<PAGE> 1
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 quarterly period ended September 30, 1997
OR
- --- 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)
(770) 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, 1997
---------------------- --------------------------------------------
Common Stock, $1.00 Par Value 5,698,668 shares
Index of Exhibit on Page 27
<PAGE> 2
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
PART I. Financial Information
<S> <C> <C>
Item 1. Financial Statements
Consolidated Statements of Income -
Three and Six months ended September 30, 1997 and 1996 3
Consolidated Statements of Financial Condition at
September 30, 1997 and March 31, 1997 4
Consolidated Statements of Cash Flows -
Six months ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. Other Information
Item 1. Legal Proceedings 25
Item 2. Changes in Securities 25
Item 3. Defaults upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 26
Index of Exhibits 27
</TABLE>
2
<PAGE> 3
EAGLE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
- --------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest on loans $ 14,748 $ 12,715 $ 28,826 $ 24,895
Interest on mortgage-backed securities 1,270 1,398 2,575 2,818
Interest on securities and other interest-earning assets 1,474 1,683 3,148 3,413
- --------------------------------------------------------------------------------------------------------------------------
Total interest income 17,492 15,796 34,549 31,126
- --------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 7,347 6,269 14,144 12,146
Interest on FHLB advances and other borrowings 2,219 2,026 4,662 4,133
- --------------------------------------------------------------------------------------------------------------------------
Total interest expense 9,566 8,295 18,806 16,279
- --------------------------------------------------------------------------------------------------------------------------
Net interest income 7,926 7,501 15,743 14,847
PROVISION FOR LOAN LOSSES 600 924 1,317 1,448
- --------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 7,326 6,577 14,426 13,399
- --------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Mortgage production fees 2,154 2,331 4,232 3,677
Gain on sale of investment in real estate 405 214 631 405
Real estate commissions, net 87 98 193 194
Service charges 565 433 1,106 841
Gain on sale of investment securities available for sale (51) 33 (51) 39
Gain on sale of loans - 35 16 60
Miscellaneous 530 333 1,052 819
- --------------------------------------------------------------------------------------------------------------------------
Total other income 3,690 3,477 7,179 6,035
- --------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSES:
Salaries and employee benefits 4,812 4,684 9,532 8,878
Net occupancy expense 1,057 843 2,092 1,706
Data processing expense 461 353 1,009 634
Federal insurance premium 70 215 139 415
Marketing expense 160 278 431 481
Provision for losses on real estate acquired in the settlement of loans 170 - 290 -
SAIF assessment - 1,946 - 1,946
Miscellaneous 1,945 1,475 3,553 2,761
- --------------------------------------------------------------------------------------------------------------------------
Total other expenses 8,675 9,794 17,046 16,821
- --------------------------------------------------------------------------------------------------------------------------
Income before income taxes 2,341 260 4,559 2,613
INCOME TAX EXPENSE 618 (88) 1,276 607
- --------------------------------------------------------------------------------------------------------------------------
Net income $ 1,723 $ 348 $ 3,283 $ 2,006
- --------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE $ .29 $ .06 $ .56 $ .35
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 4
EAGLE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, March 31,
(dollars in thousands except per share data) 1997 1997
<S> <C> <C>
ASSETS:
Cash and amounts due from banks $ 23,055 $ 17,405
Federal funds sold 330 8,470
Accrued interest receivable 5,521 5,472
Securities available for sale 92,713 96,921
Investment securities held to maturity 47,732 51,907
Loans held for sale 85,924 62,882
Loans receivable, net 548,615 515,749
Investment in real estate 29,129 25,828
Real estate acquired in settlement of loans, net 2,492 2,074
Stock in Federal Home Loan Bank, at cost 8,596 7,864
Premises and equipment, net 21,901 20,379
Deferred income taxes 1,825 2,284
Other assets 4,873 6,647
--------------------------------------------
Total assets $872,706 $823,882
--------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $595,115 $557,724
Federal Home Loan Bank advances and other borrowings 174,966 153,805
Advance payments by borrowers for property taxes and insurance 1,272 1,279
Drafts outstanding 18,114 29,043
Accrued expenses and other liabilities 11,896 14,157
--------------------------------------------
Total liabilities $801,363 $756,008
--------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; 10,000,000 shares authorized,
5,967,494 shares issued at September 30 and March 31, 1997 5,967 5,961
Additional paid-in capital 36,695 36,628
Retained earnings 29,820 28,236
Net unrealized gain (loss) on securities available for sale, net of taxes 773 (1,025)
Employee Stock Ownership Plan note payable (836) (836)
Unamortized restricted stock - (14)
Treasury stock, 301,800 shares at cost (1,076) (1,076)
--------------------------------------------
Total stockholders' equity 71,343 67,874
--------------------------------------------
Total liabilities and stockholders' equity $872,706 $823,882
--------------------------------------------
</TABLE>
4
<PAGE> 5
EAGLE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(dollars in thousands)
Six Months ended September 30, 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,283 $ 2,006
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation, amortization and accretion 1,091 845
Provision for loan losses 1,317 1,448
Provision for losses on real estate acquired in settlement of loans 290 -
(Loss)/gain on sale of investments 51 (39)
Loss (gain) on sale of real estate acquired in settlement of loans 13 19
Gain on sale of investment in real estate (631) (405)
Gain on sale of loans (16) (60)
Amortization of restricted stock award 14 79
Deferred income tax (benefit) expense (330) 74
Amortization of deferred loan fees (1,324) (1,009)
Proceeds from sale of loans held for sale 320,007 311,766
Originations of loans held for sale (343,049) (283,679)
Changes in assets and liabilities:
(Increase) decrease in accrued interest receivable (49) 495
Decrease (increase) in other assets 1,683 (1,560)
Increase (decrease) in drafts outstanding (10,929) (7,859)
Increase (decrease) in accrued expense and other liabilities (2,261) (862)
- ---------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (30,840) 21,259
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available for sale (1,000) (10,543)
Proceeds from sale of securities available for sale - 7,175
Purchases of investment securities held to maturity (13,000) (14,288)
Principal payments received on securities available for sale 2,786 2,187
Principle payments received on investment securities held to maturity 891 1,845
Proceeds from calls of securities available for sale 3,923 -
Proceeds from calls of investment securities held to maturity 10,000 -
Proceeds from maturities of securities available for sale 1,000 4,050
Proceeds from maturities of investment securities held to maturity 6,300 4,000
Loan originations, net of repayments (33,210) (38,406)
Purchases of loans receivable (569) (18,022)
Proceeds from sale of real estate acquired in settlement of loans 212 486
Purchases of FHLB stock (2,486) (2,578)
Redemption of FHLB stock 1,754 3,448
Purchase of premises and equipment, net (2,456) (4,490)
Additions to investment in real estate (5,234) (3,470)
Proceeds from sale of investment in real estate 2,520 2,582
- ---------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities $ (28,569) $ (66,024)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 6
EAGLE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Six Months ended September 30, 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in time deposits $ 28,117 $ 70,478
Net change in demand deposit accounts 9,274 4,760
Repayment of FHLB advances and other borrowings (166,221) (136,008)
Proceeds from FHLB advances and other borrowings 187,382 109,451
Proceeds from exercise of stock options 73 -
Dividends paid (1,699) (883)
Increase (decrease) in advance payments from borrowings for
property taxes and insurance (7) 145
- ---------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities 56,919 47,943
- ---------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,490) 3,178
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 25,875 19,911
- ---------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 23,385 $ 23,089
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH PAID DURING PERIOD FOR:
Interest $ 18,528 $ 16,116
Income Taxes $ 2,539 $ 1,394
Supplemental schedule of noncash investing and financing activities:
Acquisition of real estate in settlement on loans $ 1,035 $ 1,271
Loans made to finance real estate acquired in settlement of loans $ 102 $ 522
</TABLE>
6
<PAGE> 7
Eagle Bancshares, Inc.
Notes to Interim Unaudited Consolidated Financial Statements
September 30, 1997
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, 1997, 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 month period
ended September 30, 1997, are not necessarily indicative of the results that
may be expected for the fiscal year ending March 31, 1998.
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.
On March 26, 1997, the Company acquired all of the outstanding shares
of SCFC, a bank holding company located in Union City, Georgia. The merger was
accounted for as a pooling of interests, and accordingly, the consolidated
financial statements have been restated to include SCFC in all periods
presented.
C. Commitments and Contingencies
The Bank acquired the assets of Prime Lending Division of Southern
Federal Savings and Loan Association (the "Division") (now a division of
PrimeEagle) from the RTC on November 23, 1992. In connection with this
acquisition, the Bank entered into an operating agreement with a corporation
owned by two individuals who participate in the profits and losses pursuant to
the agreement. Those two individuals currently have raised issues regarding the
calculations of profits and losses. The Company believes its calculations of
profits and losses are proper and are in full compliance with the terms of the
operating agreement. Since the Company did not give notice of non-renewal, the
operating agreement will automatically renew on November 23, 1997. In the event
that the Bank ever elects to terminate the agreement, the two individuals have
the right, but not the obligation, to purchase certain assets of the Division
for 75% of their appraised fair market value, upon assuming all obligations
associated with the Division. The specific impact of termination on the
financial condition of the Company, if any, cannot be determined at this time.
The Company is continuing its in-depth assessment of the mortgage
banking group. This includes evaluating each office's profitability, business
prospects, and carefully considering the business potential of each local
market. As a result of this analysis, the Company is undertaking a mortgage
banking re-engineering effort designed to improve customer service and
profitability. Based upon the results of that effort, the Board will determine
the viability of each mortgage banking office by considering its profitability
and business prospects.
7
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
SUMMARY FINANCIAL DATA
(dollars in thousands except per share
data)
<TABLE>
<CAPTION>
% Change
Quarter Ended Sept. 30, 1997 from
Sept. 30, March 31, Sept. 30, March 31, Sept. 30,
For the quarter: 1997 1997 1996 1997 1996
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income $ 1,723 $ 240 $ 348 617.92 395.11
Per common share:
Net income .29 .04 .06 625.00 383.33
Dividends declared .15 .15 .15 - -
Book value per share 12.59 11.99 12.17 5.00 3.45
Average common shares outstanding-
fully diluted 5,869 5,715 5,715 2.69 2.69
Profitability ratios: (%)
Return on average assets .81 .12 .19 575.00 326.32
Return on average equity 9.68 1.42 2.08 581.69 365.38
Efficiency ratio 74.68 85.64 89.21 (12.80) (16.29)
Net interest margin - taxable equivalent 4.21 4.23 4.45 (.47) (5.39)
Equity to assets 8.17 8.24 8.65 (.85) (5.55)
At quarter end:
Loans held for sale $ 85,924 $ 62,882 $ 64,465 36.64 (33.29)
Loans receivable, net 548,615 515,749 466,097 6.37 17.70
Reserve for loan losses 6,004 5,198 5,006 15.51 19.94
Assets 872,706 823,882 777,092 5.93 12.30
Deposits 595,115 557,724 533,696 6.70 11.51
FHLB advances and other borrowings 174,966 153,805 147,780 13.76 18.40
Stockholders' equity 71,343 67,874 67,251 5.11 6.08
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPT. 30,
----------------------------------
1997 1996 % CHANGE
<S> <C> <C> <C>
For the six months:
Net income $3,283 $ 2,006 63.66
Per common share:
Net income .56 .35 60.00
Dividends declared .30 .30 -
Average common shares outstanding -
fully diluted 5,869 5,715 2.69
Profitability ratios: (%)
Return on average assets .77 .54 42.59
Return on average equity 9.32 6.00 53.67
Efficiency ratio 72.01 89.21 (19.28)
Net interest margin - taxable equivalent 4.22 4.41 (4.31)
</TABLE>
8
<PAGE> 9
Overview
The Company's net income for the second quarter of fiscal 1998, was
$1,723,000 or $.29 per fully diluted share compared to $348,000 or $.06 per
fully diluted share for the same quarter last year. Net income for the current
six month period, was $3,283,000 or $.56 per fully diluted share compared to
$2,006,000 or $.35 per fully diluted share for the same period last year.
During the second quarter of fiscal 1997, the Company recorded $1,946,000 for
the SAIF assessment. Removing the effects of the assessment, net income would
have been $3,501,000 for the first six months of fiscal 1997, and $1,843,000
for the second quarter of fiscal 1997.
Earnings Highlights
(Six-month period ended September 30, 1997, compared to the six-month period
ended September 30, 1996)
- - Net interest income increased $896,000 or 6.03% to $15,743,000 compared
to the six-month period last year.
- - The interest rate spread decreased to 4.04% during the current period
from 4.16% during the same period last year.
- - Non-interest income increased $1,144,000 or 18.96% to $7,179,000 compared
to the six-month period last year. Increases in mortgage production fees
and service charges were the main contributors to this increase.
- - Return on average shareholders' equity was 9.22% for the current period
compared to 6.00% for the same period a year ago.
- - Return on average assets was .77% for the current period compared to .54%
for the same period a year ago.
- - Non-interest expenses increased $225,000 or 1.34% to $17,046,000 compared
to $16,821,000 in the prior year.
Net Interest Income
Net interest income increased by $425,000 or 5.67% to $7,926,000 in
the second quarter of fiscal 1998 from $7,501,000 for the same quarter last
year. Net interest income increased by $896,000 or 6.03% to $15,743,000 during
the first half of fiscal 1998 from $14,847,000 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)
declined 12 basis points to 4.04% from 4.16% in the same period last year.
Non-Interest Income
Non-interest income increased by $213,000 or 6.13% to $3,690,000 for
the second quarter of fiscal 1998 from $3,477,000 for the same period last
year. In addition, non-interest income increased by $1,144,000 or 18.96% to
$7,179,000 for the first half of fiscal 1998 from $6,035,000 for the same
period last year.
Credit Quality
Total problem assets were $14,448,000 on September 30, 1997, or 1.66%
of total assets compared to 1.51% on March 31, 1997. The reserve for loan
losses totaled $6,004,000 at quarter end, or 41.56% of problem assets, compared
to $5,006,000 or 49.02% one year earlier. During the quarter, the provision for
loan losses was $600,000, exceeding net charge-offs of $357,000. Net
charge-offs for the quarter equaled 0.06% of average loans, a decrease when
compared to 0.18% for the same quarter last year.
Capital Strength
Total shareholders' equity was $71,343,000 on September 30, 1997 or
8.17% of period-end assets.
9
<PAGE> 10
Book value per common share rose to $12.59 at the end of the quarter.
EARNINGS ANALYSIS
Net Interest Income - Quarterly Analysis
Net interest income increased by $425,000 or 5.67% to $7,926,000 in
the second quarter of fiscal 1998 from $7,501,000 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) declined 13 basis points to 4.07% from 4.20% in the same period
last year. The primary reason for the decrease was the increase in the cost of
interest bearing liabilities. Yield on interest earning assets decreased 3
basis points to 9.22% from 9.25% while the cost of interest bearing liabilities
increased 10 basis points to 5.15% from 5.05%.
Interest income received on loans increased $2,033,000 or 15.99% to
$14,748,000 for the second quarter of fiscal 1998 from $12,715,000 in fiscal
1997. 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 declined 16 basis points to 9.68% for the quarter compared to 9.84%
in the same quarter last year. Interest received on mortgage backed securities
decreased $128,000 or 9.16% to $1,270,000 for the second quarter of fiscal 1998
from $1,398,000 in the second quarter of fiscal 1997. Interest received on
securities decreased $209,000 or 12.42% to $1,474,000 in fiscal 1998 from
$1,683,000 in the prior period.
Interest expense increased $1,271,000 or 15.32% to $9,566,000 for the
second quarter of fiscal 1998 from $8,295,000 in the second quarter of fiscal
1997. This is primarily the result of growth in deposits and FHLB advances.
Interest expense on deposits increased $1,078,000 or 17.2% to $7,347,000 from
$6,269,000 in the same period in the prior year. The cost of deposits increased
10 basis points to 4.98% during the quarter from 4.88% in the prior period.
Interest expense on FHLB advances and other borrowings also increased $193,000
or 9.53% to $2,219,000 for the second quarter of fiscal 1998 from $2,026,000 in
the second quarter of fiscal 1997. The Bank's cost of FHLB advances increased
15 basis points to 5.80% from 5.65% 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 $896,000 or 6.03% to $15,743,000
during the first half of fiscal 1998 from $14,847,000 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) declined 12 basis points to 4.04% from 4.16% in the same period
last year. The primary reason for the decrease was the increase in the cost of
interest bearing liabilities. Yield on interest earning assets improved 3 basis
points to 9.18% from 9.15% while the cost of interest bearing liabilities
increased 15 basis points to 5.14% from 4.99%.
Interest income received on loans increased $3,931,000 or 15.79% to
$28,826,000 for the first half of fiscal 1998 from $24,895,000 in fiscal 1997.
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 mortgages held for sale. The yield on the loan
portfolio declined 12 basis points
10
<PAGE> 11
to 9.65% for the first half of fiscal 1998 compared to 9.77% in the same period
last year. Interest received on mortgage backed securities decreased $243,000
or 8.62% to $2,575,000 for the first half of fiscal 1998 from $2,818,000 in the
first half of fiscal 1997. Interest received on securities decreased $265,000
or 7.76% to $3,148,000 in fiscal 1998 from $3,413,000 in the prior period.
Interest expense increased $2,527,000 or 15.52% to $18,806,000 for the
first half of fiscal 1998 from $16,279,000 in the same period of fiscal 1997.
This is primarily the result of growth in deposits and FHLB advances. Interest
expense on deposits increased $1,998,000 or 16.45% to $14,144,000 from
$12,146,000 in the same period in the prior year. The cost of deposits
increased 5 basis points to 4.92% during the period from 4.87% in the prior
period. Interest expense on FHLB advances and other borrowings also increased
$529,000 or 12.80% to $4,662,000 for the first half of fiscal 1998 from
$4,133,000 in the same period of fiscal 1997. The Bank's cost of FHLB advances
increased 51 basis points to 5.93% from 5.42% 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
asserts. The net interest margin decreased to 4.21% for the second quarter of
fiscal 1998 from 4.45% for the second quarter of fiscal 1997. In addition, the
net interest margin decreased to 4.22% for the first half of fiscal 1998 from
4.41% for the first half of fiscal 1997. The following average balance sheets
present the individual components of net interest income and expense, net
interest spread and net interest margin.
The decrease in the net interest margin in the second quarter and
first half of fiscal 1998 was primarily attributable to the increase in the
cost of interest bearing liabilities. The yield earned on average loans during
the second quarter and first half decreased to 9.68% and 9.65% respectively,
compared to 9.84% and 9.77% for the corresponding periods in the prior year.
Average loans outstanding increased $88,198,000 or 17.31% to $597,628,000 for
the first half of fiscal 1998 from $509,430,000 for the same period last year.
This is attributable to the Company's ability to expand its loan portfolio
through originations of construction, consumer and to a lesser extent
commercial loans. In addition, the cost of deposits increased in part due to
the Company's philosophy for attracting transaction accounts. Beginning in June
1997, the Company began offering a new line of savings, checking and money
market accounts which offer more competitive rates. The expanded products and
their rate structure is an attempt to reduce the Company's reliance on short
term FHLB advances which bear a higher interest rate. Average FHLB bank
advances represent 21.49% of average interest bearing liabilities for the first
half of fiscal 1998 compared to 23.41% for the same period last year. The
Company will continue to rely on borrowing from the FHLB as a funding source
and the cost of FHLB advances increased during the second quarter and first
half to 5.80% and 5.93% respectively, compared to 5.65% and 5.42% for the
corresponding periods in the prior year.
11
<PAGE> 12
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, 1997 and 1996:
AVERAGE BALANCE SHEET
Three months ended September 30,
<TABLE>
<CAPTION>
1997 1996
AVERAGE YIELD/ Average Yield/
(dollars in thousands) BALANCE INTEREST COST Balance Interest Cost
- ----------------------------------------------------------------------------------------------------------------------------
Earning Assets
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans(1) $609,656 $14,748 9.68% $516,753 $ 12,715 9.84%
Mortgage-backed securities 70,423 1,270 7.21% 75,556 1,398 7.40%
FHLB stock 8,003 154 7.70% 7,793 143 7.34%
Taxable investments(2) 40,568 790 7.79% 47,478 641 5.40%
Tax-exempt investment securities(2) 30,433 579 7.61% 41,282 1,047 10.14%
Interest earning deposits and Federal funds 5,386 78 5.79% 2,183 36 6.60%
- ----------------------------------------------------------------------------------------------------------------------------
Total interest earning assets 764,469 17,619 9.22% 691,045 15,980 9.25%
Non-interest earning assets 83,421 59,929
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $847,890 $750,974
- ----------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Savings accounts $ 42,221 $ 273 2.59% $ 46,295 $ 284 2.45%
Checking 83,119 338 1.63% 71,078 241 1.36%
Money market 28,595 268 3.75% 19,305 123 2.55%
Certificates of deposit 435,784 6,468 5.94% 377,023 5,621 5.96%
- ----------------------------------------------------------------------------------------------------------------------------
Total deposits 589,719 7,347 4.98% 513,701 6,269 4.88%
Advances and other borrowings 153,154 2,219 5.80% 143,542 2,026 5.65%
- ----------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 742,873 9,566 5.15% 657,243 8,295 5.05%
Non-interest bearing liabilities 33,828 26,845
Stockholders' equity 71,189 66,886
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity $847,890 $750,974
- ----------------------------------------------------------------------------------------------------------------------------
Net interest rate spread $8,053 4.07% $ 7,685 4.20%
Taxable-equivalent adjustment (126) (184)
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income, actual
Net interest earning assets/net interest margin $ 21,596 $7,927 4.21% $ 33,802 $ 7,501 4.45%
Interest earning assets as a percentage of
interest bearing liabilities 102.91% 105.14%
- ----------------------------------------------------------------------------------------------------------------------------
(1)Non-accrual loans are included in average balances and income on such loans, if recognized, is recorded on a cash basis.
(2)The yield for investment securities classified for sale is computed using historical amortized cost balances.
</TABLE>
12
<PAGE> 13
AVERAGE BALANCE SHEET
Six months ended September 30,
<TABLE>
<CAPTION>
1997 1996
AVERAGE YIELD/ Average Yield/
(dollars in thousands) BALANCE INTEREST COST Balance Interest Cost
- ----------------------------------------------------------------------------------------------------------------------------
Earning Assets
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans(1) $597,628 $28,826 9.65% $509,430 $ 24,895 9.77%
Mortgage-backed securities 70,269 2,575 7.33% 76,566 2,818 9.36%
FHLB stock 8,158 320 7.84% 8,234 301 7.31%
Taxable investments(2) 41,597 1,571 7.55% 49,505 1,569 6.34%
Tax-exempt investment securities(2) 32,275 1,284 7.96% 38,205 1,685 8.82%
Interest earning deposits and Federal funds 8,786 246 5.60% 5,282 160 6.06%
- ----------------------------------------------------------------------------------------------------------------------------
Total interest earning assets 758,713 34,822 9.18% 687,222 31,428 9.15%
Non-interest earning assets 78,684 57,715
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $837,397 $744,937
- ----------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Savings accounts $ 44,489 $ 554 2.49% $ 46,511 $ 568 2.44%
Checking 81,057 630 1.55% 69,962 488 1.40%
Money market 25,605 418 3.27% 18,980 242 2.55%
Certificates of deposit 423,769 12,542 5.92% 363,857 10,848 5.96%
- ----------------------------------------------------------------------------------------------------------------------------
Total deposits 574,920 14,144 4.92% 499,310 12,146 4.87%
Advances and other borrowings 157,367 4,662 5.93% 152,587 4,133 5.42%
- ----------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 732,287 18,806 5.14% 651,897 16,279 4.99%
Non-interest bearing liabilities 34,688 26,142
Stockholders' equity 70,422 66,898
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity $837,397 $744,937
- ----------------------------------------------------------------------------------------------------------------------------
Net interest rate spread $16,016 4.04% $ 15,149 4.16%
Taxable-equivalent adjustment (272) (302)
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income, actual $15,744 $ 14,847
Net interest earning assets/net interest margin 26,426 4.22% 35,325 4.41%
Interest earning assets as a percentage of
interest bearing liabilities 103.61% 105.42%
- ----------------------------------------------------------------------------------------------------------------------------
(1)Non-accrual loans are included in average balances and income on such loans, if recognized, is recorded on a cash basis.
(2)The yield for investment securities classified for sale is computed using historical amortized cost balances.
</TABLE>
Non-Interest Income
Non-interest income increased by $213,000 or 6.13% to $3,690,000 for
the second quarter of fiscal 1998 from $3,477,000 for the same period last
year. In addition, non-interest income increased by $1,144,000 or 18.96% to
$7,179,000 for the first half of fiscal 1998 from $6,035,000 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 1998 decreased $177,000
or 7.59% to $2,154,000 compared to $2,331,000 in the same period last year. For
the first half of fiscal 1998, mortgage production fees increased $555,000 or
15.09% to $4,232,000 compared to $3,677,000 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:
13
<PAGE> 14
<TABLE>
<CAPTION>
Three months Ended Six months Ended
Sept.30, Sept.30,
(dollars in thousands) 1997 1996 1997 1996
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage production fees $2,154 $2,331 $4,232 $3,677
Dollar volume sold $162,634 $154,819 $320,007 $311,766
Margin earned 1.32% 1.51% 1.32% 1.18%
</TABLE>
Non-interest income generated from the Company's real estate
subsidiary, Eagle Real Estate Advisors includes gains on the sale of real
estate and real estate commissions. These sources of revenue increased by
$180,000 or 57.69% to $492,000 for the second quarter of fiscal 1998 compared
to $312,000 for the same quarter last year. The primary reason was an increase
in the number of lots sold in the Company's developments. During the current
quarter, 40 lots were sold compared to 26 lots in the second quarter last year.
Service charges increased $132,000 or 30.48% to $565,000 in the second
quarter of fiscal 1998 compared to $433,000 in the second quarter of fiscal
1997. In addition, for the first half service charges increased $265,000 or
31.51% to $1,106,000 compared to $841,000 for the same period last year. This
is the result of growth in the number of checking accounts during the year as
well as the introduction of new product lines in June of 1997 which are
designed to attract higher fee income.
Non-Interest Expense
Non-interest expense decreased by $1,119,000 or 11.43% to $8,675,000
for the second quarter of fiscal 1998 from $9,794,000 for the same period last
year. In addition, for the first half or fiscal 1998 non-interest expense
increased $225,000 or 1.34% to $17,046,000 from $1,621,000 for the same period
last year. During the prior period, the Bank was assessed a one time charge to
replenish the Savings Association Fund. In general the increase in all
categories of non-interest expense is attributable to the Company's rapid
growth. The Company is currently analyzing each line of business to determine
their level of profitability and is in the process of redesigning workflow to
improve efficiencies.
Salaries and employee benefits increased $128,000 or 2.73% to
$4,812,000 for the second quarter of fiscal 1998 from $4,684,000 for the same
period last year. This increase is due to the addition of employees to support
the Company's growth. Occupancy expense increased $214,000 or 25.39% to
$1,057,000 in the second quarter of fiscal 1998 from $843,000 for the same
period last year. Federal insurance premiums decreased $145,000 or 67.44% to
$70,000 for the second quarter of fiscal 1998 from $215,000 for the same period
last year. The decline is due to the reduction of the amount of premiums paid
on deposits from $.23 per one hundred dollar of deposits to $.06 per one
hundred dollar of deposits.
Miscellaneous expenses increased $470,000 or 31.86% to $1,945,000 for
the second quarter of fiscal 1998 from $1,475,000 for the 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 1998, investment securities decreased
to $140,445,000 from $148,828,000 and $166,092,000 at March 31, 1997 and
September 30, 1996, 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
14
<PAGE> 15
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, 1997, was
comprised of $47,732,000 of investment securities held to maturity at amortized
cost compared to $51,907,000 and $63,820,000 at March 31, 1997 and September
30, 1996, respectively. The Company has the ability and it is the 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 $92,713,000 at September 30,1997 compared to $96,921,000 and
$102,272,000 at March 31, 1997 and September 30, 1996, respectively. Investment
securities available for sale had a net unrealized gain as shown in the
Company's stockholders' equity section of $773,000 at September 30, 1997 versus
a net unrealized loss of $1,025,000 at March 31, 1997.
The Company holds no investment securities by any single issuer, other
than those issued by an agency of the United States government, which equaled
or exceeded 10% of stockholders' equity at September 30, 1997, March 31, 1997
or September 30, 1996.
The following table reflects securities held in the Bank's securities
portfolio for the periods indicated:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
- ----------------------------------------------------------------------------------------------------------
(dollars in thousands) September 30, March 31, September 30,
1997 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Securities Held to Maturity:
US Treasury and US Government Agencies $ 24,484 $ 27,780 $ 38,761
Mortgage-backed securities 5,951 6,406 6,900
Corporate bonds 7,430 7,429 7,428
Other debt securities 9,867 10,292 10,731
- ----------------------------------------------------------------------------------------------------------
Total $ 47,732 $ 51,907 $ 63,820
- ----------------------------------------------------------------------------------------------------------
Securities Available for Sale:
US Treasury and US Government Agencies $ 12,572 $ 15,176 $ 17,763
Mortgage-backed securities 61,783 62,352 65,495
Corporate bonds 2,025 2,005 2,015
Other debt securities 3,941 3,970 3,971
Equity securities - preferred stock 12,392 13,418 13,028
- ----------------------------------------------------------------------------------------------------------
Total $ 92,713 $ 96,921 $102,272
- ----------------------------------------------------------------------------------------------------------
Total Investment Securities:
US Treasury and US Government Agencies $ 37,056 $ 42,956 $ 56,524
Mortgage-backed securities 67,734 68,758 72,395
Corporate bonds 9,455 9,434 9,443
Other debt securities 13,808 14,262 14,702
Equity securities - preferred stock 12,392 13,418 13,028
- ----------------------------------------------------------------------------------------------------------
Total $140,445 $148,828 $166,092
- ----------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Loan Portfolio and Concentration % Change
September 30, 1997 from
----------------------------
Sept. 30, March 31, Sept. 30, March 31, Sept. 30,
(dollars in thousands) 1997 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real Estate - construction loans
Construction $228,509 $205,086 $199,039 11.42% 14.81%
Acquisition & Development 35,829 35,408 33,165 1.19% 8.03%
Real Estate - mortgage loans
Non-Residential 37,593 28,764 29,539 30.69 27.27%
Residential 199,627 194,821 175,974 2.47% 13.44%
Home equity and second mortgages 45,760 43,752 40,443 4.59% 13.15%
- ----------------------------------------------------------------------------------------------------------------
Total real estate loans 547,318 507,831 478,160 7.78% 14.46%
Commercial and consumer loans:
Commercial 49,869 52,144 36,818 (4.76%) 35.45%
Leases 13,727 19,939 28,070 (31.16%) (51.10%)
Consumer and other 31,767 23,648 19,391 34.33% 63.82%
- ----------------------------------------------------------------------------------------------------------------
Total commercial and consumer loans 95,363 95,731 84,279 (.38%) 13.15%
- ----------------------------------------------------------------------------------------------------------------
Total gross loans receivable 642,681 603,562 562,439 6.48% 14.27%
- ----------------------------------------------------------------------------------------------------------------
Less:
Undisbursed portion of loans
in process (86,460) (80,801) (90,001) 7.00% (3.93%)
Deferred loan origination fees (1,514) (1,684) (1,732) (10.10%) (12.59%)
Unearned income (147) (212) (276) (30.66%) (46.74%)
Reserves for loan losses (6,004) (5,198) (5,006) 15.51% 19.94%
Unearned discount on
loans purchased 59 82 673 (-28.05%) (91.23%)
- ----------------------------------------------------------------------------------------------------------------
Loans receivable, net $548,615 $515,749 $466,097 6.37% 17.70%
================================================================================================================
</TABLE>
Loan Portfolio and Concentration
The loan portfolio has grown $82,518,000 or 17.70% to $548,615,000 at
September 30, 1997, compared to $466,097,000 at September 30, 1996. Each loan
category showed increases with the exception of leases which declined
$14,343,000 or 51.10% to $13,727,000 down from $28,070,000.
Construction and acquisition and development loans, net of the
undisbursed portion of loans in process, increased $35,675,000 or 25.09% to
$177,873,000 at September 30, 1997, from $142,203,000 at September 30, 1996.
Construction and acquisition and development loans represent 41.13% of gross
loans receivable at September 30, 1997, remaining consistent when compared to
41.28% at September 30, 1996. Residential mortgage loans increased $23,653,000
or 13.44% to $199,627,000 at September 30, 1997 from $175,974,000 at September
30, 1996.
Commercial loans increased $13,051,000 or 35.45% to $49,869,000 at
September 30, 1997 compared to $36,818,000 at September 30, 1996. Consumer
loans increased $12,376,000 or 63.82% to $31,767,000 at September 30, 1997
compared to $19,391,000 at September 30, 1996.
Non-Performing Assets
Total problem assets, which include non-accrual loans, loans
classified as problem assets by Asset Classification Committee (ACC) and real
estate acquired through the settlement of loans, increased by
16
<PAGE> 17
$2,005,000 or 16.11% to $14,448,000 at September 30, 1997 from $12,443,000 at
March 31, 1997. Additionally, total problem assets increased $4,236,000 or
41.48% since the September 30, 1996, level of $10,212,000. Total problem assets
as a percent of total assets increased to 1.66% at September 30, 1997 from
1.51% and 1.31% at March 31, 1997 and September 30, 1996, respectively. The
majority of this increase is attributable to two borrowers. Loans outstanding
including one development loan and three construction loans to one borrower in
Hinesville, Georgia, total $780,000. This borrower brought this obligation to
within 30 days in October 1997. One development loan and two construction loans
to one borrower in Cobb County, Georgia, total $931,000. This borrower has
filed for bankruptcy protection. The Bank anticipates that it will be fully
repaid once the bankruptcy is removed because of an abundance of collateral
value. Interest income not recognized on these loans amounted to $378,000
during the second quarter of fiscal 1998 and $294,000 for the same period last
year. At September 30, 1997, the Company had non-accrual loans of $8,473,000
compared to $7,866,000 at March 31, 1997 and $5,628,000 at September 30, 1996.
At September 30, 1997, the ACC identified $3,483,000 of potential problem
loans, an increase of $980,000 or 39.15% compared to $2,503,000 at March 31,
1997. In addition, potential problem loans increased by $751,000 or 27.49% from
$2,732,000 at September 30, 1996. Real estate owned increased by $418,000 or
20.15% and $640,000 or 34.56% to $2,492,000 at September 30, 1997 from
$2,074,000 and $1,852,000 at March 31, 1997 and September 30, 1996,
respectively.
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.
NON-ACCRUAL, PAST DUE and RESTRUCTURED LOANS
<TABLE>
<CAPTION>
Sept. 30, June 30, March 31, Sept. 30,
(dollars in thousands) 1997 1997 1997 1996
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Non-accrual loans:
Residential real estate-construction $ 2,343 $ 728 $ 1,692 $ 1,778
Residential real estate-mortgage 3,942 3,301 2,934 681
Commercial real estate - - 427 193
Commercial 169 23 93 155
Commercial leases 1,775 2,396 2,508 2,770
Installment 244 333 212 51
-------------------------------------------------------------------------------------------------------
Total non-accrual 8,473 6,781 7,866 5,628
Potential problem loans 3,483 2,630 2,503 2,732
Loans contractually delinquent 90
days which still accrue interest - - - -
Troubled debt restructurings - - - -
-------------------------------------------------------------------------------------------------------
Total non-accrual and problem loans $ 11,956 $ 9,411 $ 10,369 $ 8,360
-------------------------------------------------------------------------------------------------------
Real estate owned, net 2,492 2,267 2,074 1,852
-------------------------------------------------------------------------------------------------------
Total problem assets $ 14,448 $ 11,678 12,443 $ 10,212
-------------------------------------------------------------------------------------------------------
Total problem assets/Total assets 1.66% 1.38% 1.51% 1.31%
-------------------------------------------------------------------------------------------------------
Total problem assets/Net loans plus
reserves 2.61% 2.14% 2.41% 2.17%
-------------------------------------------------------------------------------------------------------
Reserve for loan losses/Total
problem assets 41.56% 49.33% 41.78% 49.02%
-------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
The following table reflects concentrations of non-accrual, potential
problem loans and real estate owned by geographic location and type.
NON-ACCRUAL, POTENTIAL PROBLEM LOANS AND REAL ESTATE OWNED BY LOCATION AND TYPE
<TABLE>
<CAPTION>
At Sept. 30, 1997 Residential
-------------------- Comm'l % of Total
(dollars in thousands) Const Mtgs R-Estate Comm'l Leases Installment Total Location
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-accrual:
Atlanta $ 931 $1,497 - $ 169 $ - $ 238 $ 2,835 19.06%
Augusta 386 811 - - - - 1,197 8.05%
Jacksonville - 50 - - - - 50 0.33%
Hinesville 780 81 - - - - 861 5.79%
Warner Robins 205 - - - - - 205 1.38%
All other locations 41 1,503 - - 1,775 6 3,325 22.35%
- ----------------------------------------------------------------------------------------------------------------------------------
Total non-accrual 2,343 3,942 - 169 1,775 244 8,473 56.96%
- ----------------------------------------------------------------------------------------------------------------------------------
Potential problem loans:
Atlanta 1,567 - 942 238 92 - 2,839 19.09%
Augusta 341 - - - - - 341 2.29%
All other locations 303 - - - - - 303 2.04%
- ----------------------------------------------------------------------------------------------------------------------------------
Total potential problem loans 2,211 - 942 238 92 - 3,483 23.42%
- ----------------------------------------------------------------------------------------------------------------------------------
Real estate owned:
Atlanta 466 56 772 - - - 1,294 8.70%
Augusta 53 87 - - - - 140 0.94%
Jacksonville 333 - - - - - 333 2.24%
Savannah 56 - - - - - 56 0.38%
Hinesville 240 - - - - - 240 1.61%
All other locations 177 679 - - - - 856 5.75%
- ----------------------------------------------------------------------------------------------------------------------------------
Total real estate owned(1) 1,325 822 772 - - - 2,919 19.62%
- ----------------------------------------------------------------------------------------------------------------------------------
Total problem assets by type $ 5,879 $4,764 $1,714 $ 407 $ 1,867 $ 244 $14,875 100.00%
- ---------------------------------------------------------------------------------------------------------------------
% of total problem assets by type 39.52% 32.03% 11.52% 2.74% 12.55% 1.64% 100.00%
- ---------------------------------------------------------------------------------------------------------------------
(1) Does not include reserves of $427,000; real estate owned, net equals
$2,492,000.
</TABLE>
Concentrations to Single Borrowers
The Bank has lease exposure, to one company, of $1,775,000. This
company is the lessor on seven leases and has filed for bankruptcy protection.
The seven leases are a part of the bankruptcy proceedings and the lessees remit
payments to the trustee. The trustee has made settlement offers to the Bank
which have been declined. The Bank also has a combined exposure of $1,703,000
to two borrowers, one in Atlanta, Georgia and one in Hinesville, Georgia. The
borrower located in Atlanta has $931,000 of construction loans and has filed
for bankruptcy protection. The borrower in Hinesville has $780,000 in
construction loans and these loans are in the process of collection. See
Non-performing Assets.
In addition, there are two borrowers with potential problem loans,
both are located in Atlanta, Georgia. One borrower has construction loans
totaling $656,000. These loans are current as of September 30, 1997, with the
exception of one loan which is in the process of collection. The second
borrower has construction loans of $500,000. These loans are current as of
September 30, 1997.
18
<PAGE> 19
Loan Impairment
At September 30, 1997, the recorded investment in impaired loans,
which excludes non-accrual first mortgage loans and residential construction
loans, decreased $5,000 or .28% to $1,775,000 from $1,780,000 at March 31, 1997
and decreased $994,000 or 35.90% from $2,769,000 at September 30, 1996. At
September 30, 1997, March 31, 1997 and September 30, 1996, no impaired loans
were on an accrual basis. At September 30, 1997 and March 31, 1997, the
valuation allowance related to these impaired loans was $453,000 compared to
$1,213,000 at September 30, 1996. At September 30, 1997, March 31, 1997 and
September 30, 1996, all impaired loans had a related loan loss reserve. For the
second quarter and first half of fiscal 1998, the average recorded investment
in impaired loans was $1,778,000 and $1,779,000 compared to $2,771,000 and
$2,772,000 for the same periods a year ago.
The Company uses either the cash or cost recovery method to record cash
receipts on impaired loans that are on non-accrual. 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 $600,000 and $924,000, respectively, of
additional reserves for possible loan losses during the second quarters of
fiscal 1998 and 1997. During the first half of fiscal 1998, the Company set
aside $1,317,000 compared to $1,448,000 for the same period last year. At
September 30, 1997, reserves represented 1.00% of average loans outstanding
remaining stable from 0.98% at September 30, 1996. During the second quarter
and first half of fiscal 1998, the Company charged-off $441,000 and $622,000,
respectively, compared to $991,000 and $2,010,000 for the same periods last
year. In the second quarter and first half of fiscal 1998, charge-offs
represented 0.06% and 0.09% of average loans outstanding, a decrease from 0.18%
and 0.37% for the second quarter and first half of fiscal 1997. Loan loss
reserves totaled $6,004,000 at September 30, 1997 compared to $5,198,000 and
$5,006,000 at March 31, 1997 and September 30, 1996, respectively. Loan loss
reserves to total problem assets decreased to 41.56% at September 30, 1997 from
41.78% at March 31, 1997 and 49.02% at September 30, 1996. An allocation of the
reserve for loan losses has been made according to the respective amounts
deemed necessary to provide for the possibility of incurred losses within the
various loan categories. Although other relevant factors are considered, the
allocation is primarily based on previous charge-off experience adjusted for
risk characteristic changes among each category. Additional reserve amounts are
allocated by evaluating the loss potential of individual loans that management
has considered impaired. The reserve for loan loss allocation is based on
subjective judgment and estimates, and therefore is not necessarily indicative
of the specific amounts or loan categories in which charge-offs may ultimately
occur. 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 borrowers' ability to repay and such
other factors which, 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 tables provide an analysis of the reserve for losses.
19
<PAGE> 20
ANALYSIS OF THE RESERVE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
---------------------------------------------------------------------------
(dollars in thousands) 1997 1996 1997 1996
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Reserve for loan losses, beginning of quarter $ 5,761 $ 5,035 $ 5,198 $ 5,464
Charge-offs:
Real estate - construction 23 - 72 -
Real estate - mortgage 314 30 406 87
Consumer 74 3 137 4
Commercial - - 7 1,919
Commercial leases - 958 - -
- ---------------------------------------------------------------------------------------------------------------------------------
Total charge-offs 411 991 622 2,010
Recoveries 54 38 111 104
- ---------------------------------------------------------------------------------------------------------------------------------
Net charge-offs 357 953 511 1,906
Reserve on purchased loans - - - -
Reserve from acquisitions - - - -
Provision for loan losses 600 924 1,317 1,448
- ---------------------------------------------------------------------------------------------------------------------------------
Reserve for loan losses, end of quarter $ 6,004 $ 5,006 $ 6,004 $ 5,006
- ---------------------------------------------------------------------------------------------------------------------------------
Average loans outstanding for the period $ 609,656 $ 516,753 $ 597,628 $ 509,430
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net charge-offs to average loans .06% .18% .09% .37%
- ---------------------------------------------------------------------------------------------------------------------------------
Reserves to average loans outstanding 0.98% 0.97% 1.00% .98%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Investment in Real Estate
The Company's investment in real estate increased $3,301,000 to
$29,129,000 at September 30, 1997, from $25,828,000 at March 31, 1997 and
increased $14,720,000 from $14,409,000 at September 30, 1996. The Company
currently has six real estate projects in the Atlanta market.
Deposits
Deposits are the Company's primary funding source. Total deposits
increased by $37,391,000 or 6.70% to $595,115,000 from $557,724,000 at March
31, 1997. The Bank uses traditional marketing methods to attract new customers.
Its deposit network is serviced from its fourteen branches in Atlanta. The
growth in deposits was primarily in certificates of deposits which grew 6.83%
to $439,820,000 at September 30, 1997 from $411,703,000 at March 31, 1997.
Demand deposits including noninterest-bearing, interest-bearing, savings and
money market accounts were 26.09% of the Company's deposits at September 30,
1997. The weighted average interest rate on deposits was at 4.93% at September
30, 1997 compared to 4.84% at March 31, 1997 and 5.11% at September 30, 1996.
20
<PAGE> 21
For the periods indicated, deposits are summarized by type and
remaining term as follows:
Deposit Mix
<TABLE>
<CAPTION>
Sept. 30, March 31, Sept. 30,
(dollars in thousands) 1997 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Demand deposits:
Noninterest-bearing deposits $ 32,365 $ 29,843 $ 33,119
Interest-bearing deposits 53,847 48,923 40,453
Money market accounts 28,278 20,902 19,273
Savings accounts 40,805 46,353 45,141
-------------------------------------------
Total demand deposits 155,295 146,021 137,986
-------------------------------------------
Time deposits:
Maturity one year or less 322,756 308,459 291,456
Maturity greater than one year through
two years 33,520 33,155 32,575
Maturity greater than two years through
three years 42,084 29,312 17,961
Maturity greater than three years 41,460 40,777 53,718
-------------------------------------------
439,820 411,703 395,710
-------------------------------------------
Total deposits $595,115 $ 557,724 $ 533,696
-------------------------------------------
</TABLE>
The weighted average interest rate on time deposits for the periods
ended September 30, 1997, March 31, 1997 and September 30, 1996 was 5.89%,
5.84% and 5.86%, respectively.
For the periods indicated, interest expense on deposits is summarized
as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------------------------------------------------
(dollars in thousands) 1997 1996 1997 1996
------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest-bearing deposits $ 338 $ 248 $ 630 $ 488
Money market accounts 234 123 384 241
Savings accounts 264 284 545 568
Time deposits 6,511 5,614 12,585 10,849
------------------------------------------------------------
Total $ 7,347 $ 6,269 $ 14,144 $12,146
------------------------------------------------------------
</TABLE>
Borrowings
The FHLB system functions as a reserve credit facility for thrift
institutions and certain other member institutions. The Bank utilizes advances
from the FHLB to fund a portion of its assets. At September 30, 1997, advances
were $158,640,000 compared to $141,383,000 at March 31, 1997. At September 30,
1997, the weighted average interest rate on these borrowings was 5.87% compared
to 6.80% at March 31, 1997.
21
<PAGE> 22
Liquidity and Capital Resources
Liquidity Management
The Asset and Liability Committee ("ALCO") manages the Company's
liquidity needs to ensure there is sufficient cash flow to satisfy demand for
credit and deposit withdrawals, to fund operations and to meet other Company
obligations and commitments on a timely and cost effective basis. Increases in
core deposits have provided a significant portion of the Company's cash flow
needs and continue to provide a relatively stable, low cost source of funds.
The Company has also experienced significant growth in assets. Total assets
increased $48,824,000 over the previous six months and were primarily funded by
deposits which increased $37,391,000. The Company's other primary funding
source was provided by advances from the Federal Home Loan Bank. At September
30, 1997, advances stood at $158,640,000 or 18.18% of total assets. Under
current regulations, the Bank is required to maintain liquid assets at 5
percent or more of its net withdrawal deposits plus short term borrowings. At
September 30, 1997, the Company's liquidity ratio was 7.19%. At September 30,
1997, the Company had commitments to originate loans of approximately
$21,351,000. The Company had commitments to sell mortgage loans of
approximately $65,500,000 at September 30, 1997.
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 and permanent mortgage loans. Substantially all fixed rate
permanent mortgage and SBA loans are sold to investors. Permanent mortgage loan
originations increased 20.93% to $343,049,000 for the first six months of
fiscal 1998 compared to $283,679,000 for the same period last year. The Company
manages the funding requirements of these loans primarily with short term
advances from the FHLB.
The Bank acquired the assets of Prime Lending Division of Southern
Federal Savings and Loan Association (the "Division") (now a division of
PrimeEagle) from the RTC on November 23, 1992. In connection with this
acquisition, the Bank entered into an operating agreement with a corporation
owned by two individuals who participate in the profits and losses pursuant to
the agreement. Those two individuals currently have raised issues regarding the
calculations of profits and losses. The Company believes its calculations of
profits and losses are proper and in full compliance with the terms of the
operating agreement. Since the Company did not give notice of non-renewal, the
operating agreement will automatically renew on November 23, 1997. In the event
that the Bank ever elects to terminate the agreement, the two individuals have
the right, but not the obligation, to purchase certain assets of the Division
for 75% of their appraised fair market value, upon assuming all obligations
associated with the Division. The specific impact of termination on the
financial condition of the Company, if any, cannot be determined at this time.
On September 19,1997, the Bank hired the employees and acquired
certain assets of the wholesale mortgage operation of Eastern Mortgage
Services, Inc. a subsidiary of Dauphin Deposit Bank and Trust Company. This
wholesale operation originates mortgages with a low fixed cost and provides the
Company an opportunity to leverage its technology and mortgage banking
operations.
The Company is continuing its in-depth assessment of the mortgage
banking group. This includes evaluating each office's profitability, business
prospects, and carefully considering the business potential of each local
market. As a result of this analysis, the Company is undertaking a mortgage
banking re-engineering effort designed to improve customer service and
profitability. Based upon the results of that effort, the Board will determine
the viability of each mortgage banking office by considering its profitability
and business prospects.
22
<PAGE> 23
Cash Flows from Operating Activities
For the first six months of fiscal 1998, the Company used cash from
operating activities of $30,840,000, compared to $21,259,000 cash provided from
operating activities for the same period last year. The primary reason for this
fluctuation is timing differences from the sale of loans held for sale versus
originations of loans held for sale. During the first six months of fiscal
1998, the Company originated $343,049,000 of loans held for sale and sold
$320,007,000 of loans held for sale. This resulted in a $23,042,000 use of
cash. This compares to the same period last year, when the Company originated
$283,679,000 of loans held for sale and sold $311,766,000 of loans held for
sale, resulting in a $28,087,000 source of cash.
Cash Flows from Investing Activities
During the first half of fiscal 1998, the Company used $28,569,000 of
cash for investing activities compared to $66,024,000 for the same period last
year. Loan originations net of repayments represented 116.24% of cash used or
$33,210,000 compared to 58.17% or $38,406,000 for the same period one year ago.
For the first six months of fiscal 1998, purchases of loans receivable
decreased to $569,000 from $18,022,000 for the same period last year. This
represented a 1.99% use of cash for the first six months versus 27.30% for the
same period one year ago. In the first six months of fiscal 1998, there were
$13,000,000 in purchases of investment securities held to maturity and
$1,000,000 in purchases of securities available for sale representing 49.00% of
total cash used for investing activities. Comparatively, for the first six
months of fiscal 1997, the Company purchased $14,288,000 of investment
securities held to maturity and $10,543,000 of securities available for sale
representing 37.61% of cash used in investing activities. In addition, the
Company used $2,456,000 in purchases of premises and equipment, net or 8.60% of
cash used in the first half of fiscal 1998 compared to $4,490,000 or 6.80% for
same period last year.
23
<PAGE> 24
Cash Flows from Financing Activities
Cash provided from financing activities during the first six months of
fiscal 1998, was $56,919,000 compared to $47,943,000 during the same period one
year ago. FHLB advances provided the most significant increase in cash provided
from financing activities. The Company borrowed $184,551,000 from the FHLB and
repaid $166,221,000 during the six months. This compares to borrowings of
$109,339,000 and repayments of $136,008,000 during the same period last year.
The Company's deposits increased by $37,391,000 in the first half of fiscal
1998. The increase is comprised of $28,117,000 of time deposits and $9,274,000
in demand deposits. Comparatively, for the same period one year ago, deposits
increased $75,238,000 comprised of $70,478,000 in time deposits and $4,760,000
in demand deposits. The Company paid cash dividends to its shareholders of
$1,699,000 and $883,000 for the first six months of fiscal 1998 and 1997,
respectively.
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% or higher, a tier one
risk based capital ratio of 6% or higher and a leveraged ratio of 5% or higher.
At September 30, 1997, the Bank was classified as "well capitalized" under the
OTS regulations that implement the FDICIA provisions described above.
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. In fiscal 1997, the Bank paid a dividend in the form of equity
securities to the Company in the amount of $6,094,000.
<TABLE>
<CAPTION>
REGULATORY CAPITAL
- --------------------------------------------------------------------------------------------------------
Regulatory Required Excess
(dollars in thousands) Capital % Capital % Capital %
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
September 30, 1997 Risk-based ratios:
Tier 1 capital $50,654 8.21 $24,691 4.00 $25,963 4.21
Total capital $56,334 9.13 $49,382 8.00 $ 6,952 1.13
Tier 1 leverage $50,654 5.91 $34,283 4.00 $16,371 1.91
Tangible equity $50,654 5.97 $12,718 1.50 $37,936 4.47
- --------------------------------------------------------------------------------------------------------
September 30, 1996
Tier 1 capital $57,092 11.51 $19,844 4.00 $37,248 7.51
Total capital $60,570 12.21 $39,687 8.00 $20,883 4.21
Tier 1 leverage $57,092 7.48 $30,541 4.00 $26,551 3.48
Tangible equity $57,092 7.60 $11,265 1.50 $45,827 6.10
- --------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 25
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
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(11) Computation of per share earnings
(27) Financial Data Schedule (for SEC use only)
Reports on Form 8-K
None
25
<PAGE> 26
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, 1997 /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, 1997 /s/ Richard B. Inman, Jr.
------------------------------------
Richard B. Inman, Jr.
Director, Secretary and Treasurer
Date: November 14, 1997 /s/ Conrad J. Sechler, Jr.
------------------------------------
Conrad J. Sechler, Jr.
Chairman of the Board and President
Date: November 14, 1997 /s/ LuAnn Durden
------------------------------------
LuAnn Durden
Chief Financial Officer
26
<PAGE> 27
EAGLE BANCSHARES, INC.
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page No.
- ------ ----------- --------
<S> <C> <C>
11 Computation of per share earnings 28
27 Financial Data Schedule (for SEC use only)
</TABLE>
27
<PAGE> 1
EXHIBIT 11
EAGLE BANCSHARES, INC.
Statement re: Computation of per share earnings
Weighted average common and common equivalent shares for the three months
ending September 30, 1997 and 1996 are computed as follows:
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996
<S> <C> <C>
Primary:
Net Income per share $ 0.30 $ 0.06
- --------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 5,665,694 5,527,973
Common shares assumed outstanding to
reflect dilutive effect of common stock options 165,606 176,604
- --------------------------------------------------------------------------------------------------------------------
Weighted average shares and common
equivalent shares outstanding 5,831,300 5,704,577
- --------------------------------------------------------------------------------------------------------------------
Fully diluted:
Net Income per share $0.29 $0.06
- --------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 5,665,694 5,527,973
Common shares assumed outstanding to
reflect dilutive effect of common stock options 203,026 151,634
- --------------------------------------------------------------------------------------------------------------------
Weighted average shares and common
equivalent shares outstanding 5,868,720 5,715,151
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Weighted average common and common equivalent shares for the six months ending
September 30, 1997 and 1996 are computed as follows:
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996
<S> <C> <C>
Primary:
Net Income per share $ 0.56 $ 0.35
- --------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 5,665,694 5,527,973
Common shares assumed outstanding to
reflect dilutive effect of common stock options 172,682 176,604
- --------------------------------------------------------------------------------------------------------------------
Weighted average shares and common
equivalent shares outstanding 5,838,376 5,704,577
- --------------------------------------------------------------------------------------------------------------------
Fully diluted:
Net Income per share $0.56 $0.35
- --------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 5,665,694 5,527,973
Common shares assumed outstanding to
reflect dilutive effect of common stock options 203,026 151,634
- --------------------------------------------------------------------------------------------------------------------
Weighted average shares and common
equivalent shares outstanding 5,868,720 5,715,151
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 23,055
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 330
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 92,713
<INVESTMENTS-CARRYING> 47,732
<INVESTMENTS-MARKET> 48,632
<LOANS> 548,615
<ALLOWANCE> 6,004
<TOTAL-ASSETS> 872,706
<DEPOSITS> 595,115
<SHORT-TERM> 174,966
<LIABILITIES-OTHER> 11,896
<LONG-TERM> 0
0
0
<COMMON> 5,967
<OTHER-SE> 65,376
<TOTAL-LIABILITIES-AND-EQUITY> 71,343
<INTEREST-LOAN> 28,826
<INTEREST-INVEST> 3,148
<INTEREST-OTHER> 2,578
<INTEREST-TOTAL> 34,549
<INTEREST-DEPOSIT> 14,144
<INTEREST-EXPENSE> 18,806
<INTEREST-INCOME-NET> 15,743
<LOAN-LOSSES> 600
<SECURITIES-GAINS> (51)
<EXPENSE-OTHER> 8,675
<INCOME-PRETAX> 2,341
<INCOME-PRE-EXTRAORDINARY> 2,341
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,723
<EPS-PRIMARY> .30
<EPS-DILUTED> .29
<YIELD-ACTUAL> 9.18
<LOANS-NON> 8,473
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,483
<ALLOWANCE-OPEN> 5,198
<CHARGE-OFFS> 622
<RECOVERIES> 111
<ALLOWANCE-CLOSE> 6,004
<ALLOWANCE-DOMESTIC> 6,004
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,004
</TABLE>
