<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act OF 1934
Commission file number 0-14379
EAGLE BANCSHARES, INC.
Incorporated in the State of Georgia
IRS Employer Identification Number 58-1640222
Address: 4419 Cowan Road, Tucker, Georgia 30084-4441
Telephone: (770) 908-6690
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: Common
stock, par value $1.00, which is listed on the Nasdaq National Market
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: Common Stock, $1.00 Par Value
Shares Outstanding at July 31, 2000: 5,637,135
Index of Exhibits on Page 31
<PAGE> 2
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
<S> <C>
PART I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition at
June 30, 2000 and March 31, 2000 3
Consolidated Statements of Income -
Three months ended June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows -
Three months ended June 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II. Other Information
Item 1. Legal Proceedings 28
Item 2. Changes in Securities 28
Item 3. Defaults upon Senior Securities 28
Item 4. Submission of Matters to a Vote of Security Holders 28
Item 5. Other Information 29
Item 6. Exhibits and Reports on Form 8-K 29
Signatures 30
Index of Exhibits 31
</TABLE>
2
<PAGE> 3
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, March 31,
(in thousands except per share data) 2000 2000
<S> <C> <C>
ASSETS
ASSETS:
Cash and amounts due from banks $ 24,378 $ 28,572
Accrued interest receivable 9,689 8,882
Securities available for sale 205,174 210,644
Investment securities held to maturity 57,917 61,164
Loans held for sale 78,926 49,240
Loans receivable, net 784,223 780,874
Investments in real estate 47,196 44,956
Real estate acquired in settlement of loans, net 1,600 1,521
Stock in Federal Home Loan Bank, at cost 14,695 14,665
Premises and equipment, net 23,772 24,204
Deferred income taxes 5,522 5,468
Other assets 20,145 14,881
----------- -----------
Total assets $ 1,273,237 $ 1,245,071
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $ 794,504 $ 769,952
Federal Home Loan Bank advances and other borrowings 355,072 362,372
Advance payments by borrowers for property taxes and insurance 1,877 1,076
Guaranteed preferred beneficial interests in debentures (trust preferred
securities) 28,750 28,750
Accrued expenses and other liabilities 19,251 8,450
----------- -----------
Total liabilities 1,199,454 1,170,600
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; 10,000,000 shares authorized and 6,238,935
shares issued at June 30, and March 31, 2000 6,239 6,239
Additional paid-in capital 39,518 39,518
Retained earnings 44,359 44,563
Accumulated other comprehensive income (8,076) (7,477)
Employee Stock Ownership Plan note payable (1,771) (1,886)
Treasury stock, 601,800 shares at cost at June 30, and March 31,2000 (6,486) (6,486)
----------- -----------
Total stockholders' equity 73,783 74,471
----------- -----------
Total liabilities and stockholders' equity $ 1,273,237 $ 1,245,071
----------- -----------
</TABLE>
3
<PAGE> 4
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
JUNE 30, June 30,
(in thousands except per share data) 2000 1999
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME:
Interest on loans $ 19,049 $16,817
Interest on mortgage-backed securities 2,496 2,022
Interest and dividends on securities and other interest-earning assets 2,448 2,487
-----------------------------------------------------------------------------------------------------------------------
Total interest income 23,993 21,326
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 9,483 9,669
Interest on FHLB advances and other borrowings 4,507 2,880
Interest on long-term debt 622 622
-----------------------------------------------------------------------------------------------------------------------
Total interest expense 14,612 13,171
-----------------------------------------------------------------------------------------------------------------------
Net interest income 9,381 8,155
-----------------------------------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 450 300
-----------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 8,931 7,855
-----------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Mortgage production fees 1,241 2,782
Gain on sales of investment in real estate 1,142 2,077
Real estate commissions, net 262 343
Rental income -- 165
Service charges 799 527
Gain on sale of branch -- 673
Equity in loss in Nextbill.com (348) --
Miscellaneous 613 942
-----------------------------------------------------------------------------------------------------------------------
Total noninterest income 3,709 7,509
-----------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSES:
Salaries and employee benefits 4,797 6,503
Net occupancy expense 1,335 1,522
Data processing expense 785 667
Federal insurance premiums 38 181
Marketing expense 636 669
Professional services 905 430
Exit costs associated with disposal of wholesale lending group 1,142 --
Miscellaneous 1,952 1,719
-----------------------------------------------------------------------------------------------------------------------
Total noninterest expenses 11,590 11,691
-----------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,050 3,673
INCOME TAX EXPENSE 352 1,232
-----------------------------------------------------------------------------------------------------------------------
NET INCOME $ 698 $ 2,441
-----------------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE - BASIC $ 0.12 $ 0.44
EARNINGS PER COMMON SHARE - DILUTED $ 0.12 $ 0.43
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 5
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(in thousands)
Three Months ended June 30, 2000 1999
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 698 $ 2,441
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation, amortization and accretion 675 458
Provision for loan losses 450 300
Loss on sale of real estate acquired in settlement of loans -- 35
Gain on sales of investment in real estate (1,142) (2,077)
Loss (gain) on sales of premises and equipment 2 (1)
Gain on sale of branch -- (673)
Amortization of restricted stock -- 30
Deferred income tax expense (benefit) 313 (560)
Proceeds from sales of loans held for sale 108,874 324,740
Originations of loans held for sale (138,560) (299,960)
Changes in assets and liabilities:
(Increase) decrease in accrued interest receivable (807) 75
(Increase) decrease in other assets (5,307) 1,302
Increase in accrued expense and other liabilities 10,801 8,092
----------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (24,003) 34,202
----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities held to maturity -- (9,884)
Principal payments received on securities available for sale 4,589 7,911
Principle payments received on investment securities held to maturity 1,246 2,727
Proceeds from calls and maturities of investment securities held to maturity 2,025 1,316
Loan originations, net of repayments (4,156) (22,287)
Proceeds from sale of real estate acquired in settlement of loans 293 585
Purchases of FHLB stock (1,545) (4,971)
Redemption of FHLB stock 1,515 3,055
Proceeds from sale of premises and equipment 38 1,666
Purchases of premises and equipment, net (364) (2,090)
Proceeds from sales of investments in real estate 4,665 9,985
Additions to investments in real estate (5,763) (7,089)
----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 2,543 (19,076)
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 6
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Three Months ended June 30, 2000 1999
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in time deposits $ 32,958 $ (47,542)
Net change in demand deposit accounts (8,406) (15,828)
Payments related to sale of branch -- (11,859)
Repayment of FHLB advances and other borrowings (122,945) (124,619)
Proceeds from FHLB advances and other borrowings 115,645 180,790
Principal reduction of ESOP note payable 115 28
Proceeds from the exercise of stock options -- 45
Cash dividends paid (902) (891)
Increase in advance payments from borrowings for
Property taxes and insurance 801 238
----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 17,266 (19,638)
----------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (4,194) (4,512)
Cash and cash equivalents at beginning of year 28,572 27,839
----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 24,378 $ 23,327
----------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash paid during period for:
----------------------------------------------------------------------------------------------------------------------------
Interest $ 14,453 $ 14,434
----------------------------------------------------------------------------------------------------------------------------
Income taxes $ -- $ 20
----------------------------------------------------------------------------------------------------------------------------
Supplemental schedule of noncash investing and financing activities:
----------------------------------------------------------------------------------------------------------------------------
Acquisition of real estate in settlement on loans $ 372 $ 357
----------------------------------------------------------------------------------------------------------------------------
Dividends payable $ 902 $ 892
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 7
Eagle Bancshares, Inc.
Notes to Interim Unaudited Consolidated Financial Statements
June 30, 2000
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, 2000, which has been filed
with the Company's most recent Form 10-K. In the opinion of management, all
eliminations and normal recurring adjustments considered necessary for fair
presentation have been included. Operating results for the three month period
ended June 30, 2000, are not necessarily indicative of the results that may be
expected for the fiscal year ending March 31, 2001.
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. Disposal of Wholesale Lending Group
In May 2000, after considering among other things, the historical
profitability, trends in technology, declining margins, business prospects and
exit costs, the Board of Directors authorized management to execute a detailed
plan to exit the wholesale mortgage operation. This plan included informing
personnel, retaining advisors, and determining the cost to dispose of the
operation.
During the quarter ended June 30, 2000, the Company recorded
$1,142,000 in pre-tax charges related to the exiting from its wholesale
mortgage operation. These charges included: cost of the transaction, severance
and termination related accruals, write-off of certain tangible assets with no
ongoing benefit to the Company and certain contract termination fees. The
following table shows the related charges and the remaining liability.
<TABLE>
<CAPTION>
Remaining
Utilized in Balance
(in thousands) Pre-tax fiscal 2001 June 30, 2000
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Transaction costs $ 100,000 $ - $ 100,000
Severance and termination accruals 175,000 - 175,000
Write-off of tangible assets 479,000 - 479,000
Contract termination fees 388,000 - 388,000
-------------------------------------------------------------------------------------------
Total related charges $1,142,000 $ - $1,142,000
-------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 8
E. 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.
In the calculation of basic and diluted earnings per share, net income
is identical. Below is a reconciliation for the three-month periods ended June
30, 2000 and 1999, of the difference between average basic common shares
outstanding and average diluted common shares outstanding.
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
(dollars in thousands except per share data) THREE MONTHS ENDED
JUNE 30, 2000 June 30, 1999
-----------------------------------------
<S> <C> <C>
Basic
Net income $ 698 $ 2,441
-----------------------------------------
Average common shares 5,637 5,571
-----------------------------------------
Earnings per common share - basic $ 0.12 $ 0.44
-----------------------------------------
Diluted
Net income $ 698 $ 2,441
-----------------------------------------
Average common shares - basic 5,637 5,571
Incremental shares outstanding 38 129
-----------------------------------------
Average common shares - diluted 5,675 5,700
-----------------------------------------
Earnings per common share - diluted $ 0.12 $ 0.43
-----------------------------------------
</TABLE>
F. Accumulated Other Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income," establishes standards
for the reporting and displaying of other comprehensive income. Comprehensive
income is defined as the change in equity from all transactions other than
those with stockholders. Other comprehensive income includes the change in net
unrealized gains or losses on certain debt and equity securities, foreign
currency transactions, and minimum pension liability adjustments. The Company's
comprehensive income consists of net income and unrealized gains and losses on
securities available for sale, net of income taxes.
8
<PAGE> 9
Comprehensive income for the first three months of fiscal year 2001
and 2000 is calculated as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 2000 June 30, 1999
------------------------------------------
<S> <C> <C>
Unrealized loss, net, recognized in other
accumulated comprehensive income:
Before income tax $ (967) $ (4,741)
Income tax (368) (1,799)
------------------------------------------
Net of income tax $ (599) $ (2,942)
------------------------------------------
Amounts reported in net income:
Gain on sales of securities available for sale $ -- $ --
Net accretion on securities available for sale 109 22
------------------------------------------
Reclassification adjustment 109 22
Income tax expense (41) (8)
------------------------------------------
Reclassification adjustment, net of tax 68 14
------------------------------------------
Amounts reported in other accumulated
Comprehensive income:
Unrealized losses arising during the period, net of tax (531) (2,928)
Less reclassification adjustment, net of tax 68 14
------------------------------------------
Unrealized losses, net, recognized in other
accumulated comprehensive income (599) (2,942)
Net income 698 2,441
------------------------------------------
Total comprehensive income $ 99 $ (501)
------------------------------------------
</TABLE>
G. 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 over the Internet, through community bank
branches and through retail loan production offices. During the quarter, the
Company purchased 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 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.
9
<PAGE> 10
The results for each reportable segment are included in the following table (in
thousands):
<TABLE>
<CAPTION>
Real Estate
Mortgage Development Mezzanine
Banking Banking And Sales Financing Other Eliminations Consolidated
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
JUNE 30, 2000:
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET INTEREST INCOME (EXPENSE) $ 8,773 $ 242 $ (2) $ 736 $ (324) $ (44) $ 9,381
NONINTEREST (EXPENSE) INCOME (5,362) (2,458) 445 (459) (91) 44 (7,881)
DEPRECIATION ON PREMISES AND EQUIPMENT 659 82 15 -- 4 -- 760
INCOME TAX EXPENSE (BENEFIT) 1,122 (892) 177 111 (166) -- 352
NET INCOME (LOSS) 1,852 (1,337) 266 166 (249) -- 698
PROVISION FOR LOAN LOSSES 437 13 -- -- -- -- 450
TOTAL ASSETS 1,192,121 97,633 54,885 18,000 7,205 (96,607) 1,273,237
EXPENDITURES FOR ADDITIONS TO PREMISES
AND EQUIPMENT, NET 407 7 -- -- -- -- 414
TOTAL REVENUES FROM EXTERNAL CUSTOMERS 23,131 2,504 1,396 406 265 -- 27,702
INTERSEGMENT REVENUES 1,184 16 39 15 122 (1,376) --
-----------------------------------------------------------------------------------------------------------------------------------
June 30, 1999:
-----------------------------------------------------------------------------------------------------------------------------------
Net interest income (expense) $ 8,207 $ 140 $ (89) $ 394 $ (463) $ (34) $ 8,155
Noninterest (expense) income (4,817) (1,443) 2,003 (8) 49 34 (4,182)
Depreciation on premises and equipment 548 130 7 -- 4 -- 689
Income tax expense (benefit) 1,002 (523) 765 154 (166) -- 1,232
Net income (loss) 2,094 (786) 1,149 232 (248) -- 2,441
Provision for loan losses 294 6 -- -- -- -- 300
Total assets 1,177,254 240,598 33,363 16,120 13,703 (263,728) 1,217,310
Expenditures for additions to premises
and equipment, net 1,974 116 -- -- -- -- 2,090
Total revenues from external customers 19.775 6.033 2,493 242 292 -- 28,835
Intersegment revenues 3,734 153 123 196 265 (4,471) --
</TABLE>
10
<PAGE> 11
H. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 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 FASB issued SFAS 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.
In June 2000, SFAS No. 133 was amended by SFAS No. 138 "Accounting for
Certain Derivative Instruments and Certain Hedging Activities". SFAS No. 138
addresses a limited number of issues causing implementation difficulties for
numerous entities that apply SFAS No. 133.
I. Treasury Stock
During the second quarter of fiscal 1999, the Company's 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
March 31, 2000, the Company had repurchased 300,000 shares with a cost of
approximately $5,410,000.
J. 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.
K. 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
11
<PAGE> 12
interest rate environment may reduce margins; general economic or business
conditions may lead to a deterioration in credit quality or a reduced demand
for credit; legislative or regulatory changes, including changes in accounting
standards, may adversely affect the business in which the Company is engaged;
changes may occur in the securities markets; and competitors of the Company may
have greater financial resources and develop products that enable such
competitors to compete more successfully than the Company.
Management believes these forward-looking statements are reasonable;
however, undue reliance should not be placed on such forward-looking
statements, which are based on current expectations.
Forward-looking statements are not guarantees of performance. They
involve risks, uncertainties and assumptions. The future results and
shareholder values of the Company may differ materially form those expressed in
the forward-looking statements contained in this report. Many of the factors
that will determine these results and values are beyond the Company's ability
to control or predict.
12
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
SUMMARY FINANCIAL DATA
(in thousands except per share data)
<TABLE>
<CAPTION>
% Change
Quarter Ended June 30, 2000 from
JUNE 30, March 31, June 30, March 31, June 30,
For the quarter: 2000 2000 1999 2000 1999
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income $ 698 $ 2,501 $ 2,441 -72.09 -71.41
Per common share:
Net income per common share - basic 0.12 0.45 0.44 -73.33 -72.73
Net income per common share - diluted 0.12 0.45 0.43 -73.33 -72.09
Dividends declared 0.16 0.16 0.16 -- --
Book value per share 13.09 13.21 13.19 -0.91 -0.76
Average common shares outstanding - basic 5,637 5,547 5,571 1.62 1.18
Average common shares outstanding - diluted 5,675 5,600 5,700 1.34 -0.44
Profitability ratios: (%)
Return on average assets 0.22% 0.80% 0.80% -72.50 -72.50
Return on average equity 3.80% 13.90% 13.26% -72.66 -71.34
Efficiency ratio 88.54% 72.25% 74.64% 22.55 18.62
Net interest margin - taxable equivalent 3.28% 3.33% 2.99% -1.50 9.70
Equity to assets 5.79% 5.98% 6.04% -3.18 -4.14
At quarter end:
Loans held for sale $ 78,926 $ 49,240 $ 196,590 60.29 -59.85
Loans receivable, net 784,223 780,874 645,147 0.43 21.56
Allowance for loan losses 7,504 7,191 7,251 4.35 3.49
Assets 1,273,237 1,245,071 1,217,310 2.26 4.59
Deposits 794,504 769,952 803,763 3.19 -1.15
FHLB advances and other borrowings 355,072 362,372 277,723 -2.01 27.85
Stockholders' equity 73,783 74,471 73,527 -0.92 0.35
</TABLE>
Overview
The Company's net income for the first quarter of fiscal 2001, was
$698,000 or $0.12 per diluted share, compared with $2,441,000 or $0.43 per
diluted share for the first quarter of fiscal 2000.
First quarter performance is below expectations due to a combination
of factors including one- time charges, increased cost of funds and reduced
returns from interest sensitive businesses. This decline is due primarily to a
one-time charge totaling $1,142,000 due to the Company's exit from its
wholesale mortgage operation. Net income would have been $1,440,000 million or
$0.25 per diluted share without the one-time charge.
The Company has entered into an agreement to sell its wholesale
mortgage banking operation to e-jumbo.com, based in Boston, Massachusetts, and
expects the transaction to close by month end. The sale of the wholesale group
allows management to concentrate on building the Company's community banking
franchise in Atlanta as well as its Internet banking business.
Of the total $698,000 in net income or $0.12 per diluted share, the
community banking operation accounted for $1,852,000 or $0.33 per diluted
share; Eagle Real Estate Advisors, the real estate development and sales
business, comprised $266,000 or $0.05 per diluted share; Eagle Bancshares
Capital Group, the mezzanine financing unit, contributed $166,000 or $0.03 per
diluted share; and Prime Eagle Mortgage Corporation, the mortgage banking
group, accounted for a loss of $1,337,000 or $0.24 per diluted share. Other
operations accounted for a loss of $249,000 or $0.05 per diluted share.
13
<PAGE> 14
Segment Discussion
Mortgage Banking
For the first quarter of fiscal 2001, the Company's mortgage banking
operations resulted in losses of $1,337,000 or $0.24 per diluted share compared
to losses of $786,000 or $0.14 per diluted share for the same quarter last
year. After removing the effect of the $1,142,000 charge the loss would have
been $595,000 or $0.10 per diluted share. The sale of the Company's wholesale
mortgage banking group was executed as part of the strategy to exit commodity
businesses. This strategy includes negotiating strategic alliances to reduce
fixed expenses and interest rate risk associated with the origination and sale
of mortgage loans.
Community Banking
For the first quarter of fiscal 2001, the Company's community banking
operations resulted in income of $1,852,000 or $0.33 per diluted share versus
income of $2,094,000 or $0.37 per diluted share, for the same quarter one year
ago. The decline in earnings compared to the June 1999 quarter is primarily due
to the gain on the sale of the Towne Lake Branch and related deposits resulting
in a before tax gain of $673,000 in the prior year. For the first quarter of
fiscal 2001, the Bank's net interest margin improved to $8,773,000 from
$8,207,000 for the first quarter of fiscal 2000. At the same time, non-interest
expense decreased to $6,569,000 for the first quarter of fiscal 2001, from
$6,855,000 for the same quarter last year, resulting in an improvement in the
Bank's efficiency ratio to 65.82% from 66.92%. As a result of the rightsizing
effort undertaken in August 1999, the Bank's salaries and employee benefits
declined to $3,047,000 for the first quarter, from $3,646,000 for the same
quarter one year ago.
The Bank effected a reorganization in May 2000 to retool the Company
for the new economy. The Bank's current combination of high-tech and high-touch
financial solutions position Eagle to grow market share in Atlanta while
unlocking the potential of e-commerce business. The Bank is co-branding Tucker
Federal Bank and justrightbank.com to be Atlanta's click-and-mortar bank.
Management will continue to emphasize cash management and its focus on being
the bank of choice for small businesses. As trusted agents, Tucker Federal Bank
("TFB") and justrightbank.com ("JRB") will utilize NextBill.com's electronic
bill presentment and payment software to help their customers make the
transition from paper to electronic billing.
Real Estate Development and Sales
For the first quarter of fiscal 2001, Eagle Real Estate Advisors
generated income of $266,000 or $0.05 per diluted share versus income
$1,149,000 or $0.20 per diluted share for the first quarter of fiscal 2000. In
the June 2000 quarter gains on the sale of investment in real estate were
$1,142,000 versus $2,077,000 for the June 1999 quarter. Lot sales for the first
quarter of fiscal 2001, numbered 54 compared to 43 in the same quarter last
year.
Mezzanine Financing
For the first quarter of fiscal 2001, Eagle Bancshares Capital Group
generated income of $166,000 or $0.03 per diluted share, versus income of
$232,000 or $0.04 per diluted share for the first quarter of fiscal 2000. The
decline is principally due to accounting for the Company's ownership in
NextBill.com using the equity method and recognizing a loss of $348,000.
NextBill.com is a company that provides electronic bill presentment and payment
services.
14
<PAGE> 15
EARNINGS ANALYSIS
INTEREST RATE AND MARKET RISK
The normal course of business activity exposes the Company to interest
rate risk. Interest rate risk is managed within an overall asset and liability
framework for the Company. The principal objectives of asset and liability
management are to guide the sensitivity of net interest spreads to potential
changes in interest rates and to enhance profitability in ways that promise
sufficient reward for recognized and controlled risk. Funding positions are
kept within predetermined limits designed to ensure that risk-taking is not
excessive and that liquidity is properly managed. 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. In
addition, fluctuations in interest rates usually result in changes in the fair
market value of the Company's financial instruments, cash flows and net
interest income. The Company's interest rate risk position is managed by the
Asset Liability Committee ("ALCO"). ALCO's objective is to optimize the
Company's financial position, liquidity and net interest income, while
remaining within the Board of Director's approved interest rate risk limits.
The Company uses a simulation modeling process to measure interest
rate risk and evaluate potential strategies. The Company's net interest income
simulation includes all financial assets and liabilities. This simulation
measures both the term risk and basis risk in the Company's asset and
liabilities. The simulation also captures the option characteristics of
products, such as caps and floors on floating rate loans, the right to pre-pay
mortgage loans without penalty and the ability of customers to withdraw
deposits on demand. These options are modeled through the use of primarily
historical customer behavior and statistical analysis. These simulations
incorporate assumptions regarding balance sheet growth, asset and liability
mix, pricing and maturity characteristics of the existing and projected balance
sheets. Other interest rate-related risks such as prepayment, basis and option
risk are also considered. Simulation results quantify interest rate risk under
various interest rate scenarios. Management then develops and implements
appropriate strategies. The Board of Directors regularly reviews the overall
interest rate risk position and asset and liability management strategies.
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 to 300 basis points upward
and downward rate movement. The Company closely monitors each scenario to
manage interest rate risk.
Management estimates the Company's annual net interest income would
increase approximately $1,066,000 or 3.13%, and decrease approximately
$2,997,000 or 8.81% percent should interest rates instantaneously rise or fall
100 basis points, versus the projection under unchanged rates. A fair market
value analysis of the Company's balance sheet calculated under an instantaneous
100 basis point increase in rates over June 30, 2000, estimates a $19,546,000
or 22.20% percent decrease in market value. The Company estimates a like
decrease in rates would increase market value $3,557,000 or 4.04% percent.
These changes in market value represent less than 5.0% of the total carrying
value of total assets at quarter-end. 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.
In fiscal 2001, the Company will continue to face term risk and basis
risk and may be confronted with several risk scenarios. If interest rates rise,
net interest income may actually increase, if deposit rates lag increases in
market rates. The Company could, however, experience significant pressure on
net interest income if there is a substantial increase in deposit rates
relative to market rates. A declining interest rate environment might result in
a decrease in loan rates, while deposit rates remain relatively stable which
15
<PAGE> 16
could also create significant risk to net interest income.
Net Interest Income
Net interest income increased by $1,226,000 or 15.03% to $9,381,000 in
the first quarter of fiscal 2001 from $8,155,000 for the same period last year.
This increase was the result of an improvement in the net interest spread. The
net interest spread (the difference between the yield earned on interest
earning assets and the cost of interest bearing liabilities) increased 22 basis
points to 304 basis points from 282 basis points in the same quarter last year.
The improvement is primarily attributable to the increase in the yield on
interest earning assets resulting from a change in the loan mix. Yield on
interest earning assets increased 57 basis points to 8.28% from 7.71% while the
cost of interest bearing liabilities increased 35 basis points to 5.24% from
4.89%.
Interest income increased $2,667,000 or 12.51% to $23,993,000 for the
first quarter of fiscal 2001 from $21,326,000 for the first quarter one year
earlier. Interest income received on loans increased $2,232,000 or 13.27% to
$19,049,000 for the first quarter of fiscal 2001 from $16,817,000 in fiscal
2000. The increase in interest received on loans is attributable to an increase
in the yield on loans during the first quarter of fiscal 2001. The yield on
loans increased 70 basis points at 8.74% for the quarter compared to 8.04% in
the same quarter last year. Interest income on loans receivable rose $4,378,000
or 32.21% to $17,972,000 during the first quarter from $13,594,000 in the first
quarter of fiscal 2000. Interest on loans held for sale decreased $2,146,000 or
66.58% to $1,077,000 for the first quarter of fiscal 2001 from $3,223,000
during the same quarter last year. Interest received on mortgage-backed
securities increased $474,000 or 23.44% to $2,496,000 for the first quarter of
fiscal 2001 from $2,022,000 in the first quarter of fiscal 2000. Interest and
dividends received on securities and other interest-earning assets decreased
$39,000 or 1.57% to $2,448,000 in fiscal 2001 from $2,487,000 in the same
quarter last year.
Interest expense increased $1,441,000 or 10.94% to $14,612,000 for the
first quarter of fiscal 2001 from $13,171,000 in the first quarter of fiscal
2000. This is primarily the result of an increase in the cost of interest
bearing liabilities. Interest expense on deposits decreased $186,000 or 1.92%
to $9,483,000 from $9,669,000 in the same period in the prior year as a result
of a decline in deposits. The cost of deposits increased 40 basis points to
5.20% during the quarter compared to 4.80% in the prior period. Interest
expense on FHLB advances and other borrowings increased $1,627,000 or 56.49% to
$4,507,000 for the first quarter of fiscal 2001 from $2,880,000 in the first
quarter of fiscal 2000. The Bank's cost of FHLB advances and other borrowings
increased 30 basis points to 5.04% from 4.74% in the same period in the prior
year. Interest expense on guaranteed preferred beneficial interests in
debentures for the first quarter of fiscal 2001 and fiscal 2000 was $622,000.
The following table reflects the average balances, the interest income
or expense and the average yield and cost of funds of the Company's interest
earning assets and interest bearing liabilities during the quarters ended June
30, 2000 and 1999:
16
<PAGE> 17
AVERAGE BALANCE SHEET
Quarter ended June 30,
<TABLE>
<CAPTION>
2000 1999
AVERAGE YIELD/ Average Yield/
(in thousands) BALANCE INTEREST COST Balance Interest Cost
-------------------------------------------------------------------------------------------------------------------------------
Earning Assets:
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans receivable(1) $ 815,929 $ 17,972 8.81% $ 636,067 $13,594 8.55%
Loans held for sale 55,799 1,077 7.72% 200,932 3,223 6.42%
Mortgage-backed securities 148,271 2,496 6.73% 127,165 2,022 6.36%
FHLB stock 14,783 285 7.71% 9,130 171 7.49%
Taxable investments(2) 55,156 867 6.29% 75,014 1,237 6.60%
Tax-exempt investment securities(2) 74,976 1,431 7.63% 67,436 1,270 7.53%
Interest earning deposits 4,080 66 6.47% 1,683 18 4.28%
-------------------------------------------------------------------------------------------------------------------------------
Total interest earning assets 1,168,994 24,194 8.28% 1,117,427 21,535 7.71%
-------------------------------------------------------------------------------------------------------------------------------
Non-interest earning assets 91,120 109,210
Total assets $ 1,260,114 $1,226,637
-------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Savings accounts $ 33,723 125 1.48% $ 37,426 $ 189 2.02%
-------------------------------------------------------------------------------------------------------------------------------
Checking 98,015 809 3.30% 126,980 1,035 3.26%
-------------------------------------------------------------------------------------------------------------------------------
Money market 63,648 673 4.23% 89,941 907 4.03%
Certificates of deposit 533,747 7,876 5.90% 551,911 7,538 5.46%
-------------------------------------------------------------------------------------------------------------------------------
Total deposits 729,133 9,483 5.20% 806,258 9,669 4.80%
-------------------------------------------------------------------------------------------------------------------------------
FHLB advances and other borrowings 357,697 4,507 5.04% 243,006 2,880 4.74%
Guaranteed preferred beneficial
interests in debentures 28,750 622 8.65% 28,750 622 8.65%
-------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 1,115,580 14,612 5.24% 1,078,014 13,171 4.89%
Non-interest bearing deposits 54,779 53,088
Non-interest bearing liabilities 16,359 21,924
Stockholders' equity 73,396 73,611
-------------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity $ 1,260,114 $1,226,637
-------------------------------------------------------------------------------------------------------------------------------
Net interest rate spread $ 9,582 3.04% $ 8,364 2.82%
Taxable-equivalent adjustment (201) (209)
-------------------------------------------------------------------------------------------------------------------------------
Net interest income, actual $ 9,381 $ 8,155
Net interest earning assets/net interest
margin $ 53,414 3.28% $ $39,413 2.99%
Interest earning assets as a percentage
of interest bearing liabilities 104.79% 103.66%
-------------------------------------------------------------------------------------------------------------------------------
</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 $3,800,000 or 50.61% to $3,709,000
for the first quarter of 2001 from $7,509,000 for the same period last year.
Mortgage production fees are the largest component of non-interest income and
these fees decreased $1,541,000 or 55.39% to $1,241,000 compared to $2,782,000
in the first quarter of fiscal 2000. The volume of loans sold in the secondary
market decreased by 66.47% or $215,866,000 to $108,874,000 during the first
quarter from $324,740,000 during the first quarter last year. The dollar amount
of loans fluctuates based on the demand for mortgages in the Company's market.
The margin received on loan sales fluctuates due to changes in the general
interest rate environment. The decrease in the dollar amount of loans sold is
due to a decrease in loan originations attributable to a rise in interest
rates. The margin earned on these loans (mortgage production fees divided by
mortgage volume sold) increased by 28 basis points for the first quarter of
fiscal 2001 as compared to the same period last year.
17
<PAGE> 18
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
(dollars in thousands) June 30,
2000 1999
-----------------------------
<S> <C> <C>
Fees $ 1,241 $ 2,782
Dollar volume sold $ 108,874 $ 324,740
Margin earned 1.14% 0.86%
</TABLE>
Non-interest income generated from the Company's real estate
activities includes gains on the sales of real estate and real estate
commissions. Revenues from these sources decreased 41.98% or $1,016,000 to
$1,404,000 during the first quarter of fiscal 2001 from $2,420,000 for the same
quarter last year. During the first quarter of fiscal 2001, 54 residential lots
were sold compared to 43 residential lots sold in the same quarter last year.
During the first quarter of fiscal 2000, $1,268,000 is attributable to the sale
of the Company's Barnes & Noble Store.
Service charges increased $272,000 or 51.61% to $799,000 in the first
quarter of fiscal 2001 compared to $527,000 for the same period last year. The
increase in services charges is attributable to the introduction of new deposit
products by the Bank that are designed to increase fees received from service
charges.
In the fourth quarter of fiscal 2000, the Company made a strategic
investment in an electronic bill presentment and payment ("EBPP") company,
NextBill.com. It is the Company's intention to participate in the EBPP
marketplace through its ownership in NextBill.com and services offered by its
Internet site justrightbank.com. During the first quarter of fiscal 2001, the
Company recorded a loss of $348,000 in connection with its investment in
NextBill.com.
Miscellaneous other income decreased $329,000 or 34.93% to $613,000
for the first quarter of fiscal 2001 from $942,000 for the same period last
year.
On June 30, 1999, the Company sold its Towne Lake branch in Cherokee
County. The sale of the Towne Lake deposits of $11,859,000 and branch location
generated a gain of $673,000.
Non-Interest Expense
Non-interest expense decreased by $101,000 or 0.86% to $11,590,000 for
the first quarter of fiscal 2001 from $11,691,000 for the same period last
year.
Salaries and employee benefits decreased $1,706,000 or 26.23% to
$4,797,000 for the first quarter of fiscal 2001 from $6,503,000 for the same
period last year. This decrease is due to the Company's continuing strategic
efforts to improve efficiency resulting in a reduction of force. Occupancy
expense decreased $187,000 or 12.29% to $1,335,000 in the first quarter of
fiscal 2001 from $1,522,000 for the same period last year. Data processing
expense increased $118,000 or 17.69% to $785,000 in the first quarter from
$667,000 in the first quarter of fiscal 2000. Marketing expense decreased
$33,000 or 4.93% to $636,000 from $669,000 for the same quarter last year.
Professional services increased $475,000 or 110.47% to $905,000 in the first
quarter of fiscal 2001 compared to $430,000 in the same period last year.
During the first quarter of fiscal 2001, the Company recorded
$1,142,000 in pre-tax charges related to the exiting from its wholesale
mortgage operation. These charges included: cost of the transaction, severance
and termination related accruals, write-off of certain tangible assets with no
ongoing benefit to the Company and certain contract termination fees.
18
<PAGE> 19
Miscellaneous expenses increased $233,000 or 13.55% to $1,952,000 for
the first quarter of fiscal 2001 from $1,719,000 for the same period last year.
BALANCE SHEET ANALYSIS
Investment Securities
Investment securities decreased to $263,091,000 from $271,808,000 at
March 31, 2000 and decreased from $266,126,000 at June 30, 1999. The Company
classifies its securities in one of three categories: trading, available for
sale, or held to maturity. The Company reports the effect of the change in fair
value of securities classified as available for sale as a separate component of
equity, net of income taxes. The Company has no trading securities.
The investment securities portfolio at June 30, 2000, was comprised of
$57,917,000 of investment securities held to maturity at amortized cost
compared to $61,164,000 and $74,196,000 at March 31, 2000 and June 30, 1999,
respectively. The Company has the ability and it is management's intent to hold
these securities to maturity for investment purposes. In addition, securities
available for sale had an estimated market value of $205,174,000 at June 30,
2000 compared to $210,644,000 and $191,930,000 at March 31, 2000 and June 30,
1999, respectively. Securities available for sale had a net unrealized loss as
shown in the Company's stockholders' equity section of $8,076,000 and
$7,477,000 at June 30, 2000 and March 31, 2000, respectively.
The Company holds no investment securities by any single issuer, other
than those issued by an agency of the United States government, which equaled
or exceeded 10% of stockholders' equity at June 30, 2000, March 31, 2000 or
June 30, 1999.
The following table reflects securities held in the Bank's securities portfolio
for the periods indicated:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
--------------------------------------------------------------------------------------------------
(in thousands) JUNE 30, March 31, June 30,
2000 2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Securities Held to Maturity:
US Treasury and US Government Agencies $ 11,382 $ 11,406 $ 17,711
Mortgage-backed securities 38,511 39,325 41,350
Corporate bonds 2,961 4,958 7,434
Other debt securities 5,063 5,475 7,701
--------------------------------------------------------------------------------------------------
Total $ 57,917 $ 61,164 $ 74,196
--------------------------------------------------------------------------------------------------
Securities Available for Sale:
US Treasury and US Government Agencies $ 50,395 $ 50,219 $ 34,666
Mortgage-backed securities 103,605 106,778 87,818
Corporate Bonds - - 2,012
Equity securities - preferred stock 11,143 11,144 12,169
Other debt securities 40,031 42,503 55,265
--------------------------------------------------------------------------------------------------
Total $205,174 $210,644 $191,930
--------------------------------------------------------------------------------------------------
Total Investment Securities:
US Treasury and US Government Agencies $ 61,777 $ 61,625 $ 52,377
Mortgage-backed securities 142,116 146,103 129,168
Corporate bonds 2,961 4,958 9,446
Equity securities - preferred stock 11,143 11,144 12,169
Other debt securities 45,094 47,978 62,966
--------------------------------------------------------------------------------------------------
Total $263,091 $271,808 $266,126
--------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
Loan Portfolio and Concentration
LOAN PORTFOLIO MIX
<TABLE>
<CAPTION>
JUNE 30, % OF GROSS March 31, % of Gross June 30, % of Gross
(in thousands) 2000 LOANS RECV 2000 Loans Recv 1999 Loans Recv
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Real Estate loans:
Construction $ 235,142 25.58% $ 236,003 25.50% $ 219,566 28.43%
Acquisition & development 110,743 12.05% 128,186 13.85% 88,989 11.52%
Real Estate mortgage loans:
Non-residential 88,718 9.65% 80,982 8.75% 59,986 7.77%
Residential 322,317 35.06% 325,948 35.22% 276,436 35.79%
Home equity and second mortgages 86,382 9.40% 80,131 8.66% 65,979 8.54%
---------------------------------------------------------------------------------------------------------------------------------
Total real estate loans $ 843,302 91.74% $ 851,250 91.98% $ 710,956 92.05%
---------------------------------------------------------------------------------------------------------------------------------
Other loans:
Commercial $ 30,388 3.31% $ 29,499 3.19% $ 21,507 2.79%
Mezzanine 18,763 2.04% 17,835 1.93% 6,728 0.87%
Leases 463 0.05% 802 0.09% 2,575 0.33%
Consumer and other 26,281 2.86% 26,045 2.81% 30,600 3.96%
---------------------------------------------------------------------------------------------------------------------------------
Total other loans $ 75,895 8.26% $ 74,181 8.02% $ 61,410 7.95%
---------------------------------------------------------------------------------------------------------------------------------
Total gross loans receivable $ 919,197 100.00% $ 925,431 100.00% $ 772,366 100.00%
---------------------------------------------------------------------------------------------------------------------------------
Less:
Undisbursed portion of loans in process (128,262) (137,966) (119,937)
Deferred costs/(fees) and other unearned
income 792 600 (31)
Allowance for loan losses (7,504) (7,191) (7,251)
---------------------------------------------------------------------------------------------------------------------------------
Loans receivable, net $ 784,223 $ 780,874 $ 645,147
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Loan Portfolio and Concentration
The loan portfolio has increased $3,349,000 or 0.43% to $784,223,000
at June 30, 2000, compared to $780,874,000 at March 31, 2000 and $139,076,000
or 21.56% from $645,147,000 at June 30, 1999. The majority of loan growth from
June 30, 1999 was in construction loans, acquisition and development loans,
residential first mortgages, home equity loans and non-residential real estate
mortgages.
The community banking group originates primarily construction and
acquisition and development loans, non-residential real estate mortgages,
commercial, consumer and home equity and second mortgage loans in the metro
Atlanta area. Additionally, EBCG has invested $18,763,000 as of June 30, 2000,
in mezzanine financing loans. These loan categories, including mezzanine
financing loans, decreased $2,264,000 or 0.38% to $596,417,000 at June 30, 2000
from $598,681,000 at March 31, 2000, and increased $103,062,000 or 20.89% from
$493,355,000 at June 30, 1999. These loans represent 64.89% of gross loans
receivable at June 30, 2000, compared to 64.69% and 63.88% at March 31, 2000
and June 30, 1999, respectively. The mortgage-banking group originates
primarily loans held for sale. Loans held for sale increased $29,686,000 or
60.29% to $78,926,000 at June 30, 2000 from $49,240,000 at March 31, 2000 and
decreased $117,664,000 or 59.85% from $196,590,000 at June 30, 1999. Both
groups contribute to the Company's portfolio of residential mortgage loans.
Residential mortgage loans decreased $3,631,000 or 1.11% to $322,317,000 at
June 30, 2000 from $325,948,000 at March 31, 2000 and increased $45,881,000 or
16.60% from $276,436,000 at June 30, 1999. During fiscal 2000, the Company grew
the portfolio of residential mortgage loans through originations of
single-family mortgage loans. Residential first mortgages are generally
believed to be a conservative investment.
20
<PAGE> 21
Non-Performing Assets
At June 30, 2000, the Company had non-accrual loans of $13,737,000
compared to $9,713,000 at March 31, 2000 and $8,826,000 at June 30, 1999.
Interest income not recognized on non-accrual loans amounted to $473,000 during
the first quarter of fiscal 2001, and $131,000 during the same period last
year. At June 30, 2000, $9,221,000 or 67.13% of the non-accrual loans were
mortgage loans secured by residential real estate. This compares to $8,113,000
or 83.53% at March 31, 2000 and $7,657,000 or 86.76% at June 30, 1999.
Non-accrual construction loans grew to $1,195,000 at June 30, 2000, from
$590,000 at March 31, 2000 and $273,000 at June 30, 1999. This increase in
non-accrual construction loans is attributable to eight relationships, all of
which have balances below $370,000. Non-accrual non-residential loans increased
to $2,525,000 at June 30, 2000, from $0 at March 31, 2000 and $37,000 at June
30, 1999. In addition, at June 30, 2000, the Asset Classification Committee
(the "ACC") identified $5,091,000 as potential problem loans compared to
$9,517,000 and $2,902,000 of potential problem loans at March 31, 2000 and June
30, 1999.
At June 30, 2000, three non-residential real estate loans to one
borrower totaled $2,253,000. Two of these loans were identified as non-accrual
and one loan as a potential problem. During the first quarter of fiscal 2001,
the borrower filed for protection under a Chapter 11-reorganization of the
Bankruptcy code. Management believes there is substantial collateral value to
fully repay this obligation when the bankruptcy stay is lifted.
At June 30,2000, the Bank had two borrowers located in the metro
Atlanta area with loans classified as potential problems totaling $3,409,000 or
66.96% of the potential problems. These loans were current at June 30, 2000.
This loan was identified as a potential problem due to a lack of current
financial information and concerns regarding the borrower's cash flows. The
loan is current and has performed in accordance with the terms of the note.
Additionally, one borrower has two commercial loans totaling $2,551,000 that
were identified by the OTS as potential problem loans. These loans are current
and have performed in accordance with the terms of the note.
Real estate owned increased by $79,000 or 5.19% to $1,600,000 at June
30, 2000, from $1,521,000 at March 31, 2000 and decreased $233,000 or 12.71%
from $1,833,000 at June 30, 1999. Total problem assets as a percent of total
assets decreased to 1.60% at June 30, 2000 from 1.67% at March 31, 2000 and
increased from 1.11% at June 30, 1999.
The following table reflects non-accrual loans, potential problem
loans and real estate acquired through the settlement of loans as of the dates
indicated. Potential problem loans are those with respect to 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.
21
<PAGE> 22
NON-ACCRUAL, POTENTIAL PROBLEM LOANS AND REAL ESTATE OWNED
<TABLE>
<CAPTION>
JUNE 30, March 31, June 30,
(dollars in thousands) 2000 2000 1999
---------------------------------------
<S> <C> <C> <C>
Non-accrual loans:
Residential real estate-construction $ 1,195 $ 590 $ 273
Residential real estate-mortgage 9,221 8,113 7,657
Commercial real estate 2,525 -- 37
Commercial 193 238 54
Commercial leases 119 234 311
Consumer and other 484 538 494
----------------------------------------------------------------------------------------------------------------------
Total non-accrual $13,737 $ 9,713 $ 8,826
----------------------------------------------------------------------------------------------------------------------
Potential problem loans 5,091 9,517 2,902
----------------------------------------------------------------------------------------------------------------------
Total non-accrual and problem loans 18,828 19,230 11,728
----------------------------------------------------------------------------------------------------------------------
Real estate owned, net 1,600 1,521 1,833
----------------------------------------------------------------------------------------------------------------------
Total problem assets $20,428 $20,751 $13,561
----------------------------------------------------------------------------------------------------------------------
Total problem assets/Total assets 1.60% 1.67% 1.11%
----------------------------------------------------------------------------------------------------------------------
Total problem assets/Loans receivable, net plus allowance 2.58% 2.63% 2.08%
----------------------------------------------------------------------------------------------------------------------
Allowance for loan losses/Total problem assets 36.73% 34.65% 53.47%
----------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
The following table reflects concentrations of non-accrual, potential
problem loans and real estate owned by geographic location and type.
NON-ACCRUAL, POTENTIAL PROBLEM LOANS AND REAL ESTATE OWNED BY LOCATION AND TYPE
<TABLE>
<CAPTION>
Residential
At June 30, 2000 ----------------- Comm'l % of Total
(dollars in thousands) Const Mtgs R-Estate Comm'l Leases Installment Total Location
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-accrual:
Atlanta $ 245 $ 1,141 $2,525 $ 193 $119 $484 $ 4,707 22.91%
Augusta 450 852 -- -- -- -- 1,302 6.34%
Jacksonville 134 407 -- -- -- -- 541 2.63%
Savannah -- 42 -- -- -- -- 42 0.20%
Charlotte -- 651 -- -- -- -- 651 3.17%
All other locations 366 6,128 -- -- -- -- 6,494 31.61%
----------------------------------------------------------------------------------------------------------------------------
Total non-accrual $1,195 $ 9,221 $2,525 $ 193 $119 $484 $13,737 66.86%
----------------------------------------------------------------------------------------------------------------------------
Potential problem loans:
Atlanta 326 74 1,596 2,899 -- -- 4,895 23.83%
Augusta 196 -- -- -- -- -- 196 0.95%
----------------------------------------------------------------------------------------------------------------------------
Total potential problem loans $ 522 $ 74 $1,596 $2,899 -- -- $ 5,091 24.78%
----------------------------------------------------------------------------------------------------------------------------
Real estate owned:
Atlanta 15 42 76 -- -- -- 133 0.65%
Augusta -- 349 -- -- -- -- 349 1.70%
Hinesville 230 -- -- -- -- -- 230 1.12%
Aiken 66 -- -- -- -- -- 66 0.32%
All other locations 296 642 -- -- -- -- 938 4.57%
----------------------------------------------------------------------------------------------------------------------------
Total real estate owned(1) 607 1,033 76 -- -- -- 1,716 8.36%
----------------------------------------------------------------------------------------------------------------------------
Total problem assets by type $2,324 $10,328 $4,197 $3,092 $119 $484 $20,544 100.00%
----------------------------------------------------------------------------------------------------------------------------
% of total problem assets by type 11.31% 50.27% 20.43% 15.05% 0.58% 2.36% 100.00%
-----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Does not include allowance of $116,328; real estate owned, net equals
$1,600,000.
Loan Impairment
Impaired loans increased $2,125,000 or 713.09% to $2,423,000 from
$298,000 at March 31, 2000 and $2,095,000 or 638.72% from $328,000 at June 30,
1999. This increase is attributable to one non-residential loan relationship,
see discussion in Non-Performing Assets. A loan is considered impaired when a
loan is classified as non-accrual or 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. Impaired loans exclude residential
mortgages, construction loans secured by first mortgage liens, and groups of
small homogeneous loans. At June 30, 2000, March 31, 2000 and June 30, 1999,
the valuation allowance related to these impaired loans was $295,000, $133,000
and $88,000, respectively, which is included in the allowance for loan losses
as presented in the table on the following page. At June 30, 2000, March 31,
2000 and June 30, 1999, all impaired loans had a related loan loss allowance.
During the first quarter of fiscal 2001 and fiscal 2000, the Company had no
charge-offs related to impaired loans. The Company charged-off $251,000 against
loan loss allowances related to impaired loans during the quarter ended March
31, 2000. For the first quarter of fiscal 2001, the average recorded investment
in impaired loans was $2,424,000 compared to $308,000 and $487,000 for the
quarters ended March 31, 2000 and June 30, 1999, respectively.
Allowance for Loan Losses
The Company set aside $450,000 and $300,000, respectively, of
additional allowances for possible loan losses during the first quarters of
fiscal 2001 and 2000. At June 30, 2000 and March 31, 2000, the allowance
represented 0.92% of outstanding average loans receivable, net during the
period. Net charge-offs during the first quarter of 2001, were $137,000 versus
$397,000 during the quarter ended March 31, 2000. In the first quarter of 2001,
net charge-offs represented 0.07% of outstanding average loans receivable, net,
compared to 0.20% for the quarter ended March 31, 2000. Loan loss allowances
totaled $7,504,000 and $7,191,000 at June 30, 2000 and March 31, 2000,
respectively. Loan loss allowances to total problem assets increased to 36.73%
at June 30, 2000 from 34.65% at
23
<PAGE> 24
March 31, 2000. An allocation of the allowance 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 allowance amounts are allocated by evaluating the
loss potential of individual loans that management has considered impaired. The
allowance 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 allowance 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 allowance 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 allowance for
losses.
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
(dollars in thousands) JUNE 30, 2000 March 31, 2000 June 30, 1999
------------- -------------- -------------
<S> <C> <C> <C>
Allowance for loan losses, beginning of quarter $ 7,191 $ 7,288 $ 7,345
Charge-offs:
Real estate - construction 4 18 --
Real estate - mortgage 82 272 62
Commercial 8 18 247
Commercial leases -- -- 4
Consumer and other 251 263 212
-------------------------------------------------------------------------------------------------------------------
Total charge-offs 345 571 525
-------------------------------------------------------------------------------------------------------------------
Recoveries 208 174 131
-------------------------------------------------------------------------------------------------------------------
Net charge-offs 137 397 394
-------------------------------------------------------------------------------------------------------------------
Provision for loan losses 450 300 300
-------------------------------------------------------------------------------------------------------------------
Allowance for loan losses, end of quarter $ 7,504 $ 7,191 $ 7,251
-------------------------------------------------------------------------------------------------------------------
Average loans receivable, net, outstanding for the period $815,929 $784,729 $636,067
-------------------------------------------------------------------------------------------------------------------
Ratio of net charge-offs to average loans receivable, net 0.07% 0.20% 0.25%
-------------------------------------------------------------------------------------------------------------------
Allowance to average loans receivable, net 0.92% 0.92% 1.14%
-------------------------------------------------------------------------------------------------------------------
</TABLE>
Investment in Real Estate
The Company has ownership interests in twelve real estate projects as
of June 30, 2000. As a unitary thrift holding company, the Company is permitted
to invest in real estate projects. The most significant portion of the
Company's investment in real estate is land to be developed or in process of
development for residential subdivisions. All twelve real estate investments
are located in metropolitan Atlanta. The Company's investment in real estate
increased $2,240,000 or 4.98% to $47,196,000 at June 30, 2000 from $44,956,000
at March 31, 2000.
Deposits
Deposits are the Company's primary funding source. Total deposits
increased $24,552,000 or 3.19% to $794,504,000 from $769,952,000 at March 31,
2000. The Bank uses traditional marketing methods to attract new customers. Its
deposit network is serviced from its branches located in metro Atlanta and
Internet banking site, justrightbank.com. The increase in deposits was in
certificates of deposits, which increased $32,958,000 or 6.34% to $553,198,000
at June 30, 2000 from $520,240,000 at March 31, 2000. Demand deposits including
non-interest bearing, interest bearing, savings, and money market accounts were
30.37% of the Company's deposits at June 30, 2000. The weighted
24
<PAGE> 25
average interest rate on deposits increased to 5.14% at June 30, 2000, from
4.62% and 4.64% at March 31, 2000 and June 30, 1999 quarters, respectively.
For the periods indicated, deposits are summarized by type and
remaining term as follows:
Deposit Mix
<TABLE>
<CAPTION>
JUNE 30, March 31, June 30,
(in thousands) 2000 2000 1999
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Demand deposits:
Non-interest bearing deposits $ 51,477 $ 53,085 $ 41,881
Interest bearing deposits 94,957 97,769 118,231
Money market accounts 62,042 65,530 72,050
Savings accounts 32,830 33,328 35,859
-------------------------------------
Total demand deposits 241,306 249,712 268,021
-------------------------------------
Time deposits:
Maturity one year or less 405,714 379,324 391,939
Maturity greater than one year through two years 49,467 47,547 56,122
Maturity greater than two years through three years 46,567 46,039 59,091
Maturity greater than three years 51,450 47,330 28,590
-------------------------------------
Total time deposits $553,198 $520,240 $535,742
-------------------------------------
Total deposits $794,504 $769,952 $803,763
-------------------------------------
</TABLE>
The weighted average interest rate on time deposits at June 30, 2000,
March 31, 2000 and June 30, 1999 was 6.08%, 5.67% and 5.41%, respectively.
For the periods indicated, interest expense on deposits is summarized
as follows:
<TABLE>
<CAPTION>
JUNE 30, March 31, June 30,
(in thousands) 2000 2000 1999
-------------------------------------
<S> <C> <C> <C>
Interest-bearing deposits $ 779 $ 735 $ 1,023
Money market accounts 661 619 783
Savings accounts 125 122 189
Time deposits 7,918 7,184 7,674
-------------------------------------
Total $ 9,483 $8,660 $ 9,669
-------------------------------------
</TABLE>
Borrowings
The FHLB system functions as a reserve credit facility for thrift
institutions and certain other member institutions. The Bank utilizes advances
from the FHLB to fund a portion of its assets. At June 30, 2000, advances were
$280,200,000 compared to $292,500,000 at March 31, 2000. At June 30, 2000, the
weighted average interest rate on these borrowings was 5.89% compared to 5.65%
at March 31, 2000. In addition, EREA utilizes borrowing from third parties to
fund real estate activities. Third party borrowings related to real estate
activities increased $4,650,000 or 23.56% to $24,388,000 at June 30, 2000 from
$19,738,000 at March 31, 2000.
25
<PAGE> 26
Liquidity Management
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. In recent years, the Company has also experienced significant
growth in assets. The Company's other primary funding source is provided by
advances from the Federal Home Loan Bank. 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 June 30, 2000, the Company's
liquidity ratio was 6.29%.
At June 30, 2000, the Company had commitments to originate mortgage
loans of $65,508,000 and commitments to sell mortgage loans of $65,500,000. The
Company is committed to loan funds on unused variable rate lines of credit of
$66,999,000 at June 30, 2000. In addition, the Company has issued $5,578,000 in
letters of credit at June 30, 2000. The Company's funding sources for these
commitments include loan repayments, deposits and FHLB advances.
Beginning April 1, 1995, the Bank formed an operating subsidiary,
PrimeEagle. 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 $161,400,000 or
53.81% to $138,560,000 for the first quarter of fiscal 2001 compared to
$299,960,000 for the same quarter last year. The Company manages the short-term
funding requirements of these loans primarily with short-term advances from the
FHLB and deposits.
Cash Flow from Operating Activities
During the first quarter of fiscal 2001, cash used by operating
activities was $24,003,000 compared to cash provided of $34,202,000 in the same
quarter last year. The primary reason for this fluctuation is timing
differences from the sale of loans held for sale versus originations of loans
held for sale. In the first quarter of fiscal 2001, the Company originated
$138,560,000 of loans held for sale and sold $108,874,000 of loans held for
sale. This resulted in a $29,686,000 use of cash. This compares to the first
quarter of fiscal 2000, when the Company originated $299,960,000 of loans held
for sale and sold $324,740,000 of loans held for sale, resulting in a
$24,780,000 source of cash.
Cash Flow from Investing Activities
In the first quarter of fiscal 2001, cash provided from investing
activities was $2,543,000 compared to cash used of $19,076,000 for the same
period in the prior year. During the first quarter of fiscal 2001, loan
originations, net of repayments used cash of $4,156,000 compared to $22,287,000
for the same quarter last year. During the first quarter of fiscal 2001, the
Company made no security purchases. The Company purchased investment securities
held to maturity of $9,884,000 during the first quarter of fiscal 2000. The
Company generated cash flows from calls and maturities of investment securities
held to maturity of $2,025,000. This compares to calls and maturities of
investment securities held to maturity of $1,316,000 during the same quarter in
the prior year. Principal repayments on investment securities held to maturity
were $1,246,000 and principal repayments on securities available for sale were
$4,589,000 during the first quarter of fiscal 2001. Comparatively, principal
repayments on investment securities held to maturity were $2,727,000 and
principal repayments on securities available for sale were $7,911,000 during
the same quarter last year. In the first quarter of fiscal 2001, the Company
invested additional funds of $5,763,000 in real estate projects and received
proceeds of $4,665,000. During the same quarter last year, the Company invested
cash of $7,089,000 in real estate projects and received $9,985,000 in proceeds.
26
<PAGE> 27
Cash Flow from Financing Activities
Cash provided from financing activities during the first quarter of
fiscal 2001, was $17,266,000 compared to cash used of $19,638,000 during the
same quarter last year. Deposits increased by $24,552,000 during the first
quarter of fiscal 2001, as compared to decreasing $75,902,000 during the first
quarter in the prior year. FHLB advances provided a significant source of funds
during the first quarters of fiscal 2001 and fiscal 2000. During the first
quarter of fiscal 2000, the decline in the Company's deposits was the most
significant factor. The decrease in deposits was a conscious strategy to
eliminate certain high cost deposits. The Company borrowed $115,645,000 from
the FHLB and repaid $122,945,000 in the first quarter of fiscal 2001. This
compares to borrowings of $180,790,000 and repayments of $124,619,000 during
the same quarter last year. The Company paid cash dividends to its shareholders
of $902,000 and $891,000 in the first quarters of fiscal 2001 and fiscal 2000,
respectively.
Capital
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") established five capital categories for financial institutions. The
OTS places each federally chartered thrift institution into one of five
categories: well capitalized, adequately capitalized, under capitalized,
significantly under capitalized, and critically under capitalized. These
classifications are based on the Bank's level of risk based capital, leverage
ratios and its supervisory ratings. FDICIA defines "well capitalized" banks as
entities having a total risk based capital ratio of 10 percent or higher, a
tier one risk based capital ratio of 6 percent or higher and a leveraged ratio
of 5 percent or higher. At June 30, 2000, the Bank was classified as "well
capitalized" under the OTS regulations that implement the FDICIA provisions
described above.
The following table reflects the Bank's minimum regulatory capital
requirements, actual capital and the level of excess capital by category. The
Bank has historically maintained capital substantially in excess of the minimum
requirement. In fiscal 2000, the Bank paid the Company cash dividends of
$6,500,000. During the first quarter of fiscal 2001, the Company contributed
$1,000,000 to the Bank.
REGULATORY CAPITAL
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Actual Requirement Excess
(in thousands) Amount % Amount % Amount %
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
JUNE 30, 2000
RISK-BASED RATIOS:
TIER 1 CAPITAL $70,578 9.16% $30,809 4.00% $39,769 5.16%
TOTAL CAPITAL 77,132 10.01% 61,619 8.00% 15,513 2.01%
TIER 1 LEVERAGE 70,578 5.81% 48,592 4.00% 21,986 1.81%
TANGIBLE EQUITY 70,578 5.60% 18,902 1.50% 51,676 4.10%
------------------------------------------------------------------------------------------------
March 31, 2000
Tier 1 capital $69,061 9.12% $30,280 4.00% $38,781 5.12%
Total capital 75,794 10.01% 60,559 8.00% 15,235 2.01%
Tier 1 leverage 69,061 5.75% 48,050 4.00% 21,011 1.75%
Tangible equity 69,061 5.51% 18,803 1.50% 50,258 4.01%
------------------------------------------------------------------------------------------------
June 30, 1999
Tier 1 capital $71,128 9.98% $28,012 4.00% $43,116 5.98%
Total capital 78,070 10.96% 56,024 8.00% 22,046 2.96%
Tier 1 leverage 71,128 5.92% 48,421 4.00% 22,707 1.92%
Tangible equity 71,128 5.80% 19,951 1.50% 51,177 4.30%
------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 28
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
lost wages, benefits and other payments totaling approximately $4.6 million;
(iv) alleged consequential damages in excess of $20 million, which represents
the amount Plaintiffs believe another bank would have paid for the Prime
Lending loan origination business and the net "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 the Bank's Counterclaim has merit. The Bank believes, among other
things, that Plaintiffs were properly terminated for cause, that Plaintiffs
have no rights with respect to the purchase option, and that even if the
purchase option were applicable, Plaintiffs would have no right to purchase any
loans, but only certain tangible and intangible assets of the Bank, the value
of which is estimated to be in the $1-2 million range. The Counterclaim, as
amended, seeks compensatory damages presently estimated to total approximately
$500,000 as well as punitive damages and attorneys fees.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on Thursday, July
27, 2000, at the Marriott Century Center Hotel in Atlanta, Georgia. A total of
4,495,850 shares of common stock were represented in person or by proxy. This
represents 79.75% of the 5,637,135 shares outstanding as of the record date of
June 12, 2000. C. Jere Sechler, Jr., Chairman on the Board and President,
presided at
28
<PAGE> 29
the meeting and presented a report describing the Company's results of
operations for the fiscal year ending March 31, 2000 and outlined the strategic
goals for fiscal 2001.
Shareholders elected management's nominees to the Board of Directors.
The Directors were elected by votes as shown below:
<TABLE>
<CAPTION>
Directors: For Withhold
---------- --- --------
<S> <C> <C>
George G. Thompson, IV 4,116,921 378,929
Richard J. Burrell 4,114,648 381,202
</TABLE>
Shareholders approved management's recommendation to amend the
Restated Articles of Incorporation of the Company increasing the number of
authorized shares of common stock, par value $1.00 per share, from 10,000,000
to 20,000,000 by casting 3,849,373 votes for the amendment.
Shareholders approved management's recommendation to the Eagle
Bancshares, Inc. 1995 Employee Stock Incentive Plan to increase the number of
shares available for issuance under the plan from 480,000 to 528,000 by casting
3,727,021 votes for the amendment.
In other business, management's selection of Arthur Andersen LLP as
independent accountants for the Company resulted in 4,444,307 votes being cash
for Arthur Andersen LLP.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(11) Computation of per share earnings
Reports on Form 8-K
None
29
<PAGE> 30
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE BANCSHARES, INC.
(Registrant)
Date: August 14, 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: August 14, 2000 /s/Richard B. Inman, Jr.
------------------------------------
Richard B. Inman, Jr.
Director, Secretary and Treasurer
Date: August 14, 2000 /s/ Conrad J. Sechler, Jr.
------------------------------------
Conrad J. Sechler, Jr.
Chairman of the Board and President
Date: August 14, 2000 /s/ LuAnn Durden
------------------------------------
LuAnn Durden
Chief Financial Officer
30
<PAGE> 31
EAGLE BANCSHARES, INC.
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page No.
------ ----------- --------
<S> <C> <C>
11 Computation of per share earnings 32
27 Financial Data Schedule (for SEC use only)
</TABLE>
31
