<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 period ended December 31, 1996.
-----------------
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 (IRS 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 January 31, 1997
----- -------------------------------
Common Stock, $1.00 Par Value 4,552,200 shares
<PAGE> 2
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
<S> <C>
PART I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income-
Three and Nine months ended December 31, 1996 and 1995 3
Consolidated Statements of Financial Condition at
December 31, 1996 and March 31, 1996 4
Consolidated Statements of Cash Flows -
Nine months ended December 31, 1996 and 1995 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 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 22
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
</TABLE>
2
<PAGE> 3
EAGLE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(Unaudited) December 31, December 31,
(in thousands except per share data) 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest on loans $ 10,850 $ 9,366 $ 31,121 $ 26,832
Interest on mortgage-backed securities 1,324 431 4,058 1,289
Interest on investment securities and other interest earning assets 1,461 1,136 4,136 3,442
- --------------------------------------------------------------------------------------------------------------------
Total interest income 13,635 10,933 39,315 31,563
- --------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 5,343 4,336 15,196 12,289
Interest on borrowings 2,188 1,920 6,268 5,703
- --------------------------------------------------------------------------------------------------------------------
Total interest expense 7,531 6,256 21,464 17,992
- --------------------------------------------------------------------------------------------------------------------
Net interest income 6,104 4,677 17,851 13,571
PROVISION FOR LOAN LOSSES 327 309 1,775 363
- --------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 5,777 4,368 16,076 13,208
- --------------------------------------------------------------------------------------------------------------------
OTHER INCOME:
Mortgage production fees 1,784 2,413 5,444 4,964
Service charges 297 206 783 558
Gain on sale of loans -- -- 25 81
(Loss)/gain on investment securities held for sale (61) -- (61) --
Gain on sale of real estate held for development and sale 197 67 911 412
Miscellaneous 451 295 1,288 1,048
- --------------------------------------------------------------------------------------------------------------------
Total other income 2,668 2,981 8,390 7,063
- --------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES:
Salaries and employee benefits 3,503 3,266 11,067 9,017
Net occupancy expense 762 578 2,094 1,610
Federal insurance premium 238 188 653 517
Marketing expense 377 115 820 344
Data processing 336 260 910 865
Miscellaneous 1,539 915 3,966 2,333
SAIF assessment -- -- 1,946 --
- --------------------------------------------------------------------------------------------------------------------
Total other expenses 6,755 5,322 21,456 14,686
- --------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,690 2,027 3,010 5,585
INCOME TAX EXPENSE 472 594 627 1,825
- --------------------------------------------------------------------------------------------------------------------
NET INCOME $ 1,218 $ 1,433 $ 2,383 $ 3,760
- --------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE $ 0.27 $ 0.45 $ 0.52 $ 1.18
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 4
EAGLE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
(Unaudited) DECEMBER 31, March 31,
(in thousands except per share data) 1996 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and amounts due from banks $ 8,040 $ 7,477
Interest-bearing deposits 447 339
Securities available for sale 78,794 79,512
Investment securities held to maturity 60,407 55,341
Loans held for sale 58,511 92,552
Loans receivable, net 397,749 334,505
Stock in Federal Home Loan Bank, at cost 8,026 8,565
Premises and equipment, net 14,842 11,033
Real estate held for development and sale 26,785 12,962
Real estate acquired in settlement of loans, net 1,642 907
Accrued interest receivable 4,804 4,124
Deferred income taxes 725 597
Other assets 5,394 3,598
- ---------------------------------------------------------------------------------------------
TOTAL ASSETS $ 666,166 $ 611,512
- ---------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $ 415,105 $ 348,098
Advance payments by borrowers for property taxes and insurance 1,199 1,511
Federal Home Loan Bank advances and other borrowings 167,513 173,060
Drafts outstanding 16,831 24,423
Accrued expenses and other liabilities 7,519 7,245
- ---------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 608,167 $ 554,337
- ---------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value, 10,000,000 shares authorized,
4,854,000 shares issued at December 31, and March 31, 1996 4,854 4,854
Additional paid-in capital 28,331 28,331
Retained earnings 27,029 26,696
Net unrealized (loss) gain on securities available for sale, net of (104) (495)
taxes (1,000) (1,000)
Employee Stock Ownership Plan note payable (35) (135)
Unamortized restricted stock (1,076) (1,076)
Treasury stock, 301,800 shares at cost
- ---------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 57,999 57,175
- ---------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 666,166 $ 611,512
- ---------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 5
EAGLE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
(in thousands)
Nine Months ended December 31, 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,383 $ 3,760
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation, amortization and accretion 1,078 899
Provision for loan losses 1,775 363
Provision for losses on real estate owned 45 --
Loss (gain) on sale of real estate acquired in settlement of loans 23 (51)
Gain on sale of real estate held for development and sale (911) (412)
Gain on sale of loans (25) (81)
Loss (gain) on sale of investment securities available for sale 61 --
Amortization of restricted stock award 100 119
Amortization of deferred loan fees (1,676) (1,315)
Proceeds from sale of loans held for sale 430,098 335,557
Originations of loans held for sale (396,057) (358,229)
Changes in assets and liabilities:
(Increase) decrease in accrued interest receivable (680) (909)
Decrease (increase) in other assets (1,827) (1,418)
Increase (decrease) in drafts outstanding (7,592) 6,402
Increase (decrease) in accrued expense and other liabilities (410) 1,182
- -----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 26,385 (14,133)
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities available for sale 940 464
Proceeds from maturities of investment securities held to maturity 10,300 --
Proceeds from calls of investment securities held to maturity 3,000 --
Purchases of investment securities available for sale (3,500) (47,583)
Purchases of investment securities held to maturity (20,588) --
Principal payments received on investments available for sale 3,551 1,770
Principal payments received on investments held to maturity 2,281 2,198
Loan originations, net of repayments (46,708) (10,602)
Purchases of loans receivable (18,022) (1,705)
Proceeds from sale of real estate acquired in settlement of loans 516 405
Purchases of FHLB stock (3,938) (2,416)
Redemption of FHLB stock 4,477 420
Purchases of premises and equipment, net (4,676) (2,910)
Additions to real estate held for development and sale, net (16,188) (4,863)
Proceeds from sale of real estate held for development and sale 3,059 --
- -----------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities $ (85,496) $ (64,822)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 6
EAGLE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
(Unaudited)
(in thousands)
Nine Months ended December 31, 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in time deposits $ 64,170 $ 48,359
Net change in demand deposit accounts 2,837 (2,386)
Repayment of FHLB advances and other borrowings (216,182) (187,864)
Proceeds from FHLB advances and other borrowings 210,635 232,800
Dividends paid (1,366) (1,182)
Principal reduction of ESOP debt -- 11
Proceeds from exercise of stock options -- 182
Increase (decrease) in advance payments from borrowings for
property taxes and insurance (312) (990)
- --------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities 59,782 88,930
- --------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 671 9,975
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 7,816 6,358
- --------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,487 $ 16,333
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------
Transfer of investment securities from held to maturity to
to available for sale $ - $ 1,977
- --------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 7
Eagle Bancshares, Inc. and Subsidiaries
Notes to Interim Unaudited Consolidated Financial Statements
December 31, 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 nine month
period ended December 31, 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 was 65.7 cents per $100 of SAIF insured deposits as of March 31,
1995, which resulted 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.
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 institutions 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 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.
7
<PAGE> 8
D. Recent Developments
On August 13, 1996 Eagle Bancshares, Inc. ("Eagle") and Southern Crescent
Financial Corp 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.
A special meeting of Eagle Bancshares' stockholders was 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. A special meeting of Southern Crescent's
stockholders was held at 4:30 p.m. local time on Monday, December 30, 1996, at
the headquarters of Southern Crescent Financial Corp, 1585b Southlake Parkway,
Morrow, Georgia. At the special meetings both the shareholders' of Eagle
Bancshares and Southern Crescent Financial Corp stock approved the adoption of
the merger agreement and the transactions contemplated thereby.
The acquisition of Southern Crescent will increase Eagle's total assets to
approximately $808 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 and certain other
conditions. The net value of the transaction is expected to be $18 million.
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 for the three and nine month period ended December 31,
1996, was $1,218,000 or $.27 per share and $2,383,000 or $.52 per share,
respectively. This compares to net income for the three and nine month period
ended December 31, 1995, of $1,433,000 or $.45 per share and $3,760,000 or $1.18
per share, respectively. The decline in the Company's quarterly earnings is
attributable to a 10.50% decrease in other income coupled with a 26.92% increase
in other expense. The decline in earnings for the nine month 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> 9
SUMMARY FINANCIAL DATA
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
% Change
Quarter Ended Dec. 1996 to
Dec. 31, Sept. 30, Dec. 31, Sept. 30, Dec. 31,
For the quarter: 1996 1996(1) 1995 1996(1) 1995
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income $ 1,218 $ 1,057 $ 1,433 15.27 (15.00)
Per common share:
Net income .27 .23 .45 15.27 (40.00)
Dividends declared .15 .15 .13 -- 15.38
Book value per share 12.74 12.62 11.91 .95 6.97
Average common shares outstanding 4,552 4,552 3,209 -- 41.85
Profitability ratios: (%)
Return on average assets .75 .68 1.11 1.10 (32.43)
Return on average equity 8.43 7.38 15.77 1.14 (46.54)
Efficiency ratio 77.01 73.87 69.50 4.25 (10.81)
Net interest margin 4.19 4.20 3.96 (.24) (5.81)
Equity to assets 8.71 8.94 6.65 (2.57) (30.97)
At quarter end:
Loans held for sale $ 58,511 $ 64,465 $ 63,973 (9.24) (8.52)
Loans receivable, net 397,749 372,112 316,585 6.89 25.64
Reserve for loan losses 3,863 3,686 3,752 4.80 2.96
Assets 666,166 642,136 558,315 3.74 19.32
Deposits 415,105 412,412 332,288 .65 24.92
FHLB advances 167,513 146,090 164,889 14.66 1.59
Stockholders' equity 57,999 57,438 37,131 .98 56.20
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
Dec. 31,
1996(1) 1995 % Change
------- ------- --------
<S> <C> <C> <C>
For the nine months:
Net Income $ 3,574 $ 3,760 (4.95)
Per common share:
Net Income .79 1.18 (33.05)
Dividends declared .45 .38 18.42
Average common shares outstanding 4,552 3,176 43.32
Profitability ratios:(%)
Return on average assets .76 1.01 (24.75)
Return on average equity 8.28 14.18 (41.61)
Efficiency ratio 74.35 71.17 (4.47)
Net interest margin 4.19 3.98 5.28
</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> 10
Overview
Net income for the third quarter of fiscal 1997 was $1,218,000 compared with
$1,433,000 in the third quarter of fiscal 1996, a decrease of 15.0%. Third
quarter results declined due to a decrease in other income of $313,000 and an
increase in other expense of $1,433,000. Per share earnings for the third
quarter of fiscal 1997 were $.27 per share, compared with $.45 per share in the
third quarter of fiscal 1996, a 40.00% decrease. Earnings per share decreased
due to the 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 nine months of fiscal 1997 was $2,383,000 or $.79 per share
compared to $3,760,000 or $1.18 per share for the same period of fiscal 1996.
The decline is primarily attributable to an increase in the provision for loan
losses.
Return on average assets (ROA) was .75% and .79% in the third quarter and nine
months of fiscal 1997, respectively, compared with 1.11% and 1.01%,
respectively, in the same periods of fiscal 1996. ROA decreased due to the
Company's rapid asset growth. Return on average equity (ROE) was 8.43% and 8.28%
in the third quarter and nine months of fiscal 1997, respectively, compared with
15.77% and 14.18% 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 $6,104,000 and $17,851,000 for the third quarter and
nine months of fiscal 1997, respectively compared with $4,677,000 and
$13,571,000 for the same periods of fiscal 1996. The Company's net interest
margin for the third quarter of 1997 remained stabled compared to the prior
quarter at 4.19%, compared with 3.96% 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 $327,000 and $1,775,000 for the third quarter
and nine months of fiscal 1997, respectively compared with $309,000 and $363,000
for the same periods of fiscal 1996. 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
has consistently declined since June 1996 and were 1.06%, 1.16%, 1.52% and 1.35%
at December 31, 1996, September 30, 1996, June 30, 1996 and March 31, 1996,
respectively.
Non-interest income was $2,668,000 and $8,390,000 for the third quarter and nine
months of fiscal year 1997, respectively compared with $2,981,000 and $7,063,000
for the same periods of fiscal 1996. This represents a 10.50% decrease from the
prior year third quarter and an 18.79% increase over the prior year third
quarter and nine months, respectively. The primary reason was due to an increase
in mortgage production fees and gains on the sale of real estate held for
development and sale.
Non-interest expense was $6,755,000 and $19,510,000 (without consideration of
the SAIF assessment) for the third quarter and nine months of fiscal 1997,
respectively, compared with $5,322,000 and $14,686,000 for the same periods of
fiscal 1996. This represents a 26.93% and 32.85% increase over the prior year
third quarter and nine months, respectively. The primary reason was due to
increases in personnel costs and miscellaneous expense.
EARNINGS ANALYSIS
Net Interest Income - Quarterly Analysis
Net interest income increased by $1,427,000 or 30.51% to $6,104,000 in the third
quarter of fiscal 1997 from $4,677,000 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 31 basis points to 394 basis points from 363 basis points in the same
period last year. The primary reason for the improvement was the decrease in the
cost of interest bearing
10
<PAGE> 11
liabilities. Yield on interest earning assets remained stable at 9.22% during
the current quarter compared to 9.19% for the same period last year. The cost
of interest bearing liabilities declined 23 basis points to 5.28% from 5.51%.
Interest income received on loans increased $1,484,000 or 15.84% to $10,850,000
for the third quarter of fiscal 1997 from $9,366,000 million in fiscal 1996. The
increase in interest received on loans was primarily attributable to growth in
the loan portfolio through originations of residential mortgage loans and home
equity and second mortgage loans. The yield on the loan portfolio improved 21
basis points to 9.72% for the quarter compared to 9.51% in the same quarter last
year. Interest received on mortgage backed securities increased $893,000 or
207.19% to $1,324,000 million for the third quarter of fiscal 1997 from $431,000
in the third 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 $325,000 or 28.61% to $1,461,000 in fiscal 1997
from $1,136,000 in the prior period.
Interest expense increased $1,275,000 or 20.38% to $7,531,000 for the third
quarter of fiscal 1997 from $6,256,000 in the third quarter of fiscal 1996. This
is primarily the result of growth in deposits and FHLB advances. Interest
expense on deposits increased $1,007,000 or 23.22% to $5,343,000 from $4,336,000
in the same period in the prior year. The cost of deposits decreased 12 basis
points to 5.16% during the quarter from 5.28% in the prior period. Interest
expense on FHLB advances and other borrowings also increased $268,000 or 13.96%
to $2,188,000 for the third quarter of fiscal 1997 from $1,920,000 in the third
quarter of fiscal 1996. The Bank's cost of FHLB advances decreased 51 basis
points to 5.61% from 6.12% 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 - Nine Month Analysis
Net interest income increased by $4,280,000 or 31.54% to $17,851,000 during the
nine months of fiscal 1997 from $13,571,000 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 20 basis points to 388 basis points from 368 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
6 basis points to 9.11% from 9.17% while the cost of interest bearing
liabilities declined 26 basis points to 5.23% from 5.49%.
Interest income received on loans increased $4,289,000 or 15.98% to $31,121,000
for the nine months of fiscal 1997 from $26,832,000 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 13
basis points to 9.61% for the nine months of fiscal 1997 compared to 9.48% in
the same period last year. Interest received on mortgage backed securities
increased $2,769,000 or 214.82% to $4,058,000 for the nine months of fiscal 1997
from $1,289,000 in the nine months 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 $694,000 or 20.16% to
$4,136,000 in fiscal 1997 from $3,442,000 in the prior period.
Interest expense increased $3,472,000 or 19.30% to $21,464,000 for the nine
months of fiscal 1997 from $17,992,000 in the same period of fiscal 1996. This
is primarily the result of growth in deposits and FHLB advances. Interest
expense on deposits increased $2,907,000 or 23.66% to $15,196,000 from
$12,289,000 in the same period in the prior year. The cost of deposits decreased
8 basis points to 5.13% during the period from 5.21% in the prior period.
Interest expense on FHLB advances and other borrowings also increased $565,000
or 9.91% to $6,268,000 for the nine months of fiscal 1997 from $5,703,000 in the
same period of fiscal 1996. The Bank's cost of FHLB advances decreased 72 basis
points to 5.49% from 6.21% 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
11
<PAGE> 12
the net interest margin. The net interest margin represents the average net
effective yield on earning assets. The net interest margin increased to 4.19%
for both the third quarter and nine months of fiscal 1997 from 3.96% and 3.98%
for the third quarter and nine months 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 third quarter and nine months of
fiscal 1997 was primarily attributable to the decrease in the cost of interest
bearing liabilities. The yield earned on average loans during the third quarter
and nine months of fiscal 1997 increased to 9.72% and 9.61% respectively,
compared to 9.51% and 9.48% for the corresponding periods in the prior year.
This is attributable to the Company's ability to expand its loan portfolio
through originations of residential mortgage loans, 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 third quarter
and nine months to 5.61% and 5.49% respectively, compared to 6.12% and 6.21% 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 nine
months ended December 31, 1996 and 1995:
AVERAGE BALANCE SHEET
<TABLE>
<CAPTION>
Three months ended December 31, 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* $446,667 $ 10,850 9.72% $394,008 $ 9,366 9.51%
Mortgage-backed securities 71,188 1,324 7.44% 23,329 431 7.39%
FHLB stock 8,007 146 7.29% 6,802 124 7.29%
Taxable investments 26,469 520 7.86% 33,134 558 6.74%
Tax-exempt investment securities 44,820 940 8.39% 20,558 506 9.85%
Interest earning deposits and Federal funds 1,425 19 5.33% 1,364 20 5.87%
- --------------------------------------------------------------------------------------------------------------
Total interest earning assets 598,576 13,799 9.22% 479,195 11,005 9.19%
Non-interest earning assets 51,257 35,998
- --------------------------------------------------------------------------------------------------------------
Total assets $649,833 $515,192
- --------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities
- --------------------------------------------------------------------------------------------------------------
Passbook accounts $ 40,743 257 2.52% $ 41,346 $ 260 2.52%
NOW 34,280 136 1.59% 29,110 125 1.72%
Money market 8,928 49 2.20% 10,370 57 2.20%
Certificates of deposit 330,473 4,901 5.93% 247,671 3,894 6.29%
- --------------------------------------------------------------------------------------------------------------
Total deposits 414,424 5,343 5.16% 328,497 4,336 5.28%
Advances 155,963 2,188 5.61% 125,447 1,920 6.12%
- --------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 570,387 7,531 5.28% 453,945 6,256 5.51%
Non-interest bearing liabilities 21,651 24,901
Stockholders' equity 57,795 36,347
- --------------------------------------------------------------------------------------------------------------
Total liabilities and equity $649,833 $515,192
- --------------------------------------------------------------------------------------------------------------
Net interest rate spread $ 6,268 3.94% $ 4,749 3.63%
Taxable-equivalent adjustment (164) (72)
- --------------------------------------------------------------------------------------------------------------
Net interest income, actual $ 6,104 $ 4,677
Net interest earning assets/net interest margin $ 28,188 4.19% $ 25,250 3.96%
Interest earning assets as a percentage of
interest bearing liabilities 104.94% 105.56%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
*Non-accrual loans are included in average balances and income on such loans, if
recognized, is recorded on a cash basis.
12
<PAGE> 13
AVERAGE BALANCE SHEET
<TABLE>
<CAPTION>
Nine months ended December 31, 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* $432,004 $ 31,121 9.61% $377,498 $ 26,832 9.48%
Mortgage-backed securities 72,996 4,058 7.41% 23,198 1,289 7.41%
FHLB stock 7,959 433 7.25% 6,543 357 7.28%
Taxable investments 27,093 1,567 7.71% 33,350 1,860 7.44%
Tax-exempt investment securities 40,410 2,498 8.24% 20,470 1,396 9.09%
Interest earning deposits and Federal funds 1,420 63 5.92% 1,194 53 5.92%
- --------------------------------------------------------------------------------------------------------------
Total interest earning assets 581,882 39,740 9.11% 462,251 31,787 9.17%
Non-interest earning assets 46,217 32,924
- --------------------------------------------------------------------------------------------------------------
Total assets $628,099 $495,175
- --------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities
- --------------------------------------------------------------------------------------------------------------
Passbook accounts $ 41,572 $ 777 2.49% $ 42,157 $ 793 2.51%
NOW 33,879 405 1.59% 28,343 368 1.73%
Money market 8,996 148 2.19% 22,175 180 1.08%
Certificates of deposit 310,474 13,866 5.95% 221,823 10,948 6.58%
- --------------------------------------------------------------------------------------------------------------
Total deposits 394,921 15,196 5.13% 314,498 12,289 5.21%
Advances 152,358 6,268 5.49% 122,539 5,703 6.21%
- --------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 547,279 21,464 5.23% 437,037 17,992 5.49%
Non-interest bearing liabilities 23,262 22,790
Stockholders' equity 57,559 35,348
- --------------------------------------------------------------------------------------------------------------
Total liabilities and equity $628,099 $495,175
- --------------------------------------------------------------------------------------------------------------
Net interest rate spread $ 18,276 3.88% $ 13,795 3.68%
Taxable-equivalent adjustment (425) (224)
- --------------------------------------------------------------------------------------------------------------
Net interest income, actual $ 17,851 $ 13,571
Net interest earning assets/net interest margin $ 34,604 4.19% $ 25,214 3.98%
Interest earning assets as a percentage of
interest bearing liabilities 106.32% 105.77%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
*Non-accrual loans are included in average balances and income on such loans, if
recognized, is recorded on a cash basis.
Non-Interest Income
Non-interest income decreased by $313,000 or 10.50% to $2,668,000 for the third
quarter of 1997 from $2,981,000 for the same period last year. In addition,
non-interest income increased by $1,327,000 or 18.79% to $8,390,000 for the nine
months of fiscal 1997 from $7,063,000 for the same period last year.
Mortgage production fees are the largest component of non-interest income and
such fees for the third quarter of fiscal 1997 decreased $629,000 or 26.07% to
$1,784,000 compared to $2,413,000 in the same period last year. For the nine
months of fiscal 1997, mortgage production fees increased $480,000 or 9.67% to
$5,444,000 compared to $4,964,000 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.
13
<PAGE> 14
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 Nine months Ended
Dec. 31, Dec. 31,
(dollars in thousands) 1996 1995 1996 1995
----------------------------------------------
<S> <C> <C> <C> <C>
Mortgage production fees $ 1,784 $ 2,413 $ 5,444 $ 4,964
Dollar volume sold $118,332 $148,828 $430,098 $335,557
Margin earned 1.51% 1.62% 1.27% 1.48%
</TABLE>
Gain on the sale of real estate held for development and sale increased $130,000
to $197,000 for the third quarter of fiscal 1997 compared to $67,000 in the same
period last year. During the current quarter 39 lots were sold compared to 31
lots in the third quarter last year. In addition, gain on the sale of real
estate held for development and sale increased $499,000 or 121.12% to $911,000
for the nine months of fiscal 1997 compared to $412,000 in the same period last
year. For the nine months of fiscal 1997, 110 lots have been sold compared to 76
in the prior period.
Service charges increased $91,000 or 44.17% to $297,000 in the third quarter of
fiscal 1997 compared to $206,000 in the third quarter of fiscal 1996. In
addition, for the nine months service charges increased $225,000 or 40.32% to
$783,000 compared to $558,000 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 increased by $1,433,000 or 26.93% to $6,755,000 for the
third quarter of 1997 from $5,322,000 for the same period last year. In
addition, non-interest expense, not including the SAIF assessment, increased by
$4,824,000 or 32.85% to $19,510,000 for the nine months of fiscal 1997 from
$14,686,000 for the same period last year.
The Company's efficiency ratio was 77.01% and 74.35% for the third quarter and
nine months of fiscal 1997, compared to 69.50% and 71.17% 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 five loan origination
branches, one in Cumming, Georgia and one in Athens, Georgia, one in Charlotte,
North Carolina, one in Nashville, Tennessee and another in Knoxville, Tennessee.
Salaries and employee benefits increased $237,000 or 7.26% to $3,503,000 for the
third quarter of fiscal 1997 compared to $3,266,000 for the same period last
year. In addition, salaries and employee benefits increased $2,050,000 or 22.73%
to $11,067,000 for the third quarter of fiscal 1997 compared to $9,017,000 for
the same period last year. This increase is due to the addition of employees to
support the Company's growth. Occupancy expense increased $184,000 or 31.83% to
$762,000 for the third quarter of fiscal 1997 compared to $578,000 for the same
period last year. In addition, occupancy expense increased $484,000 or 30.06% to
$2,094,000 for the nine months of fiscal 1997 compared to $1,610,000 for the
same period last year. Marketing expense increased $262,000 or 227.83% to
$377,000 for the third quarter of 1997 from $115,000 for the same period last
year. In addition, marketing expense increased $476,000 or 138.27% to $820,000
for the nine months of 1997 compared to $344,000 for the same period last year.
The increase is due to a more aggressive marketing campaign. 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 $624,000 or 68.20% to $1,539,000 for the third
quarter of fiscal 1997 from $915,000 for the same period last year. In addition,
miscellaneous expenses increased $1,633,000 or 70.00% to $3,966,000 for the nine
months of fiscal 1997 compared to $2,333,000 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.
14
<PAGE> 15
BALANCE SHEET ANALYSIS
Investment Securities
For the nine months ended December 31, 1996, investment securities increased to
$139,201,000 from $134,853,000 and $122,819,000 at March 31, 1996 and December
31, 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 December 31, 1996, was comprised of
$60,407,000 of investment securities held to maturity at amortized cost compared
to $55,341,000 and $53,545,000 at March 31, 1996 and December 31, 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 $78,794,000 at
December 31, 1996 compared to $79,512,000 and $69,274,000 at March 31, 1996 and
December 31, 1995, respectively. On December 31, 1996, one equity security was
called and the Company realized a loss of $61,000. Investment securities
available for sale had a net unrealized loss as shown in the Company's
stockholders' equity section of $104,000 at December 31, 1996 versus $495,000 at
March 31, 1996.
Included in other securities at December 31, 1996 and March 31, 1996, are $2.9
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 December 31, 1996, March 31, 1996 or December 31, 1995.
The following table reflects securities held in the Bank's securities portfolio
for the periods indicated:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
- -----------------------------------------------------------------------------
(dollars in thousands) Dec. 31, March 31, Dec. 31,
1996 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Securities Held to Maturity:
US Treasury and US Government Agencies $ 35,777 $ 27,450 $ 24,884
Mortgage-backed securities 6,700 8,087 8,613
Corporate bonds 7,429 8,420 8,416
Other debt securities 10,501 11,384 11,632
- -----------------------------------------------------------------------------
Total $ 60,407 $ 55,341 $ 53,545
- -----------------------------------------------------------------------------
Securities Available for Sale:
Mortgage-backed securities $ 64,445 $ 67,855 $ 60,480
Corporate Bonds 2,020 2,028 2,079
Equity securities - preferred stock 12,329 9,629 6,715
- -----------------------------------------------------------------------------
Total $ 78,794 $ 79,512 $ 69,274
- -----------------------------------------------------------------------------
Total Investment Securities:
US Treasury and US Government Agencies $ 35,777 $ 27,450 $ 24,884
Mortgage-backed securities 71,145 75,942 69,093
Corporate bonds 9,449 10,448 10,495
Other debt securities 10,501 11,384 11,632
Equity securities 12,329 9,629 6,715
- -----------------------------------------------------------------------------
Total $139,201 $134,853 $122,819
- -----------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
Loan Portfolio and Concentration
Loans receivable, net, including loans held for sale, increased $75,703,000 to
$456,261,000 at December 31, 1996 compared to $380,558,000 at December 31, 1995.
The primary reason is due to the increase in residential first mortgage loans,
home equity and second mortgage loans, construction, and acquisition and
development loans. Loans receivable, net, including loans held for sale, at
December 31, 1996, increased $29,204,000 or 6.84% since March 31, 1996. While
the total change was not significant, the Company's mix has shifted with
increases in residential mortgage loans of $35,361,000 or 23.21%, as well as
home equity and second mortgage loans of $24,201,000 or 168.79%. Decreases
occurred in loans held for sale of $34,561,000 or 37.34% and leases of
$13,577,000 or 35.70%.
LOAN PORTFOLIO MIX
<TABLE>
<CAPTION>
% Change
Dec. 31,1996 from
Dec. 31, March 31, Dec. 31, March 31, Dec. 31,
(dollars in thousands) 1996 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real Estate - construction loans
Construction $160,039 $158,670 $144,131 0.86 11.04
Acquisition & Development 34,459 30,419 29,165 13.28 18.15
Real Estate - mortgage loans
Non-Residential 16,197 15,176 14,952 6.73 8.33
Residential 187,692 152,331 141,226 23.21 32.90
Home equity and second mortgages 38,539 14,338 12,390 168.79 211.05
Loans held for sale 57,991 92,552 63,675 (37.34) (8.93)
- ------------------------------------------------------------------------------------------------
Total real estate loans 494,917 463,486 405,539 6.78 22.04
- ------------------------------------------------------------------------------------------------
Other loans:
Leases 24,455 38,032 40,057 (35.70) (38.95)
Consumer and other 10,268 4,101 3,495 150.38 193.79
- ------------------------------------------------------------------------------------------------
Total other loans 34,723 42,133 43,552 (17.59) (20.27)
- ------------------------------------------------------------------------------------------------
Total gross loans receivable 529,640 505,619 449,091 4.75 17.94
- ------------------------------------------------------------------------------------------------
Less:
Undisbursed portion of loans
in process (68,272) (73,121) (62,742) (6.63) 8.81
Deferred loan origination fees (1,482) (1,409) (1,457) 5.18 1.72
Unearned income (235) (384) (434) (38.80) (45.85)
Reserves for loan losses (3,863) (4,176) (3,752) (7.50) 2.96
Premium/(discount) on loans purchased 473 528 (148) (10.42) (419.59)
- ------------------------------------------------------------------------------------------------
Loans receivable, net* $456,261 $427,057 $380,558 6.84 19.89
================================================================================================
</TABLE>
*Includes Loans Held for Sale
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, decreased $1,196,000 or 14.49% to $7,058,000 at
December 31, 1996, from $8,254,000 at March 31, 1996. Additionally, total
problem assets decreased $371,000 or 4.99% and $2,369,000 or 25.13% from
$7,429,000 at September 30, 1996, and $9,427,000
16
<PAGE> 17
at June 30, 1996. At December 31, 1996, the Company had non-accrual loans of
$4,229,000 compared to $6,002,000 at March 31, 1996 and $5,422,000 at September
30, 1996. Interest income not recognized on these loans amounted to $175,000
during the nine months of fiscal 1997. Approximately 64.0% of all non-accrual
loans were represented by equipment leases, 30.27% by mortgage loans, 3.85% by
construction loans and the balance by consumer loans. In addition, at December
31, 1996, the ACC identified $1,187,000 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 $735,000 or 81.04% to $1,642,000 at
December 31, 1996, from $907,000 at March 31, 1996. Total problem assets as a
percent of total assets decreased to 1.06% at December 31, 1996, from 1.35% at
March 31, 1996 and from 1.16% at September 30, 1996.
At December 31, 1996, three lease relationships were on non-accrual. The Company
has total lease exposure of $1,803,000 to one company who is the lessor on seven
leases. This company has filed for bankruptcy protection and the seven leases
are a part of the bankruptcy proceedings. The remaining two relationships
represent $902,000 and $1,300. At December 31, 1996, potential problem loans
represented five construction loans or $824,000 and two equipment leases or
$363,000.
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.
NON-ACCRUAL, PAST DUE and RESTRUCTURED LOANS
<TABLE>
<CAPTION>
Dec. 31, Sept. 30, June 30, March 31, Sept. 30, Dec. 31,
(dollars in thousands) 1996 1996 1996 1996 1995 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans:
Residential real estate-construction $ 163 $1,778 $3,065 $1,658 $ 114 $ 692
Residential real estate-mortgage 1,280 642 1,018 502 549 1,581
Commercial real estate -- 193 128 421 -- --
Commercial lease 2,706 2,770 3,751 3,421 10 --
Installment 80 39 6 -- 20 --
- ------------------------------------------------------------------------------------------------
Total non-accrual 4,229 5,422 7,968 6,002 693 2,273
- ------------------------------------------------------------------------------------------------
Potential problem loans 1,187 592 432 1,345 546 2,152
Loans contractually delinquent 90
days which still accrue interest -- -- -- -- -- --
Troubled debt restructurings -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------
Total non-accrual and problem loans $5,416 $6,014 $8,400 $7,347 $1,239 $4,425
- ------------------------------------------------------------------------------------------------
Real estate owned, net 1,642 1,415 1,027 907 541 439
- ------------------------------------------------------------------------------------------------
Total problem assets $7,058 $7,429 $9,427 $8,254 $1,781 $4,864
- ------------------------------------------------------------------------------------------------
Total problem assets/Total assets 1.06% 1.16% 1.52% 1.35% .34% .87%
- ------------------------------------------------------------------------------------------------
Total problem assets/Net loans plus
reserves 1.76% 1.98% 2.79% 2.44% .53% 1.52%
- ------------------------------------------------------------------------------------------------
Reserve for loan losses/Total
problem assets 54.73% 49.62% 39.55% 50.59% 193.99% 77.13%
- ------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
Loan Impairment
At December 31, 1996, the recorded investment in impaired loans, which excludes
non-accrual first mortgage loans and residential construction loans, was
$2,705,000 compared to $3,526,000 and $1,887,000 at March 31, 1996, and December
31, 1995, respectively. At December 31, 1996, and March 31, 1996, all impaired
loans were on a non-accrual basis versus all impaired loans on an accrual basis
at December 31, 1995. At December 31, 1996, the valuation allowance related to
these impaired loans was $1,152,000 compared to $1,153,000 and $281,000 at March
31, 1996, and December 31, 1995, respectively. At December 31, 1996, March 31,
1996 and December 31, 1995, all loans had a related loan loss reserve. During
the quarter and nine months ended December 31, 1996, the Company charged-off
$57,000 and $2,004,000 against loss reserves related to impaired leases,
respectively. For the third quarter and nine months of fiscal 1997, the average
recorded investment in impaired loans was $2,707,000 and $2,711,000,
respectively, and $1,884,000 and $1,413,000 for the third quarter and nine
months of fiscal 1996, respectively. The Company recognized interest income on
impaired loans of $45,000 for the third quarter and nine months of fiscal 1997,
of which all remains uncollected, compared to $61,000 and $111,000 for the same
periods last year.
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 $327,000 of additional reserves for possible loan losses
during the third quarter of fiscal 1997 while $309,000 of additional reserves
were set aside for the same period last year. In addition, the Company provided
$1,775,000 of additional reserves for loan losses during the nine months of
fiscal 1997 compared to $363,000 for the same period last year. During the third
quarter and nine months of fiscal 1997, the Company charged-off $185,000 and
$2,180,000, respectively, therefore, loan loss reserves totaled $3,863,000 at
December 31, 1996. At December 31, 1996, reserves represented .97% of loans
receivable, net, decreasing from 1.18% at December 31, 1995. Loan loss reserves
to total problem assets remained consistent at 54.01% at December 31, 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> 19
ANALYSIS OF THE RESERVE FOR LOAN LOSSES
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Dec. 31, Dec. 31,
-----------------------------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Reserve for loan losses, beginning of period $ 3,686 $ 3,455 $ 4,176 $ 3,362
Charge-offs:
Real estate - construction 54 -- 54 --
Real estate - mortgage 14 1 91 18
Consumer 30 19 31 19
Commercial leases 87 -- 2,004 --
- -----------------------------------------------------------------------------------------------------
Total charge-offs 185 20 2,180 37
Recoveries 35 8 92 64
- -----------------------------------------------------------------------------------------------------
Net charge-offs 150 12 2,088 (27)
Provision for loan losses 327 309 1,775 363
- -----------------------------------------------------------------------------------------------------
Reserve for loan losses, end of period $ 3,863 $ 3,752 $ 3,863 $ 3,752
- -----------------------------------------------------------------------------------------------------
Loan receivable, net $397,749 $316,883 $397,749 $ 316,883
- -----------------------------------------------------------------------------------------------------
Ratio of net charge-offs to loans receivable, net .0377% .0038% .5250% (.0085)%
- -----------------------------------------------------------------------------------------------------
Reserves to loans receivable, net 0.97% 1.18% 0.97% 1.18%
- -----------------------------------------------------------------------------------------------------
</TABLE>
Real Estate Held for Development and Sale
The Company's investment in real estate held for development and sale increased
$14,890,000 or 125.18% since December 31, 1995. The Company currently has five
projects in the Atlanta market classified as real estate held for development
and sale. Three are single family real estate development projects which are in
various stages of development. The fourth is a low income housing development
which is complete. The Company is a limited partner and the project was
undertaken primarily for the benefit of receiving low income housing tax
credits. The fifth project, the development of a commercial property, is also
complete and occupied by a lessor.
Deposits
Deposits are the Company's primary funding source. During the nine months of
fiscal 1997, total deposits increased $67,007,000 or 19.25% to $415,105,000 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 ten branches in
Atlanta. The growth in deposits was primarily in certificates of deposit with
maturities of one year or less which grew 38.48% to $242,205,000 at December 31,
1996 from $174,908,000 at March 31, 1996. Demand deposits including NOW
accounts, passbook accounts and money market accounts were 20.33% of the
Company's deposits at December 31, 1996. The weighted average interest rate on
deposits remained relatively stable at 5.10% at December 31, 1996 and 5.08% and
5.19% at March 31, 1996 and December 31, 1995, respectively.
19
<PAGE> 20
For the periods indicated, deposits are summarized by type and remaining term as
follows (dollars in thousands):
DEPOSIT MIX
<TABLE>
<CAPTION>
Weighted Average
Interest Rate at
--------------------------
DEC. 31, March 31, Dec. 31, Dec. 31, March 31, Dec. 31,
1996 1996 1995 1996 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Demand deposits:
NOW accounts $ 35,600 $ 33,603 $ 30,603 1.67% 1.74% 1.74%
Money market accounts 7,788 8,418 8,380 2.49% 2.50% 2.49%
Passbook accounts 40,988 42,845 41,470 2.53% 2.53% 2.53%
-------------------------------
84,376 84,866 80,453 2.17% 2.21% 2.23%
-------------------------------
Time deposits:
Maturity one year or less 242,205 174,908 166,140
Maturity greater than one year through
two years 23,513 26,268 24,233
Maturity greater than two years
through three years 20,201 14,867 14,684
Maturity greater than three years 44,810 47,189 46,778
-------------------------------
330,729 263,232 251,835 5.84% 6.00% 6.12%
-------------------------------
Total deposits $415,105 $348,098 $332,288 5.10% 5.08% 5.19%
-------------------------------
</TABLE>
For the periods indicated, interest expense on deposits is summarized as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Dec. 31, Dec. 31,
1996 1995 1996 1995
---------------------------------------------
<S> <C> <C> <C> <C>
NOW accounts $ 136 $ 125 $ 405 $ 368
Money market accounts 49 57 148 180
Passbook accounts 257 260 777 793
Time Deposits 4,901 3,894 13,866 10,948
---------------------------------------------
$ 5,343 $ 4,336 $15,196 $12,289
---------------------------------------------
</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 December 31, 1996, advances
and other borrowings were $167,513,000 down from $173,060,000 at March 31, 1996.
For the third quarter of fiscal 1997, the weighted average interest rate on
these borrowings decreased to 5.61% down from 5.70% and 6.12% for the quarters
ended March 31, 1996 and December 31, 1995, respectively.
20
<PAGE> 21
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 December 31, 1996, the Company's liquidity ratio was 5.5%.
The Company, through PrimeEagle Mortgage, originates first mortgage loans which
generally are sold to investors. During the nine month period, permanent
mortgage loan originations increased by 10.6% to approximately $396,057,000
compared to $358,229,000 for the same period last year. At December 31, 1996,
the Company had outstanding commitments to originate loans, exclusive of the
undisbursed portion of loans in process, of approximately $21,659,000 compared
to $19,156,000 at December 31, 1995. Commitments to sell mortgage loans
decreased to approximately $35,239,000 at December 31, 1996 from $41,148000 at
December 31, 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.
<TABLE>
<CAPTION>
REGULATORY CAPITAL
- ----------------------------------------------------------------------------------
Regulatory Required Excess
(dollars in thousands) Capital % Capital % Capital %
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996
Tangible Capital $43,746 6.7 $ 9,743 1.5 $34,003 5.1
Core Capital $43,746 6.7 $19,486 3.0 $24,260 3.7
Risk-based Capital $47,462 11.6 $32,813 8.0 $14,649 3.6
- ----------------------------------------------------------------------------------
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 $35,500 5.9
Risk-based Capital $56,783 15.8 $28,842 8.0 $27,941 7.8
- ----------------------------------------------------------------------------------
December 31, 1995
Tangible Capital $32,793 6.0 $ 8,231 1.5 $24,562 4.5
Core Capital $32,793 6.0 $16,461 3.0 $16,332 3.0
Risk-based Capital $36,171 10.6 $27,359 8.0 $ 8,812 2.6
- ----------------------------------------------------------------------------------
</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.
21
<PAGE> 22
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
A special meeting of Eagle Bancshares' stockholders
was 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. At the special meeting the shareholder's of
Eagle Bancshares stock approved the adoption of the merger
agreement and the transactions contemplated thereby.
Voting for 3,235,366 70.91%
Voting against 17,929 .39%
Abstaining 8,792 .19%
Total 3,262,087 71.49%
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
27 Financial Data Schedule (for SEC use only)
Reports on Form 8-K
None
22
<PAGE> 23
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: February 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: February 14, 1997 /s/Richard B. Inman, Jr.
------------------------
Richard B. Inman, Jr.
Director, Secretary and Treasurer
Date: February 14, 1997 /s/ Conrad J. Sechler, Jr.
--------------------------
Conrad J. Sechler, Jr.
Chairman of the Board and President
Date: February 14, 1997 /s/ LuAnn Durden
--------------------------
LuAnn Durden
Chief Financial Officer
23
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 8,040
<INT-BEARING-DEPOSITS> 447
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 78,794
<INVESTMENTS-CARRYING> 60,407
<INVESTMENTS-MARKET> 61,119
<LOANS> 397,749
<ALLOWANCE> 3,863
<TOTAL-ASSETS> 666,166
<DEPOSITS> 415,105
<SHORT-TERM> 0
<LIABILITIES-OTHER> 7,519
<LONG-TERM> 0
0
0
<COMMON> 4,854
<OTHER-SE> 53,145
<TOTAL-LIABILITIES-AND-EQUITY> 666,166
<INTEREST-LOAN> 31,121
<INTEREST-INVEST> 4,136
<INTEREST-OTHER> 4,058
<INTEREST-TOTAL> 39,315
<INTEREST-DEPOSIT> 15,196
<INTEREST-EXPENSE> 6,268
<INTEREST-INCOME-NET> 17,851
<LOAN-LOSSES> 1,775
<SECURITIES-GAINS> (61)
<EXPENSE-OTHER> 21,456
<INCOME-PRETAX> 3,010
<INCOME-PRE-EXTRAORDINARY> 3,010
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,383
<EPS-PRIMARY> .52
<EPS-DILUTED> .52
<YIELD-ACTUAL> 9.22
<LOANS-NON> 4,229
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,187
<ALLOWANCE-OPEN> 4,176
<CHARGE-OFFS> 2,180
<RECOVERIES> 92
<ALLOWANCE-CLOSE> 3,863
<ALLOWANCE-DOMESTIC> 3,863
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
