<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---
EXCHANGE ACT OF 1934 For the period ended September 30, 1996
------------------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from to
--------------------- ----------------------
Commission file number 0-14379
---------
EAGLE BANCSHARES, INC.
-------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Georgia 58-1640222
- -------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4305 Lynburn Drive, Tucker, Georgia 30084-4441
-------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(404)908-6690
-----------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Not Applicable
-------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED
SINCE LAST REPORT.)
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
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes ______ No ______ NOT APPLICABLE
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1996
--------------------------------- -------------------------------
Common Stock, $1.00 Par Value 4,552,200 shares
<PAGE>
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C>
PART I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income -
Three and Six months ended September 30, 1996 and 1995 3
Consolidated Statements of Financial Condition at
September 30, 1996 and March 31, 1996 4
Consolidated Statements of Cash Flows -
Six months ended September 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. Other Information
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 3. Defaults upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
</TABLE>
2
<PAGE>
EAGLE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Sept. 30, Sept. 30,
- -------------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest on loans $10,249 $ 9,090 $20,271 $17,466
Interest on mortgage-backed securities 1,349 419 2,734 858
Interest on investment securities and other interest earning assets 1,354 1,129 2,675 2,306
- -------------------------------------------------------------------------------------------------------------------------
Total interest income 12,952 10,638 25,680 20,630
- -------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 5,103 4,171 9,853 7,953
Interest on borrowings 1,998 1,916 4,080 3,783
- -------------------------------------------------------------------------------------------------------------------------
Total interest expense 7,101 6,087 13,933 11,736
- -------------------------------------------------------------------------------------------------------------------------
Net interest income 5,851 4,551 11,747 8,894
PROVISION FOR LOAN LOSSES 924 54 1,448 54
- -------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 4,927 4,497 10,299 8,840
- -------------------------------------------------------------------------------------------------------------------------
OTHER INCOME:
Mortgage production fees 2,322 1,486 3,660 2,551
Service charges 257 195 486 352
Gain on sale of loans - 81 25 81
Gain on sale of real estate held for development and sale 343 345 714 345
Miscellaneous 370 332 837 753
- -------------------------------------------------------------------------------------------------------------------------
Total other income 3,292 2,439 5,722 4,082
- -------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES:
Salaries and employee benefits 4,010 3,047 7,564 5,751
Net occupancy expense 649 533 1,332 1,032
Federal insurance premium 215 169 415 329
Marketing expense 256 127 443 229
Data processing 322 339 574 605
Miscellaneous 1,302 820 2,427 1,418
SAIF assessment 1,946 - 1,946 -
- -------------------------------------------------------------------------------------------------------------------------
Total other expenses 8,700 5,035 14,701 9,364
- -------------------------------------------------------------------------------------------------------------------------
Income before income taxes (481) 1,901 1,320 3,558
INCOME TAX (BENEFIT) EXPENSE (347) 641 155 1,231
- -------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (134) $ 1,260 $ 1,165 $ 2,327
- -------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE $(0.03) $0.41 $0.26 $0.75
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
EAGLE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION>
SEPT. 30, March 31,
1996 1996
<S> <C> <C>
ASSETS:
Cash and amounts due from banks $ 12,045 $ 7,477
Interest-bearing deposits 1,329 339
Securities available for sale 80,056 79,512
Investment securities held to maturity 63,820 55,341
Loans held for sale 64,465 92,552
Loans receivable, net 372,112 334,505
Stock in Federal Home Loan Bank, at cost 7,336 8,565
Premises and equipment, net 14,449 11,033
Real estate held for development and sale 14,409 12,962
Real estate acquired in settlement of loans, net 1,415 907
Accrued interest receivable 4,594 4,124
Deferred income taxes 1,066 597
Other assets 5,040 3,598
----------------------
Total assets $642,136 $611,512
----------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $412,412 $348,098
Advance payments by borrowers for property taxes and insurance 1,656 1,511
Federal Home Loan Bank advances and other borrowings 146,090 173,060
Drafts outstanding 16,564 24,423
Accrued expenses and other liabilities 7,976 7,245
----------------------
Total liabilities $584,698 $554,337
----------------------
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; 10,000,000 shares authorized,
4,854,000 shares issued at September 30, and March 31, 1996 4,854 4,854
Additional paid-in capital 28,331 28,331
Retained earnings 27,178 26,696
Net unrealized (loss) gain on securities available for sale, net of taxes (793) (495)
Employee Stock Ownership Plan note payable (1,000) (1,000)
Unamortized restricted stock (56) (135)
Treasury stock, 301,800 shares at cost (1,076) (1,076)
----------------------
Total stockholders' equity 57,438 57,175
----------------------
Total liabilities and stockholders' equity $642,136 $611,512
----------------------
</TABLE>
4
<PAGE>
EAGLE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months ended September 30, 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,165 $ 2,327
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation, amortization and accretion 678 599
Provision for loan losses 1,448 54
Loss (gain) on sale of real estate acquired in settlement of loans 23 (39)
Gain on sale of real estate held for development and sale (714) (345)
Gain on sale of loans (25) (81)
Amortization of restricted stock award 79 79
Amortization of deferred loan fees (1,009) (814)
Proceeds from sale of loans held for sale 311,766 186,729
Originations of loans held for sale (283,679) (211,000)
Changes in assets and liabilities:
(Increase) decrease in accrued interest receivable (470) (354)
Decrease (increase) in other assets (1,455) (3,173)
Increase (decrease) in drafts outstanding (7,859) 10,067
Increase (decrease) in accrued expense and other liabilities 731 743
- -----------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 20,679 (15,208)
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities available for sale - 464
Proceed from maturities of investment securities held to maturity 4,000 -
Purchases of investment securities available for sale (3,500) -
Purchases of investment securities held to maturity (14,288) -
Principal payments received on investments available for sale 2,187 1,183
Principle payments received on investments held to maturity 1,845 1,659
Loan originations, net of repayments (20,760) (30,907)
Purchases of loans receivable (18,022) -
Proceeds from sale of real estate acquired in settlement of loans 218 173
Purchases of FHLB stock (2,219) (1,048)
Redemption of FHLB stock 3,448 279
Purchase of premises and equipment, net (3,948) (2,039)
Additions to real estate held for development and sale, net (3,470) (1,454)
Proceeds from sale of real estate held for development and sale 2,582 -
- -----------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities $ (51,927) $ (31,690)
- -----------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
EAGLE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months ended September 30, 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in time deposits $ 62,240 $ 44,095
Net change in demand deposit accounts 2,074 (2,750)
Repayment of FHLB advances and other borrowings (136,309) (136,545)
Proceeds from FHLB advances and other borrowings 109,339 153,606
Dividends paid (683) (775)
Principal reduction of ESOP debt - 11
Proceeds from exercise of stock options - 110
Increase (decrease) in advance payments from borrowings for
property taxes and insurance 145 (401)
- ------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities 36,806 57,351
- ------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 5,558 10,453
- ------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 7,816 6,358
- ------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,374 $ 16,811
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH PAID DURING PERIOD FOR:
- ------------------------------------------------------------------------------------------------
Interest $ 14,750 $ 11,763
- ------------------------------------------------------------------------------------------------
Income Taxes $ 1,214 $ 932
- ------------------------------------------------------------------------------------------------
Supplemental schedule of noncash investing and financing activities:
- ------------------------------------------------------------------------------------------------
Acquisition of real estate in settlement on loans $ 1,271 $ 280
- ------------------------------------------------------------------------------------------------
Loans made to finance real estate acquired in settlement of loans $ 522 $ 340
- ------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
Eagle Bancshares, Inc. and Subsidiaries
Notes to Interim Unaudited Consolidated Financial Statements
September 30, 1996
A. Basis of Presentation:
----------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for preparation of the
Securities and Exchange Commission Form 10-Q. Accordingly, they do not
include all of the information and disclosures required for fair
presentation in accordance with generally accepted accounting principles.
These financial statements should therefore be read in conjunction with
management's discussion and analysis of financial condition and results of
operations included in this report and the complete annual report for the
year ended March 31, 1996, which has been filed with the Company's most
recent Form 10-K. In the opinion of management, all eliminations and normal
recurring adjustments considered necessary for fair presentation have been
included. Operating results for the three and six month period ended
September 30, 1996, are not necessarily indicative of the results that may
be expected for the fiscal year ending March 31, 1997.
B. Reclassification of Prior Period Amounts:
-----------------------------------------
Certain reclassifications have been made in the Company's financial
statements for the prior fiscal period to conform to the classifications
used in the financial statements for the current fiscal period.
C. Recent Legislation
------------------
On September 30, 1996, President Clinton signed into law the Deposit
Insurance Funds Act of 1996 which contains provisions imposing a special
assessment on federally insured depository institutions to capitalize the
Savings Association Insurance Fund ("SAIF") and fund Financing Corporation
("FICO") bonds and provisions relating to the merger of the Bank Insurance
Fund ("BIF") with the SAIF.
Pursuant to the Act, on October 8, 1996, the Board of Directors of the FDIC
imposed a special assessment on SAIF assessable deposits of each insured
depository institution such as Tucker Federal in an amount that will cause
the SAIF fund to reach a designated reserve ratio. The assessment rate
applicable to Tucker Federal will be 65.7 cents per $100 of SAIF insured
deposits as of March 31, 1995, which will result in a one-time assessment in
the amount of approximately $1,946,000 payable on November 27, 1996. The Act
also provides for the establishment of a new deposit insurance premium rate
on SAIF insured deposits of 6.0 cents per $100 which is significantly lower
than Tucker Federal's current premium rate of 23 cents per $100. Based upon
SAIF insured deposits at September 30, 1996 this decrease in premium will
result in annual savings of $718,000.
The Act also addresses funding of interest payments on FICO bonds. The
legislation would require interest payments on FICO bonds to be shared by
BIF insured institution with respect to its BIF assessable deposits at a
rate equal to 20% of the rate of assessments imposed upon depository
institutions with SAIF assessable deposits.
The Act also contains a provision effective on the date of enactment of the
Act and extending through December 31, 1999, requiring the Controller of the
Currency, the Board of Directors of the FDIC, the Board of Governors of the
Federal Reserve System and the Director of the OTS to take appropriate
action (including enforcement action), denial of applications or imposition
of entrance and exit fees in order to prevent insured depository
institutions and depository institutions holding companies from facilitating
or encouraging shifting of deposits from SAIF assessable deposits to BIF
assessable deposits for the purpose of abating the assessments imposed.
The Act also requires the merger of the BIF and SAIF funds effective as of
January 1, 1999, if no insured depository institution that is a savings
association exists on that date.
The Act requires a study by the Secretary of the Treasury regarding the
establishment of a common charter for all insured depository institutions
and abolishing the separate and distinct charters between banks and savings
associations. The report is due to be presented to Congress on or before
March 31, 1997. The effect of the abolishment of the separate savings
association charter would be to require all savings associations to convert
7
<PAGE>
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.
D. Recent Developments
-------------------
On August 13, 1996 Eagle Bancshares, Inc. and Southern Crescent Financial
Corp today announced that they have signed a definitive agreement pursuant
to which Eagle will acquire Southern Crescent Financial Corp and its wholly
owned subsidiary, Southern Crescent Bank. Eagle is the holding company for
Tucker Federal Bank, the second largest independent financial institution
headquartered in metropolitan Atlanta. Southern Crescent Bank has total
assets of approximately $130 million.
The special meeting of Eagle Bancshares' stockholders will be held at 2:00
p.m. local time on Monday, December 30, 1996 at Tucker Federal Bank Training
Center, 4323 B Main Street, Tucker, Georgia and at any adjournments or
postponements thereof. Holders of record of Eagle stock at the close of
business on November 4, 1996 are entitled to notice of and to vote at the
Eagle special meeting. At such time there were approximately 4,552,000
shares of Eagle Bancshares stock outstanding held by approximately 651
stockholders of record. The special meeting of Southern Crescent's
stockholders will be held at 4:30 p.m. local time on Monday, December 30,
1996, at the headquarters of Southern Crescent Financial Corporation, 1585b
Southlake Parkway, Morrow, Georgia and at any adjournments or postponements
thereof. Holders of record of Southern Crescent's stock at the close of
business on November 4, 1996 are entitled to notice of and to vote at
Southern Crescent's special meeting. At such date and time there were
838,162 shares of Southern Crescent Financial Corporation's stock
outstanding held by approximately 1,300 stockholders of record. The approval
and adoption of the merger agreement and the transactions contemplated
thereby will require the affirmative vote of the holders of at least the
majority of the outstanding shares of Eagle Bancshares and Southern Crescent
Financial Corporation stock.
The acquisition of Southern Crescent will increase Eagle's total assets to
approximately $750 million and will strengthen Eagle's presence in the fast
growing, south metropolitan Atlanta market. The merger, which will be
accounted for as a pooling of interest, is expected to be completed during
the first quarter of 1997 and is subject to regulatory approval, shareholder
approvals and certain other conditions. The net value of the transaction is
expected to be $18 million. At September 30, 1996, Southern Crescent
Financial Corp had a book value of $9.3 million and net income for the six
and twelve months ended of $614,408 and $1,336,000, respectively.
Shareholders of Southern Crescent Financial Corp will receive Eagle
Bancshares' common stock equal to $19.177 per share provided the average
market value of Eagle stock is between $14.50 and $16.50 per share during a
30-day trading period prior to closing. If the average market value of Eagle
stock is less than $14.50 per share, Southern Crescent shareholders will
receive 1.323 shares of Eagle stock for each share of Southern Crescent. If
the average market value of Eagle stock is more than $16.50 per share,
Southern Crescent shareholders will receive 1.162 shares of Eagle stock.
Eagle, at its option, may terminate the transaction in the event the average
market value of Eagle stock is more than $17.50. Southern Crescent, at its
option, may terminate the transaction if the average market value of Eagle
stock is less than $14.00 per share.
Southern Crescent Bank, headquartered in Morrow, Georgia, operates
commercial banking facilities in Morrow, Union City and Palmetto, Georgia.
Southern Crescent Bank has received regulatory approval to open additional
branches in Jonesboro and McDonough, Georgia.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Company's net income (loss) for the three and six month period ended
September 30, 1996, was ($134,000) or ($.03) per share and $1,165,000 or
$.26 per share, respectively. This compares to net income for the three and
six month period ended September 30, 1995, of $1,260,000 or $.41 per share
and $2,327,000 or $.75 per share, respectively. The decline in earnings for
all comparative periods is attributable to the $1,946,000 SAIF Assessment
signed into law effective September 1996. The effect of the assessment on
earnings after tax was $1,191,000 or $.26 per share. Further discussion in
this quarterly report will focus on the Company's performance after removing
the effect of the SAIF Assessment.
8
<PAGE>
<TABLE>
<CAPTION>
SUMMARY FINANCIAL DATA
(dollars in thousands except per share data)
% Change from
Quarter Ended Sept. 30, 1996 to
Sept. 30, June. 30, Sept. 30, June 30, Sept. 30,
For the quarter: 1996/(1)/ 1996 1995 1996 1995
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income $ 1,057 $ 1,299 $ 1,260 (18.63) (16.11)
Per common share:
Net income .23 .29 .41 (20.69) (43.90)
Dividends declared .15 .15 .125 - 20.00
Book value per share 12.62 12.57 11.47 .39 10.03
Average common shares 4,552 4,552 3,112 - 46.27
outstanding
Profitability ratios: (%)
Return on average assets .68 .85 1.01 (20.00) (32.67)
Return on average equity 7.38 8.46 14.26 (32.67) (48.25)
Efficiency ratio 73.87 72.07 72.03 2.50 2.55
Net interest margin 4.20 4.20 3.94 - 6.60
Equity to assets 8.94 9.21 6.76 (3.37) 31.66
At quarter end:
Loans held for sale $ 64,465 $ 94,074 $ 65,572 (31.47) (1.69)
Loans receivable, net 372,112 334,289 335,348 11.31 11.24
Reserve for loan losses 3,686 3,728 3,455 - -
Assets 642,136 621,474 528,193 3.32 21.57
Deposits 412,412 386,726 327,660 7.80 27.24
FHLB advances 146,090 143,401 137,014 1.87 6.62
Stockholders' equity 57,438 57,231 35,697 .36 60.90
Six Months Ended
Sept. 30,
1996/(1)/ 1995 % Change
---------- -------- --------
For the six months:
Net Income $ 2,356 $ 2,327 1.25
Per common share:
Net Income .52 .75 (30.67)
Dividends declared .30 .25 20.00
Average common shares 4,552 3,100 46.89
outstanding
Profitability ratios:(%)
Return on average assets .76 .96 (20.83)
Return on average equity 8.20 12.84 (36.14)
Efficiency ratio 73.02 72.16 1.19
Net interest margin 4.20 3.99 5.26
</TABLE>
/(1)/ The after tax effect of the $1,946,000 SAIF Assessment or $1,191,000 (.26
per share) has been excluded from these calculations for comparability
purposes.
9
<PAGE>
Overview
Net income for the second quarter of fiscal 1997 was $1,057,000 compared
with $1,260,000 in the second quarter of fiscal 1996, a decrease of 16.11%.
Second quarter results were lower due to an increase in the provision for
loan losses of $870,000. Per share earnings for the second quarter of fiscal
1997 were $.23 per share, compared with $.41 per share in the second quarter
of fiscal 1996, a 43.90% decrease. Earnings per share decreased due to an
increase in the number of shares outstanding resulting from the Company's
secondary offering of 1,300,000 new shares of common stock on February 15,
1996.
Net income for the first half of fiscal 1997 was $2,356,000 or $.52 per
share compared to $2,327,000 or $.75 per share for the same period of fiscal
1996.
Return on average assets (ROA) was .68% and .76% in the second quarter and
first half of fiscal 1997, respectively, compared with 1.01% and .96%,
respectively, in the same periods of fiscal 1996. ROA decreased due to the
Company's rapid asset growth. Return on average equity (ROE) was 7.38% and
8.20% in the second quarter and first half of fiscal 1997, respectively,
compared with 14.26% and 12.84% in the same periods of fiscal 1996. ROE
declined due to the issuance of $21.5 million of additional capital in
connection with the secondary offering.
Net interest income was $5,851,000 and $11,747,000 for the second quarter
and first half of fiscal 1997, respectively compared with $4,551,000 and
$8,894,000 for the same periods of fiscal 1996. The Company's net interest
margin for the second quarter of 1997 remained the same as the prior quarter
at 4.20%, compared with 3.94% for the same quarter last year. The increase
in net interest income is primarily due to the growth in interest earning
assets.
The provision for loan losses was $924,000 and $1,448,000 for the second
quarter and first half of fiscal 1997, respectively compared with $54,000
for the same periods of fiscal 1996, and $524,000 for the first quarter of
the current year. The increase in the provision is due to the increase in
the Company's non-performing assets and potential problem loans. Non-
performing assets and potential problem loans as a percent of total assets
were 1.16%, 1.52% and .34% at September 30, 1996, June 30, 1996 and
September 30, 1995, respectively.
Non-interest income was $3,292,000 and $5,722,000 for the second quarter and
first half of fiscal year 1997, respectively compared with $2,439,000 and
$4,082,000 for the same periods of fiscal 1996. This represents a 34.97% and
40.18% increase over the prior year second quarter and first half,
respectively. The primary reason was due to an increase in mortgage
production fees.
Non-interest expense was $6,754,000 and $12,755,000 (without consideration
of the SAIF assessment) for the second quarter and first half of fiscal
1997, respectively, compared with $5,035,000 and $9,364,000 for the same
periods of fiscal 1996. This represents a 34.14% and 36.21% increase over
the prior year second quarter and first half, respectively. The primary
reason was due to increases in personnel costs and miscellaneous expense.
The Company received a tax benefit for the second quarter and first half of
fiscal 1997 primarily resulting from the SAIF assessment.
EARNINGS ANALYSIS
Net Interest Income - Quarterly Analysis
Net interest income increased by $1,300,000 or 28.57% to $5,851,000 in the
second quarter of fiscal 1997 from $4,551,000 for the same quarter last
year. 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) improved 23 basis points to 386 basis points from 363
basis points in the same period last year. The primary reason for the
10
<PAGE>
improvement was the decrease in the cost of interest bearing liabilities.
Yield on interest earning assets remained stable at 9.14% while the cost of
interest bearing liabilities declined 23 basis points to 5.28% from 5.51%.
Interest income received on loans increased $1,159,000 or 12.75% to
$10,249,000 for the second quarter of fiscal 1997 from $9,090,000 million in
fiscal 1996. The increase in interest received on loans was primarily
attributable to growth in the loan portfolio through originations of
residential construction loans and conforming single family loans held for
sale. The yield on the loan portfolio improved 15 basis points to 9.61% for
the quarter compared to 9.46% in the same quarter last year. Interest
received on mortgage backed securities increased $930,000 or 221.96% to
$1,349,000 million for the second quarter of fiscal 1997 from $419,000 in
the second quarter of fiscal 1996. This increase is primarily due to
purchases of mortgage backed securities for the available for sale
portfolio. Interest received on securities increased $225,000 or 19.93% to
$1,354,000 in fiscal 1997 from $1,129,000 in the prior period.
Interest expense increased $1,014,000 or 16.66% to $7,101,000 for the second
quarter of fiscal 1997 from $6,087,000 in the second quarter of fiscal 1996.
This is primarily the result of growth in deposits and FHLB advances.
Interest expense on deposits increased $932,000 or 22.34% to $5,103,000 from
$4,171,000 in the same period in the prior year. The cost of deposits
decreased 12 basis points to 5.14% during the quarter from 5.26% in the
prior period. Interest expense on FHLB advances and other borrowings also
increased $82,000 or 4.28% to $1,998,000 for the second quarter of fiscal
1997 from $1,916,000 in the second quarter of fiscal 1996. The Bank's cost
of FHLB advances decreased 50 basis points to 5.66% from 6.16% in the same
period in the prior year. The Bank utilizes short term FHLB advances to fund
construction loans and loans held for sale.
Net Interest Income - Six Month Analysis
Net interest income increased by $2,853,000 or 32.08% to $11,747,000 during
the first half of fiscal 1997 from $8,894,000 for the same period last year.
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) improved 17 basis points to 386 basis points from 369 basis
points in the same period last year. The primary reason for the improvement
was the decrease in the cost of interest bearing liabilities. Yield on
interest earning assets declined 10 basis points to 9.06% from 9.16% while
the cost of interest bearing liabilities declined 28 basis points to 5.20%
from 5.48%.
Interest income received on loans increased $2,805,000 or 16.06% to
$20,271,000 for the first half of fiscal 1997 from $17,466,000 in fiscal
1996. The increase in interest received on loans was primarily attributable
to growth in the loan portfolio through originations of residential
construction loans and conforming single family loans held for sale. The
yield on the loan portfolio improved 9 basis points to 9.55% for the first
half of fiscal 1997 compared to 9.46% in the same period last year. Interest
received on mortgage backed securities increased $1,876,000 or 218.65% to
$2,734,000 for the first half of fiscal 1997 from $858,000 in the first half
of fiscal 1996. This increase is primarily due to purchases of mortgage
backed securities for the available for sale portfolio. Interest received on
securities increased $369,000 or 16.00% to $2,675,000 in fiscal 1997 from
$2,306,000 in the prior period.
Interest expense increased $2,197,000 or 18.72% to $13,933,000 for the first
half of fiscal 1997 from $11,736,000 in the same period of fiscal 1996. This
is primarily the result of growth in deposits and FHLB advances. Interest
expense on deposits increased $1,900,000 or 23.89% to $9,853,000 from
$7,953,000 in the same period in the prior year. The cost of deposits
decreased 5 basis points to 5.12% during the period from 5.17% in the prior
period. Interest expense on FHLB advances and other borrowings also
increased $297,000 or 7.85% to $4,080,000 for the first half of fiscal 1997
from $3,783,000 in the same period of fiscal 1996. The Bank's cost of FHLB
advances decreased 83 basis points to 5.42% from 6.25% in the same period in
the prior year. The Bank utilizes short term FHLB advances to fund
construction loans and loans held for sale.
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
11
<PAGE>
asserts. The net interest margin increased to 4.20% for both the second
quarter and first half of fiscal 1997 from 3.94% and 3.99% for both the
second quarter and first half of fiscal 1996. The following average balance
sheets present the individual components of net interest income and expense,
net interest spread and net interest margin.
The increase in the net interest margin in the second quarter and first half
of fiscal 1997 was primarily attributable to the decrease in the cost of
interests bearing liabilities. The yield earned on average loans during the
second quarter and first half increased to 9.61% and 9.55% respectively,
compared to 9.46% both corresponding periods in the prior year. This is
attributable to the Company's ability to expand its loan portfolio through
originations of home equity and second mortgage loans, as well as
construction loans and to a lesser extent consumer loans. In addition, the
costs of deposits decreased due to the lower interest rate environment. The
Company also relies on borrowing from the FHLB to fund asset growth and the
cost of FHLB advances decreased during the second quarter and first half to
5.66% and 5.42% respectively, compared to 6.16% and 6.25% for the
corresponding periods in the prior year.
The following tables reflect 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 quarters and six
months ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET
Three months ended September 30, 1996 1995
AVERAGE YIELD/ Average Yield/
(dollars in thousands) BALANCE INTEREST COST Balance Interest Cost
- --------------------------------------------------------------------------------------------------------------
Earning Assets
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans* $426,422 $10,249 9.61% $384,332 $ 9,090 9.46%
Mortgage-backed securities 72,676 1,349 7.42% 22,601 419 7.42%
FHLB stock 7,434 136 7.32% 6,655 121 7.27%
Taxable investments 26,241 344 5.24% 33,395 643 7.70%
Tax-exempt investment securities 41,282 1,047 10.14% 20,300 415 8.18%
Interest earning deposits and Federal funds 763 11 5.77% 1,055 16 6.07%
- --------------------------------------------------------------------------------------------------------------
Total interest earning assets 574,818 13,136 9.14% 468,338 10,704 9.14%
Non-interest earning assets 45,501 32,325
- --------------------------------------------------------------------------------------------------------------
Total assets $620,319 $500,663
- --------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities
- --------------------------------------------------------------------------------------------------------------
Passbook accounts $ 41,669 260 2.50% $ 42,152 $ 265 2.52%
NOW 33,527 135 1.61% 27,959 121 1.73%
Money market 9,089 50 2.20% 10,524 60 2.28%
Certificates of deposit 312,801 4,658 5.96% 236,839 3,725 6.29%
- --------------------------------------------------------------------------------------------------------------
Total deposits 397,085 5,103 5.14% 317,474 4,171 5.26%
Advances 141,246 1,998 5.66% 124,510 1,916 6.16%
- --------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 538,331 7,101 5.28% 441,984 6,087 5.51%
Non-interest bearing liabilities 24,733 23,344
Stockholders' equity 57,255 35,335
- --------------------------------------------------------------------------------------------------------------
Total liabilities and equity $620,319 $500,663
- --------------------------------------------------------------------------------------------------------------
Net interest rate spread $ 6,035 3.86% $ 4,617 3.63%
Taxable-equivalent adjustment (184) (65)
- --------------------------------------------------------------------------------------------------------------
Net interest income, actual $ 5,851 $ 4,552
Net interest earning assets/net interest margin $ 36,487 4.20% $ 26,354 3.94%
- --------------------------------------------------------------------------------------------------------------
Interest earning assets as a percentage of
interest bearing liabilities 106.78% 105.96%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
*Non-accrual loans are included in average balances and income on such
loans, if recognized, is recorded on a cash basis.
12
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET
Six months ended September 30, 1996 1995
- --------------------------------------------------------------------------------------------------------------
AVERAGE YIELD/ Average Yield/
(dollars in thousands) BALANCE INTEREST COST Balance Interest Cost
- --------------------------------------------------------------------------------------------------------------
Earning Assets
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans* $424,673 $20,271 9.55% $369,242 $17,466 9.46%
Mortgage-backed securities 73,900 2,734 7.40% 23,132 858 7.42%
FHLB stock 7,935 288 7.26% 6,413 233 7.27%
Taxable investments 27,405 960 7.01% 33,498 1,302 7.77%
Tax-exempt investment securities 38,205 1,685 8.82% 20,300 890 8.77%
Interest earning deposits and Federal funds 1,418 44 6.21% 1,109 34 6.13%
- --------------------------------------------------------------------------------------------------------------
Total interest earning assets 573,536 25,982 9.06% 453,696 20,783 9.16%
Non-interest earning assets 43,696 31,387
- --------------------------------------------------------------------------------------------------------------
Total assets $617,232 $485,082
- --------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities
- --------------------------------------------------------------------------------------------------------------
Passbook accounts $ 41,987 $ 520 2.48% $ 42,562 $ 533 2.51%
NOW 33,678 269 1.60% 27,959 243 1.74%
Money market 9,030 99 2.19% 10,578 123 2.33%
Certificates of deposit 300,475 8,965 5.97% 226,399 7,054 6.23%
- --------------------------------------------------------------------------------------------------------------
Total deposits 385,170 9,853 5.12% 307,498 7,953 5.17%
Advances 150,555 4,080 5.42% 121,085 3,783 6.25%
- --------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 535,725 13,933 5.20% 428,583 11,736 5.48%
Non-interest bearing liabilities 24,067 21,650
Stockholders' equity 57,440 34,849
- --------------------------------------------------------------------------------------------------------------
Total liabilities and equity $617,232 $485,082
- --------------------------------------------------------------------------------------------------------------
Net interest rate spread $12,049 3.86% $ 9,047 3.69%
Taxable-equivalent adjustment (302) (153)
- --------------------------------------------------------------------------------------------------------------
Net interest income, actual $11,747 $ 8,894
Net interest earning assets/net interest margin $ 37,811 4.20% $ 25,112 3.99%
- --------------------------------------------------------------------------------------------------------------
Interest earning assets as a percentage of
interest bearing liabilities 107.06% 105.86%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
*Non-accrual loans are included in average balances and income on such loans, if
recognized, is recorded on a cash basis.
13
<PAGE>
Non-Interest Income
Non-interest income increased by $853,000 or 34.97% to $3,292,000 for the
second quarter of 1997 from $2,439,000 for the same period last year. In
addition, non-interest income increased by $1,640,000 or 40.18% to
$5,722,000 for the first half of fiscal 1997 from $4,082,000 for the same
period last year.
Mortgage production fees are the largest component of non-interest income
and such fees for the second quarter of fiscal 1997 increased $836,000 or
56.26% to $2,322,000 compared to $1,486,000 in the same period last year.
For the first half of fiscal 1997, mortgage production fees increased
$1,109,000 or 43.47% to $3,660,000 compared to $2,551,000 for the same
period last year. The dollar amount of loans sold fluctuates based on the
demand for mortgages in the Company's market. The margin received on loan
sales fluctuates due to changes in the general interest rate environment.
The following table shows mortgage production fees, the dollar amount of
loans sold in the secondary market and the margin earned on those loans for
the periods indicated:
<TABLE>
<CAPTION>
Three months Ended Six months Ended
Sept. 30, Sept. 30,
-------------------------------------------------------------------------------
(dollars in thousands) 1996 1995 1996 1995
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage production fees $ 2,322 $ 1,486 $ 3,660 $ 2,551
Dollar volume sold $154,819 $106,201 $311,766 $186,729
Margin earned 1.50% 1.40% 1.17% 1.37%
</TABLE>
Gain on the sale of real estate held for development and sale decreased
$2,000 to $343,000 for the second quarter of fiscal 1997 compared to
$345,000 in the same period last year. During the current quarter 26 lots
were sold compared to 45 lots in the second quarter last year. In addition,
gain on the sale of real estate held for development and sale increased
$369,000 or 106.96% to $714,000 for the first half of fiscal 1997 compared
to $345,000 in the same period last year. For the first half of fiscal 1997,
71 lots have been sold compared to 45 in the prior period.
Service charges increased $62,000 or 31.80% to $257,000 in the second
quarter of fiscal 1997 compared to $195,000 in the second quarter of fiscal
1996. In addition, for the first half service charges increased $134,000 or
38.06% to $486,000 compared to $352,000 for the same period last year. This
is the result of growth in the number of checking accounts during the year.
Non-Interest Expense
Non-interest expense, not including the SAIF assessment increased by
$1,719,000 or 34.14% to $6,754,000 for the second quarter of 1997 from
$5,035,000 for the same period last year. In addition, non-interest expense
increased by $3,391,000 or 36.21% to $12,755,000 for the first half of
fiscal 1997 from $9,364,000 for the same period last year.
The Company's efficiency ratio was 73.87% and 73.02% for the second quarter
and first half of fiscal 1997, compared to 72.03% and 72.16% for the same
periods last year. In general the increase in all categories of non-interest
expense is attributable to the Company's rapid growth. Over the course of
the previous year, the Company has opened two retail banking offices in
metropolitan Atlanta, one in Cherokee County to serve the Towne Lake
community and one in Alpharetta, to serve the North Fulton and Forsyth
County markets. In addition, a third retail banking office opened in
September 1996 in Lawrenceville to serve the Gwinnett County market. The
Company has also opened three loan origination branches, one in Cumming,
Georgia and one in Charlotte, North Carolina, and another in Athens,
Georgia.
Salaries and employee benefits increased $963,000 or 31.61% to $4,010,000
for the second quarter of fiscal 1997 compared to $3,047,000 for the same
period last year. In addition, salaries and employee benefits increased
$1,813,000 or 31.53% to $7,564,000 for the first half of fiscal 1997
compared to $5,751,000 for the same period last year. This increase is due
to the addition of employees to support the Company's growth. Occupancy
expense increased $116,000 or 21.76% to $649,000 for the second quarter of
fiscal 1997 compared to $533,000 for the same period last year. In addition,
occupancy expense increased $300,000 or 29.07% to $1,332,000 for the first
half of fiscal 1997 compared to $1,032,000 for the same period last year.
Federal insurance premiums increased during the quarter due to the increase
in the Company's deposit base. These premiums have been paid at a rate of 23
cents per $100 of deposits. This rate will continue through December 31,
1996, and after that time will be decreased to 6 cents per $100 of deposits.
Miscellaneous expenses increased $482,000 or 58.78% to $1,302,000 for the
second quarter of fiscal 1997 from $820,000 for the same period last year.
In addition, miscellaneous expenses increased $1,009,000 or 71.16% to
$2,427,000 for the first half of fiscal 1997 compared to $1,418,000 for the
14
<PAGE>
same period last year. This increase is due to increases in office supplies,
telephone and communications, and consulting and attorney fees due to the
Company's expansion.
BALANCE SHEET ANALYSIS
Investment Securities
During the first half of fiscal 1997, investment securities increased to
$143,876,000 from $134,853,000 and $75,789,000 at March 31, 1996 and
September 30, 1995, respectively. The Company classifies its securities in
one of three categories in accordance with Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities": 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 Company has no trading securities.
The investment securities portfolio at September 30, 1996, was comprised of
$63,820,000 of investment securities held to maturity at amortized cost
compared to $55,341,000 and $56,022,000 at March 31, 1996 and September 30,
1995, respectively. The Company has the ability and it is management's
intent to hold these securities to maturity for investment purposes. In
addition, investment securities available for sale had an estimated market
value of $80,056,000 at September 30,1996 compared to $79,512,000 and
$19,767,000 at March 31, 1996 and September 30, 1995, respectively.
Investment securities available for sale had a net unrealized loss as shown
in the Company's stockholders' equity section of $793,000 at September 30,
1996 versus $495,000 at March 31, 1996.
Included in other securities at September 30, 1996 and March 31, 1996, are
$3.0 million and $3.7 million, respectively, of investment grade residential
mortgage pass through certificates issued by the RTC. 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% of stockholders' equity at September 30, 1996, March
31, 1996 or September 30, 1995.
The following table reflects securities held in the Bank's securities
portfolio for the periods indicated:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
(dollars in thousands) Sept. 30, March 31, Sept. 30,
----------------------------------------------------------------------------
1996 1996 1995
----------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Securities Held to Maturity:
US Treasury and US Government Agencies $ 38,761 $ 27,450 $24,856
Mortgage-backed securities 6,900 8,087 8,843
Corporate bonds 7,428 8,420 10,387
Other debt securities 10,731 11,384 11,936
----------------------------------------------------------------------------
Total $ 63,820 $ 55,341 $56,022
----------------------------------------------------------------------------
Securities Available for Sale:
Mortgage-backed securities $ 65,013 $ 67,855 $13,161
Corporate Bonds 2,015 2,028 -
Equity securities - preferred stock 13,028 9,629 6,606
----------------------------------------------------------------------------
Total $ 80,056 $ 79,512 $19,767
----------------------------------------------------------------------------
Total Investment Securities:
US Treasury and US Government Agencies $ 38,761 $ 27,450 $24,856
Mortgage-backed securities 71,913 75,942 22,004
Corporate bonds 9,443 10,488 10,387
Other debt securities 10,731 11,384 11,936
Equity securities 13,028 9,629 6,606
----------------------------------------------------------------------------
Total $143,876 $134,853 $75,789
----------------------------------------------------------------------------
</TABLE>
15
<PAGE>
Loan Portfolio and Concentration
Loans receivable, net, including loans held for sale, increased $35,657,000
to $436,577,000 at September 30, 1996 compared to $400,920,000 at September
30, 1995. The primary reason is due to the increase in home equity and
second mortgage loans, construction, and acquisition and development loans.
Loans receivable, net, including loans held for sale, at September 30, 1996,
remained relatively consistent with an increase of $9,520,000 or 2.23% since
March 31, 1996. While the total change was not significant, the Company's
mix has shifted with increases in residential mortgage loans of $18,336,000
or 12.04%, as well as home equity and second mortgage loans of $22,450,000
or 156.58%. Decreases occurred in loans held for sale of $28,087,000 or
30.35% and leases of $9,962,000 or 26.19%.
<TABLE>
<CAPTION>
LOAN PORTFOLIO MIX
% Change
Sept. 30,1996 from
Sept. 30, March 31, Sept. 30, March 31, Sept. 30,
(dollars in thousands) 1996 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real Estate - construction loans
Construction $158,424 $158,670 $147,963 (0.16) 7.07
Acquisition & Development 33,165 30,419 30,875 9.03 7.42
Real Estate - mortgage loans
Non-Residential 15,274 15,176 16,298 .65 (6.28)
Residential 170,667 152,331 160,162 12.04 6.56
Home equity and second mortgages 36,788 14,338 11,728 156.58 213.68
Loans held for sale 64,465 92,552 65,572 (30.35) (1.69)
- ---------------------------------------------------------------------------------------------------
Total real estate loans 478,783 463,486 432,598 3.30 10.68
- ---------------------------------------------------------------------------------------------------
Other loans:
Leases 28,070 38,032 38,049 (26.19) (26.23)
Consumer and other 7,856 4,101 4,551 91.56 72.62
- ---------------------------------------------------------------------------------------------------
Total other loans 35,926 42,133 42,600 (14.73) (15.67)
- ---------------------------------------------------------------------------------------------------
Total gross loans receivable 514,709 505,619 475,198 1.80 8.31
- ---------------------------------------------------------------------------------------------------
Less:
Undisbursed portion of loans
in process (73,392) (73,121) (68,062) .37 7.83
Deferred loan origination fees (1,451) (1,409) (2,179) 2.98 (33.41)
Unearned income (276) (384) (481) (28.13) (42.62)
Reserves for loan losses (3,686) (4,176) (3,455) (11.73) 6.69
Premium/(discount) on loans purchased 673 528 (101) 27.46 NA
- ---------------------------------------------------------------------------------------------------
Loans receivable, net* $436,577 $427,057 $400,920 2.23 8.89
===================================================================================================
*Includes Loans Held for Sale
</TABLE>
Non-Performing Assets
Total problem assets, which include non-accrual loans, loans classified as
problem assets by Asset Classification Committee (ACC), and real estate
16
<PAGE>
acquired through the settlement of loans, decreased $824,000 or 11.10% to
$7,429,000 at September 30, 1996, from $8,254,000 at March 31, 1996.
Additionally, total problem assets decreased $1,998,000 or 21.19% since the
June 30, 1996, level of $9,427,000. At September 30, 1996, the Company had
non-accrual loans of $5,422,000 compared to $6,002,000 at March 31, 1996 and
$7,968,000 at June 30, 1996. Interest income not recognized on these loans
amounted to $294,000 during the second quarter of fiscal 1997. Approximately
51.08% of all non-accrual loans were represented by equipment leases, 32.79%
by construction loans, 11.84% by mortgage loans and the balance by
commercial real estate and consumer loans. In addition, at September 30,
1996, the ACC identified $592,000 of loans as potential problem loans. At
March 31, 1996, the Company had $1,345,000 of loans classified as potential
problems. Real estate owned increased by $508,000 or 56.0% to $1,415,000 at
September 30, 1996, and, from $907,000 at March 31, 1996. Total problem
assets as a percent of total assets decreased to 1.16% at September 30,
1996, from 1.35% at March 31, 1996 and from 1.52% at June 30, 1996.
At September 30, 1996, there were 18 construction loans on non-accrual.
Seven or $1,124,000 of these loans were to a single borrower in the
Jacksonville, Florida, market area. Of the remaining construction loans, ten
or $584,000 were in Aiken, South Carolina, and one or $70,000 was located in
the Augusta market area. In addition, at September 30, 1996, three lease
relationships were on non-accrual. The Company has total lease exposure of
$1,866,000 to one company who is the lessee on one lease for $54,000 and
lessor on seven leases totalling $1,812,000. This company has filed for
bankruptcy protection and the eight leases are a part of the bankruptcy
proceedings. The remaining two relationships represent $903,000 and $1,300.
At September 30, 1996, potential problem loans represented two construction
loans or $211,000 and two equipment leases or $381,000.
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 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.
<TABLE>
<CAPTION>
NON-ACCRUAL, PAST DUE and RESTRUCTURED LOANS
Sept. 30, June 30, March 31, 1996 Sept. 30,
(dollars in thousands) 1996 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Non-accrual loans:
Residential real estate-construction $1,778 $3,065 $1,658 $ 114
Residential real estate-mortgage 642 1,018 502 549
Commercial real estate 193 128 421 -
Commercial lease 2,770 3,751 3,421 10
Installment 39 6 - 20
- -----------------------------------------------------------------------------------------------------------------------------
Total non-accrual 5,422 7,968 6,002 693
- -----------------------------------------------------------------------------------------------------------------------------
Potential problem loans 592 432 1,345 546
Loans contractually delinquent 90
days which still accrue interest
Troubled debt restructurings - - - -
- - - -
- -----------------------------------------------------------------------------------------------------------------------------
Total non-accrual and problem loans $6,014 $8,400 $7,347 $ 1,239
- -----------------------------------------------------------------------------------------------------------------------------
Real estate owned, net 1,415 1,027 907 541
- -----------------------------------------------------------------------------------------------------------------------------
Total problem assets $7,429 $9,427 $8,254 $ 1,781
- -----------------------------------------------------------------------------------------------------------------------------
Total problem assets/Total assets 1.16% 1.52% 1.35% .34%
- -----------------------------------------------------------------------------------------------------------------------------
Total problem assets/Net loans plus
reserves 1.98% 2.79% 2.44% .53%
- -----------------------------------------------------------------------------------------------------------------------------
Reserve for loan losses/Total
problem assets 49.62% 39.55% 50.59% 193.99%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
Loan Impairment
At September 30, 1996, the recorded investment in impaired loans, which
excludes non-accrual first mortgage loans and residential construction
loans, decreased $757,000 or 21.47% to $2,769,000 from $3,526,000 at March
31, 1996. The Company had no impaired loans, as defined by SFAS Nos. 114 and
118, at September 30, 1995. At September 30, 1996, all impaired loans were
on a non-accrual basis. At September 30, 1996, the valuation allowance
related to these impaired loans was $1,213,000 compared to $1,153,000 at
March 31, 1996. At September 30, 1996, and March 31, 1996, all impaired
loans had a related loan loss reserve. During the quarter and six months
ended September 30, 1996, the Company charged-off $987,000 and $1,946,000
against loss reserves relating to impaired leases, respectively. For the
quarter and six months ended September 30, 1996, the average recorded
investment in impaired loans was $2,771,000 and $2,772,000, respectively.
The Company recognized interest income on impaired loans of $52,000 for the
second quarter and first half of fiscal 1997 of which all 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. 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.
Reserve for Loan Losses
The Company set aside $924,000 of additional reserves for possible loan
losses during the second quarter of fiscal 1997 while $54,000 of additional
reserves were set aside for the same period last year. In addition, the
Company provided $1,448,000 of additional reserves for loan losses during
the first half of fiscal 1997 compared to $54,000 for the same period last
year. During the second quarter and first half of fiscal 1997, the Company
charged-off $989,000 and $1,955,000, respectively, therefore, loan loss
reserves totaled $3,686,000 at September 30, 1996. At September 30, 1996,
reserves represented .98% of loans receivable, net, remaining stable from
1.03% at September 30, 1995. Loan loss reserves to total problem assets
remained consistent at 49.62% at September 30, 1996 from 50.59% at March 31,
1996. Management believes that the reserves for losses on loans are adequate
based upon management's evaluation of, among other things, estimated value
of the underlying collateral, loan concentrations, specific problem loans,
and economic conditions that may affect the borrower's ability to repay and
such other factors as, in management's judgment, deserve recognition under
existing economic conditions. While management uses available information to
recognize losses on loans, future additions to the allowances may be
necessary based on changes in economic conditions and composition of the
Company's loan portfolio. The following table summarizes activity in the
reserve for loan losses for the periods indicated.
18
<PAGE>
<TABLE>
<CAPTION>
ANALYSIS OF THE RESERVE FOR LOAN LOSSES
(dollars in thousands)
Three Months Ended Six Months Ended
Sept. 30, Sept. 30,
- -----------------------------------------------------------------------------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Reserve for loan losses, beginning of period $ 3,728 $ 3,388 $ 4,176 $ 3,362
Charge-offs:
Real estate - construction - - - -
Real estate - mortgage 30 9 77 13
Consumer 1 - 1 -
Commercial leases 958 - 1,917 4
- -----------------------------------------------------------------------------------------------
Total charge-offs 989 9 1,955 17
Recoveries 23 22 57 56
- -----------------------------------------------------------------------------------------------
Net charge-offs 966 (13) 1,938 (39)
Provision for loan losses 924 54 1,448 54
- -----------------------------------------------------------------------------------------------
Reserve for loan losses, end of period $ 3,686 $ 3,455 $ 3,686 $ 3,455
- -----------------------------------------------------------------------------------------------
Loan receivable, net $376,370 $335,348 $376,370 $335,348
- -----------------------------------------------------------------------------------------------
Ratio of net charge-offs to loans receivable, net .2567% (.0039)% .5149% (.0116)%
- -----------------------------------------------------------------------------------------------
Reserves to loans receivable, net 0.98% 1.03% 0.98% 1.03%
- -----------------------------------------------------------------------------------------------
</TABLE>
Real Estate Held for Development and Sale
The Company's investment in real estate held for development and sale
increased $7,789,000 or 117.7% since September 30, 1995. The Company
currently has four real estate projects under development in the Atlanta
market.
Deposits
Deposits are the Company's primary funding source. During the first half of
fiscal 1997, total deposits increased $64,314,000 or 18.48% to $412,412,000
from $348,098,000 at March 31, 1996. The Bank uses traditional marketing
methods to attract new customers. Its deposit network is serviced from its
eleven branches in Atlanta. The growth in deposits was primarily in
certificates of deposit with maturities of one year or less which grew 36.2%
to $238,309,000 at September 30, 1996 from $174,908,000 at March 31, 1996.
Demand deposits including NOW accounts, passbook accounts and money market
accounts were 20.0% of the Company's deposits at September 30, 1996. The
weighted average interest rate on deposits remained relatively stable at
5.11% at September 30, 1996 and 5.08% and 5.18% at March 31, 1996 and
September 30, 1995, respectively.
19
<PAGE>
For the periods indicated, deposits are summarized by type and remaining
term as follows (dollars in thousands):
<TABLE>
<CAPTION>
DEPOSIT MIX
Weighted Average
Interest Rate at
---------------------------------
SEPT. 30, March 31, Sept. 30, Sept. 30, March 31, Sept. 30,
1996 1996 1995 1996 1996 1995
- ----------------------------------------------------------------------------------------------------------------
Demand deposits:
<S> <C> <C> <C> <C> <C> <C>
NOW accounts $ 33,902 $ 33,603 $ 29,436 1.67% 1.74% 1.72%
Money market accounts 8,089 8,418 9,343 2.49% 2.50% 2.49%
Passbook accounts 40,454 42,845 41,311 2.53% 2.53% 2.53%
---------------------------------
82,445 84,866 80,090 2.07% 2.21% 2.15%
---------------------------------
Time deposits:
Maturity one year or less 238,309 174,908 163,739
Maturity greater than one year through
two years 25,604 26,268 21,727
Maturity greater than two years
through three years 14,985 14,867 15,991
Maturity greater than three years 51,069 47,189 46,113
---------------------------------
329,967 263,232 247,570 5.86% 6.00% 6.15%
---------------------------------
Total deposits $412,412 $348,098 $327,660 5.11% 5.08% 5.18%
---------------------------------
For the periods indicated, interest expense on deposits is summarized as follows (dollars in thousands):
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended | Six Months Ended
Sept. 30, | Sept. 30,
1996 1995 | 1996 1995
--------------------------|-----------------------
<S> <C> <C> <C> <C>
NOW accounts $ 135 $ 121 | $ 269 $ 243
Money market accounts 50 60 | 99 123
Passbook accounts 260 265 | 520 533
Time Deposits 4,658 3,725 | 8,965 7,054
--------------------------|-----------------------
$ 5,103 $ 4,171 | $9,853 $7,953
--------------------------------------------------
</TABLE>
Federal Home Loan Bank Advances
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
September 30, 1996, advances and other borrowings were $146,090,000 down
from $173,060,000 at March 31, 1996. For the second quarter of fiscal 1997,
the weighted average interest rate on these borrowings decreased to 5.66%
down from 5.70% and 6.16% for the quarters ended March 31, 1996 and
September 30, 1995, respectively.
20
<PAGE>
Liquidity and Capital Resources
The Company's Asset and Liability Committee manages liquidity to ensure that
there is sufficient cash flow to satisfy demands for credit, deposit
withdrawals and other Company needs. Traditional sources of liquidity
include deposits, FHLB advances, loan sales and payments on loans. Savings
deposits are highly dependent upon market and other conditions largely
outside the Company's control; while loan principal repayments are a
relatively stable source of funds.
Under current regulations, the Company is required to maintain liquid assets
at five percent or more of its net withdrawable deposits plus short-term
borrowings (due in one year or less). The Company has traditionally
maintained liquidity levels above the regulatory minimum and management
anticipates this trend will continue. At September 30, 1996, the Company's
liquidity ratio was 6.4%.
The Company, through PrimeEagle Mortgage, originates first mortgage loans
which generally are sold to investors. During the six month period,
permanent mortgage loan originations increased by 34.4% to approximately
$284,000,000 compared to $211,000,000 for the same period last year. At
September 30, 1996, the Company had outstanding commitments to originate
loans, exclusive of the undisbursed portion of loans in process, of
approximately $22,000,000 compared to $22,300,000 at September 30, 1995.
Commitments to sell mortgage loans increased to approximately $37,600,000 at
September 30, 1996 from $44,300,000 at September 30, 1995.
Regulatory Capital
The Financial Institution Reform, Recovery, and Enforcement Act (FIRREA) of
1989 established minimum capital requirements for thrift institutions.
FIRREA requires savings and loan associations to have core capital of at
least 3% of total assets and tangible capital of at least 1.5% of total
assets. Additionally, institutions are required to meet a risk-based capital
requirement consisting of 8% of the value of risk weighted assets. The
Company's regulatory capital exceeds each of the above mentioned capital
requirements and allows Tucker Federal to be classified as a "well-
capitalized" Institution under current OTS standards. Management anticipates
that the Company will continue to meet the capital requirements.
The following table reflects the Company's minimum regulatory capital
requirements, actual capital and the level of excess capital by category.
The Company has historically maintained capital substantially in excess of
the minimum requirement.
21
<PAGE>
<TABLE>
<CAPTION>
REGULATORY CAPITAL
Regulatory Required Excess
(dollars in thousands) Capital % Capital % Capital %
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
September 30, 1996
Tangible Capital $47,726 7.6 $ 9,410 1.5 $38,316 6.1
Core Capital $47,726 7.6 $18,819 3.0 $28,907 4.6
Risk-based Capital $51,204 13.3 $30,856 8.0 $20,348 5.3
--------------------------------------------------------------------------
March 31, 1996
Tangible Capital $53,615 8.9 $ 9,057 1.5 $44,558 7.4
Core Capital $53,615 8.9 $18,115 3.0 $33,500 5.9
Risk-based Capital $56,783 15.8 $28,842 8.0 $27,941 7.8
--------------------------------------------------------------------------
September 30, 1995
Tangible Capital $31,671 6.1 $ 7,818 1.5 $23,853 4.6
Core Capital $31,671 6.1 $15,648 3.0 $16,064 3.1
Risk-based Capital $35,094 9.1 $30,707 8.0 $ 4,387 1.1
--------------------------------------------------------------------------
</TABLE>
Effective February 15, 1996, the Company raised $21.5 million of capital in
a secondary offering co-underwritten by Interstate/Johnson Lane Corporation
and Morgan Keegan & Company, Inc. Substantially all of the proceeds were
contributed to the Bank.
22
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
There are no material pending legal proceedings to which the
Company, the Association or any subsidiary is a party or to
which any of their property is subject.
ITEM 2. CHANGES IN SECURITIES
---------------------
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None
ITEM 5. OTHER INFORMATION
-----------------
On October 3, 1996, the employment contract of Richard B.
Inman, Jr., President of Tucker Federal Bank, was extended until
March 31, 1997, under substantially the same terms and
conditions as Mr. Inman's 1993 Employment Agreement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
Reports on Form 8-K
None
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
EAGLE BANCSHARES, INC.
(Registrant)
Date: November 14, 1996 /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 Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant
in the capacities and on the dates indicated.
Date: November 14, 1996 /s/Richard B. Inman, Jr.
--------------------------------------
Richard B. Inman, Jr.
Director, Secretary and Treasurer
Date: November 14, 1996 /s/ Conrad J. Sechler, Jr.
--------------------------------------
Conrad J. Sechler, Jr.
Chairman of the Board and President
Date: November 14, 1996 /s/ LuAnn Durden
----------------
LuAnn Durden
Chief Financial Officer
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 12,045
<INT-BEARING-DEPOSITS> 1,329
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 80,056
<INVESTMENTS-CARRYING> 63,820
<INVESTMENTS-MARKET> 64,202
<LOANS> 372,112
<ALLOWANCE> 3,686
<TOTAL-ASSETS> 642,136
<DEPOSITS> 412,412
<SHORT-TERM> 0
<LIABILITIES-OTHER> 7,976
<LONG-TERM> 0
0
0
<COMMON> 4,854
<OTHER-SE> 52,584
<TOTAL-LIABILITIES-AND-EQUITY> 642,136
<INTEREST-LOAN> 20,271
<INTEREST-INVEST> 2,675
<INTEREST-OTHER> 2,734
<INTEREST-TOTAL> 25,680
<INTEREST-DEPOSIT> 9,853
<INTEREST-EXPENSE> 13,933
<INTEREST-INCOME-NET> 10,299
<LOAN-LOSSES> 1,448
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 14,701
<INCOME-PRETAX> 1,320
<INCOME-PRE-EXTRAORDINARY> 1,320
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,165
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
<YIELD-ACTUAL> 9.06
<LOANS-NON> 5,422
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 592
<ALLOWANCE-OPEN> 4,176
<CHARGE-OFFS> 1,995
<RECOVERIES> 57
<ALLOWANCE-CLOSE> 3,686
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
