<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 June 30, 1999
-------------
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.)
4419 Cowan Road, 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 [X] 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 July 31, 1999
----------------------------- ----------------------------
Common Stock, $1.00 Par Value 5,573,514 shares
Index of Exhibit on Page 35
<PAGE> 2
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
<S> <C>
PART I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition at
June 30, 1999 and March 31, 1999 3
Consolidated Statements of Income -
Three months ended June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows -
Three months ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II. Other Information
Item 1. Legal Proceedings 32
Item 2. Changes in Securities 33
Item 3. Defaults upon Senior Securities 33
Item 4. Submission of Matters to a Vote of Security Holders 33
Item 5. Other Information 33
Item 6. Exhibits and Reports on Form 8-K 33
Signatures 34
Index of Exhibits 35
</TABLE>
2
<PAGE> 3
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, March 31,
(in thousands except per share data) 1999 1999
ASSETS
<S> <C> <C>
ASSETS:
Cash and amounts due from banks $ 23,327 $ 27,839
Accrued interest receivable 7,691 7,766
Securities available for sale 191,930 204,618
Investment securities held to maturity 74,196 68,298
Loans held for sale 196,590 221,370
Loans receivable, net 645,147 623,270
Investments in real estate 29,423 30,274
Real estate acquired in settlement of loans, net 1,833 2,096
Stock in Federal Home Loan Bank, at cost 10,652 8,736
Premises and equipment, net 23,022 23,275
Deferred income taxes 6,419 4,059
Other assets 7,080 8,399
------------ ------------
Total assets $ 1,217,310 $ 1,230,000
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $ 803,763 $ 879,665
Federal Home Loan Bank advances and other borrowings 277,723 221,552
Advance payments by borrowers for property taxes and insurance 2,594 2,356
Drafts outstanding 23,595 12,800
Guaranteed preferred beneficial interests in debentures 28,750 28,750
Accrued expenses and other liabilities 7,358 10,060
------------ ------------
Total liabilities 1,143,783 1,155,183
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; 10,000,000 shares authorized,6,128,064
and 6,037,100 shares issued at June 30, and March 31, 1999, 6,128 6,124
respectively 38,247 38,206
Additional paid-in capital 40,150 38,601
Retained earnings (3,225) (283)
Accumulated other comprehensive income (1,950) (1,978)
Employee Stock Ownership Plan note payable (148) (178)
Unamortized restricted stock
Treasury stock, 554,550 and 301,800 shares at cost at June 30,
and March 31, 1999, respectively (5,675) (5,675)
------------ ------------
Total stockholders' equity 73,527 74,817
------------ ------------
Total liabilities and stockholders' equity $ 1,217,310 $ 1,230,000
------------ ------------
</TABLE>
3
<PAGE> 4
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
JUNE 30, June 30,
(in thousands except per share data) 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME:
Interest on loans $ 16,817 $ 18,357
Interest on mortgage-backed securities 2,022 1,271
Interest and dividends on securities and other interest-earning assets 2,487 1,806
- ---------------------------------------------------------------------------------------------------------------
Total interest income 21,326 21,434
- ---------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 9,669 10,400
Interest on FHLB advances and other borrowings 2,880 3,006
Interest on long-term debt 622
- ---------------------------------------------------------------------------------------------------------------
Total interest expense 13,171 13,406
- ---------------------------------------------------------------------------------------------------------------
Net interest income 8,155 8,028
PROVISION FOR LOAN LOSSES 300 627
- ---------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 7,855 7,401
- ---------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Mortgage production fees 2,782 3,219
Gain on sales of investment in real estate 2,077 929
Real estate commissions, net 343 173
Rental income 165 173
Service charges 459 570
Gain on sales and calls of securities available for sale -- 267
Gain on sales of fixed assets 1 147
Gain on sale of branch 673 --
Miscellaneous 1,009 937
- ---------------------------------------------------------------------------------------------------------------
Total noninterest income 7,509 6,415
- ---------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSES:
Salaries and employee benefits 6,503 5,256
Net occupancy expense 1,522 1,162
Data processing expense 667 564
Federal insurance premiums 181 96
Marketing expense 669 496
Miscellaneous 2,149 1,817
- ---------------------------------------------------------------------------------------------------------------
Total noninterest expenses 11,691 9,391
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes 3,673 4,425
INCOME TAX EXPENSE 1,232 1,445
- ---------------------------------------------------------------------------------------------------------------
Net income $ 2,441 $ 2,980
- ---------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE - BASIC $ 0.44 $ 0.52
EARNINGS PER COMMON SHARE - DILUTED $ 0.43 $ 0.50
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 5
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(in thousands)
Three Months ended June 30, 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,441 $ 2,980
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation, amortization and accretion 458 503
Provision for loan losses 300 627
Gain on sales of securities available for sale -- (267)
Loss (gain) on sale of real estate acquired in settlement of loans 35 (62)
Gain on sales of investment in real estate (2,077) (929)
Gain on sales of premises and equipment (1) (147)
Amortization of restricted stock 30 30
Deferred income tax benefit (560) --
Proceeds from sales of loans held for sale 324,740 372,659
Originations of loans held for sale (299,960) (378,451)
Changes in assets and liabilities:
Decrease (increase) in accrued interest receivable 75 (423)
Decrease in other assets 1,292 3,609
Increase (decrease) in drafts outstanding 10,795 (14,453)
(Decrease) increase in accrued expense and other liabilities (2,703) 8,923
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 34,865 (5,401)
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available for sale -- (17,500)
Purchases of investment securities held to maturity (9,884) --
Proceeds from sales of securities available for sale -- 2,258
Principal payments received on securities available for sale 7,911 4,665
Principle payments received on investment securities held to maturity 2,727 404
Proceeds from calls of securities available for sale -- 994
Proceeds from calls of investment securities held to maturity 1,316 --
Proceeds from maturities of securities available for sale -- 1,000
Loan originations, net of repayments (22,287) 23,632
Proceeds from sale of real estate acquired in settlement of loans 585 565
Purchases of FHLB stock (4,971) (508)
Redemption of FHLB stock 3,055 2,256
Proceeds from sale of premises and equipment 1,666 522
Purchase of premises and equipment, net (2,090) (237)
Additions to investments in real estate (7,079) (1,788)
Proceeds from sales of investments in real estate 9,985 1,642
- ---------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (19,066) $ 17,905
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 6
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Three Months ended June 30, 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in time deposits (53,565) $ 22,842
Net change in demand deposit accounts (22,337) (3,810)
Repayment of FHLB advances and other borrowings (124,619) (282,403)
Proceeds from FHLB advances and other borrowings 180,790 239,460
Principal reduction of ESOP debt 28 165
Proceeds from the exercise of stock options 45 765
Cash dividends paid (891) (861)
Increase (decrease) in advance payments from borrowings for
property taxes and insurance 238 (2,727)
- ---------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (20,311) (26,569)
- ---------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (4,512) (14,065)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 27,839 34,682
- ---------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 23,327 $ 20,617
- ---------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH PAID DURING PERIOD FOR:
- ---------------------------------------------------------------------------------------------------------------
Interest $ 14,434 $ 12,455
- ---------------------------------------------------------------------------------------------------------------
Income taxes $ 20 $ 1,868
- ---------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
- ---------------------------------------------------------------------------------------------------------------
Acquisition of real estate in settlement on loans $ 357 $ 465
- ---------------------------------------------------------------------------------------------------------------
Loans made to finance sales of investments in real estate $ -- $ 2,061
- ---------------------------------------------------------------------------------------------------------------
Dividends payable $ 892 $ 929
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 7
Eagle Bancshares, Inc.
Notes to Interim Unaudited Consolidated Financial Statements
June 30, 1999
A. Corporate Profile
Eagle Bancshares, Inc. (the "Company") is a unitary savings and loan
holding company engaged in community banking, mortgage banking, real estate
development and sales and mezzanine financing. The Company has three
subsidiaries, Tucker Federal Bank (the "Bank"), Eagle Real Estate Advisors,
Inc. ("EREA"), and Eagle Bancshares Capital Group, Inc. ("EBCG"). Additionally,
the Company invests in real estate through limited liability companies and
consolidates these affiliates when at least a 50% equity ownership interest
exists.
B. 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, 1999, 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 June 30, 1999, are not necessarily indicative of the results that may be
expected for the fiscal year ending March 31, 2000.
C. 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.
D. Accumulated Other Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income," establishes standards
for the reporting and displaying of other comprehensive income. Comprehensive
income is defined as the change in equity from all transaction other than those
with stockholders. Other comprehensive income includes the change in net
unrealized gains or losses on certain debt and equity securities, foreign
currency transactions, and minimum pension liability adjustments. The Company's
comprehensive income consists of net income and unrealized gains and losses on
securities available for sale, net of income taxes.
7
<PAGE> 8
Comprehensive income for the first three months of fiscal year 2000
and 1999 is calculated as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1999 June 30, 1998
-----------------------------------
<S> <C> <C>
Unrealized loss, net, recognized in other
Accumulated comprehensive income:
Before income tax $ (4,741) $ (262)
Income tax (1,799) (100)
-----------------------------------
Net of income tax $ (2,942) $ (162)
Amounts reported in net income:
Gain on sales of securities available for sale $ 0 $ 267
Net accretion on securities available for sale 36 31
-----------------------------------
Reclassification adjustment 36 298
Income tax expense (14) (116)
-----------------------------------
Reclassification adjustment, net of tax 22 182
Amounts reported in other accumulated comprehensive
Income:
Unrealized (losses)/gains arising during the period,
net of tax (2,920) 20
Less reclassification adjustment, net of tax 22 182
-----------------------------------
Unrealized losses, net, recognized in other
Accumulated comprehensive income (2,942) (162)
Net income 2,441 2,980
-----------------------------------
Total comprehensive income $ (501) $ 2,818
-----------------------------------
</TABLE>
E. Year 2000
The Year 2000 issue is the result of computer programs using a
two-digit format, as opposed to four-digits, to indicate the year. Computer
systems using the two-digit format will be unable to interpret dates beyond the
year 1999, which could cause system failures or other computer errors, leading
to disruptions in operations. In addition, many software programs and automated
systems could fail to recognize the year 2000 as a leap year. The problem is
not necessarily limited to computer systems, or any particular industry or
field.
The Company is committed to addressing the Year 2000 issues and has
developed a comprehensive business plan to manage these issues. The Company
established Team2000, a group of key employees, mission critical vendors and an
outside consulting firm to address the Year 2000 issues. Team2000 is
responsible for ensuring that its in-house processing, service providers, and
software vendors are fully compliant with the Year 2000 requirements.
Subcommittees have been established throughout the Company to identify, address
and mitigate key Year 2000 issues within the organization. Furthermore,
Team2000 launched an awareness campaign during 1998 that will continue through
December 31, 1999 that is designed to raise awareness and encourage input from
all Company employees. The Company's Executive Management Team receives
progress updates on a monthly
8
<PAGE> 9
basis and the Board of Directors receives updates on a quarterly basis.
The Company's Year 2000 plan has five phases: inventory, assessment,
renovation, validation and implementation. During the inventory phase, Team2000
identified all areas with potential Year 2000 issues. All hardware and software
systems, including all of its equipment such as elevators, alarm systems, ATMs,
vault locks, etc. that may contain embedded systems have been identified. The
assessment phase involved detailed analysis and planning to determine the
method of renovation. Additionally, during the assessment phase, Team2000
categorized each issue into one of three levels of priority: mission critical,
important and non-mission critical. The levels of priority were determined
based on the significance of the potential impact on the Company. The inventory
and assessment phases are complete. Team2000 has prepared a series of
procedures to test each application based on its level of priority. In order to
protect current operations, an isolated test environment has been created to
test network and software applications. Testing includes applications,
operating systems, hardware, databases and internal and external interfaces.
Testing will ensure that applications, and the environment they operate in, can
properly process data and dates without compromising computer-based entries and
record keeping associated with the Year 2000 date change. As of June 30, 1999,
the renovation and validation phases are 98% complete. The implementation phase
includes any necessary training of users on newly compliant systems, as well
as, introduction of such systems into live operating environments. The
implementation phase is substantially complete.
Like many other companies, the operations of the Company are
interconnected with service providers and vendors who provide services,
equipment, technology and software. Therefore, the Company's operations could
be materially affected if those parties fail to achieve Year 2000 readiness.
The Company remains in constant communication with key vendors. The Company has
required vendors to submit in writing their expected or achieved Year 2000 date
of compliance. Team2000 identified and is tracking the renovation and testing
efforts of more than 200 individual vendors. Additionally, Team2000 is testing
vendor provided products. Team2000 has made decisions on a case-by-case basis
to determine whether to continue the current relationship with each vendor or
to replace the product or service. At June 30, 1999 approximately 94% of
vendors are compliant, upgraded or have been retired. The majority of the
remaining 6% of vendors being tracked are expected to be fully compliant by
September 30, 1999.
In addition, Team2000 is responsible for evaluating the level of Year
2000 preparedness of material customers including, funds takers, funds
providers and capital market/asset management counterparties. A Year 2000 risk
rating has been assigned to all parties identified. Customers representing
material Year 2000 related risk have been identified and contacted. The Company
is continuing to monitor these customers. In addition, Team2000 has appointed
an Awareness Subcommittee that is responsible for increasing customer
awareness. These efforts will continue throughout 1999.
The Company believes it has addressed each issue related to the Year
2000 and has taken the necessary steps to minimize the operational, regulatory
and legal risks associated. However, like other banks, the Company may
experience a decline in the Bank's deposit base if customers withdraw a
significant amount of deposited funds prior to the year 2000. The Company is
currently addressing the Bank's liquidity issues as related to the Year 2000.
Team2000 has also addressed the issues related to
9
<PAGE> 10
loan payment performance by borrowers. It is possible that borrowers may
encounter Year 2000 related issues that could affect their ability to repay
loans according to the agreed upon terms. Team2000 has identified and assessed
the Company's more significant relationships. While none of these relationships
have reported any expectation of material adverse impact as a result of
Year2000, the Company will continue to monitor these relationships.
As a supplement to The Company's Business Continuation and Recovery
Plans, Team2000 has developed a contingency plan that is specific to Year 2000
issues. The contingency plan contains the procedures, guidelines, and
information relevant to the ongoing successful operation of each line of
business before, during and after the new millennium. As of June 30, 1999, the
Company's contingency plan, Business Resumption Continuation and Disaster
Recovery Plans, have been validated by an independent third party as required
by current regulatory guidance. Business continuity planning is based on
consideration of the most reasonably likely worst case scenario that could be
encountered. Since it is difficult to predict all possible risk scenarios, the
Company intends to continue to revise these plans on an ongoing basis.
The Company has incurred approximately $500,000 in direct expenses
related to the Year 2000 requirements. The Company estimates the total direct
cost associated with Year 2000 issues will be approximately $750,000. Cost
associated with the redeployment of personnel to the Year 2000 project is not
included above. The Company has identified and developed plans for all mission
critical applications; however, additional expenses may be incurred if problems
are encountered which were not previously identified or anticipated. At this
time, management does not believe these expenses will have a material effect on
the operations or financial performance of the Company. However, the above
discussion includes a number of forward-looking statements. The statements are
based upon the information currently available to the Company as related to
Year 2000 compliance efforts and the impact on the Company's operations by Year
2000 issues. Various factors could influence actual results to differ
materially from those expected through the Company's current assessment and
estimates, including certain factors that are beyond the Company's control. The
factors include, in part: (a) the Company's ability to successfully identify
systems and programs that are not Year 2000 compliant, (b) the Company's
ability to successfully identify the nature and estimate the cost associated
with upgrading or replacing these systems and programs, (c) the ability of
third parties to successfully address and resolve their Year 2000 issues by the
required deadlines and (d) the Company's ability to successfully implement
contingency plans, if needed. For additional information regarding forward
looking statements, see "A Warning About Forward-Looking Information" on page
11.
F. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. This statement could
increase volatility in earnings and other comprehensive income. Adoption of
this statement is not expected to have a material impact on the Company's
financial position or results of operation.
10
<PAGE> 11
In June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No.137,"Accounting for Derivative
Instruments and Hedging Activities - Deferral of Effective Date of FASB
Statement No. 133", deferring the effective date of FASB Statement No. 133 to
all fiscal quarters of fiscal years beginning after June 15, 2000. Adoption of
this statement is not expected to have a material impact on the Company's
financial position or results of operation.
G. Guaranteed Preferred Beneficial Interests in Debentures
On July 29, 1998, the Company closed a public offering of 1,150,000 of
8.50% Cumulative Trust Preferred Securities (the "Preferred Securities")
offered and sold by EBI Capital Trust I (the "Trust"), having a liquidation
amount of $25 each. The proceeds from such issuances, together with the
proceeds of the related issuance of common securities of the Trust purchased by
the Company, were invested in 8.50% Subordinated Debentures (the "Debentures")
of the Company. The sole asset of the Trust is the Debentures. The Debentures,
the Indenture, the relevant Trust agreement, and the Guarantee, in the
aggregate, constitute a full and unconditional guarantee by the Company of the
obligations of the Trust under the Preferred Securities and ranks subordinate
and junior in right of payment to all liabilities of the Company. The Preferred
Securities are subject to redemption prior to maturity at the option of the
Company.
Total proceeds to the Company from the offering were $28,750,000. The
Company contributed $11,000,000 to the Bank to increase the Bank's capital
ratios to support growth for working capital and to increase the Bank's
regulatory capital from "adequately capitalized" to "well-capitalized." The
Bank used these proceeds to increase its securities available for sale.
Additionally, approximately $4,300,000 was used to repay existing debt
associated with the Company's real estate investment in Rivermoore Park, LLP
and to invest in investment grade preferred securities of approximately
$3,500,000, held as available for sale by the Company. The remainder of the net
proceeds was used for general corporate purposes.
H. Real Estate Investment Trust
On April 30, 1999, TFB Management, Inc., TFB Management (NC), Inc.,
and TFB Management (RE), Inc., were incorporated as Delaware corporations. The
Bank is the 100% owner of TFB Management, Inc., which is the 100% owner of TFB
Management (NC), Inc., which is the 100% owner of TFB Management (RE), Inc. TFB
Management (RE), Inc. was formed to qualify as a Real Estate Investment Trust
("REIT") under the Internal Revenue Code. This three-tier structure was
utilized to reduce the Company's effective tax rate.
I. A Warning About Forward-Looking Information
This filing contains forward-looking statements. We may also make
written forward-looking statements in our periodic reports to the Securities
and Exchange Commission, in our proxy statements, in our offering circulars and
prospectuses, in press releases and other written materials and in oral
statements made by our officers, directors or employees to third parties.
Statements that are not historical facts, including statements about our
beliefs and expectations, are forward-looking statements. These statements are
based on beliefs and assumptions of management and on information currently
available to such management. Forward-looking statements include statements
preceded by, followed by or that include the words "believes," "expects,"
"plans," "estimates" or similar expressions. Forward-looking statements
11
<PAGE> 12
speak only as of the date they are made, and we undertake no obligation to
update publicly any of them in light of new information or future events.
Forward-looking statements involve inherent risks and uncertainties.
We caution you that a number of important factors could cause actual results to
differ materially from those contained in any forward-looking statement. Such
factors include, but are not limited to, the following: competitive pressures
among depository and other financial institutions may increase significantly;
changes in the interest rate environment may reduce margins; general economic
or business conditions may lead to a deterioration in credit quality or a
reduced demand for credit; legislative or regulatory changes, including changes
in accounting standards, may adversely affect the business in which the Company
is engaged; changes may occur in the securities markets; and competitors of the
Company may have greater financial resources and develop products that enable
such competitors to compete more successfully than the Company.
Management believes these forward-looking statements are reasonable;
however, undue reliance should not be placed on such forward-looking
statements, which are based on current expectations.
Forward-looking statements are not guarantees of performance. They
involve risks, uncertainties and assumptions. The future results and
shareholder values of the Company may differ materially form those expressed in
the forward-looking statements contained in this report. Many of the factors
that will determine these results and values are beyond the Company's ability
to control or predict.
12
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
SUMMARY FINANCIAL DATA
(in thousands except per share data)
<TABLE>
<CAPTION>
% Change
Quarter Ended June 30, 1999 from
JUNE 30, March 31, June 30, March 31, June 30,
For the quarter: 1999 1999 1998 1999 1998
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income $ 2,441 $ 2,298 $ 2,980 6.22 (18.09)
Per common share:
Net income per common share - basic 0.44 0.41 0.52 7.32 (15.38)
Net income per common share - diluted 0.43 0.40 0.50 7.50 (14.00)
Dividends declared 0.16 0.16 0.16 -- --
Book value per share 13.19 13.43 13.36 (1.79) (1.27)
Average common shares outstanding - basic 5,571 5,571 5,763 -- (3.33)
Average common shares outstanding - diluted 5,700 5,699 5,961 0.02 (4.38)
Profitability ratios: (%)
Return on average assets 0.80% 0.69% 1.04% 15.94 (23.08)
Return on average equity 13.26% 12.41% 15.56 6.85 (14.78)
Efficiency ratio 74.64% 75.69% 65.03 (1.39) 14.78
Net interest margin - taxable equivalent 2.99% 2.65% 3.06 12.83 (2.29)
Equity to assets 6.04% 6.08% 6.92 (0.66) (12.72)
At quarter end:
Loans held for sale $ 196,590 $ 221,370 $ 338,384 (11.19) (41.90)
Loans receivable, net 645,147 623,270 513,194 3.51 25.71
Reserve for loan losses 7,251 7,345 6,732 (1.28) 7.71
Assets 1,217,310 1,230,000 1,120,232 (1.03) 8.67
Deposits 803,763 879,665 798,007 (8.63) 0.72
FHLB advances and other borrowings 277,723 221,552 197,912 25.35 40.33
Stockholders' equity 73,527 74,817 77,551 (1.72) (5.19)
</TABLE>
Overview
Net income for the first quarter of fiscal 2000, decreased $539,000 to
$2,441,000 or $0.43 per share from $2,980,000 or $0.50 per share for the same
quarter one year ago. The decrease was primarily a result of a 24.5% increase
in non-interest expenses, primarily in salaries and employee benefits and net
occupancy expenses.
Of the total $2,441,000 in net income, the community banking operation
accounted for $2,140,000; Eagle Real Estate Advisors, the real estate
development and sales business, comprised $1,149,000; Eagle Bancshares Capital
Group, the mezzanine financing unit, contributed $232,000; and Prime Eagle
Mortgage Corporation, the mortgage banking group, accounted for a loss of
$816,000. Other operations accounted for a loss of $264,000.
For the first quarter of fiscal 2000, the Company's mortgage banking
activities resulted in losses of $816,000 compared to income of $176,000 for
the same quarter one year ago. The losses associated with mortgage banking
activities were principally attributable to a number of the Company's mortgage
banking offices operating below the break-even level of loans closed. The
dollar amount of loans closed during the current quarter was $299,960,000
compared to loan closings of $378,451,000 during the quarter ended June 1998.
As a result, the Company recently consolidated loan origination branches
operating below
13
<PAGE> 14
break-even levels and closed retail mortgage banking offices in Stockbridge,
Peachtree City, Cumming and Athens, Georgia and Knoxville, Tennessee. Many of
these offices operated autonomous underwriting, closing, post-closing and
shipping operations. As a result of these redundancies the Company's cost to
produce a mortgage loan were higher than industry standards. In addition, the
Company has invested $880,000 in technology to improve the efficiency of the
mortgage banking business, this investment will enable the Company to
consolidate underwriting, closing, post-closing, shipping and secondary
marketing operations into regional mortgage banking centers in Augusta, Georgia
and Ponte Vedra, Florida. In the metropolitan Atlanta area the Company is
redesigning the mortgage model to place greater emphasis on originations in
Tucker Federal community banking branches and through the call center. This
should significantly improve the efficiencies of operations while providing
enhanced customer service. These offices were closed and activities
consolidated in July 1999.
For the first quarter of fiscal 2000, the Company's community banking
activities resulted in income of $2,140,000 compared to income of $1,756,000
for the same quarter one year ago. The improvement is attributable to the
increase in net interest income. Management has undertaken a significant
expense reduction program throughout the Community Bank. Staffing levels were
examined and management has eliminated approximately 12% of its existing
positions. In addition, Community Bank branches which were operating below the
break-even level were sold or closed. On June 30, 1999, the Company sold its
Towne Lake branch in Cherokee County and closed its branch on Memorial Drive.
The sale of the Towne Lake deposits and branch location generated a gain of
$673,000 for the first quarter of fiscal 2000. The deposits associated with the
Memorial Drive location are currently being serviced by both the Wesley Chapel
and new Target in-store locations.
For the first quarter of fiscal 2000, Eagle Real Estate Advisors
generated income of $1,149,000 or $0.20 per share versus income of $509,000 or
$0.09 per share for the same quarter one year ago. In the June 1999 quarter
gains on the sale of investment in real estate were $2,077,000 versus $929,000
for the June 1998 quarter. In the current quarter $1,268,000 is attributable to
the sale of the Company's Barnes & Noble store.
For the first quarter of fiscal 2000, Eagle Bancshares Capital Group
generated income of $232,000 or $0.04 per share versus income of $169,000 or
$0.03 per share for the same quarter one year ago. Substantially all of those
earnings were attributable to interest and fees on financing arrangements. The
mezzanine financing group invested $2,600,000 in the quarter and anticipates
closing two additional transactions within the next four weeks. One transaction
is to a small business small-office developer where the Company can deliver
specialized bank services to their micro-business tenants.
Earnings Highlights
(First quarter Fiscal 2000 compared to First quarter Fiscal 1999)
- - Net interest income increased $454,000 or 6.13% to $7,855,000 from
$7,401,000 for the same quarter last year.
- - Non-interest income increased $1,094,000 or 17.05% to $7,509,000 from
$6,415,000 for the same quarter one year ago. Increases in gains on
sales of investment in real estate and the sale of the Company's Towne
Lake branch were the main contributors to the increase.
- - Return on average shareholders' equity decreased to 13.26% from 15.56%
in the first quarter last year.
- - Return on average assets decreased to 0.80% from 1.04% in the first
quarter last year.
14
<PAGE> 15
- - Loan loss provisions decreased $327,000 or 52.15% to $300,000 from
$627,000 for the same quarter one year ago.
- - Non-interest expenses increased $2,300,000 or 24.49% to $11,691,000
from $9,391,000 for the same quarter one year ago. Management has
undertaken a significant expense reduction program throughout the
Company, including a reduction of staffing levels and closing two
community bank branches and five mortgage banking offices.
Net Interest Income
In the first quarter, net interest income increased $454,000 or 6.13%
to $7,855,000 from $7,401,000 in the first quarter last year. The increase is
the result of an improvement in the net interest spread.
Non-Interest Income
Non-interest income rose $1,094,000 or 17.05% to $7,509,000 in the
first quarter of fiscal 2000 from $6,415,000 for the same period last year.
This growth was primarily attributable an increase in gains on sale of
investment in real estate coupled with the sale of the Company's Towne Lake
deposits and branch location.
Efficiency
In the first quarter of fiscal 2000, the efficiency ratio increased
9.61% to 74.64%, compared to 65.03% in the first quarter of fiscal 1999.
Credit Quality
At June 30, 1999, problem assets totaled $13,561,000 representing
1.11% of total assets compared to total problem assets of $15,421,000 or 1.38%
of total assets at June 30, 1998. The reserve for loan losses totaled
$7,251,000 at quarter end, or 82.15% of non-performing loans, compared to
$6,732,000 or 63.73% one year earlier. During the quarter, the provision for
loan losses decreased to $300,000, compared to $627,000 for the same quarter
last year. Net charge-offs equaled 0.06% of average loans receivable, net,
outstanding for the first quarter of fiscal 2000 and 0.07% for the first
quarter of fiscal 1999.
Capital Strength
Total shareholders' equity was $73,527,000 on June 30, 1999. This
represented 6.04% of period-end assets, compared to 6.92% at June 30, 1998.
Book value per common share was $13.19 at the end of the first quarter of
fiscal 2000, compared to $13.36 at the end of the same quarter last year.
EARNINGS ANALYSIS
Net Interest Income
Net interest income increased by $454,000 or 6.13% to $7,855,000 in
the first quarter of fiscal 2000 from $7,401,000 for the same period last year.
This increase was the result of an improvement in the net interest spread. The
net interest spread (the difference between the yield earned on interest
earning assets and the cost of interest bearing liabilities) increased 19 basis
points to 282 basis points from 263 basis points in the same quarter last year.
The improvement is primarily attributable to the decrease in the cost of
interest bearing liabilities. Yield on interest earning assets decreased 34
basis points to 7.71% from 8.05% while the cost of interest bearing liabilities
decreased 53 basis points to 4.89% from 5.42%.
15
<PAGE> 16
Interest income decreased $108,000 or .50% to $21,326,000 for the
first quarter of fiscal 2000 from $21,434,000 for the first quarter one year
earlier. Interest income received on loans decreased $1,540,000 or 8.39% to
$16,817,000 for the first quarter of fiscal 2000 from $18,357,000 in fiscal
1999. The decrease in interest received on loans is attributable to a decline
in the average balance on loans held for sale during the first quarter of
fiscal 2000 to $200,932,000 from $354,864,000 for the quarter ending June 30,
1998. Interest on loans held for sale decreased $2,452,000 or 43.21% to
$3,223,000 for the first quarter of fiscal 2000 from $5,675,000 during the same
quarter last year. Interest income on loans receivable rose $912,000 or 7.19%
to $13,594,000 during the first quarter from $12,682,000 in the first quarter
of fiscal 1999. The yield on loans declined 17 basis points at 8.04% for the
quarter compared to 8.21% in the same quarter last year. Interest received on
mortgage-backed securities increased $751,000 or 59.09% to $2,022,000 for the
first quarter of fiscal 2000 from $1,271,000 in the first quarter of fiscal
1999. Interest and dividends received on securities and other interest-earning
assets increased $681,000 or 37.71% to $2,487,000 in fiscal 2000 from
$1,806,000 in the same quarter last year.
Interest expense decreased $235,000 or 1.75% to $13,171,000 for the
first quarter of fiscal 2000 from $13,406,000 in the first quarter of fiscal
1999. This is primarily the result of a decline in the cost of interest bearing
liabilities. Interest expense on deposits decreased $731,000 or 7.03% to
$9,669,000 from $10,400,000 in the same period in the prior year. The cost of
deposits decreased 64 basis points to 4.80% during the quarter compared to
5.44% in the prior period. Interest expense on FHLB advances and other
borrowings also decreased $126,000 or 4.19% to $2,880,000 for the first quarter
of fiscal 2000 from $3,006,000 in the first quarter of fiscal 1999. The Bank's
cost of FHLB advances and other borrowings decreased 62 basis points to 4.74%
from 5.36% in the same period in the prior year. In addition, interest expense
on guaranteed preferred beneficial interests in debentures for the first
quarter of fiscal 2000 was $622,000.
Interest Rate and Market Risk
The Company employs a sensitivity analysis in the form of a net
interest income simulation to help characterize the market risk arising from
changes in interest rates. The Company's net interest income simulation
includes all financial assets and liabilities.
The Company uses four standard scenarios - rates unchanged, expected
rates, high rates, and low rates in analyzing interest rate sensitivity. The
expected scenario is based on the Company's projected future interest rates,
while the high and low rate scenarios cover a 100 basis points upward and
downward rate movement. The Company closely monitors each scenario to manage
interest rate risk. As of June 30, 1999, the expected rate simulation indicated
an increase in annual net interest income of $152,000 or 0.40% relative to the
unchanged rate simulation and a $2,141,000 or 3.0% increase in market value.
This compares to March 31, 1999, which indicated a increase in annual net
interest income of $367,000 or 0.94% relative to the unchanged rate simulation
and a $36,000 or 0.04% decline in market value.
As of June 30, 1999, management estimates the Company's annual net
interest income would increase approximately $1,744,000 or 4.67%, and decrease
approximately $3,025,000 or 8.10% should interest rates instantaneously rise or
fall 100 basis points, versus the projection under unchanged rates. As of March
31, 1999, the simulation indicated an increase of approximately $2,405,000 or
6.16% and a decrease of approximately $3,541,000 or 9.06%.
16
<PAGE> 17
A fair value analysis of the Company's balance sheet calculated under
an instantaneous 100 basis point increase in rates over June 30, 1999,
estimates a $16,806,000 or 27.44% decrease in market value. The Company
estimates a like decrease in market rates would increase market value $868,000
or 1.42%. These changes in market value represent less that 5.00% of the total
carrying value of total assets at June 30, 1999. Comparatively, at March 31,
1999, an instantaneous increase in market rates of 100 basis points would
decrease market value approximately $12,969,000 or 19.55%, while a like
decrease in rates would decrease market value approximately $2,812,000 or
4.24%.
These simulated computations should not be relied upon as indicative
of actual future results. Further, the computations do not contemplate certain
actions that management may undertake in response to future changes in interest
rates.
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 2.99% during the first quarter of
fiscal 2000 from 3.06% during the first quarter of fiscal 1999. The average
balance sheet on the next page presents the individual components of net
interest income and expense, net interest spread and net interest margin. The
decline in the net interest margin in the first quarter of fiscal 2000 was
primarily attributable to the decrease in the yield on interests earning
assets.
17
<PAGE> 18
The following table reflects the average balances, the interest income
or expense and the average yield and cost of funds of the Company's interest
earning assets and interest bearing liabilities during the quarters ended June
30, 1999 and 1998:
AVERAGE BALANCE SHEET
Quarter ended June 30,
<TABLE>
<CAPTION>
1999 1998
AVERAGE YIELD/ Average Yield/
(in thousands) BALANCE INTEREST COST Balance Interest Cost
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Loans receivable(1) $ 636,067 $13,594 8.55% $ 539,228 $12,682 9.41%
Loans held for sale 200,932 3,223 6.42% 354,864 5,675 6.40%
Mortgage-backed securities 127,165 2,022 6.36% 72,656 1,271 6.99%
FHLB stock 9,130 171 7.49% 10,248 192 7.49%
Taxable investments(2) 75,014 1,237 6.60% 20,982 391 7.45%
Tax-exempt investment securities(2) 67,436 1,270 7.53% 75,269 1,378 7.32%
Interest earning deposits and Federal funds 1,683 18 4.28% 1,172 29 10.24%
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest earning assets 1,117,427 21,535 7.71% 1,074,419 21,618 8.05%
Non-interest earning assets 109,210 67,594
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $1,226,637 $1,142,013
- -----------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Savings accounts $ 37,426 $ 189 2.02% $ 39,345 $ 246 2.50%
Checking 126,980 1,035 3.26% 98,914 967 3.91%
Money market 89,941 907 4.03% 43,332 455 4.20%
Certificates of deposit 551,911 7,538 5.46% 583,357 8,732 5.99%
- -----------------------------------------------------------------------------------------------------------------------------------
Total deposits 806,258 9,669 4.80% 764,948 10,400 5.44%
FHLB advances and other borrowings 243,006 2,880 4.74% 224,301 3,006 5.36%
Guaranteed preferred beneficial interests in
Debentures 28,750 622 8.65% -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 1,078,014 13,171 4.89% 989,249 13,406 5.42%
Non-interest bearing deposits 53,088 47,579
Non-interest bearing liabilities 21,924 31,324
Stockholders' equity 73,611 73,861
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity $1,226,637 $1,142,013
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest rate spread $ 8,364 2.82% $8,212 2.63%
Taxable-equivalent adjustment (209) (184)
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income, actual $ 8,155 $8,028
Net interest earning assets/net interest
Margin $ 39,413 2.99% $ 85,170 3.06%
Interest earning assets as a percentage of
interest bearing liabilities 103.66% 108.61%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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.
Non-Interest Income
Non-interest income increased by $1,094,000 or 17.05% to $7,509,000
for the first quarter of 2000 from $6,415,000 for the same period last year.
Mortgage production fees are the largest component of non-interest income and
these fees decreased $437,000 or 13.58% to $2,782,000 compared to $3,219,000 in
the first quarter of fiscal 1999. The volume of loans sold in the secondary
market decreased by $47,919,000 or 12.86% to $324,740,000 during the first
quarter from $372,659,000 during the first quarter last year. The dollar amount
of loans 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 decrease in the dollar amount of loans sold is
due to a decrease in loan originations
18
<PAGE> 19
attributable to a rise in interest rates. The margin earned on these loans
(mortgage production fees divided by mortgage volume sold) remained constant at
86 basis points for the first quarter in fiscal 2000 and 1999.
The following table shows mortgage production fees, the dollar amount
of permanent mortgage loans sold in the secondary market and the margin earned
on those loans for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
(in thousands) June 30,
1999 1998
-----------------------------------------
<S> <C> <C>
Mortgage production fees $2,782 $3,219
Dollar volume sold $324,740 $372,659
Margin earned 0.86% 0.86%
</TABLE>
Non-interest income generated from the Company's real estate
activities includes gains on the sales of real estate and real estate
commissions. Revenues from these sources increased $1,318,000 or 119.60% to
$2,420,000 during the first quarter of fiscal 2000 from $1,102,000 for the same
quarter last year. In the current quarter, $1,268,000 is attributable to the
sale of the Company's Barnes & Noble store. In addition, during the first
quarter of fiscal 2000, 43 residential lots were sold compared to 73
residential lots sold in the same quarter last year. The Bank provides
construction loan financing to approved builders for lot sales in each of its
development projects. Gains on sales of lots are deferred until these loans are
repaid, creating timing differences in the recognition of income. While the
number of lot sales decreased for the first quarter of fiscal 2000, the number
of loans financed by the Bank also decreased causing an increase in gains
recognized.
On June 30, 1999, the Company sold its Towne Lake branch in Cherokee
County. The sale of the Towne Lake deposits of $12,664,000 and branch location
generated a gain of $673,000.
Service charges decreased $111,000 or 19.47% to $459,000 in the first
quarter of fiscal 2000 compared to $570,000 for the same period last year.
Miscellaneous other income increased $72,000 or 7.68% to $1,009,000 for the
first quarter of fiscal 2000 from $937,000 for the same period last year.
Non-Interest Expense
Non-interest expense increased by $2,300,000 or 24.49% to $11,691,000
for the first quarter of fiscal 2000 from $9,391,000 for the same period last
year. In general, the increase was caused by expansion in the Company's
mortgage banking business. The Company's efficiency ratio increased to 74.64%
for the first quarter of fiscal 2000 compared to 65.03% for the same period
last year.
Salaries and employee benefits increased $1,247,000 or 23.73% to
$6,503,000 for the first quarter of fiscal 2000 from $5,256,000 for the same
period last year. Occupancy expense increased $360,000 or 30.98% to $1,522,000
in the first quarter of fiscal 2000 from $1,162,000 for the same period last
year. Data processing expense increased $103,000 or 18.26% to $667,000 in the
first quarter from $564,000 in the first quarter of fiscal 1999. Marketing
expense increased $173,000 or 34.88% to $669,000 from $496,000 for the same
quarter last year.
Miscellaneous expenses increased $332,000 or 18.27% to $2,149,000 for
the first quarter of fiscal 2000 from $1,817,000 for the same period last year.
This increase is due in part to increases in telephone and communications, and
professional services, including attorney fees.
19
<PAGE> 20
The Company recently consolidated loan origination branches operating
below break-even levels and closed retail mortgage banking offices in
Stockbridge, Peachtree City, Cumming and Athens, Georgia and Knoxville,
Tennessee. Many of these offices operated autonomous underwriting, closing,
post-closing and shipping operations. As a result of these redundancies the
Company's cost to produce a mortgage loan were higher than industry standards.
In addition, the Company has invested $880,000 in technology to improve the
efficiency of the mortgage banking business, this investment will enable the
Company to consolidate underwriting, closing, post-closing, shipping and
secondary marketing operations into regional mortgage banking centers in
Augusta, Georgia and Ponte Vedra, Florida. In the metropolitan Atlanta area the
Company is redesigning the mortgage model to place greater emphasis on
originations in Tucker Federal community banking branches and through the call
center. This should significantly improve the efficiencies of operations while
providing enhanced customer service. These offices were closed and activities
consolidated in July 1999.
Management has undertaken a significant expense reduction program
throughout the Community Bank. Staffing levels were examined and management has
eliminated approximately 12% of its existing positions. In addition, Community
Bank branches which were operating below the break-even level were sold or
closed. On June 30, 1999, the Company sold its Towne Lake branch and deposits
in Cherokee County and closed its branch on Memorial Drive. The deposits
associated with the Memorial Drive location are currently being serviced by
both the Wesley Chapel and new Target in-store locations.
BALANCE SHEET ANALYSIS
Investment Securities
During the first quarter of fiscal 2000, investment securities
decreased to $266,126,000 from $272,916,000 at March 31, 1999 and increased
from $171,027,000 at June 30, 1998. 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 June 30, 1999, was comprised of
$74,196,000 of investment securities held to maturity at amortized cost
compared to $68,298,000 and $57,737,000 at March 31, 1999 and June 30, 1998,
respectively. The Company has the ability and it is management's intent to hold
these securities to maturity for investment purposes. In addition, securities
available for sale had an estimated market value of $191,930,000 at June 30,
1999 compared to $204,618,000 and $113,290,000 at March 31, 1999 and June 30,
1998, respectively. Securities available for sale had a net unrealized loss as
shown in the Company's stockholders' equity section of $3,225,000 and $283,000
at June 30, 1999 and March 31, 1999, respectively.
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 June 30, 1999, March 31, 1999 or
June 30, 1998.
20
<PAGE> 21
The following table reflects securities held in the Bank's securities
portfolio for the periods indicated:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
- ---------------------------------------------------------------------------------------------------
(in thousands) JUNE 30, March 31, June 30,
1999 1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Securities Held to Maturity:
US Treasury and US Government Agencies $ 17,711 $ 18,539 $ 36,188
Mortgage-backed securities 41,350 32,866 4,603
Corporate bonds 7,434 7,433 7,432
Other debt securities 7,701 9,460 9,514
- ---------------------------------------------------------------------------------------------------
Total $ 74,196 $ 68,298 $ 57,737
- ---------------------------------------------------------------------------------------------------
Securities Available for Sale:
US Treasury and US Government Agencies $ 34,666 $ 35,308 $ 31,648
Mortgage-backed securities 87,818 95,539 67,104
Corporate Bonds 2,012 2,027 2,023
Other debt securities 55,265 59,465 3,656
Equity securities - preferred stock 12,169 12,279 8,859
- ---------------------------------------------------------------------------------------------------
Total $191,930 $204,618 $113,290
- ---------------------------------------------------------------------------------------------------
Total Investment Securities:
US Treasury and US Government Agencies $ 52,377 $ 53,847 $ 67,836
Mortgage-backed securities 129,168 128,405 71,707
Corporate bonds 9,446 9,460 9,455
Other debt securities 62,966 68,925 13,170
Equity securities - preferred stock 12,169 12,279 8,859
- ---------------------------------------------------------------------------------------------------
Total $266,126 $272,916 $171,027
- ---------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
Loan Portfolio and Concentration
LOAN PORTFOLIO MIX
<TABLE>
<CAPTION>
JUNE 30, % OF GROSS March 31, % of Gross June 30, % of Gross
(in thousands) 1999 LOANS RECV 1999 Loans Recv 1998 Loans Recv
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Real Estate - construction loans
Construction $ 219,566 28.43% $ 210,877 28.60% $ 207,329 34.05%
Acquisition & Development 88,989 11.52% 71,995 9.76% 39,474 6.48%
Real Estate - mortgage loans
Non-Residential 59,986 7.77% 58,562 7.94% 64,995 10.67%
Residential 276,436 35.79% 272,553 36.97% 180,740 29.68%
Home equity and second mortgages 65,979 8.54% 61,699 8.37% 49,362 8.11%
- --------------------------------------------------------------------------------------------------------------------
Total real estate loans $ 710,956 92.05% $ 675,686 91.64% $ 541,900 88.99%
- --------------------------------------------------------------------------------------------------------------------
Commercial and consumer loans:
Commercial 21,507 2.79% 22,896 3.11% 17,609 2.89%
Mezzanine 6,728 0.87% 4,138 0.56% 10,723 1.76%
Leases 2,575 0.33% 3,354 0.45% 8,101 1.33%
Consumer and other 30,600 3.96% 31,263 4.24% 30,606 5.03%
- --------------------------------------------------------------------------------------------------------------------
Total commercial and consumer loans $ 61,410 7.95% 61,651 8.36% $ 67,039 11.01%
- --------------------------------------------------------------------------------------------------------------------
Total gross loans receivable $ 772,366 100.00% $ 737,337 100.00% $ 608,939 100.00%
- --------------------------------------------------------------------------------------------------------------------
Less:
Undisbursed portion of loans
in process (119,937) (106,704) (88,799)
Deferred fees and other unearned
Income (31) (18) (214)
Reserves for loan losses (7,251) (7,345) (6,732)
- --------------------------------------------------------------------------------------------------------------------
Loans receivable, net $ 645,147 $ 623,270 $ 513,194
</TABLE>
Loan Portfolio and Concentration
The loan portfolio has increased $21,877,000 or 3.51% to $645,147,000 at
June 30, 1999, compared to $623,270,000 at March 31, 1999 and $131,953,000 or
25.71% from $513,194,000 at June 30, 1998. This is primarily attributable to the
increase in construction, acquisition and development, and residential first
mortgages.
The community banking group originates primarily construction and
acquisition and development loans, non-residential real estate mortgages,
commercial, consumer and home equity and second mortgage loans in the metro
Atlanta area. Additionally, EBCG has invested $6,728,000 as of June 30, 1999, in
mezzanine financing loans. These loan categories increased $31,925,000 or 6.92%
to $493,355,000 at June 30, 1999 from $461,430,000 at March 31, 1999, and
$73,257,000 or 17.44% from $420,098,000 at June 30, 1998. These loans represent
63.88% of gross loans receivable at June 30, 1999, compared to 62.58% and 68.99%
March 31, 1999 and June 30, 1998, respectively. The mortgage-banking group
originates primarily loans held for sale. Loans held for sale decreased
$24,780,000 or 11.19% to $196,590,000 at June 30, 1999 from $221,370,000 at
March 31, 1999 and $141,794,000 or 41.90% from $338,384,000 at June 30, 1998.
Both groups contribute to the Company's portfolio of residential mortgage loans.
Residential mortgage loans increased $3,883,000 or 1.42% to $276,436,000 at June
30, 1999 from $272,553,000 at March 31, 1999 and $95,696,000 or 52.95% from
$180,740,000 at June 30, 1998. During fiscal 1999, the Company grew the
portfolio of residential mortgage loans through originations of single-family
mortgage loans. Residential first mortgages are generally believed to be a
conservative investment. The Company's high concentration of residential first
mortgages tends to reduce its level of delinquencies and problem loans.
22
<PAGE> 23
Non-Performing Assets
Total problem assets, which include non-accrual loans, loans classified as
potential problem assets by Asset Classification Committee (ACC) and real estate
acquired through the settlement of loans, increased by $2,223,000 or 19.61% to
$13,561,000 at June 30, 1999 from $11,338,000 at March 31, 1999. Total problem
assets as a percent of total assets increased to 1.11% at June 30, 1999 from
0.92% at March 31, 1999. At June 30, 1999, the Company had non-accrual loans of
$8,826,000 compared to $10,564,000 at March 31, 1999. Interest income not
recognized on these loans amounted to $131,000 during the first quarter of
fiscal 2000 and $199,000 for the same period last year. In addition, at June 30,
1999, the ACC identified $2,902,000 of potential problem loans compared to
$2,550,000 at March 31, 1999. Real estate owned decreased by $263,000 or 12.55%
to $1,833,000 at June 30, 1999 from $2,096,000 at March 31, 1999.
The following table reflects non-performing assets, potential problem loans
and restructured loans as of the dates indicated. Non-performing assets 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-PERFORMING ASSETS, POTENTIAL PROBLEM LOANS AND RESTRUCTURED LOANS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31, JUNE 30,
(in thousands) 1999 1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Non-accrual loans:
Residential real estate-construction $ 273 $ 497 $ 2,335
Residential real estate-mortgage 7,657 5,094 5,572
Commercial real estate 37 282 --
Commercial 54 37 61
Commercial lease 311 311 2,045
Installment 494 471 551
- ---------------------------------------------------------------------------------------
Total non-accrual 8,826 6,692 10,564
- ---------------------------------------------------------------------------------------
Potential problem loans 2,902 2,550 1,948
Loans contractually delinquent 90 days
which still accrue interest -- -- --
Troubled debt restructurings -- -- --
- ---------------------------------------------------------------------------------------
Total non-accrual and problem loans 11,728 9,242 12,512
- ---------------------------------------------------------------------------------------
Real estate owned, net 1,833 2,096 2,909
- ---------------------------------------------------------------------------------------
Total problem assets $13,561 $11,338 $15,421
- ---------------------------------------------------------------------------------------
Total problem assets/Total assets 1.11% 0.92% 1.38%
- ---------------------------------------------------------------------------------------
Total problem assets/Loans receivable,
net plus reserves 2.08% 1.80% 2.97%
- ---------------------------------------------------------------------------------------
Reserve for loan losses/Total problem assets 53.47% 64.78% 43.65%
- ---------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 24
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>
Residential
At June 30, 1999 ---------------- Comm'l % of Total
(in thousands) Const Mtgs R-Estate Comm'l Leases Installment Total Location
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-accrual:
Atlanta $ 71 $7,095 $ 37 $ 54 $311 $494 $ 8,062 58.81%
Charlotte 202 -- -- -- -- -- 202 1.47%
All other locations -- 562 -- -- -- -- 562 4.10%
- -------------------------------------------------------------------------------------------------------------------
Total non-accrual 273 7,657 37 54 311 494 8,826 64.38%
- -------------------------------------------------------------------------------------------------------------------
Potential problem loans:
Atlanta 663 74 1,703 47 29 -- 2,516 18.35%
Augusta 171 -- -- -- -- -- 171 1.25%
Warner Robins 10 -- -- -- -- -- 10 0.07%
All other locations 205 -- -- -- -- -- 205 1.50%
- -------------------------------------------------------------------------------------------------------------------
Total potential problem loans 1,049 74 1,703 47 29 -- 2,902 21.17%
- -------------------------------------------------------------------------------------------------------------------
Real estate owned:
Atlanta 31 192 268 -- -- -- 491 3.59%
Augusta -- 244 -- -- -- -- 244 1.78%
Hinesville 230 -- -- -- -- -- 230 1.68%
Aiken 72 54 -- -- -- -- 126 0.92%
All other locations 110 778 -- -- -- -- 888 6.48%
- -------------------------------------------------------------------------------------------------------------------
Total real estate owned(1) 443 1,268 268 -- -- -- 1,979 14.45%
- -------------------------------------------------------------------------------------------------------------------
Total problem assets by type $1,765 $8,999 $2,008 $101 $340 $494 $13,707 100.00%
- -------------------------------------------------------------------------------------------------------------------
% of total problem assets by type 12.87% 65.65% 14.66% 0.74% 2.48% 3.60% 100.00%
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Does not include reserves of $146,071; real estate owned, net equals
$1,832,787
Concentrations to Single Borrowers
At June 30, 1999, the Bank has one borrower located in Lexington, SC, with
a potential problem loan in the amount of $583,000, which is 60 days past due.
The borrower has an acquisition and development loan. As of August 9, 1999, the
borrower has made principal reductions of $90,000 and paid the interest due to
July 1, 1999. In addition, one borrower located in the metro Atlanta area has a
potential problem loan in the amount of $799,000. This borrower has a
non-residential mortgage loan, which is paid current as of June 30, 1999.
Loan Impairment
Impaired loans exclude residential mortgages, construction loans secured by
first mortgage liens, and groups of small homogeneous loans and decreased
$253,000 or 43.55% to $328,000 from $581,000 at March 31, 1999 and $1,717,000 or
83.96% from $2,045,000 at June 30, 1998. A loan is considered impaired when a
loan is classified as non-accrual and based on current information, it is
probable the Company will not receive all amounts due in accordance with the
contractual terms of the loan agreement. At June 30, 1999, March 31, 1999 and
June 30, 1998, the valuation allowance related to these impaired loans was
$88,000, $214,000 and $673,000, respectively, which is included in the reserve
for loan losses as presented in the table on the following page. At June 30,
1999, March 31, 1999 and June 30, 1998, all impaired loans had a related loan
loss reserve. During the first quarter of fiscal 2000, the Company charged-off
$251,000 against loan loss reserves related to impaired loans, compared to
$450,000 during
24
<PAGE> 25
the quarter ended March 31, 1999. During the first quarter of fiscal 1999, the
Company had no charge-offs related to impaired loans. For the first quarter of
fiscal 2000, the average recorded investment in impaired loans was $487,000
compared to $471,000 and $2,045,000 for the quarters ending March 31, 1999 and
June 30, 1998, respectively.
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 collectability 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 $300,000 and $627,000, respectively, of additional
reserves for possible loan losses during the first quarters of fiscal 2000 and
1999. At June 30, 1999, reserves represented 1.14% of outstanding average loans
receivable, net during the period, decreasing from 1.15% at March 31, 1999. Net
charge-offs during the first quarter of 2000, were $394,000 versus $505,000
during the quarter ending March 31, 1999. In the first quarter of 2000, net
charge-offs represented 0.06% of outstanding average loans receivable, net,
compared to 0.08% for the quarter ending March 31, 1999. Loan loss reserves
totaled $7,251,000 and $7,345,000 at June 30, 1999 and March 31, 1999,
respectively. Loan loss reserves to total problem assets declined to 53.47% at
June 30, 1999 from 64.78% at March 31, 1999. 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.
25
<PAGE> 26
ANALYSIS OF THE RESERVE FOR LOAN LOSSES
<TABLE>
<CAPTION>
(in thousands) JUNE 30, 1999 MARCH 31, 1999 JUNE 30, 1998
------------------------------------------------
<S> <C> <C> <C>
Reserve for loan losses, beginning of quarter $ 7,345 $ 7,550 $ 6,505
Charge-offs:
Real estate - construction -- 12 --
Real estate - mortgage 62 272 181
Consumer 212 123 266
Commercial 247 -- 13
Commercial leases 4 193 16
- -----------------------------------------------------------------------------------------------------------------
Total charge-offs 525 600 476
Recoveries 131 95 76
- -----------------------------------------------------------------------------------------------------------------
Net charge-offs 394 505 400
Provision for loan losses 300 300 627
- -----------------------------------------------------------------------------------------------------------------
Reserve for loan losses, end of quarter $ 7,251 $ 7,345 $ 6,732
- -----------------------------------------------------------------------------------------------------------------
Average loans receivable, net, outstanding for the period $636,067 $641,140 $539,228
- -----------------------------------------------------------------------------------------------------------------
Ratio of net charge-offs to average loans receivable, net 0.06% 0.08% 0.07%
- -----------------------------------------------------------------------------------------------------------------
Reserves to average loans receivable, net 1.14% 1.15% 1.25%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Investment in Real Estate
The Company's investment in real estate decreased $851,000 or 2.81% to
$29,423,000 from $30,274,000 at March 31, 1999 and increased $2,836,000 or
10.67% from $26,587,000 at June 30, 1998. On April 27, 1999, Eagle Roswell Road
Development, LLC ("Eagle Roswell Road") was formed to purchase 6.8 acres of land
in Fulton County, Georgia, for the purpose of developing a 56-townhome
residential community. The Company has a 100% ownership interest in Eagle
Roswell Road. In addition, on June 9, 1999, Eagle Hicks Lower Roswell
Development, LLC ("Eagle Hicks Lower Roswell") was formed to purchase 15.9 acres
of land in Cobb County, Georgia, for the purpose of developing a 29-lot
residential community. The Company has an 80% ownership interest in Eagle Hicks
Lower Roswell. The Company currently has eight real estate projects in the
Atlanta market.
Deposits
Deposits are the Company's primary funding source. Total deposits
decreased $75,902,000 or 8.63% to $803,763,000 from $879,665,000 at March 31,
1999. The Bank uses traditional marketing methods to attract new customers. Its
deposit network is serviced from its branches located in metro Atlanta. The
decline in deposits was primarily in certificates of deposits, which decreased
9.09% to $535,742,000 at June 30, 1999 from $589,307,000 at March 31, 1999.
Demand deposits including non-interest bearing, interest bearing, savings, and
money market accounts were 33.35% of the Company's deposits at June 30, 1999.
The weighted average interest rate on deposits decreased to 4.80% during the
first quarter of fiscal 2000, from 4.99% and 5.44% during the March 31, 1999 and
June 30, 1998 quarters, respectively.
26
<PAGE> 27
For the periods indicated, deposits are summarized by type and
remaining term as follows:
Deposit Mix
<TABLE>
<CAPTION>
JUNE 30, MARCH 31, JUNE 30,
(in thousands) 1999 1999 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Demand deposits:
Non-interest -bearing deposits $ 41,881 $ 45,737 $ 32,100
Interest-bearing deposits 118,231 122,183 103,433
Money market accounts 72,050 85,516 46,581
Savings accounts 35,859 36,922 38,778
----------------------------------------
Total demand deposits 268,021 290,358 220,892
----------------------------------------
Time deposits:
Maturity one year or less 391,939 427,203 420,819
Maturity greater than one year through
two years 56,122 71,337 63,942
Maturity greater than two years through
three years 59,091 25,568 29,360
Maturity greater than three years 28,590 65,199 62,994
----------------------------------------
Total time deposits 535,742 589,307 577,115
----------------------------------------
Total deposits $803,763 $879,665 $798,007
----------------------------------------
</TABLE>
The weighted average interest rate on time deposits at June 30, 1999, March
31, 1999 and June 30, 1998 was 5.41%, 5.6% and 5.92%, respectively.
For the periods indicated, interest expense on deposits is summarized as
follows:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31, JUNE 30,
(in thousands) 1999 1999 1998
------------------------------------
<S> <C> <C> <C>
Interest-bearing deposits $1,023 $ 929 $ 960
Money market accounts 783 870 435
Savings accounts 189 215 237
Time deposits 7,674 8,765 8,768
------------------------------------
Total $9,669 $10,779 $10,400
------------------------------------
</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 June 30, 1999, advances were
$213,050,000 compared to $157,500,000 at March 31, 1999. At June 30, 1999, the
weighted average interest rate on these borrowings was 5.54% compared to 5.38%
at March 31, 1999.
27
<PAGE> 28
Guaranteed Preferred Beneficial Interests in Debentures
On July 29, 1998, the Company closed a public offering of 1,150,000 of
8.50% Cumulative Trust Preferred Securities (the "Preferred Securities) offered
and sold by EBI Capital Trust I (the "Trust"), having a liquidation amount of
$25 each. The proceeds from such issuances, together with the proceeds of the
related issuance of common securities of the Trust purchased by the Company,
were invested in Subordinated 8.50% Debentures (the "Debentures") of the
Company. The sole asset of the Trust is the Debentures. The Debentures are
unsecured and rank junior to all senior debt of the Company. The Company owns
all of the common securities of the Trust. At June 30, 1999, guaranteed
preferred beneficial interests in debentures was $28,750,000. The weighted
average interest rate at June 30, 1999 was 8.65%.
Industry Segments
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," requires disclosure of certain information related to the
Company's reportable operating segments. The reportable operating segments were
determined based on management's internal reporting approach. The reportable
segments consist of: community banking, mortgage banking, real estate
development and sales, and mezzanine financing. The community banking segment
offers a wide array of banking services to individual and corporate customers
and earns interest income from loans made to customers and interest and dividend
income from investments in certain debt and equity securities. The community
banking segment also recognizes fees related to deposit services, lending, and
other services provided to customers. The mortgage banking segment originates
residential mortgage loans through retail loan production offices and purchases
residential mortgage loans from correspondents through a wholesale lending
office. The mortgage banking segment generates revenues through interest on
residential mortgage loans and selling substantially all of the fixed rate
residential mortgage loans to investors. The mortgage banking segment's primary
sources of fee income is derived from services including loan application and
origination, the gain or loss on the sale of loans to third parties, and from
the sale of mortgage servicing rights. The real estate development and sales
segment performs real estate development activities in the Atlanta metropolitan
area by investing in land for the development of residential subdivisions. The
real estate development and sales segment sells the lots within these
subdivisions and frequently provides the lot and/or construction loan financing
through Tucker Federal Bank. The real estate development and sales segment also
provides third party brokerage services for the Bank and for unaffiliated third
parties. The mezzanine financing segment provides mezzanine financing to
small-and medium-sized businesses that is not readily available from traditional
commercial banking sources. The mezzanine financing segment generates revenues
through interest and fees on loans. No transactions with a single customer
contributed 10% or more to the Company's total revenue.
28
<PAGE> 29
The results for each reportable segment are included in the following table (in
thousands):
<TABLE>
<CAPTION>
Real Estate
Mortgage Development Mezzanine Elimina-
Banking Banking and Sales Financing Other tions Consolidated
- --------------------------------------------------------------------------------------------------------------------------------
JUNE 30, 1999:
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET INTEREST INCOME (EXPENSE) $ 8,474 $ (127) $ (89) $ 394 $ (463) $ (34) $ 8,155
NONINTEREST (EXPENSE) INCOME (5,033) (1,227) 2,003 (8) 49 34 (4,182)
DEPRECIATION ON PREMISES AND
EQUIPMENT 548 130 -- -- -- -- 678
INCOME TAX EXPENSE (BENEFIT) 1,007 (544) 765 154 (150) -- 1,232
NET INCOME 2,140 (816) 1,149 232 (264) -- 2,441
PROVISION FOR LOAN LOSSES 294 6 -- -- -- -- 300
TOTAL ASSETS 1,177,254 240,598 33,363 16,120 13,703 (263,728) 1,217,310
EXPENDITURES FOR ADDITIONS TO
PREMISES AND EQUIPMENT, NET 1,974 116 -- -- -- -- 2,090
TOTAL REVENUES FROM EXTERNAL
CUSTOMERS 19,775 6,033 2,493 242 292 -- 28,835
INTERSEGMENT REVENUES 3,734 153 123 196 265 -- 4,471
- --------------------------------------------------------------------------------------------------------------------------------
JUNE 30, 1998:
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income (expense) $ 7,486 $ 281 $ 87) $ 282 $ 66 $ -- $ 8,028
Noninterest (expense) income (4,290) 25 936 -- 353 -- (2,976)
Depreciation on premises and
equipment 436 126 -- -- -- -- 562
Income tax expense (benefit) 825 118 340 113 49 -- 1,445
Net income 1,756 176 509 169 370 -- 2,980
Provision for loan losses 615 12 -- -- -- -- 627
Total assets 1,055,219 371,713 27,883 11,207 8,127 (353,917) 1,120,232
Expenditures for additions to premises
and equipment, net 225 35 -- -- -- -- 260
Total revenues from external customers 16,230 9,583 1,280 282 474 -- 27,849
Intersegment revenues 5,884 (35) 28 -- 220 -- 6,097
</TABLE>
29
<PAGE> 30
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. The Company has
experienced significant growth in both assets and deposit accounts. Increases in
deposits provide a significant portion of the Company's cash flow needs and
continues to provide a relatively stable, low cost source of funds. The
Company's other primary funding source is provided by advances from the Federal
Home Loan Bank. At June 30, 1999, advances stood at $213,050,000. The liquidity
requirement may vary from time to time (between 4 percent and 10 percent)
depending upon economic conditions and savings plans of all member savings
institutions. Under current regulations, the Bank is required to maintain liquid
assets of not less than 4 percent of the liquidity base at the end of the
preceding calendar quarter. At June 30, 1999, the Company's liquidity ratio was
9.52%. At June 30, 1999, the Company had commitments to originate loans of
approximately $75,142,000. The Company had commitments to sell mortgage loans of
approximately $147,000,000 at June 30, 1999.
Beginning April 1, 1995, the Bank formed an operating subsidiary, Prime
Eagle Mortgage Corporation. This business unit generates revenues by originating
permanent mortgage loans. Substantially all fixed rate permanent mortgage loans
are sold to investors. Permanent mortgage loan originations decreased
$78,491,000 or 20.74% to $299,960,000 for the first quarter of fiscal 2000
compared to $378,451,000 for the same period last year. The Company manages the
funding requirements of these loans primarily with short term advances from the
FHLB.
Cash Flows from Operating Activities
For the first three months of fiscal 2000, cash provided from operating
activities was $34,865,000 compared to cash used of $5,401,000 for the same
period last year. The primary reason for this is fluctuations in timing
differences from the sale of loans held for sale versus originations of loans
held for sale. During the first quarter of fiscal 2000, the Company originated
$299,960,000 of loans held for sale and sold $324,740,000 of loans held for
sale. This resulted in $24,780,000 cash provided. This compares to the same
quarter last year, when the Company originated $378,451,000 of loans held for
sale and sold $372,659,000 of loans held for sale, resulting in cash used of
$5,792,000.
Cash Flows from Investing Activities
During the first three months of fiscal 2000, the Company used cash from
investing activities of $19,066,000 compared to cash provided of $17,905,000 for
the same quarter last year. For the first quarter of fiscal 2000, securities
available for sale provided cash from principal repayments of $7,911,000
compared with cash used to purchase securities available for sale and cash
provided from sales, calls, maturities and repayments of $8,583,000 in the same
quarter in fiscal 1999. Cash provided from principal repayments and calls of
investment securities held to maturity provided $4,043,000 compared to cash
provided from principal repayments of investment securities held to maturity of
$404,000 for the same quarter last year. Loan originations, net of repayments,
represented $22,287,000 of cash used for the first quarter compared to
$23,632,000 provided for the same period in fiscal 1999. During the first three
months of fiscal 2000, the Company purchased and redeemed FHLB stock of
$4,971,000 and $3,055,000, respectively. This compares to FHLB stock purchased
and redeemed of $508,000 and $2,256,000, respectively, for the same period last
year. During the first quarter of the current year, the Company received
proceeds from sales of premises and equipment of $1,666,000 and used cash of
$2,090,000 for purchases of premises and equipment. During the first quarter of
the last year, the Company received proceeds from sales of premises and
equipment of $522,000 and used cash of $237,000 for purchases of premises and
equipment. Additionally, the Company invested an additional $7,079,000 in
investment in real
30
<PAGE> 31
estate during the first three months of fiscal 2000. In comparison, for the
first quarter of 1999, the Company invested an additional $1,788,000 in
investment in real estate. Proceeds from the sale of investment in real estate
for the first three months of fiscal 2000, resulted in a $9,985,000 source of
cash versus $1,642,000 for the same period last year.
Cash Flows from Financing Activities
Cash used in financing activities during the first quarter of fiscal 2000,
was $20,311,000 compared to cash used of $26,569,000 during same quarter last
year. The Company borrowed FHLB advances and other borrowing of $180,790,000 and
repaid $124,619,000 during the first three months of fiscal 2000. This compares
to borrowings of $239,460,000 and repayments of $282,403,000 during the same
period last year. The Company's deposits decreased by $75,902,000 during the
first quarter of fiscal 2000. The decrease is comprised of $53,565,000 of time
deposits and $22,337,000 in demand deposits. Comparatively, for the same quarter
last year, deposits increased $19,032,000 comprised of $22,842,000 in time
deposits and a decrease of $3,810,000 in demand deposits. The Company paid cash
dividends to its shareholders of $891,000 and $861,000 for the first three
months of fiscal 2000 and 1999, 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 percent or higher, a tier
one risk based capital ratio of 6 percent or higher and a leveraged ratio of 5
percent or higher. At June 30, 1999, the Bank was classified as "well
capitalized" under the OTS regulations that implement the FDICIA provisions
described above. On July 29, 1998, the Company closed a public offering of trust
preferred securities raising $28,750,000 of capital. The Company contributed
$11,000,000 of the proceeds to the Bank.
The following table reflects the Bank's minimum regulatory capital
requirements, actual capital and the level of excess capital by category. The
Bank has historically maintained capital substantially in excess of the minimum
requirement. In fiscal 1999, the Bank paid no dividends to the Company.
31
<PAGE> 32
REGULATORY CAPITAL
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Regulatory Required Excess
(in thousands) Capital % Capital % Capital %
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
JUNE 30, 1999
RISK-BASED RATIOS:
TIER 1 CAPITAL $71,128 9.98 $28,012 4.00 $43,116 5.98
TOTAL CAPITAL 78,070 10.96 56,024 8.00 22,046 2.96
TIER 1 LEVERAGE 71,128 5.92 48,421 4.00 22,707 1.92
TANGIBLE EQUITY 71,128 5.80 19,951 1.50 51,177 4.30
- ---------------------------------------------------------------------------------------------
MARCH 31, 1999
Tier 1 capital $69,810 9.97 $28,012 4.00 $41,798 5.97
Total capital 76,996 10.99 56,024 8.00 20,972 2.99
Tier 1 leverage 69,810 5.77 48,421 4.00 21,389 1.77
Tangible equity 69,810 5.25 19,951 1.50 49,859 3.75
- ---------------------------------------------------------------------------------------------
JUNE 30, 1998
Tier 1 capital $53,884 8.17 $26,369 4.00 $27,515 4.17
Total capital 59,873 9.08 52,737 8.00 7,136 1.08
Tier 1 leverage 53,884 4.98 43,308 4.00 10,576 0.98
Tangible equity 53,884 4.72 17,130 1.50 36,754 3.22
- ---------------------------------------------------------------------------------------------
</TABLE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In November 1992, after acquiring certain assets from the Resolution Trust
Corporation, including various real estate loans, and four mortgage origination
offices, the Bank entered into an Operating Agreement (the "Agreement") with two
individuals and a corporation controlled by them (collectively, the
"Plaintiffs") to assist in the management of the Bank's newly formed Prime
Lending Division ("Prime"). The individual Plaintiffs became employees of the
Bank and their corporation was to be paid a percentage of the net pretax profits
of Prime. In mid-1997, a disagreement arose with respect to the allocation of
expenses to Prime for purposes of calculating the net pretax profits of Prime.
Plaintiffs filed suit on December 5, 1997 alleging, among other things, that the
Bank had improperly calculated net pretax profits under the Agreement since
April 1997. In January 1998, the Bank terminated the employment of the two
individuals "for cause," terminated the Agreement and filed an Answer and
Counterclaim.
The Complaint as amended seeks, among other things (i) a declaration the
Agreement was terminated "without cause" and that, pursuant to a purchase option
in the Agreement, Plaintiffs therefore have the right to purchase the "assets"
of Prime at 75% of fair market value; (ii) a declaration that the term "assets,"
as used in connection with the Plaintiffs' alleged purchase option, includes all
outstanding loans that were originated by Prime at the time of their termination
without having to net against the loans any corresponding liability incurred by
the Bank in connection with these loans; (iii) alleged unpaid profits from
Prime's operations (in an amount estimated by the Plaintiffs to equal
approximately $450,000); (iv) alleged consequential damages in excess of $20
million, which represents the Plaintiffs' assessment of the loss they incurred
by the Bank's "refusal" to sell to Plaintiffs the "assets" as Plaintiffs have
defined them; and (v) unspecified punitive damages and attorneys fees.
32
<PAGE> 33
The Bank strongly denies Plaintiffs' entitlement to any relief and
believes its Counterclaim has merit. The Bank believes, among other things, that
Plaintiffs were properly terminated for cause, that Plaintiffs have no rights
with respect to the purchase option, and that even if the purchase option were
applicable, Plaintiffs would have no right to purchase any loans, but only
certain tangible and intangible assets of the Bank, the value of which is
estimated to be in the $1-2 million range.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
On April 30, 1999, TFB Management, Inc., TFB Management (NC), Inc., and TFB
Management (RE), Inc., were incorporated as Delaware corporations. The Bank is
the 100%owner of TFB Management, Inc., which is the 100% owner of TFB Management
(NC), Inc., which is the 100% owner of TFB Management (RE), Inc. TFB Management
(RE), Inc. was formed to qualify as a Real Estate Investment Trust ("REIT")
under the Internal Revenue Code. This three-tier structure was utilized to
reduce the Company's effective tax rate.
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
33
<PAGE> 34
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: August 16, 1999 /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: August 16, 1999 /s/ Richard B. Inman, Jr.
------------------------------------
Richard B. Inman, Jr.
Director, Secretary and Treasurer
Date: August 16, 1999 /s/ Conrad J. Sechler, Jr.
------------------------------------
Conrad J. Sechler, Jr.
Chairman of the Board and President
Date: August 16, 1999 /s/ LuAnn Durden
------------------------------------
LuAnn Durden
Chief Financial Officer
34
<PAGE> 35
EAGLE BANCSHARES, INC.
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page No.
- ------- ----------- --------
<S> <C> <C>
11 Computation of per share earnings 36
27 Financial Data Schedule (for SEC use
only)
</TABLE>
35
<PAGE> 1
EXHIBIT 11
EAGLE BANCSHARES, INC.
Statement re: Computation of per share earnings
Basic earnings per share are based on the weighted average number of common
shares outstanding during each period. Diluted earnings per common share are
based on the weighted average number of common shares outstanding during each
period, plus common share equivalents calculated for stock options and
restricted stock outstanding using the treasury stock method.
In the calculation of basic and diluted earnings per share, net income is
identical. Below is a reconciliation for the three month periods ended June 30,
1999 and 1998, of the difference between average basic common shares outstanding
and average diluted common shares outstanding.
<TABLE>
<CAPTION>
(in thousands, except per share data) Three Months Ended
Basic JUNE 30, 1999 JUNE 30, 1998
- ----- ------------- -------------
<S> <C> <C>
Net income $2,441 $2,980
-------------------------------
Average common shares 5,571 5,763
-------------------------------
Earnings per common share - basic $ 0.44 $ 0.52
-------------------------------
Diluted
- -------
Net income $2,441 $2,980
-------------------------------
Average common shares - basic 5,571 5,763
Incremental share outstanding 129 198
Average common shares - diluted 5,700 5,961
-------------------------------
Earnings per common share - diluted $ 0.43 $ 0.50
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EAGLE BANCSHARES FOR THE THREE MONTHS ENDED JUNE 30,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 23,327
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 191,930
<INVESTMENTS-CARRYING> 74,196
<INVESTMENTS-MARKET> 73,560
<LOANS> 841,737
<ALLOWANCE> 7,251
<TOTAL-ASSETS> 1,217,310
<DEPOSITS> 803,763
<SHORT-TERM> 277,723
<LIABILITIES-OTHER> 7,358
<LONG-TERM> 28,750
0
0
<COMMON> 6,128
<OTHER-SE> 67,399
<TOTAL-LIABILITIES-AND-EQUITY> 1,217,310
<INTEREST-LOAN> 16,817
<INTEREST-INVEST> 2,487
<INTEREST-OTHER> 2,022
<INTEREST-TOTAL> 21,326
<INTEREST-DEPOSIT> 9,669
<INTEREST-EXPENSE> 13,171
<INTEREST-INCOME-NET> 8,155
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 7,855
<EXPENSE-OTHER> 11,691
<INCOME-PRETAX> 3,673
<INCOME-PRE-EXTRAORDINARY> 3,673
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,441
<EPS-BASIC> 0.44
<EPS-DILUTED> 0.43
<YIELD-ACTUAL> 7.71
<LOANS-NON> 8,826
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,902
<ALLOWANCE-OPEN> 7,345
<CHARGE-OFFS> 525
<RECOVERIES> 131
<ALLOWANCE-CLOSE> 7,251
<ALLOWANCE-DOMESTIC> 7,251
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
