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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, 1996
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
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EAGLE BANCSHARES, INC.
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(Exact name of registrant as specified in its charter)
GEORGIA 58-1640222
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4305 LYNBURN DRIVE, TUCKER, GEORGIA 30084-4441
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 404-908-6690
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $1.00
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National Association of Securities Dealers Automated Quotation System
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(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 - $59,935,028 based upon the closing price
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on June 21, 1996, using beneficial ownership of stock rules adopted pursuant to
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Section 13 of the Securities Exchange Act of 1934 to exclude voting stock owned
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by directors and certain executive officers, some of whom may not be held to be
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affiliates upon judicial determination.
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Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of June 21, 1996.
Common Stock $1.00 par value - 4,552,200 shares outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the fiscal year ended
March 31, 1996 ("Annual Report to Stockholders"). (Parts I, II, and IV)
Portions of the definitive proxy statement for the 1996 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 49
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EAGLE BANCSHARES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page
Number Number
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PART I
<S> <C>
1. Business................................................................ 3
2. Properties.............................................................. 21
3. Legal Proceedings....................................................... 21
4. Submission of Matters to a Vote of Security Holders..................... 21
PART II
5. Market for the Registrant's Common Equity
and Related Stockholder Matters......................................... 22
6. Selected Financial Data................................................. 23
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................... 24
8. Financial Statements and Supplementary Data............................. 45
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..................................... 45
PART III
10. Directors and Executive Officers of the Registrant...................... 45
11. Executive Compensation.................................................. 46
12. Security Ownership of Certain Beneficial Owners
and Management.......................................................... 46
13. Certain Relationships and Related Transactions.......................... 46
PART IV
14. Exhibits, Financial Statements Schedules, and
Reports on Form 8-K..................................................... 46
Signatures.................................................................. 48
Index of Exhibits........................................................... 49
</TABLE>
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PART I
ITEM 1. BUSINESS
(A). GENERAL DEVELOPMENT OF BUSINESS
Eagle Bancshares, Inc. (the "Company") is a unitary savings and loan
holding company headquartered in Tucker, Georgia which owns and operates Tucker
Federal Savings and Loan Association ("Tucker Federal" or the "Bank"), Eagle
Real Estate Advisors, Inc. ("EREA") and the Bank's wholly-owned subsidiaries,
Prime Eagle Mortgage Corporation ("PrimeEagle") and Eagle Service Corporation.
At March 31, 1996, the Company had total assets of $612 million, total deposits
of $348 million and stockholders' equity of approximately $57 million. The Bank
is a federally chartered stock savings and loan association organized in 1956
and based in Tucker, Georgia. The Bank serves the north metropolitan Atlanta
area through its home office and ten full service branch offices in Cherokee,
DeKalb, Fulton and Gwinnett Counties, Georgia. The Bank's deposits are
federally insured by the Savings Association Insurance Fund ("SAIF") of the
Federal Deposit Insurance Corporation ("FDIC"). Based on total assets at March
31, 1996, the Bank is the second largest financial institution headquartered in
the metropolitan Atlanta area.
Prior to 1989, the Bank was engaged primarily in the traditional business
associated with thrift institutions, including the taking of deposits from the
general public and making loans secured by first mortgage liens on residential
and other real estate. Beginning in 1989, the Bank expanded the focus of its
operations beyond the traditional business of thrift institutions to include
the development of a loan production business. In connection with the
expansion of its operations, in 1989 the Bank organized Atlanta Mortgage
Services as a division of Eagle Service Corporation for the purpose of
originating and selling single-family first mortgage loans in the north
metropolitan Atlanta area. In November 1992, the Bank acquired the loan
production operation of Prime Lending including loan production offices located
in Augusta, Savannah, Warner Robins and Macon, Georgia.
The Company's business plan is based on four basic strategies:
- Build long-term shareholder value,
- Create competitive advantages in targeted business niches,
- Develop long-term, customer driven relationships, and
- Create an entrepreneurial company where managers have an ownership
interest and operate like owners.
In keeping with these principles, the Company's top priority is to increase
shareholder value by improving operating profitability, developing new sources
of income, prudently investing in the future and attracting highly qualified
employees.
ENHANCE OPERATING PROFITABILITY. The Company will continue its efforts to
increase the level of higher yielding assets in its loan portfolio. Management
is expanding the Company's portfolio of non-conforming credit mortgages and
increase its level of consumer lending. The Company intends to continue its
efforts to improve operating efficiencies in its loan production operations by
increasing permanent originations in its targeted emerging Southeastern cities.
DEVELOP NEW SOURCES OF INCOME. Management believes there is an
opportunity to develop a strong small business banking niche in its market
areas. Currently, the Bank is an active SBA lender in the metropolitan Atlanta
market. Management believes that the financial services required by small
businesses are not adequately provided by the large banks operating in the
Atlanta area that are headquartered outside the State of Georgia. The Company
has expanded its consumer sales finance department.
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INVEST IN THE FUTURE. The Company has invested in technology and plans to
continue during the next six months to improve efficiencies and enhance customer
service. The Company has opened seven loan production offices over the last 24
months. Additionally, the Company opened new branch banking facilities in the
fall of 1995 and in the spring of 1996. These investments are intended to
enhance the Company's infrastructure and delivery system to support future
growth of the Company.
RECRUIT EXPERIENCED BANKING PROFESSIONALS. The consolidation of bank and
thrift institutions in the Atlanta marketplace has created opportunities for
the Company to recruit banking professionals who bring experience and customer
relationships. The Company believes that its entrepreneurial focus enhances the
attractiveness of a position with the Company by allowing employees to directly
share in earnings and equity ownership.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Retail and mortgage 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.
RETAIL BANKING - The Bank is primarily engaged in the business of
attracting deposits from the general public, and, with these and other funds,
making construction and permanent first mortgage loans on residential and
commercial real estate, making various types of consumer and other loans, and
investing in mortgage-backed securities and money market securities. In
addition to deposits, sources of funds for the Bank's loans and other
investments include origination and other fees charged on certain types of
loans, amortization and prepayment of loans, sales of loans or participations
in loans, and in sales of investment securities. The principal sources of
income for the Bank are interest and fees collected on loans and, to a lesser
extent, interest and dividends collected on other investments and service
charges on deposit accounts. The principal expenses of the Bank are interest
paid on deposits, employee compensation, office expenses and other overhead
expenses.
The Bank competes for deposits with many financial institutions that are
larger and have greater financial resources. In order to remain competitive,
the Bank attempts to identify the specific needs of its target markets and to
design financial products and services to fill those needs. Currently, the Bank
offers a wide variety of insured savings programs and noninsured investment
products. Additionally, many new customers of the Bank express a desire to bank
with a local financial institution. The Bank believes that it provides a level
of personal service to each customer that may not be available from larger
national financial institutions. The Bank also believes the service it provides
to its customers can provide a platform for the sale of a variety of products.
See Note 12 of Notes to Consolidated Financial Statements.
MORTGAGE BANKING - Effective April 1, 1995, the Bank consolidated its
real estate lending activities into its operating subsidiary, PrimeEagle.
PrimeEagle generates revenues by originating construction loans, permanent
mortgage loans and SBA loans and selling substantially all of the fixed rate
permanent mortgage and SBA loans to investors. PrimeEagle originates single
family mortgage loans from its 15 loan production offices in Atlanta, Augusta,
Cumming, Hinesville, Peachtree City, Savannah, Stockbridge and Warner Robins,
Georgia; Aiken, Columbia and Sumter, South Carolina; Chattanooga, Tennessee;
Jacksonville and St. Augustine, Florida; and Charlotte, North Carolina. The
Company intends to focus the geographical expansion of its loan production
business on emerging markets in the Southeast where experienced managers and
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highly trained staff capable of providing local market knowledge and superior
customer service can be located.
PrimeEagle also generates revenues through fees for various services
including loan application and origination as well as through the gain or loss
on the sale of loans to third parties and from the sale of mortgage servicing
rights. Proceeds from sales of mortgage servicing rights are the largest
component of mortgage production fees. Fluctuations in the value of servicing
rights and management's analysis of the timing of mortgage prepayments impact
the Company's decision to retain or sell servicing. During fiscal 1996, the
Company sold substantially all of its permanent loans on a servicing released
basis.
The Company provides construction financing in each of its markets and
obtains significant benefits by coordinating the efforts of its construction
lending and permanent lending operations. The Company's permanent mortgage
products are primarily used for purchasing and refinancing single family homes
and producing fee income. Non-interest revenues are also earned as a result of
the Company's construction lending activities. See Note 12 of Notes to
Consolidated Financial Statements.
(C) NARRATIVE DESCRIPTION OF BUSINESS
The Company is based in the metropolitan Atlanta, Georgia area and derives
a significant portion of its loans and deposits in that area. In recent years,
the metropolitan Atlanta area has enjoyed strong economic growth, including
growth in employment and population. The Company has benefited from this growth
in the past and expects that its continued growth and profitability will
depend in part on the continued growth and the economic conditions in the
Atlanta area.
As a result of the 1996 Centennial Olympic games employment, population
and economic activities grew rapidly in the Atlanta area. Slightly slower
growth in employment and population is projected for Atlanta for the period
from 1996 to 2001. However, in terms of absolute annual growth, Atlanta's
population is forecasted to be the most rapidly growing standard metropolitan
statistical area in the country for the period from 1996 to 2001. Employment
data is the most important factor in determining the strength of a given
market. Job formations are the catalyst which initiates population and
household growth. Atlanta is projected to rank number one in terms of absolute
annual growth in employment for the period from 1996 to 2001 and is projected
to create 73,000 jobs a year. This compares to 80,800 jobs created during the
Olympic build-up from 1991 to 1996. These projections indicate that Atlanta's
growth is forecasted to continue to exceed growth in other areas. No
assurances can be given that the metropolitan Atlanta area will continue to
have a strong economy or that, if the economy continues to be strong, the
Company will benefit from that economy.
LENDING ACTIVITIES
GENERAL
The Bank offers permanent mortgage, construction and SBA loans through 15
PrimeEagle offices located in Atlanta, Stockbridge, Peachtree City, Cumming,
Augusta, Hinesville, Savannah, and Warner Robins, Georgia; Aiken, Columbia, and
Sumter, South Carolina; Chattanooga, Tennessee; Jacksonville and St. Augustine,
Florida; and Charlotte, North Carolina. The Company's goal is to continue
geographic expansion of its mortgage lending operations by focusing on the
emerging markets of the Southeast and to become the leading mortgage loan
originator in the markets it serves. The Bank also generally makes construction
loans in each of the markets where it operates loan production offices in order
to take advantage of the cross
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selling opportunities between construction lending and mortgage loan
originations. In each market, the Bank follows the same stringent underwriting
and construction monitoring procedures.
In addition, the Bank's ten retail banking branches originate mortgage
loans and offer a range of consumer loans and equity lines of credit. The Bank
also has an equipment leasing operation which provides lease financing for
investment grade and middle market credits. The Company's goal is to increase
its line of products to attract the small business customer. The Company
believes that the small business market is currently underserved in the Atlanta
metropolitan area.
The acquisition of the Prime Lending operations in November 1992 broadened
the Company's mortgage lending area outside of the metropolitan Atlanta market.
To date, the Company's lending in these areas has experienced consistent growth
in loan originations. Additionally, the Company generally faces less direct
competition for loans in these markets as compared to the metropolitan Atlanta
area. Further, PrimeEagle operates in markets which may be impacted by military
bases and their resulting housing requirements including Augusta, Hinesville,
and Warner Robins, Georgia. During fiscal 1994, 1995 and 1996, the overall base
populations of the Company's markets increased. However, military base closures
could adversely affect the Company's business in these markets. Federal laws and
regulations prescribe the types and amounts of loans which may be made by
federal thrifts and generally permit such institutions to make residential real
estate loans, commercial real estate loans, business loans, agricultural loans
and consumer loans.
PERMANENT RESIDENTIAL REAL ESTATE LOANS
Traditionally, the Bank's principal lending operation has been the
origination of permanent single family residential mortgage loans. These loans
continue to represent a significant part of the Bank's lending activities. At
March 31, 1996, permanent single family residential mortgage loans were $244.9
million, constituting approximately 48.4% of the loan portfolio. Both fixed
rate and adjustable rate permanent loans on residential properties currently
are originated either for sale in the secondary market or for retention in the
Bank's loan portfolio. Generally, the Bank retains the adjustable rate mortgage
loans that it originates and sells the fixed rate loans that it originates. See
"-- Lending Activities -- Loan Sales and Purchases."
In the case of owner-occupied single family residences, the Bank may make
permanent residential mortgage loans for up to 100% of the appraised value of
the property. Loans on non-owner occupied real estate of not more than four
family units, generally are made for up to 75% of the appraised value. All
conventional loans with loan-to-value ratios in excess of 80% generally have
private mortgage insurance covering that portion of the loan in excess of 75%
of the appraised value. The borrower pays the cost of this insurance either
through a single premium paid at the time of loan origination or through a
monthly payment during the term of the loan. The borrower also generally makes
monthly payments into an escrow account equal to 1/12 of the annual hazard
insurance premiums and property taxes on the property which secures the loan.
Interest rates and loan fees charged on loans originated are competitive with
other financial institutions in the Bank's market areas.
The Bank has offered, in addition to fixed rate residential loans, a
variety of loans on which the interest rate, payment, loan balance or term to
maturity may be adjusted, provided that the adjustments are tied to specified
indices. These adjustable rate mortgage loans ("ARMs") permit greater
flexibility in adjusting loan yields to changes in the cost of funds. ARMs
generally have loan terms up to 30 years with rate adjustments ranging from one
to ten years during the
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term of the loan. Most ARMs have one of several different caps on the maximum
amount of change in the interest rate at any adjustment period and over the life
of the loan.
RESIDENTIAL CONSTRUCTION LOANS
The Bank provides interim construction financing for single-family
residences and makes land acquisition and development loans on properties
intended for residential use. The Bank's general policy is to grant single
family construction loans and land acquisition and development loans up to 80%
of the lower of cost or appraised value of the property. Residential
construction loans are made for periods of one year or less, and land
acquisition and development loans are made for periods of up to five years.
These periods may be extended subject to negotiation and, typically, the
payment of an extension fee. Interest rates on construction and acquisition and
development loans are indexed to the Bank's base rate and are adjustable daily
during the term of the loan.
In accordance with the Company's business plan, the volume of construction
lending has increased in each of the previous three fiscal years. The Company
does not expect its percentage of construction loans to total loans to increase
significantly above the March 31, 1996 level of $116.0 million or 22.9% of
total loans. The Company recognizes the risks inherent in construction
financing and has designed an organization and system of controls to properly
mitigate those risks through strict underwriting and close monitoring of the
lending and construction process. Underwriting criteria include, among other
things, the track record and financial condition of the builder, applicable
loan to appraised value ratios, 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. The Company's staff closely monitors construction progress and loan
draws throughout the process. Approximately 30% of the Company's construction
loan portfolio is secured by houses that are pre-sold. In addition, no single
customer accounts for more than 2% of the Bank's loans.
CONSUMER LOANS
Federal thrifts are authorized to make both secured and unsecured consumer
loans for personal or household purposes in amounts up to 30% of their total
assets. In addition, federal thrifts have lending authority above the 30% limit
for certain consumer loans, such as home equity loans (loans secured by the
equity in the borrower's residence but not necessarily used for the purpose of
home improvement), property improvement loans, mobile home loans, deposit
account secured loans, education loans and indirect automobile loans. At March
31, 1996, total consumer loans constituted $4.1 million or .95% of the
Company's total loan portfolio. The Company intends to continue prudent
expansion of its consumer lending activities, subject to market conditions, as
part of its plan to become a full service financial institution providing a
wide range of personal financial services.
COMMERCIAL LEASES/BUSINESS LOANS
The Company is authorized by federal law to make secured and unsecured
loans for business or agricultural purposes in amounts aggregating up to 10% of
its total assets. Pursuant to this authority, the Company makes various types
of commercial loans and leases to creditworthy borrowers for the purposes of
financing accounts receivable, equipment, capital projects and other legitimate
business needs. The Company also purchases loans and leases from other
financial institutions and lessors. In approving financial institutions and
lessors to purchase loans or leases, the Company evaluates their financial
strength, reputation, credit worthiness and documentation capabilities.
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The Company evaluates creditworthiness of business loans on the basis of
the borrowers' financial strength including analysis of their profitability,
cash flow, balance sheet trends and the liquidation value of collateral. The
Company assigns a credit rating to each borrower based, among other things, on
the borrowers' historical cash flow, financial strength, paying habits,
business prospects, debt structure and capitalization, and the reputation and
character of its principals.
Commercial loans normally carry interest rates indexed to the Company's
base rate, nationally quoted prime rate and U.S. Government Treasury
securities. Commercial/business loans as of March 31, 1996 constituted
approximately $38.0 million or 8.8% of the total loan portfolio.
COMMERCIAL REAL ESTATE LOANS
Interim construction and permanent commercial real estate loans typically
are secured by apartment projects, office buildings, business properties,
shopping centers, nursing homes and motels located in the Company's primary
lending areas. Construction and permanent commercial real estate loans are made
generally to 75% of the appraised value of the property, with the loan amount
being determined through an evaluation of the net operating income and cash
flows of each project, replacement costs and sales of comparable projects.
Interest rates are generally determined by market conditions. Commercial
construction loans generally are made for periods of 12 to 24 months on an
interest only basis at interest rates indexed to the prime rate. Permanent
commercial real estate loans are typically made with 15 year up to 25 year
amortization and five year up to 10 year maturity. Interest rates on permanent
loans are generally tied to the Bank's base rate or other interest rate
indexes. As of March 31, 1996, the Company had outstanding $15.2 million in
loans secured by commercial real estate. This constituted 3.5% of the Bank's
loan portfolio.
LOAN ORIGINATION AND PROCESSING
PrimeEagle actively solicits mortgage loan applications from existing
customers, local real estate agents, builders, real estate developers and
others for sale in the secondary market. The Company has received delegated
underwriting from each of its primary investors in loan pools. A majority of
these loans are underwritten to meet Federal National Mortgage Association
("FNMA")and Federal Home Loan Mortgage Corporation ("FHLMC") standards. The
Company's loans are approved by qualified underwriters in the markets they
serve. These underwriters ensure that the loans are closed in accordance with
the guidelines set forth in the Company's lending policy and by FNMA and FHLMC
and with mortgage investors. In fiscal 1996, substantially all of the permanent
mortgage loans originated by PrimeEagle were sold to private investors on a
servicing released basis.
In addition, the Company has a structured loan approval process in which
lending authority for various types and amounts of loans is delegated by the
Board of Directors to loan officers on a basis commensurate with seniority and
lending experience. The Bank has a Loan Committee that approves loan requests
made by loan officers and must approve loans in amounts above $65,000.
Additionally, the Bank's Board of Directors must approve loans of $1 million or
more.
LOAN SALES AND PURCHASES
Permanent first mortgage loans on residential real estate are originated
for sale in the secondary market by PrimeEagle through its 15 offices in the
Southeast. These loans are pooled
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and sold through an assignment of trade to private investors. Fluctuations in
the value of servicing rights and management's analysis of loan prepayments
impact the Company's decision to retain or sell servicing. Because of the high
cost to service loans as compared to the service release premiums paid by
investors, the Company sells substantially all of its permanent loans on a
servicing released basis.
CREDIT RISK MANAGEMENT AND ALLOWANCE FOR LOAN LOSSES
The Bank has a multi-faceted program designed to control and monitor the
credit risks inherent in its loan portfolio. The Bank utilizes an asset
classification system which is consistent with the "Interagency Policy
Statement on the Allowance for Loan and Lease Losses" ("ALLL") issued by the
Office of Thrift Supervision ("OTS") to develop common guidance on allowances.
The statement asserts that an institution must maintain an allowance for loan
and lease losses at an adequate level to absorb estimated credit losses
associated with its loan and lease portfolio. Also, the ALLL should be
sufficient to absorb estimated credit losses associated with off-balance sheet
credit instruments, to the extent they are not provided for in a separate
liability account.
The basic objectives of the Bank's ALLL policy are: (i) to provide
essential information regarding the overall quality of the Bank's assets; (ii)
to provide for early identification of potential problem assets so as to
minimize losses to the Bank; (iii) to project relevant trends that affect the
collectibility of the Bank's loan and lease portfolio and to isolate potential
problem areas; (iv) to provide adequate valuation allowances in accordance with
generally accepted accounting principles and OTS policies; (v) to provide
accurate and timely information relating to credit quality that can be used for
financial and regulatory reporting purposes; (vi) to assess the adequacy of
internal controls and adherence to internal credit policies and loan
administration procedures; (vii) to monitor compliance with relevant laws and
regulations through a loan review system; and (viii) to evaluate the activities
of lending personnel through a loan review system.
The Bank utilizes its Asset Classification Committee (the "ACC") to
provide a quarterly evaluation of the Bank's assets, to establish the adequacy
of the valuation allowances and to evaluate the loan review system. The ACC is
responsible for developing and implementing effective credit approval and loan
review systems and controls, including a credit grading system, that
identifies, monitors and addresses asset quality problems in an accurate and
timely manner.
After a loan has been made, responsibility is placed with loan officers to
analyze continuously the loan portfolio and to identify promptly and report
problem loans. Loans are also reviewed by the loan committee, the ACC and,
periodically on a spot-check basis, by an outside accounting firm that conducts
an independent credit review function for the Bank. The loan officer
responsible for a loan submits the loan to the loan committee for approval in
accordance with the guidelines of the Bank's lending authority. Each commercial
real estate, construction, and lease loan is given a rating which the loan
committee has the ability to approve or disapprove. In addition, the frequency
of ongoing review is determined by the loan officer and approved by the Loan
Committee. The ACC may determine that a loan or borrower's credit grading or
review frequency should be changed in accordance with the framework provided by
the Bank's grading system.
The Bank also periodically performs an analysis of the various components
of its portfolio, including all significant credits on an individual basis. In
order to analyze the adequacy of the ALLL, the Bank will segment the loan and
lease portfolios into components which have similar characteristics.
Characteristics considered include, but are not limited to, geographical
location, risk classification, past due status, type of loan, loan grade, and
industry or collateral.
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Estimates of credit losses reflect consideration of all significant factors
that affect the collectibility of the portfolio as of the evaluation date.
The ACC considers historical losses or recent trends, changes in national
and local economic and business conditions and developments, the level and
structure of interest rates, job growth, consumer confidence and the market
value of collateral. The ACC considers (i) the effect of external factors, such
as competition and legal and regulatory requirements on the level of estimated
losses in the Bank's current portfolio; (ii) changes in the duration, type and
level of assets; (iii) the existence and effect of any concentration of assets
and changes in the level of such concentrations; (iv) changes in the
experience, ability and depth of the lending management and loan administration
staff of the Bank; (v) changes in lending policies and procedures, including
underwriting standards and collection, charge-off and recovery practices; (vi)
changes in the trend of the volume and severity of past due and classified
loans; (vii) trends in the volume of nonaccrual loans, troubled debt
restructurings and other loan modifications; and (viii) changes in the quality
of the Bank's loan review system and the degree of oversight by the Bank's
Board of Directors.
In addition, ratio analysis is used as a supplemental tool for evaluating
loans, portfolio concentration and the overall reasonableness of the ALLL.
Ratios are used to compare the Bank to its peer group and its historical
practices in identifying divergent trends in the relationship of classified and
nonclassified assets, past due and nonaccrual loans and leases, total loans and
binding commitments and historical gross and net charge-offs.
Based upon the amount and type of classifications, the ACC establishes the
appropriate and requisite general and specific valuation allowances and makes
any necessary adjustments to the allowances. The methodology for determining
the amount of general valuation allowances will take the amount of assets
classified special mention substandard, doubtful and loss into consideration.
Certain percentages derived to properly reflect the risk associated with the
Bank's loan mix will be applied to the balance of all loans including those
classified substandard, doubtful, loss and special mention. These percentage
range from .25% to 100% and are derived primarily through industry standards
and the Bank's historical data. These percentages are reviewed as conditions
require. The Bank has a conservative philosophy and automatically considers any
loan that is delinquent 90 days or more and real estate acquired in the
settlement of loans as substandard.
The Bank will combine its estimates of the reserves needed for each
component of the portfolio. The ALLL will be divided into two distinct
portions: (i) an amount for specific allocations on significant individual
credits and (ii) a general reserve amount. Within the general reserve section,
the loan portfolio will be broken into as many segments as practical for the
purpose of making allocation to the ALLL. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition -- Provision for Loan
Losses and Risk Elements."
ASSET LIABILITY MANAGEMENT
INTEREST RATE RISK
The Bank operates under an interest rate risk policy through the ALCO. The
policy outlines limits on interest rate risk in terms of changes in net
interest income and changes in the net market values of assets and liabilities
over certain changes in interest rate environments. These measurements are made
through a simulation model which projects the impact of changes in interest
rates on the Bank's assets and liabilities. The policy also outlines
responsibility for
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monitoring interest rate risk, and the process for the approval, implementation
and monitoring of interest rate risk strategies to achieve the Bank's interest
rate risk objectives.
The Bank's ALCO is comprised of the Chairman of the Board, the President
and CEO, the Executive Vice President, Senior Vice President & CFO, Senior Vice
President-Accounting and the Manager of Secondary Mortgage Operations. The ALCO
makes all tactical and strategic decisions with respect to the sources and uses
of funds that may affect net interest income, including net interest spread and
net interest margin. The ALCO's decisions are based upon policies established
by the Bank's Board of Directors which are designed to meet three goals --
manage interest rate risk, improve interest rate spread and maintain adequate
liquidity.
The ALCO has developed a program of action which includes, among other
things, the following: (i) selling substantially all conforming, long-term,
fixed rate mortgage originations; (ii) originating and retaining for the
portfolio, shorter term, higher yielding loan products which meet the Company's
underwriting criteria; and (iii) 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 and maintaining steady
construction and consumer loan originations. The Company's ability to expand
its loan portfolio through originations of residential construction, adjustable
rate permanent mortgage loans and business loans has contributed to the
Company's ability to improve its spread while limiting exposure to rising
interest rates due to the variable rates and short term commitments these loans
represent.
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 Bank's ALCO has continued to shift the Bank's Gap throughout the
year. The Bank's Gap position is evaluated continuously and discussed by the
ALCO in bi-weekly meetings. A positive Gap indicates an excess of rate
sensitive assets over rate sensitive liabilities, while a negative Gap
indicates an excess of rate sensitive liabilities over rate sensitive assets.
The Bank had a negative one year Gap of 16.57% as of March 31, 1996. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Interest Rate Sensitivity." 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 business loans as well as residential construction
and adjustable rate permanent loans. The Bank continues to originate consumer
loans and second mortgage loans. In general, these loans have short maturities
and floating interest rates.
The Bank also operates under a secondary marketing policy. The secondary
marketing policy applies to the use of forward commitments ("coverage") by
PrimeEagle to hedge market exposure in the pipeline of loans originated for
sale. The ALCO is responsible for the implementation of the policy. The policy
outlines acceptable hedging instruments, sets limits on the maximum exposure to
risk and outlines authority and responsibility for the implementation of the
policy.
INVESTMENT ACTIVITIES
Income from investments in securities provides the Bank's second largest
source of interest income after interest on loans. Federally chartered thrift
institutions are required to maintain a minimum amount of liquid assets that
may be invested in specified short-term securities. These assets include, among
others, United States Treasury and Federal Agency obligations, certain
certificates of deposit, bankers' acceptances and Federal Funds. Subject to
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various restrictions, investments may also be made in mortgage-backed
securities, commercial paper and corporate debt and equity securities.
Investment decisions are made by authorized officers under the supervision
of the Bank's Board of Directors pursuant to the Bank's investment policy.
Brokers approved by the Board of Directors are used to effect securities
transactions. The Company holds no investment securities issued by a single
issuer, other than mortgage-backed securities issued by an agency of the United
States government, which equaled or exceeded 10% of stockholders' equity at
March 31, 1996.
Under the investment policy, the ALCO, with the approval of the Board of
Directors of the Bank, designates all investments at the time of purchase as
either trading assets, assets available for sale or assets held to maturity. At
March 31, 1996, fixed rate mortgage-backed securities have been classified as
assets available for sale based on management's determination that such assets
may be liquidated prior to maturity. PrimeEagle classifies all permanent fixed
rate loans originated as assets held for sale unless originated pursuant to a
portfolio commitment to the Bank. All other loans, investments excluding equity
securities and mortgage-backed securities are considered assets held to
maturity unless specifically classified otherwise. As of March 31, 1996,
$172.1 million or 28.1%, of the Company's assets were classified as held for
sale.
At March 31, 1996, the Bank's investment portfolio, consisted of United
States Agency obligations, investment grade corporate debt securities, equity
securities and FHLB stock. Additionally, the Bank holds investments in
mortgage-backed securities. At March 31, 1996, the Bank did not own any
repurchase agreements as investments.
REAL ESTATE DEVELOPMENT ACTIVITY
EREA was formed in October 1991 as a wholly-owned real estate services
subsidiary of the Company to perform third party real estate brokerage and
development activities, assist the Bank in identifying and acquiring branch
sites and assist in disposing of real estate acquired through foreclosure. In
connection with its development activities, the Company and EREA select only
local projects that management believes are well located and where zoning,
utility and economic risks can be minimized before the Company commits to
engage in development activities.
At March 31, 1996, the Company had invested in five real estate
development projects totaling $13.0 million and representing 2.1% of total
assets. Set forth below is information regarding each of the projects.
- Union Hill LLC. In October 1994, the Company and two unaffiliated third
parties formed a limited liability corporation, Union Hill LLC, which purchased
149.7 acres of land located in Forsyth County, Georgia for the purpose of
developing a 323-lot single family residential community named Chadbourne. The
Company's investment in this LLC for land and development costs at March 31,
1996, was $3.6 million. Through March 31, 1996, Union Hill LLC had contracted
to sell 217 lots at an average sales price of $30,878 per lot to one of
Atlanta's largest single family home builders with a specific takedown
schedule. The average development cost per lot is approximately $22,205. The
Company benefits from the project by receiving a preferred return on its
investment and 50% of any remaining profits.
- Hampton Oaks L.P. In order to meet its goal of providing affordable
housing , the Company invested $3.0 million in a limited partnership, Hampton
Oaks, L.P., that was organized to construct a 50 unit affordable housing
cooperative in Fulton County, Georgia. The general
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partner of Hampton Oaks, L.P. is a not-for-profit corporation. The Company owns
a 99% limited partnership interest. The property is supported by 50 Section 8
housing permits and $2.6 million of Low Income Housing Tax Credits. As of March
31, 1996, the units are 100% occupied and the Company, as a result of its equity
investment, will recognize Investment Tax Credits of $260,000 per year over the
next 10 years.
- Cobb Woodlawn Development LLC. In January 1995, the Company formed a
wholly-owned limited liability corporation subsidiary, Cobb Woodlawn
Development LLC, for the purpose of purchasing 15.8 acres of land and
developing a 48-lot single-family residential community in Cobb County, Georgia
named Woodlawn Park. The Company's net investment as of March 31, 1996 was $.5
million. At March 31, 1996, Cobb Woodlawn Development LLC had contracted to
sell all 48 lots at an average sales price per lot of $61,250. The average
development cost per lot is approximately $47,985. Development is complete and
the sales contract requires all lot sales to be completed by August 1996.
- BN Development Company LLC. In December 1995, the Company and an
unaffiliated third party formed BN Development Company LLC for the purpose of
acquiring a commercial lot near Cumberland Mall in Cobb County, Georgia and
developing and leasing a 30,000 square foot Barnes & Noble, Inc. superstore.
The Company's total investment at March 31, 1996 was $3.9 million. BN
Development Company LLC's obligation is to provide a pad ready site for further
development and construction of the superstore by Barnes & Noble, Inc. Upon
completion of construction of the superstore, BN Development Company LLC will
purchase the facility and lease it to Barnes & Noble, Inc. under a 20 year
triple net lease. The Company benefits from the project by receiving a
preferred return on its investment and 50% of any remaining profits.
- Trimble Road Development, LLC. In February 1996, the Company formed a
wholly-owned limited liability corporation, Trimble Road Development, LLC, for
the purpose of purchasing 13.63 acres of land and developing a 28 lot
single-family residential subdivision community in Fulton County, Georgia. The
Company's net investment as of March 31, 1996, was $2.0 million.
SOURCES OF FUNDS
GENERAL
Deposits are the Bank's largest source of funds for lending and other
investment purposes. In addition to deposits, the Bank obtains funds from
repurchase agreements, loan principal repayments, proceeds from sales of loans
and loan participations and advances from the FHLB. Loan repayments are a
relatively stable source of funds while deposit inflows and outflows and sales
of loans and investment securities are significantly influenced by prevailing
interest rates and economic conditions. Borrowings may be used to compensate
for reductions in normal sources of funds or to support expanded lending
activities.
DEPOSITS
The Bank offers a variety of savings and other deposit programs and
related services. Deposits are obtained primarily from the communities in which
its banking offices are located. The Bank uses traditional marketing methods to
attract new customers. The Bank does not advertise for deposits outside of its
local market area. For further details as to the composition of the Bank's
savings portfolio, see Note 7 of Notes to Consolidated Financial Statements.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Deposits."
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The Bank competes for deposits principally by attempting to identify the
specific needs of its target market and by offering a high level of customer
service. Analysis of product needs is generated through dialogue with customers
and staff. The Bank offers a wide variety of savings programs including NOW
checking accounts, passbooks, 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.
Employee commitment to service is another important factor in attracting
deposits. The goal of the Bank is to render superior personal service through
convenient branch and main office locations and hours of operation. All of the
Bank's branches are open on Saturdays for customer convenience. The Bank does
not rely on any individual, group or entity for a material portion of its
deposits.
BORROWINGS
Savings deposits are the primary source of funds for the Bank's lending
and investment activities and for its general business purposes. However, the
Bank periodically obtains additional funds by borrowing from the FHLB and
through repurchase agreements entered into with various brokerage organizations
whose credit worthiness has been approved by the Bank's Board of Directors. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Borrowings" and Note 8 of Notes to Consolidated Financial
Statements.
COMPETITION
The Bank faces strong competition in attracting deposits and making loans
throughout its market areas. The most significant factors in competing for
deposits are interest rates, the quality and range of financial services
offered, convenience of office locations and office hours. The Bank competes
directly for deposits with commercial banks, money market funds and retail
securities brokerage houses with offices in the Bank's market areas. The Bank
also faces competition for deposits from (i) more distant depository
institutions that advertise locally or through national media, (ii) short-term
money funds, (iii) corporate and government borrowers (including, among others,
insurance companies) and (iv) credit unions.
The Bank's competition for loans comes from mortgage companies, other
thrift institutions and commercial banks, credit unions, consumer finance
companies, insurance companies and investment banking firms. The primary
factors in competing for loans are interest rates, discount points, loan fees
and the quality and range of lending services offered. Competition for
origination of mortgage loans comes primarily from other thrift institutions
and loan production firms, commercial banks and insurance companies. The Bank
competes for loan originations through the quality of services it provides
borrowers, real estate brokers and builders, as well as 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 that are not readily predictable. The Bank
attempts to charge interest rates and loan fees commensurate with the level of
risk it accepts. The Bank believes that providing superior service can allow
improved loan pricing. The expansion of PrimeEagle's mortgage origination
offices has been targeted toward markets with solid growth prospects which are
under served by PrimeEagle's competitors. No market is entered, however,
without an experienced manager and highly trained staff.
Competition may be further increased as a result of the enactment of the
Riegle-Neal Interstate Banking and Branch Efficiency Act of 1994 (the
"Interstate Banking Act") on September
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29, 1994. Beginning in September 1995, bank holding companies, upon meeting
certain criteria, were authorized to acquire existing banks on a nationwide
basis without regard to state statutes to the contrary. Effective June 1, 1997,
the Interstate Banking Act will permit mergers of banks on an interstate basis,
unless states in which such banks are located pass legislation specifically
prohibiting out-of-state banks from operating interstate branches within their
boundaries. In addition, the Interstate Banking Act provides for de novo
interstate branching within the host state. See "Supervision and Regulation --
Recent Legislation."
EMPLOYEES
At March 31, 1996, the Company had 371 full-time employees and 56
part-time employees. All officers and other personnel serving the Company are
employed and compensated by the Bank. No employees are covered by a collective
bargaining agreement. Management considers its relations with its employees to
be good.
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"). The Bank is a
federally chartered savings institution and is a member of the FHLB system,
subject to examination and supervision by the OTS and the FDIC, and subject to
regulations of the Federal Reserve Board governing reserve requirements. To the
extent that the following information describes statutory and regulatory
provisions, it is qualified in its entirety by reference to 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.
FEDERAL SAVINGS AND LOAN HOLDING COMPANY REGULATIONS
As the owner of all of the stock of the Bank, 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 activities not permitted to commercial bank
holding companies or multiple savings and loans holding companies, provided
that the Bank continues to qualify as a "qualified thrift lender." See "--
Regulation of the Bank -- 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 acquiring control of
any savings institution or savings and loan holding company without prior
approval from the OTS or from acquiring more than 5% of the voting stock of any
savings institution or savings and loan holding company which is not a
subsidiary. Control of a savings institution or a savings and loan holding
company is conclusively presumed to exist if, among other things, a person or
group of persons acting in concert, directly or indirectly, acquires more than
25% of any class of voting stock of the institution or holding company or
controls in any manner the election of a majority of the directors of the
insured institution or the holding company. Control is rebuttably presumed to
exist if, among other things, a person acquires 10% or more of any class of
voting stock (or 25% of any class of stock) and is subject to any of certain
specified "control factors."
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RECENT LEGISLATION
A number of legislative proposals have been introduced during the last
twelve months in both the United States House and the Senate that contain
provisions to recapitalize the SAIF by means of a one-time assessment on the
deposits of all depository institutions the accounts of which are insured by
the SAIF. See "Regulation of the Bank - Insurance of Accounts." Each of the
separate legislative proposals would resolve the current premium disparity
between the SAIF and the Bank Insurance Fund and contemplate the merger of the
two Funds following the recapitalization. As an SAIF insured institution the
Bank would be subject to the one-time assessment should any of the legislative
proposals be enacted.
In addition to recapitalization of the SAIF, other legislative proposals
are pending that provide for the elimination of all federal savings association
charters as of varying dates. The effect of such legislative proposals would be
to require all savings associations to convert to either a national bank or
state bank charter by a specified date with any related holding company
required to become a bank holding company, subject to the limitations regarding
permitted activities of the Bank Holding Company Act of 1956. In addition,
other legislative proposals are pending, the effect of which would reform the
Glass-Stegall Act as well as to effect regulatory relief for financial
institutions. The regulatory relief provisions contained in several bills are
proposed to eliminate or reduce and simplify disclosure and reporting
requirements contained in current statute and regulations. The likelihood of
enactment of any of the pending or proposed legislation is unknown.
The Interstate Banking Act allows bank holding companies to acquire
existing banks across state lines, regardless of state statutes. Further, under
the Interstate Banking Act, effective June 1, 1997, a bank holding company may
consolidate interstate bank subsidiaries into branches and a bank may merge
with an unaffiliated bank across state lines to the extent that the applicable
states have not "opted out" of interstate branching prior to such effective
date. States may elect to permit interstate mergers prior to June 1, 1997. The
Interstate Banking Act also permits de novo branching to the extent that a
particular state "opts into" the de novo branching provisions. The Interstate
Banking Act generally prohibits an interstate acquisition (other than an
initial entry into a state by a bank holding company), which would result in
either the control of more than (i) 10% of the total amount of insured deposits
in the United States, or (ii) 30% of the total insured deposits in the home
state of the target bank, unless such 30% limitation is waived by the home
state on a basis which does not discriminate against out-of-state institutions.
The Riegle Community Development and Regulatory Improvement Act of 1994
provides for the creation of a community development financial institution's
fund to promote economic revitalization in community development. Banks and
thrift institutions are allowed to participate in such community development
banks.
REGULATION OF THE BANK
FEDERAL HOME LOAN BANK SYSTEM
General. The Bank is a member of the FHLB, which consists of 12 regional
FHLBs subject to supervision and regulation by the Federal Housing Finance
Board ("FHFB"). The FHLBs maintain central credit facilities primarily for
member institutions.
The Bank, 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 1% of the greater of: (i) the aggregate outstanding principal amount of its
unpaid residential mortgage loans, home purchase
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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. The Bank is
in compliance with this requirement with an investment in stock of the FHLB of
Atlanta at March 31, 1996 of $8.6 million.
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. The Bank 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.
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. The Bank complied with its requirements at March
31, 1996.
INSURANCE OF ACCOUNTS
General. Deposits at the Bank are insured to a maximum of $100,000 for
each insured depositor by the FDIC through the 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. 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. The FDIC requires an annual audit
by independent accountants and also periodically makes its own examinations of
insured institutions.
Insured institutions are members of either the SAIF or the Bank Insurance
Fund. Pursuant to the Financial Institutions Reform, Recovery and Enforcement
Act of 1989 ("FIRREA"), an insured institution may not convert from one
insurance fund to the other without the advance approval of the FDIC; provided,
however, that conversions are not permitted until the date on which the SAIF
first meets or exceeds the designated reserve ratio (reserves to estimated SAIF
insured deposits) for such fund, subject to certain exceptions. To date, the
SAIF has not met the designated reserve ratio for the fund. 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. 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.
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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 the Bank
would generally depend upon the amount of the Bank'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 "undercapitalized." 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. See "-- Recent Legislation."
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
fiscal 1996, the Bank paid $102,000 to the OTS for such assessments.
Additionally, the OTS assesses fees for the processing of various applications.
QUALIFIED THRIFT LENDER TEST
Historically, the amount of advances which may be obtained by a member
institution from the FHLB has been subject to the institution's compliance with
a qualified thrift lender ("QTL") test. In order to comply with the QTL test,
the Bank must maintain 65% of its total "Portfolio Assets" in "Qualified Thrift
Investments." This level must be maintained on a monthly average basis in nine
out of every twelve months. 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. For purposes of the QTL 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" generally include (i) loans made to purchase,
refinance, construct, improve or repair domestic residential 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. Qualified Thrift Investments also
include certain other specified investments, subject to a percentage of
Portfolio Assets limitation. The Bank's Qualified Thrift Investments as of
March 31, 1996 were $445.6 million, or 78.6% of its Portfolio Assets at that
date. The Bank expects to remain in compliance with the QTL test.
CAPITAL REQUIREMENTS
General. Effective December 7, 1989, OTS capital regulations established
capital standards applicable to all savings institutions, including a core
capital requirement, a tangible capital requirement and a risk-based capital
requirement. The OTS also has established pursuant to FDICIA five
classifications for institutions based upon the capital requirements: well
capitalized, adequately capitalized, under capitalized, significantly under
capitalized and critically under capitalized. At March 31, 1996, the Bank was
"well capitalized." Failure to
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maintain that status could result in greater regulatory oversight or
restrictions on the Bank's activities.
Core Capital and Tangible Capital. The OTS requires a savings institution
to maintain "core capital" in an amount not less than 3% of the savings
institution's total assets. "Core capital" includes, generally, common
stockholders' equity, noncumulative perpetual preferred stock and related
surplus, nonwithdrawable accounts and pledged deposits of mutual savings
associations, and minority interests in fully-consolidated subsidiaries, less
(i) investments in certain "non-includable" subsidiaries (as determined by
regulation) and (ii) certain intangible assets (except for purchased mortgage
servicing rights and purchased credit card relationships).
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 any intangible assets
(except for purchased mortgage servicing rights included in core capital).
Most national banks will be required to maintain a level of core capital
of at least 100 to 200 basis points above the 3% minimum level. Because OTS
capital standards for savings institutions may not be less stringent than
capital standards established for national banks, savings institutions will be
required to maintain core capital levels at least as high as national banks. At
March 31, 1996, the Bank's core capital and tangible capital were both $53.6
million or 8.9% of adjusted total assets.
Risk-Based Capital. The OTS capital regulations require 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
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. 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. As of March 31, 1996, the Bank's ratio of total capital to total
risk-weighted assets was 15.8%.
In addition, the OTS requires institutions with an "above-normal" degree
of interest rate risk 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 its assets. Management believes that the Bank's interest rate risk is within
the normal range.
CAPITAL DISTRIBUTIONS
"Capital distributions" by OTS-regulated savings institutions also are
regulated by the OTS. Capital distributions are defined to include, in part,
dividends, stock repurchases and cash-out mergers. An association is
categorized as either a "Tier 1," association which is defined as an
association that has, on a pro forma basis after the proposed distribution,
capital equal to or
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greater than the OTS fully phased-in capital requirements. 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. A Tier 3 association
is defined as an association that has current capital less than its minimum
capital requirement.
The Bank currently is in compliance with the regulatory capital
requirements and therefore is a Tier 1 association. A "Tier 1" association is
permitted 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. In addition, a savings
association must provide the OTS with a 30-day advance written notice of all
proposed capital distributions, whether or not advance approval is required by
OTS regulations. Currently, the Bank periodically notifies the OTS of the gross
amount of dividends it intends to pay to the Company as the sole stockholder of
the Bank. On February 3, 1995, the OTS approved the payment by the Bank of $5
million in dividends of which the Bank had paid $1,400,000 through March 31,
1996. The Bank's ability to pay dividends to the Company is subject to the
financial performance of the Bank which is dependent upon, among other things,
the local economy, the success of the Bank's lending activities, compliance by
the Bank with applicable regulations, investment performance and the ability to
generate fee income.
FEDERAL RESERVE SYSTEM REQUIREMENTS
The Federal Reserve requires depository institutions to maintain
noninterest-bearing reserves against their deposit transaction accounts,
non-personal time deposits (transferable 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 reserves
equal to 3% on the first $51.9 million of net transaction account, plus 10% on
the remainder. The balances maintained to meet the reserve requirements imposed
by the Federal Reserve may be used to satisfy liquidity requirements imposed by
the OTS. Members of the FHLB System also are authorized to borrow from the
Federal Reserve "discount window" subject to restrictions imposed by Federal
Reserve regulations. However, Federal Reserve policy generally requires that a
savings institution exhaust its FHLB resources before borrowing from the Federal
Reserve.
CONSUMER PROTECTION AND OTHER LAWS AND REGULATIONS
The Bank and PrimeEagle also are 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 Bank Secrecy Act and fair housing laws. The Bank and
PrimeEagle may be subject to potential liability under these laws and
regulations for material violations.
STATE REGULATION
As a federally chartered savings institution, the Bank generally is not
subject to those provisions of Georgia law governing state chartered financial
institutions or to the jurisdiction of the DBF. However, the DBF interprets the
Georgia Bank Holding Company Act 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.
20
<PAGE> 21
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 the Bank.
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 the Bank engages, such as making loans of $3,000 or less, are
subject to interest rate limitations.
ITEM 2. PROPERTIES
The principal executive offices of the Company are located at 4305 Lynburn
Drive, Tucker, Georgia, in a 4,320 square foot building owned by the Bank. The
main office of the Bank is located at 2355 Main Street, Tucker, Georgia. The
Company's ten branch offices are located in the Doraville, Dunwoody, Lilburn,
Norcross, Northlake, Roswell, Stone Mountain, Towne Lake, Tucker and Wesley
Chapel areas of metropolitan Atlanta, Georgia. One of the Bank's ten branch
locations is leased under an operating lease and the remaining branch
properties, including the main office are owned by the Bank. The lease on the
Bank's Northlake office expires in 2002.
PrimeEagle operates 15 loan production offices located in Aiken, Columbia
and Sumter, South Carolina; Jacksonville and St. Augustine, Florida; Atlanta,
Augusta, Cumming, Hinesville, Peachtree City, Savannah, Stockbridge and Warner
Robins, Georgia; Chattanooga, Tennessee; and Charlotte, North Carolina. Each
of these offices is leased pursuant to an operating lease. The Augusta office
is leased on a month-to-month basis. The Savannah office has a three-year lease
that expires in 1997. The Hinesville office has a five-year lease that expires
in 1998. The Warner Robins office lease expires in 1999. The Chattanooga office
lease expires in 1996. The Jacksonville, Florida and Columbia, South Carolina
leases expire in 2000. The PrimeEagle office in Atlanta is leased pursuant to
an operating lease that expires in 1998 and includes an option to renew for a
three-year term. The Aiken and Sumter, South Carolina and the Stockbridge and
Peachtree City, Georgia leases expire in 1996. Management believes that it will
be able to renew such leases on satisfactory terms.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company, the
Bank 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, 1996.
21
<PAGE> 22
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
PRICE RANGE OF COMMON STOCK AND DIVIDEND HISTORY
The Company's Common Stock is traded on the NASDAQ National Market under
the symbol "EBSI." The following table sets forth for the periods indicated the
high and low last sale prices of the Common Stock as reported on the NASDAQ
National Market and dividends paid per share, which data reflects the
two-for-one split of the Common Stock effected in the form of a stock dividend
paid on December 21, 1995.
<TABLE>
<CAPTION>
DIVIDENDS PAID
FISCAL YEARS ENDED MARCH 31, HIGH LOW PER SHARE
<S> <C> <C> <C>
1994
First Quarter $ 9.250 $ 7.875 $.055
Second Quarter 10.250 8.000 .070
Third Quarter 10.875 9.750 .085
Fourth Quarter 12.375 10.500 .100
1995
First Quarter 12.000 11.125 .110
Second Quarter 13.250 11.500 .115
Third Quarter 12.750 9.750 .120
Fourth Quarter 12.000 10.125 .125
1996
First Quarter 14.375 11.875 .125
Second Quarter 17.000 14.000 .125
Third Quarter 19.000 16.625 .130
Fourth Quarter 19.000 15.000 .130
</TABLE>
On March 31, 1996, the last sale price of the Common Stock, as reported on
the NASDAQ National Market, was $15.50. On June 21, 1996, there were 4,552,200
shares of Common Stock outstanding and approximately 649 record holders of the
Common Stock.
The Company began the payment of cash dividends on its Common Stock during
fiscal 1992 and paid $.05 per share for the fourth quarter of that year. During
fiscal 1993, the Company paid four quarterly dividends totaling $.20 per share.
During fiscal 1994, the Company paid four quarterly dividends totaling $.31 per
share. During fiscal 1995, the Company paid four quarterly dividends totaling
$.47 per share. During fiscal 1996, the company paid four quarterly dividends
totaling $.51 per share. At March 31, 1996, the current indicated dividend
rate, on an annualized basis, is $.52 per share.
The ability of the Company to pay cash dividends to its stockholders is
directly dependent upon the Bank's ability to pay cash dividends to the
Company. The Bank is subject to certain restrictions on the amount of dividends
it is permitted to pay. See "Supervision and Regulation -- Capital
Distributions." The amount of cash dividend on Common Stock will be determined
by the Company's Board of Directors in light of conditions existing from time
to time, including the Company's growth prospects, profitability, financial
condition, investment opportunities, liquidity requirements, results of
operations, regulatory restrictions and other factors deemed relevant by the
Board of Directors.
22
<PAGE> 23
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
Year Ending March 31,
- ----------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income $ 18,493 $ 16,711 $ 14,997 $ 12,200 $ 7,793
Provision for loan losses 1,000 643 1,000 630 398
Other income 10,044 6,347 9,250 5,794 1,866
Other expense 20,121 16,035 14,740 11,026 6,833
IIncome after tax(1) 5,020 4,101 5,318 4,069 1,638
Net income 5,020 4,101 5,211 4,069 1,638
- ----------------------------------------------------------------------------------------------------
PER SHARE DATA:(4)
Income after tax-primary(1) $ 1.53 $ 1.34 $ 1.74 $ 1.38 $ .54
Income after tax-fully diluted(1) 1.53 1.34 1.73 1.38 .54
Net income-primary(2) 1.53 1.34 1.71 1.38 .54
Net income-fully diluted(2) 1.53 1.34 1.70 1.38 .54
Dividends .51 .47 .31 .20 .05
Book Value 12.56 10.90 10.20 8.76 7.56
- ----------------------------------------------------------------------------------------------------
FINANCIAL RATIOS (%)
Net interest margin-taxable equivalent 3.93 4.79 4.80 4.12 2.80
Return on average assets(1) .98 1.08 1.62 1.32 .57
Return on average equity(1) 13.09 12.71 18.76 16.68 7.46
Equity to assets 9.35 7.35 9.62 8.03 7.41
Dividend payout 33.33 35.07 18.18 14.49 9.35
- ----------------------------------------------------------------------------------------------------
ASSET QUALITY RATIOS (%)
Non-performing assets/
Total assets
Reserve for loan losses/
Net loans plus reserves(3) 1.13 0.27 0.46 1.30 1.60
Reserve for loan losses/ .97 0.96 1.36 1.13 0.51
Non-performing assets 60.45 276.03 229.70 57.70 18.45
- ----------------------------------------------------------------------------------------------------
MARKET PRICE:
High $ 19 $ 13 1/4 $ 12 3/8 $ 9 1/4 $ 4 1/2
Low 11 7/8 9 3/4 7 7/8 4 3
- ----------------------------------------------------------------------------------------------------
AT MARCH 31,
Total assets $611,512 $457,317 $320,385 $321,597 $302,173
Loans, net(3) 427,057 345,126 243,367 213,577 172,449
Reserve for loan losses 4,176 3,362 3,349 2,420 892
Non-performing assets 6,908 1,218 1,458 4,194 4,834
Deposits 348,098 286,315 244,297 228,633 219,825
Borrowings 173,060 119,953 30,750 47,500 55,992
Shareholders' equity 57,175 33,636 30,832 25,823 22,376
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) Before extraordinary item and cumulative effect of accounting change.
(2) Weighted average shares of common stock outstanding including dilutive
effects for fiscal 1994 only.
(3) Includes loans receivable held for sale.
(4) Per share data reflects two for one split in the form of a stock dividend
paid on December 21, 1995.
23
<PAGE> 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION AND
FINANCIAL CONDITION
STRATEGIC FOCUS
The Company's near term strategy is to continue to capitalize on certain
opportunities which have been presented by recent consolidations. First, staff
reductions and branch closing at other institutions have enabled the Company to
hire experienced banking executives and acquire new banking facilities.
Second, the Company has acquired a multioffice mortgage banking company,
acquired additional retail deposits and attracted new customers. Third, the
Company is now in a position to acquire smaller financial institutions in the
metropolitan Atlanta area, which will enable the Company to further expand its
franchise. The Company's long term strategy is to increase shareholder value by
building franchise value, creating competitive advantages in targeted business
niches, developing additional long-term customer driven relationships, and
compensating employees based upon bottom line performance.
FISCAL 1996 OVERVIEW
- - Total assets grew 33.7 percent from $457.3 million to $611.5
million the largest component of that growth, $74.5 million, was
loans secured by single family homes.
- - As a result of NationsBank's acquisition of Bank South, Tucker
Federal became the second largest Atlanta headquartered financial
institution and has contracted to acquire three new branch
facilities.
- - In 1995, Atlanta lead the nation in single family housing starts
and is projected to maintain that position through 2001.
- - The Company raised an additional $21.5 million of new common equity
through an offering underwritten by Interstate/Johnson Lane and
Morgan Keegan.
- - The Board of Directors split the stock and increased dividends to
$.13 per quarter.
- - Earnings per share increased 14.2 percent and book value per share
increased 15.2 percent.
- - The Company opened two new regional banking centers in Cherokee
County and North Fulton County two of the rapid growth corridors in
Atlanta.
- - Deposits grew 21.6 percent to $348.1 million from $286.3 million.
- - The Company expanded its consumer loan and non-conforming finance
activities and implemented a loan approval program which can
approve sales finance loans 24 hours a day, seven days a week.
- - Single family loans originated and sold by our mortgage banking
subsidiary, PrimeEagle increased 59.7 percent to $449.4 million
from $281.4 million. The margin on mortgage loans improved to
1.51 percent in 1996 from 1.15 percent in 1995. As a result,
mortgage production fees increased 109.4 percent to $6.8 million
from $3.2 million.
- - Return on average equity increased to 13.1 percent from 12.71
percent, while return on average assets declined to .98 percent
from 1.08 percent primarily because of the rapid growth in assets.
- - Eagle Real Estate Advisors generated $862,000 of gains on the sale
of residential building lots at its two development communities in
Cobb and Forsyth counties Georgia.
24
<PAGE> 25
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED MARCH 31,1995 AND MARCH 31,
1996
Net income
The Company's net income increased by $919,000 or 22.4 percent to
$5,020,000 in fiscal 1996 from $4,101,000 in fiscal 1995. The increase is
primarily attributable to growth in interest and non-interest income. Net
income per share increased to $1.53 for the year ended March 31, 1996 compared
to $1.34 for the year ended March 31, 1995.
Net Interest Income
Net interest income increased by $1.8 million or 10.7 percent to $18.5
million in fiscal 1996 from $16.7 million in fiscal 1995. This increase
resulted from growth in interest earning assets primarily through loan
originations. The net interest spread (the difference between the yield earned
on interest earning assets and the cost of interest bearing liabilities)
declined during the year to 361 basis points from 446 basis points in the prior
year. The primary reason for the decline was the increase in the cost of
interest bearing liabilities. Yield on interest earning assets declined 5
basis points to 9.06 percent from 9.11 percent while the cost of interest
bearing liabilities rose 80 basis points to 5.45 percent from 4.65 percent.
Interest income received on loans increased $9.6 million or 36.4 percent
to $35.9 million in fiscal 1996 from $26.3 million in fiscal 1995. The
increase in interest received on loans was primarily attributable to growth in
the loan portfolio through originations of residential construction loans,
conforming single family loans held for sale and equipment leases. The yield
on the loan portfolio remained consistent at 9.39 percent for the year compared
to 9.42 percent in the prior year. Interest received on mortgage backed
securities increased $588,000 or 30.3 percent to $2.5 million in fiscal 1996
from $1.9 million in fiscal 1995. This increase is primarily due to purchases
of mortgage backed securities for the available for sale portfolio. Interest
received on securities increased $583,000 or 14.3 percent to $4.7 million in
fiscal 1996 from $4.1 million in fiscal 1995. This is primarily the result of
purchases of securities during the year.
Interest expense increased $8.9 million or 57.4 percent to $24.6 million
in fiscal 1996 from $15.6 million in fiscal 1995. This is primarily the result
of growth in deposits and FHLB advances combined with increases in the cost of
these interest bearing liabilities. Interest expense on deposits increased
$5.1 million or 43.5 percent to $16.7 million from $11.6 million in fiscal
1995. The increase in interest expense on deposits is the result of growth in
deposit accounts coupled with an increase in their cost. The cost of deposits
rose to 5.21 percent during the year from 4.34 percent in the prior year.
Interest expense on FHLB advances and other borrowings also increased $3.9
million or 97.8 percent to $7.9 million from $4.0 million in fiscal 1995.
During the year, the Bank's cost of FHLB advances rose 19 basis points to 6.06
percent from 5.87 percent in the prior year. The Bank utilizes short term FHLB
advances to fund construction loans and loans held for sale.
During the first two quarters of fiscal 1996, the Company experienced
pressure on borrowing rates and net interest margin as a result of the
continuing decrease in the percentage of deposits represented by lower cost
passbook and NOW accounts. In addition, the net interest margin has decreased
due to an increase in advances from the FHLB with higher borrowing costs.
Provision for loan loss
The Company increased its provision for loan losses by $357,000 or 55.5
percent to $1.0 million in fiscal 1996 from $643,000 in fiscal 1995. This
increase is attributable to increased non-
25
<PAGE> 26
performing assets and potential problem loans. Non-performing and potential
problem assets increased to $8.3 million at March 31, 1996 compared to $2.2
million at March 31, 1995. Total problem assets, which include all
non-performing and classified assets, increased to 1.35 percent of total assets
at March 31, 1996, from .47 percent of total assets at March 31, 1995. At March
31, 1996, 49.6 percent of non-performing and classified assets were equipment
leases, 28.2 percent were construction loans and the balance involved real
estate owned and mortgage loans. Management continually evaluates the inherent
risks in the Company's existing loan portfolio and the level of existing loan
loss reserves.
Non-interest income
Non-interest income increased by $3.7 million or 58.2 percent to $10.0
million for fiscal 1996 from $6.3 million for fiscal 1995. Mortgage production
fees are the largest component of non-interest income and such fees increased
$3.5 million or 109.4 percent to $6.8 million compared to $3.2 million in
fiscal 1995. The volume of loans sold in the secondary market increased to
$449 million during 1996 compared to $281 million in fiscal 1995. In addition,
the margin earned on these loans (mortgage production fees divided by mortgage
volume sold) increased to 151 basis points in fiscal 1996 compared to 115
basis points in fiscal 1995. The Company evaluates the cost of servicing and
premiums offered when deciding whether to retain or sell servicing rights. The
Company sold the majority of it loans with servicing released and the largest
component of mortgage production fees was service release premiums in fiscal
1996.
During the year, the Company recorded $862,000 of gain on the sale of real
estate held for development and sale. This is the result of lot sales in the
Company's Chadbourne development in Forsyth county and in the Cobb Woodlawn
development in Cobb county.
Service charges increased $163,000 or 27.3 percent to $760,000 in fiscal
1996 compared to $597,000 in fiscal year 1995. This is the result of growth in
the number of checking accounts during the year. Gain on the sale of loans
decreased 90.9 percent to $81,000 in fiscal 1996 from $891,000 in fiscal 1995
when the Company sold loans which had been purchased at a discount from the
Resolution Trust Corporation.
Non-interest expense
Non-interest expense increased by $4.1 million or 25.5 percent to $20.1
million for fiscal 1996 from $16.0 million for fiscal 1995. The Company's
efficiency ratio was 70.5 percent for fiscal 1996 compared to 69.5 percent for
fiscal 1995. In general the increase in all categories of non-interest expense
is attributable to the Company's rapid growth. The dollar amount of total
assets to non-interest expense increased to $30.39 in fiscal 1996 from $28.52
in fiscal 1995, principally resulting from mortgage origination cost, effected
by the sale of $449 million of mortgage loans in the secondary market. While
mortgage banking companies traditionally have higher efficiency ratios, the
Company is focused on streamlining this business segment to provide a higher
margin.
Salaries and employee benefits increased $2.4 million or 24.5 percent to
$12.0 million from $9.6 million. This increase is due to the addition of
employees to support the Company's growth. Occupancy expense increased
$228,000 or 12.1 percent to $2.1 million in fiscal 1996 from $1.9 million for
fiscal 1995. This is primarily due to the addition of two new regional banking
facilities during the year. Federal insurance premiums increased 18.1 percent
to $717,000 in fiscal 1996 from $607,000 in fiscal 1995. The increase is a
function of the company's deposit growth. The Bank pays $.23 per one-hundred
dollar of deposits as premiums to the Savings Association Insurance Fund, which
is significantly higher than premiums on deposits insured by the Bank Insurance
Fund.
26
<PAGE> 27
Income tax expense
The Company's effective tax rate for fiscal 1996 was 32.3 percent compared
to 35.7 percent in the prior year. This is primarily due to low income housing
tax credits utilized during fiscal 1996.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED MARCH 31, 1994 AND MARCH 31,
1995
The Company's net income decreased by $1.1 million or 21.3% to $4.1
million in the fiscal year ended March 31, 1995 from $5.2 million in the fiscal
year ended March 31, 1994. Management consciously increased asset size and grew
the loan portfolio during fiscal 1995 to increase net interest income in order
to compensate for the decline in mortgage production fees. Loan production
revenues decreased in fiscal 1995 as a result of the rise in interest rates and
reduction in mortgage refinancing activities.
Net Interest Income
Net interest income increased by $1.7 million or 11.4% to $16.7 million in
fiscal 1995 from $15.0 million in fiscal 1994. The general upward trend in
market interest rates during those periods contributed to the increase in the
yield on interest earning assets in fiscal 1995 from fiscal 1994 and the
increase in the cost of interest bearing liabilities. Interest on
mortgage-backed securities decreased as a result of the trend of prepayment of
higher coupon securities and the Company's sale of selected mortgage-backed
securities during fiscal 1994 and 1995. The Company's decision to sell
mortgage-backed securities in fiscal 1994 was based primarily on the trend of
rapid prepayments as a result of record mortgage refinancings.
Interest expense increased by $3.1 million or 24.7% to $15.6 million in
fiscal 1995 from $12.5 million in fiscal 1994. This was primarily the result of
an increase in deposits and FHLB advances. During fiscal 1994, the Company
repaid $7.5 million of 8.45% FHLB 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.
Provision for Loan Loss
The Company decreased its provision for loan losses by $357,000 or 35.7%
to $643,000 in fiscal 1995 from $1.0 million in fiscal 1994. The decrease in
the provision was a result of management's continuing evaluation of the
inherent risks in the Company's existing loan portfolio and the level of
existing reserves. 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.
Non-Interest Income
Non-interest income decreased by $2.9 million or 31.4% to $6.3 million in
fiscal 1995 from $9.2 million in fiscal 1994. Mortgage production fees
represented 51.0% of total non-interest income in fiscal 1995 compared to 65.9%
in fiscal 1994. These fees are directly related to the volume of loans
originated and sold. Loans sold in the secondary market decreased by $222.7
million or 44.2% to $281.4 million in fiscal 1995 from $504.1 million during
fiscal 1994. The reduced rate of loans originated and sold results from rising
interest rates which caused a
27
<PAGE> 28
decrease in mortgage refinancing during fiscal 1995 and, therefore, lower
permanent mortgage originations.
Gain on sale of loans increased by $703,000 or 373.9% to $891,000 in
fiscal 1995 from $188,000 in fiscal 1994. This was primarily attributable to
the sale of the guaranteed portions of SBA loans and the sale of multi-family
loans acquired from the RTC. In fiscal 1995, the Company recognized $14,000 of
gains on the sale of mortgage-backed securities. The Company does not rely on
the sale of mortgage-backed secuities as a continuing source of income.
Non-Interest Expense
In fiscal 1995, salaries and employee benefits increased 7.4% to $9.6
million from $9.0 million in fiscal 1994. This increase was primarily due to
the additional processing personnel required to service the growth in loans and
customers. In fiscal 1995, the Company added loan production offices in
Columbia and Sumter, South Carolina, purchased property for additional branch
sites and began construction of another metropolitan Atlanta branch located in
Cherokee County, Georgia. The Company's net occupancy expense increased by
$395,000 or 26.4% to $1.9 million in fiscal 1995 from $1.5 million in fiscal
1994, as a result of rent escalation and increased property taxes. The Company's
data processing expense increased as a result of the growth in the number of
checking accounts and the loan servicing portfolio. Increased deposits caused
Federal Deposit Insurance Corporation ("FDIC") insurance premiums to increase to
$607,000 in fiscal 1995 from $532,000 in fiscal 1994.
Income Tax Expense
The effective income tax rate for fiscal 1995 was 35.7% compared to 37.5%
for fiscal 1994. The major factor contributing to this decrease was the tax
benefit received from certain investment securities.
INTEREST RATE SENSITIVITY
Net interest income on a taxable-equivalent basis expressed as a
percentage of average total assets is referred to as the net interest margin.
The net interest margin represents the average net effective yield on earning
assets. The net interest margin decreased to 3.93 percent during fiscal 1996
from 4.79 percent during fiscal 1995. The average balance sheet on the next
page presents the individual components of net interest income and expense, net
interest spread and net interest margin. The decrease in the net interest
margin in fiscal 1996 was primarily attributable to the increase in the cost of
interest bearing liabilities rather than an decrease in the yield earned on
interest earning assets. The yield earned on average loans remained consistent
at 9.39 percent for fiscal 1996 compared to 9.42 percent. This is attributable
to the Company's ability to expand its loan portfolio through originations of
loans held for sale, construction loans and leases. The cost of deposits rose
primarily because of the 54 basis point increase in the cost of certificates of
deposit from 5.68 percent in fiscal 1995 to 6.22 percent in fiscal 1996. In
addition, the cost of deposits increased due to the change in the mix of
average deposits with a shift from lower costing passbook and money market
accounts to longer term certificates of deposit. The Company also relies on
borrowing from the FHLB to fund asset growth and the cost of FHLB advances
increased 19 basis points to 6.06 percent in fiscal 1996 from 5.87 percent in
fiscal 1995.
28
<PAGE> 29
The following table reflects the average balances, the interest income or
expense and the average yield and cost of funds of the Company's interest
earning assets and interest bearing liabilities during the fiscal years ended
March 31, 1996, 1995 and 1994:
AVERAGE BALANCE SHEET
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Year ended March 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
(dollars in thousands) Balance Interest Cost Balance Interest Cost Balance Interest Cost
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
- ---------------------------------------------------------------------------------------------------------------------------------
Loans* $382,689 $35,917 9.39% $279,367 $26,330 9.42% $233,976 $21,906 9.36%
Mortgage-backed securities 34,595 2,527 7.30% 26,454 1,939 7.33% 41,891 3,135 7.48%
FHLB stock 6,947 505 7.27% 4,040 272 6.73% 3,277 174 5.31%
Taxable investments 32,674 2,512 7.69% 34,002 2,663 7.83% 29,524 2,204 7.47%
Tax-exempt investment securities 21,392 1,920 8.98% 15,958 1,650 10.34% - - -
Interest earning deposits and Federal
funds 1,502 91 6.06% 1,645 74 4.56% 3,838 110 2.87%
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest earning assets 479,799 43,472 9.06% 361,466 32,928 9.11% 312,506 27,529 8.81%
Non-interest earning assets 34,561 18,886 15,637
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $514,360 $380,352 $328,143
- ---------------------------------------------------------------------------------------------------------------------------------
Liabilities and Equity
- ---------------------------------------------------------------------------------------------------------------------------------
Passbook accounts $ 42,144 $ 1,054 2.50% $ 52,850 $ 1,425 2.70% $ 53,784 $ 1,435 2.67%
NOW 28,586 494 1.73% 28,346 484 1.71% 22,123 383 1.73%
Money market 10,192 231 2.27% 20,993 300 1.43% 12,729 311 2.44%
Certificates of deposit 239,614 14,905 6.22% 165,708 9,416 5.68% 149,569 7,877 5.27%
- ---------------------------------------------------------------------------------------------------------------------------------
Total Deposits 320,536 16,684 5.21% 267,897 11,625 4.34% 238,205 10,006 4.20%
Advances 130,824 7,923 6.06% 68,272 4,006 5.87% 48,265 2,526 5.23%
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 451,360 24,607 5.45% 336,169 15,631 4.65% 286,470 12,532 4.38%
Non-interest bearing liabilities 24,663 11,915 13,328
Stockholders' equity 38,337 32,268 28,345
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity $514,360 $380,352 $328,143
=================================================================================================================================
Net interest/rate spread $18,865 3.61% $17,297 4.46% $14,997 4.43%
Taxable-equivalent adjustment (372) (586)
=================================================================================================================================
Net interest income, actual $18,493 $16,711 $14,997
Net interest earning assets/net
interest margin $ 28,439 3.93% $ 25,297 4.79% $ 26,036 4.80%
=================================================================================================================================
Interest earning assets as a
percentage of interest bearing liabilities 106.30% 107.52% 109.09%
=================================================================================================================================
</TABLE>
* Non-accrual loans are included in average balances and income on such loans,
if recognized, is recorded on a cash basis.
29
<PAGE> 30
The rate volume analysis below reflects 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 (i) changes in rate (changes in rate multiplied by prior period volume),
(ii) changes in volume (changes in volume multiplied by prior period rate), and
(iii) changes in rate/volume (changes in rate multiplied by changes 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) 1996 Compared to 1995 1995 Compared to 1994
- -------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) DUE TO Rate Volume Total Rate Volume Total
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income on interest earning assets:
Loans $ (84) $ 9,671 $ 9,587 $ 141 $ 4,283 $ 4,424
Mortgage-backed securities (8) 596 588 (66) (1,130) (1,196)
Taxable investment securities (47) (104) (151) 110 349 459
Tax-exempt investment securities* (238) 508 270 1,649 -- 1,649
Interests earning deposits and Federal funds 23 (7) 16 46 (81) (35)
FHLB Stock 23 210 233 54 44 98
- -------------------------------------------------------------------------------------------------------------------------
Total (331) 10,874 10,543 1,934 3,465 5,399
- -------------------------------------------------------------------------------------------------------------------------
Interest expense on interest bearing liabilities:
Deposits 2,561 2,497 5,058 342 1,277 1,619
FHLB advances 134 3,783 3,917 338 1,142 1,480
- -------------------------------------------------------------------------------------------------------------------------
Total 2,695 6,280 8,975 680 2,419 3,099
- -------------------------------------------------------------------------------------------------------------------------
Net change in net interest income $(3,026) $ 4,594 $ 1,568 $1,254 $ 1,046 $ 2,300
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Reflects taxable-equivalent adjustments using the statutory federal and state
income tax rate of 39 percent in adjusting interest on tax-exempt investment
securities to a taxable equivalent basis.
30
<PAGE> 31
The Company 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 Bank's Asset and Liability Committee ("ALCO") has primary
responsibility for managing the Company's exposure to interest rate risk. The
ALCO is comprised of three directors, two officers of the Bank and the manager
of the Bank's secondary marketing department. The ALCO meets two times a week
to establish interest rates on loans and deposits and review interest rate
sensitivity and liquidity positions. Funding positions are kept within
predetermined limits designed to ensure that the interest rate risk of the
Company is properly managed. The Company utilizes a simulation model to measure
interest rate risk and manage its exposure to interest rate risk.
Interest rate sensitivity is a measure of exposure to changes in net
interest income due to changes in market interest rates. The excess of interest
earning assets over interest bearing liabilities repricing or maturing in a
given period of time is commonly referred to as "Gap." A positive Gap indicates
an excess of interest rate sensitive assets over interest rate sensitive
liabilities; a negative Gap indicates an excess of interest rate sensitive
liabilities over interest rate sensitive assets. The ALCO has continued to
shift the Company's Gap throughout fiscal 1996. The Company's Gap position is
evaluated continuously and reviewed by the ALCO in bi-weekly meetings. The
Company has a negative one year Gap of 16.57 percent as of March 31, 1996. 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 Company continues to originate consumer
loans, second mortgage loans and equipment lease financing loans. In general,
these loans have short maturities and/or have floating interest rates.
31
<PAGE> 32
GAP ANALYSIS
The following table presents the Company's interest sensitivity gap
between interest-earning assets and interest-bearing liabilities at March 31,
1996. Assets and liabilities having no stated schedule of repayments and no
stated maturity are reported as due in less then three months, except equity
securities which are reported due after five years.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
More than More than More than
Less than 3 months 1 year 3 years to After 5
(dollars in thousands) 3 months to 1 year to 3 years 5 years years Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
INTEREST EARNINGS ASSETS RE-PRICING:
- ----------------------------------------------------------------------------------------------------------------------------------
Loans receivable $133,341 $59,253 $34,287 $ 31,066 $ 81,999 $339,946
Investment securities held to maturity 5,000 18,471 2,001 7,967 21,902 55,341
Securities available for sale - 290 - 2,083 77,139 79,512
Loans receivable held for sale* 92,552 - - - - 92,552
FHLB stock - - - - 8,565 8,565
Interest bearing deposit 339 - - - - 339
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 231,232 78,014 36,288 41,116 189,605 576,255
- ----------------------------------------------------------------------------------------------------------------------------------
Interest bearing liabilities re-pricing:
- ----------------------------------------------------------------------------------------------------------------------------------
Deposits $132,918 $126,856 $41,135 $ 46,641 $ 548 $348,098
Borrowings 35,000 115,790 13,735 8,019 516 173,060
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 167,918 242,646 54,870 54,660 1,064 521,158
- ----------------------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity Gap 63,314 (164,632) (18,582) (13,544) 188,541
Cumulative interest rate sensitivity Gap 63,314 (101,318) (119,900) (133,444) 55,097 55,097
==================================================================================================================================
Cumulative interest rate sensitivity Gap as a
percentage of total assets 10.35% (16.57%) (19.61%) (21.82%) 9.01%
==================================================================================================================================
</TABLE>
*Represents loans committed to sell in less than 3 months
32
<PAGE> 33
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
The following table sets forth certain information at March 31, 1996,
regarding the dollar amount of loans maturing in the Bank'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, 1996
- ---------------------------------------------------------------------------------------------------------------
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 $ 1,194 $ 6,270 $ 49,617 $ 57,081
Adjustable rates 2,569 5,008 117,187 124,764
Real estate construction, net:
Adjustable rates 104,695 9,412 1,861 115,968
Investment in commercial leases:
Fixed rates 3,685 34,347 - 38,032
Consumer - Fixed rates 208 2,527 121 2,856
Loans on savings - Fixed rates 1,245 - - 1,245
- ---------------------------------------------------------------------------------------------------------------
Total 113,596 57,564 168,786 339,946
- ---------------------------------------------------------------------------------------------------------------
Less: Unearned income 384
Deferred loan origination fees 1,409
Reserve for loan losses 4,176
Unearned premium on loans (528)
- ---------------------------------------------------------------------------------------------------------------
Total $334,505
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The following table reflects the dollar amount of all loans due after one
year from March 31, 1996, which have predetermined interest rates and have
floating or adjustable rates.
<TABLE>
<CAPTION>
(dollars in thousands)
Predetermined Floating or
rates Adjustable Rates
<S> <C> <C>
Real estate-mortgage $55,881 $122,195
Real estate-construction, net - 11,273
Commercial leases 34,347 -
Consumer 2,654 -
- ---------------------------------------------------------------
Total $92,882 $133,468
</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 repay obligations with or without call
or prepayment penalties.
PROVISION FOR LOAN LOSSES AND RISK ELEMENTS
The Bank has an Asset Classification Committee (the "ACC"), comprised of
management, which reports at least quarterly to the Board of Directors.
Management and the ACC consider numerous factors in identifying potential
problem loans including, among other factors, the estimated value of the
underlying collateral, loan concentrations, specific loan problems, economic
conditions that may affect the borrower's ability to repay, past payment
experience,
33
<PAGE> 34
general market conditions and such other factors as management or the ACC
believes should be considered under existing circumstances. In addition,
various regulatory agencies, as an integral part of the examination process,
periodically review the reserve for loan losses. Such agencies require the Bank
to recognize additions to the reserve based on judgments with regard to
information available to them at the time of the examination. Management is not
aware of any loans classified for regulatory purposes as loss, doubtful or
substandard that (i) have not been disclosed and (ii) either (a) represent or
result from trends or uncertainties, which management reasonably expects will
materially impact future operating results, liquidity, or capital resources, or
(b) represent material credits with respect to 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.
Over the past several years, the Company has experienced significant
growth in its permanent single family residential mortgage loan, construction
loan and leasing portfolios. The Company's portfolio of permanent residential
mortgage loans was $244.9 million at March 31, 1996, constituting 40.0 percent
of total assets and 56.6 percent of the Company's loan portfolio. Construction
loans comprise the second largest component of the Company's loan portfolio. At
March 31, 1996, construction loans constituted 26.8 percent of the Company's
loan portfolio and totaled $116.0 million. At March 31, 1996, the Company's
investment in the purchase of equipment leases was $38.0 million which
represented 8.8 percent of the Company's loan portfolio.
Construction loans frequently involve greater risk than residential
mortgage loans principally due to (i) the creditworthiness of construction
borrowers in general, (ii) the potential risks associated with securing
permanent financing, and (iii) general market conditions in the housing
industry. The Company's investment in equipment leases involves risk because of
(i) the decline in value of the leased equipment and the geographic location of
the equipment, (ii) the Company's reliance on third party lessors for servicing
the leases, and (iii) the location of lessees outside the Company's geographic
market.
Management believes that the Bank's credit review and loan monitoring
processes are adequate to evaluate and monitor these risks and that the Bank's
allowance for possible loan losses is adequate in relation to the composition
of its loan portfolio. Although the Company's non-accrual loans as a percentage
of total loans was 1.41 percent at March 31, 1996, there is a risk that the
quality of the Company's loan portfolio could decline, particularly as a result
of the rapid growth in loans, as a result of the concentration of construction
loans and as a result of risk inherent in commercial equipment leases.
Management and the ACC, along with regulators, closely monitor total exposure
to each market area and price range in determining the appropriate
concentrations of construction loans. The Office of Thrift Supervision (the
"OTS") also monitors and comments on the adequacy of the Bank's provision for
loan losses in conducting its examinations of the Bank. Additionally, the
broadening of the Company's lending area has reduced its dependence on the
economic prospects of the Atlanta metropolitan area.
At March 31, 1996, the reserve for loan losses as a percentage of average
loans outstanding was 1.1 percent. Charge-offs in fiscal 1996 were $270,000
versus $684,000 in fiscal 1995 and $104,000 in 1994. The reserve for loan
losses increased from $3.36 million at March 31, 1995, to $4.18 million at
March 31, 1996. In fiscal 1996, charge-offs represented .07 percent of average
loans receivable versus .23 percent for fiscal 1995 and .03 percent in 1994.
The tables on the following page provide an analysis of the reserve for loan
losses.
34
<PAGE> 35
The allocation of the provision for loan losses for the year indicated is as
follows:
ALLOCATION OF THE RESERVE FOR LOAN LOSSES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
% of % of % of % of % of
loans in loans in loans in loans in loans in
each each each each 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
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at end of period
applicable to:
Real Estate -
First mortgage loans $ 571 51% $ 639 51% $ 507 43% $ 345 55% $255 77%
Second mortgage loans 262 3% 148 2% 350 4% 129 5% 120 7%
Construction 798 37% 1,008 38% 934 42% 460 31% 109 15%
Commercial leases 1,593 8% 296 8% 308 10% 188 8% - -
Consumer and other 27 1% 10 1% 10 1% 10 1% 19 1%
Unallocated 925 - 1,261 - 1,240 - 1,288 - 389 -
- ----------------------------------------------------------------------------------------------------------------------------------
Total $4,176 100% $3,362 100% $3,349 100% $2,420 100% $892 100%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ANALYSIS OF THE RESERVE FOR LOAN LOSSES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
March 31,
(dollars in thousands) 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserve for loan losses,
beginning of year $ 3,362 $ 3,349 $ 2,420 $ 892 $ 763
Charge-offs:
Real estate-construction - 149 - 184 -
Real estate-mortgage 251 521 101 432 305
Consumer and other 19 14 3 19 2
Commercial leases - - - - -
- -------------------------------------------------------------------------------------------------------------
Total charge-offs 270 684 104 635 307
Recoveries 84 54 33 5 38
- -------------------------------------------------------------------------------------------------------------
Net charge-offs 186 630 71 630 269
Reserve on purchased loans - - - 1,528 -
Provision for loan losses 1,000 643 1,000 630 398
- -------------------------------------------------------------------------------------------------------------
Reserve for loan losses, end of year $ 4,176 $ 3,362 $ 3,349 $ 2,420 $ 892
- -------------------------------------------------------------------------------------------------------------
Average loans outstanding for the period $382,689 $279,367 $233,976 $191,178 $163,136
- -------------------------------------------------------------------------------------------------------------
Ratio of net charge-offs to average loans .05% .23% .03% .33% .16%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE> 36
NON-PERFORMING ASSETS
Total problem assets, which include non-accrual loans, loans classified as
problem assets by the ACC and real estate acquired through the settlement of
loans, increased by $6.1 million or 280.0 percent to $8.3 million at March 31,
1996, from $2.2 million at March 31, 1995. At March 31, 1996, the Company had
non-accrual loans of $6.0 million compared to $603,000 at March 31, 1995.
Interest income not recognized on these loans amounted to $114,000 during 1996,
and $40,000 during 1995. Approximately 57.0 percent of all non-accrual loans
were represented by equipment leases, 27.6 percent by construction loans and
the balance by mortgage loans. In addition, at March 31, 1996, the ACC
identified $1.3 million of loans as potential problem loans. At March 31, 1995,
the Company had $954,000 of loans classified as potential problems. Real estate
owned increased by $292,000 or 47.5 percent to $907,000 at March 31, 1996, from
$615,000 at March 31, 1995. Total problem assets as a percent of total assets
increased to 1.35 percent at March 31, 1996 from at .47 percent at March 31,
1995.
At March 31, 1996, there were 11 construction loans on non-accrual. Seven
or $1.1 million of these were in the Jacksonville, Florida market area and
three or $348,000 were in the Aiken, South Carolina market area. The remaining
construction loan or $246,000 was located in the Atlanta metropolitan area. In
addition, at March 31, 1996, four lease borrowers were on non-accrual. One
borrower represented $1.9 million and another borrower represented $929,000 of
the non-accrual leases. At March 31, 1996, potential problem loans totaled $1.3
million of which $670,000 were construction loans and equipment leases were
$675,000.
The following table reflects non-performing loans, potential problem loans
and restructured loans as of the dates indicated. Non-performing loans consist
of non-accrual loans and foreclosed properties, as well as loans past due 90
days or more as to interest or principal and still accruing. Potential problem
loans are those with respect to which management has doubts regarding the
ability of the borrower to comply with current loan repayment terms and have
been classified as such by the ACC, regardless of payment status.
NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
(dollars in thousands) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans
Residential real estate-construction $1,658 $ 134 $ 29 $1,618 $ -
Residential real estate-mortgage 502 469 751 439 1,051
Commercial real estate 421 - - - -
Commercial leases 3,421 - 5 - -
Installment - - 2 - 87
- --------------------------------------------------------------------------------------------
Total non-accrual 6,002 603 787 2,057 1,138
- --------------------------------------------------------------------------------------------
Potential problem loans 1,345 954 - 2,165 -
Loans contractually delinquent 90
days which still accrue interest - - - - -
Troubled debt restructuring - - - - -
- --------------------------------------------------------------------------------------------
Total non-accrual and problem loans 7,347 1,557 787 4,222 1,138
- --------------------------------------------------------------------------------------------
Real estate owned, net 907 615 671 2,137 3,696
- --------------------------------------------------------------------------------------------
Total problem assets $8,254 $2,172 $1,458 $6,359 $4,834
- --------------------------------------------------------------------------------------------
Total problem assets/Total assets 1.35% .47% .46% 1.98% 1.60%
- --------------------------------------------------------------------------------------------
Total problem assets/Net loans plus
reserves 2.44% .71% .65% 3.30% 2.79%
- --------------------------------------------------------------------------------------------
Reserve for loan losses/Problem assets 50.59% 154.79% 229.70% 38.06% 18.45%
- --------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE> 37
LOAN PORTFOLIO AND CONCENTRATIONS
Since 1992, the Company's loan portfolio has grown 111 percent. The
Company's primary lending activity is conducted through the loan production
operation and includes the origination of construction loans and conventional,
Federal Housing Administration ("FHA") and Veterans Administration ("VA")
permanent loans secured by first mortgages on residential properties,
principally one to four family owner occupied residences. The Bank's
residential loan originations are conducted through PrimeEagle. Substantially
all permanent loans originated by PrimeEagle are underwritten in accordance
with standards and requirements acceptable to Federal National Mortgage
Association, Federal Home Loan Mortgage Corporation, FHA and VA. Substantially
all fixed rate loans are sold to third party investors while adjustable rate
mortgages are retained in the Bank's portfolio. In addition, the loan
production segment originates construction loans on residential real estate in
an attempt to capture the permanent mortgage when the builder sells the house.
This provides an advantage to the loan production 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
other companies with unrated debt that meet the Bank's underwriting criteria.
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 Bank'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 most important. At March 31, 1996, the average duration
of these leases was 24 months and lease financing loans represented 8.8 percent
of the total loan portfolio.
At March 31, 1996, approximately 54.9 percent of the Company's loans
receivable are first mortgage loans secured by residential real estate
consisting of one to four family homes. One to four family home mortgages are
generally believed to be a conservative investment. The Company's high
concentration of residential first mortgages tends to reduce its level of
delinquencies and problem loans.
In accordance with the Company's business plan, the volume of construction
lending 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. The Company's underwriting
criteria consider, among other things, the equity investment of the borrower,
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,
growth prospects for the economy and the impact of changes in interest rates.
The Company has a multistate construction inspection and appraisal network. Its
staff closely monitors construction progress and draws throughout the process.
Approximately 30.0 percent of the Company's construction loan portfolio is
comprised of loans on pre-sold single family residences. In addition, no single
customer accounted for more than 2.0 percent of the Company's loans in fiscal
1996, 1995 or 1994.
37
<PAGE> 38
The following table reflects the composition of the Bank's loan portfolio at
the indicated dates:
LOAN PORTFOLIO MIX
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
At March 31, 1996 1995 1994 1993 1992
(dollars in thousands) Amount % Amount % Amount % Amount % Amount %
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate-construction loans:
Construction $158,670 31.38% $123,995 30.43% $102,983 34.18% $ 65,870 26.26% $ 23,156 12.36%
Acquisition & Development 30,419 6.02% 30,517 7.49% 23,771 7.89% 13,059 5.20% 4,500 2.40%
Real Estate-mortgage loans:
Non-residential 15,176 3.00% 15,852 3.89% 19,578 6.50% 24,355 9.71% 11,429 6.10%
Residential 152,331 30.13% 150,784 37.00% 88,941 29.52% 90,349 36.02% 118,617 63.30%
Home equity and second
mortgages 14,338 2.84% 10,250 2.52% 10,701 3.55% 12,899 5.14% 13,435 7.17%
Loans Held for Sale 92,552 18.30% 41,220 10.11% 23,641 7.85% 23,462 9.35% 13,708 7.32%
- -----------------------------------------------------------------------------------------------------------------------------------
Total real estate loans 463,486 91.67% 372,618 91.44% 269,615 89.49% 229,994 91.68% 184,845 98.65%
- -----------------------------------------------------------------------------------------------------------------------------------
Other loans:
Leases 38,032 7.52% 32,582 8.00% 29,364 9.75% 18,808 7.50% - -
Consumer and other 4,101 0.81% 2,321 0.56% 2,305 0.76% 2,054 0.82% 2,539 1.35%
- -----------------------------------------------------------------------------------------------------------------------------------
Total other loans 42,133 8.33% 34,903 8.56% 31,669 10.51% 20,862 8.32% 2,539 1.35%
- -----------------------------------------------------------------------------------------------------------------------------------
Total gross loans receivable 505,619 100.00% 407,521 100.00% 301,284 100.00% 250,856 100.00% 187,384 100.00%
- -----------------------------------------------------------------------------------------------------------------------------------
Less:
Undisbursed portion of loans
in process (73,121) (56,780) (52,054) (31,460) (9,870)
Deferred loan origination
fees (1,409) (1,547) (1,176) (1,037) (1,221)
Unearned income (384) (593) (1,190) (1,782) (2,572)
Reserve for loan losses (4,176) (3,362) (3,349) (2,420) (892)
Unearned premium
(discount) on loans 528 (113) (148) (580) (380)
- -----------------------------------------------------------------------------------------------------------------------------------
Loans receivable, net* $427,057 $345,126 $243,367 $213,577 $172,449
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes loans receivable held for sale.
38
<PAGE> 39
INVESTMENT SECURITIES
During fiscal 1996, investment securities increased 71.7 percent over the
prior year. At March 31, 1996, the Company had total investments in securities
of $134.9 million versus $78.5 million at March 31, 1995. 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
classified as available for sale as a separate component of equity, net of
income taxes.
The investment securities portfolio at March 31, 1996, was comprised of
$55.3 million of investment securities held to maturity at amortized cost. The
Company has the ability and it is management's intent to hold these securities
to maturity for investment purposes. In addition, the Company had an estimated
market value of $79.5 million of investment securities available for sale at
March 31, 1996. Investment securities available for sale had a net unrealized
loss as shown in the Company's stockholders' equity section of $495,000 at
March 31, 1996, versus a net unrealized gain of $46,000 at March 31, 1995.
Included in other securities at March 31, 1996 and 1995, are $3.7 million
and $5.0 million, respectively, of investment grade residential mortgage pass
through certificates issued by the RTC. These securities are rated Aa2 by
Moody's and AA by Standard & 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 equaled or exceeded 10 percent of
stockholders' equity at March 31, 1996, 1995 or 1994.
The following table reflects securities held in the Bank's securities
portfolio for the periods indicated:
INVESTMENT SECURITIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
March 31,
- ------------------------------------------------------------------------------
Investment Securities Held to Maturity: 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
US Treasury and US Government Agencies $ 27,450 24,799 17,860
Mortgage-backed securities 8,087 10,009 11,388
Corporate bonds 8,420 10,376 2,463
Other debt securities 11,384 12,415 2,972
- ------------------------------------------------------------------------------
Total $ 55,341 57,599 34,683
- ------------------------------------------------------------------------------
Securities Available for Sale:
Mortgage-backed securities $ 67,855 14,093 17,911
Corporate bonds 2,028 - -
Equity securities-preferred stock 9,629 6,846 2,972
- ------------------------------------------------------------------------------
Total $ 79,512 20,939 20,883
- ------------------------------------------------------------------------------
Total Investment Securities:
US Treasury and US Government Agencies $ 27,450 24,799 17,860
Mortgage-backed securities 75,942 24,102 29,299
Corporate bonds 10,448 10,376 2,463
Other debt securities 11,384 12,415 2,972
Equity Securities 9,629 6,846 2,972
- ------------------------------------------------------------------------------
Total $134,853 78,538 55,566
- ------------------------------------------------------------------------------
</TABLE>
The following table reflects the stated contractual maturities, amortized
cost or estimated value and weighted average yield of securities held in the
Bank's portfolio, for the periods indicated:
39
<PAGE> 40
MATURITIES OF INVESTMENT SECURITIES AND AVERAGE YIELDS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Investment Securities Held to Securities Available for Sale
Maturity March 31, 1996 March 31, 1996
- -------------------------------------------------------------------------------------------------------------------
Amortized Weighted Estimated Weighted
(dollars in thousands) Cost Average Yield Fair Value Average Yield(1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
US Treasury and US Government
Agencies:
Within 1 year $10,978 7.16% - -
1-5 years 6,472 6.28% - -
5-10 years 10,000 7.17% - -
More than 10 years - - - -
- -------------------------------------------------------------------------------------------------------------------
Total 27,450 6.96% - -
- -------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities:
Government National Mortgage Assn.
Within 1 year - - - -
1 to 5 years - - - -
5 to 10 years - - 31,648 7.37%
More than 10 years 3,570 6.50% 24,585 6.99%
- -------------------------------------------------------------------------------------------------------------------
Total 3,570 6.50% 56,233 7.20%
- -------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.
Within 1 year - - - -
1 to 5 years - - 55 8.25%
5 to 10 years - - - -
More than 10 years 805 5.88% 7,544 8.60%
- -------------------------------------------------------------------------------------------------------------------
Total 805 5.88% 7,599 8.59%
- -------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.
Within 1 year - - 290 7.03%
1 to 5 years - - - -
5 to 10 years - - 1,238 8.50%
More then 10 years - - 2,495 8.50%
- -------------------------------------------------------------------------------------------------------------------
Total - - 4,023 8.39%
- -------------------------------------------------------------------------------------------------------------------
Other:
Within 1 year - - - -
1 to 5 years - - - -
5 to 10 years - - - -
More then 10 years 15,096 6.88% - -
- -------------------------------------------------------------------------------------------------------------------
Total 15,096 6.88% - -
- -------------------------------------------------------------------------------------------------------------------
Corporate Debt:
Within 1 year 993 7.86% - -
1 to 5 years 4,996 7.83% 2,028 7.32%
5 to 10 years 500 10.88% - -
More then 10 years 1,931 7.68% - -
- -------------------------------------------------------------------------------------------------------------------
Total 8,420 7.98% 2,028 7.32%
- -------------------------------------------------------------------------------------------------------------------
Preferred Stock:
Within 1 year - - - -
1 to 5 years - - - -
5 to 10 years - - - -
More than 10 years - - 9,629 7.45%
- -------------------------------------------------------------------------------------------------------------------
Total - - 9,629 7.45%
- -------------------------------------------------------------------------------------------------------------------
Total Securities:
Within 1 year 11,971 7.22% 290 7.03%
1 to 5 years 11,468 6.96% 2,083 7.34%
5 to 10 years 10,500 7.35% 32,886 7.41%
More than 10 years 21,402 6.85% 44,253 7.45%
- -------------------------------------------------------------------------------------------------------------------
Total $55,341 7.05% $79,512 7.43%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Weighted average yield computed using amortized cost.
40
<PAGE> 41
DEPOSITS
Deposits are the Company's primary funding source. Total deposits grew by
$61.8 million or 21.6 percent to $348.1 million at March 31, 1996, from $286.3
million at March 31, 1995. The Bank uses traditional marketing methods to
attract new customers. Its deposit network is serviced from its ten branches.
During the fiscal year ending March 31, 1996, the number of savings accounts
grew 11.3 percent to 45,307 accounts at March 31, 1996, from 40,698 at March
31, 1995. Management believes that the majority of those additional accounts
are a result of the continued trend in consolidation of financial institutions
in the metropolitan Atlanta market and the desire of customers to deal with an
independent, local financial institution. In addition, in April 1994 the Bank
purchased 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 40.3 percent to $174.9 million at March
31, 1996, from $124.7 million at March 31, 1995. Certificates of deposit
$100,000 and greater were 9.7 percent of total deposits at March 31, 1995, and
12.5 percent at March 31, 1996. In addition, at March 31, 1996, 31.4 percent of
certificates of deposit with balances $100,000 and more have maturities of over
12 months. The Bank does not actively solicit deposits outside of its local
market area. At the same time, the weighted average interest rate on deposits
at March 31, 1996 increased 21 basis points to 5.08 percent from 4.87 percent.
Demand deposits including NOW accounts, passbook accounts and money market
accounts were 24.4 percent of the Company's deposits at March 31, 1996.
The following table sets forth information on the maturity distribution of
certificates of deposit of $100,000 or more.
MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSIT OF $100,000 OR MORE
<TABLE>
<CAPTION>
(in thousands)
Certificates of
Deposit
March 31, 1996
- -------------------------------------------------------------
<S> <C>
3 months or less $ 6,042
Over 3 months through 6 months 9,533
Over 6 months through 12 months 14,276
Over 12 months 13,692
- -------------------------------------------------------------
Total outstanding $43,543
- -------------------------------------------------------------
</TABLE>
DEPOSIT MIX
The following table exhibits the Company's composition of deposits at March 31
for the years indicated.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
March 31, 1996 1995
- -----------------------------------------------------------------------------------------------
(dollars in thousands) Amount % of Total Amount % of Total
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2.25% NOW accounts
2.50% Passbook accounts
2.50% Money Markets $ 33,603 9.7% $ 28,244 9.9%
Certificate accounts less than $100,000 42,845 12.3% 43,761 15.3%
2.50% - 5.99% 8,418 2.4% 10,836 3.8%
6.00% - 7.99% 132,817 38.2% 87,352 30.5%
8.00% - 9.99% 81,831 23.5% 74,873 26.2%
10.00% - 12.00% 5,041 1.4% 13,318 4.6%
Certificate accounts $100,000 and - - 137 0.0%
greater ranging between 2.85% - 9.50% 43,543 12.5% 27,794 9.7%
- -----------------------------------------------------------------------------------------------
Total $348,098 100% $286,315 100.0%
- -----------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 42
AVERAGE DEPOSIT BALANCES AND RATES
The following table exhibits the average amount of deposits and weighted
average rate by the categories indicated.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------
Average Average Average Average Average Average
(dollars in thousands) Rate Amount Rate Amount Rate Amount
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Demand deposits:
Passbook accounts 2.50% $ 42,144 2.70% $ 52,850 2.67% $ 53,784
NOW checking accounts 1.73% 28,586 1.71% 28,346 1.73% 22,123
Money Market accounts 2.27% 10,192 1.43% 20,993 2.44% 12,729
Certificates of deposits 6.22% 239,614 5.68% 165,708 5.27% 149,569
- ---------------------------------------------------------------------------------------
Total 5.21% $320,536 4.34% $267,897 4.20% $238,205
- ---------------------------------------------------------------------------------------
</TABLE>
BORROWINGS
The FHLB system functions as a reserve credit facility for thrift
institutions and certain other member home financing institutions. The Bank
utilizes advances from the FHLB to fund a portion of its assets. At March 31,
1996, advances were $168.2 million up from $117.1 million at March 31, 1995.
The weighted average interest rate on these borrowings was 5.53 percent and
6.77 percent at March 31, 1996 and 1995, respectively. Increased borrowings
during fiscal 1995 were used primarily to fund the origination and retention 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 FHLB advances. This enabled the Company to reduce its cost of funds.
The following table reflects the amount outstanding, maximum month end and
average balances of short-term borrowings outstanding as well as the weighted
average rate at the end of the year:
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
- -----------------------------------------------------------
(dollars in thousands) At March 31, Maximum Average
- -----------------------------------------------------------
<S> <C> <C> <C>
1996:
Balances outstanding $149,700 $149,700 $113,574
Weighted average rate 5.41% 5.41% 5.97%
- -----------------------------------------------------------
1995:
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%
- -----------------------------------------------------------
</TABLE>
42
<PAGE> 43
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 Bank's assets and
liabilities are critical to the maintenance of acceptable performance levels.
LIQUIDITY AND CAPITAL RESOURCES
The ALCO manages the Company's liquidity needs to ensure there is
sufficient cash flow to satisfy demand for credit, deposit withdrawals and
other Company needs. Traditional sources of funds include deposits, FHLB
advances, loan sales and payments on loans. At March 31, 1996, total assets
were $611.5 million, a 33.7 percent increase from $457.3 million at March 31,
1995. The majority of the increase in assets was in loans receivable, loans
held for sale, investment securities and real estate held for development and
sale. Substantially all of this growth was funded with growth in deposits and
FHLB advances. Under current regulations, the Bank is required to maintain
liquid assets at 5 percent or more of its net withdrawal deposits for short
term borrowings. At March 31, 1996, the Company had commitments to originate
fixed rate mortgage loans of approximately $14.8 million and commitments to
originate variable rate mortgage loans of approximately $7.1 million with terms
of up to thirty years and interest rates ranging from 5.5 percent to 12.5
percent. The Company had commitments to sell mortgage loans of approximately
$87.0 million at March 31, 1996. In addition, the Company is committed to loan
funds on unused variable rate lines of credit approximately $7.5 million at
March 31, 1996. The Company's funding sources for these commitments include
deposits and FHLB advances.
Beginning April 1, 1995, the Bank formed an operating subsidiary,
PrimeEagle, and consolidated all real estate lending activities into this
business unit. This business unit generates revenues by originating
construction loans, permanent mortgage loans and SBA loans. Substantially all
fixed rate permanent mortgage and SBA loans are sold to investors. Permanent
mortgage loan originations increased 67.5 percent to $500.7 million for fiscal
1996 compared to $299.0 million for fiscal 1995. The Company manages the
funding requirements of these loans primarily with short term advances from the
FHLB. In addition, outstanding commitments to originate loans, exclusive of the
undisbursed portion of loans in process, increased to approximately $21.9
million at March 31, 1996, from $5.7 million at March 31, 1995.
CAPITAL
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") established five capital categories for financial institutions. The
OTS places each federally chartered thrift institution into one of five
categories: well capitalized, adequately capitalized, under capitalized,
significantly under capitalized, and critically under capitalized. These
classifications are based on the Bank's level of risk based capital, leverage
ratios and its supervisory ratings. FDICIA defines "well capitalized" banks as
entities having a total 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, 1996, the Bank was classified as "well
capitalized" under the OTS regulations that implement the FDICIA provisions
described above. Effective February 15, 1996, the Company raised $21.5 million
of capital in a secondary offering
43
<PAGE> 44
co-underwritten by Interstate/Johnson Lane and Morgan Keegan & Company, Inc.
Substantially all of the proceeds were contributed to the Bank.
The following table reflects the Bank's minimum regulatory capital
requirements, actual capital and the level of excess capital by category. The
Bank has historically maintained capital substantially in excess of the minimum
requirement. The Bank paid $1.4 million of dividends to the Company over the
course of the year
REGULATORY CAPITAL
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
At March 31, 1996 Requirement Actual Excess
($ in 000's) $ % $ % $ %
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tangible 9,057 1.5 53,615 8.9 44,558 7.4
Core 18,115 3.0 53,615 8.9 35,500 5.9
Risk based 28,842 8.0 56,783 15.8 27,941 7.8
- ------------------------------------------------------------------------
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS
In May 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 122, "Accounting for Mortgage Servicing Rights", as an amendment to SFAS
No. 65, "Accounting for Certain Mortgage Banking Activities". SFAS No. 122
addresses the accounting for purchased and originated mortgage servicing rights
and is effective for fiscal years beginning after December 15, 1995. SFAS No.
122 requires that a mortgage banking enterprise recognize as a separate asset
rights to service mortgage loans for others regardless of whether their
servicing rights are acquired through either the purchase or origination of
mortgage loans. The statement also requires that the mortgage banking
enterprise assess its capitalized mortgage servicing rights for impairment
based upon the fair value of those rights purchased before adoption of SFAS No.
122. Impairment should be recognized through a valuation allowance. The
Company's mortgage banking subsidiary, PrimeEagle, generates revenues through
fees for various services, including 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. SFAS No. 122 will not
have an effect on the Company's financial statements, as substantially all of
its permanent loans are sold on a servicing released basis.
44
<PAGE> 45
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and the Report of Independent Public
Accountants contained in the Annual Report to Stockholders are incorporated
herein by reference. The report of Independent Public Accountants on the
Consolidated Financial Statements for the year ended March 31, 1994 is included
as exhibit 13.1.
SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
(IN THOUSANDS EXCEPT PER SHARE DATA, UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------
1996 1995
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 $11,537 $10,933 $10,638 $9,992 $9,250 $8,385 $7,673 $7,034
Interest expense 6,615 6,256 6,087 5,649 4,955 4,079 3,496 3,101
- ----------------------------------------------------------------------------------------------------------------------
Net interest income 4,922 4,677 4,551 4,343 4,295 4,306 4,177 3,933
Provision for loan losses 637 309 54 - 96 176 189 182
- ----------------------------------------------------------------------------------------------------------------------
Net interest income
after provision for loan losses 4,285 4,368 4,497 4,343 4,199 4,130 3,988 3,751
Other income 2,928 2,981 2,439 1,696 1,402 1,329 1,940 1,676
Other expenses 5,382 5,322 5,035 4,382 4,165 3,870 4,022 3,978
- ----------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,831 2,027 1,901 1,657 1,436 1,589 1,906 1,449
Income tax expense 571 594 641 590 417 585 727 550
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 1,260 $ 1,433 $ 1,260 $1,067 $1,019 $1,004 $1,179 $ 899
======================================================================================================================
Net income per share $ .33 $ .44 $ .41 $ .35 $ .33 $ .33 $ .38 $ .29
======================================================================================================================
</TABLE>
The Company increased the provision for loan loss during the fourth
quarter of fiscal 1996 due to an increase in problem assets. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS IF RESULTS AND OPERATIONS AND FINANCIAL
CONDITION-NON-PERFORMING ASSETS".
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
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 Bank, the information contained under the
section captioned "PROPOSAL 1-Election of Directors" in the Company's Proxy
Statement for the 1996 Annual Meeting of Stockholders (the "Proxy Statement")
is incorporated herein by reference.
45
<PAGE> 46
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the section captioned "PROPOSAL 1-Election
of Directors-Compensation of Executive Officers" in the Proxy Statement for the
1996 Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the sections captioned "PROPOSAL
1-Election of Directors" and "Ownership of Equity Securities", in the Proxy
Statement for the 1996 Annual Meeting of Stockholders are incorporated herein
by reference.
ITEM 13. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the sections captioned "PROPOSAL
1-Election of Directors" and "Compensation of Executive Officers - Certain
Transactions" in the Proxy Statement for the 1996 Annual Meeting of
Stockholders are incorporated herein by reference.
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, 1996, and 1995
Consolidated Statements of Operations for the Years
Ended March 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the
Years Ended March 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years
Ended March 31, 1996, 1995 and 1994
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.
C. EXHIBITS
3.1(A) Restated Articles of Incorporation of the Company (Exhibit 3
to the Company's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1988.)
3.1(B) Articles of Amendment to Restated Articles of Incorporation of
the
46
<PAGE> 47
Company (Exhibit 3(a) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1991).
3.1(c) Articles of Amendment to Restated Articles of Incorporation of
the Company.
3.2 Bylaws of the Company, as amended (Exhibit 3(b) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1991).
4 Shareholder Protection Rights Agreement dated as of January
26, 1993 of (Exhibit 1 to the Company's Current Report on Form
8-K dated February 9, 1993).
10.1 Employment Agreement dated as of October 1, 1993, between
Tucker Federal Savings and Loan Association and Richard B.
Inman, Jr. (Exhibit 10(c) to the Company's Annual Report on
Form 10-K for the year ended March 31, 1995).*
10.2 Employment Agreement dated as of January 1, 1994, between
Tucker Federal Savings and Loan Association and Betty
Petrides (Exhibit 10(f) to the Company's Annual Report on Form
10-K for the year ended March 31, 1995).*
10.3 Employment Agreement dated January 1, 1994, between Eagle
Service Corporation and Conrad J. Sechler, Jr. (Exhibit 10(g)
to the Company's Annual Report on Form 10-K for the year ended
March 31, 1995).*
10.4 Tucker Federal Savings and Loan Association Directors'
Retirement Plan (Exhibit 10(h) to the Company's Annual Report
on Form 10-K for the year ended March 31, 1995).*
10.5 Eagle Bancshares, Inc. 1994 Directors Stock Option Incentive
Plan (Exhibit 10(i) to the Company's Annual Report on Form
10-K for the year ended March 31, 1995).*
10.6 Agreement for Advances and Security Agreement with Blanket
Floating Lien dated as March 5, 1990 between Tucker Federal
Savings and Loan Association and the Federal Home Loan Bank of
Atlanta as amended as of September 7, 1995 (Exhibit 10.6 to
the Company's Form S-2).
11 Computation of per share earnings.
13.1 Eagle Bancshares, Inc. 1996 Annual Report to Stockholders.
13.2 KPMG Peat Marwick LLP report on year ended March 31, 1994,
Consolidated Financial Statements.
21 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of KPMG Peat Marwick LLP.
* The referenced exhibit is a compensatory contract, plan or
arrangement.
D. REPORTS ON FORM 8-K
None
47
<PAGE> 48
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, 1996 By:/s/ Conrad J. Sechler, Jr.
-------------------------------------------
Conrad J. Sechler, Jr.
Chairman of the Board, President and
Principal Executive Officer
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, 1996 By:/s/ Conrad J. Sechler, Jr.
-------------------------------------------
Conrad J. Sechler, Jr.
Chairman of the Board and President
June 28, 1996 By:/s/ Walter C. Alford
-------------------------------------------
Walter C. Alford
Director
June 28, 1996 By:/s/ Richard J. Burrell
-------------------------------------------
Richard J. Burrell
Director
June 28, 1996 By:/s/ Richard B. Inman, Jr.
-------------------------------------------
Richard B. Inman, Jr.
Director, Secretary and Treasurer
(Chief Financial and Accounting
Officer)
June 28, 1996 By:/s/ Weldon A. Nash
-------------------------------------------
Weldon A. Nash
Director
June 28, 1996 By:/s/ George G. Thompson
-------------------------------------------
George G. Thompson
Director
48
<PAGE> 49
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
<S> <C> <C>
3.1(a) Restated Articles of Incorporation of the Company
(Exhibit 3 to the Company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1988.)
3.1(b) Articles of Amendment to Restated Articles of
Incorporation of the Company (Exhibit 3(a) to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1991).
3.1(c) Articles of Amendment to Restated Articles of
Incorporation of the Company.
3.2 Bylaws of the Company, as amended (Exhibit 3(b) to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1991).
4 Shareholder Protection Rights Agreement dated as of
January 26, 1993 of (Exhibit 1 to the Company's Current
Report on Form 8-K dated February 9, 1993).
10.1 Employment Agreement dated as of October 1, 1993, between
Tucker Federal Savings and Loan Association and Richard
B. Inman, Jr. (Exhibit 10(c) to the Company's Annual
Report on Form 10-K for the year ended March 31, 1995).*
10.2 Employment Agreement dated as of January 1, 1994, between
Tucker Federal Savings and Loan Association and Betty
Petrides (Exhibit 10(f) to the Company's Annual Report on
Form 10-K for the year ended March 31, 1995).*
10.3 Employment Agreement dated January 1, 1994, between Eagle
Service Corporation and Conrad J. Sechler, Jr. (Exhibit
10(g) to the Company's Annual Report on Form 10-K for the
year ended March 31, 1995).*
10.4 Tucker Federal Savings and Loan Association Directors'
Retirement Plan (Exhibit 10(h) to the Company's Annual
Report on Form 10-K for the year ended March 31, 1995).*
10.5 Eagle Bancshares, Inc. 1994 Directors Stock Option
Incentive Plan (Exhibit 10(i) to the Company's Annual
Report on Form 10-K for the year ended March 31, 1995).*
10.6 Agreement for Advances and Security Agreement with
Blanket Floating Lien dated as March 5, 1990 between
Tucker Federal Savings and Loan Association and the
Federal Home Loan Bank of Atlanta as amended as of
September 7, 1995 (Exhibit 10.6 to the Company's Form
S-2).
11 Computation of per share earnings.
13.1 Eagle Bancshares, Inc. 1996 Annual Report to Stockholders.
13.2 KPMG Peat Marwick LLP report on year ended March 31,
1994, Consolidated Financial Statements.
21 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of KPMG Peat Marwick LLP.
* The referenced exhibit is a compensatory contract, plan
or arrangement.
</TABLE>
49
<PAGE> 1
EXHIBIT 11. COMPUTATION OF PER SHARE EARNINGS
Weighted average common and common equivalent shares for the years ended March
31, 1996, 1995 and 1994 are computed as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Primary:
Net Income $ 1.53 $ 1.34 $ 1.71
- -----------------------------------------------------------------------------------------
Weighted average shares outstanding 3,277,752 3,059,324 2,968,824
Common shares assumed outstanding to
reflect dilutive effect of common stock options 83,230 41,336 91,706
- -----------------------------------------------------------------------------------------
Weighted average shares and common
equivalent shares outstanding 3,360,982 3,100,660 3,060,530
- -----------------------------------------------------------------------------------------
Fully diluted:
Net Income $ 1.53 $ 1.34 $ 1.70
- -----------------------------------------------------------------------------------------
Weighted average shares outstanding 3,277,752 3,059,324 2,968,824
Common shares assumed outstanding to
reflect dilutive effect of common stock options 86,088 45,468 94,368
- -----------------------------------------------------------------------------------------
Weighted average shares and common
equivalent shares outstanding 3,363,840 3,104,792 3,063,192
- -----------------------------------------------------------------------------------------
</TABLE>
All share data has been adjusted to reflect the effect of a two-for-one stock
split of the Company's common stock effected in the form of a stock dividend
paid on December 21, 1995.
50
<PAGE> 1
EXHIBIT 13.1
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996, 1995, AND 1994
TOGETHER WITH
AUDITORS' REPORT
<PAGE> 2
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, 1996 and 1995 and the related consolidated statements of income,
stockholders' equity, and cash flows for the years 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 audits. The consolidated financial statements of Eagle Bancshares, Inc.
and subsidiaries for the year ended March 31, 1994 were audited by other
auditors whose report dated April 29, 1994 expressed an unqualified opinion on
those statements and included an explanatory paragraph that described the
changes in the Company's methods of accounting for income taxes and investment
securities, as discussed in Note 1 to the consolidated financial statements.
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, 1996 and 1995 and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
May 17, 1996
<PAGE> 3
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
ASSETS:
Cash and amounts due from banks $ 7,477 $ 6,214
Interest-bearing deposits 339 144
Securities available for sale (Notes 2 and 8) 79,512 20,939
Investment securities held to maturity, approximate market value of
$56,308 and $56,701 in 1996 and 1995, respectively (Notes 2 and 8) 55,341 57,599
Loans held for sale, approximate market value of $92,678 and $41,526 in
1996 and 1995, respectively 92,552 41,220
Loans receivable, net (Notes 3 and 8) 334,505 303,906
Stock in Federal Home Loan Bank, at cost 8,565 5,984
Premises and equipment, net (Note 4) 11,033 8,299
Real estate held for development and sale (Note 5) 12,962 6,620
Real estate acquired in settlement of loans, net 907 615
Accrued interest receivable 4,124 2,996
Deferred income taxes (Note 9) 597 0
Other assets 3,598 2,781
-------- --------
Total assets $611,512 $457,317
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits (Note 7) $348,098 $286,315
Advance payments by borrowers for property taxes and insurance 1,511 2,187
Federal Home Loan Bank advances and other borrowings (Note 8) 173,060 119,953
Drafts outstanding 24,423 10,778
Deferred income taxes (Note 9) 0 441
Accrued expenses and other liabilities 7,245 4,007
-------- --------
Total liabilities 554,337 423,681
-------- --------
COMMITMENTS (NOTE 3)
STOCKHOLDERS' EQUITY (NOTES 10, 11, AND 14):
Common stock, $1 par value; 10,000,000 shares authorized, 4,854,000 and
3,389,000 shares issued at March 31, 1996 and 1995, respectively 4,854 3,389
Additional paid-in capital 28,331 8,131
Retained earnings 26,696 23,450
Net unrealized (loss) gain on securities available for sale, net of taxes (495) 46
Employee Stock Ownership Plan note payable (Note 10) (1,000) (11)
Unamortized restricted stock (135) (293)
Treasury stock, 301,800 shares at cost (1,076) (1,076)
-------- --------
Total stockholders' equity 57,175 33,636
-------- --------
Total liabilities and stockholders' equity $611,512 $457,317
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 4
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 1996, 1995, AND 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
INTEREST INCOME:
Interest on loans $35,917 $26,330 $21,906
Interest on mortgage-backed securities 2,527 1,939 3,135
Interest on securities and other interest-earning assets 4,656 4,073 2,488
------- ------- -------
Total interest income 43,100 32,342 27,529
------- ------- -------
INTEREST EXPENSE:
Interest on deposits (Note 7) 16,684 11,625 10,006
Interest on FHLB advances and other borrowings 7,923 4,006 2,526
------- ------- -------
Total interest expense 24,607 15,631 12,532
------- ------- -------
Net interest income 18,493 16,711 14,997
PROVISION FOR LOAN LOSSES (NOTE 3) 1,000 643 1,000
------- ------- -------
Net interest income after provision for loan losses 17,493 16,068 13,997
------- ------- -------
OTHER INCOME:
Mortgage production fees 6,777 3,236 6,100
Gains on sale of real estate held for development and sale 862 0 0
Service charges 760 597 460
Gain on sale of loans 81 891 188
Gain on sale of mortgage-backed securities (Note 2) 0 14 959
Miscellaneous 1,564 1,609 1,543
------- ------- -------
Total other income 10,044 6,347 9,250
------- ------- -------
OTHER EXPENSES:
Salaries and employee benefits (Note 10) 11,985 9,629 8,966
Net occupancy expense 2,117 1,889 1,494
Data processing expense 1,140 817 673
Federal insurance premiums 717 607 532
Marketing expense 514 387 283
Provision for losses on real estate acquired in settlement of loans 0 10 136
Miscellaneous 3,648 2,696 2,656
------- ------- -------
Total other expenses 20,121 16,035 14,740
------- ------- -------
Income before income taxes, extraordinary item, and cumulative effect of change in
accounting principle 7,416 6,380 8,507
INCOME TAX EXPENSE (NOTE 9) 2,396 2,279 3,189
------- ------- -------
Income before extraordinary item and cumulative effect of change in accounting principle 5,020 4,101 5,318
EXTRAORDINARY ITEM--LOSS RELATED TO EARLY EXTINGUISHMENT OF DEBT, NET OF INCOME TAX
BENEFIT OF $261 (NOTE 8) 0 0 (427)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES (NOTE 9) 0 0 320
------- ------- -------
Net income $ 5,020 $ 4,101 $ 5,211
======= ======= =======
PRIMARY EARNINGS PER SHARE OF COMMON STOCK (NOTE 15):
Income before extraordinary item and cumulative effect of change in accounting principle $ 1.53 $ 1.34 $ 1.74
Extraordinary item, net 0 0 (0.14)
Cumulative effect of change in accounting principle 0 0 0.11
------- ------- -------
Net income $ 1.53 $ 1.34 $ 1.71
======= ======= =======
FULLY DILUTED EARNINGS PER SHARE OF COMMON STOCK (NOTE 15):
Income before extraordinary item and cumulative effect of change in accounting principle $ 1.53 $ 1.34 $ 1.73
Extraordinary item, net 0 0 (0.14)
Cumulative effect of change in accounting principle 0 0 0.11
------- ------- -------
Net income $ 1.53 $ 1.34 $ 1.70
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 5
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1996, 1995, AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET UNREALIZED
(LOSS) GAIN
COMMON STOCK ADDITIONAL IN SECURITIES
-------------- PAID-IN RETAINED AVAILABLE FOR
SHARES AMOUNT CAPITAL EARNINGS SALE, NET OF TAXES
------ ------ --------- -------- ------------------
<S> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1993, AS PREVIOUSLY REPORTED 1,625 $1,625 $ 7,367 $18,134 $ 0
Effect of two-for-one stock split 1,625 1,625 0 (1,625) 0
----- ------ ------- ------- -----
BALANCE, MARCH 31, 1993, AS ADJUSTED 3,250 3,250 7,367 16,509 0
Cash dividends declared ($.31 per share) 0 0 0 (925) 0
Principal reduction of ESOP note payable 0 0 0 0 0
Issuance of restricted stock (30,000 shares) (Note 10) 30 30 263 0 0
Amortization of restricted stock (Note 10) 0 0 0 0 0
Stock options exercised (44,000 shares) 44 44 96 0 0
Net unrealized (loss) gain on securities
available for sale, net of taxes 0 0 0 0 387
Net income 0 0 0 5,211 0
----- ------ ------- ------- -----
BALANCE, MARCH 31, 1994 3,324 3,324 7,726 20,795 387
Cash dividends declared ($.47 per share) 0 0 0 (1,446) 0
Principal reduction of ESOP note payable 0 0 0 0 0
Issuance of restricted stock (30,000 shares) (Note 10) 30 30 308 0 0
Amortization of restricted stock (Note 10) 0 0 0 0 0
Stock options exercised (35,000 shares) 35 35 97 0 0
Change in net unrealized (loss) gain on securities
available for sale, net of taxes 0 0 0 0 (341)
Net income 0 0 0 4,101 0
----- ------ ------- ------- -----
BALANCE, MARCH 31, 1995 3,389 3,389 8,131 23,450 46
ESOP note payable issued to acquire common stock 0 0 0 0 0
Cash dividends declared ($.51 per share) 0 0 0 (1,774) 0
Principal reduction of ESOP note payable 0 0 0 0 0
Issuance of common stock 1,435 1,435 20,048 0 0
Amortization of restricted stock (Note 10) 0 0 0 0 0
Stock options exercised (30,000 shares) 30 30 152 0 0
Change in net unrealized (loss) gain on securities
available for sale, net of taxes 0 0 0 0 (541)
Net income 0 0 0 5,020 0
----- ------ ------- ------- -----
BALANCE, MARCH 31, 1996 4,854 $4,854 $28,331 $26,696 $(495)
===== ====== ======= ======= =====
<CAPTION>
UNAMORTIZED ESOP TOTAL
RESTRICTED NOTE TREASURY STOCKHOLDERS'
STOCK PAYABLE STOCK EQUITY
----------- ------- -------- -------------
<S> <C> <C> <C> <C>
BALANCE, MARCH 31, 1993, AS PREVIOUSLY REPORTED $ 0 $ (227) $(1,076) $25,823
Effect of two-for-one stock split 0 0 0 0
----- ------- ------- -------
BALANCE, MARCH 31, 1993, AS ADJUSTED 0 (227) (1,076) 25,823
Cash dividends declared ($.31 per share) 0 0 0 (925)
Principal reduction of ESOP note payable 0 86 0 86
Issuance of restricted stock (30,000 shares) (Note 10) (293) 0 0 0
Amortization of restricted stock (Note 10) 110 0 0 110
Stock options exercised (44,000 shares) 0 0 0 140
Net unrealized (loss) gain on securities
available for sale, net of taxes 0 0 0 387
Net income 0 0 0 5,211
----- ------- ------- -------
BALANCE, MARCH 31, 1994 (183) (141) (1,076) 30,832
Cash dividends declared ($.47 per share) 0 0 0 (1,446)
Principal reduction of ESOP note payable 0 130 0 130
Issuance of restricted stock (30,000 shares) (Note 10) (338) 0 0 0
Amortization of restricted stock (Note 10) 228 0 0 228
Stock options exercised (35,000 shares) 0 0 0 132
Change in net unrealized (loss) gain on securities
available for sale, net of taxes 0 0 0 (341)
Net income 0 0 0 4,101
----- ------- ------- -------
BALANCE, MARCH 31, 1995 (293) (11) (1,076) 33,636
ESOP note payable issued to acquire common stock 0 (1,000) 0 (1,000)
Cash dividends declared ($.51 per share) 0 0 0 (1,774)
Principal reduction of ESOP note payable 0 11 0 11
Issuance of common stock 0 0 0 21,483
Amortization of restricted stock (Note 10) 158 0 0 158
Stock options exercised (30,000 shares) 0 0 0 182
Change in net unrealized (loss) gain on securities
available for sale, net of taxes 0 0 0 (541)
Net income 0 0 0 5,020
----- ------- ------- -------
BALANCE, MARCH 31, 1996 $(135) $(1,000) $(1,076) $57,175
===== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 6
Page 1 of 2
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1996, 1995, AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,020 $ 4,101 $ 5,211
--------- --------- --------
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation, amortization, and accretion 1,211 825 505
Provision for loan losses 1,000 643 1,000
Provision for losses on real estate acquired in settlement of loans 0 10 136
Cumulative effect of change in accounting principle 0 0 (320)
Amortization of restricted stock award 158 228 110
(Gain) loss on sale of real estate acquired in settlement of loans (90) 5 67
Gains on sale of real estate held for development and sale (862) 0 0
Gain on sale of mortgage-backed securities 0 (14) (959)
Gain on sale of loans (81) (891) (188)
Deferred income tax (benefit) expense (740) 241 (18)
FHLB stock dividends 0 0 (179)
Amortization of deferred loan fees (1,791) (1,883) (2,325)
Proceeds from sale of loans held for sale 449,354 281,421 504,079
Origination of loans held for sale (500,686) (299,000) (504,070)
Changes in assets and liabilities:
(Increase) decrease in accrued interest receivable (1,128) (1,275) 334
Increase in other assets (1,146) (1,739) (669)
Increase (decrease) in drafts outstanding 13,645 1,620 (4,929)
Increase (decrease) in accrued expenses and other liabilities 3,182 (187) (94)
--------- --------- --------
Net cash used in operating activities (32,954) (15,895) (2,309)
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available for sale (60,294) (9,112) 0
Proceeds from sale of securities available for sale 0 5,123 14,554
Purchases of investment securities held to maturity (11,500) (30,146) (2,009)
Principal payments received on securities available for sale 2,392 3,396 7,379
Principal payments received on investment securities held to maturity 2,925 1,369 6,745
Proceeds from maturities of investment securities held to maturity 9,000 6,000 7,324
Proceeds from maturities of securities available for sale 464 0 0
Loan originations, net of repayments (14,139) (79,662) (28,262)
Purchases of loans receivable (15,949) (2,268) (749)
Purchases of FHLB stock (3,001) (3,244) 0
Redemption of FHLB stock 420 601 0
Proceeds from sale of real estate acquired in settlement of loans 12 130 1,988
Purchases of premises and equipment, net (3,694) (2,526) (2,315)
Proceeds from sale of real estate held for development and sale 4,693 0 0
Additions to real estate held for development and sale (10,239) (6,620) 0
--------- --------- --------
Net cash (used in) provided by investing activities $ (98,910) $(116,959) $ 4,655
--------- --------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 7
Page 2 of 2
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1996, 1995, AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in time deposits $ 59,758 $ 48,928 $ 11,386
Net increase (decrease) in demand deposits 2,025 (6,910) 4,278
(Decrease) increase in advance payments from borrowers for property taxes and insurance (676) 1,233 96
Proceeds from FHLB advances and other borrowings 302,348 250,325 118,627
Repayment of FHLB advances and other borrowings (249,241) (161,122) (135,638)
Principal reduction of ESOP note payable 11 130 86
Issuance of ESOP note payable to acquire common stock (1,000) 0 0
Proceeds from the exercise of stock options 182 132 140
Proceeds from issuance of common stock 21,483 0 0
Cash dividends paid (1,568) (1,362) (771)
-------- -------- --------
Net cash provided by (used in) financing activities 133,322 131,354 (1,796)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,458 (1,500) 550
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 6,358 7,858 7,308
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 7,816 $ 6,358 $ 7,858
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH PAID DURING YEAR FOR:
Interest $ 24,442 $ 15,155 $ 12,628
======== ======== ========
Income taxes $ 2,756 $ 2,763 $ 2,975
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of real estate in settlement of loans $ 898 $ 486 $ 4,117
======== ======== ========
Loans made to finance sale of real estate $ 534 $ 575 $ 3,392
======== ======== ========
Transfer of investment securities from held to maturity to available for sale (Note 2) $ 1,977 $ 0 $ 0
======== ======== ========
Dividends payable $ 592 $ 386 $ 302
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 8
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Eagle Bancshares, Inc. (the "Company") is a unitary savings and loan
holding company which owns 100% of Tucker Federal Savings and Loan
Association (the "Bank") common stock and Eagle Real Estate Advisors, Inc.
("EREA").
The Bank provides a full range of banking services to individual and
corporate customers through its ten branches located in Cherokee, DeKalb,
Fulton, and Gwinnett Counties of metropolitan Atlanta, Georgia.
Additionally, through its subsidiary, Prime Eagle Mortgage Corporation
("PrimeEagle"), the Bank originates construction loans and residential
mortgages through 15 loan production offices in Georgia, Florida, North
Carolina, and Tennessee. The Bank is subject to competition from other
financial institutions in the markets in which it operates. The Bank is
federally regulated by the Office of Thrift Supervision ("OTS") and certain
other federal agencies. Through EREA, 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,
EREA, Union Hill LLC, Cobb Woodlawn Development LLC, BN Development Company
LLC, and Trimble Road Development LLC, as well as the Bank's wholly owned
subsidiaries, PrimeEagle, Eagle Service Corporation, and Eagle Asset
Recovery Management Services, Inc. All significant intercompany accounts
and transactions have been eliminated.
USE OF ESTIMATES
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP"). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
<PAGE> 9
-2-
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 securities applicable to this classification at March 31, 1996 or
1995. 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 taxes. The net
unrealized holding losses on securities available for sale, net of income
taxes, amounted to $495,000 at March 31, 1996, and the net unrealized
holding gains on securities available for sale, net of income taxes,
amounted to $46,000 at March 31, 1995.
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.
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 securities are recognized on the settlement
date, based on the adjusted carrying value of the specific security. The
financial statement impact of settlement date accounting versus trade date
accounting is immaterial.
LOANS RECEIVABLE
Loans receivable held for investment are stated at their unpaid principal
balances, less the 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.
<PAGE> 10
-3-
RESERVE FOR LOAN LOSSES
Effective April 1, 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," as amended by SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures." SFAS No. 114 requires that certain impaired loans be
measured based on the present value of expected future cash flows
discounted at the loan's original effective interest rate. As a practical
expedient, impairment may be measured based on the loan's observable market
price or the fair value of the collateral, if the loan is collateral
dependent. When the measure of the impaired loan is less than the recorded
investment in the loan, the impairment is recorded through a valuation
allowance. The Company had previously measured the reserve for loan losses
using methods similar to those prescribed in SFAS No. 114. As a result of
adopting these statements, no additional allowance for loan losses was
required as of April 1, 1995. The adoption of SFAS No. 114 did not have an
impact upon the Company's financial condition or results of operations.
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,
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 to write down real estate based on
their judgments about information available to them at the time of their
examination.
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
PrimeEagle, the Bank's wholly owned subsidiary, originates 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 and
loan origination and discount points, net of loan officer commissions.
<PAGE> 11
-4-
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 Bank has recorded an allowance for estimated
losses on real estate acquired in settlement of loans of approximately
$49,000 at March 31, 1996 and 1995. 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. Profits are recognized from the sale
of real estate when the sale is consummated based on the real estate's
sales price, net of the related total anticipated development costs
associated with the real estate sold.
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 office
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 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
<PAGE> 12
-5-
No. 109, the effect on deferred tax assets and liabilities from a change
in tax rates is recognized in income in the period that includes the
enactment date.
The Company files consolidated income tax returns.
RECENT ACCOUNTING PRONOUNCEMENTS
In May 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 122, "Accounting for Mortgage Servicing Rights," as an amendment to
SFAS No. 65, "Accounting for Certain Mortgage Banking Activities." SFAS
No. 122 addresses the accounting for purchased and originated mortgage
servicing rights and is effective for fiscal years beginning after December
15, 1995. SFAS No. 122 requires that a mortgage banking enterprise
recognize as a separate asset rights to service mortgage loans for others
regardless of whether their servicing rights are acquired through either
the purchase or origination of mortgage loans. The statement also requires
that the mortgage banking enterprise assess its capitalized mortgage
servicing rights for impairment based upon the fair value of those rights
purchased before adoption of SFAS No. 122. Impairment should be recognized
through a valuation allowance. The Company's mortgage banking subsidiary,
PrimeEagle, generates revenues through fees for various services, including
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. SFAS No. 122 will not have an effect
on the Company's financial statements, as substantially all of its
permanent loans are sold on a servicing released basis.
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 presentation.
<PAGE> 13
-6-
2. SECURITIES
Securities available for sale at March 31, 1996 and 1995 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1996
--------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST LOSSES GAINS VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Mortgage-backed securities $68,792 $(1,338) $401 $67,855
Equity securities--preferred stock 9,507 (141) 263 9,629
Corporate bonds 1,978 0 50 2,028
------- ------- ---- --------
Total $80,277 $(1,479) $714 $79,512
======= ======= ==== =======
<CAPTION>
1995
--------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Losses Gains Value
--------- ---------- ---------- ---------
Mortgage-backed securities $13,890 $ 0 $203 $14,093
Equity securities--preferred stock 6,975 (226) 97 6,846
------- -------- ---- -------
Total $20,865 $ (226) $300 $20,939
======= ======= ==== =======
</TABLE>
As a result of a FASB special report allowing a one-time transfer of
investment securities from the held to maturity category, investment
securities classified as held to maturity with an amortized cost of
approximately $1,977,000 and a net unrealized gain of approximately
$50,000 were transferred to securities available for sale on December 1,
1995.
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.
<PAGE> 14
-7-
Investment securities held to maturity at March 31, 1996 and 1995 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996
--------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST LOSSES GAINS VALUE
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Mortgage-backed securities $ 8,087 $ (2) $ 34 $ 8,119
U.S. government and agency
obligations 27,450 (156) 183 27,477
Corporate bonds 8,420 0 406 8,826
Other debt securities 11,384 0 502 11,886
------- ------- ------ -------
Total $55,341 $ (158) $1,125 $56,308
======= ======= ====== =======
<CAPTION>
1995
--------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Losses Gains Value
--------- ---------- ---------- --------
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>
The amortized cost and estimated market value of securities other than
equities at March 31, 1996, by contractual maturity, are as follows (in
thousands):
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
--------- ---------
<S> <C> <C>
Due in one year or less $ 12,260 $ 12,359
Due one to five years 13,502 13,724
Due five to ten years 43,795 43,453
Due after ten years 56,554 56,655
-------- --------
$126,111 $126,191
======== ========
</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.
<PAGE> 15
-8-
3. LOANS RECEIVABLE
At March 31, 1996 and 1995, loans receivable are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Real estate mortgage loans:
Fixed rates $ 49,176 $ 46,983
Adjustable rate 118,331 119,653
Real estate construction loans 189,089 154,512
Home equity and second mortgage loans 14,338 10,250
-------- --------
Total real estate loans 370,934 331,398
Investment in commercial leases 38,032 32,582
Consumer loans 2,856 1,001
Loans secured by savings 1,245 1,320
-------- --------
Total loans 413,067 366,301
Less:
Undisbursed portion of loans in process 73,121 56,780
Unearned income 384 593
Deferred loan origination fees 1,409 1,547
Reserve for loan losses 4,176 3,362
Net (premium) discount on loans purchased (528) 113
-------- --------
Loans receivable, net $334,505 $303,906
======== ========
</TABLE>
SFAS Nos. 114 and 118 were adopted by the Company as of April 1, 1995.
Prior to fiscal year 1996, the Company had no impaired loans, as defined by
SFAS Nos. 114 and 118. At March 31, 1996, the recorded investment in
impaired loans, which excludes nonaccrual first mortgage loans and
residential construction loans, was $3,526,000 of which $675,000 were on an
accrual basis and $2,851,000 were on a nonaccrual basis. At March 31,
1996, the valuation allowance related to these impaired loans was
$1,153,000, which is included in the reserve for loan losses in the
accompanying consolidated statement of financial condition. At March 31,
1996, the Company had no impaired loans with no related loan loss reserve.
For the year ended March 31, 1996, the average recorded investment in
impaired loans was $1,613,000. The Company recognized interest income on
impaired loans of $267,000 for the year ended March 31, 1996 of which
$82,000 remains uncollected.
The Company uses either the cash or cost recovery method to record cash
receipts on impaired loans that are on nonaccrual. Under the cash method,
contractual interest is credited to interest income when received. This
method is used when the ultimate collectibility of the total principal is
not in doubt. Under the cost recovery method, all payments received are
applied to principal. This method is used when the ultimate collectibility
of the total principal is in doubt. Loans on the cost recovery method may
be changed to the cash method when the application of the cash payments has
reduced the principal balance to a level where collection of the remaining
recorded investment is no longer in doubt.
<PAGE> 16
-9-
At March 31, 1996, 1995, and 1994, an analysis of the reserve for loan
losses is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Reserve for loan losses, beginning of year $3,362 $3,349 $2,420
Charge-offs (270) (684) (104)
Recoveries 84 54 33
Provision for loan losses 1,000 643 1,000
------ ------ ------
Reserve for loan losses, end of year $4,176 $3,362 $3,349
====== ====== ======
</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, Jacksonville, Florida, and Charlotte, North Carolina. 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 fiscal years 1996 or 1995.
At March 31, 1996, 1995, and 1994, the Company had nonaccrual loans
aggregating approximately $6,002,000, $603,000, and $787,000, respectively.
The interest income not recognized on these loans amounted to $114,000,
$40,000, and $26,000 for the years ended March 31, 1996, 1995, and 1994,
respectively.
The Company was servicing loans for others with aggregate principal
balances of approximately $13,789,000, $13,271,000, and $15,654,000 at
March 31, 1996, 1995, and 1994, respectively.
At March 31, 1996 and 1995, the Company had sold approximately $26,236,000
and $40,419,000, respectively, of loans with recourse. The recourse period
is 3 to 12 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. During the years ended March 31, 1996,
1995, and 1994, the Company has incurred nominal losses from the repurchase
of recourse loans.
At March 31, 1996, the Company had commitments to originate fixed rate
mortgage loans of approximately $14,800,000 and commitments to originate
variable rate mortgage loans of approximately $7,100,000, with terms up to
30 years and interest rates ranging from 12.5% to 5.5%. The Company had
commitments to sell mortgage loans of approximately $87,000,000 at March
31, 1996. In addition, the Company is committed to loan funds on unused
variable rate lines of credit of approximately $7,500,000 at March 31,
1996. 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.
<PAGE> 17
-10-
4. PREMISES AND EQUIPMENT
At March 31, 1996 and 1995, premises and equipment are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Land $ 2,389 $ 2,389
Office buildings and improvements 7,264 5,004
Furniture, fixtures, and equipment 5,504 4,065
------- -------
15,157 11,458
Less accumulated depreciation 4,124 3,159
------- -------
$11,033 $ 8,299
======= =======
</TABLE>
5. REAL ESTATE HELD FOR DEVELOPMENT AND SALE
The Company holds partnership interests in five real estate development
projects at March 31, 1996 and three real estate development projects at
March 31, 1995. These projects consist of single-family residential
developments, a commercial superstore development, and an affordable
housing cooperative. The Company's equity interest in these projects
ranges from 50% to 100%, and income earned from these projects is based on
the terms of the partnership agreements. For the year ended March 31,
1996, the Company earned approximately $862,000 from the sale of
single-family lots and recorded approximately $170,000 in income tax
credits from its investment in the affordable housing cooperative. No
income was generated by these projects for the year ended March 31, 1995,
as the projects were in a start-up phase. These projects are located in
metropolitan Atlanta in areas in which management believes zoning, utility,
and economic risks are minimized.
6. FAIR VALUE OF 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 securities available for sale and investment securities
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 investment securities held
to maturity is approximately $79,512,000 and $56,308,000 and $20,939,000
and $56,701,000, respectively at March 31, 1996 and 1995, respectively.
<PAGE> 18
-11-
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 Bank'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, 1996 and
1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------------------- -------------------
ESTIMATED Estimated
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Real estate mortgage loans:
Fixed rates $ 49,176 $ 49,993 $ 46,983 $ 47,159
Adjustable rates 118,331 127,327 119,653 122,734
Real estate construction loans 189,089 189,089 154,512 154,512
Home equity and second mortgage loans 14,338 13,927 10,250 9,744
Investment in commercial leases 38,032 38,356 32,582 32,517
Other loans 4,101 3,930 2,321 2,305
-------- -------- -------- --------
Total loans 413,067 422,622 366,301 368,971
Less:
Undisbursed portion of loans in process 73,121 73,121 56,780 56,780
Unearned income 384 242 593 410
Deferred loan origination fees 1,409 1,040 1,547 1,385
Reserve for loan losses 4,176 4,176 3,362 3,362
Net (premium) discount on loans purchased (528) (269) 113 72
-------- -------- -------- --------
Loans receivable, net $334,505 $344,312 $303,906 $306,962
======== ======== ======== ========
</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
<PAGE> 19
-12-
requirements calculated on an aggregate basis as of March 31, 1996 and 1995
(in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Carrying amount $92,552 $41,220
======= =======
Estimated fair value $92,678 $41,526
======= =======
</TABLE>
DEPOSITS
The fair value of deposits with no stated maturity, such as Negotiable
Order of Withdrawal ("NOW") accounts, money market accounts, and passbook
accounts, is assumed equal to the amount payable on demand as of March 31,
1996 and 1995. 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, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------------------- -------------------
ESTIMATED Estimated
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
NOW accounts $ 33,603 $ 33,603 $ 28,244 $ 28,244
Money market accounts 8,418 8,418 10,836 10,836
Passbook accounts 42,845 42,845 43,761 43,761
Time deposits:
Maturity one year or less 174,908 179,934 124,689 127,210
Maturity greater than one year
through two years 26,268 25,597 23,830 24,642
Maturity greater than two years
through three years 14,867 15,240 17,279 17,718
Maturity greater than three years 47,189 39,953 37,676 38,278
-------- -------- -------- --------
$348,098 $345,590 $286,315 $290,689
======== ======== ======== ========
</TABLE>
FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
The fair value of the Bank's advances from the FHLB and other borrowings is
estimated based on the quoted market prices for the same or similar issues
or based on the current rates for advances and borrowings of the same
remaining maturities as of March 31, 1996 and 1995 (in thousands):
<PAGE> 20
-13-
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Carrying amount $173,060 $119,953
======== ========
Estimated fair value $173,334 $119,958
======== ========
</TABLE>
COMMITMENTS
The fair value of commitments to extend credit to fund real estate
construction and real estate mortgage loans is immaterial at March 31, 1996
and 1995 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 Bank's entire holdings of a particular
financial instrument. Because no market exists for a portion of the Bank'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 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.
<PAGE> 21
-14-
7. DEPOSITS
At March 31, 1996 and 1995, deposits are summarized by type and remaining
term as follows (dollars in thousands):
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
INTEREST RATE
---------------
1996 1995 1996 1995
-------- -------- ------ ------
<S> <C> <C> <C> <C>
Demand deposits:
NOW accounts $ 33,603 $ 28,244 1.74% 1.82%
Money market accounts 8,418 10,836 2.50 2.50
Passbook accounts 42,845 43,761 2.53 2.53
-------- --------
84,866 82,841 2.21 2.28
-------- --------
Time deposits:
Maturity one year or less 174,908 124,689
Maturity greater than one year through two years 26,268 23,830
Maturity greater than two years through three years 14,867 17,279
Maturity greater than three years 47,189 37,676
-------- --------
263,232 203,474 6.00 5.93
-------- --------
Total deposits $348,098 $286,315 5.08 4.87
======== ========
</TABLE>
Interest expense on deposits for the years ended March 31, 1996, 1995, and
1994 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
NOW accounts $ 494 $ 484 $ 383
Money market accounts 231 300 311
Passbook accounts 1,054 1,425 1,435
Time deposits 14,905 9,416 7,877
------- ------- -------
$16,684 $11,625 $10,006
======= ======= =======
</TABLE>
There is currently proposed as part of the Budget Reconciliation Act of
1995 a one-time assessment on the deposits of institutions which are
insured by the Savings Association Insurance Fund ("SAIF") in order to
recapitalize SAIF. It is anticipated that such assessment will be in the
amount of $.80 to $.90 per $100 of SAIF-insured deposits. If the
assessment were levied at $.85 per $100 in SAIF-insured deposits, the
Bank's earnings would decrease approximately $1.9 million, net of tax.
Thereafter, it is estimated that the level of ongoing premiums paid to the
SAIF would be reduced from the Company's current rate of $.23 per $100 of
SAIF-insured deposits to between $0 and $.04 per $100 of SAIF-insured
deposits, thereby reducing in future periods the premium payments currently
paid by the Bank.
<PAGE> 22
-15-
8. FHLB ADVANCES AND OTHER BORROWINGS
FHLB advances and other borrowings at March 31, 1996 and 1995 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
FHLB advances $168,200 $117,143
Other borrowings 4,860 2,810
-------- --------
$173,060 $119,953
======== ========
</TABLE>
At March 31, 1996, FHLB advances are at least 125% collateralized by
unencumbered mortgage loans and approximately $93,041,000 of investment
securities. The advances mature at various dates through July 1999. The
weighted average interest rate on FHLB advances was 5.53% and 6.77% at
March 31, 1996 and 1995, respectively. Maximum short-term borrowings
during the years ended March 31, 1996 and 1995 were $149,700,000 and
$111,170,000, respectively.
As of March 31, 1996, repayments of FHLB advances and other borrowings for
subsequent fiscal years are estimated to be as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1997 $150,790
1998 0
1999 13,735
2000 8,019
2001 0
Thereafter 516
--------
$173,060
========
</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.
9. 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.
<PAGE> 23
-16-
Income tax expense for the years ended March 31, 1996, 1995, and 1994 is
allocated as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Income tax expense:
Current expense:
Federal $2,862 $1,843 $2,824
State 274 195 345
------ ------ ------
3,136 2,038 3,169
------ ------ ------
Deferred (benefit) expense:
Federal (674) 205 17
State (66) 36 3
------ ------ ------
(740) 241 20
------ ------ ------
2,396 2,279 3,189
Extraordinary item--income tax benefit relating to
early extinguishment of debt 0 0 (261)
------ ------ ------
$2,396 $2,279 $2,928
====== ====== ======
</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 1996, 1995, and 1994 to income before income taxes,
extraordinary item, and cumulative effect of change in accounting principle
(in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Expected income tax expense $2,521 $2,169 $2,892
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal income tax benefit 137 152 230
Income tax credits (170) 0 0
Other, net (92) (42) 67
------ ------ ------
Actual income tax expense $2,396 $2,279 $3,189
====== ====== ======
</TABLE>
<PAGE> 24
-17-
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at March
31, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Deferred tax assets:
Loans receivable, due to reserve for loan losses $1,292 $1,023
Deposit base premium, due to difference in amortization
method for tax purposes 204 116
Employee benefits, due to differences in expense recognition
methods for tax purposes 365 313
Net unrealized loss on securities available for sale, not
recognized for tax purposes 271 0
------ ------
Total gross deferred tax assets 2,132 1,452
------ ------
Deferred tax liabilities:
FHLB stock, due to dividends not recognized for tax purposes 355 400
Loans receivable, due to differences in deferred loan fees
and costs recognition for tax purposes 709 922
Premises and equipment, due to differences in depreciation
methods for tax purposes 268 178
Net unrealized gain on securities available for sale, not
recognized for tax purposes 0 28
Other 203 365
------ ------
Total gross deferred tax liabilities 1,535 1,893
------ ------
Net deferred tax asset (liability) $ 597 $ (441)
====== ======
</TABLE>
No valuation allowances for deferred tax assets have been recorded as of
March 31, 1996 and 1995 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, 1996 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.
10. EMPLOYEE BENEFIT PLANS
In connection with the Bank'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
<PAGE> 25
-18-
options and stock appreciation rights. Information relating to these
stock options for the years ended March 31, 1996, 1995, and 1994 is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ---------------- ---------------
<S> <C> <C> <C>
Options outstanding at beginning of year 279,500 156,000 152,000
Options granted 8,500 156,500 48,000
Options exercised or expired (33,000) (33,000) (44,000)
---------------- ---------------- ---------------
Options outstanding at end of year 255,000 279,500 156,000
================ ================ ===============
Options exercisable at end of year 124,932 100,998 114,666
================ ================ ===============
Option prices per share:
Options granted during year $12.81 TO $16.38 $11.25 to $12.13 $9.75 to $12.13
Options exercised during year $ 3.88 TO $12.13 $ 3.19 $ 3.19
Options outstanding at end of year $ 3.38 TO $16.38 $ 3.38 to $12.13 $3.19 to $12.13
================ ================ ===============
</TABLE>
During the year ended March 31, 1994, the Company awarded 30,000
nontransferable restricted shares of the Company's common stock to an
officer of the Bank. During the year ended March 31, 1995, the Company
awarded two officers of the Bank 15,000 each, nontransferable restricted
shares of the Company's common stock. The market value of the shares at
the dates of award of $338,000 and $293,000 for the years 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 years ended March 31, 1996, 1995, and 1994 was
$158,000, $228,000, and $110,000, respectively. The unamortized balance of
the awards is 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, which expire over
the next three years.
Effective April 1, 1994, the Company merged the Employee Stock Ownership
Plan ("ESOP") into its 401(k) Plan to form the Tucker Federal Savings and
Loan Association 401(k) Savings and Employee Stock Ownership Trust (the
"Plan"). In connection with the Company's secondary offering of common
stock, in February 1996, the Plan borrowed $1,000,000 from Eagle
Bancshares, Inc. to acquire 62,500 shares of common stock. As of March 31,
1996, all of these shares are available to be allocated to plan
participants. Compensation expense from the eventual allocation of these
shares will be measured based upon the fair value of the shares on the date
the shares are committed to be allocated. At March 31, 1996, the fair
value of these shares is $968,750. The note will be repaid from the
Company's contributions to the Plan, and accordingly, the note is reflected
as a reduction from stockholders' equity. Eligible employees participate
in the Plan, and the Company's contribution is allocated to the
participants in the proportion of their
<PAGE> 26
-19-
compensation to total eligible compensation. The Company's contribution is
determined annually by the board of directors. The Company's contribution
in fiscal years 1996, 1995, and 1994 was $385,000, $723,000, and $646,000,
respectively.
11. STOCKHOLDERS' EQUITY
At the time of conversion to a federally chartered stock association, the
Bank 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 Bank to qualifying depositors
("Eligible Account Holders") as of April 19, 1985. In the event of a
future complete liquidation of the Bank, 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.
The source of funds for payment of dividends by the Company will be
dividends paid to the Company by the Bank. 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 Bank'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 $35,192,000 of the Bank's net
worth as of March 31, 1996. The Bank paid dividends to the Company of
approximately $1,400,000, $3,300,000, and $1,050,000 during the years ended
March 31, 1996, 1995, and 1994, respectively.
All share and per share data have been adjusted to reflect the effect of a
two-for-one split of the Company's common stock effected in the form of a
stock dividend paid on December 21, 1995.
<PAGE> 27
-20-
12. 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 Bank's wholly
owned subsidiary, PrimeEagle, 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, 1996, 1995, and
1994 is presented below (in thousands):
<TABLE>
<CAPTION>
RETAIL MORTGAGE
BANKING BANKING ELIMINATIONS CONSOLIDATED
-------- -------- ------------ ------------
<S> <C> <C> <C> <C>
1996:
REVENUES $ 37,707 $ 23,734 $ (8,297) $ 53,144
NET INCOME 7,687 2,799 (5,466) 5,020
IDENTIFIABLE ASSETS 596,219 225,597 (210,304) 611,512
CAPITAL EXPENDITURES, NET 3,075 619 0 3,694
DEPRECIATION ON PREMISES AND EQUIPMENT 684 275 0 959
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
</TABLE>
The Company includes construction lending activity and the origination and
sale of first mortgage loans in the mortgage banking segment.
13. FINANCIAL INFORMATION OF EAGLE SERVICE CORPORATION
The following condensed statements of financial condition as of March 31,
1996 and 1995 and the related condensed statements of income for the years
ended March 31, 1996, 1995, and 1994 summarize the financial position and
operating results of the Bank's wholly owned subsidiary, Eagle Service
Corporation:
<PAGE> 28
-21-
CONDENSED STATEMENTS OF FINANCIAL CONDITION
ASSETS
<TABLE>
<CAPTION>
1996 1995
------- -------
(In Thousands)
<S> <C> <C>
Cash $ 47 $ 43
Loans held for sale 0 3,512
Other assets 1,952 902
------ ------
Total assets $1,999 $4,457
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Notes payable to parent $ 371 $1,017
Drafts outstanding 0 1,677
Accrued expenses and other liabilities 224 434
------ ------
Total liabilities 595 3,128
------ ------
Common stock 500 500
Retained earnings 904 829
------ ------
Total stockholder's equity 1,404 1,329
------ ------
Total liabilities and stockholder's equity $1,999 $4,457
====== ======
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1996 1995 1994
---- ------ ------
(In Thousands)
<S> <C> <C> <C>
Mortgage production fees $ 0 $1,003 $1,969
Appraisal and other fees 0 190 326
Interest income 57 329 651
Interest on note payable to parent 0 (145) (392)
Other 431 316 (16)
---- ------ ------
Operating income 488 1,693 2,538
General and administrative expenses 367 1,682 1,726
---- ------ ------
Income before income tax expense 121 11 812
Income tax expense 45 4 308
---- ------ ------
Net income $ 76 $ 7 $ 504
==== ====== ======
</TABLE>
14. 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, 1996, the Company and the Bank met
all minimum regulatory capital requirements.
<PAGE> 29
-22-
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
ratio, and its supervisory ratings. FDICIA defines well-capitalized banks
as entities having a 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, 1996, the Bank is classified as a well-capitalized
institution under FDICIA regulations.
15. EARNINGS PER SHARE
Weighted average common and common equivalent shares for the years ended
March 31, 1996, 1995, and 1994 are computed as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Primary:
Weighted average shares outstanding 3,277,752 3,059,324 2,968,824
Common shares assumed outstanding to reflect
dilutive effect of common stock options 83,230 41,336 91,706
--------- --------- ---------
Weighted average shares and common equivalent
shares outstanding 3,360,982 3,100,660 3,060,530
========= ========= =========
Fully diluted:
Weighted average shares outstanding 3,277,752 3,059,324 2,968,824
Common shares assumed outstanding to reflect
dilutive effect of common stock options 86,088 45,468 94,368
--------- --------- ---------
Weighted average shares outstanding and common
equivalent shares outstanding 3,363,840 3,104,792 3,063,192
========= ========= =========
</TABLE>
The dilutive effect of common stock equivalents on earnings per share is
less than 3% for the years ending March 31, 1996 and 1995; therefore,
simple weighted average shares outstanding are used in computing earnings
per share.
All share data has been adjusted to reflect the effect of a two-for-one
stock split of the Company's common stock effected in the form of a stock
dividend paid on December 21, 1995.
<PAGE> 30
-23-
16. FINANCIAL INFORMATION OF EAGLE BANCSHARES, INC. (PARENT ONLY)
Eagle Bancshares, Inc.'s condensed statements of financial condition as of
March 31, 1996 and 1995 and related condensed statements of income and cash
flows for the years ended March 31, 1996, 1995, and 1994 are as follows:
CONDENSED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
ASSETS
1996 1995
------- -------
(In Thousands)
<S> <C> <C>
Cash $ 883 $ 591
Investment in subsidiaries 56,195 31,508
Other assets 1,377 2,161
------- -------
Total assets $58,455 $34,260
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Due to subsidiaries $ 0 $ 182
Other liabilities 1,280 442
------- -------
Total liabilities 1,280 624
------- -------
Common stock 4,854 3,389
Additional paid-in capital 28,331 8,131
Retained earnings 26,696 23,450
Net unrealized (loss) gain on securities available
for sale, net of taxes (495) 46
ESOP note payable (1,000) (11)
Unamortized restricted stock (135) (293)
Treasury stock, at cost (1,076) (1,076)
------- -------
Total stockholders' equity 57,175 33,636
------- -------
Total liabilities and stockholders' equity $58,455 $34,260
======= =======
</TABLE>
<PAGE> 31
-24-
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(In Thousands)
<S> <C> <C> <C>
Interest and other income $ 320 $ 2 $ 31
Management fee income from subsidiaries 100 100 100
Equity in undistributed earnings of subsidiaries 3,595 869 4,327
Dividends from the Bank 1,400 3,300 1,050
------ ------ ------
Total income 5,415 4,271 5,508
General and administrative expenses 395 170 190
------ ------ ------
Income before extraordinary item and
cumulative effect of change in
accounting principle 5,020 4,101 5,318
Extraordinary item 0 0 (427)
Cumulative effect of change in accounting for income taxes 0 0 320
------ ------ ------
Net income $5,020 $4,101 $5,211
====== ====== ======
</TABLE>
<PAGE> 32
-25-
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(In Thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,020 $ 4,101 $ 5,211
------- ------- -------
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed earnings of subsidiaries (3,595) (869) (4,327)
Cumulative effect of change in accounting principle 0 0 (320)
Amortization of restricted stock award 158 228 110
Decrease (increase) in other assets 784 (122) (3)
(Decrease) increase in due to subsidiaries (182) 49 88
Increase in other liabilities 632 79 2
------- ------- -------
Net cash provided by operating activities 2,817 3,466 761
------- ------- -------
Cash flows from investing activities:
Loan to Cobb Woodlawn Development LLC 0 (2,000) 0
Capital contribution to Union Hill LLC 0 (817) 0
Capital contribution to BN Development Company LLC (600) 0 0
Capital contribution to Trimble Road Development LLC (550) 0 0
Capital contribution in investment in subsidiaries (20,483) 0 0
------- ------- -------
Net cash used in investing activities (21,633) (2,817) 0
------- ------- -------
Cash flows from financing activities:
Early extinguishment of debt penalties, net 0 0 427
Cash dividends paid (1,568) (1,362) (771)
Stock options exercised 182 132 140
Proceeds from issuance of common stock 21,483 0 0
Issuance of ESOP note payable to acquire common stock (1,000) 0 0
Principal reduction of ESOP note payable 11 130 86
------- ------- -------
Net cash provided by (used in) financing activities 19,108 (1,100) (118)
------- ------- -------
Net increase (decrease) in cash 292 (451) 643
Cash at beginning of year 591 1,042 399
------- ------- -------
Cash at end of year $ 883 $ 591 $ 1,042
======= ======= =======
Supplemental disclosures of noncash financing activities:
Dividends payable $ 592 $ 386 $ 302
======= ======= =======
Restricted stock award $ 0 $ 338 $ 293
======= ======= =======
Net (decrease) increase in unrealized (loss) gain on
securities available for sale, net of taxes $ (541) $ (341) $ 387
======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 13.2
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Eagle Bancshares, Inc.:
We have audited the accompanying consolidated statements of income,
stockholders' equity, and cash flows of Eagle Bancshares, Inc. and subsidiaries
for the year 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
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations of Eagle
Bancshares, Inc. and subsidiaries, changes in their stockholders' equity, and
their cash flows for the year ended March 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in notes 1 and 9 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 note 1 to the
consolidated financial statements, the Company changed its method of accounting
for investments to adopt the provisions of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" at March 31, 1994.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
April 29, 1994, except with respect to
the matter discussed in the third
paragraphs of Notes 11 and 15, as to
which the date is December 21, 1995
<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
Prime Eagle
Mortgage
Corporation 100% Georgia
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated May 17, 1996 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 Statements No. 33-73718 and No.
33-00977.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
June 28, 1996
<PAGE> 1
EXHIBIT 23.2
The Board of Directors
Eagle Bancshares, Inc.:
We consent to incorporation by reference in the registration statements (Nos.
33-73718 and 333-009977) on Form S-8 of Eagle Bancshares, Inc. of our report
dated April 29, 1994, except with respect to the matter discussed in the third
paragraphs of Notes 11 and 15, as to which the date is December 21, 1995,
relating to the consolidated statements of income, stockholders' equity, and
cash flows of Eagle Bancshares, Inc. and subsidiaries for the year ended March
31, 1994, which report appears in the March 31, 1996 annual report on Form 10-K
of Eagle Bancshares, Inc.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
June 27, 1996
