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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended March 31, 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 [ ]
Indicate by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of June 19, 2000, Eagle Bancshares, Inc. had 5,637,135 shares of
common stock outstanding. The aggregate market value of Eagle Bancshares, Inc.
common stock held by nonaffiliates was $55,398,689, based upon the closing price
on June 19, 2000.
Documents Incorporated by Reference
Portions of the definitive proxy statement for the 2000 annual meeting
of Stockholders to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A within 120 days of the Registrant's fiscal year end. (Part
III)
Index of Exhibits on Page 51
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EAGLE BANCSHARES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 2000
TABLE OF CONTENTS
<TABLE>
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Item Page
Number Number
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PART I
<S> <C> <C>
1. Business .................................................................. 3
2. Properties ................................................................ 21
3. Legal Proceedings ......................................................... 22
4. Submission of Matters to a Vote of Security Holders ....................... 22
PART II
5. Market for the Registrant's Common Equity
and Related Stockholder Matters ........................................ 23
6. Selected Consolidated Financial Data ...................................... 24
7. Management's Discussion and Analysis of
Results of Operations and Financial Condition ........................... 25
8. Financial Statements and Supplementary Data ............................... 47
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ..................................... 47
PART III
10. Directors and Executive Officers of the Registrant ........................ 48
11. Executive Compensation .................................................... 48
12. Security Ownership of Certain Beneficial Owners
and Management .......................................................... 48
13. Certain Relationships and Related Transactions ............................ 48
PART IV
14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K...................................................... 48
Signatures...................................................................... 50
Index of Exhibits............................................................... 51
</TABLE>
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PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
Eagle Bancshares, Inc. (the "Company" or "Eagle") is a unitary savings and
loan holding company headquartered in Tucker, Georgia which owns and operates
Tucker Federal Bank ("Tucker Federal" or the "Bank"), Eagle Real Estate
Advisors, Inc. ("EREA"), and Eagle Bancshares Capital Group, Inc. ("EBCG"). The
Bank is a federally chartered stock savings and loan association organized in
1956 and based in Tucker, Georgia. The Bank serves the metropolitan Atlanta area
through its full service branch offices and provides Internet banking at
justrightbank.com. The Bank's deposits are federally insured by the Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation
("FDIC"). The Bank has two active subsidiaries, Prime Eagle Mortgage Corporation
("PrimeEagle") and Eagle Service Corporation.
As a unitary thrift holding company, Eagle is permitted, under current
regulations, to engage in activities that bank holding companies cannot. In
1991, the Company formed EREA to perform third-party real estate brokerage
activities. In 1994 EREA began its first real estate development and sales
activities and brokerage services. Since then EREA has developed approximately
15 properties. EBCG was formed in December 1997 to serve the Bank's growing base
of small- and medium-sized businesses by providing mezzanine financing that is
not readily available from traditional commercial banking sources. Loans with
equity features are made to borrowers that have the potential for significant
growth, adequate collateral coverage and experienced management teams with
significant equity ownership.
Over the previous three years, Eagle has remained focused on its community
banking franchise in the Atlanta metropolitan area. Expanding the Bank's
footprint through the acquisition of a bank holding company, the employment of a
highly qualified commercial lending group and the continued commitment to the
Bank's construction lending activities will be enhanced by the previous year's
initiatives to become Atlanta's click and mortar community banking franchise
through justrightbank.com. Tucker Federal Bank (the traditional brick and mortar
bank) and justrightbank.com (the Bank's Internet banking site) will increase
franchise value through a co-branding marketing campaign designed to create a
financial destination for customers through alliances offering best of breed
financial services.
On March 1, 2000, the Company, through its subsidiary EBCG, issued 63,643
shares of its common stock in exchange for 130,000 shares or a 17 percent
interest in Brinkman Technologies, Inc. ("BTI"). At the same time, the Company
made a strategic investment in an electronic bill presentment and payment
("EBPP") company called NextBill.com ("NextBill") a recent spin-off of BTI. The
initial investment in NextBill consists of preferred stock bearing a 10 percent
dividend and warrants representing the right to a majority of the common stock
in NextBill. It is the Company's intention to participate in the EBPP
marketplace through its ownership in NextBill and services offered by
justrightbank.com. The twofold strategy includes licensing NextBill software to
larger billers, as well as, providing outsourced EBPP capabilities through
justrightbank.com.
On July 29, 1998, the Company closed a public offering of 1,150,000 of
8.50% Cumulative Trust Preferred Securities (the "Preferred Securities") offered
and sold by EBI Capital Trust I (the "Trust"), having a liquidation amount of
$25 each. The proceeds from such issuances, together with the proceeds of the
related issuance of common securities of the Trust purchased by the Company,
were invested in 8.50% Subordinated Debentures (the "Debentures") of the
Company. The sole assets 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. The obligations of the Company under
the Debentures, the Indenture, the relevant Trust agreement, and the Guarantee,
in the aggregate, constitute a full and unconditional guarantee by the Company
of the obligations of the Trust under the Preferred Securities and ranks
subordinate and junior in right of payment to all liabilities of the Company.
The Preferred Securities are subject to redemption prior to maturity at the
option of the Company.
Total proceeds to the Company from the offering were $28,750,000. The
Company contributed $11,000,000 to the Bank to increase the Bank's capital
ratios to support growth, for working capital and to increase the Bank's
regulatory capital from "adequately capitalized" to "well capitalized." The Bank
used these proceeds to increase its securities available for sale. Additionally,
approximately $4,300,000 was used to repay existing debt associated with the
Company's real estate investment in Rivermoore Park, LLP and to invest in
investment grade
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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.
On March 26, 1997, Eagle acquired all of the outstanding shares of Southern
Crescent Financial Corp. ("SCFC"), a bank holding company located in Union City,
Georgia, with four branches, in accordance with the Agreement and Plan of Merger
(the "Merger Agreement") dated August 13, 1996. Simultaneously therewith,
Southern Crescent Bank, a wholly owned commercial bank subsidiary of SCFC,
merged with and into the Bank. The Company was the surviving corporation in the
merger, and Tucker Federal was the surviving entity in the bank merger and
remains a wholly owned savings association of the Company. The merger was
accounted for as a pooling of interests, and accordingly, the consolidated
financial statements have been restated to include SCFC for all periods
presented.
The purchase price of the transaction was approximately $18,500,000 based
on the average of the closing bid and ask price quoted for Eagle Bancshares on
the Nasdaq National Market for the 30 consecutive trading days ending on the
date that was five trading days prior to the closing date. Based on the
calculated stock price, SCFC shareholders received 1.162 shares of Company stock
for each share of SCFC stock. As a result, the Company issued 1,107,494 shares
of common stock.
In accordance with the Company's long term growth strategy, effective
February 15, 1996, the Company issued 1,435,000 shares of common stock and
raised $21,483,000 of equity in a secondary offering. The additional capital has
been employed to support the Company's growth.
The Company is engaged in four lines of business through its subsidiaries:
community banking, mortgage banking, mezzanine financing and real estate
development and sales. At March 31, 2000, the Company had total assets of
$1,245,071,000 total deposits of $769,952,000 and total stockholders' equity of
$74,471,000.
Management believes the best way to maximize long-term shareholder value is
to continue to improve financial performance and operating efficiency and to
continue to grow market share in the metropolitan Atlanta area. The Company's
long-term strategy is focused on increasing shareholder value by creating
competitive advantages in targeted business niches. Historically, the Company's
strategic intent was to create financial solutions for our customers through
innovative products. For the coming year the Company's strategic plan is focused
on enabling financial commerce and de-emphasizing commodity businesses. The
Company's strategic plan is focused on four areas:
- Growing market share in metropolitan Atlanta to increase
franchise value.
- Becoming Atlanta's click and mortar bank by co-branding
justrightbank.com and Tucker Federal Bank.
- Increasing commercial banking relationships.
- Utilizing NextBill to play an important role in payment
processing for our customers.
Based on total assets as of March 31, 2000, the Bank is one of the largest
local financial institutions headquartered in the metropolitan Atlanta area. The
Bank has a significant strategic opportunity, as one of Atlanta's leading
community banks, to enhance its franchise value by co-branding justrightbank.com
and Tucker Federal Bank. The Company's current technology, including its EBPP
capabilities coupled with its asset size and legal lending limit per borrower,
permit it to serve middle market customers more effectively than many smaller
Atlanta community banks. The Bank's competitive advantage lies in its ability to
provide a full range of financial products with personalized service and local
decision making. Additionally, management believes that many local borrowers are
being under served as a result of the recent acquisitions of many of Atlanta's
banks by large out-of-state banks and that the Bank will continue to build
franchise value by increasing market share in the metropolitan Atlanta area.
The Company creates a strategic advantage by utilizing its experience and
historic commitment to construction lending. Because of the Company's long-term
participation in the Atlanta construction lending market, it has been able to
develop a core business of relationships with its homebuilders in the high
growth counties surrounding Atlanta. The Company has relationships with
approximately 165 homebuilders in the Atlanta metropolitan area and does not
have significant concentration with any homebuilder or in any particular market
area.
The Company's experience as a metropolitan Atlanta area real estate lender
for over 40 years creates a strategic advantage for its real estate development
activities. Local market knowledge and relationships with
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builders and developers give the Company a unique position to create and
evaluate real estate development opportunities. Additionally, the Company's real
estate investments and brokerage activities have contributed increasing
incremental income for the previous five years.
The Company has made, and may continue to make, various forward-looking
statements with respect to financial and business matters. The following
discussion contains forward-looking statements that involve inherent risks and
uncertainties. Actual results may differ materially from those contained in
these forward-looking statements. For additional information regarding
forward-looking statements, see "A Warning About Forward-Looking Information" on
page 20.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
COMMUNITY BANKING - The Bank is primarily engaged in making construction,
commercial and consumer loans funded by attracting deposits from the general
public and borrowing from the Federal Home Loan Bank (the "FHLB"). For the year
ended March 31, 2000, the Company's community banking income increased 86.06
percent to $10,094,000 compared with $5,425,000 in the same period a year ago.
Return on segment assets for the year ended March 31, 2000, was 0.86 percent
compared to 0.46 percent for the same period last year. The Company continued to
build its Atlanta franchise in 2000 by improving the earnings of its community
banking segment. These efforts were focused on improving the Community Bank's
earnings by expanding the loan portfolio and capitalizing on the efficiencies of
automation. The community bank has reorganized its management structure to
provide for a higher level of customer service and to emphasize its e-commerce
initiatives through justrightbank.com. The Company intends to expand its
portfolio of commercial and consumer loans to increase its level of higher
yielding assets in its loan portfolio. In addition, management identified
opportunities to improve operational efficiencies, and recently was able to
rightsize its staff. The benefits of the rightsizing program were reflected in
the improvement in the Community Bank's efficiency ratio. The efficiency ratio
for the year ended March 31, 2000, improved to 62.08 percent compared to 74.39
percent for the same period last year. The principal sources of income for the
Bank are interest and fees collected on loans and, to a lesser extent, interest
and dividends collected on other investments and service charges on deposit
accounts. The principal expenses of the Bank are interest paid on deposits,
employee compensation, office expenses and data processing expenses.
The Bank competes for loans and deposits with many financial institutions
that are larger and have greater financial resources. The Bank is co-branding
justrightbank.com and its Internet banking products with Tucker Federal. In
order to remain competitive, the Bank attempts to identify the specific needs of
its target markets and to design financial products and services to fill those
needs. Additionally, many customers of the Bank express a desire to bank with a
local financial institution. The Bank believes this community banking niche is
one Tucker Federal can fill with a level of current technologies and personal
service applied to each customer that may not be available from larger regional
financial institutions.
MORTGAGE BANKING - The mortgage banking segment originates single family
mortgage loans through retail loan production offices in the southeast and a
wholesale group which operates from a single production office in Ponte Vedra,
Florida. The wholesale group purchases loans from correspondents who operate in
markets outside of its retail mortgage offices area, primarily in the
northeastern United States. For the year ended March 31, 2000, the Company's
mortgage banking activities resulted in losses of $4,427,000 compared with
income of $1,197,000 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 Company is evaluating various alternatives to improve
profitability including, among others, continued rightsizing, the possible sale
or discontinuing operations.
The dollar amount of loans closed during the current year declined 53.26
percent to $642,547,000 compared to loan closings of $1,374,603,000 during the
year ended March 31, 1999. This decline is the result of an increase in interest
rates nationwide and is comparable to the overall deterioration in the mortgage
lending market.
The mortgage banking segment generates revenues through selling
substantially all of the fixed rate permanent mortgage loans originated to
investors and interest on permanent mortgage loans. Its primary source of fee
income is derived from services including loan application and origination, the
gain or loss on the sales of loans to third parties and from the sales of
mortgage servicing rights. Proceeds from sales of mortgage servicing rights are
the largest component of total mortgage production fees. Management's analysis
of the timing of mortgage prepayments and fluctuations in the value of servicing
rights impacts the Company's decision to retain
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or sell servicing. As a result of this analysis, the Company has sold
substantially all of its fixed rate mortgage loans on a servicing released
basis.
REAL ESTATE ACTIVITIES - EREA performs real estate development and sales
activities and third-party real estate brokerage services in metropolitan
Atlanta. For the year ended March 31, 2000, Eagle Real Estate Advisors generated
income of $3,639,000, compared with $1,856,000 in the same period a year ago. In
the year ended March 31, 2000 gains on the sale of investment in real estate
were $7,135,000 versus $3,389,000 for the same period a year ago.
The Company's experience as a metropolitan Atlanta area real estate lender
for over 40 years creates a strategic advantage for its real estate development
activities. Local market knowledge and relationships with builders and
developers give the Company a unique position to create and evaluate real estate
opportunities. The principal sources of income are derived from gains on sales
of single-family lots in the Company's development projects and commissions
earned on third-party brokerage activities.
MEZZANINE FINANCING - EBCG provides financing for the growing base of
small- and medium-sized businesses. For the year ended March 31, 2000, Eagle
Bancshares Capital Group generated income of $1,268,000 compared with $1,931,000
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 $14,970,000 million in the year ended March 31, 2000 and generated
$48,430,000 million of new loans for the Bank.
Loans with equity features are made to borrowers that have the potential
for significant growth, adequate collateral coverage, and experienced management
teams with significant ownership. Management identifies investment opportunities
through the Bank's customer base as well as a referral network comprised of
venture capitalists, investment bankers, attorneys and accountants. The
principal sources of income for EBCG are interest, fees collected on loans and
equity participation agreements.
For financial information regarding industry segments, see Note 14 of Notes
to Consolidated Financial Statements.
(C) NARRATIVE DESCRIPTION OF BUSINESS
The Company is headquartered in the metropolitan Atlanta, Georgia area and
derives a significant portion of its loans and deposits in that area. Growth in
the metropolitan Atlanta area and ongoing consolidation of the financial
services industry have resulted in significant increases in loans, deposits, and
customers at the Bank. The Bank has also benefited from industry consolidation
by hiring experienced banking executives. In addition, the Company has
capitalized on the benefits of its unique charter, a unitary thrift holding
company, through its real estate development and sales subsidiary EREA. In
recent years, the metropolitan Atlanta area has enjoyed strong economic growth,
including growth in employment and population. The Company has benefited from
this growth in the past and expects that its continued growth and profitability
will depend in part on the continued growth and the economic conditions in the
metropolitan Atlanta area.
The Company's long-term strategic business plan is focused on providing a
broad array of financial services to consumers and small- and medium-sized
businesses that consider personalized service and local decision-making an
important component of a banking relationship. The Company's plan has four basic
initiatives:
INCREASING FRANCHISED VALUE BY GROWING MARKET SHARE IN METROPOLITAN ATLANTA
With assets exceeding $1 billion, the Company is one of the largest
independent community financial institutions located in metropolitan Atlanta.
The Bank will continue to benefit from its sales culture by selling more
products to existing customers through its relationship banking program. The
Bank will also continue the strategic expansion of its branch system footprint.
CO-BRANDING JUSTRIGHTBANK.COM AND TUCKER FEDERAL BANK AS ATLANTA'S CLICK AND
MORTAR BANK
This approach allows the Bank to attract new customers through a different
delivery channel. We will form strategic alliances with other financial service
providers so that justrightbank.com will become an important distribution
channel for best of breed financial products for our existing and new customers.
Justrightbank.com will also use the NextBill software in order to differentiate
our service offerings, increase cross-selling opportunities and reduce cost for
the Bank and its customers.
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INCREASING COMMERCIAL BANKING RELATIONSHIPS
Personal relationships and local decision-making are important
considerations for small- and medium-sized businesses. The Company's size allows
it to offer a full range of financial products and services to business
customers with a consultative banking approach exceeding the service being
provided by larger financial institutions.
UTILIZE NEXTBILL TO PROVIDE EBPP
By utilizing the Company's strategic investment in NextBill.com the Bank
will attempt to play an increasingly important role in payment processing for
its customers. Electronic bill presentment and payment provides an important
application for the Company's banking products and provides important cost
savings, enhanced customer care and opportunities to benefit from NextBill's
sticky Internet application.
LENDING ACTIVITIES
GENERAL
The Bank's loan portfolio consists of mortgage, construction, commercial,
consumer, home equity and SBA loans offered through its construction and
commercial lending departments, bank branches and retail loan production offices
located in metropolitan Atlanta and in the southeast. In each market, the Bank
follows the same stringent underwriting and construction monitoring procedures.
As a result of the acquisition of SCFC and the addition of new commercial
lending officers, the Bank has increased its line of products to attract the
small business customer. The Company believes that the small business market is
currently underserved in the Atlanta metropolitan area.
REAL ESTATE MORTGAGE LOANS
Historically, the Bank's principal lending operation has been the
origination of permanent single family residential mortgage loans. However, this
activity may decline as the Company de-emphasizes commodity businesses. Both
fixed rate and adjustable rate permanent loans on residential properties
currently are originated either for sale in the secondary market or for
retention in the Bank's loan portfolio. Generally, the Bank retains the
adjustable rate mortgage loans that it originates and sells the fixed rate loans
that it originates. See "Lending Activities -- Loan Sales and Purchases."
In the case of owner-occupied single family residences, for creditworthy
borrowers, the Bank may make permanent residential mortgage loans for up to 100
percent of the appraised value of the property. Loans on non-owner occupied real
estate of not more than four family units generally are made for up to 75
percent of the appraised value. Substantially all conventional loans with
loan-to-value ratios in excess of 80 percent generally have private mortgage
insurance covering that portion of the loan in excess of 75 percent of the
appraised value. The borrower generally pays the cost of this insurance either
through a single premium paid at the time of loan origination or through a
monthly payment during the term of the loan. The borrower also generally makes
monthly payments into an escrow account equal to 1/12 of the annual hazard
insurance premiums and property taxes on the property which secures the loan.
Interest rates and loan fees charged on loans originated are competitive with
other financial institutions in the Bank's market areas.
The Bank has offered, in addition to fixed rate residential loans, a
variety of loans on which the interest rate, payment, loan balance or term to
maturity may be adjusted, provided that the adjustments are tied to specified
indices. These adjustable rate mortgage loans ("ARMs") permit greater
flexibility in adjusting loan yields to changes in the cost of funds. ARMs
generally have loan terms up to 30 years with rate adjustments ranging from one
to ten years during the term of the loan. Most ARMs have caps on the maximum
amount of change in the interest rate at any adjustment period and over the life
of the loan.
CONSTRUCTION AND ACQUISITION AND DEVELOPMENT LOANS
The Bank provides interim construction financing for single-family
residences and makes land acquisition and development loans on properties
intended for residential use. The Bank's general policy is to grant single
family construction loans and land acquisition and development loans in an
amount up to 80 percent of the lower of cost or appraised value of the property.
Residential construction loans are made for periods of one year or less, and
land acquisition and development loans are made for periods of up to three
years. These periods may
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be extended subject to negotiation and, typically, payment of an extension fee.
Interest rates on construction and acquisition and development loans are indexed
to the Bank's base rate and are adjustable daily during the term of the loan.
In accordance with the Company's business plan, the volume of construction
lending has increased in each of the previous five fiscal years. The Company
does not expect its percentage of construction loans to total loans to increase
significantly above the March 31, 2000 level. Construction and acquisition and
development loans at March 31, 2000, were $231,108,000 or 27.60 percent of the
Bank's loan portfolio, including loans held for sale, plus reserves. The Company
recognizes the risks inherent in construction financing and has designed an
organization and system of controls to properly mitigate those risks through
strict underwriting and close monitoring of the lending and construction
process. Underwriting criteria include, among other things, the track record and
financial condition of the builder, applicable loan to appraised value ratios,
the demand for the type of house to be constructed, including a marketing survey
of inventory levels of unsold homes by price range and location, the feasibility
of house plans and costs and growth prospects for the economy. The Company has a
construction inspection and appraisal network staffed by employees and third
party contractors. The Company's staff closely monitors construction progress
and loan draws throughout the process. In addition, no single customer accounts
for more than 2 percent of the Bank's loans.
COMMERCIAL REAL ESTATE LOANS
Interim construction and permanent commercial real estate loans typically
are secured by apartment projects, office buildings, business properties,
shopping centers, storage facilities, nursing homes, extended stay lodging
facilities and motels located in the Company's primary lending areas.
Construction and permanent commercial real estate loans are generally made up to
80 percent of the appraised value of the property, with the loan amount being
determined through an evaluation of the net operating income and cash flows of
each project, replacement costs, and sales of comparable projects. Interest
rates are generally determined by market conditions. Commercial construction
loans generally are made for periods of 12 to 24 months on an interest only
basis at interest rates indexed to the Bank's base rate or the nationally quoted
prime rate. Permanent commercial real estate loans are typically made based on
15 to 25 year amortization periods with five to ten year maturities. Interest
rates on permanent loans are generally tied to U.S. Government Treasury
securities, the Bank's base rate or the nationally quoted prime rate. As of
March 31, 2000, the Company had outstanding $80,982,000 in loans secured by
commercial real estate which constitute 9.67 percent of the Bank's total loan
portfolio.
COMMERCIAL BUSINESS LOANS
The Company makes various types of commercial loans to creditworthy
borrowers for the purposes of financing accounts receivable, equipment, capital
projects and other legitimate business needs. The Company also purchases loans
from other financial institutions and companies. The Company evaluates
creditworthiness of business loans on the basis of the borrowers' financial
strength including analysis of their profitability, cash flow, balance sheet
trends and the liquidation value of collateral. The Company assigns a credit
rating to each borrower based, among other things, on the borrower's historical
cash flow, financial strength, paying habits, business prospects, debt structure
and capitalization, and the reputation and character of its principals.
Commercial business loans normally carry interest rates indexed to the Company's
base rate, LIBOR, nationally quoted prime rate and U.S. Government Treasury
securities. Commercial business loans as of March 31, 2000 were approximately
$29,499,000 or 3.52 percent of the total loan portfolio.
In 1993, the Company began a leasing operation, which purchased leases from
approved lessors. Each credit was underwritten based upon the lessee's cash
flow, business prospects and ability to make rental payments. In December 1995,
the Company began to experience a decline in the yield earned and delinquencies
in the leasing portfolio. As a result, the Bank discontinued the leasing
activities during fiscal year 1997. Leases remaining at March 31, 2000, were
$802,000 or 0.10 percent of total loans.
CONSUMER LOANS
The Company makes both secured and unsecured consumer loans for personal or
household purposes. In addition, the Company has been successful in the
origination of home equity loans (loans secured by the equity in the borrower's
residence but not necessarily used for the purpose of home improvement). At
March 31, 2000, total consumer loans constituted $26,045,000 or 3.11 percent of
the Company's total loan portfolio. The Company intends to continue prudent
expansion of its consumer lending activities, subject to market conditions,
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as part of its plan to become a full service financial institution providing a
wide range of personal financial services.
LOAN ORIGINATION AND PROCESSING
The Company has a structured loan approval process in which lending
authority for various types and amounts of loans is delegated by the Board of
Directors to loan officers on a basis commensurate with seniority and lending
experience. The Bank has established Loan Committees that approve loan requests
made by loan officers and must approve loans in amounts above $300,000.
Additionally, the Bank's Board of Directors must approve loans of $2,000,000 or
more. Eagle's Board of Directors approves every mezzanine financing and real
estate development transaction. No independent authority has been delegated to
EBCG or EREA.
PrimeEagle actively solicits mortgage loan applications from existing
customers, local real estate agents, builders, real estate developers and others
for sale in the secondary market. The Company has received delegated
underwriting from each of its primary investors in loan pools. A majority of
these loans are underwritten to meet Federal National Mortgage Association
("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC") standards. The
Company's loans are approved by qualified underwriters in the markets they
serve. These underwriters ensure that the loans are closed in accordance with
the guidelines set forth by the Company's lending policy, by FNMA and FHLMC and
by mortgage investors. In fiscal 2000, substantially all of the permanent
mortgage loans originated by PrimeEagle were sold to private investors on a
servicing released basis.
LOAN SALES AND PURCHASES
Permanent first mortgage loans on residential real estate are originated
for sale in the secondary market by PrimeEagle through its offices in the
southeast. These loans are pooled and sold through an assignment of trade to
private investors. Fluctuations in the value of servicing rights and
management's analysis of loan prepayments impact the Company's decision to
retain or sell mortgage loan servicing. Because of the risk of prepayment and
the cost to service loans as compared to the service release premiums paid by
investors, the Company sells substantially all of its permanent loans on a
servicing released basis.
CREDIT RISK MANAGEMENT AND ALLOWANCE FOR LOAN LOSSES
The Bank has a multi-faceted program designed to control and monitor the
credit risks inherent in its loan portfolio. The Bank utilizes an asset
classification system which is consistent with the "Interagency Policy Statement
on the Allowance for Loan and Lease Losses" ("ALLL") issued by the Office of
Thrift Supervision ("OTS") to develop common guidance on allowances. The
statement asserts that an institution must maintain an allowance for loan and
lease losses at an adequate level to absorb estimated credit losses associated
with its loan and lease portfolio.
The basic objectives of the Bank's ALLL policy are: (i) to provide
essential information regarding the overall quality of the Bank's assets; (ii)
to provide for early identification of potential problem assets so as to
minimize losses to the Bank; (iii) to project relevant trends that affect the
collectibility of the Bank's loan and lease portfolio and to isolate potential
problem areas; (iv) to provide adequate valuation allowances in accordance with
generally accepted accounting principles and OTS policies; (v) to provide
accurate and timely information relating to credit quality that can be used for
financial and regulatory reporting purposes; (vi) to assess the adequacy of
internal controls and adherence to internal credit policies and loan
administration procedures; (vii) to monitor compliance with relevant laws and
regulations through a loan review system; and (viii) to evaluate the activities
of lending personnel through a loan review system.
The Bank utilizes its Asset Classification Committee (the "ACC") to provide
a quarterly evaluation of the Bank's assets, to establish the adequacy of the
valuation allowances and to evaluate the loan review system. The ACC is
responsible for developing and implementing effective credit approval and loan
review systems and controls, including a credit grading system, that identifies,
monitors and addresses asset quality problems in an accurate and timely manner.
After a loan has been made, loan officers are responsible for monitoring
individual loans and analyzing continuously their loan portfolio to promptly
identify and report problem loans. Loans are also reviewed by the loan
committee, the ACC, and by the Bank's credit administration and loan review
personnel. The loan officer responsible for a loan submits the loan to the loan
committee for approval in accordance with the guidelines of
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the Bank's lending authority. Each commercial real estate and construction loan
is given a rating, which the loan committee has the ability to approve or
disapprove. In addition, the frequency of ongoing review is determined by the
loan officer and approved by the Loan Committee. The loan officer, credit
administration and the ACC, may determine that a loan or borrower's credit
grading or review frequency should be changed in accordance with the framework
provided by the Bank's grading system.
The Bank's credit review personnel also periodically perform an analysis of
the various components of its portfolio, including all significant credits on an
individual basis. In order to analyze the adequacy of the ALLL, the Bank will
segment the loan and lease portfolios into components which have similar
characteristics. Characteristics considered include, but are not limited to,
geographical location, risk classification, past due status, type of loan, loan
grade, and industry or collateral. Estimates of credit losses reflect
consideration of all significant factors that may affect the collectibility of
the portfolio as of the evaluation date.
The ACC considers historical losses, recent trends, changes in national and
local economic and business conditions and developments, the level and structure
of interest rates, job growth, consumer confidence and the market value of
collateral. The ACC considers (i) the effect of external factors, such as
competition and legal and regulatory requirements on the level of estimated
losses in the Bank's current portfolio; (ii) changes in the duration, type and
level of assets; (iii) the existence and effect of any concentration of assets
and changes in the level of such concentrations; (iv) changes in the experience,
ability and depth of the lending management and loan administration staff of the
Bank; (v) changes in lending policies and procedures, including underwriting
standards and collection, charge-off and recovery practices; (vi) changes in the
trend of the volume and severity of past due and classified loans; (vii) trends
in the volume of non-accrual loans, troubled debt restructurings and other loan
modifications; and (viii) changes in the quality of the Bank's loan review
system and the degree of oversight by the Bank's Board of Directors.
In addition, ratio analysis is used as a supplemental tool for evaluating
loans, portfolio concentration and the overall reasonableness of the ALLL.
Ratios are used to compare the Bank to its peer group and its historical
practices in identifying divergent trends in the relationship of classified and
nonclassified assets, past due and non-accrual loans and leases, total loans and
binding commitments and historical gross and net charge-offs.
Based upon the amount and type of classifications, the ACC establishes the
appropriate and requisite general and specific valuation allowances and makes
any necessary adjustments to the allowances. The methodology for determining the
amount of general valuation allowances will take the amount of assets classified
special mention, substandard, doubtful and loss into consideration. Certain
percentages derived to properly reflect the risk associated with the Bank's loan
mix will be applied to the balance of all loans including those classified
special mention, substandard, doubtful, and loss. These percentages range from
.25 percent to 100 percent and are derived primarily through industry standards
and the Bank's historical data. These percentages are reviewed as conditions
require. The Bank has a conservative philosophy and automatically considers any
loan that is delinquent 90 days or more and real estate acquired in the
settlement of loans as substandard assets.
The Bank will combine its estimates of the allowance needed for each
component of the portfolio. The ALLL will be divided into two distinct portions:
(i) an amount for specific allocations on significant individual credits and
(ii) a general allowance amount. Within the general allowance section, the loan
portfolio will be broken into as many segments as practical for the purpose of
making allocation to the ALLL. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition -- Provision for Loan Losses and
Risk Elements."
ASSET LIABILITY MANAGEMENT
INTEREST RATE RISK
The Bank operates under an interest rate risk policy approved by the Board
of Directors of Tucker Federal through the Asset and Liability Committee
("ALCO"). The policy outlines limits on interest rate risk in terms of changes
in net interest income and changes in the net market values of assets and
liabilities over certain changes in interest rate environments. These
measurements are made through a simulation model which projects the impact of
changes in interest rates on the Bank's assets and liabilities. The policy also
outlines responsibility for monitoring interest rate risk, and the process for
the approval, implementation and monitoring of interest rate risk strategies to
achieve the Bank's interest rate risk objectives.
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The Bank's ALCO is comprised among others of the Chairman, the CEO, the
President, the Executive Vice President and Secretary, the Executive Vice
President and CFO, the Senior Vice President of Commercial Lending, the Senior
Vice President of Finance and the First Vice President of Secondary Marketing.
The ALCO makes all tactical and strategic decisions with respect to the sources
and uses of funds that may affect net interest income, including net interest
spread and net interest margin. The ALCO's decisions are based upon policies
established by the Bank's Board of Directors which are designed to meet three
goals -- manage interest rate risk, improve interest rate spread and maintain
adequate liquidity.
The ALCO has developed a program of action which includes, among other
things, the following: (i) selling substantially all conforming, long-term,
fixed rate mortgage originations, (ii) originating and retaining for the
portfolio shorter term, higher yielding loan products which meet the Company's
underwriting criteria; and (iii) actively managing the Company's interest rate
risk exposure.
The difference in interest earning assets versus interest bearing
liabilities repricing or maturing in a given period of time is commonly referred
to as "Gap." The Bank's Gap position is evaluated and reviewed continuously. A
positive Gap indicates an excess of rate sensitive assets over rate sensitive
liabilities, while a negative Gap indicates an excess of rate sensitive
liabilities over rate sensitive assets. The Bank had a positive one year Gap of
10.66 percent as of March 31, 2000. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Interest Rate and Market Risk."
The Bank also operates under a secondary marketing policy. The secondary
marketing policy applies to the use of forward commitments to sell
mortgage-backed securities in order to hedge market exposure in the pipeline of
single family mortgage loans originated for sale. The ALCO is responsible for
the implementation of the policy. The policy outlines acceptable hedging
instruments, sets limits on the maximum exposure to risk and outlines authority
and responsibility for the implementation of the policy.
INVESTMENT ACTIVITIES
Income from investments in securities provides the Bank's second largest
source of interest income after interest on loans. Federally chartered thrift
institutions are required to maintain a minimum amount of liquid assets that may
be invested in specified short-term securities. These assets include, among
others, United States Treasury and Federal Agency obligations, certain
certificates of deposit, bankers' acceptances and Federal Funds. Subject to
various restrictions, investments may also be made in mortgage-backed
securities, commercial paper and corporate debt, and equity securities.
Investment decisions are made by the ALCO and executed by authorized
officers under the supervision of the Bank's Board of Directors pursuant to the
Bank's investment policy. Brokers approved by the Board of Directors are used to
effect securities transactions. The Company holds no investment securities
issued by a single issuer, other than mortgage-backed securities issued by an
agency of the United States government, which equaled or exceeded 10 percent of
stockholders' equity at March 31, 2000.
Under the investment policy, the ALCO, with the approval of the Board of
Directors of the Bank, designates all investments at the time of purchase as
either securities available for sale or investment securities held to maturity.
The Company does not currently maintain a trading portfolio. At March 31, 2000,
substantially all fixed rate mortgage-backed securities have been classified as
securities available for sale based on management's determination that such
securities may be liquidated prior to maturity. PrimeEagle classifies all
permanent fixed rate loans originated as loans held for sale unless originated
pursuant to a portfolio commitment to the Bank. As of March 31, 2000,
$259,884,000 or 20.87 percent of the Company's assets were classified as
available for sale or held for sale.
At March 31, 2000, the Bank's investment portfolio consisted of United
States Agency obligations, investment grade corporate debt securities, equity
securities, trust preferred securities, and collateralized mortgage obligations.
Additionally, the Bank holds investments in mortgage-backed securities. See Note
3 and Note 9 of the Notes to Consolidated Financial Statements.
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INVESTMENT IN REAL ESTATE
As of March 31, 2000, the Company has ownership interest in twelve real
estate projects with real estate property totaling $44,956,000 and representing
3.61 percent of total assets. Set forth below is information regarding each of
the projects. The most significant portion of the Company's investment in real
estate is in land in the process of development for residential subdivisions.
All twelve real estate investments are located in metropolitan Atlanta. The
Company consolidates each project on a line-by-line basis in its financial
statements.
- Union Hill, LLC. In October 1994, the Company and an unaffiliated third
party purchased 237 acres of land located in Forsyth County, Georgia for the
purpose of developing an 85-lot single-family residential community,
Holleybrooke, and a 427-lot single-family residential community, Chadbourne. As
of March 31, 2000, the Company has developed and sold all 85 lots in
Holleybrooke. As of March 31, 2000, the Company has developed 371 lots and sold
341 lots in Chadbourne. In addition, 30 lots are under contract and the Company
is in the process of developing the remaining 56 lots. The Company has an 80
percent ownership interest and shares 50 percent in the profits of Union Hill
after the allocation of the preferred return.
- Rivermoore Park, LLC. In November 1996, the Company purchased 353 acres
of land in Gwinnett County, Georgia, for the purpose of developing a 465-lot
single-family residential community, Rivermoore Park ("Rivermoore"). As of March
31, 2000, the Company has developed 351 lots and sold 247 lots. In addition, 76
lots are under contract and 28 lots are available for sale. The Company has a
100 percent ownership interest in Rivermoore.
- Lebanon Road, LLC. In July 1997, the Company and an unaffiliated third
party purchased 63 acres of land in Gwinnett County, Georgia, for the purpose of
developing a 130-lot single-family residential community, Sugarloaf Springs
("Sugarloaf"). As of March 31, 2000, the Company has developed and sold all 130
lots. The Company anticipates that Lebanon Road, LLC will be dissolved during
fiscal 2001. The Company has a 60 percent ownership interest and shares 60
percent in the profits of Sugarloaf after the allocation of the preferred
return.
- Windsor Parkway Development, LLC. In September 1998, the Company
purchased 14.6 acres of land in DeKalb County, Georgia, for the purpose of
developing a 51-lot single-family residential community, Windsor Park
("Windsor"). As of March 31, 2000, the Company has developed all 51 lots and
sold 36 lots. The remaining 15 lots are under contract. The Company has a 100
percent ownership interest in Windsor.
- Johnson Road Development, LLC. In November 1998, the Company purchased
21.3 acres of land in Gwinnett County, Georgia, for the purpose of developing a
99-lot single-family residential community, Pendleton Park ("Pendleton"). As of
March 31, 2000, the Company has developed all 99 lots and sold 35 lots. The
remaining 64 lots are under contract. The Company has a 100 percent ownership
interest in Pendleton.
- Riverside Road Development, LLC. In August 1999, the Company and an
unaffiliated third party purchased 21 acres of land in Fulton County, Georgia,
for the purpose of developing a 21-lot single-family residential community. As
of March 31, 2000, the Company is in the process of developing the 21 lots. The
Company has a 60 percent ownership interest and shares 60 percent in the profits
after the allocation of the preferred return.
-The Phoenix on Peachtree, LLC. In October 1999, the Company and an
unaffiliated third party purchased 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 percent ownership interest and shares 50 percent in the profits. Profits
are distributed to members only after the allocation of the preferred return and
after achieving a minimum internal rate of return on the cash invested by the
Company.
- Eagle Mason Mill Development, LLC. In November 1999, the Company and an
unaffiliated third party purchased 16 acres of land in DeKalb County, Georgia,
for the purpose of developing an 81-lot single-family residential community. As
of March 31, 2000, the Company is in the process of developing 18 lots. The
Company has an 80 percent ownership interest and shares 80 percent in the
profits after the allocation of the preferred return.
- Eagle Timm Valley Development, LLC. In January 2000, the Company
purchased 2.069 acres of land in Fulton County, Georgia , for the purpose of
developing an 18-lot multi-family residential community. As of March 31, 2000,
the Company is in the process of developing the 18 lots. The Company has a 100
percent ownership interest.
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- Eagle Acworth Development II, LLC. In January 2000, the Company purchased
8.86 acres of land in Cobb County, Georgia. The Company intends to resell the
property to a third party. The Company has a 100 percent ownership interest.
- Eagle Acworth Development III, LLC. In January 2000, the Company
purchased 26.25 acres of land in Cobb County, Georgia. The Company intends to
resell the property to a third party. The Company has a 100 percent ownership
interest.
- Eagle White Columns Development, LLC. In February 2000, the Company
purchased 54 residential lots and 217 acres in Fulton County, Georgia, for the
purpose of developing a 161-lot single-family residential community. As of March
31, 2000, the Company has sold 3 of the 54 developed lots. In addition, 13 lots
are under contract and 38 lots are available for sale. The Company has a 100
percent ownership interest.
SOURCES OF FUNDS
GENERAL
Deposits are the Bank's largest source of funds for lending and other
investment purposes. In addition to deposits, the Bank obtains funds from
repurchase agreements, loan principal repayments, proceeds from sales of loans
and loan participations, and advances from the FHLB. Loan repayments are a
relatively stable source of funds while deposit inflows and outflows and sales
of loans and investment securities are significantly influenced by prevailing
interest rates and economic conditions. Borrowings may be used to compensate for
reductions in normal sources of funds or to support expanded lending activities.
DEPOSITS
The Bank offers a variety of savings and other deposit programs and related
services. Deposits are obtained primarily from the communities in which its
banking offices are located. The Bank uses traditional marketing methods to
attract new customers to its branches and to its Internet banking site,
justrightbank.com. For further details as to the composition of the Bank's
deposit portfolio, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Deposits" and Note 8 of Notes to
Consolidated Financial Statements.
The Bank competes for deposits principally by attempting to identify the
specific needs of its target market and by offering a high level of customer
service. Analysis of product needs is generated through dialogue with customers
and staff. The Bank offers a wide variety of deposit programs including checking
accounts, savings, money markets, certificates of deposit ranging from three
months to five years in maturity, tax deferred retirement programs and tax
deferred certificates of deposit.
Employee commitment to service is another important factor in attracting
deposits. The goal of the Bank is to render superior personal service through
convenient branch and main office locations, hours of operation, a fully
functioning website and call center. All of the Bank's branches are open on
Saturdays for customer convenience. The Bank does not rely on any individual,
group or entity for a material portion of its deposits.
BORROWINGS
Deposits are the primary source of funds for the Bank's lending and
investment activities and for its general business purposes. However, the Bank
obtains additional funds by borrowing from the FHLB. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition --
Borrowings" and Note 9 of Notes to Consolidated Financial Statements.
COMPETITION
The Bank faces strong competition in attracting deposits and making loans
throughout its market areas. The most significant factors in competing for
deposits are interest rates, processing fees and minimum balance requirements,
the quality and range of financial services offered, and convenience of office
locations and office hours. The Bank competes directly for deposits with
commercial banks, money market funds and retail securities brokerage houses with
offices in the Bank's market areas. The Bank also faces competition for deposits
from (i) regional depository institutions that advertise locally or through
national media, (ii) short-term money funds, (iii)
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corporate and government borrowers (including, among others, insurance
companies), (iv) credit unions and (v) Internet only financial institutions.
The Bank's competition for loans comes from mortgage companies, other
thrift institutions and commercial banks, credit unions, consumer finance
companies, insurance companies, investment banking firms and online lenders. The
primary factors in competing for loans are interest rates, discount points, loan
fees and the quality and range of lending services offered. Competition for
origination of mortgage loans comes primarily from other thrift institutions and
loan production firms, commercial banks and insurance companies. The Bank
competes for loan originations through the quality of services it provides
borrowers, real estate brokers and builders, as well as the interest rate and
terms of its loans. The competition for loans varies from time to time depending
on the general availability of lendable funds and credit, general and local
economic conditions, interest rate levels, conditions in the local real estate
market and other factors that are not readily predictable. The Bank attempts to
charge interest rates and loan fees commensurate with the level of risk it
accepts. The Bank believes that providing superior service can allow improved
loan pricing.
Competition may be further increased as a result of the enactment of the
Riegle-Neal Interstate Banking and Branch Efficiency Act of 1994 (the
"Interstate Banking Act") on September 29, 1994. Beginning in September 1995,
bank holding companies, upon meeting certain criteria, were authorized to
acquire existing banks on a nationwide basis without regard to state statutes to
the contrary. Effective June 1, 1997, the Interstate Banking Act permitted
mergers of banks on an interstate basis, unless states in which such banks are
located passed legislation specifically prohibiting out-of-state banks from
operating interstate branches within their boundaries. In addition, the
Interstate Banking Act provides for de novo interstate branching within the host
state. See "Supervision and Regulation -- Recent Legislation."
EMPLOYEES
At March 31, 2000, the Company had 439 full-time employees and 36 part-time
employees compared to 614 full-time and 60 part-time employees at March 31,
1999. No employees are covered by a collective bargaining agreement. Management
considers its relations with its employees to be good.
SUPERVISION AND REGULATION
GENERAL
The Company is a unitary savings and loan holding company, subject to the
regulation, examination, supervision and reporting requirements of the Office of
Thrift Supervision (the "OTS") and the Georgia Department of Banking and Finance
("DBF"). The Bank is a federally chartered stock savings and loan association
under the Home Owners' Loan Act, as amended (the "HOLA") and is a member of the
FHLB system, subject to examination and supervision by the OTS and the FDIC, and
subject to regulations of the Federal Reserve Board governing reserve
requirements. To the extent that the following information describes certain
statutory and regulatory provisions, it is qualified in its entirety by
reference to particular statutory and regulatory provisions. Any change in
applicable laws or regulations may have a material effect on the business and
prospects of the Company.
FEDERAL SAVINGS AND LOAN HOLDING COMPANY REGULATIONS
As the owner of all of the outstanding stock of the Bank, the Company is a
savings and loan holding company subject to regulation by the OTS under the
HOLA. As a unitary savings and loan holding company owning only one savings
institution, the Company generally is allowed to engage and invest in a broad
range of business activities not permitted to commercial bank holding companies
or multiple savings and loans holding companies, provided that the Bank
continues to qualify as a "qualified thrift lender." See "-- Regulation of the
Bank -- Qualified Thrift Lender Test" herein. In the event of any acquisition by
the Company of another savings association subsidiary, except for a supervisory
acquisition, the Company would become a multiple savings and loan holding
company and would be subject to limitations on the types of business activities
in which it could engage.
The Company is prohibited from directly or indirectly acquiring control of
any savings institution or savings and loan holding company without prior
approval from the OTS or from acquiring more than 5 percent of the voting stock
of any savings institution or savings and loan holding company which is not a
subsidiary. Control of a savings institution or a savings and loan holding
company is conclusively presumed to exist if, among other
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things, a person acquires more than 25 percent of any class of voting stock of
the institution or holding company or controls in any manner the election of a
majority of the directors of the insured institution or the holding company.
Control is rebuttably presumed to exist if, among other things, a person
acquires 10 percent or more of any class of voting stock (or 25 percent of any
class of stock) and is subject to any of certain specified "control factors."
Pursuant to OTS regulations and HOLA, the OTS may take action when it
determines that there is reasonable cause to believe that a savings and loan
holding company is engaged in activity which constitutes a risk to the safety
and soundness or stability of a savings and loan holding company or a subsidiary
savings institution. The Director of OTS has oversight authority for all holding
company affiliates, and may, for example, limit the payment of dividends by a
savings association, limit transactions between the savings association, the
holding company and the subsidiaries or affiliates of either or limit the
activities of the savings association that might create a risk that liabilities
of the savings and loan holding company and its affiliates may be imposed on the
savings association. In addition, the Bank is subject to restrictions on its
dealings with the Company and any other entities that are "affiliates" of the
Company under HOLA and certain provisions of the Federal Reserve Act that are
made applicable to savings institutions by the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA") and OTS regulations. See
"Supervision and Regulation - Transactions with Affiliates" below for a general
discussion of affiliate transactions.
RECENT LEGISLATIVE AND REGULATORY DEVELOPMENTS
On November 12, 1999, the Gramm-Leach-Bliley Act of 1999 (the "Act") was
signed into law, with most of the major provisions taking effect on March 11,
2000. The Act provides for broader insurance and securities powers for financial
institutions, subject to the implementation of regulations. The Act effectively
removes the statutory barriers to combining banking, securities, and insurance
industries by creating a new type of financial services company, a "financial
holding company." However, the Act does not eliminate the thrift charter and the
unitary thrift holding company. Instead, the Act provides a "grandfather"
provision under which companies, which are unitary thrift holding companies as
of May 4, 1999 (or have an application to establish a federal savings
association before such date), may continue to engage in all activities which
were permitted prior to the Act. Activities of the Company in connection with
real estate development and related activities are permissible for a unitary
thrift under the current law and as amended by the Act. To be eligible for the
"grandfather" provision, the Act requires that the Bank comply with any lending
restrictions which were imposed on it as a savings and loan association, and
that the Bank continue to meet the qualified thrift lending test, See
"-Qualified Thrift Lender Test."
On September 30, 1996, the President signed into law the Omnibus
Consolidated Appropriations Act which included, among other provisions, the
Deposit Insurance Funds Act of 1996 (the "DIFA"). The principal purpose of the
DIFA was to recapitalize the Savings Associate Insurance Fund (the "SAIF") so
that over time its deposit insurance assessments could be reduced to parity with
those of the Bank Insurance Fund (the "BIF"), and to provide for the eventual
merger of the SAIF and the BIF and the adoption of a single standard federal
charter. Specifically, the DIFA requires, in pertinent part, (i) a one-time
special assessment on all financial institutions holding SAIF deposits on March
31, 1995, calculated at 65.7 basis points, to recapitalize the SAIF; (ii) full
prorata sharing by BIF and SAIF members of the debt service obligations of the
Financing Corp. ("FICO") beginning no later than January 1, 2000, and
non-prorata sharing (with adjustable, semi-annual premiums of approximately 6.2
basis points for SAIF members and 1.2 basis points for BIF members) until that
date; and (iii) a merger of the BIF and the SAIF into a new Deposit Insurance
Fund (the "DIF").
The effects of the DIFA on the Bank were significant. The special
assessment, which was paid to the FDIC on November 27, 1996, was $1,946,000
based upon the Bank's SAIF-assessable deposits as of March 31, 1995.
The legislation mandates a Treasury Department study to develop a common
depository institution charter. It also contains environmental liability
provisions indicating that lenders who do not participate in the management of
environmentally contaminated property or who do not cause the contamination are
not liable for environmental clean-up costs. In addition, the legislation
contains over 40 regulatory burden relief provisions in various areas, including
truth in lending and other regulatory reform measures designed to reduce the
burden and costs imposed on financial institutions to comply with consumer
protection provisions.
The Small Business Job Protection Act of 1996 contained provisions
requiring the thrift industry to recapture tax deductions taken pursuant to the
reserve method for accounting for bad debts of savings institutions. Based upon
the provisions, bad debt reserves taken prior to January 1, 1988 would not be
recaptured, and bad debt
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reserves taken after January 1, 1988 would be recaptured over a six-year period
beginning with the 1996 tax year.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Banking Act") allows bank holding companies to acquire existing
banks across state lines, regardless of state statutes. Further, under the
Interstate Banking Act, effective June 1, 1997, a bank holding company may
consolidate interstate bank subsidiaries into branches, and a bank may merge
with an unaffiliated bank across state lines to the extent that the applicable
states have not "opted out" of interstate branching prior to such effective
date. States may elect to permit interstate mergers prior to June 1, 1997. The
Interstate Banking Act also permits de novo branching to the extent that a
particular state "opts into" the de novo branching provisions. The Interstate
Banking Act generally prohibits an interstate acquisition (other than an initial
entry into a state by a bank holding company), which would result in either the
control of more than (i) 10 percent of the total amount of insured deposits in
the United States, or (ii) 30 percent of the total insured deposits in the home
state of the target bank unless such 30 percent limitation is waived by the home
state on a basis which does not discriminate against out of state institutions.
REGULATION OF THE BANK
FEDERAL HOME LOAN BANK SYSTEM
GENERAL
The Bank is a member of the FHLB, which consists of 12 regional FHLBs
subject to supervision and regulation by the Federal Housing Finance Board
("FHFB"). The FHLBs maintain central credit facilities primarily for member
institutions.
The Bank, as a member of the FHLB of Atlanta, is required to acquire and
hold shares of capital stock in the FHLB of Atlanta in an amount at least equal
to the greater of: (i) 1 percent of the aggregate outstanding principal amount
of its unpaid residential mortgage loans, home purchase contracts and similar
obligations as of the beginning of each year, (ii) 5 percent of its advances
(borrowings) from the FHLB of Atlanta, or (iii) $500. Additionally, during 1996
the FHLB of Atlanta imposed a maximum investment in its capital stock equal to
$500,000 over the required minimum. The Bank is in compliance with this
requirement with an investment in stock of the FHLB of Atlanta at March 31, 2000
of $14,665,000.
ADVANCES FROM FEDERAL HOME LOAN BANK
Each FHLB serves as a reserve or central bank for its member institutions
within its assigned regions. It is funded primarily from proceeds derived from
the sale of obligations of the FHLB System. A FHLB makes advances (i.e., loans)
to members in accordance with policies and procedures established by its Board
of Directors. The Bank is authorized to borrow funds from the FHLB of Atlanta to
meet demands for withdrawals of deposits, to meet seasonal requirements and for
the expansion of its loan portfolio. Advances may be made on a secured or
unsecured basis depending upon a number of factors, including the purpose for
which the funds are being borrowed and existing advances. Interest rates charged
for advances vary depending upon maturity, the cost of funds to the regional
FHLB and the purpose of the borrowing.
LIQUIDITY REQUIREMENTS
Federal regulations require a member savings institution to maintain an
average daily balance of liquid assets (which includes cash, certain time
deposits, certain bankers' acceptances, certain corporate debt securities and
highly-rated commercial paper, securities of certain mutual funds, balances
maintained in a Federal Reserve Bank and specified United States Government,
state or federal agency obligations) equal to a certain percentage of the sum of
its average daily balance of net withdrawable deposit accounts and borrowings
payable in one year or less. The liquidity requirement may vary from time to
time (between 4 percent and 10 percent) depending upon economic conditions and
savings plans of all member savings institutions. At March 31, 2000, the Bank
was in compliance with the liquidity ratio regulatory requirements.
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INSURANCE OF ACCOUNTS
GENERAL
Deposits at the Bank are insured to a maximum of $100,000 for each insured
depositor by the FDIC through the SAIF. As an insurer, the FDIC issues
regulations, conducts examinations and generally supervises the operations of
its insured institutions (institutions insured by the FDIC hereinafter are
referred to as "insured institutions"). Any insured institution which does not
operate in accordance with or conform to FDIC regulations, policies and
directives may be sanctioned for non-compliance. The FDIC has the authority to
suspend or terminate insurance of deposits upon the finding that the institution
has engaged in unsafe or unsound practices, is operating in an unsafe or unsound
condition, or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC. If insurance of accounts is terminated by the
FDIC, the deposits in the institution will continue to be insured by the FDIC
for a period of two years following the date of termination. The FDIC requires
an annual audit by independent accountants and also periodically makes its own
examinations of insured institutions.
Insured institutions are members of either the SAIF or the BIF. Pursuant to
the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), an insured institution may not convert from one insurance fund to
the other without the advance approval of the FDIC. FIRREA also provides,
generally, that the moratorium on insurance fund conversions shall not be
construed to prohibit a SAIF member from converting to a bank charter during the
moratorium, as long as the resulting bank remains a SAIF member during that
period. When a conversion is permitted, each insured institution participating
in the conversion must pay an "exit fee" to the insurance fund it is leaving and
an "entrance fee" to the insurance fund it is entering.
INSURANCE PREMIUMS AND REGULATORY ASSESSMENTS
As an insurer, the FDIC issues regulations, conducts examinations and
generally supervises the operations of its insured members. FDICIA directed the
FDIC to establish a risk-based premium system under which each premium assessed
against the Bank would generally depend upon the amount of the Bank's deposits
and the risk that it poses to the SAIF. The FDIC was further directed to set
semiannual assessments for insured depository institutions to maintain the
reserve ratio of the SAIF at 1.25 percent of estimated insured deposits. The
FDIC may designate a higher reserve ratio if it determines there is a
significant risk of substantial future loss to the particular fund. Under the
FDIC's risk-related insurance regulations, an institution is classified
according to capital and supervisory factors. Institutions are assigned to one
of three capital groups: "well capitalized," "adequately capitalized" or
"undercapitalized." Within each capital group, institutions are assigned to one
of three supervisory subgroups. There are nine combinations of groups and
subgroups (or assessment risk classifications) to which varying assessment rates
are applicable. During fiscal 2000, the Bank paid $427,000 to the FDIC for such
assessments. See "Recent Legislation."
In addition to deposit insurance premiums, savings institutions also must
bear a portion of the administrative costs of the OTS through an assessment
based on the level of total assets of each insured institution and which
differentiates between troubled and nontroubled savings institutions. During
fiscal 2000, the Bank paid $209,000 to the OTS for such assessments.
Additionally, the OTS assesses fees for the processing of various applications.
QUALIFIED THRIFT LENDER TEST
Historically, the amount of advances which may be obtained by a member
institution from the FHLB has been subject to the institution's compliance with
a qualified thrift lender ("QTL") test. In order to comply with the QTL test,
the Bank must maintain 65 percent of its total "Portfolio Assets" in "Qualified
Thrift Investments." This level must be maintained on a monthly average basis in
nine out of every twelve months. A savings institution that does not meet the
Qualified Thrift Lender test must either convert to a bank charter or comply
with the restrictions imposed for noncompliance. For purposes of the QTL test,
"Portfolio Assets" equal total assets minus (i) goodwill and other intangible
assets, (ii) the value of property used by an institution in the conduct of its
business and (iii) assets of the type used to meet liquidity requirements in an
amount not exceeding 20 percent of the savings institution's total assets.
"Qualified Thrift Investments" generally include (i) loans made to purchase,
refinance, construct, improve or repair domestic residential or manufactured
housing, (ii) home equity loans, (iii) securities backed by or representing an
interest in mortgages on domestic residential or manufactured housing, (iv)
obligations issued by the federal deposit insurance agencies, and (v) shares of
FHLB stock owned by the savings institution. Qualified Thrift Investments also
include certain other specified investments, subject to a percentage of
Portfolio Assets limitation.
17
<PAGE> 18
A savings institution that does not meet the QTL test must either convert
to a bank charter or comply with the restrictions imposed for noncompliance. If
the institution converts to a bank charter, it will continue to pay SAIF
insurance assessments and any applicable exit and entrance fees before
converting to BIF insurance. If the institution does not convert to a bank
charter, it must comply with the following additional restrictions on the
operations of the institution: (i) the institution may not engage in any new
activity or make any new investment, directly or indirectly, unless such
activity or investment is permissible for both a national bank and a savings
institution; (ii) the branching powers of the institution shall be restricted to
those of a national bank; and (iii) payment of dividends by the institution
shall be subject to the rules regarding payment of dividends by a national bank.
A savings institution that has not converted to a bank charter within three
years after failing to qualify as a QTL may not retain any investment or engage
in any activity not permitted for both a national bank and a savings
institution. The Bank's Qualified Thrift Investments as of March 31, 2000 were
$851,143,000 or 76.41 percent of its Portfolio Assets at that date. The Bank
expects to remain in compliance with the QTL test.
CAPITAL REQUIREMENTS
GENERAL
Since 1989, OTS capital regulations have established capital standards
applicable to all savings institutions, including a core capital requirement (or
leverage ratio), a tangible capital requirement and a risk-based capital
requirement. The OTS also has established pursuant to FDICIA five
classifications for institutions based upon the capital requirements: well
capitalized, adequately capitalized, under capitalized, significantly under
capitalized and critically under capitalized. Failure to maintain an adequately
capitalize status would result in greater regulatory oversight or restrictions
on the Bank's activities. The OTS has delegated to Regional Directors the
authority to establish higher minimum capital requirements based on a
determination that the savings institution may be undercapitalized, based on its
operations. At March 31, 2000, the Bank was " well capitalized." The Bank's
risk-based capital ratio at March 31, 2000 was 10.01 percent or .01 percent
above the minimum required to be considered "well capitalized."
CORE CAPITAL AND TANGIBLE CAPITAL
The OTS requires a savings institution to maintain "core capital" in an
amount not less than 3 percent of the savings institution's adjusted total
assets. "Core capital" includes, generally, common stockholders' equity,
noncumulative perpetual preferred stock and related surplus, nonwithdrawable
accounts and pledged deposits of mutual savings associations, and minority
interests in fully-consolidated subsidiaries, less (i) investments in certain
"non-includable" subsidiaries (as determined by regulation) and (ii) certain
intangible assets (except for purchased mortgage servicing rights and purchased
credit card relationships).
The "tangible capital" requirement requires a savings institution to
maintain tangible capital in an amount not less than 1.5 percent of its adjusted
total assets. "Tangible capital" means core capital less any intangible assets
(except for purchased mortgage servicing rights included in core capital).
Most national banks are required to maintain a level of core capital of at
least 100 to 200 basis points above the 3 percent minimum level. Because OTS
capital standards for savings institutions may not be less stringent than
capital standards established for national banks, savings institutions are
required to maintain core capital levels at least as high as national banks. At
March 31, 2000, the Bank's core capital and tangible capital were both
$69,061,000 or 5.75 percent of adjusted total assets.
RISK-BASED CAPITAL
The OTS capital regulations require savings institutions to maintain a
ratio of total capital to total risk-weighted assets of 8.0 percent. Total
capital, for purposes of the risk-based capital requirement, equals the sum of
core capital plus supplementary capital, which includes cumulative preferred
stock, mandatory convertible securities, subordinated debt, and allowance for
loan and lease losses of up to 1.25 percent of total risk-weighted assets. In
determining total risk-weighted assets for purposes of the risk-based capital
requirements, (i) each off-balance sheet item must be converted to an on-balance
sheet credit equivalent amount by multiplying the amount of each such item by a
credit conversion factor ranging from 0 percent to 100 percent (depending upon
the nature of the item), (ii) the credit equivalent amount of each off-balance
sheet item and each on-balance sheet asset must be multiplied by a risk factor
ranging from 0 percent to 100 percent (depending on the nature of the item), and
(iii) the resulting amounts are added together and constitute total
risk-weighted assets. As of
18
<PAGE> 19
March 31, 2000, the Bank's risk-based capital was $75,794,000 with a ratio of
total risk-based capital to total risk-weighted assets of 10.01 percent.
The following table reflects the Bank's minimum regulatory capital
requirements, actual capital and the level of excess capital by category.
REGULATORY CAPITAL
<TABLE>
<CAPTION>
AT MARCH 31, 2000 ACTUAL REQUIREMENT EXCESS
($ IN 000'S) AMOUNT % AMOUNT % AMOUNT %
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
RISK-BASED RATIOS:
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%
-------- -------- -------- -------- -------- --------
<CAPTION>
At March 31, 1999 Actual Requirement Excess
($ in 000's) Amount % Amount % Amount %
-------- -------- -------- -------- -------- --------
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%
-------- -------- -------- -------- -------- --------
</TABLE>
In addition, the OTS requires institutions with an "above-normal" degree of
interest rate risk to maintain an additional amount of capital. The test of
"above-normal" is determined by postulating a 200 basis point shift (increase or
decrease) in interest rates and determining the effect on the market value of an
institution's portfolio equity. If the decline is less than 2 percent, no
addition to risk-based capital is required (i.e., an institution has only a
normal degree of interest rate risk). If the decline is greater than 2 percent,
the institution must add additional capital equal to one-half the difference
between its measured interest rate risk and 2 percent multiplied by the market
value of its assets. Based on the OTS risk management division, Interest Rate
Risk Exposure Report, the Bank's interest rate risk is within the normal range.
See "Management's Discussion and Analysis of Results of Operations and Financial
Condition - Interest Rate and Market Risk."
CAPITAL DISTRIBUTIONS
OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire shares, payments to shareholders or another institution in a
cash-out merger, and other distributions charged against capital. An association
is categorized as either a "well", "adequate", or "under" capitalized
association. A "well capitalized" association is defined as an association that
has, on a pro forma basis after the proposed distribution, capital equal to or
greater than 10.00 percent. An "adequately capitalized" association is an
association that has, on a pro forma basis after the proposed distribution,
capital equal to or in excess of its minimum capital requirement of 8.00
percent. An "under capitalized" association is defined as an association that
has current capital less than its minimum capital requirement.
The Bank currently is in compliance with the regulatory capital
requirements and is considered a well capitalized association. Under OTS
regulations, the Bank is permitted to make capital distributions during a
calendar year without receiving prior OTS approval up to the higher of (i) 100
percent of its net income to date plus the amount that would reduce by one-half
its" surplus capital ratio" (the excess capital over its fully phased-in capital
requirements) at the beginning of the calendar year, or (ii) 75 percent of its
net income over the most recent four-quarter period. Any distributions in excess
of that amount require prior regulatory approval. In addition, a savings
association must provide the OTS with a 30-day advance written notice of all
proposed capital distributions, whether or not advance approval is required by
OTS regulations. The Bank's ability to pay dividends to the Company is subject
to OTS approval, the financial performance of the Bank which is dependent upon,
among other things, the local economy, the success of the Bank's lending
activities, compliance by the Bank with applicable regulations, investment
performance and the ability to generate fee income. As of March 31, 2000, the
Bank had distributed to the Company all amounts that can be distributed based on
notice to the OTS.
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<PAGE> 20
FEDERAL RESERVE SYSTEM REQUIREMENTS
The Federal Reserve Board regulations require depository institutions to
maintain non-interest bearing reserves against their deposit transaction
accounts (primarily NOW and regular checking accounts), non-personal time
deposits (transferable or held by a person other than a natural person) with an
original maturity of less than one and one-half years and certain money market
deposit accounts. Federal Reserve regulations currently require financial
institutions to maintain average daily reserves equal to 3 percent on all
amounts from $4.7 million to $47.8 million of net transactions, plus 10 percent
on the remainder. The balances maintained to meet the reserve requirements
imposed by the Federal Reserve may be used to satisfy liquidity requirements
imposed by the OTS. Because required reserves must be maintained in the form of
either vault cash, a non-interest bearing account at a Federal Reserve Bank or a
pass-through account as defined by the Federal Reserve Board, the effect of this
reserve requirement is to reduce the Bank's interest-earning assets.
Members of the FHLB System also are authorized to borrow from the Federal
Reserve "discount window" subject to restrictions imposed by Federal Reserve
regulations. However, Federal Reserve policy generally requires that a savings
institution exhaust its FHLB resources before borrowing from a Federal Reserve
Bank.
TRANSACTIONS WITH AFFILIATES
The Bank is also subject to certain transactions with affiliates rules
applicable to banks and savings institutions which are set forth in Sections
23A, 23B and 22(h) of the Federal Reserve Act, as well as additional limitations
imposed by OTS regulations. Such regulations generally impose quantitative and
qualitative limitations on loans and other transactions between an institution
and its affiliates, including loans to insiders. As of March 31, 2000, the
Bank's loans to affiliates was greater than the aggregate quantitative
limitation.
CONSUMER PROTECTION AND OTHER LAWS AND REGULATIONS
The Bank and PrimeEagle also are subject to a variety of federal laws and
regulations designed to protect borrowers and to promote lending to various
sectors of the economy. Included among these laws and regulations are the Equal
Credit Opportunity Act and Regulation B, the Federal Home Mortgage Disclosure
Act, the Electronic Funds Transfer Act and Regulation E, the Truth in Lending
Act and Regulation Z, the Truth in Savings Act and Regulation DD, the Expedited
Funds Availability Act and Regulation CC, the Bank Secrecy Act and fair housing
laws.
STATE REGULATION
As a federally chartered savings institution, the Bank generally is not
subject to those provisions of Georgia law governing state chartered financial
institutions or to the jurisdiction of the DBF. However, the DBF interprets the
Georgia Bank Holding Company Act to require the prior approval of the DBF for
any acquisition of control of any savings institution (whether chartered by
state or federal authority) located in Georgia.
The DBF also interprets the Georgia Bank Holding Company Act to include
savings and loan holding companies as "bank holding companies", thus giving the
DBF the authority to make examinations of the Company and any subsidiaries and
to require periodic and other reports. Existing DBF regulations do not restrict
the business activities or investments of the Company or the Bank.
State usury laws are applicable to federally insured institutions with
regard to loans made within Georgia. Generally speaking, Georgia law does not
establish ceilings on interest rates although certain specialized types of
lending in which the Bank engages, such as making loans of $3,000 or less, are
subject to interest rate limitations.
FEDERAL SECURITIES LAWS
The Company is subject to the periodic reporting obligations, proxy
solicitation rules, insider trading restrictions and other requirements of the
Securities Exchange Act of 1934, as amended.
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
20
<PAGE> 21
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 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.
ITEM 2. PROPERTIES
The principal executive offices of the Company are located at 4419 Cowan
Road, Tucker, Georgia, in a 33,415 square foot building leased under an
operating lease, which expires in 2003. The main office of the Bank is located
at 2355 Main Street, Tucker, Georgia. The Company's 14 branch offices are
located in the Alpharetta, Doraville, Dunwoody, Jonesboro, Lawrenceville,
Lilburn, Morrow, Northlake, Palmetto, Snellville, Stone Mountain, Tucker, Union
City and Wesley Chapel areas of metropolitan Atlanta, Georgia. Three of the
Bank's 14 branch locations are leased under an operating lease and the remaining
branch properties, including the main office are owned by the Bank. The Bank's
lease on the Stone Mountain office expires in 2002, the lease on the Jonesboro
office expires in 2006, and the lease on the Lawrenceville office expires in
2011. In addition, during fiscal 2000, the Bank closed its branch located on
Memorial Drive in Stone Mountain, Georgia. As of March 31, 2000, this location
is vacant and for sale.
Prime Eagle operates eight loan production offices located in Jacksonville
and Ponte Vedra Florida; Augusta and Savannah, Georgia; Charlotte, North
Carolina and Chattanooga, Knoxville and Nashville, Tennessee. Each of these
offices is leased pursuant to an operating lease. The Knoxville, Tennessee lease
expires in 2000.The Augusta and Savannah, Georgia, and Nashville, Tennessee,
leases expire in 2001. The Chattanooga, Tennessee, lease expires in 2002. The
Jacksonville and Ponte Vedra, Florida and Charlotte, North Carolina leases
expire in 2003.The Ponte Vedra office sublets space to an independent third
party.
EREA leases office space in Atlanta, Georgia, pursuant to two operating
leases that expire in 2001. EREA sublets space to five independent third
parties. In addition, the Company owns and leases offices, which are used as
administrative and operational facilities. The Bank's loan operations office,
located in Tucker, Georgia, is leased under an operating lease, which expires in
2004. The Bank's operations center is located in Morrow, Georgia, and owned by
the Company. The Company owns five additional buildings, one located in Lilburn,
Georgia and four located in Tucker, Georgia. Four are occupied by administrative
or operational staff and the fifth is leased to an independent third party.
Management believes that it will be able to renew such leases on satisfactory
terms.
The Company also owns land and buildings held for future branch sites in
Forsyth County and Gwinnett County.
21
<PAGE> 22
ITEM 3. 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 pre-tax
profits of Prime. In mid-1997, a disagreement arose with respect to the
allocation of expenses to Prime for purposes of calculating the net pre-tax
profits of Prime. Plaintiffs filed suit on December 5, 1997 alleging, among
other things, that the Bank had improperly calculated net pre-tax 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended March 31, 2000.
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<PAGE> 23
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCK HOLDER
MATTERS
PRICE RANGE OF COMMON STOCK AND DIVIDEND HISTORY
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "EBSI". The following table sets forth for the periods indicated the
high and low last sale prices of the Common Stock as reported on the Nasdaq
National Market and dividends paid per share.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DIVIDENDS PAID
MARCH 31, HIGH LOW PER SHARE
-------- -------- --------
<S> <C> <C> <C>
1998
First Quarter $ 18.000 $ 15.000 $ .15
Second Quarter 21.250 16.125 .15
Third Quarter 23.250 17.250 .15
Fourth Quarter 26.000 19.500 .15
-------- -------- --------
1999
First Quarter $ 27.250 $ 22.750 $ .16
Second Quarter 26.250 17.000 .16
Third Quarter 19.500 18.000 .16
Fourth Quarter 22.250 17.000 .16
-------- -------- --------
2000
FIRST QUARTER $ 22.000 $ 17.375 $ .16
SECOND QUARTER 20.625 17.688 .16
THIRD QUARTER 18.250 14.000 .16
FOURTH QUARTER 17.000 13.188 .16
-------- -------- --------
</TABLE>
On March 31, 2000, the last sale price of the Common Stock, as reported on
the Nasdaq National Market, was $16.75. On June 14, 2000, there were 5,637,135
shares of Common Stock outstanding and approximately 1,290 record holders of
Common Stock.
The Company began the payment of cash dividends on its Common Stock during
fiscal 1992 and paid $.05 per share for the fourth quarter of that year. During
fiscal 1998, the Company paid four quarterly dividends totaling $.60 per share.
During fiscal 1999 and fiscal 2000, the Company paid four quarterly dividends
totaling $.64 per share.
The ability of the Company to pay cash dividends to its stockholders is
directly dependent upon the Bank's ability to pay cash dividends to the Company
and the earnings and cash flow of holding company's subsidiaries. The Bank is
subject to certain restrictions on the amount of dividends it is permitted to
pay. See "Supervision and Regulation - Capital Distributions". The amount of any
cash dividends paid on Common Stock will be determined by the Company's Board of
Directors in light of conditions existing from time to time, including the
Company's growth prospects, profitability, financial condition, investment
opportunities, liquidity requirements, results of operations, regulatory
restrictions and other factors deemed relevant by the Board of Directors.
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<PAGE> 24
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED
MARCH 31,
--------------------------------------------------------------------------
2000 1999 1998 1997 1996
(dollars in thousands, except per share data)
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED RESULTS OF OPERATIONS:
Interest income $ 87,812 $ 90,743 $ 71,900 $ 63,785 $ 52,625
Interest expense 52,689 56,778 40,007 33,629 28,821
Net interest income 35,123 33,965 31,893 30,156 23,804
Provision for loan losses 900 2,181 2,601 2,652 1,000
Noninterest income 22,592 25,478 16,349 12,911 10,853
Noninterest expenses 42,848 42,142 35,391 34,901 24,468
Income before income taxes 13,967 15,120 10,250 5,514 9,189
Net income 9,532 10,222 7,210 3,746 6,219
---------- ---------- ---------- ---------- ----------
PER COMMON SHARE:
Earnings per common share-basic $ 1.71 $ 1.79 $ 1.27 $ 0.68 $ 1.46
Earnings per common share-diluted 1.69 1.74 1.23 0.66 1.40
Dividends declared 0.64 0.64 0.60 0.56 0.42
Book value per share 13.21 13.43 13.03 11.99 12.03
Average common shares outstanding-basic 5,568 5,714 5,691 5,528 4,251
Average common shares outstanding-diluted 5,648 5,866 5,839 5,705 4,430
---------- ---------- ---------- ---------- ----------
SELECTED BALANCE SHEET DATA:
Total assets $1,245,071 $1,230,000 $1,149,483 $ 823,882 $ 736,384
Securities available for sale 210,644 204,618 104,736 96,921 105,988
Investment securities held to maturity 61,164 68,298 58,138 51,907 55,341
Loans held for sale 49,240 221,370 332,592 62,882 92,552
Loans receivable, net 780,874 623,270 535,732 515,749 410,843
Allowance for loan losses 7,191 7,345 6,505 5,198 5,464
Investment in real estate 44,956 27,599 24,796 22,912 9,928
Deposits 769,952 879,665 778,975 557,724 458,458
FHLB advances and other borrowings 362,372 221,552 240,855 153,805 174,337
Stockholders' equity 74,471 74,817 74,702 67,874 66,448
---------- ---------- ---------- ---------- ----------
PERFORMANCE RATIOS:
Return on average assets 0.77% 0.82% 0.83% 0.49% 0.99%
Return on average equity 13.13% 13.50% 10.00% 5.55% 13.32%
Net interest margin - taxable equivalent 3.20% 3.03% 4.11% 4.37% 4.20%
Equity to assets 5.98% 6.08% 6.50% 8.24% 9.02%
Efficiency ratio 74.24% 70.89% 73.36% 81.04% 70.60%
---------- ---------- ---------- ---------- ----------
ASSET QUALITY :
Total non-accrual loans $ 9,713 $ 6,692 $ 7,948 $ 7,866 $ 6,317
Potential problem loans 9,517 2,550 4,009 2,503 4,329
Total non-accrual and problem loans 19,230 9,242 11,957 10,369 10,646
Real estate owned, net 1,521 2,096 2,947 2,074 1,344
Total problem assets 20,751 11,338 14,904 12,443 11,990
Total problem assets/Total assets 1.67% 0.92% 1.30% 1.51% 1.63%
Total problem assets/Loans receivable, net (plus
allowance) 2.63% 1.80% 2.75% 2.39% 2.88%
Allowance for loan losses/Total problem assets 34.65% 64.78% 43.65% 41.77% 45.57%
Ratio of net charge-offs to average loans
receivable, net 0.15% 0.23% 0.25% 0.63% 0.06%
---------- ---------- ---------- ---------- ----------
CAPITAL RATIOS (TUCKER FEDERAL BANK):
Leverage capital 5.75% 5.77% 4.59% 6.72% 10.14%
Tier 1 capital 9.12% 9.97% 7.47% 10.14% 11.76%
Total capital 10.01% 10.99% 8.31% 11.08% 12.65%
---------- ---------- ---------- ---------- ----------
MARKET PRICE OF COMMON STOCK:
High $ 22 $ 27 1/4 $ 26 $ 17 1/2 $ 19
Low 13 3/16 17 15 13 1/2 11 3/4
</TABLE>
24
<PAGE> 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION AND
FINANCIAL CONDITION
OVERVIEW
Net income for the year ended March 31, 2000 totaled $9,532,000, or $1.69
per diluted share, compared with $10,222,000, or $1.74 per diluted share, for
the year ended March 31, 1999. The Company's 2000 year end results represent a
return on average assets of 0.77 percent and a return on average shareholders'
equity of 13.13 percent, compared to prior year ratios of 0.82 percent and 13.50
percent. The Company is engaged in four lines of business: community banking,
mortgage banking, mezzanine financing and real estate development and sales. Of
the total $9,532,000 in net income, the community banking operation contributed
$10,094,000; Eagle Real Estate Advisors, the real estate development and sales
business, contributed $3,639,000; Eagle Bancshares Capital Group, the mezzanine
financing unit, contributed $1,268,000; and Prime Eagle Mortgage Corporation,
the mortgage banking group, accounted for a loss of $4,427,000. Other operations
accounted for a loss of $1,042,000.
COMMUNITY BANKING
For the year ended March 31, 2000, the Company's community banking income
increased 86.06 percent to $10,094,000, compared with $5,425,000 in the same
period a year ago. Return on segment assets for the year ended March 31, 2000
was 0.86 percent compared to 0.46 percent for the same period last year. The
Company continued to build its Atlanta franchise in 2000 by improving the
earnings of its community banking segment. These efforts were focused on
expanding the loan portfolio and capitalizing on the efficiencies of automation.
In August 1999, management began a significant expense reduction program
including examining staffing levels throughout the Community Bank. The benefits
of the expense reduction program were realized during the third and fourth
quarters of the year by significant improvement in the Community Bank's
efficiency ratio. The efficiency ratio for the year ended March 31, 2000
improved to 62.08 percent compared to 74.39 percent for the same period last
year.
The improvement over the prior year is primarily attributable to the
increase in net interest income. Net interest income increased 9.44 percent to
$35,045,000 for the year ended March 31, 2000 from $32,021,000 for the same
period last year. The yield on earning assets for the year ended March 31, 2000
was 8.90 percent compared to 7.74 percent for the prior year. The cost of funds
was 4.82 percent for the year ended March 31, 2000 compared to 5.22 percent for
the prior year. The spread improved for the year ended March 31, 2000 to 4.08
percent compared to 2.52 percent for the prior year.
REAL ESTATE DEVELOPMENT AND SALES
For the year ended March 31, 2000, Eagle Real Estate Advisors generated
income of $3,639,000, compared with $1,856,000 in the same period a year ago. In
the year ended March 31, 2000 gains on the sale of investment in real estate
were $7,135,000 versus $3,389,000 for the same period a year ago.
Investments in real estate increased 62.89 percent to $44,956,000 at March
31, 2000, from $27,599,000 at March 31, 1999. During fiscal year 2000 lot sales
numbered 327 compared to 221 lot sales during the same period last year. See
"Investment in Real Estate" for descriptions of real estate projects and their
status at March 31, 2000.
MEZZANINE FINANCING
For the year ended March 31, 2000, Eagle Bancshares Capital Group generated
income of $1,268,000 compared with $1,931,000 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 $14,970,000 million in the
year ended March 31, 2000 and generated $48,430,000 million of new loans for the
Bank.
MORTGAGE BANKING
For the year ended March 31, 2000, the Company's mortgage banking
activities resulted in losses of $4,427,000, compared with income of $1,197,000,
in the same period a year ago.
25
<PAGE> 26
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 year declined 53.26 percent to $642,547,000 compared to loan
closings of $1,374,603,000 during the year ended March 31, 1999. 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. Additionally, the margin
on mortgage loans declined to 86 basis points from 100 basis points during the
prior year.
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. The Company is evaluating various
alternatives to improve profitability including, among others, continued
rightsizing, the possible sale or discontinuing operations.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED MARCH 31, 2000 AND MARCH 31,
1999
NET INCOME
Eagle Bancshares financial results for fiscal 2000 decreased due to a
decrease in non-interest income resulting primarily from a decrease in mortgage
production fees. The Company's net income decreased by $690,000 or 6.75 percent
to $9,532,000 in fiscal 2000 from $10,222,000 in fiscal 1999. Net income per
average common share assuming dilution decreased to $1.69 compared to $1.74 in
fiscal 1999.
NET INTEREST INCOME
Net interest income increased by $1,158,000 or 3.41 percent to $35,123,000
in fiscal 2000 from $33,965,000 in fiscal 1999. This increase resulted primarily
from a decrease in the Company's cost of funds. The Bank's net interest spread
(the difference between the yield earned on interest earning assets and the cost
of interest bearing liabilities) increased during the year to 299 basis points
from 269 basis points in the prior year. The primary reason for the increase was
due to the decrease in the cost of interest bearing liabilities. The yield on
interest earning assets decreased to 7.89 percent from 7.96 percent while the
cost of interest bearing liabilities decreased to 4.90 percent compared to 5.27
percent in the prior year.
Interest income received on loans decreased $7,132,000 or 9.37 percent to
$68,996,000 in fiscal 2000 from $76,128,000 in fiscal 1999. The decrease was
primarily attributable to a decrease in the Company's loans held for sale
portfolio. While originations of loans held for sale decreased, the yield on the
loan portfolio increased to 8.26 percent for the year compared to 8.21 percent
in the prior year. Interest received on mortgage-backed securities increased
$3,251,000 or 55.14 percent to $9,147,000 in fiscal 2000 from $5,896,000 in
fiscal 1999. This increase is due to growth in the mortgage-backed securities
portfolio during the year. The yield on mortgaged-backed securities decreased 11
basis points to 6.56 percent from 6.67 percent in the prior year. Interest
received on securities and other interest earning assets increased $950,000 or
10.90 percent to $9,669,000 in fiscal 2000 from $8,719,000 in fiscal 1999.
During fiscal 2000 and 1999, the yield on securities and other interest earning
assets remained relatively stable at 7.06 percent and 7.09 percent,
respectively.
Interest expense decreased $4,089,000 or 7.20 percent to $52,689,000 in
fiscal 2000 from $56,778,000 in fiscal 1999. This is primarily the result of a
decrease in deposit balances coupled with a decline in the cost of funds.
Interest expense on deposits decreased $6,349,000 or 15.13 percent to
$35,618,000 in fiscal 2000 from $41,967,000 in fiscal 1999. The cost of deposits
decreased 46 basis points to 4.78 percent during the year from 5.24 percent in
the prior year. Interest expense on FHLB advances and other borrowings increased
$1,458,000 or 11.11 percent to $14,582,000 in fiscal 2000 from $13,124,000 in
fiscal 1999. During the year, the Bank's cost of FHLB advances and other
borrowings decreased 26 basis points to 4.85 percent from 5.11 percent in the
prior year. The Bank utilizes short term FHLB advances to fund primarily
construction loans and loans held for sale. In addition, the Company issued
$28,750,000 of trust preferred securities during the second quarter of fiscal
1999. Interest expense related to these securities increased $802,000 or 47.54
percent to $2,489,000 in fiscal 2000, from $1,687,000 in fiscal 1999.
PROVISION FOR LOAN LOSSES
The Company decreased its provision for loan losses $1,281,000 or 58.73
percent to $900,000 in fiscal 2000 from $2,181,000 in fiscal 1999. Total
non-performing and potential problem assets increased to $20,751,000 at March
31, 2000 compared to $11,338,000 at March 31, 1999. Total problem assets, which
include all non-performing and classified assets, increased to 1.67 percent of
total assets at March 31, 2000, from 0.92 percent
26
<PAGE> 27
of total assets at March 31, 1999. Management continually evaluates the inherent
risks in the Company's existing loan portfolio and the level of loan loss
allowance. See "Credit Risk Management and Allowance for Loan Losses."
NON-INTEREST INCOME
Non-interest income decreased by $2,886,000 or 11.33 percent to $22,592,000
for fiscal 2000 from $25,478,000 for fiscal 1999. Mortgage production fees were
the largest component of non-interest income and such fees decreased $7,838,000
or 52.68 percent to $7,041,000 compared to $14,879,000 in fiscal 1999. The
volume of loans sold in the secondary market decreased to $814,677,000 during
2000 compared to $1,485,825,000 during 1999. The dollar amount of loans sold
fluctuates based on the demand for mortgages in the Company's market, which is
affected by job creations, interest rates and general economic conditions. The
margin earned on loans sold has declined since fiscal year 1998 partially due to
increased production generated by the Bank's wholesale mortgage area. In
addition, the margin received on loan sales fluctuates due to changes in the
general interest rate and the competitive environment. The following table shows
mortgage production fees, the dollar amount of loans sold in the secondary
market and the margin earned on those loans for the periods indicated:
SUMMARY OF MORTGAGE PRODUCTION
<TABLE>
<CAPTION>
Year ended March 31,
(dollars in thousands) 2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Fees $ 7,041 $ 14,879 $ 8,752
Dollar volume sold $ 814,677 $1,485,825 $ 729,764
Margin earned 0.86% 1.00% 1.20%
</TABLE>
The Company evaluates the cost of servicing and premiums offered when
deciding whether to retain or sell servicing rights. In fiscal 2000, 1999, and
1998, the Company sold the majority of its loans with servicing released and the
largest component of mortgage production fees was service release premiums.
In addition, income generated from Eagle Real Estate Advisors increased
$4,171,000 or 102.21 percent to $8,252,000 in fiscal 2000 from $4,081,000 during
1999. This increase was due to increased gains recorded on the sale of
investments in real estate amounting to $7,135,000 and real estate commissions
of $1,117,000 compared to gains of $3,389,000 and commissions of $692,000 in
fiscal 1999. The primary reason for the increase was due to an increase in lot
sales. During fiscal 2000, 327 residential lots were sold in the Company's real
estate projects compared to 221 in the prior period. In fiscal 2000, $1,268,000
is attributable to the sale of the Company's Barnes & Noble Store.
Service charges increased $428,000 or 19.95 percent to $2,573,000 in fiscal
2000 compared to $2,145,000 in fiscal 1999. The Bank has introduced new deposit
products designed to increase fees received from service charges and manage the
collection of fees related to overdrafts.
During fiscal 2000, the Bank sold its Towne Lake Branch in Cherokee County.
The sale of the Towne Lake deposits and branch location generated a gain of
$673,000.
NON-INTEREST EXPENSE
Non-interest expense increased $706,000 or 1.68 percent to $42,848,000 in
fiscal 2000 from $42,142,000 in fiscal 1999. The Company's efficiency ratio was
74.24 percent for fiscal 2000, compared to 70.89 percent for fiscal 1999. In
general, the increase in non-interest expense is primarily attributable to an
increase in occupancy expense and professional services.
Salaries and employee benefits decreased $695,000 or 3.02 percent to
$22,303,000 in fiscal 2000 compared to $22,998,000 in fiscal 1999. This decrease
is due to continuing programs to improve efficiency resulting in reductions in
force of 112 positions. Occupancy expense increased $822,000 or 16.43 percent to
$5,825,000 in fiscal 2000 compared to $5,003,000 in fiscal 1999. Marketing
expense decreased $229,000 or 10.82 percent to $1,887,000 in fiscal 2000
compared to $2,116,000 in fiscal 1999. Professional fees increased $999,000 or
68.06 percent to $2,066,000 in fiscal 2000 from $1,267,000 for fiscal 1999. As a
result of the decrease in deposits coupled with a decrease in the premium rate
charged, federal insurance premiums decreased $148,000 or 25.74 percent to
$427,000 in fiscal 2000 from $575,000 in fiscal 1999.
27
<PAGE> 28
Miscellaneous expenses decreased $191,000 or 2.46 percent to $7,573,000 in
fiscal 2000 compared to $7,764,000 in fiscal 1999.
INCOME TAX EXPENSE
The Company's effective tax rate for fiscal 2000 was 31.75 percent compared
to 32.39 percent in the prior year.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED MARCH 31, 1999 AND MARCH 31,
1998
NET INCOME
Eagle Bancshares financial results for fiscal 1999 increased due to an
increase in net interest income resulting from growth in average earning assets
and an increase in non-interest income. The Company's net income increased by
$3,012,000 or 41.78 percent to $10,222,000 in fiscal 1999 from $7,210,000 in
fiscal 1998. Net income per average common share assuming dilution increased to
$1.74 compared to $1.23 in fiscal 1998.
NET INTEREST INCOME
Net interest income increased by $2,072,000 or 6.50 percent to $33,965,000
in fiscal 1999 from $31,893,000 in fiscal 1998. This increase resulted primarily
from growth in interest earning assets through loan originations. The Bank's net
interest spread (the difference between the yield earned on interest earning
assets and the cost of interest bearing liabilities) decreased during the year
to 269 basis points from 387 basis points in the prior year. The primary reason
for the decrease was due to the decrease in the yield on interest earning
assets. The yield on interest earning assets decreased to 7.96 percent while the
cost of interest bearing liabilities remained relatively constant at 5.27
Percent compared to 5.29 percent in the prior year. The Company's interest
bearing assets tend to reprice more quickly than its interest bearing
liabilities causing pressure on the net interest margin in falling rate
environments.
Interest income received on loans increased $15,504,000 or 25.57 percent to
$76,128,000 in fiscal 1999 from $60,624,000 in fiscal 1998. The increase was
primarily attributable to growth in loans through originations of residential
mortgage loans in the Company's loans held for sale portfolio. While loan
originations increased, the yield on the loan portfolio decreased to 8.21
percent for the year compared to 9.63 percent in the prior year. Interest
received on mortgage-backed securities increased $864,000 or 17.17 percent to
$5,896,000 in fiscal 1999 from $5,032,000 in fiscal 1998. This increase is
primarily due to growth in the mortgage-backed securities portfolio during the
year. Interest received on securities and other interest earning assets
increased $2,475,000 or 39.64 percent to $8,719,000 in fiscal 1999 from
$6,244,000 in fiscal 1998.
Interest expense increased $16,771,000 or 41.92 percent to $56,778,000 in
fiscal 1999 from $40,007,000 in fiscal 1998. This is primarily the result of
growth in deposits. Interest expense on deposits increased $12,201,000 or 40.99
percent to $41,967,000 in fiscal 1999 from $29,766,000 in fiscal 1998. The cost
of deposits increased 7 basis points to 5.24 percent during the year from 5.17
percent in the prior year. Interest expense on FHLB advances and other
borrowings also increased $2,883,000 or 28.15 percent to $13,124,000 in fiscal
1999 from $10,241,000 in fiscal 1998. During the year, the Bank's cost of FHLB
advances and other borrowings decreased 54 basis points to 5.11 percent from
5.65 percent in the prior year. The Bank utilizes short term FHLB advances to
fund primarily construction loans and loans held for sale. In addition, the
Company issued $28,750,000 of trust preferred securities during the second
quarter of fiscal 1999. Interest expense related to these securities was
$1,687,000 in fiscal 1999, a cost of 8.79 percent.
PROVISION FOR LOAN LOSSES
The Company decreased its provision for loan losses $420,000 or 16.15
percent to $2,181,000 in fiscal 1999 from $2,601,000 in fiscal 1998. This
decrease is attributable to a decline in the Company's ratio of problem assets
to total assets during the year. Total non-performing and potential problem
assets decreased to $11,338,000 at March 31, 1999 compared to $14,904,000 at
March 31, 1998. Total problem assets, which include all non-performing and
classified assets, decreased to 0.92 percent of total assets at March 31, 1999,
from 1.30 percent of total assets at March 31, 1998. Management continually
evaluates the inherent risks in the Company's existing loan portfolio and the
level of existing loan loss allowances.
28
<PAGE> 29
NON-INTEREST INCOME
Non-interest income increased by $9,129,000 or 55.84 percent to $25,478,000
for fiscal 1999 from $16,349,000 for fiscal 1998. Mortgage production fees are
the largest component of non-interest income and such fees increased $6,127,000
or 70.01 percent to $14,879,000 compared to $8,752,000 in fiscal 1998. The
volume of loans sold in the secondary market increased to $1,485,825,000 during
1999 compared to $729,764,000 in fiscal 1998.
In addition, income generated from Eagle Real Estate Advisors increased
$1,411,000 or 52.85 percent. This increase was due to increased gains recorded
on the sale of investments in real estate amounting to $3,389,000 and real
estate commissions of $692,000. During fiscal 1999, 221 residential lots were
sold in the Company's real estate projects compared to 184 in the prior period.
Service charges at the Bank remained stable at $2,145,000 in fiscal 1999
compared to $2,103,000 in fiscal year 1998.
NON-INTEREST EXPENSE
Non-interest expense increased $6,751,000 or 19.08 percent to $42,142,000
in fiscal 1999 from $35,391,000 in fiscal 1998. The Company's efficiency ratio
was 70.89 percent for fiscal 1999, compared to 73.36 percent for fiscal 1998. In
general, the increase in all categories of non-interest expense is attributable
to the higher operating costs incurred by the Company's rapid growth.
Salaries and employee benefits increased $3,841,000 or 20.05 percent to
$22,998,000 in fiscal 1999 compared to $19,157,000 in fiscal 1998. This increase
is due to the addition of employees in branches and loan production offices to
support the Company's growth. Occupancy expense increased $356,000 or 7.66
percent to $5,003,000 in fiscal 1999 compared to $4,647,000 in fiscal 1998.
Marketing expense increased $1,184,000 or 127.04 percent to $2,116,000 in fiscal
1999 compared to $932,000 in fiscal 1998. The increase in marketing expense is
primarily attributable to a multimedia advertising campaign launched in April
1998. Professional fees decreased $187,000 or 12.86 percent to $1,267,000 in
fiscal 2000 from $1,454,000 in fiscal 1998. As a result of the increase in
deposits, federal insurance premiums increased $224,000 or 63.82 percent to
$575,000 in fiscal 1999 from $351,000 in fiscal 1998.
Miscellaneous expenses increased $1,074,000 or 16.05 percent to $7,764,000
in fiscal 1999 compared to $6,690,000 in fiscal 1998. This increase is primarily
due to increases in telephone and communications.
INCOME TAX EXPENSE
The Company's effective tax rate for fiscal 1999 was 32.39 percent compared
to 29.66 percent in the prior year. This increase is primarily a result of the
Company's federal statutory tax rate increasing to 35% in fiscal 1999 from 34%
in fiscal 1998, due to increased earnings.
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 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 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
29
<PAGE> 30
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 $978,000 or 2.52 percent, and decrease approximately
$3,017,000 or 7.77 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 March 31, 2000, estimates a $18,811,000
or 20.07 percent decrease in market value. The Company estimates a like decrease
in rates would increase market value $1,398,000 or 1.49 percent. These changes
in market value represent less than 5.0 percent of the total carrying value of
total assets at year-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 could also
create significant risk to net interest income.
30
<PAGE> 31
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 fiscal years ended
March 31, 2000, 1999 and 1998.
AVERAGE BALANCE SHEET
<TABLE>
<CAPTION>
Year ended March 31, 2000 1999 1998
AVERAGE YIELD/ Average Yield/ Average Yield/
(dollars in thousands) BALANCE INTEREST COST Balance Interest Cost Balance Interest Cost
---------- -------- ------ ---------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans receivable(1) $ 697,664 $ 60,070 8.61% $ 572,610 $ 53,287 9.31% $519,393 $ 53,328 10.27%
Loans held for sale 137,349 8,926 6.50% 354,495 22,841 6.44% 110,196 7,296 6.62%
Mortgage-backed securities 139,470 9,147 6.56% 88,363 5,896 6.67% 68,794 5,032 7.31%
FHLB stock 11,871 909 7.66% 10,592 794 7.50% 9,053 674 7.44%
Taxable investments(2) 66,898 4,309 6.44% 50,418 3,218 6.38% 32,997 2,250 6.82%
Tax-exempt investment
securities(2) 66,150 5,002 7.56% 69,999 5,330 7.61% 44,835 3,636 8.11%
Interest earning deposits and
federal funds sold 2,502 183 7.31% 3,644 204 5.60% 6,152 312 5.07%
---------- -------- ------ ---------- -------- ------ -------- -------- ------
Total interest earning assets 1,121,904 88,546 7.89% 1,150,121 91,570 7.96% 791,420 72,528 9.16%
Non-interest earning assets 108,977 95,136 74,818
---------- ---------- --------
Total assets 1,230,881 1,245,257 866,238
========== ========== ========
Liabilities and Equity:
Interest-bearing deposits 108,413 3,476 3.21% 104,754 3,608 3.44% 65,746 1,721 2.62%
Savings 35,042 607 1.73% 37,884 912 2.41% 42,441 1,053 2.48%
Money markets 81,753 3,150 3.85% 69,863 2,772 3.97% 30,717 1,033 3.36%
Certificates of deposit 520,165 28,385 5.46% 588,246 34,675 5.89% 436,727 25,959 5.94%
---------- -------- ------ ---------- -------- ------ -------- -------- ------
Total deposits 745,373 35,618 4.78% 800,747 41,967 5.24% 575,631 29,766 5.17%
Advances and other borrowings 300,856 14,582 4.85% 256,771 13,124 5.11% 181,260 10,241 5.65%
Trust preferred securities 28,750 2,489 8.66% 19,186 1,687 8.79% -- -- --
---------- -------- ------ ---------- -------- ------ -------- -------- ------
Total interest bearing
liabilities 1,074,979 52,689 4.90% 1,076,704 56,778 5.27% 756,891 40,007 5.29%
Non-interest bearing deposits 53,084 47,795 25,696
Non-interest bearing liabilities 30,226 45,049 11,574
Stockholders' equity 72,592 75,709 72,077
---------- ---------- --------
Total liabilities and equity 1,230,881 1,245,257 866,238
========== ========== ========
Net interest/rate spread 35,857 2.99% 34,792 2.69% 32,521 3.87%
Taxable-equivalent adjustment (734) (827) (628)
-------- -------- --------
Net interest income, actual $ 35,123 $ 33,965 $ 31,893
Net interest earning assets/net
interest margin $ 46,925 3.20% $ 73,417 3.03% $ 34,529 4.11%
---------- ------ ---------- ------ -------- ------
Interest earning assets as a
percentage of interest bearing
liabilities 104.37% 106.82% 104.56%
---------- ---------- --------
</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 as available for sale is
computed using historical amortized cost balances.
31
<PAGE> 32
The rate volume analysis below explains the components of net interest income
for the periods indicated. For each category of interest earning assets and
interest bearing liabilities, information is provided on changes attributed to
(1) changes in rate (difference in rate x prior period volume), (2) changes in
volume (difference in volume x prior period rate), and (3) changes in
rate-volume (difference in rate x difference in volume). The net change
attributable to both volume and rate, which cannot be segregated, has been
allocated proportionately to change due to volume and change due to rate. See
"Asset Liability Management-Interest Rate Risk."
RATE/VOLUME ANALYSIS
<TABLE>
<CAPTION>
(dollars in thousands) 2000 COMPARED TO 1999 1999 Compared to 1998
INCREASE (DECREASE) DUE TO RATE VOLUME TOTAL Rate Volume Total
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest income on interest earning assets:
Loans receivable $ (4,231) $ 11,014 $ 6,783 $ (5,228) $ 5,187 $ (41)
Loans held for sale 211 (14,126) (13,915) (204) 15,749 15,545
Mortgage-backed securities (99) 3,350 3,251 (470) 1,334 864
FHLB stock 17 98 115 5 115 120
Taxable investment securities 31 1,060 1,091 (154) 1,122 968
Tax-exempt investment securities(1) (35) (293) (328) (237) 1,931 1,694
Interest earnings deposits 53 (74) (21) 30 (138) (108)
-------- -------- -------- -------- -------- --------
Total (4,053) 1,029 (3,024) (6,258) 25,300 19,042
======== ======== ======== ======== ======== ========
Interest expense on interest bearing liabilities:
Deposits (3,541) (2,808) (6,349) 408 11,793 12,201
FHLB advances and other borrowings (694) 2,152 1,458 (1,055) 3,938 2,883
Trust preferred securities (25) 827 802 -- 1,687 1,687
-------- -------- -------- -------- -------- --------
Total (4,260) 171 (4,089) (647) 17,418 16,771
-------- -------- -------- -------- -------- --------
Net change in net interest income $ 207 $ 858 $ 1,065 $ (5,611) $ 7,882 $ 2,271
======== ======== ======== ======== ======== ========
</TABLE>
(1) Reflects taxable-equivalent adjustments using the statutory federal and
state income tax rate of 39% in adjusting interest on tax-exempt investment
securities to a taxable equivalent basis.
The Bank's ALCO has primary responsibility for managing the Company's
exposure to interest rate risk. The ALCO meets weekly to establish interest
rates on loans and deposits and review interest rate sensitivity and liquidity
positions.
Interest rate sensitivity is a measure of exposure to changes in net
interest income due to changes in market interest rates. The excess of interest
earning assets over interest bearing liabilities repricing or maturing in a
given period of time is commonly referred to as "Gap." A positive Gap indicates
an excess of interest rate sensitive assets over interest rate sensitive
liabilities; a negative Gap indicates an excess of interest rate sensitive
liabilities over interest rate sensitive assets. The Company's Gap position is
evaluated and reviewed continuously. The Company has a positive one year Gap of
10.66 percent as of March 31, 2000.
32
<PAGE> 33
The following table presents the Company's interest sensitivity gap between
interest earning assets and interest bearing liabilities at March 31, 2000. The
gap analysis is prepared using either actual repricing intervals or maturity
dates when stated. Equity securities having no stated maturity are reported
after five years. Decay rates for demand deposits are determined over time using
various rates as appropriate for the type of account. In addition, loans held
for sale are included in less than three months since it is management's intent
to sell them within that time.
GAP ANALYSIS
<TABLE>
<CAPTION>
March 31, 2000 More than More than More than
Less than 3 months 1 year 3 years to After 5
(dollars in thousands) 3 months to 1 year to 3 years 5 years Years Total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets re-pricing:
Loans receivable $ 366,928 $ 110,241 $ 99,504 $ 57,864 $ 152,928 $ 787,465
Loans held for sale 49,240 -- -- -- -- 49,240
Investment securities (1) 46,299 74,061 71,828 45,194 46,478 283,860
FHLB Stock -- -- -- -- 14,665 14,665
Interest bearing deposits 3,339 -- -- -- -- 3,339
---------- ---------- ---------- ---------- ---------- ----------
Total interest earning assets 465,806 184,302 171,332 103,058 214,071 1,138,569
---------- ---------- ---------- ---------- ---------- ----------
Interest bearing liabilities re-pricing:
Deposits 144,874 271,323 142,909 77,553 80,208 716,867
Borrowings 67,630 33,527 27,814 108,401 125,000 362,372
---------- ---------- ---------- ---------- ---------- ----------
Total interest bearing liabilities 212,504 304,850 170,723 185,954 205,208 1,079,239
---------- ---------- ---------- ---------- ---------- ----------
Interest rate sensitivity Gap 253,302 (120,548) 609 (82,896) 8,863 $ 59,330
Cumulative interest rate sensitivity Gap $ 253,302 $ 132,754 $ 133,363 $ 50,467 $ 59,330
---------- ---------- ---------- ---------- ----------
Cumulative interest rate sensitivity Gap
as a percentage of total assets 20.34% 10.66% 10.71% 4.05% 4.77%
========== ========== ========== ========== ==========
</TABLE>
(1) Excludes the effect of SFAS No. 115, "Accounting for Certain Investment Debt
and Equity Securities", consisting of net unrealized losses in the amount of
$12,052,000.
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
The following table sets forth certain information at March 31, 2000,
regarding the dollar amount of loans maturing in the Bank's net loan portfolio
based on their contractual terms to maturity. Demand loans having no stated
schedule of repayment and no stated maturity, and overdrafts are reported as due
in one year.
<TABLE>
<CAPTION>
March 31, 2000 One Year One Year to After
(dollars in thousands) or Less Five Years Five Years Total
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Real estate mortgage loans:
Fixed rates $ 7,126 $ 25,085 $ 280,911 $ 313,122
Adjustable rates 16,942 28,480 128,517 173,939
Real estate construction, net:
Fixed rates 10,278 5,274 523 16,075
Adjustable rates 167,473 47,230 330 215,033
Commercial loans:
Fixed rates 2,820 7,641 541 11,002
Adjustable rates 16,643 591 1,263 18,497
Mezzanine, net - Fixed rates 4,215 5,152 3,583 12,950
Leases - Fixed rates 733 69 -- 802
Consumer and others - Fixed rates 3,410 16,041 6,594 26,045
---------- ---------- ---------- ----------
Total $ 229,640 $ 135,563 $ 422,262 $ 787,465
---------- ---------- ---------- ----------
Less:
Deferred costs and other unearned income 600
Allowance for loan losses (7,191)
----------
Total $ 780,874
==========
</TABLE>
Note: The above information was compiled based upon contractual terms to
maturity. The actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
33
<PAGE> 34
The next table sets forth the dollar amount of all loans due after one year
from March 31, 2000, which have predetermined interest rates and have floating
or adjustable rates.
<TABLE>
<CAPTION>
March 31, 2000 Predetermined Floating or
(dollars in thousands) Rates Adjustable Rate
------------- ---------------
<S> <C> <C>
Real estate-mortgage $305,996 $156,997
Real estate-construction, net 5,797 47,560
Commercial 8,182 1,854
Mezzanine, net 8,735 --
Leases 69 --
Consumer and other 22,635 --
-------- --------
Total $351,414 $206,411
======== ========
</TABLE>
Note: The above information was compiled based upon contractual terms to
maturity. The actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
LOAN PORTFOLIO AND CONCENTRATION
Since 1996, the Company's loan portfolio has grown 90.07 percent. For the
fiscal year ending March 31, 2000, loans receivable, net, grew $157,604,000 or
25.29 percent to $780,874,000 at March 31, 2000 compared to $623,270,000 at
March 31, 1999. The majority of loan growth was in construction loans,
acquisition and development loans, residential first mortgages, home equity
loans, commercial 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 $17,835,000 as of March 31, 2000,
in fourteen mezzanine financing loans. These loan categories increased
$137,251,000 or 29.74 percent to $598,681,000 at March 31, 2000 from
$461,430,000 at March 31, 1999. At March 31,2000, these loans represented 64.69
percent of the loan portfolio versus 62.58 percent at March 31, 1999. The
mortgage-banking group originates primarily loans held for sale. Loans held for
sale decreased $172,130,000 or 77.76 percent to $49,240,000 at March 31, 2000
from $221,370,000 at March 31, 1999. Both groups contribute to the Company's
portfolio of residential mortgage loans. During fiscal 2000, the Company grew
the portfolio of residential mortgage loans primarily through originations of
single-family mortgage loans. Residential first mortgages are generally believed
to be a conservative investment. The Company's high concentration of residential
first mortgages tends to reduce its level of delinquencies and problem loans.
In 1993, the Company began a leasing operation, which purchased leases from
approved lessors. Each credit was underwritten based upon the lessee's cash
flow, business prospects and ability to make rental payments. In December 1995,
the Company began to experience delinquencies in the portfolio. As a result of
delinquencies primarily with two relationships, the Bank discontinued purchasing
leases during fiscal 1997 and let the existing portfolio repay. Leases at March
31, 2000, were $802,000 or 0.09 percent of total loans compared to $3,354,000 at
March 31, 1999.
34
<PAGE> 35
LOAN PORTFOLIO MIX
<TABLE>
<CAPTION>
At March 31, 2000 1999 1998
(dollars in thousands) AMOUNT % Amount % Amount %
---------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Real Estate loans
Construction $ 236,003 25.50% $ 206,790 28.04% $ 197,811 31.90%
Acquisition & development 128,186 13.85% 71,995 9.76% 41,992 6.77%
Real estate mortgage loans
Non-residential 80,982 8.75% 58,562 7.94% 71,515 11.53%
Residential 325,948 35.22% 272,553 36.97% 192,994 31.12%
Home equity and second
mortgages 80,131 8.66% 61,699 8.37% 46,218 7.45%
---------- ------ ---------- ------ ---------- ------
Total real estate loans 851,250 91.98% 671,599 91.08% 550,530 88.77%
---------- ------ ---------- ------ ---------- ------
Other loans:
Commercial 29,499 3.19% 22,896 3.11% 15,681 2.53%
Mezzanine 17,835 1.93% 8,225 1.12% 10,746 1.73%
Leases 802 0.09% 3,354 0.45% 9,463 1.53%
Consumer and other 26,045 2.81% 31,263 4.24% 33,755 5.44%
---------- ------ ---------- ------ ---------- ------
Total other loans 74,181 8.02% 65,738 8.92% 69,645 11.23%
---------- ------ ---------- ------ ---------- ------
Total gross loans receivable 925,431 100.00% 737,337 100.00% 620,175 100.00%
---------- ------ ---------- ------ ---------- ------
Less:
Undisbursed portion of loans
In process (137,966) (106,704) (77,302)
Deferred costs (fees) and
other unearned income 600 (18) (636)
Allowance for loan losses (7,191) (7,345) (6,505)
---------- ---------- ----------
Loans receivable, net $ 780,874 $ 623,270 $ 535,732
========== ========== ==========
<CAPTION>
1997 1996
Amount % Amount %
---------- ------ ---------- ------
<S> <C> <C> <C> <C>
Real Estate loans
Construction $ 205,086 33.98% $ 185,337 36.91%
Acquisition & development 35,408 5.87% 30,419 6.06%
Real estate mortgage loans
Non-residential 65,748 10.89% 51,020 10.16%
Residential 194,821 32.28% 157,996 31.47%
Home equity and second
mortgages 43,752 7.25% 17,212 3.43%
---------- ------ ---------- ------
Total real estate loans 544,815 90.27% 441,984 88.03%
---------- ------ ---------- ------
Other loans:
Commercial 15,160 2.51% 12,117 2.41%
Mezzanine -- -- -- --
Leases 19,939 3.30% 38,032 7.57%
Consumer and other 23,648 3.92% 9,957 1.99%
---------- ------ ---------- ------
Total other loans 58,747 9.73% 60,106 11.97%
---------- ------ ---------- ------
Total gross loans receivable 603,562 100.00% 502,090 100.00%
---------- ------ ---------- ------
Less:
Undisbursed portion of loans
In process (80,801) (84,268)
Deferred costs (fees) and
other unearned income (1,814) (1,515)
Allowance for loan losses (5,198) (5,464)
---------- ----------
Loans receivable, net $ 515,749 $ 410,843
========== ==========
</TABLE>
In accordance with the Company's business plan, the volume of construction
and acquisition and development lending has increased over the previous five
years. The Company understands the risks inherent in interim construction
financing and has designed an efficient organization to properly mitigate those
risks through strict underwriting and close monitoring of the process. The
Company's underwriting criteria consider, among other things, the equity
investment of the borrower, the track record and financial condition of the
builder, the demand for the type of house to be constructed including a
marketing survey of inventory levels of unsold homes by price range and
location, the feasibility of house plans and costs, the growth prospects for the
economy and the impact of changes in interest rates. The Company has a
multi-state construction inspection and appraisal network. Its staff closely
monitors construction progress and draws throughout the process. In addition, no
single customer accounted for more than 2.0 percent of the Company's loans in
fiscal 2000, 1999 or 1998.
The following table exhibits the geographic location of the Company's real
estate construction and acquisition and development loans.
REAL ESTATE CONSTRUCTION LOANS BY TYPE AND LOCATION
<TABLE>
<CAPTION>
At March 31, 2000 Acquisition & % of Total
(dollars in thousands) Construction (1) Development (1) Total by Location
---------------- --------------- -------- -----------
<S> <C> <C> <C> <C>
Atlanta, GA $ 74,324 $ 63,829 $138,153 59.78%
Jacksonville, FL 16,657 20,670 37,327 16.16%
Charlotte, NC 12,480 2,138 14,618 6.32%
Augusta, GA 13,611 929 14,540 6.29%
Savannah, GA 7,771 6,229 14,000 6.06%
Chattanooga, TN 11,686 285 11,971 5.18%
Warner Robins, GA 499 -- 499 0.21%
-------- -------- -------- --------
Total by type $137,028 $ 94,080 $231,108 100.00%
======== ======== ======== ========
</TABLE>
(1) Represents the current balance not including amounts committed to
be disbursed.
PROVISION FOR LOAN LOSSES AND RISK ELEMENTS
The Bank has an Asset Classification Committee (the "ACC"), comprised of
management, which reports on asset quality at least quarterly to the Board of
Directors. Management and the ACC consider numerous factors in identifying
potential problem loans including, among other factors, the estimated value of
the underlying collateral, loan concentrations, specific loan problems, economic
conditions that may affect the borrower's ability to repay, past payment
experience, general market conditions and such other factors as management or
the ACC believes should be considered under existing circumstances. In addition,
various regulatory agencies, as an
35
<PAGE> 36
integral part of the examination process, periodically review the allowance for
loan losses. Such agencies may require the Bank to recognize additions to the
allowance based on judgments with regard to information available to them at the
time of the examination. Management is not aware of any loans classified for
regulatory purposes as loss, doubtful or substandard that (i) have not been
disclosed and (ii) either (a) represent or result from trends or uncertainties,
which management reasonably expects will materially impact future operating
results, liquidity, or capital resources, or (b) represent material credits in
which management is aware of any information which causes management to have
serious doubts as to the ability of such borrower to comply with the loan
repayment terms.
Management believes that the Bank's credit review and loan monitoring
processes are adequate to evaluate and monitor these risks and that the Bank's
allowance for probable loan losses is adequate in relation to the composition of
its loan portfolio. Although the Company's non-accrual loans as a percentage of
loans receivable, net was 1.24 percent at March 31, 2000, there is a risk that
the quality of the Company's loan portfolio could decline. The rapid growth in
loans and the concentration of construction loans, present risks that the
quality of the loan portfolio could decline. Construction and acquisition and
development loans comprise the largest component of the Company's loan
portfolio. Construction loans frequently involve greater risk than residential
mortgage loans principally due to (i) the potential risks associated with
securing permanent financing, and (ii) general market conditions in the housing
industry. Management and the ACC, along with regulators, closely monitor total
exposure to each market area and price range in determining the appropriate
concentrations of construction loans. The Office of Thrift Supervision (the
"OTS") also monitors and comments on the adequacy of the Bank's provision for
loan losses in conducting its examinations of the Bank.
NON-PERFORMING ASSETS
At March 31, 2000, the Company had non-accrual loans of $9,713,000 compared
to $6,692,000 at March 31, 1999. Interest income not recognized on non-accrual
loans amounted to $280,000 during 2000, and $386,000 during 1999. At March 31,
2000, $8,113,000 or 83.53 percent of the non-accrual loans were mortgage loans
secured by residential real estate. This compares to $5,094,000 or 76.12 percent
at March 31, 1999.
In addition, at March 31, 2000, the ACC identified $9,517,000 as potential
problem loans compared to $2,550,000 of potential problem loans at March 31,
1999. At March 31,2000, the Bank had four borrowers located in the metro Atlanta
area with loans classified as potential problems totaling $7,909,000 or 83.10
percent of the potential problems. These loans were all current at March 31,
2000. One borrower had one construction loan, two lot loans and three
acquisition and development loans totaling $1,597,000. These loans were
identified as potential problems due to past delinquencies and concerns
regarding the borrower's cash flows. In June 2000, all the loans relating to the
borrower were paid off.
Three non-residential real estate loans to one borrower totaled $2,253,000.
These loans were identified as potential problems due to concerns regarding the
borrower's cash flows. Subsequent to year end the borrower filed for protection
under a Chapter 11-reorganization of the Bankruptcy code. One borrower has a
non-residential real estate loan in the amount of $793,000. 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.
In addition, one borrower has two commercial loans totaling $3,266,000 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 decreased by $575,000 or 27.43 percent to $1,521,000 at
March 31, 2000, from $2,096,000 at March 31, 1999. Total problem assets as a
percent of total assets increased to 1.67 percent at March 31, 2000 from 0.92
percent at March 31, 1999.
36
<PAGE> 37
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.
NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS
<TABLE>
<CAPTION>
at March 31,
(dollars in thousands) 2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Non-accrual loans
Residential real estate-construction $ 590 $ 497 $ 1,127 $ 1,692 $ 1,658
Residential real estate-mortgage 8,113 5,094 4,026 2,934 569
Commercial real estate -- 282 -- 93 7
Commercial 238 37 24 427 662
Commercial leases 234 311 2,054 2,508 3,421
Consumer and other 538 471 717 212 --
-------- -------- -------- -------- --------
Total non-accrual 9,713 6,692 7,948 7,866 6,317
======== ======== ======== ======== ========
Potential problem loans 9,517 2,550 4,009 2,503 4,329
-------- -------- -------- -------- --------
Total non-accrual and problem loans 19,230 9,242 11,957 10,369 10,646
======== ======== ======== ======== ========
Real estate owned, net 1,521 2,096 2,947 2,074 1,344
-------- -------- -------- -------- --------
Total problem assets $ 20,751 $ 11,338 $ 14,904 $ 12,443 $ 11,990
======== ======== ======== ======== ========
Total problem assets/Total assets 1.67% 0.92% 1.30% 1.51% 1.63%
-------- -------- -------- -------- --------
Total problem assets/Loans receivable, net
plus allowance 2.63% 1.80% 2.75% 2.39% 2.88%
======== ======== ======== ======== ========
Allowance for loan losses/Total problem assets 34.65% 64.78% 43.65% 41.77% 45.57%
======== ======== ======== ======== ========
</TABLE>
CONCENTRATIONS BY GEOGRAPHIC LOCATION
The following table reflects concentrations of non-accrual, potential
problem loans and real estate owned by geographic location.
NON-ACCRUAL, POTENTIAL PROBLEM LOANS AND REAL ESTATE OWNED BY LOCATION
<TABLE>
<CAPTION>
at March 31, 2000 Potential Real Estate % of Total
(dollars in thousands) Non-accrual Problem Owned(1) Total By Location
----------- --------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Atlanta, GA $ 5,123 $ 9,157 $ 258 $ 14,538 69.68%
Augusta, GA 554 -- 244 798 3.82%
Hinesville, GA -- -- 230 230 1.10%
Savannah, GA 434 -- -- 434 2.08%
Jacksonville, FL 314 -- -- 314 1.51%
Charlotte, NC 1,003 -- -- 1,003 4.81%
Aiken, SC -- -- 66 66 0.32%
All other locations 2,285 360 835 3,480 16.68%
-------- -------- -------- -------- --------
Total problem assets $ 9,713 $ 9,517 $ 1,633 $ 20,863 100.00%
======== ======== ======== ======== ========
</TABLE>
(1) Does not include allowances of $112,707; real estate owned, net equals
$1,520,714.
37
<PAGE> 38
The following table reflects concentrations of non-accrual, potential
problem loans and real estate owned by geographic location and by type.
NON-ACCRUAL, POTENTIAL PROBLEM LOANS AND REAL ESTATE OWNED BY LOCATION AND TYPE
<TABLE>
<CAPTION>
Residential
at March 31, 2000 ------------------- Comm'l % of Total
(dollars in thousands) Constr Mtgs R-Estate Comm'l Leases Installment Total by Location
-------- -------- -------- -------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-accrual:
Atlanta, GA $ 165 $ 3,948 -- $ 238 $ 234 $ 538 $ 5,123 24.55%
Augusta, GA 89 465 -- -- -- -- 554 2.65%
Savannah, GA -- 434 -- -- -- -- 434 2.08%
Jacksonville, FL 134 180 -- -- -- -- 314 1.51%
Charlotte, NC 202 801 -- -- -- -- 1,003 4.81%
All other locations -- 2,285 -- -- -- -- 2,285 10.95%
-------- -------- -------- -------- -------- -------- -------- --------
Total non-accrual 590 8,113 -- 238 234 538 9,713 46.55%
======== ======== ======== ======== ======== ======== ======== ========
Potential problem loans:
Atlanta, GA 2,005 74 3,448 3,630 -- -- 9,157 43.89%
All other locations 360 -- -- -- -- -- 360 1.73%
-------- -------- -------- -------- -------- -------- -------- --------
Total potential problem loans 2,365 74 3,448 3,630 -- -- 9,517 45.62%
======== ======== ======== ======== ======== ======== ======== ========
Real estate owned
Atlanta, GA 51 112 95 -- -- -- 258 1.24%
Augusta, GA -- 244 -- -- -- -- 244 1.17%
Hinesville, GA 230 -- -- -- -- -- 230 1.10%
Aiken, SC 66 -- -- -- -- -- 66 0.32%
All other locations 74 761 -- -- -- -- 835 4.00%
-------- -------- -------- -------- -------- -------- -------- --------
Total real estate owned(1) 421 1,117 95 -- -- -- 1,633 7.83%
======== ======== ======== ======== ======== ======== ======== ========
Total problem assets by type $ 3,376 $ 9,304 $ 3,543 $ 3,868 $ 234 $ 538 $ 20,863 100.00%
======== ======== ======== ======== ======== ======== ======== ========
% of total problem assets by type 16.18% 44.60% 16.98% 18.54% 1.12% 2.58% 100.00% --
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
(1) Does not include allowances of $112,707; real estate owned, net equals
$1,520,714.
LOAN IMPAIRMENT
Impaired loans exclude residential mortgages, construction loans secured by
first mortgage liens, and groups of small homogeneous loans and amounted to
$298,000 at March 31, 2000, compared to $581,000 at March 31, 1999. 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. Specific allowances
for loan losses are allocated for impaired loans based on a comparison of the
recorded carrying value of the loan to either the present value of the loan's
expected cash flow, the loan's estimated market price, or the estimated fair
value of the underlying collateral. At March 31, 2000 and 1999, the valuation
allowance related to these impaired loans was $133,000 and $214,000,
respectively, which is included in the allowance for loan losses as presented in
the tables on the following page. At March 31, 2000 and 1999, all impaired loans
had a related loan loss allowance. For the years ended March 31, 2000 and 1999,
the Company charged-off $316,000 and $450,000, respectively, against the loan
loss allowance related to impaired loans. For the years ended March 31, 2000 and
1999, the average recorded investment in impaired loans was $302,000 and
$1,375,000, respectively.
ALLOWANCE FOR LOAN LOSSES
The Company set aside $900,000 and $2,181,000, respectively, of additional
allowances for probable loan losses during the years ended March 31, 2000 and
1999. At March 31, 2000, the allowance represented 1.03 percent of average loans
receivable, net, outstanding during the period, a decrease as compared to 1.28
percent at March 31, 1999. Net charge-offs in fiscal 2000 were $1,054,000 versus
$1,341,000 in fiscal 1999 and $1,294,000 in 1998. In fiscal 2000, net
charge-offs represented 0.15 percent of average loans receivable, net versus
0.23 percent for fiscal 1999 and 0.25 percent in fiscal 1998. Loan loss
allowance totaled $7,191,000 and $7,345,000, respectively, at March 31, 2000 and
1999. Loan loss allowance to total problem assets decreased to 34.65 percent at
March 31, 2000 compared to 64.78 percent at March 31, 1999. An allocation of the
allowance for loan losses has been made according to the respective amounts
deemed necessary to provide for the probability of incurred losses within the
various loan categories. Although other relevant factors are considered,
38
<PAGE> 39
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 borrower's 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 loan
losses.
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
March 31,
(dollars in thousands) 2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Allowance for loan losses,
Beginning of year $ 7,345 $ 6,505 $ 5,198 $ 5,464 $ 4,704
Charge-offs:
Real estate-construction 28 12 88 86 44
Real estate-mortgage 491 552 747 160 326
Commercial 308 27 78 413 180
Commercial leases 30 466 -- 2,406 --
Consumer and other 940 764 635 59 42
-------- -------- -------- -------- --------
Total charge-offs 1,797 1,821 1,548 3,124 592
Recoveries 743 480 254 206 352
-------- -------- -------- -------- --------
Net charge-offs 1,054 1,341 1,294 2,918 240
Provision for loan losses 900 2,181 2,601 2,652 1,000
-------- -------- -------- -------- --------
Allowance for loan losses, end of year 7,191 7,345 6,505 5,198 5,464
-------- -------- -------- -------- --------
Average loans receivable, net, outstanding for
the period $697,664 $572,610 $519,393 $462,073 $401,923
-------- -------- -------- -------- --------
Ratio of net charge-offs to average
loans receivable, net, outstanding 0.15% 0.23% 0.25% 0.63% 0.06%
-------- -------- -------- -------- --------
Allowance to average loans receivable, net
outstanding 1.03% 1.28% 1.25% 1.12% 1.36%
-------- -------- -------- -------- --------
</TABLE>
39
<PAGE> 40
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
March 31, 2000 1999 1998 1997 1996
DOLLAR Dollar Dollar Dollar Dollar
(dollars in thousands) AMOUNT %(1) Amount %(1) Amount %(1) Amount %(1) Amount %(1)
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at end of
period applicable to:
Real Estate -
First mortgage loans $ 2,423 43.97% $ 1,706 44.91% $ 1,517 42.65% $ 791 43.17% $ 693 41.63%
Second mortgage loans 1,027 8.66% 980 8.37% 882 7.45% 713 7.25% 512 3.43%
Construction 1,637 39.35% 1,895 37.80% 1,754 38.67% 1,127 39.85% 1,128 42.97%
Commercial 535 3.19% 550 3.11% 203 2.53% 121 2.51% 221 2.41%
Mezzanine 194 1.93% 123 1.12% 161 1.73% -- -- --
Commercial leases 53 0.09% 315 0.45% 591 1.53% 1,724 3.30% 2,493 7.57%
Consumer and other 799 2.81% 1,086 4.24% 821 5.44% 220 3.92% 133 1.99%
Unallocated 523 -- 690 -- 576 -- 502 -- 284 --
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Total $ 7,191 100.00% $ 7,345 100.00% $ 6,505 100.00% $ 5,198 100.00% $ 5,464 100.00%
========== ====== ========== ====== ========== ====== ========== ====== ========== ======
</TABLE>
(1) Loan balance in each category expressed as a percentage of gross loans
receivable.
INVESTMENT SECURITIES
During fiscal 2000, investment securities decreased 0.41 percent over the
prior year. At March 31, 2000 , the Company had total investments in securities
of $271,808,000 versus $272,916,000 at March 31, 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 investment securities portfolio at March 31, 2000 was comprised of
$61,164,000 of investment securities held to maturity at amortized cost. The
Company has the ability and it is management's intent to hold these securities
to maturity for investment purposes. In addition, the Company had an estimated
market value of $210,644,000 of securities available for sale at March 31, 2000.
Securities available for sale had a net unrealized loss as shown in the
Company's stockholders' equity section of $7,477,000 and $283,000 at March 31,
2000 and 1999, respectively.
Included in other securities at March 31, 2000 and 1999 are $0 and
$766,305, respectively, of investment grade residential mortgage pass through
certificates issued by the RTC. These securities are rated Aa2 by Moody's and AA
by Standard & Poors. The Company holds no investment securities by any single
issuer, other than mortgage-backed securities issued by an agency of the United
States government, which equaled or exceeded 10 percent of stockholders' equity
at March 31, 2000, 1999 or 1998.
40
<PAGE> 41
The following table reflects securities held in the Company's securities
portfolio for the periods indicated:
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
as of March 31,
(dollars in thousands) 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Investment Securities Held to Maturity:
US Treasury and US Government Agencies $ 11,406 $ 18,539 $ 36,188
Mortgage-backed securities 39,325 32,866 5,010
Corporate bonds 4,958 7,433 7,431
Other debt securities 5,475 9,460 9,509
-------- -------- --------
Total 61,164 68,298 58,138
======== ======== ========
Securities Available for Sale:
US Treasury and US Government Agencies 50,219 35,308 16,068
Mortgage-backed securities 106,778 95,539 70,626
Corporate bonds -- 2,027 2,037
Equity securities-preferred stock 11,144 12,279 12,210
Other debt securities 42,503 59,465 3,795
-------- -------- --------
Total 210,644 204,618 104,736
======== ======== ========
Total Investment Securities:
US Treasury and US Government Agencies 61,625 53,847 52,256
Mortgage-backed securities 146,103 128,405 75,636
Corporate bonds 4,958 9,460 9,468
Equity securities-preferred stock 11,144 12,279 12,210
Other debt securities 47,978 68,925 13,304
-------- -------- --------
Total $271,808 $272,916 $162,874
======== ======== ========
</TABLE>
41
<PAGE> 42
The following table reflects the stated contractual maturities, amortized
cost or estimated value and weighted average yield of securities held in the
Bank's portfolio, for the periods indicated:
MATURITIES OF INVESTMENT SECURITIES AND AVERAGE YIELDS
<TABLE>
<CAPTION>
Investment Securities Securities
Held to Maturity Available for Sale
March 31, 2000 March 31, 2000
-------------------------- ----------------------------
Amortized Weighted Estimated Weighted
(dollars in thousands) Cost Average Yield Fair Value Average Yield(1)
-------- ------------- ---------- ----------------
<S> <C> <C> <C> <C>
US Treasury and US Government Agencies:
Within 1 year $ 4,000 5.98% $ -- --
1-5 years 7,406 6.42% 24,261 6.42%
5-10 years -- -- 25,958 6.41%
More than 10 years -- -- -- --
-------- -------- -------- --------
Total 11,406 6.27% 50,219 6.42%
======== ======== ======== ========
Mortgage-backed securities:
Government National Mortgage Association
Within 1 year -- -- -- --
1 to 5 years -- -- -- --
5 to 10 years -- -- 9,808 7.32%
More than 10 years 25,198 6.67% 58,469 6.67%
-------- -------- -------- --------
Total 25,198 6.67% 68,277 6.76%
======== ======== ======== ========
Federal National Mortgage Assn.
Within 1 year -- -- 240 6.48%
1 to 5 years -- -- -- --
5 to 10 years -- -- 821 8.44%
More than 10 years 383 5.81% 24,522 6.01%
-------- -------- -------- --------
Total 383 5.81% 25,583 6.09%
======== ======== ======== ========
Federal Home Loan Mortgage Corp.
Within 1 year -- -- -- --
1 to 5 years -- -- 134 8.50%
5 to 10 years -- -- 1,254 8.50%
More than 10 years 13,744 6.48% 11,530 6.00%
-------- -------- -------- --------
Total 13,744 6.48% 12,918 6.27%
======== ======== ======== ========
Other:
Within 1 year -- -- -- --
1 to 5 years -- -- -- --
5 to 10 years -- -- 78 6.72%
More than 10 years 5,475 6.52% 42,425 5.97%
-------- -------- -------- --------
Total 5,475 6.52% 42,503 5.97%
======== ======== ======== ========
Corporate Debt:
Within 1 year 2,499 7.41% -- --
1 to 5 years 500 10.88% -- --
5 to 10 years 1,959 7.63% -- --
More than 10 years -- -- -- --
-------- -------- -------- --------
Total 4,958 7.84% -- --
======== ======== ======== ========
Preferred Stock:
Within 1 year -- -- -- --
1 to 5 years -- -- -- --
5 to 10 years -- -- -- --
More than 10 years -- -- 11,144 7.06%
-------- -------- -------- --------
Total -- -- 11,144 7.06%
======== ======== ======== ========
Total Securities:
Within 1 year 6,499 6.53% 240 6.48%
1 to 5 years 7,906 6.70% 24,395 6.43%
5 to 10 years 1,959 7.63% 37,919 6.76%
More than 10 years 44,800 6.58% 148,090 6.34%
-------- -------- -------- --------
Total $ 61,164 6.62% $210,644 6.43%
======== ======== ======== ========
</TABLE>
(1) Weighted average yield computed using amortized cost.
42
<PAGE> 43
DEPOSITS
Deposits are the Company's primary funding source. Total deposits decreased
by $109,713,000 or 12.47 percent to $769,952,000 at March 31, 2000, from
$879,665,000 at March 31, 1999. The decrease in deposits was a conscious
strategy by management to eliminate certain high cost deposits. The Bank uses
traditional marketing methods to attract new customers. Its deposit network is
serviced from its fourteen branches and Internet banking site,
justrightbank.com. Management believes that the majority of new accounts are a
result of the continued trend in consolidation of financial institutions in the
metropolitan Atlanta market and the desire of customers to deal with an
independent, local financial institution.
Demand deposits decreased by $40,646,000 or 14.00 percent to $249,712,000
at March 31, 2000 compared to $290,358,000 at March 31, 1999. Interest-bearing
checking decreased by $24,414,000 or 19.98 percent to $97,769,000 at March 31,
2000 from $122,183,000 at March 31, 1999. Money market accounts decreased by
$19,986,000 or 23.37 percent to $65,530,000 at March 31, 2000 from $85,516,000
at March 31, 1999. Demand deposits including checking accounts, savings accounts
and money market accounts were 32.43 percent of the Company's deposits at March
31, 2000. Certificates of deposit decreased by $69,067,000 or 11.72 percent to
$520,240,000 at March 31, 2000 compared to $589,307,000 at March 31, 1999.
Certificate of deposits $100,000 and greater were 3.96 percent of total deposits
at March 31, 2000, and 16.21 percent at March 31, 1999. In addition, at March
31, 2000, 12.27 percent of certificates of deposit with balances $100,000 and
more have maturities of over 12 months. The weighted average interest rate on
deposits during fiscal 2000 decreased 46 basis points to 4.78 percent from 5.24
percent.
The following table sets forth information on the maturity distribution of
certificates of deposit of $100,000 or more.
MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSIT OF $100,000 OR MORE
<TABLE>
<CAPTION>
Certificates of
Deposit
(dollars in thousands) March 31, 2000
---------------
<S> <C>
3 months or less $ 11,506
Over 3 months through 6 months 4,562
Over 6 months through 12 months 10,655
Over 12 months 3,736
--------
Total outstanding $ 30,459
========
</TABLE>
The following table exhibits the Company's composition of deposits for the
years indicated.
DEPOSIT MIX
<TABLE>
<CAPTION>
at March 31, 2000 1999
(dollars in thousands) AMOUNT % OF TOTAL Amount % of Total
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Demand deposits
Non-interest bearing deposits $ 53,085 6.89% $ 45,737 5.20%
1.50% - 5.94% Interest bearing deposits 97,769 12.70% 122,183 13.89%
1.50% - 2.05% Savings 33,328 4.33% 36,922 4.20%
2.00% - 4.25% Money markets 65,530 8.51% 85,516 9.72%
Certificate accounts less than $100,000
1.50% - 5.99% 288,915 37.52% 312,606 35.54%
6.00% - 7.99% 200,580 26.05% 133,770 15.21%
8.00% - 10.00% 286 0.04% 318 0.03%
Certificate accounts $100,000 and greater
1.50% - 10.20% 30,459 3.96% 142,613 16.21%
-------- -------- -------- --------
Total $769,952 100.00% $879,665 100.00%
======== ======== ======== ========
</TABLE>
43
<PAGE> 44
The following table exhibits the average amount of deposits and weighted
average rate by the categories indicated.
AVERAGE DEPOSIT BALANCES AND RATES
<TABLE>
<CAPTION>
2000 1999 1998
---------------------- ----------------------- -----------------------
AVERAGE AVERAGE Average Average Average Average
(dollars in thousands) RATE AMOUNT Rate Amount Rate Amount
------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Demand deposits:
Interest bearing deposits 3.21% $ 108,413 3.44% $ 104,754 2.62% $ 65,746
Savings 1.73% 35,042 2.41% 37,884 2.48% 42,441
Money markets 3.85% 81,753 3.97% 69,863 3.36% 30,717
Certificates of deposits 5.46% 520,165 5.89% 588,246 5.94% 436,727
------ ---------- ------ ---------- ------ ----------
Total 4.78% $ 745,373 5.24% $ 800,747 5.17% $ 575,631
====== ========== ====== ========== ====== ==========
</TABLE>
BORROWINGS
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 March 31,
2000, advances were $292,500,000 an increase from $157,500,000 at March 31,
1999. The weighted average interest rate on these borrowings was 5.65 percent
and 5.38 percent at March 31, 2000 and 1999, respectively. In addition, EREA
utilizes borrowings from third parties to fund real estate activities.
The following table reflects the amount outstanding, maximum month end and
average balances of short-term borrowings outstanding as well as the weighted
average rate at the end of the year:
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
(dollars in thousands) at March 31, Maximum Average
------------ ---------- ----------
<S> <C> <C> <C>
2000:
BALANCES OUTSTANDING $ 93,983 $ 104,000 $ 62,443
WEIGHTED AVERAGE RATE 5.92% 5.89% 5.82%
---------- ---------- ----------
1999:
Balances outstanding $ 8,316 $ 127,550 $ 89,756
Weighted average rate 6.10% 6.17% 5.53%
---------- ---------- ----------
1998:
Balances outstanding $ 125,335 $ 164,320 $ 131,526
Weighted average rate 5.95% 5.78% 5.46%
---------- ---------- ----------
</TABLE>
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 assets 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. See Note 16 of Notes to Consolidated
Financial Statements.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars, without considering changes in the relative purchasing power
of money, due to inflation. Unlike most industrial companies, virtually all of
the assets and liabilities of a financial institution are monetary in nature. As
a result, interest rates have a more significant impact on a financial
institution's performance than the effect of general levels of inflation.
Interest rates do not necessarily move in the same direction or at the same
magnitude as the prices of goods and services. In the current interest rate
environment, liquidity and the maturity structure of the Bank's assets and
liabilities are critical to the maintenance of acceptable performance levels.
44
<PAGE> 45
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. In recent years, the Company has
also experienced significant growth in assets. The Company's other primary
funding source was 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
March 31, 2000, the Company's liquidity ratio was 5.92.
At March 31, 2000, the Company had commitments to originate fixed rate
mortgage loans of approximately $34,417,000 and commitments to originate
variable rate mortgage loans of approximately $4,875,000 with terms of up to
thirty years and interest rates ranging from 6.875 percent to 9.50 percent. The
Company had commitments to sell mortgage loans of approximately $52,220,000 at
March 31, 2000. The Company is committed to loan funds on unused variable rate
lines of credit approximately $57,839,000 at March 31, 2000. In addition, the
Company has issued approximately $5,355,000 in letters of credit at March 31,
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 $732,056,000 or
53.26 percent to $642,547,000 for fiscal 2000 compared to $1,374,603,000 for
fiscal 1999. 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 fiscal 2000, cash provided by operating activities was $161,292,000
compared to $95,869,000 in fiscal 1999. The primary reason for this fluctuation
is timing differences from the sale of loans held for sale versus origination of
loans held for sale. In fiscal 2000, the Company originated $642,547,000 of
loans held for sale and sold $814,677,000 of loans held for sale. This resulted
in a $172,130,000 source of cash. This compares to fiscal 1999, when the Company
originated $1,374,603,000 of loans held for sale and sold $1,485,825,000 of
loans held for sale, resulting in a $111,222,000 source of cash.
CASH FLOW FROM INVESTING ACTIVITIES
In fiscal 2000, the Company used $187,445,000 of cash flows from investing
activities compared to $200,654,000 for the prior year. During fiscal 2000, the
primary use of cash was loan originations, net of repayments in the amount of
$152,916,000, compared to $86,515,000 for the prior year. The Company purchased
investment securities held to maturity of $9,884,000 and $47,619,000 of
securities available for sale during fiscal 2000. For fiscal 1999,
comparatively, the Company purchased $29,959,000 of investment securities held
to maturity and $145,330,000 of securities available for sale. The Company
generated cash flows from calls and maturities of investment securities held to
maturity of $10,107,000. In addition, sales of securities available for sale
provided cash of $1,807,000, while calls and maturities of securities available
for sale provided cash of $2,000,000. This compares to calls and maturities of
investment securities held to maturity of $17,653,000 during the prior year.
During fiscal 1999, sales of securities available for sale provided cash of
$9,441,000, while calls and maturities provided cash of $10,479,000. Principal
repayments on investment securities held to maturity were $7,082,000 and
principal repayments on securities available for sale were $26,315,000 during
fiscal 2000. Comparatively, principal repayments on investment securities held
to maturity were $2,157,000 and principal repayments on securities available for
sale were $24,040,000 during fiscal 1999. During fiscal 2000, the Company
invested additional used funds of $50,373,000 in real estate projects and
received proceeds of $33,798,000. During fiscal 1999, the Company invested cash
of $14,551,000 in real estate projects and received $11,177,000 in proceeds.
45
<PAGE> 46
CASH FLOW FROM FINANCING ACTIVITIES
Cash provided from financing activities during fiscal 2000, was $26,886,000
compared to $97,942,000 during fiscal 1999. FHLB advances provided a significant
source of funds during both fiscal 2000 and fiscal 1999. The decline in the
Company's deposits was the most significant factor. Deposits decreased by
$109,713,000 during fiscal 2000 as compared to increasing $100,690,000 during
the prior year. The decrease in deposits was a conscious strategy to eliminate
certain high cost deposits. The Company borrowed $812,407,000 from the FHLB and
repaid $671,587,000 in fiscal 2000. This compares to borrowings of $842,461,000
and repayments of $861,764,000 during fiscal 1999. During fiscal 1999, the
Company raised $28,750,000 of additional capital through a public offering of
trust preferred securities. Additionally, in fiscal 1999, the Company issued
$2,000,000 in ESOP debt to acquire common stock. In fiscal 2000, pursuant to the
Company's stock repurchase plan, the Company repurchased 47,250 shares of common
stock with a cost of $811,000 to be held as treasury stock. In fiscal 1999, the
Company repurchased 252,750 shares of common stock with a cost of $4,599,000.
The Company paid cash dividends to its shareholders of $3,559,000 and $3,619,000
in fiscal 2000 and fiscal 1999, respectively.
CAPITAL
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") established five capital categories for financial institutions. The
OTS places each federally chartered thrift institution into one of five
categories: well capitalized, adequately capitalized, under capitalized,
significantly under capitalized, and critically under capitalized. These
classifications are based on the Bank's level of risk based capital, leverage
ratios and its supervisory ratings. FDICIA defines "well capitalized" banks as
entities having a total risk based capital ratio of 10 percent or higher, a tier
one risk based capital ratio of 6 percent or higher and a leveraged ratio of 5
percent or higher. At March 31, 2000, the Bank was classified as "well
capitalized" under the OTS regulations that implement the FDICIA provisions
described above. The Bank's risk-based capital ratio at March 31, 2000 was 10.01
percent or .01 percent above the minimum required to be considered "well
capitalized."
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. The Bank paid cash dividends to the Company of $6,500,000, $0, and
$3,410,000 during the years ended March 31, 2000, 1999 and 1998, respectively.
During fiscal 1998, the Bank paid a dividend in the form of loans to the Company
in the amount of $10,525,000. The Company contributed capital of $12,000,000 to
the Bank during fiscal 1999.
REGULATORY CAPITAL
<TABLE>
<CAPTION>
AT MARCH 31, 2000 ACTUAL REQUIREMENT EXCESS
($ IN 000'S) AMOUNT % AMOUNT % AMOUNT %
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
RISK-BASED RATIOS:
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%
-------- -------- -------- -------- -------- --------
<CAPTION>
At March 31, 1999 Actual Requirement Excess
($ in 000's) Amount % Amount % Amount %
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
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%
-------- -------- -------- -------- -------- --------
</TABLE>
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 and
services. In addition, the Company, through Team 2000, addressed Year 2000
issues related to liquidity requirements and potential credit quality concerns.
The
46
<PAGE> 47
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.
During fiscal 2000, the Company incurred approximately $250,000 in expenses
related to the Year 2000 project and has incurred approximately $750,000 since
the project's inception. 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.
RECENT ACCOUNTING PRONOUNCEMENT
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 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and the Report of Independent Public
Accountants are incorporated herein by reference.
SELECTED QUARTERLY FINANCIAL DATA
Year ended March 31,
(in thousands except per share data, unaudited)
<TABLE>
<CAPTION>
2000 1999
4TH QTR. 3RD QTR. 2ND QTR. 1ST QTR. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 22,857 $ 22,190 $ 21,439 $ 21,326 $ 22,593 $ 25,406 $ 21,310 $ 21,434
Interest expense 13,593 13,003 12,922 13,171 14,699 15,232 13,441 13,406
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income 9,264 9,187 8,517 8,155 7,894 10,174 7,869 8,028
Provision for loan losses 300 200 100 300 300 627 627 627
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income after
provision for loan losses 8,964 8,987 8,417 7,855 7,594 9,547 7,242 7,401
Noninterest income 5,625 4,854 4,604 7,509 7,330 5,052 6,681 6,415
Noninterest expenses 10,757 10,472 9,928 11,691 11,523 11,036 10,192 9,391
-------- -------- -------- -------- -------- -------- -------- --------
Income before income taxes 3,832 3,369 3,093 3,673 3,401 3,563 3,731 4,425
======== ======== ======== ======== ======== ======== ======== ========
Income tax expense 1,331 1,026 846 1,232 1,103 1,090 1,260 1,445
======== ======== ======== ======== ======== ======== ======== ========
Net income $ 2,501 $ 2,343 $ 2,247 $ 2,441 $ 2,298 $ 2,473 $ 2,471 $ 2,980
======== ======== ======== ======== ======== ======== ======== ========
Earnings per common share -
basic $ .45 $ .42 $ .40 $ .44 $ .41 $ .43 $ .43 $ .52
======== ======== ======== ======== ======== ======== ======== ========
Earnings per common share -
diluted $ .45 $ .42 $ .40 $ .43 $ .40 $ .42 $ .42 $ .50
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
47
<PAGE> 48
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning the Board of Directors and the Executive
Officers of the Company and the Bank, the information contained under the
section captioned "PROPOSAL 1-Election of Directors" in the Company's Proxy
Statement for the 2000 Annual Meeting of Stockholders (the "Proxy Statement") is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the section captioned "PROPOSAL 1-Election
of Directors-Compensation of Executive Officers" in the Proxy Statement for the
2000 Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the sections captioned "PROPOSAL 1-Election
of Directors" and "Ownership of Equity Securities", in the Proxy Statement for
the 2000 Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the sections captioned "PROPOSAL 1-Election
of Directors" and "Compensation of Executive Officers - Certain Transactions" in
the Proxy Statement for the 2000 Annual Meeting of Stockholders is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
A. Financial Statements
1. Report of Independent Public Accountants Arthur Andersen LLP
2. Eagle Bancshares, Inc. and Subsidiaries Consolidated
Statements of Financial Condition as of March 31, 2000, and
1999; Consolidated Statements of Income for the Years Ended
March 31, 2000, 1999 and 1998; Consolidated Statements of
Stockholders' Equity for the Years Ended March 31, 2000, 1999
and 1998; Consolidated Statements of Cash Flows for the Years
Ended March 31, 2000, 1999 and 1998 and Notes to Consolidated
Financial Statements.
B. FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted as the required information is either
inapplicable or included in the Notes to Consolidated Financial Statements.
<TABLE>
<S> <C> <C>
C. EXHIBITS
3.1(A) Restated Articles of Incorporation of the Company (Exhibit 3
to the Company's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1988.)
3.1(B) Articles of Amendment to Restated Articles of Incorporation of
the Company (Exhibit 3(a) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1991).
3.1(C) Articles of Amendment to Restated Articles of Incorporation of
the Company.
3.2 Bylaws of the Company, as amended (Exhibit 3(b) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1991).
4 Shareholder Protection Rights Agreement dated as of January
26,
</TABLE>
48
<PAGE> 49
<TABLE>
<S> <C>
1993 (Exhibit 1 to the Company's Current Report on Form 8-K
dated February 9, 1993).
10.1 Employment Agreement dated as of October 1, 1993, between
Tucker Federal Savings and Loan Association and Richard B.
Inman, Jr. (Exhibit 10(c) to the Company's Annual Report on
Form 10-K for the year ended March 31, 1995).*
10.2 Employment Agreement dated as of January 1, 1994, between
Tucker Federal Savings and Loan Association and Betty Petrides
(Exhibit 10(f) to the Company's Annual Report on Form 10-K for
the year ended March 31, 1995).*
10.3 Employment Agreement dated January 1, 1994, between Eagle
Service Corporation and Conrad J. Sechler, Jr. (Exhibit 10(g)
to the Company's Annual Report on Form 10-K for the year ended
March 31, 1995).*
10.4 Tucker Federal Savings and Loan Association Directors'
Retirement Plan (Exhibit 10(h) to the Company's Annual Report
on Form 10-K for the year ended March 31, 1995).*
10.5 Eagle Bancshares, Inc. 1994 Directors Stock Option Incentive
Plan (Exhibit 10(i) to the Company's Annual Report on Form
10-K for the year ended March 31, 1995).*
10.6 Agreement for Advances and Security Agreement with Blanket
Floating Lien dated as March 5, 1990 between Tucker Federal
Savings and Loan Association and the Federal Home Loan Bank of
Atlanta as amended as of September 7, 1995 (Exhibit 10.6 to
the Company's Form S-2).
11 Computation of per share earnings.
13.1 Eagle Bancshares, Inc. 2000 Consolidated Financial Statements.
21 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
27 Financial Data Schedule (For SEC use only)
* The referenced exhibit is a compensatory contract, plan or
arrangement.
</TABLE>
D. REPORTS ON FORM 8-K
None
49
<PAGE> 50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly issued this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
EAGLE BANCSHARES, INC.
June 29, 2000 By:/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 Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
June 29, 2000 By:/s/ Conrad J. Sechler, Jr.
-----------------------------------------
Conrad J. Sechler, Jr.
Chairman of the Board, and President
June 29, 2000 By:/s/ Walter C. Alford
-----------------------------------------
Walter C. Alford
Director
June 29, 2000 By:/s/ Richard J. Burrell
-----------------------------------------
Richard J. Burrell
Director
June 29, 2000 By:/s/ Richard B. Inman, Jr.
-----------------------------------------
Richard B. Inman, Jr.
Director, Secretary and Treasurer
June 29, 2000 By:/s/ Weldon A. Nash, Jr.
-----------------------------------------
Weldon A. Nash, Jr.
Director
June 29, 2000 By:/s/ George G. Thompson
-----------------------------------------
George G. Thompson
Director
June 29, 2000 By:/s/ William F. Waldrop
-----------------------------------------
William F. Waldrop
Director
50
<PAGE> 51
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- --------
<S> <C> <C>
3.1(A) Restated Articles of Incorporation of the Company (Exhibit 3
to the Company's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1988.)
3.1(B) Articles of Amendment to Restated Articles of Incorporation of
the Company (Exhibit 3(a) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1991).
3.1(C) Articles of Amendment to Restated Articles of Incorporation of
the Company.
3.2 Bylaws of the Company, as amended (Exhibit 3(b) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1991).
4 Shareholder Protection Rights Agreement dated as of January
26, 1993 (Exhibit 1 to the Company's Current Report on Form
8-K dated February 9, 1993).
10.1 Employment Agreement dated as of October 1, 1993, between
Tucker Federal Savings and Loan Association and Richard B.
Inman, Jr. (Exhibit 10(c) to the Company's Annual Report on
Form 10-K for the year ended March 31, 1995).*
10.2 Employment Agreement dated as of January 1, 1994, between
Tucker Federal Savings and Loan Association and Betty Petrides
(Exhibit 10(f) to the Company's Annual Report on Form 10-K for
the year ended March 31, 1995).*
10.3 Employment Agreement dated January 1, 1994, between Eagle
Service Corporation and Conrad J. Sechler, Jr. (Exhibit 10(g)
to the Company's Annual Report on Form 10-K for the year ended
March 31, 1995).*
10.4 Tucker Federal Savings and Loan Association Directors'
Retirement Plan (Exhibit 10(h) to the Company's Annual Report
on Form 10-K for the year ended March 31, 1995).*
10.5 Eagle Bancshares, Inc. 1994 Directors Stock Option Incentive
Plan (Exhibit 10(i) to the Company's Annual Report on Form
10-K for the year ended March 31, 1995).*
10.6 Agreement for Advances and Security Agreement with Blanket
Floating Lien dated as March 5, 1990 between Tucker Federal
Savings and Loan Association and the Federal Home Loan Bank of
Atlanta as amended as of September 7, 1995 (Exhibit 10.6 to
the Company's Form S-2).
11 Computation of per share earnings.
13.1 Eagle Bancshares, Inc. 2000 Consolidated Financial Statements.
21 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
27 Financial Data Schedule (For SEC use only)
* The referenced exhibit is a compensatory contract, plan or
arrangement.
</TABLE>
51
