<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended December 31, 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
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(STATE OR OTHER JURISDICTION OF (IRS 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 [ ] No [ ] NOT APPLICABLE
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at January 31, 2000
---------------------------------- --------------------------------------
Common Stock, $1.00 Par Value 5,540,071 shares
Index of Exhibit on Page 40
<PAGE> 2
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C>
PART I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition at -
December 31, 1999 and March 31, 1999 3
Consolidated Statements of Income -
Three and Nine Months Ended December 31, 1999 and 1998 4
Consolidated Statements of Cash Flows -
Nine months ended December 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
PART II. Other Information
Item 1. Legal Proceedings 37
Item 2. Changes in Securities 38
Item 3. Defaults upon Senior Securities 38
Item 4. Submission of Matters to a Vote of Security Holders 38
Item 5. Other Information 38
Item 6. Exhibits and Reports on Form 8-K 38
Signatures 39
Index of Exhibits 40
</TABLE>
2
<PAGE> 3
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
DECEMBER 31, March 31,
(in thousands except per share data) 1999 1999
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and amounts due from banks $ 25,821 $ 27,839
Accrued interest receivable 8,118 7,766
Securities available for sale 205,116 204,618
Investment securities held to maturity 63,214 68,298
Loans held for sale 115,853 221,370
Loans receivable, net 700,520 623,270
Investment in real estate 38,168 30,274
Real estate acquired in settlement of loans, net 1,402 2,096
Stock in Federal Home Loan Bank, at cost 15,002 8,736
Premises and equipment, net 23,828 23,275
Deferred income taxes 8,948 4,059
Other assets 4,514 8,399
- -----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,210,504 $ 1,230,000
- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $ 731,562 $ 879,665
Federal Home Loan Bank advances and other borrowings 367,911 221,552
Advance payments by borrowers for property taxes and insurance 745 2,356
Guaranteed preferred beneficial interests in the Company's subordinated debentures -
(Trust preferred securities) 28,750 28,750
Accrued expenses and other liabilities 10,544 22,860
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,139,512 1,155,183
- -----------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value, 10,000,000 shares authorized, 6,141,871 and
6,124,064 shares issued at December 31, and March 31, 1999, respectively 6,142 6,124
Additional paid-in capital 38,200 38,206
Retained earnings 42,959 38,601
Accumulated other comprehensive income (7,937) (283)
Employee Stock Ownership Plan note payable (1,886) (1,978)
Unamortized restricted stock -- (178)
Treasury stock, 601,800 and 554,500 shares at cost, at December 31, and
March 31, 1999, respectively (6,486) (5,675)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 70,992 74,817
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,210,504 $ 1,230,000
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
(in thousands except per share data) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest on loans $17,419 $21,142 $51,184 $57,784
Interest on mortgage-backed securities 2,425 1,675 6,598 4,229
Interest and dividends on investment securities and other
interest earning assets 2,346 2,589 7,173 6,137
- ----------------------------------------------------------------------------------------------------------------------------
Total interest income 22,190 25,406 64,955 68,150
- ----------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 8,438 10,507 26,958 31,188
Interest on FHLB advances and other borrowings 3,943 4,095 10,271 9,827
Interest of long-term debt 622 630 1,867 1,064
- ----------------------------------------------------------------------------------------------------------------------------
Total interest expense 13,003 15,232 39,096 42,079
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income 9,187 10,174 25,859 26,071
PROVISION FOR LOAN LOSSES 200 627 600 1,881
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 8,987 9,547 25,259 24,190
- ----------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Mortgage production fees 1,503 3,245 5,745 11,154
Gains on sales of investment in real estate 1,574 323 4,827 1,414
Real estate commissions, net 202 141 748 555
Rental income -- 173 165 519
Service charges 652 517 1,662 1,568
Gain on sales of securities available for sale -- -- 19 469
Gain on sales of loans -- -- -- 24
Gain on sales of fixed assets -- 11 176 163
Gain on sale of branch -- -- 673 --
Miscellaneous 923 642 2,952 2,282
- ----------------------------------------------------------------------------------------------------------------------------
Total non-interest income 4,854 5,052 16,967 18,148
- ----------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSES:
Salaries and employee benefits 5,485 5,973 17,088 16,418
Net occupancy expense 1,354 1,409 4,380 3,926
Data processing expense 679 637 2,044 1,802
Federal insurance premium 99 159 386 416
Marketing expense 553 565 1,652 1,556
Provisions for losses on real estate acquired in settlement of loans -- 231 50 231
Miscellaneous 2,302 2,062 6,491 6,270
- ----------------------------------------------------------------------------------------------------------------------------
Total non-interest expenses 10,472 11,036 32,091 30,619
- ----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 3,369 3,563 10,135 11,719
INCOME TAX EXPENSE 1,026 1,090 3,104 3,795
- ----------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 2,343 $ 2,473 $ 7,031 $ 7,924
- ----------------------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE - BASIC $ 0.42 $ 0.43 $ 1.26 $ 1.38
- ----------------------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE - DILUTED $ 0.42 $ 0.42 $ 1.24 $ 1.34
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 5
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(dollars in thousands)
Nine Months ended December 31, 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,031 $ 7,924
Adjustments to reconcile net income to net cash used in operating
Activities:
Depreciation, amortization and accretion 1,640 1,865
Provision for loan losses 600 1,881
Provision for losses on real estate acquired in settlement of loans 50 231
Gain on sales of securities available for sale (19) (469)
(Gain)/loss on sales of real estate acquired in settlement of loans (192) 57
Gain on sales of investment in real estate (4,827) (1,414)
Gain on sale of loans -- (24)
Gain on sales of premises and equipment (176) (163)
Amortization of restricted stock 50 89
Deferred income tax (benefit)/expense (208) 57
Proceeds from sales of loans held for sale 748,064 1,023,802
Originations of loans held for sale (642,547) (1,111,090)
Changes in assets and liabilities:
Increase in accrued interest receivable (352) (890)
Increase (decrease) in other assets 3,760 (1,757)
Decrease in accrued expense and other liabilities (12,380) (14,184)
- -----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 100,494 $ (94,085)
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available for sale (35,791) (137,812)
Proceeds from sales of securities available for sale 1,807 9,441
Purchases of investment securities held to maturity (9,884) (5,050)
Principal payments received on securities available for sale 21,182 16,924
Principal payments received on investment securities held to maturity 6,003 1,774
Proceeds from calls of securities available for sale -- 6,749
Proceeds from calls of investment securities held to maturity 6,607 17,200
Proceeds from maturities of securities available for sale -- 1,501
Proceeds from maturities of investment securities held to maturity 2,500 --
Loan originations, net of repayments (72,115) (38,513)
Proceeds from sales of real estate acquired in settlement of loans 1,403 1,545
Purchases of FHLB stock (14,806) (6,630)
Redemption of FHLB stock 8,540 4,487
Proceeds from sales of premises and equipment 2,030 590
Purchases of premises and equipment, net (4,447) (1,642)
Additions to investment in real estate (29,316) (12,495)
Proceeds from sales of investment in real estate 20,269 2,923
- -----------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES $ (96,018) $ (139,008)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 6
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
<TABLE>
<CAPTION>
(dollars in thousands)
Nine Months ended December 31, 1999 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in time deposits $ (98,742) $ 73,798
Net change in demand deposit accounts (49,361) 32,945
Repayment of FHLB advances and other borrowings (491,313) (664,321)
Proceeds from FHLB advances and other borrowings 637,672 763,616
Increase in ESOP debt -- (2,000)
Principal reduction of ESOP debt 92 187
Issuance of trust preferred securities -- 28,750
Repurchases of common stock (811) (3,177)
Proceeds from exercise of stock options 249 822
Cash dividends paid (2,669) (2,717)
Decrease in advance payments from borrowings for
Property taxes and insurance (1,611) (2,741)
- ----------------------------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (6,494) 225,162
- ----------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,018) (7,931)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 27,839 34,682
- ----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 25,821 $ 26,751
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH PAID DURING THE PERIOD FOR:
Interest $ 40,578 $ 40,755
Income Taxes $ 20 $ 8,745
Supplemental schedule of noncash investing and financing activities:
Acquisition of real estate in settlement on loans $ 567 $ 1,530
Loans made to finance real estate acquired in settlement of loans $ -- $ 801
Loans made to finance sales of investments in real estate $ 6,239 $ 3,960
Dividends payable $ 886 $ 902
- ----------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 7
Eagle Bancshares, Inc. and Subsidiaries
Notes to Interim Unaudited Consolidated Financial Statements
December 31, 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 nine month period
ended December 31, 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. Earnings Per Share
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. All share and per
share information included in these financial statements have been restated to
give effect to the Company's adoption of Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share".
In the calculation of basic and diluted earnings per share, net income
is identical. Below is a reconciliation for the three-month periods ended
December 31, 1999 and 1998, of the difference between average basic common
shares outstanding and average diluted common shares outstanding.
7
<PAGE> 8
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
(dollars in thousands except per share data) THREE MONTHS ENDED
DECEMBER 31, 1999 December 31, 1998
---------------------------------------------
<S> <C> <C>
Basic
Net income $ 2,343 $ 2,473
---------------------------------------------
Average common shares 5,546 5,719
---------------------------------------------
Earnings per common share - basic $ 0.42 $ 0.43
---------------------------------------------
Diluted
Net income $ 2,343 $ 2,473
---------------------------------------------
Average common shares - basic 5,546 5,719
Incremental shares outstanding 72 119
---------------------------------------------
Average common shares - diluted 5,618 5,838
---------------------------------------------
Earnings per common share - diluted $ 0.42 $ 0.42
---------------------------------------------
</TABLE>
Below is a reconciliation for the nine-month periods ended December 31,
1999 and 1998, of the difference between average basic common shares outstanding
and average diluted common shares outstanding.
<TABLE>
<CAPTION>
(dollars in thousands except per share data) NINE MONTHS ENDED
DECEMBER 31, 1999 December 31, 1998
---------------------------------------------
<S> <C> <C>
Basic
Net income $ 7,031 $ 7,924
---------------------------------------------
Average common shares 5,565 5,761
---------------------------------------------
Earnings per common share - basic $ 1.26 $ 1.38
---------------------------------------------
Diluted
Net income $ 7,031 $ 7,924
---------------------------------------------
Average common shares - basic 5,565 5,761
Incremental shares outstanding 91 167
---------------------------------------------
Average common shares - diluted 5,656 5,928
---------------------------------------------
Earnings per common share - diluted $ 1.24 $ 1.34
---------------------------------------------
</TABLE>
E. Accumulated Other Comprehensive Income
The Company adopted the provisions in Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." This statement requires
that certain transactions and other economic events that bypass the income
statement must be displayed as other comprehensive income. The Company's
comprehensive income consists of net income and the change in unrealized gains
and losses on securities available for sale, net of income taxes.
8
<PAGE> 9
Comprehensive income for the three and nine months ended December 31,
1999 and 1998 is calculated as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------------------------------------
1999 1998 1999 1998
----------------------------------------------------
<S> <C> <C> <C> <C>
Unrealized (losses)/gains, net recognized in
Accumulated other comprehensive
income:
Before income tax $ (5,340) $ (2,688) $ (12,335) $ (2,040)
Income tax (2,026) (1,020) (4,681) (775)
----------------------------------------------------
Net of income tax $ (3,314) $ (1,668) $ (7,654) $ (1,265)
----------------------------------------------------
Amounts reported in net income:
(Losses)/gains on sales of securities available for sale $ 0 $ 0 $ 19 $ 469
Net accretion on securities available for sale 61 40 110 107
----------------------------------------------------
Reclassification adjustment 61 40 129 576
Income tax expense (23) (15) (49) (219)
----------------------------------------------------
Reclassification adjustment, net of tax 38 25 80 357
----------------------------------------------------
Amounts reported in accumulated other comprehensive income:
Unrealized losses arising during period, net of tax (3,276) (1,643) (7,574) (908)
Less reclassification adjustment, net of tax 38 25 80 357
----------------------------------------------------
Unrealized losses, net recognized in
Accumulated other comprehensive income (3,314) (1,668) (7,654) (1,265)
Net income 2,343 2,473 7,031 7,924
----------------------------------------------------
Total comprehensive income $ (971) $ 805 $ (623) $ 6,659
----------------------------------------------------
</TABLE>
F. 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 operation. The mortgage-banking segment generates revenues through
origination and processing fees, 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 also
9
<PAGE> 10
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, fees on loans and equity participation arrangements. No
transactions with a single customer contributed 10% or more to the Company's
total revenue.
10
<PAGE> 11
The results for each reportable segment are included in the following table:
<TABLE>
<CAPTION>
Real Estate
THREE MONTHS ENDED: Community Mortgage Development Mezzanine
Banking Banking and Sales Financing Other
(dollars in thousands) ------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999:
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET INTEREST INCOME (EXPENSE) $ 8,975 $ 16 $ 7 $ 593 $ (471)
NET NON-INTEREST (EXPENSE) INCOME (5,454) (1,383) 1,341 (64) 9
DEPRECIATION ON PREMISES AND
EQUIPMENT 558 126 -- -- --
INCOME TAX EXPENSE (BENEFIT) 1,009 (549) 539 212 (185)
NET INCOME 2,317 (823) 809 317 (277)
PROVISION FOR LOAN LOSSES 195 5 -- -- --
TOTAL ASSETS 1,156,007 145,677 40,945 16,555 12,415
EXPENDITURES FOR ADDITIONS
TO PREMISES AND EQUIPMENT 673 23 -- -- --
TOTAL REVENUES FROM EXTERNAL CUSTOMERS 20,558 3,924 1,785 529 246
INTERSEGMENT REVENUES 2,156 1 8 64 253
- --------------------------------------------------------------------------------------------------------------------------
December 31, 1998:
- --------------------------------------------------------------------------------------------------------------------------
Net interest income (expense) $ 8,408 $ (193) $ 84 $ 2,384 $ (449)
Net non-interest (expense) income (6,432) 103 186 61 38
Depreciation on premises and
Equipment 454 131 -- -- --
Income tax expense (benefit) 205 (37) 108 978 (164)
Net income 1,146 (55) 162 1,467 (247)
Provision for loan losses 625 2 -- -- --
Total assets 1,304,195 455,705 35,442 14,514 16,261
Expenditures for additions to premises and
equipment 559 272 -- -- --
Total revenues from external customers 17,193 9,982 666 2,394 223
Intersegment revenues 5,434 698 5 63 304
<CAPTION>
Eliminations Consolidated
-------------------------------
- -------------------------------------------------------------------------------
DECEMBER 31, 1999:
- -------------------------------------------------------------------------------
<S> <C> <C>
NET INTEREST INCOME (EXPENSE) $ 67 $ 9,187
NET NON-INTEREST (EXPENSE) INCOME (67) (5,618)
DEPRECIATION ON PREMISES AND
EQUIPMENT -- 684
INCOME TAX EXPENSE (BENEFIT) -- 1,026
NET INCOME -- 2,343
PROVISION FOR LOAN LOSSES -- 200
TOTAL ASSETS (161,095) 1,210,504
EXPENDITURES FOR ADDITIONS
TO PREMISES AND EQUIPMENT -- 696
TOTAL REVENUES FROM EXTERNAL CUSTOMERS -- 27,042
INTERSEGMENT REVENUES -- 2,482
- -------------------------------------------------------------------------------
December 31, 1998:
- -------------------------------------------------------------------------------
Net interest income (expense) $ (60) $ 10,174
Net non-interest (expense) income 60 (5,984)
Depreciation on premises and
Equipment -- 585
Income tax expense (benefit) -- 1,090
Net income -- 2,473
Provision for loan losses -- 627
Total assets (458,908) 1,367,209
Expenditures for additions to premises and
equipment -- 831
Total revenues from external customers -- 30,458
Intersegment revenues -- 6,504
</TABLE>
11
<PAGE> 12
The results for each reportable segment are included in the following table:
<TABLE>
<CAPTION>
Real Estate
NINE MONTHS ENDED: Community Mortgage Development Mezzanine
Banking Banking and Sales Financing Other
(dollars in thousands) ------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999:
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET INTEREST INCOME (EXPENSE) $ 25,947 $ 17 $ (63) $ 1,477 $ (1,405)
NET NON-INTEREST (EXPENSE) INCOME (14,384) (5,009) 4,246 (164) 73
DEPRECIATION ON PREMISES AND
EQUIPMENT 1,644 396 -- -- --
INCOME TAX EXPENSE (BENEFIT) 3,450 (2,011) 1,673 525 (533)
NET INCOME 7,548 (3,016) 2,510 788 (799)
PROVISION FOR LOAN LOSSES 565 35 -- -- --
TOTAL ASSETS 1,156,007 145,677 40,945 16,555 12,415
EXPENDITURES FOR ADDITIONS TO
PREMISES AND EQUIPMENT 4,303 253 -- -- --
TOTAL REVENUES FROM EXTERNAL CUSTOMERS 60,047 14,115 5,777 1,129 854
INTERSEGMENT REVENUES 9,705 241 47 348 771
December 31, 1998:
Net interest income (expense) $ 23,491 $ 415 $ (88) $ 2,948 $ (607)
Net non-interest (expense) income (16,516) 2,274 1,334 61 288
Depreciation on premises and
Equipment 1,318 388 -- -- --
Income tax expense (benefit) 1,155 1,065 499 1,204 (128)
Net income 3,967 1,596 747 1,805 (191)
Provision for loan losses 1,853 28 -- -- --
Total assets 1,304,195 455,705 35,442 14,514 16,261
Expenditures for additions to premises
equipment 1,294 354 -- -- --
Total revenues from external customers 49,412 30,521 2,527 2,957 881
Intersegment revenues 18,912 1,243 48 64 916
<CAPTION>
Eliminations Consolidated
(dollars in thousands) ------------------------------
- --------------------------------------------------------------------------------
DECEMBER 31, 1999:
- --------------------------------------------------------------------------------
NET INTEREST INCOME (EXPENSE) $ (114) $ 25,859
NET NON-INTEREST (EXPENSE) INCOME 114 (15,124)
DEPRECIATION ON PREMISES AND
EQUIPMENT -- 2,040
INCOME TAX EXPENSE (BENEFIT) -- 3,104
NET INCOME -- 7,031
PROVISION FOR LOAN LOSSES -- 600
TOTAL ASSETS (161,095) 1,210,504
EXPENDITURES FOR ADDITIONS TO
PREMISES AND EQUIPMENT -- 4,556
TOTAL REVENUES FROM EXTERNAL CUSTOMERS -- 81,922
INTERSEGMENT REVENUES -- 11,112
- --------------------------------------------------------------------------------
December 31, 1998:
- --------------------------------------------------------------------------------
Net interest income (expense) $ (88) $ 26,071
Net non-interest (expense) income 88 (12,471)
Depreciation on premises and
Equipment -- 1,706
Income tax expense (benefit) -- 3,795
Net income -- 7,924
Provision for loan losses -- 1,881
Total assets (458,908) 1,367,209
Expenditures for additions to premises
and equipment -- 1,648
Total revenues from external customers -- 86,298
Intersegment revenues -- 21,183
</TABLE>
12
<PAGE> 13
G. Year 2000
The Company's commitment in addressing and managing the challenges
presented by Year 2000 issues has resulted in a successful transition. The
Company's Team 2000, a group of key employees, mission critical vendors and an
outside consulting firm, was committed to ensure the Company could continue
conducting business without compromising the integrity of its systems or
services. In addition, the Company, through Team 2000, addressed Year 2000
issues related to liquidity requirements and potential credit quality concerns.
The Company is not aware of any significant third party relationships that were
negatively impacted by the century date change. Controls are in place to
continue monitoring issues related to the Year 2000, including third party
relationships. The Company is committed to dedicating resources to immediately
resolve any such issues that should arise.
The Company has incurred approximately $750,000 in expenses related to
the Year 2000 issues. Cost associated with the redeployment of personnel to the
Year 2000 project is not readily identifiable and is not included above. These
expenses did not have a material effect on the operations or financial
performance of the Company.
H. 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.
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.
I. 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 issuance, 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
13
<PAGE> 14
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.
J. Treasury Stock
During the second quarter of fiscal 1999, the Company' Board of
Directors approved a stock repurchase program. The plan authorizes the Company
to purchase up to 300,000 shares of its common stock on the open market. As of
December 31, 1999, the Company has repurchased 300,000 shares with a cost of
approximately $5,410,000.
K. 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.
L. 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 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
14
<PAGE> 15
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.
15
<PAGE> 16
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
SUMMARY FINANCIAL DATA
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
Change from
QUARTER ENDED Dec. 31, 1999 to
DEC. 31, Sept. 30, Dec. 31, Sept. 30, Dec. 31,
For the quarter: 1999 1999 1998 1999 1998
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income $ 2,343 $ 2,247 $ 2,473 4.27% (5.26)%
Per common share:
Net income per common share - basic 0.42 0.40 0.43 5.00 (2.33)
Net income per common share - diluted 0.42 0.40 0.42 5.00 --
Dividends declared 0.16 0.16 0.16 -- --
Book value per share 12.81 13.21 13.22 (2.80) (2.87)
Average common shares outstanding-basic 5,546 5,560 5,719 (0.25) (3.03)
Average common shares outstanding - diluted 5,618 5,677 5,838 (1.04) (3.77)
Profitability ratios: (%)
Return on average assets 0.77% 0.74% 0.74% 4.05 4.05
Return on average equity 13.06 12.33 13.09 5.92 (0.23)
Efficiency ratio 74.58 75.66 72.48 (1.43) 2.90
Net interest margin - taxable equivalent 3.36 3.10 3.39 8.39 (0.88)
Equity to assets 5.87 6.19 5.45 (5.17) 7.71
At quarter end:
Loans held for sale $ 115,853 $ 148,819 $ 419,880 (22.15) (72.41)
Loans receivable, net 700,520 665,772 575,598 5.22 21.70
Reserve for loan losses 7,288 7,125 7,550 2.29 (3.47)
Assets 1,210,504 1,187,591 1,367,209 1.93 (11.46)
Deposits 731,562 772,270 885,718 (5.27) (17.40)
FHLB advances and other borrowings 367,911 298,947 340,150 23.07 8.16
Stockholders' equity 70,992 73,465 74,524 (3.20) (4.57)
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
For the nine months: 1999 1998 Change
-----------------------------------------
<S> <C> <C> <C>
Net income $ 7,031 $ 7,924 (11.27)%
Per common share:
Net income per common share - basic 1.26 1.38 (8.70)
Net income per common share - diluted 1.24 1.34 (7.46)
Dividends declared 0.48 0.48 --
Average common shares outstanding-basic 5,565 5,761 (3.40)
Average common shares outstanding-diluted 5,656 5,928 (4.59)
Profitability ratios: (%)
Return on average assets 0.77% 0.87% (11.49)
Return on average equity 12.88 13.86 (7.07)
Efficiency ratio 74.93 69.24 8.22
Net interest margin - taxable equivalent 3.15 3.15 --
</TABLE>
16
<PAGE> 17
Interest income was inflated in the prior year periods due to the
$2,229,000 increase in interest received on mezzanine loans. The following
tables reflect comparative summary financial data before and after removing the
effect of the additional interest income generated by this transaction. For
further discussion, see "Overview" and "Earnings Analysis."
* AFTER REMOVING THE EFFECT OF THE $2,229,000 OF ADDITIONAL INTEREST INCOME
<TABLE>
<CAPTION>
SUMMARY FINANCIAL DATA FOR THE QUARTER ENDED
---------------------------------------
(dollars in thousands except per share data) Dec. 1998 Dec. 1998 *
---------------------------------------
<S> <C> <C>
Profitability ratios: (%)
Spread 3.14% 2.43%
Net interest margin-taxable equivalent 3.39 2.67
Return on average assets 0.74 0.31
Return on average equity 13.09 5.51
Efficiency ratio 72.48 83.84
Per common share:
Earnings per share - basic $ 0.43 $ 0.18
Earnings per share - diluted 0.42 0.18
Selected results of operations:
Interest income $ 25,406 $ 23,206
Interest expense 15,232 15,096
Net interest income 10,174 8,110
Provision for loan losses 627 627
Non-interest income 5,052 5,052
Non-interest expense 11,036 11,036
Income before income taxes 3,563 1,499
Net income 2,473 1,041
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
DECEMBER 31,
---------------------------------------
1998 1998 *
---------------------------------------
<S> <C> <C>
Profitability ratios: (%)
Spread 2.78% 2.52%
Net interest margin-taxable equivalent 3.15 2.89
Return on average assets 0.87 0.74
Return on average equity 13.85 11.75
Efficiency ratio 69.24 72.15
Per common share:
Earnings per share - basic $ 1.38 $ 1.17
Earnings per share - diluted 1.34 1.13
Selected results of operations:
Interest income $ 68,150 $ 65,950
Interest expense 42,079 41,658
Net interest income 26,071 24,292
Provision for loan losses 1,881 1,881
Non-interest income 18,148 18,148
Non-interest expense 30,619 30,619
Income before income taxes 11,719 9,940
Net income 7,924 6,722
</TABLE>
17
<PAGE> 18
Overview
For the quarter ended December 31, 1999, Eagle reported net income of
$2,343,000, or $0.42 per diluted share, compared with $2,247,000, or $0.40 per
diluted share, in the September 1999 quarter and $2,473,000, or $0.42 per
diluted share, in the same period a year ago. The Company's quarterly
performance was $0.03 per diluted share or 7.70% ahead of the median analyst
estimate of $0.39 per diluted share. During the same period a year ago the
Company recorded $2,229,000 of additional interest income, as a result of the
repayment of $10,578,000 of mezzanine loans. After removing the effect of this
transaction, net income was $1,041,000, or $0.18 per diluted share for the
quarter ended December 31, 1998.
For the nine months ended December 31, 1999, the Company reported net
income of $7,031,000, or $1.24 per diluted share, compared with $7,924,000, or
$1.34 per diluted share, in the same period a year ago. After removing the
effect of this transaction, net income was $6,722,000, or $1.13 per diluted
share for the nine months ended December 31, 1998.
Net income for the December 1999 quarter increased 4.27% over the
September quarter and 125.07% from the same period a year ago. December 1999
quarter results produced a return on average assets of 0.77% and a return on
average equity of 13.06% compared with September 1999 quarter ratios of 0.74%
and 12.33%, respectively. The increase in earnings from the September quarter
was primarily the result of higher net interest income. The interest spread
improved 27 basis points from the September to December quarter because of a 31
basis point increase in the yield earned on interest earning assets and a 4
basis point increase in the cost of interest bearing liabilities. Problem assets
at December 31, 1999 increased to $13,990,000 representing 1.16% of total
assets, compared with $12,541,000 and 1.06% of assets at September 30, 1999, and
decreased from $14,043,000 and 1.03% of assets at December 31, 1998.
SEGMENT DISCUSSION
Eagle Bancshares' performance in the December 1999 quarter reflected
notable improvement in the Company's core community banking operations with
continued contributions in real estate-related and mezzanine financing
businesses. Of the total $2,343,000 in net income, the community banking
operation contributed $2,317,000; Eagle Real Estate Advisors, the real estate
development and sales business, contributed $809,000; Eagle Bancshares Capital
Group, the mezzanine financing unit, contributed $317,000; and Prime Eagle
Mortgage Corporation, the mortgage banking group, accounted for a loss of
$823,000. Other operations accounted for a loss of $277,000.
COMMUNITY BANKING
For the quarter ended December 31, 1999, the Company's community
banking activities resulted in income of $2,317,000, compared with $3,205,000 in
the September 1999 quarter, and $1,146,000 in the same period a year ago. The
community banking efficiency ratio stood at 66.25% during the quarter ended
December 31, 1999, compared to 54.57% in the September 1999 quarter and 78.51%
for the same period a year ago.
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<PAGE> 19
For the nine months ended December 31, 1999, the Company's community
banking activities resulted in income of $7,548,000, compared with $3,967,000,
in the same period a year ago.
Return on segment assets for the nine months ended December 31, 1999
was 0.87% compared to 0.41% for the same period last year. The efficiency ratio
for the nine months ended December 31, 1999 improved to 62.90% compared to
73.81% for the same period last year.
The improvement over the prior year nine-month period is primarily
attributable to the increase in net interest income. Net interest income
increased 10.46% to $25,947,000 for the nine months ended December 31, 1999 from
$23,491,000 for the same period last year. Interest income declined less than
1.0% while interest expense declined 7.45%. The spread improved 16 basis points
over the prior year due principally to lower cost of funds.
In August 1999, management began a significant expense reduction
program throughout the Community Bank. Staffing levels were examined, and
branches that were operating below their break-even level were sold or closed.
During the September 1999 quarter, the Bank recaptured certain incentive
compensation accruals in the amount of $431,000, since the Bank did not meet
minimum performance level targets. The benefits of the expense reduction program
were realized in the Company's quarter ending December 31, 1999 and were
reflected as an 8.12% decrease in compensation levels at the Bank. 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.
MORTGAGE BANKING
For the quarter ended December 31, 1999, the Company's mortgage banking
activities resulted in losses of $823,000, compared with losses of $1,475,000 in
the September 1999 quarter, and losses of $55,000, in the same period a year
ago. While the losses associated with the Company's mortgage banking activities
remain at unacceptable levels the improving trend is a direct result of
management's right sizing and expense reduction efforts.
For the nine months ended December 31 1999, the Company's mortgage
banking activities resulted in losses of $3,016,000, compared with income of
$1,596,000, in the same period a year ago.
The losses associated with mortgage banking activities were principally
attributable to a number of the Company's mortgage banking offices operating
below their break-even level of loans closed. The dollar amount of loans closed
during the current nine-month period declined 45.6% percent to $675,000 compared
to loan closings of $1,240,000,000 during the nine-month period ended December
31, 1998. This decline is the result of an increase in interest rates nation
wide and is comparable to the overall deterioration in the mortgage lending
market.
Management has analyzed the efficiencies of each mortgage loan function
and has eliminated excess staff. We have also consolidated many functions to
achieve lower break even levels for each office. Management intends to continue
to right size staffing levels to meet
19
<PAGE> 20
anticipated loan volume while working to improve margins and generate ancillary
income for each loan closed.
REAL ESTATE DEVELOPMENT AND SALES
For the quarter ended December 31, 1999, Eagle Real Estate Advisors
generated income of $809,000 compared with $552,000 in the September 1999
quarter and $162,000 in the same period a year ago. Investments in real estate
increased 10.46% to $38,168,000 at December 31, 1999, from $34,555,000 at
December 31, 1998. In the quarter ended December 31, 1999 gains on the sale of
real estate were $1,574,000 compared to $1,176,000 in the September 1999 quarter
and $323,000 in the same period a year ago. Lot sales for the quarter ended
December 31, 1999 numbered 94 compared to 73 during the September 1999 quarter
and 42 in the quarter ended December 31, 1998. During the nine months of fiscal
year 2000 lot sales number 206 compared to 134 lot sales during the same period
last year.
For the nine months ended December 31 1999, Eagle Real Estate Advisors
generated income of $2,510,000, compared with $747,000 in the same period a year
ago. In the nine months ended December 31, 1999 gains on the sale of investment
in real estate were $4,827,000 versus $1,414,000 for the same period a year ago.
In the June 1999 quarter $1,268,000 is attributable to the sale of the Company's
Barnes & Noble store.
MEZZANINE FINANCING
For the quarter ended December 31, 1999, Eagle Bancshares Capital Group
generated income of $317,000 compared with $238,000 in the September 1999
quarter and $1,467,000 in the same period a year ago. For the nine months ended
December 31 1999, Eagle Bancshares Capital Group generated income of $788,000
compared with $1,805,000 in the same period a year ago. Substantially all of
those earnings were attributable to interest and fees on loans. The
mezzanine-financing group invested over $10,400,000 in the nine months ending
December 31, 1999 and generated $26,200,000 of new loans for the Bank.
EARNINGS ANALYSIS
Interest Rate and Market Risk
The Company employs 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 December 31, 1999, the expected rate simulation
indicated an increase in annual net interest income of $892,000 or 2.41%
relative to the unchanged rate simulation and a $4,608,000 or 6.01% increase in
market value. This compares to March 31, 1999, which indicated an 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.
20
<PAGE> 21
As of December 31, 1999, management estimates the Company's annual net
interest income would increase approximately $1,969,000 or 5.13%, and decrease
approximately $3,082,000 or 8.03% 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%.
A fair value analysis of the Company's balance sheet calculated under
an instantaneous 100 basis point increase in rates over December 31, 1999,
estimates a $14,958,000 or 20.80% decrease in market value. The Company
estimates a like decrease in market rates would increase market value $489,000
or 0.68%. These changes in market value represent less that 5.00% of the total
carrying value of total assets at December 31, 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 - Quarterly Analysis
Net interest income decreased by $987,000 or 9.70% to $9,187,000 in the third
quarter of fiscal 2000 from $10,174,000 for the same quarter last year. Interest
income was inflated in the prior year period due to the $2,229,000 increase in
interest received on mezzanine loans. Removing the effect of the additional
interest income generated by this transaction net interest income increased
$1,242,000 or 13.52%, and the net interest spread would have been 2.43%. The net
interest spread (the difference between the yield earned on interest-earning
assets and the cost of interest-bearing liabilities) improved 69 basis points to
3.14% from 2.43% in the same period last year. The yield on interest-earning
assets improved 40 basis points to 8.03% from 7.63%, while the cost of
interest-bearing liabilities decreased 31 basis points to 4.89% from 5.20%.
Interest income received on loans decreased $3,723,000 or 17.61% to
$17,419,000 for the third quarter of fiscal 2000 from $21,142,000 in fiscal
1999. Removing the effect of the additional $2,229,000 of interest income, loan
interest income decreased $1,494,000 or 8.58% and the yield on loans, including
loans held for sale, would have been 7.81%. The decrease in interest received on
loans was primarily attributable to a decline in loans held for sale. The yield
on loans, including loans held for sale, increased 63 basis points to 8.44% for
the quarter compared to 7.81% in the same quarter last year.
Interest income on loans held for sale decreased $4,351,000 or 67.00%
to $2,143,000 in the third quarter of fiscal 2000 from $6,494,000 in the same
period last year. This is attributable to the decline in originations of loans
held for sale due to a rising interest rate environment. The yield increased 36
basis points to 6.87% for the quarter compared to 6.51% in the same quarter last
year. Interest received on mortgage-backed securities increased $750,000 or
44.78% to $2,472,000 for the third quarter of fiscal 2000 from
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<PAGE> 22
$1,675,000 in the third quarter of fiscal 1999. Interest received on investment
securities decreased $243,000 or 9.39% to $2,346,000 in fiscal 2000 from
$2,589,000 in the prior period.
Interest expense decreased $2,229,000 or 14.63% to $13,003,000 for the
third quarter of fiscal 2000 from $15,232,000 in the third quarter of fiscal
1999. This is the result of a decrease in deposits coupled with a decline in the
cost of funds. Interest expense on deposits decreased $2,069,000 or 19.69% to
$8,438,000 from $10,507,000 in the same period in the prior year. The cost of
deposits declined 45 basis points to 4.74% during the quarter compared to 5.19%
in the same quarter last year. Interest expense on FHLB advances and other
borrowings decreased $152,000 or 3.71% to $3,943,000 for the third quarter of
fiscal 2000 from $4,095,000 in the third quarter of fiscal 1999. The Bank's cost
of FHLB advances and other borrowings decreased 4 basis points to 4.88% from
4.92% in the same period in the prior year. The Bank utilizes short term FHLB
advances to fund construction loans and loans held for sale. In addition,
interest expense on trust preferred securities for the third quarter of fiscal
2000 was $622,000 compared to $630,000 for the same period last year.
Net Interest Income - Nine Month Analysis
Net interest income decreased by $212,000 or 0.81% to $25,859,000
during the nine months of fiscal 2000 from $26,071,000 for the same period last
year. Interest income was inflated in the prior year period due to the
$2,229,000 increase in interest received on mezzanine loans. Removing the effect
of the additional interest income generated by this transaction net interest
income increased $2,017,000 or 7.80%, and the net interest spread would have
been 2.52%. The net interest spread (the difference between the yield earned on
interest-earning assets and the cost of interest-bearing liabilities) increased
42 basis points to 2.94% for the nine months of fiscal 2000 from 2.52% for the
same period last year. The yield on interest-earning assets decreased 5 basis
points to 7.82% from 7.87%, while the cost of interest-bearing liabilities
decreased 47 basis points to 4.88% from 5.35%.
Interest income received on loans decreased $6,600,000 or 11.42% to
$51,184,000 for the nine months of fiscal 2000 from $57,784,000 in fiscal 1999.
Removing the effect of the additional $2,229,000 of interest income, loan
interest income decreased $4,371,00 or 8.54%. The decrease in interest received
on loans was primarily attributable to a decline in originations loans held for
sale. The yield on loans receivable declined 47 basis points to 8.59% for the
nine months compared to 9.06% in the same period last year. Interest income on
loans held for sale decreased $10,073,000 or 55.35% to $8,126,000 in the nine
months of fiscal 2000 from $18,199,000 in the same period last year. This is
attributable to the decline in originations of loans held for sale due to a
rising interest rate environment. The yield decreased 9 basis points to 6.48%
for the nine months compared to 6.57% in the period last year. Interest received
on mortgage-backed securities increased $2,369,000 or 56.02% to $6,598,000 for
the nine months of fiscal 2000 from $4,229,000 in the nine months of fiscal
1999. This is primarily due to an increase in mortgage-backed securities held in
the Bank's portfolio. Interest received on investment securities increased
$1,036,000 or 16.88% to $7,173,000 in fiscal 2000 from $6,137,000 in the prior
period.
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<PAGE> 23
Interest expense decreased $2,983,000 or 7.09% to $39,096,000 for the
nine months of fiscal 2000 from $42,079,000 in the same period of fiscal 1999.
This is the result of a decrease in deposits coupled with a decline in the cost
of funds. Interest expense on deposits decreased $4,230,000 or 13.56% to
$26,958,000 from $31,188,000 in the same period in the prior year. The cost of
deposits decreased 58 basis points to 4.75% during the period from 5.33% in the
prior period. Interest expense on FHLB advances and other borrowings increased
$444,000 or 4.52% to $10,271,000 for the nine months of fiscal 2000 from
$9,827,000 in the same period of fiscal 1999. The Bank's cost of FHLB advances
and other borrowings decreased 37 basis points to 4.83% from 5.20% in the same
period in the prior year. The Bank utilizes short term FHLB advances to fund
construction loans and loans held for sale. In addition, interest expense on
trust preferred securities increased $803,000 or 75.47% for the nine months of
fiscal 2000 to $1,867,000 from $1,064,000 during the same period last year. The
Company issued $28,750,000 of trust preferred securities during the second
quarter of fiscal 1999.
Net interest income on a taxable-equivalent basis expressed as a
percentage of average total assets is referred to as the net interest margin.
The net interest margin represents the average net effective yield on earning
assets. The net interest margin remained relatively stable at 3.36% for the
third quarter of fiscal 2000 compared to 3.39% for the same period last year.
Removing the effect of $2,229,000 of interest income received by Eagle
Bancshares Capital Group the net interest margin for the third quarter of fiscal
1999 would have been 2.67%. In addition, the net interest margin remained
constant at 3.15% for the nine months of fiscal 2000 and fiscal 1999. Removing
the effect of $2,229,000 of interest income received by Eagle Bancshares Capital
Group the net interest margin for the nine months of fiscal 1999 would have been
2.89%. The average balance sheets on the next page present the individual
components of net interest income and expense, net interest spread and net
interest margin.
23
<PAGE> 24
The following tables reflect the average balances, the interest income
or expense and the average yield and cost of funds of the Company's interest
earning assets and interest bearing liabilities during the quarters and nine
months ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET
Three months ended December 31, 1999 1998
AVERAGE YIELD/ Average Yield/
(dollars in thousands) BALANCE INTEREST COST Balance Interest Cost
- ------------------------------------------------------------------------------------------------------------------------------------
Earning Assets
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans receivable(1) $ 700,911 $15,276 8.72% $ 569,865 $14,648 10.28%
Loans held for sale 124,839 2,143 6.87% 398,831 6,494 6.51%
Mortgage-backed securities 146,986 2,425 6.60% 99,323 1,675 6.75%
FHLB stock 12,819 250 7.80% 12,737 238 7.47%
Taxable investments(2) 63,992 1,036 6.48% 81,044 1,261 6.22%
Tax-exempt investment securities(2) 60,927 1,158 7.60% 66,465 1,315 7.91%
Interest earning deposits and federal funds 3,331 78 9.37% 2,098 29 5.53%
--------------- ----------- ----------- --------------- ------------ -----------
Total interest earning assets 1,113,805 $22,366 8.03% 1,230,363 $25,660 8.34%
Non-interest earning assets 110,528 111,912
--------------- ----------- ----------- --------------- ------------ -----------
Total assets $1,224,333 $1,342,275
--------------- ----------- ----------- --------------- ------------ -----------
Savings accounts $ 33,835 $ 132 1.56% $ 37,378 $ 233 2.49%
Checking 100,439 792 3.15% 104,623 884 3.38%
Money market 80,000 750 3.75% 76,960 887 4.61%
Certificates of deposit 497,914 6,764 5.43% 590,058 8,503 5.76%
--------------- ----------- ----------- --------------- ------------ -----------
Total deposits 712,188 8,438 4.74% 809,019 10,507 5.19%
FHLB advances and other borrowings 322,882 3,943 4.88% 332,972 4,095 4.92%
Trust preferred securities 28,750 622 8.65% 28,750 630 8.77%
--------------- ----------- ----------- --------------- ------------ -----------
Total interest bearing liabilities 1,063,820 $13,003 4.89% 1,170,741 $15,232 5.20%
Non-interest bearing deposits 54,100 51,137
Non-interest bearing liabilities 34,661 44,801
Stockholders' equity 71,752 75,596
--------------- ----------- ----------- --------------- ------------ -----------
Total liabilities and equity $1,224,333 $1,342,275
--------------- ----------- ----------- --------------- ------------ -----------
Net interest rate spread $ 9,363 3.14% $10,428 3.14%
Taxable-equivalent adjustment (176) (254)
--------------- ----------- ----------- --------------- ------------ -----------
Net interest income, actual $ 9,187 $10,174
Net interest earning assets/net interest margin $ 49,985 3.36% $ 59,622 3.39%
Interest earning assets as a percentage of
Interest bearing liabilities 104.70% 105.09%
--------------- ----------- ----------- --------------- ------------ -----------
</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.
24
<PAGE> 25
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET
Nine months ended December 31, 1999 1998
AVERAGE YIELD/ Average Yield/
(dollars in thousands) BALANCE INTEREST COST Balance Interest Cost
- -----------------------------------------------------------------------------------------------------------------------------------
Earning Assets
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans receivable(1) $ 668,642 $ 43,058 8.59% $ 549,766 $39,585 9.60%
Loans held for sale 167,170 8,126 6.48% 369,139 18,199 6.57%
Mortgage-backed securities 135,323 6,598 6.50% 81,794 4,229 6.89%
FHLB stock 11,019 631 7.64% 10,521 594 7.53%
Taxable investments(2) 69,201 3,370 6.49% 41,141 2,082 6.75%
Tax-exempt investment securities(2) 63,857 3,586 7.49% 71,237 3,884 7.27%
Interest earning deposits and Federal funds 2,146 124 7.70% 1,990 98 6.57%
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest earning assets 1,117,358 $ 65,493 7.82% 1,125,588 $68,671 8.13%
Non-interest earning assets 105,969 91,409
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 1,223,327 $ 1,216,997
- -----------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Savings accounts $ 35,639 $ 483 1.81% $ 38,174 $ 720 2.51%
Checking 112,091 2,710 3.22% 100,607 2,765 3.66%
Money market 86,177 2,513 3.89% 63,274 2,137 4.50%
Certificates of deposit 522,602 21,252 5.42% 577,622 25,566 5.90%
- -----------------------------------------------------------------------------------------------------------------------------------
Total deposits 756,509 26,958 4.75% 779,677 31,188 5.33%
FHLB advances and other borrowings 283,650 10,271 4.83% 252,041 9,827 5.20%
Trust preferred securities 28,750 1,867 8.66% 15,998 1,064 8.87%
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 1,068,909 $ 39,096 4.88% 1,047,716 $42,079 5.35%
Non-interest bearing deposits 53,778 45,551
Non-interest bearing liabilities 27,836 47,465
Stockholders' equity 72,804 76,265
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity $ 1,223,327 $ 1,216,997
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest rate spread $ 26,397 2.94% $26,592 2.78%
Taxable-equivalent adjustment (538) (521)
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income, actual $ 25,859 $26,071
Net interest earning assets/net interest margin $ 48,449 3.15% $ 77,872 3.15%
Interest earning assets as a percentage of
Interest bearing liabilities 104.53% 107.43%
- -----------------------------------------------------------------------------------------------------------------------------------
</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 decreased by $198,000 or 3.92% to $4,854,000 for
the third quarter of fiscal 2000 from $5,052,000 for the same period last year.
In addition, non-interest income decreased by $1,181,000 or 6.51% to $16,967,000
for the nine months of fiscal 2000 from $18,148,000 for the same period last
year. The decrease is primarily attributable to reduced mortgage production fees
caused by the decline in mortgage loan volume.
Mortgage production fees have historically been the largest component
of non-interest income and these fees decreased $1,742,000 or 53.68% to
$1,503,000 for the third quarter of fiscal 2000 compared to $3,245,000 in the
same period last year. For the nine months of fiscal 2000, mortgage production
fees decreased $5,409,000 or 48.49% to $5,745,000 compared to $11,154,000 for
the same period one-year ago. The dollar amount of loans sold fluctuates based
on the demand for mortgages in the Company's market. The margin received on loan
sales fluctuates due to changes in the general interest rate environment. The
Company has experienced a decrease in the dollar amount of loans sold due to a
rising interest rate environment. This decline
25
<PAGE> 26
is the result of an increase in interest rates nation wide and is comparable to
the overall deterioration in the mortgage lending market.
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 NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
(dollars in thousands) 1999 1998 1999 1998
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage production fees $ 1,503 $ 3,245 $ 5,745 $ 11,154
Dollar volume sold $198,061 $291,981 $784,064 $1,023,802
Margin earned 0.76% 1.11% 0.73% 1.09%
</TABLE>
Non-interest income generated from the Company's real estate
subsidiary, Eagle Real Estate Advisors includes gains on the sale of real estate
and real estate commissions. These sources of revenue increased by $1,312,000 or
282.76% to $1,776,000 for the third quarter of fiscal 2000 compared to $464,000
for the same quarter last year. During the current quarter, 94 lots were sold
compared to 42 lots in the same quarter last year. Gains on sales of real estate
and real estate commissions increased $3,606,000 or 183.14% to $5,575,000 for
the nine months of fiscal 2000 compared to $1,969,000 for the same period one
year ago. For the nine months of fiscal 2000, 206 lots were sold compared to 134
lots for the same period 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. During the third
quarter of fiscal 2000, loans made to finance the sales of investments in real
estate were $5,914,000 compared to $1,242,000 for the same period one year ago.
In addition, for the nine months of fiscal 2000, loans made to finance the sales
of investments in real estate were $6,239,000 versus $3,960,000 for the same
period last year.
Service charges increased $135,000 or 26.11% to $652,000 in the third
quarter of fiscal 2000 compared to $517,000 in the third quarter of fiscal 1999.
In addition, for the nine months service charges increased $94,000 or 5.99% to
$1,662,000 compared to $1,568,000 for the same period last year. The Bank has
introduced new deposit products designed to increase fees received from service
charges and manage the collection fees related to overdrafts.
Non-Interest Expense
Non-interest expense decreased by $564,000 or 5.11% to $10,472,000 for
the third quarter of fiscal 2000 from $11,036,000 for the same period last year.
In addition, for the nine months of fiscal 2000 non-interest expense increased
$1,472,000 or 4.81% to $32,091,000 from $30,619,000 for the same period last
year.
In August 1999, management began a significant expense reduction
program throughout the Company. Staffing levels were examined, and Bank branches
that were operating below their break-even level were sold or closed. In
addition, management has analyzed the efficiencies of each mortgage loan
function and has eliminated excess staff. The Company also consolidated many
functions to achieve lower break even levels for each office. Management intends
to continue to right size staffing levels to meet anticipated loan volume while
working to improve margins and generate ancillary income for each loan closed.
During the September 1999 quarter, the Bank recaptured certain incentive
compensation accruals in the amount of $431,000, since the Bank did not meet
minimum performance level targets.
26
<PAGE> 27
Salaries and employee benefits decreased $488,000 or 8.17% to
$5,485,000 for the third quarter of fiscal 2000 from $5,973,000 for the same
period last year. For the nine months of fiscal 2000, salaries and employee
benefits increased $670,000 or 4.08% to $17,088,000 compared to $16,418,000 for
the same period one year ago. Occupancy expense decreased $55,000 or 3.90% to
$1,354,000 in the third quarter of fiscal 2000 from $1,409,000 for the same
period last year. During the nine months of fiscal 2000, occupancy expense
increased $454,000 or 11.56% to $4,380,000 compared to $3,926,000 for the same
period one-year ago. Federal insurance premiums decreased $60,000 or 37.74% to
$99,000 for the third quarter of fiscal 2000 from $159,000 for the same period
last year. In addition, for the nine months of fiscal 2000, federal insurance
premiums decreased $30,000 or 7.21% to $386,000 from $416,000 in the same period
last year. The decrease is due to the decrease in deposits coupled with a
decrease in the premium rate charged in the prior year. In the third quarter of
fiscal 2000, marketing expense decreased $12,000 or 2.12% to $553,000 compared
to $565,000 for the same quarter last year. In addition, marketing expense
increased $96,000 or 6.17% to $1,652,000 for the nine months of fiscal 2000 from
$1,556,000 for the same period one year ago.
Provisions for losses on real estate acquired in settlement of loans
decreased $231,000. During the third quarter of fiscal 2000 no provision was
recorded compared to $231,000 for the same period last year. The increase in the
provision during the quarter of fiscal 1999 was primarily due to one property.
For the nine months of fiscal 2000, provisions for losses on real estate
acquired in settlement of loans decreased $181,000 or 78.35% to $50,000 compared
to $231,000 for the same period last year.
Miscellaneous expenses increased $240,000 or 11.64% to $2,302,000 for
the third quarter of fiscal 2000 from $2,062,000 for the same period last year.
For the nine months of fiscal 2000, miscellaneous expenses increased $221,000 or
3.52% to $6,491,000 compared to $6,270,000 for the same period one-year ago.
BALANCE SHEET ANALYSIS
Investment Securities
During the nine months of fiscal 2000, investment securities decreased
to $268,330,000 from $272,916,000 at March 31, 1999 and increased from
$250,468,000 at December 31, 1998. The investment securities portfolio at
December 31, 1999, was comprised of $63,214,000 of investment securities held to
maturity at amortized cost compared to $68,298,000 and $44,218,000 at March 31,
1999 and December 31,1998, respectively. The Company has the ability and it is
management's intent to hold these securities to maturity for investment
purposes. In addition, investment securities available for sale had an estimated
market value of $205,116,000 at December 31,1999 compared to $204,618,000 and
$206,250,000 at March 31, 1999 and December 31, 1998, respectively. Investment
securities available for sale had a net unrealized loss as shown in the
Company's stockholders' equity section of $7,937,000 at December 31, 1999 versus
a net unrealized loss of $283,000 at March 31, 1999.
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
27
<PAGE> 28
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 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 December 31, 1999, March 31, 1999 or
December 31, 1998. The following table reflects securities held in the Bank's
securities portfolio for the periods indicated:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
- ------------------------------------------------------------------------------------------------
DECEMBER 31, March 31, December 31,
(dollars in thousands) 1999 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Securities Held to Maturity:
US Treasury and US Government Agencies $ 12,423 $ 18,539 $ 18,990
Mortgage-backed securities 39,922 32,866 8,270
Corporate bonds 4,950 7,433 7,433
Other debt securities 5,919 9,460 9,525
- ----------------------------------------------------------------------------------------------
Total $ 63,214 $ 68,298 $ 44,218
- ----------------------------------------------------------------------------------------------
Securities Available for Sale:
US Treasury and US Government Agencies $38,620 $ 35,308 $ 29,813
Mortgage-backed securities 109,693 95,539 101,971
Corporate Bonds 2,002 2,027 2,035
Other debt securities 43,745 59,465 60,276
Equity securities - preferred stock 11,056 12,279 12,155
- ----------------------------------------------------------------------------------------------
Total $205,116 $204,618 $206,250
- ----------------------------------------------------------------------------------------------
Total Investment Securities:
US Treasury and US Government Agencies $51,043 $ 53,847 $ 48,803
Mortgage-backed securities 149,615 128,405 110,241
Corporate bonds 6,952 9,460 9,468
Other debt securities 49,664 68,925 69,801
Equity securities - preferred stock 11,056 12,279 12,155
- ----------------------------------------------------------------------------------------------
Total $268,330 $272,916 $250,468
- ----------------------------------------------------------------------------------------------
</TABLE>
Investment in Real Estate
The Company's investment in real estate increased $7,894,000 or 26.08%
to $38,168,000 at December 31, 1999 from $30,274,000 at March 31, 1999 and
$3,613,000 or 10.46% from $34,555,000 at December 31, 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. On August 6, 1999, Eagle Crestview Development, LLC ("Eagle
Crestview") was formed to purchase and resell 50.103 acres of land in Gwinnett
County, Georgia. The Company has a 100% ownership interest in Eagle Crestview.
On August 27, 1999, Riverside Road Development, LLC ("Riverside Road") was
formed to purchase 21 acres of land in Fulton County, Georgia, for the purpose
of developing a 21-lot residential community. The Company has a 60% ownership
interest in Riverside Road. On October 21, 1999, Eagle Mason Mill Development,
LLC ("Eagle Mason Mill") was formed to purchase 16 acres of land in DeKalb
County, Georgia, for the purpose of developing an 81-lot residential community.
The Company has an 80% ownership interest in Eagle Mason Mill. On October 1,
1999, The Phoenix on Peachtree, LLC ("The Phoenix") was formed to purchase 0.90
acres of land in Fulton County, Georgia, for the purpose of constructing a
70-unit high rise condominium. The Company has a 50% ownership interest in The
Phoenix. On November 5, 1999, Eagle Acworth Development, LLC ("Eagle Acworth")
was formed to purchase and resell 21.8 acres of land in Cobb County, Georgia.
The Company has a 50% ownership in Eagle Acworth. The Company currently has
thirteen residential real estate projects in the Atlanta market.
Loan Portfolio and Concentration
The loan portfolio has increased $77,250,000 or 12.39% to $700,520,000
at December 31, 1999, compared to $623,270,000 at March 31, 1999 and
$124,922,000 or 21.70% compared to $575,598,000 at December 31, 1998.
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 $13,462,000 as of December 31,
1999, in mezzanine financing loans. These loan categories increased $85,051,000
or 18.60% to $542,343,000 at December 31, 1999 from $457,292,000 at March 31,
1999, and $109,349,000 or 25.25% from $432,994,000 at December 31, 1998. These
loans represent 65.46% of gross loans receivable at December 31, 1999, compared
to 62.02% and 63.86% March 31, 1999 and December 31, 1998, respectively. The
mortgage-banking group originates primarily loans held for sale. Loans held for
sale decreased $105,517,000 or 47.67% to $115,853,000 at December 31, 1999 from
$221,370,000 at March 31, 1999 and $304,027,000 or 72.41% from $419,880,000 at
December 31, 1998. Both groups contribute to the Company's portfolio of
residential mortgage loans. Residential mortgage loans decreased $978,000 or
0.36% to $271,575,000 at December 31, 1999 from $272,553,000 at March 31, 1999
and increased $30,958,000 or 12.87% from $240,617,000 at
28
<PAGE> 29
December 31, 1998. Residential first mortgages are generally believed to be a
conservative investment.
<TABLE>
<CAPTION>
LOAN PORTFOLIO MIX
DEC. 31, % OF GROSS March 31, % of Gross Dec. 31, % of Gross
(dollars in thousands) 1999 LOANS RECV 1999 Loans Recv 1998 Loans Recv
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Real Estate - construction loans
Construction $ 224,670 27.12% $ 210,877 28.60% $ 201,263 29.68%
Acquisition & Development 105,433 12.73 71,995 9.76 59,267 8.74
Real Estate - mortgage loans
Non-Residential 79,730 9.62 58,562 7.94 61,902 9.13
Residential 271,575 32.78 272,553 36.97 240,617 35.49
Home equity and second mortgages 76,542 9.24 61,699 8.37 59,169 8.73
- ---------------------------------------------------------------------------------------------------------------------------------
Total real estate loans $ 757,950 91.49 $ 675,686 91.64 $ 622,218 91.77
- ---------------------------------------------------------------------------------------------------------------------------------
Other loans:
Commercial $ 27,869 3.36 $ 22,896 3.11 $ 18,700 2.76
Mezzanine 13,462 1.63 4,138 0.56 -- --
Leases 1,073 0.13 3,354 0.45 4,383 0.65
Consumer and other 28,099 3.39 31,263 4.24 32,693 4.82
- ---------------------------------------------------------------------------------------------------------------------------------
Total other loans $ 70,503 8.51 $ 61,651 8.36 $ 55,776 8.23
- ---------------------------------------------------------------------------------------------------------------------------------
Total gross loans receivable $ 828,453 100.00 $ 737,337 100.00 $ 677,994 100.00
- ---------------------------------------------------------------------------------------------------------------------------------
Undisbursed portion of loans in process (121,082) (106,704) (94,164)
Deferred fees and other unearned income 437 (18) (682)
Reserves for loan losses (7,288) (7,345) (7,550)
=================================================================================================================================
Loans receivable, net $ 700,520 $ 623,270 $ 575,598
=================================================================================================================================
</TABLE>
Non-Performing Assets
Total problem assets, which include non-accrual loans, loans classified
as problem assets by Asset Classification Committee (ACC) and real estate
acquired through the settlement of loans, increased by $2,652,000 or 23.39% to
$13,990,000 at December 31, 1999 from $11,338,000 at March 31, 1999.
Additionally, total problem assets decreased $53,000 or 0.38% since the December
31, 1998, level of $14,043,000. The primary reason for the increase from March
31, 1999 is due to an increase in non-accrual residential real estate mortgages.
Total problem assets as a percent of total assets increased to 1.16% at December
31, 1999 from 0.92% and 1.03% at March 31, 1999 and December 31, 1998,
respectively. At December 31, 1999, the Company had non-accrual loans of
$9,130,000 compared to $6,692,000 at March 31, 1999 and $9,773,000 at December
31, 1998. Interest income not recognized on these loans amounted to $387,000
during the nine months of fiscal 2000 and $632,000 for the same period last
year.
In addition, at December 31, 1999, the ACC identified $3,458,000 of
potential problem loans an increase of $908,000 or 35.61% compared to $2,550,000
at March 31, 1999 and $1,031,000 or 42.48% from $2,427,000 at December 31, 1998,
respectively. Real estate owned decreased by $694,000 or 33.11% to $1,402,000 at
December 31, 1999, from $2,096,000 at March 31, 1999 and by $441,000 or 23.93%
from $1,843,000 at December 31, 1998. During
29
<PAGE> 30
the nine months of fiscal 2000, the Bank recorded $50,000 in additional reserves
against real estate owned compared to $231,000 during the same period last year.
The following table reflects non-accrual loans, potential problem
loans, restructured loans and real estate owned as of the dates indicated.
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>
DECEMBER 31, September 30, June 30, March 31, December 31,
(dollars in thousands) 1999 1999 1999 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Residential real estate-construction $ 801 $ 383 $ 273 $ 497 $ 1,382
Residential real estate-mortgage 7,312 6,713 7,657 5,094 7,101
Commercial real estate 50 38 37 282 51
Commercial 156 95 54 37 297
Commercial leases 119 120 311 311 504
Installment 692 538 494 471 438
- --------------------------------------------------------------------------------------------------------------------------
Total non-accrual 9,130 7,887 8,826 6,692 9,773
- --------------------------------------------------------------------------------------------------------------------------
Potential problem loans 3,458 2,980 2,902 2,550 2,427
- --------------------------------------------------------------------------------------------------------------------------
Total non-accrual and problem loans $ 12,588 $ 10,867 $ 11,728 $ 9,242 $ 12,200
- --------------------------------------------------------------------------------------------------------------------------
Real estate owned, net 1,402 1,674 1,833 2,096 1,843
- --------------------------------------------------------------------------------------------------------------------------
Total problem assets $ 13,990 $ 12,541 $ 13,561 $ 11,338 $ 14,043
- --------------------------------------------------------------------------------------------------------------------------
Total problem assets/Total assets 1.16% 1.06% 1.11% 0.92% 1.03%
- --------------------------------------------------------------------------------------------------------------------------
Total problem assets/Net loans plus
Reserves 1.98% 1.86% 2.08% 1.80% 2.41%
- --------------------------------------------------------------------------------------------------------------------------
Reserve for loan losses/Total
Problem assets 52.09% 56.81% 53.47% 64.78% 53.76%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 31
The following table reflects concentrations of non-accrual, potential
problem loans and real estate owned by geographic location and type.
NON-ACCRUAL, POTENTIAL PROBLEM LOANS AND REAL ESTATE OWNED BY LOCATION AND TYPE
<TABLE>
<CAPTION>
At December 31, 1999 Residential % of Total
------------------ Comm'l by
(dollars in thousands) Const Mtgs R-Estate Comm'l Leases Installment Total Location
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-accrual:
Atlanta $ 391 -- $ 50 $156 $119 $692 $ 1,408 9.96%
Augusta 74 -- -- -- -- -- 74 0.52%
Jacksonville 134 -- -- -- -- -- 134 0.95%
Charlotte 202 -- -- -- -- -- 202 1.43%
Various locations -- 7,312 -- -- -- -- 7,312 51.76%
- -----------------------------------------------------------------------------------------------------------------------------
Total non-accrual 801 7,312 50 156 119 692 9,130 64.62%
- -----------------------------------------------------------------------------------------------------------------------------
Potential problem loans:
Atlanta 100 -- 3,330 28 -- -- 3,458 24.48%
- -----------------------------------------------------------------------------------------------------------------------------
Total potential problem loans 100 -- 3,330 28 -- -- 3,458 24.48%
- -----------------------------------------------------------------------------------------------------------------------------
Real estate owned:
Atlanta 15 70 269 -- -- -- 354 2.50%
Augusta -- 244 -- -- -- -- 244 1.73%
Hinesville 230 -- -- -- -- -- 230 1.63%
Aiken 66 -- -- -- -- -- 66 0.47%
All other locations 110 536 -- -- -- -- 646 4.57%
- -----------------------------------------------------------------------------------------------------------------------------
Total real estate owned(1) 421 850 269 -- -- -- 1,540 10.90%
- -----------------------------------------------------------------------------------------------------------------------------
Total problem assets by type $1,322 $8,162 $3,649 $184 $119 $692 $14,128 100.00%
- -----------------------------------------------------------------------------------------------------------------------------
% of total problem assets by
type 9.36% 57.77% 25.83% 1.30% .84% 4.90% 100.00%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Does not include reserves of $138,410: real estate owned, net, equals
$1,401,926.
Concentrations to Single Borrowers
At December 31, 1999, the Bank has two borrowers located in the metro
Atlanta area with classified loans in the amounts of $2,119,774 and $794,965,
respectively. Both loans are non-residential mortgage loans and are paid
current. The Bank is monitoring the borrowers' financial results and cashflow.
Loan Impairment
Impaired loans exclude residential mortgages, construction loans
secured by first mortgage liens, and groups of small homogeneous loans and
amounted to $153,000 at December 31, 1999, a decrease of $428,000 or 73.67% from
$581,000 at March 31, 1999 and $367,000 or 70.58% from $520,000 at December 31,
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
December 31, 1999, March 31, 1999 and December 31, 1998, the valuation allowance
related to these impaired loans was $39,000, $214,000 and $280,000,
respectively, which is included in the reserve for loan losses as presented in
the following table. At December 31, 1999, March 31, 1999 and December 31, 1998,
all impaired loans had a related loan loss reserve. During the nine months of
fiscal 2000, the Company charged-off $287,752 against loan loss reserves
compared to $257,000 for the same period last year. For the third quarter and
nine months of fiscal 2000, the average recorded investment in impaired loans
was $153,000 and $299,000 compared to $1,064,000 and $1,676,000 for the same
periods a year ago.
31
<PAGE> 32
The Company uses either the cash or cost recovery method to record cash
receipts on impaired loans that are on nonaccrual. Under the cash method,
contractual interest is credited to interest income when received. This method
is used when the ultimate collectibility of the total principal is not in doubt.
Loans on the cost recovery method may be changed to the cash method when the
application of the cash payments has reduced the principal balance to a level
where collection of the remaining recorded investment is no longer in doubt.
Reserve for Loan Losses
The Company set aside $200,000 and $627,000, respectively, of
additional reserves for possible loan losses during the third quarter of fiscal
2000 and 1999. During the nine months of fiscal 2000, the Company set aside
$600,000 compared to $1,881,000 for the same period last year. At December 31,
1999, reserves represented 1.05% and 1.10% of average loans receivable, net,
outstanding for the third quarter and nine months of fiscal 2000 compared to
1.34% and 1.39% for the same periods one year ago. During the third quarter and
nine months of fiscal 2000, the Company charged-off loans in the amount of
$347,000 and $1,226,000, respectively, compared to $483,000 and $1,221,000 for
the same periods last year. In the third quarter and nine months of fiscal 2000,
net charge-offs represented 0.02% and 0.13% of average loans receivable, net,
outstanding, a decrease from 0.19% and 0.21% for the third quarter and nine
months of fiscal 1999. Loan loss reserves totaled $7,288,000 at December 31,
1999 compared to $7,345,000 and $7,550,000 at March 31, 1999 and December 31,
1998, respectively. Loan loss reserves to total problem assets decreased to
52.09% at December 31, 1999 from 64.78% at March 31, 1999 and 53.76% at December
31, 1998. 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.
32
<PAGE> 33
ANALYSIS OF THE RESERVE FOR LOAN LOSSES
<TABLE>
<CAPTION>
(dollars in thousands)
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------------------------------------------------
1999 1998 1999 1998
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Reserve for loan losses, beginning of period $ 7,125 $ 7,184 $ 7,345 $ 6,505
Charge-offs:
Real estate - construction -- -- 10 --
Real estate - mortgage 103 7 220 273
Consumer 205 205 676 642
Commercial 39 14 290 33
Commercial leases -- 257 30 273
- -------------------------------------------------------------------------------------------------------------------------------
Total charge-offs 347 483 1,226 1,221
Recoveries 310 222 569 385
- -------------------------------------------------------------------------------------------------------------------------------
Net charge-offs 37 261 657 836
Provision for loan losses 200 627 600 1,881
- -------------------------------------------------------------------------------------------------------------------------------
Reserve for loan losses, end of period $ 7,288 $ 7,550 $ 7,288 $ 7,550
- -------------------------------------------------------------------------------------------------------------------------------
Average loans receivable, net, outstanding for the period $693,623 $562,314 $661,354 $542,216
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net charge-offs to average loans receivable, net 0.02% 0.19% 0.13% 0.21%
- -------------------------------------------------------------------------------------------------------------------------------
Reserves to average loans receivable, net 1.05% 1.34% 1.10% 1.39%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE> 34
Deposits
Deposits are the Company's primary funding source. During the nine
months of fiscal 2000, total deposits decreased $148,103,000 or 16.84% to
$731,562,000 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 deposit, which decreased $98,742,000 or 16.76% to $490,565,000
at December 31, 1999 from $589,307,000 at March 31, 1999 and $137,506,000 or
21.89% from $628,071,000 December 31, 1998. The decline is principally due to a
planned decline in high cost six-month certificates of deposits. Demand deposits
including non-interest bearing deposits, interest-bearing deposits, savings
accounts and money market accounts decreased $49,361,000 or 17.0% to
$240,997,000 at December 31, 1999 from $290,358,000 at March 31, 1999 and
$16,650,000 or 6.46% from $257,647,000 at December 31, 1998.
For the periods indicated, deposits are summarized by type and
remaining term as follows:
<TABLE>
<CAPTION>
DEPOSIT MIX
DECEMBER 31, March 31, December 31,
(dollars in thousands) 1999 1999 1998
<S> <C> <C> <C>
Demand deposits:
Noninterest-bearing deposits $ 47,594 $ 45,737 $ 52,623
Interest-bearing deposits 90,575 122,183 82,098
Money market accounts 70,794 85,516 87,341
Savings accounts 32,034 36,922 35,585
----------------------------------------------------------
Total demand deposits 240,997 290,358 257,647
----------------------------------------------------------
Time deposits:
Maturity one year or less 351,659 427,203 460,868
Maturity greater than one year through
two years 55,604 71,337 71,759
Maturity greater than two
years through three years 32,145 25,568 30,890
Maturity greater than three years 51,157 65,199 64,554
----------------------------------------------------------
Total time deposits 490,565 589,307 628,071
----------------------------------------------------------
Total deposits $731,562 $879,665 $885,718
----------------------------------------------------------
</TABLE>
The weighted average interest rate on time deposits at December 31,
1999, March 31, 1999 and December 31, 1998, was 5.46%, 5.60% and 5.75%.
For the periods indicated, interest expense on deposits is summarized
as follows:
<TABLE>
<CAPTION>
(dollars in thousands) THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------------------------
1999 1998 1999 1998
------------------------------------------------
<S> <C> <C> <C> <C>
Interest-bearing deposits $ 737 $ 814 $ 2,437 $ 2,679
Money market accounts 728 842 2,433 1,902
Savings accounts 132 226 476 697
Time deposits 6,841 8,625 21,612 25,910
------------------------------------------------
Total $8,438 $10,507 $26,958 $31,188
------------------------------------------------
</TABLE>
34
<PAGE> 35
Federal Home Loan Bank Advances
The FHLB system functions as a reserve credit facility for thrift
institutions and certain other member home financing institutions. The Bank
utilizes advances from the FHLB to fund a portion of its assets. At December 31,
1999, advances were $297,750,000 compared to $157,500,000 at March 31, 1999 and
$251,550,000 at December 31, 1998. At December 31, 1999, the weighted average
interest rate on these borrowings was 5.15% compared to 5.38% at March 31, 1999
and 5.34% at December 31, 1998.
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 December 31, 1999, guaranteed
preferred beneficial interests in debentures was $28,750,000. The weighted
average interest rate is 8.65%.
Liquidity and Capital Resources
Liquidity Management
The Asset and Liability Committee ("ALCO") manages the Company's
liquidity needs to ensure there is sufficient cash flow to satisfy demand for
credit and deposit withdrawals, to fund operations and to meet other Company
obligations and commitments on a timely and cost effective basis. Deposits
provide a significant portion of the Company's cash flow needs and continue to
provide a relatively stable, low cost source of funds. The Company's other
primary funding source was provided by advances from the Federal Home Loan Bank.
The liquidity requirement may vary from time to time (between 4% and 10%)
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% of the liquidity base at the end of the preceding
calendar quarter. At December 31, 1999, the Company's liquidity ratio was 5.44%.
At December 31, 1999, the Company had commitments to originate mortgage loans of
approximately $18,320,000. The Company had commitments to sell loans of
approximately $44,500,000 at December 31, 1999.
Beginning April 1, 1995, the Bank formed an operating subsidiary,
PrimeEagle Mortgage. 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
$468,543,000 or 42.17% to $642,547,000 for the nine months of fiscal 1999
compared to $1,111,090,000 for the same period last year. The Company manages
the funding requirements of these loans primarily with short-term advances from
the FHLB and deposits.
Cash Flows from Operating Activities
For the nine months of fiscal 2000, cash provided from operating
activities was $100,494,000 compared to a use of $94,085,000 for the same period
one year ago. The primary reason for this fluctuation is timing differences from
the sale of loans held for sale versus originations of loans held for sale.
During the nine months of fiscal 2000, the Company originated and sold
$642,547,000 and $748,064,000 of loans held for sale, respectively, resulting in
a $105,517,000 source of cash. For the same period last year, the Company
originated and sold
35
<PAGE> 36
$1,111,090,000 and $1,023,802,000 of loans held for sale, respectively,
resulting in a use of cash of $87,288,000.
Cash Flows from Investing Activities
During the nine months of fiscal 2000, the Company used $96,018,000 of
cash for investing activities compared to a use of $139,008,000 for the same
period last year. In the nine months of fiscal 2000, the primary use of cash was
for loan originations, net of repayments in the amount of $72,115,000, compared
to $38,513,000 for the same period last year. For the nine months of fiscal
2000, purchases and repayments of securities available for sale and investment
securities held to maturity resulted in a $7,576,000 use of cash. Comparatively,
for the nine months of fiscal 1999, purchases and repayments of securities
available for sale and investment securities held to maturity resulted in a
$89,273,000 use of cash. During the nine months of fiscal 2000, the Company
invested an additional $29,316,000 in real estate projects and received proceeds
of $20,269,000. During the nine months of fiscal 1999, the Company invested an
additional $12,495,000 in real estate projects and received proceeds of
$2,923,000.
Cash Flows from Financing Activities
Cash used by financing activities during the nine months of fiscal
2000, was $6,494,000 compared to cash provided of $225,162,000 during the same
period one year ago. The decline in the Company's deposits was the most
significant factor. Deposits decreased by $148,103,000 during the nine months
of fiscal 2000 as compared to an increase of $106,743,000 during the same
period last year. This decline was a conscious strategy to eliminate certain
high cost deposits. The Company borrowed $637,672,000 and repaid $491,313,000
for the nine months of fiscal 2000. This compares to borrowings of $763,616,000
and repayments of $664,321,000 for the same nine months last year. In the
second quarter of fiscal 1999, the Company raised $28,750,000 of additional
capital through a new issue of trust preferred securities. In addition,
pursuant to the Company's stock repurchase plan, the Company used cash of
$811,000 to repurchase common stock in the nine months of fiscal 2000 compared
to a use of $3,177,000 in the same period last year. The Company paid cash
dividends to its shareholders of $2,669,000 and $2,717,000 for the nine 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% or higher, a tier one
risk based capital ratio of 6% or higher and a leveraged ratio of 5% or higher.
At December 31, 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 the third quarter of fiscal 2000, the Bank paid the Company a
cash dividend of $4,200,000. In fiscal 1999, the Bank paid no dividends to the
Company. The Company contributed capital of $12,000,000 to the Bank during
fiscal 1999.
36
<PAGE> 37
<TABLE>
<CAPTION>
REGULATORY CAPITAL
- --------------------------------------------------------------------------------------------------------------
Regulatory Required Excess
(dollars in thousands) Capital % Capital % Capital %
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1999
RISK-BASED RATIOS:
TIER 1 CAPITAL $70,229 9.55 $29,404 4.00 $40,825 5.55
TOTAL CAPITAL 77,146 10.49 58,808 8.00 18,338 2.49
TIER 1 LEVERAGE 70,229 5.93 47,352 4.00 22,877 1.93
TANGIBLE EQUITY 70,229 5.74 18,365 1.50 51,864 4.24
- --------------------------------------------------------------------------------------------------------------
March 31, 1999 Risk-based ratios:
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
- --------------------------------------------------------------------------------------------------------------
December 31, 1998 Risk-based ratios:
Tier 1 capital $68,543 9.12 $30,077 4.00 $38,466 5.12
Total Capital 75,410 10.03 60,154 8.00 15,256 2.03
Tier 1 leverage 68,543 5.09 53,868 4.00 14,675 1.09
Tangible equity 68,543 5.11 20,134 1.50 48,409 3.61
- --------------------------------------------------------------------------------------------------------------
</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
37
<PAGE> 38
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.
The Bank strongly denies Plaintiffs' entitlement to any relief and
believes its Counterclaim, as amended, has merit. The Bank believes, among other
things, that Plaintiffs were properly terminated for cause. In addition to other
grounds for termination for cause, the Bank has uncovered substantial evidence
that Plaintiffs were engaged in numerous other business pursuits while employed
by the Bank, contrary to and in violation of their Employment contracts. Under
the Agreement, termination of either Plaintiff for cause precludes Plaintiffs
from exercising the purchase option. Moreover, the Bank believes that even if
the purchase option were applicable, Plaintiffs would have the right to purchase
only those assets used in the operation of the business in division offices and
would have no right to purchase loans made by the Bank, and that even if such
loans could be purchased, Plaintiffs would be required to assume the obligations
giving rise to them.
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
38
<PAGE> 39
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE BANCSHARES, INC.
(Registrant)
Date: February 16, 2000 /s/ Conrad J. Sechler, Jr.
--------------------------------------
Conrad J. Sechler, Jr.
Chairman of the Board, President and
Principal Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
Date: February 16, 2000 /s/ Richard B. Inman, Jr.
---------------------------------------
Richard B. Inman, Jr.
Director, Secretary and Treasurer
Date: February 16, 2000 /s/ Conrad J. Sechler, Jr.
---------------------------------------
Conrad J. Sechler, Jr.
Chairman of the Board and President
Date: February 16, 2000 /s/ LuAnn Durden
---------------------------------------
LuAnn Durden
Chief Financial Officer
39
<PAGE> 40
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page No.
- ------- ----------- --------
<S> <C> <C>
11 Computation of per share earnings 41
27 Financial Data Schedule (for SEC use only)
</TABLE>
40
<PAGE> 1
EXHIBIT 11
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
Statement re: Computation of per share earnings
In the calculation of basic and diluted earnings per share, net income is
identical. Below is a reconciliation for the three-month periods ended December
31, 1999 and 1998, of the difference between average basic common shares
outstanding and average diluted common shares outstanding.
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
(dollars in thousands except per share data) DECEMBER 31, 1999 December 31, 1998
------------------------------------------
<S> <C> <C>
Basic
Net income $2,343 $2,473
------------------------------------------
Average common shares 5,546 5,719
------------------------------------------
Earnings per common share - basic $ 0.42 $ 0.43
------------------------------------------
Diluted
Net income $2,343 $2,473
------------------------------------------
Average common shares - basic 5,546 5,719
Incremental shares outstanding 72 119
Average common shares - diluted 5,618 5,838
------------------------------------------
Earnings per common share - diluted $ 0.42 $ 0.42
------------------------------------------
</TABLE>
Below is a reconciliation for the nine-month periods ended December 31, 1999 and
1998, of the difference between average basic common shares outstanding and
average diluted common shares outstanding.
<TABLE>
<CAPTION>
(dollars in thousands except per share data) NINE MONTHS ENDED
DECEMBER 31, 1999 December 31, 1998
-------------------------------------------
<S> <C> <C>
Basic
Net income $7,031 $7,924
-------------------------------------------
Average common shares 5,565 5,761
-------------------------------------------
Earnings per common share - basic $ 1.26 $ 1.38
-------------------------------------------
Diluted
Net income $7,031 $7,924
-------------------------------------------
Average common shares - basic 5,565 5,761
Incremental shares outstanding 91 167
Average common shares - diluted 5,656 5,928
-------------------------------------------
Earnings per common share - diluted $ 1.24 $1 .34
-------------------------------------------
</TABLE>
41
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EAGLE BANCSHARES, INC. FOR THE NINE MONTHS ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 25,821
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 205,116
<INVESTMENTS-CARRYING> 63,214
<INVESTMENTS-MARKET> 61,431
<LOANS> 816,373
<ALLOWANCE> 7,288
<TOTAL-ASSETS> 1,210,504
<DEPOSITS> 731,562
<SHORT-TERM> 217,911
<LIABILITIES-OTHER> 40,039
<LONG-TERM> 150,000
0
0
<COMMON> 6,142
<OTHER-SE> 64,850
<TOTAL-LIABILITIES-AND-EQUITY> 70,992
<INTEREST-LOAN> 51,184
<INTEREST-INVEST> 7,173
<INTEREST-OTHER> 6,598
<INTEREST-TOTAL> 64,955
<INTEREST-DEPOSIT> 26,958
<INTEREST-EXPENSE> 39,096
<INTEREST-INCOME-NET> 25,859
<LOAN-LOSSES> 600
<SECURITIES-GAINS> 19
<EXPENSE-OTHER> 32,091
<INCOME-PRETAX> 10,135
<INCOME-PRE-EXTRAORDINARY> 10,135
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,031
<EPS-BASIC> 1.26
<EPS-DILUTED> 1.24
<YIELD-ACTUAL> 2.49
<LOANS-NON> 9,130
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,458
<ALLOWANCE-OPEN> 7,345
<CHARGE-OFFS> 1,226
<RECOVERIES> 569
<ALLOWANCE-CLOSE> 7,288
<ALLOWANCE-DOMESTIC> 7,288
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
