075 $ 46 $ (293) $ (11) $(1,076) $33,636
====== ====== ====== ======= ====== ====== ===== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
28
<PAGE> 30
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1995, 1994, AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
========= ========= =========
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,101 $ 5,211 $ 4,069
--------- --------- ---------
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation, amortization, and accretion 825 505 588
Provision for loan losses 643 1,000 630
Provision for losses on real estate 10 136 489
Cumulative effect of change in accounting principle 0 (320) 0
Amortization of restricted stock award 228 110 0
Loss on sale of real estate acquired in settlement of loans 5 67 57
Gain on sale of mortgage-backed securities (14) (959) (892)
Gain on sale of loans (891) (188) (221)
Deferred income tax (benefit) expense 241 (18) 49
FHLB stock dividends 0 (179) (273)
Amortization of deferred loan fees (1,883) (2,325) (1,164)
Proceeds from sale of loans receivable held for sale 281,421 504,079 277,048
Origination of loans held for sale (299,000) (504,070) (286,802)
Changes in assets and liabilities:
(Increase) decrease in accrued interest receivable (1,275) 334 149
(Increase) decrease in other assets (1,739) (669) 37
Increase (decrease) in drafts outstanding 1,620 (4,929) 14,087
(Decrease) increase in accrued expenses and other liabilities (187) (94) 1,580
--------- --------- ---------
Total adjustments (19,996) (7,520) 5,362
--------- --------- ---------
Net cash (used in) provided by operating activities (15,895) (2,309) 9,431
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities available for sale (9,112) 0 0
Proceeds from sale of investment securities available for sale 5,123 14,554 14,926
Purchases of investment securities held to maturity (30,146) (2,009) (12,489)
Principal payments received on investment securities available for sale 3,396 7,379 16,306
Principal payments received on investment securities held to maturity 1,369 6,745 0
Proceeds from maturities of investment securities held to maturity 6,000 7,324 1,000
Loan originations, net of repayments (94,650) (30,140) (6,012)
Purchases of loans receivable (2,268) (749) (28,684)
Proceeds from sale of loans receivable held for sale 14,988 1,878 4,810
Purchases of FHLB stock (3,244) 0 0
Redemption of FHLB stock 601 0 0
Proceeds from sale of real estate acquired in settlement of loans 130 1,988 280
Purchases of premises and equipment, net (2,526) (2,315) (1,664)
Additions to real estate held for development and sale (6,620) 0 0
--------- --------- ---------
Net cash (used in) provided by investing activities (116,959) 4,655 (11,527)
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
29
<PAGE> 31
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1995, 1994, AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
========= ========= =========
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in time deposits 48,928 11,386 (3,449)
Net (decrease) increase in demand deposits (6,910) 4,278 12,257
Increase (decrease) in advance payments from borrowers for property taxes and 1,233 96 (55)
insurance
Proceeds from FHLB advances and other borrowings 250,325 118,627 55,600
Repayment of FHLB advances and other borrowings (161,122) (135,638) (64,423)
Principal reduction of ESOP debt 130 86 25
Stock options exercised 132 140 0
Purchase of treasury stock 0 0 (57)
Cash dividends paid (1,362) (771) (590)
--------- --------- ---------
Net cash provided by (used in) financing activities 131,354 (1,796) (692)
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,500) 550 (2,788)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 7,858 7,308 10,096
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 6,358 $ 7,858 $ 7,308
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH PAID DURING YEAR FOR:
Interest $ 15,155 $ 12,628 $ 15,594
========= ========= =========
Income taxes $ 2,763 $ 2,975 $ 2,172
========= ========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of real estate in settlement of loans $ 486 $ 4,117 $ 3,261
========= ========= =========
Loans made to finance sale of real estate $ 575 $ 3,392 $ 2,415
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
30
<PAGE> 32
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995, 1994, AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Eagle Bancshares, Inc. (the "Company") is a unitary savings and loan
holding company and owns 100% of Tucker Federal Savings and Loan
Association's (the "Association") common stock.
The Association provides a full range of banking services to
individual and corporate customers through its subsidiaries and
branches located in DeKalb, Fulton, and Gwinnett Counties of
metropolitan Atlanta, Georgia. Additionally, through its Prime
Lending Division, the Association originates construction loans and
residential mortgages in the Augusta and Savannah, Georgia, and
Jacksonville, Florida metropolitan areas. The Association is subject
to competition from other financial institutions in the markets in
which it operates. The Association is federally regulated by the
Office of Thrift Supervision ("OTS") and certain other federal
agencies. Through Union Hill, LLC, Cobb Woodlawn, LLC, and Hampton
Oaks, LP, the Company is also engaged in real estate development
activities in the Atlanta metropolitan area.
The accounting and reporting policies of the Company conform to
generally accepted accounting principles and to general practice
within the savings and loan industry. The following is a description
of the more significant policies which the Company follows in
preparing and presenting its consolidated financial statements.
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of Eagle Bancshares,
Inc. and its wholly owned subsidiaries--Tucker Federal Savings and
Loan Association, Eagle Real Estate Advisors, Inc., Union Hill, LLC,
Cobb Woodlawn, LLC, and the Association's wholly owned subsidiaries,
Eagle Service Corporation and Eagle Asset Recovery Management
Services, Inc. All significant intercompany accounts and transactions
have been eliminated.
SECURITIES
The Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," at March 31, 1994. Under
SFAS No. 115, the Company classifies its securities in one of three
categories: trading, available for sale, or held to maturity.
Trading securities are bought and held principally for the purpose of
selling them in the near term; the Company has no investment
securities applicable to this classification at March 31, 1995 or
1994. Held-to-maturity securities are those securities for which the
Company has the ability and intent to hold the security until
maturity. All other securities not included in trading or held to
maturity are classified as available for sale.
With the adoption of SFAS No. 115, the Company has reported the effect
of the change in the method of accounting for investments in debt and
equity securities as a separate component of equity, net of income
31
<PAGE> 33
taxes. The unrealized holding gains on securities available for sale,
net of income taxes, amounted to $46,000 and $387,000 at March 31,
1995 and 1994, respectively.
Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted
for the amortization or accretion of premiums or discounts.
Unrealized holding gains and losses on trading securities and
transfers into trading securities are included in earnings. Realized
gains and losses for securities classified as available for sale and
held to maturity are included in earnings and are derived using the
specific identification method for determining the cost of securities
sold. Unrealized holding gains and losses, net of the related tax
effect, on securities available for sale are excluded from earnings
and are reported as a separate component of stockholders' equity until
realized. Transfers of securities between categories are recorded at
fair value at the date of transfer.
A decline in the market value of any available-for-sale or
held-to-maturity security below cost that is deemed other than
temporary results in a charge to earnings, resulting in the
establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to the yield using the effective
interest method and prepayment assumptions. Dividend and interest
income is recognized when earned.
Gains and losses on sales of investment securities are recognized on
the settlement date, based on the adjusted cost of the specific
security. The financial statement impact of settlement date
accounting versus trade date accounting was immaterial.
LOANS RECEIVABLE
Loans receivable held for investment are stated at their unpaid
principal balances less undisbursed portion of loans in process,
unearned interest, unamortized discounts and premiums, deferred loan
fees, and the reserve for loan losses. Loans held for sale are
carried at the lower of cost or estimated market value, as determined
by outstanding commitments from investors or current investor yield
requirements calculated on an aggregate basis.
RESERVE FOR LOAN LOSSES
A provision for loan losses is charged to operations based on
management's evaluation of the potential losses in its portfolio.
This evaluation considers the estimated value of the underlying
collateral, the nature and volume of the portfolio, loan
concentrations, specific problem loans, and economic conditions that
may affect the borrower's ability to repay and such other factors as,
in management's judgment, deserve recognition under existing economic
conditions. Loans are charged off to the allowance when, in the
opinion of management, such loans are deemed to be uncollectible.
Subsequent recoveries are added to the allowance.
Management believes that the reserve for loan losses is adequate and
real estate valuations are appropriate. While management uses
available information to recognize losses on loans and real estate
owned, future additions to the reserve may be necessary based on
changes in economic conditions, particularly in the Company's primary
market areas. In addition, various regulatory agencies, as an
integral part of their examination processes, periodically review the
Company's reserve for loan losses and real estate valuations. Such
agencies may require the Company to recognize additions to the reserve
or write down real estate based on their judgments about information
available to them at the time of their examination.
32
<PAGE> 34
LOAN ORIGINATION FEES
Loan origination fees, net of certain direct origination costs, are
deferred and amortized to income over the contractual life of the loan
using a level-yield method, adjusted for loan curtailment payments.
MORTGAGE PRODUCTION FEES
The Association and Eagle Service Corporation, the Association's
wholly owned subsidiary, originate conventional and FHA/VA loans, the
majority of which are presold to investors with servicing released.
Fees received relating to the origination and sale of these loans are
included in mortgage production fees in the statements of income when
the loans are sold and consist of loan servicing release premiums of
approximately $2,300,000, $3,200,000, and $1,800,000 and loan
origination and discount points, net of commissions, of approximately
$936,000, $2,900,000, and $1,575,000 for the years ended March 31,
1995, 1994, and 1993, respectively.
STOCK IN FEDERAL HOME LOAN BANK ("FHLB") AND OTHER
Investment in stock of a FHLB is required of institutions utilizing
their services. The investment is carried at cost, since no ready
market exists for the stock and it has no quoted market value.
Eligible savings accounts are insured up to $100,000 by the Savings
Association Insurance Fund of the Federal Deposit Insurance
Corporation.
REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS
Real estate acquired in settlement of loans is considered held for
sale and is carried at fair value adjusted for estimated costs to
sell. Such determination is made on an individual asset basis. Any
excess of the loan balance at the time of foreclosure over the fair
value of the real estate held as collateral is treated as a loan
charge-off. A provision for estimated losses on real estate is
charged to earnings when a subsequent decline in value occurs. The
Association has recorded an allowance for estimated losses on real
estate acquired in settlement of loans of approximately $49,000 and
$119,000 at March 31, 1995 and 1994, respectively. Costs relating to
holding properties are charged to operations.
REAL ESTATE HELD FOR DEVELOPMENT AND SALE
Real estate held for development and sale is carried at the lower of
cost or net realizable value. Certain carrying charges, including
interest, related to properties under development are capitalized as
development costs during the construction period.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost less accumulated
depreciation. Depreciation is provided on a straight-line basis over
the estimated useful lives of the related assets. Estimated lives are
15 to 40 years for buildings and improvements and 3 to 10 years for
furniture, fixtures, and equipment.
INCOME TAXES
Effective April 1, 1993, the Company adopted the provisions of SFAS
No. 109, "Accounting for Income Taxes," and has reported the
cumulative effect of that change in the method of accounting for
income taxes in the statement of income for the year ended March 31,
1994. Under the asset and liability method of SFAS
33
<PAGE> 35
No. 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are
measured using tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
In prior years, in accordance with the deferred method of Accounting
Principles Board Opinion No. 11, deferred income taxes resulted from
the recognition of certain income and expense items in different
periods for financial statement and tax reporting purposes using the
tax rate applicable for the year of calculation. Under the deferred
method, deferred taxes were not adjusted for subsequent changes in the
tax rates.
The Company files consolidated income tax returns.
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," and
SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan--Income Recognition and Disclosures," will be required to be
adopted by the Company during its fiscal year beginning April 1, 1995.
SFAS Nos. 114 and 118 require impaired loans to be measured based on
the present value of expected future cash flows, discounted at the
loan's effective interest rate, or at the loan's observable market
price or the fair value of the collateral if the loan is
collateral-dependent. The Company has not yet determined the actual
impact of SFAS Nos. 114 and 118 on its financial statements. However,
based on the Company's current accounting policies related to
providing for losses on problem loans, the Company's management does
not believe that the impact of SFAS Nos. 114 and 118 will be
significant to the financial statements.
In May 1995, the Financial Accounting Standards Board issued SFAS No.
122, "Accounting for Mortgage Servicing Rights." SFAS No. 122
addresses the accounting for purchased and originated mortgage serving
rights and is effective for fiscal years beginning after December 15,
1995. The Company's management is currently evaluating the impact
SFAS No. 122 will have on its financial statements.
CASH EQUIVALENTS
Cash equivalents include amounts due from banks and interest-bearing
deposits with maturities of three months or less.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year balances in
order to conform with current year financial statement presentations.
34
<PAGE> 36
2. SECURITIES
Securities available for sale at March 31, 1995 and 1994 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1995
---------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST LOSSES GAINS VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Mortgage-backed securities $13,890 $ 0 $203 $14,093
Equity securities--preferred stock 6,975 (226) 97 6,846
------- ------- ---- -------
$20,865 $ (226) $300 $20,939
======= ======= ==== =======
</TABLE>
<TABLE>
<CAPTION>
1994
---------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Losses Gains Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Mortgage-backed securities $17,287 $ 0 $624 $17,911
Equity securities--preferred stock 2,972 0 0 2,972
------- ------- ---- -------
$20,259 $ 0 $624 $20,883
======= ======= ==== =======
</TABLE>
The Company sold mortgage-backed securities with a carrying value of
approximately $5,109,000 and $13,595,000 during the years ended March 31,
1995 and 1994, respectively, resulting in gross realized gains of
approximately $14,000 and $959,000, respectively.
Investment securities held to maturity at March 31, 1995 and 1994 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995
---------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST LOSSES GAINS VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Mortgage-backed securities $10,009 $ (157) $ 39 $ 9,891
U.S. government and agency
obligations 24,799 (539) 76 24,336
Corporate bonds 10,376 (211) 209 10,374
Other debt securities 12,415 (315) 0 12,100
------- -------- ---- -------
Total $57,599 $ (1,222) $324 $56,701
======= ======== ==== =======
</TABLE>
35
<PAGE> 37
<TABLE>
<CAPTION>
1994
---------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Losses Gains Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Mortgage-backed securities $11,388 $(128) $ 471 $11,731
U.S. government and agency
obligations 17,860 (116) 352 18,096
Corporate bonds 2,463 0 301 2,764
Other debt securities 2,972 (2) 0 2,970
------- ----- ------ -------
Total $34,683 $(246) $1,124 $35,561
======= ===== ====== =======
</TABLE>
The amortized cost and estimated market value of securities other than
equities at March 31, 1995, by contractual maturity, are as follows (in
thousands):
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
--------- ---------
<S> <C> <C>
Due in one year or less $ 0 $ 0
Due one to five years 30,889 30,393
Due five to ten years 3,384 3,481
Due after ten years 37,216 36,920
------- -------
$71,489 $70,794
======= =======
</TABLE>
Expected maturities may differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
36
<PAGE> 38
3. LOANS RECEIVABLE
At March 31, 1995 and 1994, loans receivable are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Real estate mortgage loans:
Fixed rates $ 46,983 $ 43,100
Adjustable rates 119,653 65,419
Real estate construction loans 154,512 126,754
Home equity and second mortgage loans 10,250 10,701
--------- ---------
Total real estate loans 331,398 245,974
--------- ---------
Investment in commercial leases 32,582 29,364
Consumer loans 1,001 729
Loans secured by savings 1,320 1,576
--------- ---------
Total loans 366,301 277,643
Less:
Undisbursed portion of loans in process 56,780 52,054
Unearned income 593 1,190
Deferred loan origination fees 1,547 1,176
Reserve for loan losses 3,362 3,349
Net discount on loans purchased 113 148
--------- ---------
Loans receivable, net $ 303,906 $ 219,726
========= =========
</TABLE>
At March 31, 1995, 1994, and 1993, an analysis of the reserve for loan
losses is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ -------
<S> <C> <C> <C>
Reserve for loan losses, beginning of year $3,349 $2,420 $ 892
Charge-offs (684) (104) (635)
Recoveries 54 33 5
Provision ofr loan losses 643 1,000 630
Reserve on purchased loans 0 0 1,528
------ ------ ------
Reserve for loan losses, end of year $3,362 $3,349 $2,420
====== ====== ======
</TABLE>
Substantially all of the Company's loans held for investment are secured by
real estate in Georgia, primarily in the metropolitan Atlanta, Augusta, and
Savannah areas and Jacksonville, Florida. A substantial portion of the real
estate owned also consists of single-family residential properties and land
located in those same markets. Additionally, no single customer accounted for
more than 2% of the Company's loans in 1995 or 1994.
At March 31, 1995, 1994, and 1993, the Company had nonaccrual loans aggregating
approximately $603,000, $787,000, and $2,057,000, respectively. The interest
income not recognized on these loans amounted to $40,000, $26,000, and $11,000
for the years ended March 31, 1995, 1994, and 1993, respectively.
The Company was servicing loans for others with aggregate principal balances of
approximately $13,271,000, $15,654,000, and $11,863,000 at March 31, 1995,
1994, and 1993, respectively.
37
<PAGE> 39
At March 31, 1995 and 1994, the Company had sold approximately $40,419,000 and
$73,734,000, respectively, of loans with recourse. The recourse period is
three to six months on a substantial majority of these loans. Investors can
exercise their recourse option in the event the borrower defaults on the loan
during that recourse period. In 1995, 1994, and 1993 the Company has incurred
nominal losses from the repurchase of recourse loans.
At March 31, 1995, the Company had commitments to originate fixed rate mortgage
loans of approximately $3,330,000 and commitments to originate variable rate
mortgage loans of approximately $2,394,000, with terms up to 30 years and
interest rates ranging from 6.5% to 11%. The Company had commitments to sell
mortgage loans of approximately $41,220,000 at March 31, 1995. In addition,
the Company is committed to loan funds on unused variable rate lines of credit
of approximately $7,093,000 at March 31, 1995. These off-balance sheet
commitments represent the unused portion of home equity lines of credit. The
Company's policy is to offer these lines where collateral requirements are
residential real estate with aggregate loan-to-value ratios of 80% or less.
4. PREMISES AND EQUIPMENT
At March 31, 1995 and 1994, premises and equipment are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- ------
<S> <C> <C>
Land $ 2,389 $1,274
Office buildings and improvements 5,004 4,318
Furniture, fixtures, and equipment 4,065 3,362
-------- ------
11,458 8,954
Less accumulated depreciation 3,159 2,537
-------- ------
$ 8,299 $6,417
======== ======
</TABLE>
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," and SFAS
No. 119, "Disclosure About Derivative Financial Instruments and Fair Value of
Financial Instruments," require that the Company disclose estimated fair values
for its financial instruments. Fair value estimates, methods, and assumptions
are set forth below for the Company's financial instruments.
CASH AND AMOUNTS DUE FROM BANKS AND INTEREST-BEARING DEPOSITS
The carrying amount approximates fair value because of the short maturity of
these instruments.
SECURITIES
The fair value of investment and mortgage-backed securities available for sale
and held to maturity is estimated based on bid quotations received from
securities dealers. As noted in Note 2 to these financial statements, the fair
value of securities available for sale and held to maturity is approximately
$20,939,000 and $56,701,000, respectively.
38
<PAGE> 40
LOANS RECEIVABLE
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type. The fair value of performing
loans is calculated by discounting scheduled cash flows through the estimated
maturity using estimated market discount rates that reflect the credit and
interest rate risk inherent in the loan. The estimate of maturity is based on
the Association's historical experience with repayments for each loan
classification, modified, as required, by an estimate of the effect of the
current economic and lending conditions.
Fair value for significant nonperforming loans is based on recent external
appraisals. If appraisals are not available, estimated cash flows are
discounted using a rate commensurate with the risk associated with the
estimated cash flows. Assumptions regarding credit risk, cash flows, and
discount rates are judgmentally determined using available market information
and specific borrower information.
The following table presents information for loans as of March 31, 1995 and
1994 (in thousands):
<TABLE>
<CAPTION>
1995 1994
------------------------ ------------------------
CARRYING ESTIMATED Carrying Estimated
AMOUNT FAIR VALUE Amount Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Real estate mortgage loans:
Fixed rates $ 46,983 $ 47,159 $ 43,100 $ 44,099
Adjustable rates 119,653 122,734 65,419 69,923
Real estate construction loans 154,512 154,512 126,754 126,754
Home equity and second mortgage loans 10,250 9,744 10,701 9,685
Investment in commercial leases 32,582 32,517 29,364 29,413
Other loans 2,321 2,305 2,305 2,326
-------- -------- -------- --------
Total loans 366,301 368,971 277,643 282,200
Less:
Undisbursed portion of loans in process 56,780 56,780 52,054 52,054
Unearned income 593 410 1,190 797
Deferred loan origination fees 1,547 1,385 1,176 1,029
Reserve for loan losses 3,362 3,362 3,349 3,349
Net discount on loans purchased 113 72 148 122
-------- -------- -------- --------
Loans receivable, net $303,906 $306,962 $219,726 $224,849
======== ======== ======== ========
</TABLE>
LOANS HELD FOR SALE
Loans held for sale are carried at the lower of cost or estimated market
value, as determined by outstanding commitments from investors or current
investor yield requirements calculated on an aggregate basis as of March 31,
1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Carrying amount $41,220 $23,641
======= =======
Estimated fair value $41,526 $23,946
======= =======
</TABLE>
39
<PAGE> 41
DEPOSITS
Under SFAS Nos. 107 and 119, the fair value of deposits with no stated
maturity, such as Negotiable Order of Withdrawal ("NOW") accounts, money
market accounts, and passbook accounts, is equal to the amount payable on
demand as of March 31, 1995 and 1994. The fair value of 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 remaining maturities as of March 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1995 1994
------------------------ ------------------------
CARRYING ESTIMATED Carrying Estimated
AMOUNT FAIR VALUE Amount Fair Value
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
NOW accounts $ 28,244 $ 28,244 $ 24,609 $ 24,609
Money market accounts 10,836 10,836 12,487 12,487
Passbook accounts 43,761 43,761 52,655 52,655
Time deposits:
Maturity one year or less 124,689 127,210 81,222 81,900
Maturity greater than one year through two years 23,830 24,642 23,325 23,707
Maturity greater than two years through three years 17,279 17,718 15,147 15,472
Maturity greater than three years 37,676 38,278 34,852 34,777
-------- -------- -------- --------
$286,315 $290,689 $244,297 $245,607
======== ======== ======== ========
</TABLE>
FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
The fair value of the Association's advances from the FHLB and other
borrowings is estimated based on the quoted market prices for the same or
similar issues or on the current rates for advances and borrowings of the
same remaining maturities as of March 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Carrying amount $119,953 $30,750
======== =======
Estimated fair value $119,958 $30,899
======== =======
</TABLE>
COMMITMENTS
The fair value for commitments to extend credit to fund real estate
construction and real estate mortgage loans is immaterial at March 31, 1995
and 1994 because their underlying interest rates approximate market.
LIMITATIONS
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the Association's entire holdings of a
particular financial instrument. Because no market exists for a portion of
the Association's financial instruments, fair value estimates are based on
judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. These estimates are subjective in
40
<PAGE> 42
nature, involve uncertainties and matters of significant judgment, and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. Other significant assets and
liabilities that are not considered financial assets or liabilities
include deferred tax liabilities and premises and equipment. In addition,
the tax ramifications related to the realization of the unrealized gains
and losses can have a significant effect on fair value estimates and have
not been considered in many of the estimates.
6. DEPOSITS
At March 31, 1995 and 1994, deposits are summarized by type and remaining
term as follows (dollars in thousands):
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
INTEREST RATE
-------------
1995 1994 1995 1994
--------- --------- ---- ----
<S> <C> <C> <C> <C>
Demand deposits:
NOW accounts $ 28,244 $ 24,609 1.82% 1.82%
Money market accounts 10,836 12,487 2.50 2.50
Passbook accounts 43,761 52,655 2.53 2.53
-------- --------
82,841 89,751 2.28 2.33
-------- --------
Time deposits:
Maturity one year or less 124,689 81,222
Maturity greater than one year through two years 23,830 23,325
Maturity greater than two years through three years 17,279 15,147
Maturity greater than three years 37,676 34,852
-------- --------
203,474 154,546 5.93 5.06
-------- --------
Total deposits $286,315 $244,297 4.87 4.06
======== ========
Interest expense on deposits is summarized as follows (in thousands):
1995 1994 1993
------- ------- -------
NOW accounts $ 484 $ 383 $ 455
Money market accounts 300 311 416
Passbook accounts 1,425 1,435 1,707
Time deposits 9,417 7,877 8,830
------- ------- -------
$11,625 $10,006 $11,408
======= ======= =======
</TABLE>
41
<PAGE> 43
7. FHLB ADVANCES AND OTHER BORROWINGS
FHLB advances and other borrowings are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
FHLB advances $117,143 $30,750
Other borrowings 2,810 0
-------- -------
$119,953 $30,750
======== =======
</TABLE>
FHLB advances are collateralized by unencumbered mortgage loans of at least
150% of outstanding advances, approximately $28,902,000 of investment
securities and by stock in the FHLB at March 31, 1995. The advances
mature at various dates through July 20, 1999. The weighted average
interest rate on FHLB advances was 6.77% and 5.76% at March 31, 1995 and
1994, respectively. Maximum short-term borrowings during fiscal year 1995
were $111,170,000.
As of March 31, 1995, repayments of FHLB advances and other borrowings for
subsequent fiscal years are estimated to be as follows (in thousands):
<TABLE>
<S> <C>
1996 $109,088
1997 2,165
1998 381
1999 381
2000 7,765
Thereafter 173
--------
$119,953
========
</TABLE>
The Company recorded an extraordinary loss of $427,000, net of income tax
benefit of $261,000, relating to the early extinguishment of certain FHLB
advances during the year ended March 31, 1994.
8. INCOME TAXES
As discussed in Note 1, the Company adopted SFAS No. 109 as of April 1,
1993. The cumulative effect of the change in accounting for income taxes
was $320,000 as of April 1, 1993 and was reported separately in the
statement of income for the year ended March 31, 1994. Prior years'
financial statements have not been restated to apply the provisions of SFAS
No. 109.
42
<PAGE> 44
Income tax expense is allocated as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Income tax expense from continuing operations:
Current expense:
Federal $1,843 $2,824 $2,167
State 195 345 53
------ ------ ------
2,038 3,169 2,220
------ ------ ------
Deferred expense:
Federal 205 17 45
State 36 3 4
------ ------ ------
241 20 49
------ ------ ------
2,279 3,189 2,269
Extraordinary item--income tax benefit relating to early extinguishment of
debt 0 (261) 0
------ ------ ------
$2,279 $2,928 $2,269
====== ====== ======
</TABLE>
The following is a summary of the differences between the income tax
expense as shown in the accompanying financial statements and the income
tax expense which would result from applying the federal statutory tax rate
of 34% for fiscal years 1995, 1994, and 1993 to income before income taxes,
extraordinary item, and cumulative effect of change in accounting principle
(in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Expected income tax expense $2,169 $2,892 $2,155
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal income tax benefit 152 230 38
Statutory bad debt deduction 0 0 (381)
Provision for loan losses 0 0 377
Other, net (42) 67 80
------ ------ ------
Actual income tax expense $2,279 $3,189 $2,269
====== ====== ======
</TABLE>
43
<PAGE> 45
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at March
31, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------ -------
<S> <C> <C>
Deferred tax assets:
Loans receivable, due to reserve for loan losses $1,023 $ 710
Other 64 0
------ -------
Total gross deferred tax assets 1,087 710
------ -------
Deferred tax liabilities:
FHLB stock, due to dividends not recognized for tax purposes 400 480
Loans receivable, due to differences in deferred loan fees and costs recognition for tax
purposes 922 250
Premises and equipment, due to differences in depreciation methods for tax purposes 178 120
Net unrealized gain on investment securities available for sale, not recognized for tax
purposes 28 237
Other 0 43
------ -------
Total gross deferred tax liabilities 1,528 1,130
------ -------
Net deferred tax liability $ 441 $ 420
====== =======
</TABLE>
No valuation allowances for deferred tax assets have been recorded as of
March 31, 1995 and 1994, based on management's assessment that it is more
likely than not that these assets will be realized. This assessment is
based primarily on the level of historical taxable income and projections
for future taxable income over the periods in which the deferred tax
assets are deductible.
Retained earnings at March 31, 1995 include approximately $3,900,000 for
which no provision for federal income tax has been made. This amount
represents allocations of income to bad debt reserves for tax computation
purposes and is subject to federal income tax in future years if used for
purposes other than to absorb bad debt losses.
9. EMPLOYEE BENEFIT PLANS
Effective April 1, 1989, the board instituted an employee stock
ownership plan ("ESOP"). During the year ended March 31, 1992, the
Company's ESOP borrowed approximately $269,000 from Eagle Bancshares, Inc.
to acquire common stock of the Company on the open market. The note will
be repaid principally from the Association's contributions to the ESOP and,
accordingly, the note is reflected in the equity section as a reduction
from equity. The Association's contribution expense in fiscal 1995, 1994,
and 1993 was approximately $569,000, $584,000, and $310,000, respectively.
In connection with the Association's conversion to a federally chartered
stock association, the board of directors adopted the Eagle Bancshares,
Inc. Stock Option and Incentive Plan ("Option Plan"), pursuant to which
options to purchase 10% of the shares of the Company's common stock issued
in the conversion can be granted to officers and other full-time employees.
The Option Plan also provides for the granting of nonincentive stock
options and stock appreciation rights. Information relating to these stock
options for the years ended March 31, 1995, 1994, and 1993 is as follows:
44
<PAGE> 46
<TABLE>
<CAPTION>
1995 1994 1993
---------------- ---------------- --------------
<S> <C> <C> <C>
Options outstanding at beginning of
year 78,000 76,000 76,000
Options granted 78,250 24,000 0
Options exercised (16,500) (22,000) 0
---------------- ---------------- --------------
Options outstanding at end of year 139,750 78,000 76,000
================ ================ ==============
Options exercisable at end of year 50,499 57,333 54,000
Option prices per share:
Options granted during year $22.50 TO $24.25 $19.50 to $24.25 $0.00
Options exercised during the year $6.38 $6.38 $0.00
Options outstanding at end of year $6.75 TO $24.25 $6.38 to $24.25 $6.38 to $9.75
================ ================ ==============
</TABLE>
During the year ended March 31, 1994, the Company awarded 15,000
nontransferable restricted shares of the Company's common stock to an
officer of the Association. During the year ended March 31, 1995, the
Company awarded two officers of the Association 7,500 each, nontransferable
restricted shares of the Company's common stock. The market value of the
shares at the date of award of $338,000 and $293,000 for the year ended
March 31, 1995 and 1994, respectively, is being amortized by charges to
compensation expense over the three-year vesting period. Compensation
expense related to these awards for the year ended March 31, 1995 and 1994
was $228,000 and $110,000, respectively. The unamortized balance of the
awards are included as a deduction from stockholders' equity in the
statements of financial condition. Additionally, certain officers of the
Company are employed under various employment agreements, expiring over the
next three years.
Also, eligible employees participate in a 401(k) defined contribution
plan. The Association's contribution is determined annually by the board of
directors and is allocated to participants in the proportion of their
compensation to total compensation of participants. The Association's
401(k) contributions in fiscal years 1995, 1994, and 1993 were
approximately $154,000, $62,000, and $30,000, respectively.
10. STOCKHOLDERS' EQUITY
At the time of conversion to a federally chartered stock association,
the Association was required by the Federal Savings and Loan Insurance
Corporation to establish a liquidation account in an amount equal to its
retained earnings determined at December 31, 1985. The purpose of the
account is to grant a limited priority claim on the assets of the
Association to qualifying depositors ("Eligible Account Holders") as of
April 19, 1985. In the event of a future complete liquidation of the
Association, each Eligible Account Holder would receive from the
liquidation account a liquidation distribution based on his/her share of
the then remaining qualifying deposits. This account is reduced annually
in proportion to the reduction of eligible savings account balances
measured on March 31 of each year.
45
<PAGE> 47
The source of funds for payment of dividends by the Company will be
dividends paid to the Company by the Association. Without the approval of
the OTS, repurchases of capital stock may not be made, nor may cash
dividends on capital stock be declared or paid, if the effect thereof would
be to cause the Association's net worth to be reduced below (a) the amount
required for the liquidation account or (b) the regulatory capital
requirements of the OTS. This restriction amounted to approximately
$22,500,000 of the Association's net worth as of March 31, 1995. The
Association paid dividends to the Company of approximately $3,300,000,
$1,050,000, and $901,000 during the years ended March 31, 1995, 1994, and
1993, respectively.
11. INDUSTRY SEGMENTS
The Company operates principally in the thrift industry through its
wholly owned subsidiary, Tucker Federal Savings and Loan Association. The
Company also operates in the mortgage banking industry through the
Association's wholly owned subsidiary, Eagle Service Corporation, and its
Prime Lending Division, which originates and sells residential mortgages
and construction loans. All significant intersegment accounts and
transactions are eliminated in consolidation. Industry segment information
for the years ended March 31, 1995, 1994, and 1993 are presented below (in
thousands):
<TABLE>
<CAPTION>
RETAIL MORTGAGE
BANKING BANKING ELIMINATIONS CONSOLIDATED
--------- --------- ------------- ------------
<S> <C> <C> <C> <C>
1995:
Revenues $ 29,488 $ 15,514 $ (6,313) $ 38,689
Net income 4,667 2,149 (2,715) 4,101
Identifiable assets 450,159 117,602 (110,444) 457,317
Capital expenditures, net 2,291 235 0 2,526
Depreciation on premises and equipment 536 108 0 644
1994:
Revenues $ 26,962 $ 14,465 $ (4,648) $ 36,779
Net income 2,726 2,889 (404) 5,211
Identifiable assets 287,242 99,188 (66,045) 320,385
Capital expenditures, net 2,252 63 0 2,315
Depreciation on premises and equipment 498 98 0 596
1993:
Revenues $ 27,031 $ 8,353 $ (2,149) $ 33,235
Net income 2,303 1,937 (171) 4,069
Identifiable assets 287,947 71,474 (37,824) 321,597
Capital expenditures, net 1,626 38 0 1,664
Depreciation on premises and equipment 303 31 0 334
</TABLE>
The Company includes construction lending activity and the origination
and sale of first mortgage loans in the mortgage banking segment.
46
<PAGE> 48
12. FINANCIAL INFORMATION OF SERVICE CORPORATION
The following condensed statements of financial condition as of March 31,
1995 and 1994 and the related condensed statements of income for the
years ended March 31, 1995, 1994, and 1993 summarize the financial
position and operating results of the Association's wholly owned
subsidiary, Eagle Service Corporation:
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF FINANCIAL CONDITION
ASSETS
1995 1994
------ ------
(In Thousands)
<S> <C> <C>
Cash $ 43 $ 77
Loans held for sale 3,512 7,543
Other assets 902 646
------ ------
Total assets $4,457 $8,266
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Notes payable to parent $1,017 $4,502
Drafts outstanding 1,677 1,962
Accrued expenses and other liabilities 434 480
------ ------
Total liabilities 3,128 6,944
====== ======
Stockholder's equity:
Common stock 500 500
Retained earnings 829 822
Total stockholder's equity 1,329 1,322
------ ------
Total liabilities and stockholder's equity $4,457 $8,266
====== ======
</TABLE>
47
<PAGE> 49
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
1995 1994 1993
------ ------ ------
(In Thousands)
<S> <C> <C> <C>
Mortgage production fees $1,003 $1,969 $1,474
Appraisal and other fees 190 326 196
Interest income 329 651 551
Interest on note payable to parent (145) (392) (394)
Other 316 (16) (12)
------ ------ ------
Operating income 1,693 2,538 1,815
General and administrative expenses 1,682 1,726 1,422
------ ------ ------
Income before income tax expense 11 812 393
Federal income tax expense 4 308 148
------ ------ ------
Net income $ 7 $ 504 $ 245
====== ====== ======
</TABLE>
13. REGULATORY CAPITAL
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
requires institutions to maintain a minimum regulatory tangible capital
equal to 1.5% of total assets, a minimum 3% core capital ratio, and an 8%
risk-based capital ratio. At March 31, 1995, the Company and the
Association met all minimum regulatory capital requirements.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA)" established five capital categories for financial institutions.
The thrift regulators adopted regulations defining these five capital
categories effective December 1992. Under the new regulations, each thrift
will be classified into one of the five categories (well-capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized,
and critically undercapitalized) based on its level of risk-based capital
as measured by Tier 1 capital, total risk-based capital , Tier 1 leverage
ratios, and its supervisory ratings. FDICIA defines well- capitalized banks
as entities having total risk-based capital ratio of 10% or higher, a Tier
1 risk-based capital ratio of 6% or higher, and a leverage ratio of 5% or
higher. At March 31, 1995 the Association is classified as a
well-capitalized institution under the FDICIA regulations.
48
<PAGE> 50
14. EARNINGS PER SHARE
Weighted average common and common equivalent shares for the years ended
March 31, 1995, 1994, and 1993 are computed as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Primary:
Weighted average shares outstanding 1,529,662 1,484,412 1,474,000
Common shares assumed outstanding to reflect
dilutive effect of common stock options 20,668 45,853 0
--------- --------- ---------
Weighted average shares and common equivalent
shares outstanding 1,550,330 1,530,265 1,474,000
========= ========= =========
Fully diluted:
Weighted average shares outstanding 1,529,662 1,484,412 1,474,000
Common shares assumed outstanding to reflect
dilutive effect of common stock options 22,734 47,184 0
--------- --------- ---------
Weighted average shares outstanding 1,552,396 1,531,596 1,474,000
========= ========= =========
</TABLE>
The dilutive effect of common stock equivalents on earnings per share is
less than 3% for the year ending March 31, 1995; therefore, simple
weighted average shares outstanding are used in computing earnings per
share.
49
<PAGE> 51
15. FINANCIAL INFORMATION OF EAGLE BANCSHARES, INC. (PARENT ONLY)
Eagle Bancshares, Inc.'s condensed statements of financial condition as of
March 31, 1995 and 1994 and related condensed statements of income and cash
flows for the years ended March 31, 1995, 1994, and 1993 are as follows:
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF FINANCIAL CONDITION
ASSETS
1995 1994
------- -------
(In Thousands)
<S> <C> <C>
Cash $ 591 $ 1,042
Investment in subsidiaries 31,508 30,247
Other assets 2,161 39
------- -------
Total assets $34,260 $31,328
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Due to subsidiaries $ 182 $ 133
Other liabilities 442 363
------- -------
624 496
------- -------
Stockholders' equity:
Common stock 1,695 1,662
Additional paid-in capital 8,200 7,763
Retained earnings 25,075 22,420
Net unrealized gain on securities available for sale 46 387
ESOP debt (11) (141)
Unamortized restricted stock (293) (183)
Treasury stock (1,076) (1,076)
------- -------
Total stockholders' equity 33,636 30,832
------- -------
Total liabilities and stockholders' equity $34,260 $31,328
======= =======
</TABLE>
50
<PAGE> 52
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
1995 1994 1993
------ ------ ------
(In Thousands)
<S> <C> <C> <C>
Interest and other income $ 2 $ 31 $ 83
Management fee income 100 100 100
Equity in undistributed earnings of subsidiaries 869 4,327 3,132
Dividends from subsidiaries 3,300 1,050 901
------ ------ ------
Total income 4,271 5,508 4,216
General and administrative expenses 170 190 147
------ ------ ------
Income before extraordinary item and cumulative effect of
change in accounting principle 4,101 5,318 4,069
Extraordinary item 0 (427) 0
Cumulative effect of change in accounting for income taxes 0 320 0
------ ------ ------
Net income $4,101 $5,211 $4,069
====== ====== ======
</TABLE>
51
<PAGE> 53
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
1995 1994 1993
------ ------ ------
(In Thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $4,101 $5,211 $4,069
------ ------ ------
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in undistributed earnings of subsidiaries (869) (4,327) (3,132)
Cumulative effect of change in accounting principle 0 (320) 0
Amortization of restricted stock award 228 110 0
(Increase) decrease in other assets (122) (3) 35
Increase in due to subsidiaries 49 88 62
Increase (decrease) in other liabilities 79 2 (45)
------ ------ ------
Total adjustments (635) (4,450) (3,080)
------ ------ ------
Net cash provided by operating activities 3,466 761 989
------ ------ ------
Cash flows from investing activities:
Loan to Cobb Woodlawn LLC (2,000) 0 0
Capital contribution to Union Hill LLC (817) 0 0
------ ------ ------
Net cash used in investing activities (2,817) 0 0
------ ------ ------
Cash flows from financing activities:
Early extinguishment of debt penalties, net 0 427 0
Purchase of treasury stock 0 0 (57)
Cash dividends paid (1,362) (771) (590)
Stock options exercised 132 140 0
Principal reduction of ESOP debt 130 86 25
------ ------ ------
Net cash used in financing activities (1,100) (118) (622)
------ ------ ------
Net (decrease) increase in cash (451) 643 367
Cash at beginning of year 1,042 399 32
------ ------ ------
Cash at end of year $ 591 $1,042 $ 399
====== ====== ======
Supplemental disclosure of noncash financing activities:
Dividends declared, not paid $ 386 $ 302 $ 148
====== ====== ======
Restricted stock award $ 338 $ 293 $ 0
====== ====== ======
Net (decrease) increase in unrealized gain on investment securities
available for sale, net of taxes $ (341) $ 387 $ 0
====== ====== ======
</TABLE>
52
<PAGE> 1
EXHIBIT 13.1 INDEPENDENT AUDITORS' REPORT
The Board of Directors
Eagle Bancshares, Inc.:
We have audited the accompanying consolidated statements of financial
condition of Eagle Bancshares, Inc. and subsidiaries as of March 31, 1994 and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the years in the two-year period ended March 31, 1994. 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 audits.
We conducted our audits 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 audits provide 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
Bancshares, Inc. and subsidiaries as of March 31, 1994 and the results of their
operations and their cash flows for each of the years in the two-year period
ended March 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in notes 1 and 8 to the consolidated financial
statements, the Company changed its method of accounting for income taxes to
adopt the provisions of Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes" on April 1, 1993. As discussed in notes 1
and 2 to the consolidated financial statements, the Company changed its method
of accounting for investments to adopt the provision of SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" at March 31,
1994.
KPMG Peat Marwick
Atlanta, Georgia
April 29, 1994
<PAGE> 1
EXHIBIT 21. PARENTS AND SUBSIDIARIES
<TABLE>
<CAPTION>
Percentage State of
Parent Company Subsidiaries Owned Incorporation
- -------------- ------------ ---------- -------------
<S> <C> <C> <C>
Eagle Bancshares, Inc. Tucker Federal
Savings and Loan Federally
Association 100% Chartered
Eagle Real Estate
Advisors, Inc. 100% Georgia
Tucker Federal
Savings and Loan Eagle Service
Association Corporation 100% Georgia
Eagle A.R.M.S.,
Inc. 100% Georgia
</TABLE>
<PAGE> 1
EXHIBIT 23. CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated May 12, 1995 included in Eagle Bancshares, Inc.'s Annual
Report to Shareholders and incorporated by reference into this Form 10-K, into
the Registrant's previously filed Registration Statement No. 33-73718.
Arthur Andersen LLP
Atlanta, Georgia
June 28, 1995
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EAGLE BANCSHARES, INC. FOR THE YEAR ENDED MARCH 31,
1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1994
<PERIOD-END> MAR-31-1995
<CASH> 6,214
<INT-BEARING-DEPOSITS> 144
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 20,939
<INVESTMENTS-CARRYING> 57,599
<INVESTMENTS-MARKET> 56,701
<LOANS> 303,906
<ALLOWANCE> 3,362
<TOTAL-ASSETS> 457,317
<DEPOSITS> 286,315
<SHORT-TERM> 0
<LIABILITIES-OTHER> 4,007
<LONG-TERM> 0
<COMMON> 1,695
0
0
<OTHER-SE> 31,941
<TOTAL-LIABILITIES-AND-EQUITY> 457,317
<INTEREST-LOAN> 26,330
<INTEREST-INVEST> 4,073
<INTEREST-OTHER> 1,939
<INTEREST-TOTAL> 32,342
<INTEREST-DEPOSIT> 11,625
<INTEREST-EXPENSE> 15,631
<INTEREST-INCOME-NET> 16,711
<LOAN-LOSSES> 643
<SECURITIES-GAINS> 14
<EXPENSE-OTHER> 16,035
<INCOME-PRETAX> 6,380
<INCOME-PRE-EXTRAORDINARY> 4,101
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,101
<EPS-PRIMARY> 2.68
<EPS-DILUTED> 2.68
<YIELD-ACTUAL> 9.11
<LOANS-NON> 603
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 954
<ALLOWANCE-OPEN> 3,349
<CHARGE-OFFS> 684
<RECOVERIES> 54
<ALLOWANCE-CLOSE> 630
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
