<PAGE> 1
EXHIBIT 13.1
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Financial Statements
as of March 31, 2000, 1999, and 1998
Together With Auditors' Report
<PAGE> 2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Eagle Bancshares, Inc.:
We have audited the accompanying consolidated statements of financial condition
of EAGLE BANCSHARES, INC. (a Georgia corporation) AND SUBSIDIARIES as of March
31, 2000 and 1999 and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended March 31, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Eagle Bancshares,
Inc. and subsidiaries as of March 31, 2000 and 1999 and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 2000 in conformity with accounting principles generally accepted in
the United States.
Atlanta, Georgia
May 31, 2000
<PAGE> 3
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
2000 1999
----------- -----------
<S> <C> <C>
ASSETS:
Cash and amounts due from banks $ 28,572 $ 27,839
Accrued interest receivable 8,882 7,766
Securities available for sale (Notes 3 and 9) 210,644 204,618
Investment securities held to maturity (Notes 3 and 9) 61,164 68,298
Loans held for sale 49,240 221,370
Loans receivable, net (Notes 4 and 9) 780,874 623,270
Investments in real estate (Note 6) 44,956 27,599
Real estate acquired in settlement of loans, net 1,521 2,096
Stock in Federal Home Loan Bank, at cost 14,665 8,736
Premises and equipment, net (Note 5) 24,204 23,275
Deferred income taxes (Note 10) 5,468 4,059
Other assets 14,881 11,074
----------- -----------
Total assets $ 1,245,071 $ 1,230,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits (Note 8) $ 769,952 $ 879,665
Federal Home Loan Bank advances and other borrowings (Note 9) 362,372 221,552
Advance payments by borrowers for property taxes and insurance 1,076 2,356
Guaranteed preferred beneficial interests in debentures (trust preferred
securities) (Note 16) 28,750 28,750
Accrued expenses and other liabilities 8,450 22,860
----------- -----------
Total liabilities 1,170,600 1,155,183
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTES 3, 4, AND 21)
STOCKHOLDERS' EQUITY (NOTES 10, 11, 13, AND 15):
Common stock, $1 par value; 10,000,000 shares authorized, 6,238,935 and
6,124,064 shares issued at March 31, 2000 and 1999, respectively 6,239 6,124
Additional paid-in capital 39,518 38,206
Retained earnings 44,563 38,601
Accumulated other comprehensive income (Note 19) (7,477) (283)
Employee Stock Ownership Trust note payable (1,886) (1,978)
Unamortized restricted stock 0 (178)
Treasury stock, 601,800 and 554,550 shares at cost at March 31, 2000 and
1999, respectively (Note 18) (6,486) (5,675)
----------- -----------
Total stockholders' equity 74,471 74,817
----------- -----------
Total liabilities and stockholders' equity $ 1,245,071 $ 1,230,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
<PAGE> 4
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 2000, 1999, AND 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
INTEREST INCOME:
Interest on loans $68,996 $76,128 $60,624
Interest on mortgage-backed securities 9,147 5,896 5,032
Interest and dividends on securities and other interest-earning assets 9,669 8,719 6,244
------- ------- -------
Total interest income 87,812 90,743 71,900
------- ------- -------
INTEREST EXPENSE:
Interest on deposits (Note 8) 35,618 41,967 29,766
Interest on FHLB advances and other borrowings 14,582 13,124 10,241
Interest on long-term debt 2,489 1,687 0
------- ------- -------
Total interest expense 52,689 56,778 40,007
------- ------- -------
Net interest income 35,123 33,965 31,893
PROVISION FOR LOAN LOSSES (NOTE 4) 900 2,181 2,601
------- ------- -------
Net interest income after provision for loan losses 34,223 31,784 29,292
------- ------- -------
NONINTEREST INCOME:
Mortgage production fees 7,041 14,879 8,752
Gain on sales of investments in real estate 7,135 3,389 2,160
Real estate commissions, net 1,117 692 510
Rental income 165 693 773
Service charges 2,573 2,145 2,103
Gain (loss) on sales and calls of securities available for sale
(Note 3) 19 469 (82)
Gain on sale of branch 673 0 0
Miscellaneous 3,869 3,211 2,133
------- ------- -------
Total noninterest income 22,592 25,478 16,349
------- ------- -------
NONINTEREST EXPENSES:
Salaries and employee benefits (Note 11) 22,303 22,998 19,157
Net occupancy expense 5,825 5,003 4,647
Data processing expense 2,767 2,419 2,160
Federal insurance premiums 427 575 351
Marketing expense 1,887 2,116 932
Professional services 2,066 1,267 1,454
Miscellaneous 7,573 7,764 6,690
------- ------- -------
Total noninterest expenses 42,848 42,142 35,391
------- ------- -------
Income before income taxes 13,967 15,120 10,250
INCOME TAX EXPENSE (NOTE 10) 4,435 4,898 3,040
------- ------- -------
NET INCOME $ 9,532 $10,222 $ 7,210
======= ======= =======
EARNINGS PER COMMON SHARE--BASIC (NOTE 17) $ 1.71 $ 1.79 $ 1.27
======= ======= =======
EARNINGS PER COMMON SHARE--DILUTED (NOTE 17) $ 1.69 $ 1.74 $ 1.23
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
<PAGE> 5
Page 1 of 2
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2000, 1999, AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
---------------- PAID-IN RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME
------ ------ ------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1997 5,961 $5,961 $36,628 $28,236 $(1,025)
Comprehensive income:
Net income 0 0 0 7,210 0
Change in unrealized gains on securities, net of tax 0 0 0 0 1,863
Total comprehensive income
Cash dividends declared ($.60 per share) 0 0 0 (3,418) 0
Principal reduction of ESOP note payable 0 0 0 0 0
Issuance of restricted stock (20,000 shares) 20 20 335 0 0
Amortization of restricted stock 0 0 0 0 0
Stock options exercised (55,606 shares) 56 56 373 0 0
----- ------ ------- ------- -------
BALANCE, MARCH 31, 1998 6,037 6,037 37,336 32,028 838
Comprehensive income:
Net income 0 0 0 10,222 0
Change in unrealized losses on securities, net of tax 0 0 0 0 (1,121)
Total comprehensive income
Cash dividends declared ($.64 per share) 0 0 0 (3,649) 0
Principal reduction of ESOP note payable 0 0 0 0 0
ESOP note payable issued to acquire stock 0 0 0 0 0
Amortization of restricted stock 0 0 0 0 0
Stock options exercised (86,964 shares) 87 87 870 0 0
Purchase of treasury stock (252,750 shares) 0 0 0 0 0
----- ------ ------- ------- -------
BALANCE, MARCH 31, 1999 6,124 6,124 38,206 38,601 (283)
<CAPTION>
ESOP UNAMORTIZED TOTAL
NOTE RESTRICTED TREASURY STOCKHOLDERS'
PAYABLE STOCK STOCK EQUITY
------- ----------- -------- -------------
<S> <C> <C> <C> <C>
BALANCE, MARCH 31, 1997 $ (836) $ (14) $(1,076) $67,874
Comprehensive income:
Net income 0 0 0 7,210
Change in unrealized gains on securities, net of tax 0 0 0 1,863
-------
Total comprehensive income 9,073
Cash dividends declared ($.60 per share) 0 0 0 (3,418)
Principal reduction of ESOP note payable 671 0 0 671
Issuance of restricted stock (20,000 shares) 0 (355) 0 0
Amortization of restricted stock 0 73 0 73
Stock options exercised (55,606 shares) 0 0 0 429
-------- ----- ------- -------
BALANCE, MARCH 31, 1998 (165) (296) (1,076) 74,702
Comprehensive income:
Net income 0 0 0 10,222
Change in unrealized losses on securities, net of tax 0 0 0 (1,121)
-------
Total comprehensive income 9,101
Cash dividends declared ($.64 per share) 0 0 0 (3,649)
Principal reduction of ESOP note payable 187 0 0 187
ESOP note payable issued to acquire stock (2,000) 0 0 (2,000)
Amortization of restricted stock 0 118 0 118
Stock options exercised (86,964 shares) 0 0 0 957
Purchase of treasury stock (252,750 shares) 0 0 (4,599) (4,599)
-------- ----- ------- -------
BALANCE, MARCH 31, 1999 (1,978) (178) (5,675) 74,817
</TABLE>
<PAGE> 6
Page 2 of 2
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
---------------- PAID-IN RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Comprehensive income:
Net income 0 $ 0 $ 0 $ 9,532 $ 0
Change in unrealized losses on securities, net of tax 0 0 0 0 (7,194)
Total comprehensive income
Cash dividends declared ($.64 per share) 0 0 0 (3,570) 0
Principal reduction of ESOP note payable 0 0 0 0 0
Amortization of restricted stock 0 0 0 0 0
Retirement of restricted stock (13,333 shares) (13) (13) (224) 0 0
Issuance of common stock (63,643 shares) 64 64 936 0 0
Stock options exercised (64,561 shares) 64 64 600 0 0
Purchase of treasury stock (47,250 shares) 0 0 0 0 0
----- ------ ------- ------- -------
BALANCE, MARCH 31, 2000 6,239 $6,239 $39,518 $44,563 $(7,477)
===== ====== ======= ======= =======
<CAPTION>
ESOP UNAMORTIZED TOTAL
NOTE RESTRICTED TREASURY STOCKHOLDERS'
PAYABLE STOCK STOCK EQUITY
------- ----------- -------- -------------
<S> <C> <C> <C> <C>
Comprehensive income:
Net income $ 0 $ 0 $ 0 $ 9,532
Change in unrealized losses on securities, net of tax 0 0 0 (7,194)
-------
Total comprehensive income 2,338
Cash dividends declared ($.64 per share) 0 0 0 (3,570)
Principal reduction of ESOP note payable 92 0 0 92
Amortization of restricted stock 0 50 0 50
Retirement of restricted stock (13,333 shares) 0 128 0 (109)
Issuance of common stock (63,643 shares) 0 0 0 1,000
Stock options exercised (64,561 shares) 0 0 0 664
Purchase of treasury stock (47,250 shares) 0 0 (811) (811)
------- ----- ------- -------
BALANCE, MARCH 31, 2000 $(1,886) $ 0 $(6,486) $74,471
======= ===== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
<PAGE> 7
Page 1 of 2
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2000, 1999, AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
2000 1999 1998
--------- ----------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,532 $ 10,222 $ 7,210
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation, amortization, and accretion 2,331 1,980 747
Provision for loan losses 900 2,181 2,601
Provision for losses on real estate acquired in settlement
of loans 100 231 565
Amortization of restricted stock award 50 118 73
(Gain) loss on sales of real estate acquired in settlement
of loans (238) 40 10
Gain on sales of investments in real estate (7,135) (3,389) (2,160)
(Gain) loss on sales and calls of securities available for
sale (19) (469) 82
Gain on sales of loans 0 (24) (16)
Gain on sales of fixed assets (153) (164) (45)
Gain on sale of branch (673) 0 0
Deferred income tax expense (benefit) 2,992 582 (2,811)
Proceeds from sales of loans held for sale 814,677 1,485,825 729,764
Origination of loans held for sale (642,547) (1,374,603) (999,474)
Changes in assets and liabilities:
Increase in accrued interest receivable (1,116) (465) (1,829)
(Increase) decrease in other assets (2,928) 448 (2,572)
(Decrease) increase in accrued expenses and other
liabilities (14,481) (26,644) 6,262
--------- ----------- ---------
Net cash provided by (used in) operating
activities 161,292 95,869 (261,593)
--------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available for sale (47,619) (145,330) (27,865)
Proceeds from sales of securities available for sale 1,807 9,441 1,957
Purchases of investment securities held to maturity (9,884) (29,959) (37,184)
Principal payments received on securities available for sale 26,315 24,040 7,450
Principal payments received on investment securities held to
maturity 7,082 2,157 2,181
Proceeds from calls and maturities of securities available for
sale 2,000 10,479 13,523
Proceeds from calls and maturities of investment securities held
to maturity 10,107 17,653 28,800
Loan originations, net of repayments (152,916) (86,515) (15,032)
Purchases of loans receivable 0 0 (569)
Purchases of FHLB stock (15,599) (6,631) (7,050)
Redemption of FHLB stock 9,670 8,787 4,022
Proceeds from sales of real estate acquired in settlement of
loans 1,726 1,957 470
Purchases of premises and equipment, net (3,559) (3,359) (3,435)
Proceeds from sales of investments in real estate 33,798 11,177 1,675
Additions to investments in real estate (50,373) (14,551) (8,736)
--------- ----------- ---------
Net cash used in investing activities (187,445) (200,654) (39,793)
--------- ----------- ---------
</TABLE>
<PAGE> 8
Page 2 of 2
<TABLE>
<CAPTION>
2000 1999 1998
--------- ----------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in time deposits $ (62,559) $ 35,034 $ 142,570
Net (decrease) increase in demand deposits (34,622) 65,656 78,681
Payments related to sale of branch (11,859) 0 0
(Decrease) increase in advance payments by borrowers for
property taxes and insurance (1,280) (3,121) 4,198
Proceeds from FHLB advances and other borrowings 812,407 842,461 810,245
Repayments of FHLB advances and other borrowings (671,587) (861,764) (723,195)
Principal reduction of ESOP note payable 92 187 671
Issuance of ESOP note payable to acquire common stock 0 (2,000) 0
Issuance of trust preferred securities 0 28,750 0
Proceeds from the exercise of stock options 664 957 429
Purchase of treasury stock (811) (4,599) 0
Cash dividends paid (3,559) (3,619) (3,406)
--------- ----------- ---------
Net cash provided by financing activities 26,886 97,942 310,193
--------- ----------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 733 (6,843) 8,807
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 27,839 34,682 25,875
--------- ----------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 28,572 $ 27,839 $ 34,682
========= =========== =========
SUPPLEMENTAL DISCLOSURES OF CASH PAID DURING YEAR
FOR:
Interest $ 54,010 $ 55,616 $ 38,620
========= =========== =========
Income taxes $ 20 $ 10,533 $ 5,138
========= =========== =========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Acquisition of real estate in settlement of loans $ 1,013 $ 2,178 $ 2,769
========= =========== =========
Loans made to finance sales of real estate acquired in
settlement of loans $ 0 $ 801 $ 816
========= =========== =========
Loans made to finance sales of investments in real estate $ 6,239 $ 3,960 $ 7,338
========= =========== =========
Dividends payable $ 902 $ 891 $ 861
========= =========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
<PAGE> 9
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000, 1999, AND 1998
1. CORPORATE PROFILE
Eagle Bancshares, Inc. (the "Company" or "Eagle") is a unitary savings
and loan holding company engaged in community banking, mortgage
banking, real estate development and sales, and mezzanine financing.
The Company has three subsidiaries, Tucker Federal Bank (the "Bank"),
Eagle Real Estate Advisors, Inc. ("EREA"), and Eagle Bancshares Capital
Group, Inc. ("EBCG"). Additionally, the Company invests in real estate
through limited liability companies and consolidates these affiliates
when at least a 50% equity ownership interest exists (Note 6).
Tucker Federal Bank is engaged in banking and mortgage banking
activities. The Bank provides a full range of financial services to
individual and corporate customers through its branches located in
metropolitan Atlanta. Prime Eagle Mortgage Corporation, the Bank's
mortgage banking subsidiary, originates residential mortgages through
loan production offices in the Southeast. The Bank is subject to
competition from other financial institutions in the markets in which
it operates. The Bank is federally regulated by the Office of Thrift
Supervision ("OTS") and certain other federal agencies.
EREA performs third-party real estate brokerage, development and sales
activities and assists the Bank in identifying and acquiring branch
sites. Currently, EREA primarily performs residential real estate
development and sales activities in the Atlanta metropolitan area (Note
6).
EBCG serves 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 ownership.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Eagle Bancshares, Inc. include
the accounts of the Bank, EREA, EBCG, and Eagle's majority-owned real
estate subsidiaries. Significant intercompany accounts and transactions
are eliminated in consolidation.
USE OF ESTIMATES
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles ("GAAP"). The preparation
of financial statements in conformity with GAAP requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
<PAGE> 10
- 2 -
SECURITIES
Investments in debt and equity securities are classified into one of
two categories, described and accounted for as follows:
SECURITIES AVAILABLE FOR SALE
Debt and equity securities that may be used to meet liquidity
or other needs are reported at fair value, with unrealized
gains and losses, net of income taxes, excluded from earnings
and reported as a separate component of stockholders' equity.
INVESTMENT SECURITIES HELD TO MATURITY
Debt securities that the Company has the positive intent and
ability to hold to maturity are reported at amortized cost.
Premiums and discounts related to securities are amortized or accreted
over the life of the related security as an adjustment to the yield
using the effective interest method and considering prepayment
assumptions. Dividend and interest income is recognized when earned.
Gains and losses on sales or calls of securities are recognized on the
settlement date based on the adjusted cost basis of the specific
security. The financial statement impact of settlement date accounting
versus trade date accounting is not significant.
LOANS
Loans held for investment are stated at their unpaid principal
balances, less the undisbursed portion of loans in process, unearned
interest, unamortized discounts and premiums, deferred loan fees, and
the allowance for loan losses.
Loans held for sale are carried at the lower of cost or estimated
market value, as determined by outstanding commitments from investors
or current investor yield requirements calculated on an aggregate
basis.
Interest income on all classifications of loans is accrued based on the
outstanding principal amounts over the terms of the loans on a
level-yield basis, except those classified as nonaccrual loans.
Interest accrual is discontinued when it appears that future collection
of principal or interest according to the contractual terms may be
doubtful. Interest income on nonaccrual loans is recognized on a cash
basis if there is no doubt of future collection of principal. Unearned
discounts and premiums are recognized over the term of the loan on a
level-yield basis. Loan origination fees, net of certain direct
origination costs, are deferred and amortized to income over the
contractual life of the loan using a level-yield method, adjusted for
loan curtailment payments.
ALLOWANCE FOR LOAN LOSSES
A provision for loan losses is charged to operations based on
management's evaluation of the probable losses in the loan portfolio.
This evaluation considers the balance of nonaccrual loans, the
estimated value of the underlying collateral, the nature and volume of
the portfolio, loan concentrations, specific problem loans, economic
conditions that may affect the borrower's ability to repay, and such
other factors as, in management's judgment, deserve recognition under
existing economic conditions. Loans are charged off to the allowance
when, in the opinion of management, such loans are deemed to be
uncollectible. Subsequent recoveries are added to the allowance.
Management believes that the allowance for loan losses is adequate.
While management uses available information to recognize losses on
loans, future additions to the allowance may be necessary based on
changes in economic conditions, particularly in the Company's primary
market areas. In addition,
<PAGE> 11
- 3 -
various regulatory agencies, as an integral part of their examination
processes, periodically review the Company's allowance for loan losses.
Such agencies may require the Company to recognize additions to the
allowance based on their judgments about information available to them
at the time of their examination.
MORTGAGE PRODUCTION FEES
The Bank originates loans for sale in the secondary market. Loans held
for sale are sold on a servicing released basis to private investors.
Fees received relating to the origination and sale of these loans are
included in mortgage production fees when the loans are sold. Mortgage
production fees consist of loan servicing release premiums and loan
origination and discount points, net of loan officer commissions and
other direct costs.
STOCK IN FEDERAL HOME LOAN BANK ("FHLB")
Investment in stock of the FHLB is required of institutions utilizing
its services. The investment is carried at cost, since no ready market
exists for the stock and it has no quoted market value.
REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS
Real estate acquired in settlement of loans is considered to be held
for sale and is carried at the lesser of the remaining loan value or
fair value, adjusted for estimated costs to sell. Such determination is
made on an individual asset basis. Any excess of the loan balance at
the time of foreclosure over the net realizable value of the real
estate held as collateral is treated as a loan charge-off. A provision
for estimated losses on real estate is charged to earnings when a
subsequent decline in value occurs. The allowance for estimated losses
on real estate acquired in the settlement of loans was approximately
$113,000 and $251,000 at March 31, 2000 and 1999, respectively. Costs
relating to holding properties are charged to operations.
INVESTMENTS IN REAL ESTATE
Investments in real estate are carried at the lower of cost or net
realizable value. Certain carrying charges, including interest, related
to properties under development are capitalized as development costs
during the construction period. Profits are recognized from the sale of
real estate when the sale is consummated based on the selling price,
net of the related total development costs associated with the real
estate sold.
LONG-LIVED ASSETS
Premises and equipment are carried at cost, less accumulated
depreciation. Depreciation is provided on a straight-line basis over
the estimated useful lives of the related assets. Estimated lives are
15 to 40 years for office buildings and improvements and 3 to 10 years
for furniture, fixtures, and equipment.
Other assets in the accompanying statements of financial condition
include $84,000 and $144,000 at March 31, 2000 and 1999, respectively,
of intangible assets related to core deposit premiums. These intangible
assets are being amortized using a method which approximates a level
yield over nine years.
Long-lived assets are evaluated regularly for other-than-temporary
impairment. If circumstances suggest that their values may be impaired
and the write-down would be material, an assessment of recoverability
is performed prior to any write-down of the asset. Impairment on
intangibles is evaluated at each statement of financial condition date
or whenever events or changes in circumstances indicate that the
carrying amount should be assessed. Impairment, if any, is recognized
through a valuation allowance with a corresponding charge recorded in
the statement of income.
<PAGE> 12
- 4 -
DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives are used to hedge interest rate exposures by modifying the
interest rate characteristics of related balance sheet instruments. The
specific criteria required for derivatives used as hedges are described
below. Derivatives that do not meet these criteria are carried at
market value with changes in value recognized currently in earnings.
Currently, it is not the Company's policy to hold derivatives that do
not qualify as hedges.
Derivatives used as hedges must be effective at reducing the risk
associated with the exposure being hedged and must be designated as a
hedge at the inception of the derivative contract. Derivatives used for
hedging purposes may include swaps, forwards, and purchased options.
The fair value of derivative contracts are carried off-balance sheet,
and the unrealized gains and losses on derivative contracts are
generally deferred. The interest component associated with derivatives
used as hedges or to modify the interest rate characteristics of assets
and liabilities is recognized over the life of the contract in net
interest income. During fiscal 1998, the Company purchased an interest
rate floor on an investment security. The unamortized balance of this
purchased option as of March 31, 2000 and 1999 is approximately $43,000
and $57,500, respectively.
INCOME TAXES
Deferred tax assets and liabilities are computed based on the
difference between the financial statement and income tax bases of
assets and liabilities using enacted tax rates. Deferred income tax
expense or benefit is based on the changes in the underlying difference
between the book and tax bases of assets and liabilities from year to
year.
The Company files consolidated income tax returns.
EARNINGS PER SHARE
Basic earnings per share are based on the weighted average number of
common shares outstanding during each period. Diluted earnings per
common share are based on the weighted average number of common shares
outstanding during each period plus common share equivalents calculated
for stock options and restricted stock outstanding using the treasury
stock method.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. This
statement could increase volatility in earnings and other comprehensive
income. Adoption of this statement is not expected to have a material
impact on the Company's financial position or results of operation.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of Effective Date of FASB
Statement No. 133," deferring the effective date of FASB Statement No.
133 to all fiscal quarters of fiscal years beginning after June 15,
2000.
CASH EQUIVALENTS
Cash equivalents include amounts due from banks.
<PAGE> 13
- 5 -
RECLASSIFICATIONS
Certain reclassifications have been made to prior year balances in
order to conform with the current year financial statement
presentation.
3. SECURITIES
Securities available for sale at March 31, 2000 and 1999 are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST LOSSES GAINS VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
2000:
Mortgage-backed securities $111,485 $ (4,791) $ 84 $106,778
U.S. government and agency obligations 52,314 (2,095) 0 50,219
Equity securities--preferred stock 11,996 (870) 18 11,144
Other debt securities 46,901 (4,399) 1 42,503
-------- -------- ------ --------
Total $222,696 $(12,155) $ 103 $210,644
======== ======== ====== ========
1999:
Mortgage-backed securities $ 95,724 $ (741) $ 556 $ 95,539
U.S. government and agency obligations 35,517 (211) 2 35,308
Equity securities--preferred stock 11,996 (113) 396 12,279
Corporate bonds 1,995 0 32 2,027
Other debt securities 59,843 (442) 64 59,465
-------- -------- ------ --------
Total $205,075 $ (1,507) $1,050 $204,618
======== ======== ====== ========
</TABLE>
Proceeds from the sales of debt securities were approximately
$1,807,000, $9,441,000, and $1,957,000, resulting in net realized gains
of approximately $19,000, $471,000, and $5,000, respectively, during
the years ended March 31, 2000, 1999, and 1998, respectively. During
the years ended March 31, 2000, 1999, and 1998, proceeds from calls of
securities available for sale were $0, $7,750,000, and $8,273,000,
respectively, resulting in net realized losses of approximately $0,
$2,000, and $87,000, respectively.
Investment securities held to maturity at March 31, 2000 and 1999 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST LOSSES GAINS VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
2000:
Mortgage-backed securities $39,325 $(1,932) $ 12 $37,405
U.S. government and agency obligations 11,406 (197) 0 11,209
Corporate bonds 4,958 0 63 5,021
Other debt securities 5,475 0 202 5,677
------- ------- ------ -------
Total $61,164 $(2,129) $ 277 $59,312
======= ======= ====== =======
</TABLE>
<PAGE> 14
- 6 -
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST LOSSES GAINS VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1999:
Mortgage-backed securities $32,866 $ (75) $ 122 $32,913
U.S. government and agency obligations 18,539 (14) 127 18,652
Corporate bonds 7,433 0 298 7,731
Other debt securities 9,460 0 510 9,970
------- ------- ------ -------
Total $68,298 $ (89) $1,057 $69,266
======= ======= ====== =======
</TABLE>
The amortized cost and estimated market value of available-for-sale and
held-to-maturity debt securities at March 31, 2000, by contractual
maturity, are as follows (in thousands):
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
SECURITIES
------------------------
ESTIMATED
AMORTIZED MARKET
COST VALUE
--------- ---------
<S> <C> <C>
Due in one year or less $ 251 $ 240
Due in one to five years 25,035 24,395
Due in five to ten years 39,566 37,919
Due after ten years 145,848 136,946
-------- --------
$210,700 $199,500
======== ========
</TABLE>
<TABLE>
<CAPTION>
HELD-TO-MATURITY
SECURITIES
------------------------
ESTIMATED
AMORTIZED MARKET
COST VALUE
---------- ---------
<S> <C> <C>
Due in one year or less $ 6,499 $ 6,513
Due in one to five years 7,906 7,752
Due in five to ten years 1,959 1,966
Due after ten years 44,800 43,081
-------- --------
$ 61,164 $ 59,312
======== ========
</TABLE>
Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
At March 31, 2000, 1999, and 1998, securities with a carrying amount of
$50,651,000, $76,193,000, and $58,408,000, respectively, were pledged
as collateral for public funds.
<PAGE> 15
- 7 -
4. LOANS RECEIVABLE
At March 31, 2000 and 1999, loans receivable are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Real estate loans:
Construction $ 236,003 $ 206,790
Acquisition and development 128,186 71,995
Nonresidential 80,982 58,562
Residential 325,948 272,553
Home equity and second 80,131 61,699
--------- ---------
Total real estate loans 851,250 671,599
--------- ---------
Commercial and consumer loans:
Commercial 29,499 22,896
Mezzanine 17,835 8,225
Leases 802 3,354
Consumer and other 26,045 31,263
--------- ---------
Total commercial and consumer loans 74,181 65,738
--------- ---------
Gross loans receivable 925,431 737,337
Less:
Undisbursed portion of loans in process (137,966) (106,704)
Deferred costs (fees) and other unearned income 600 (18)
Allowance for loan losses (7,191) (7,345)
--------- ---------
Loans receivable, net $ 780,874 $ 623,270
========= =========
</TABLE>
Loans are normally placed on nonaccrual when payments have been in
default for 90 days. At March 31, 2000, 1999, and 1998, the Company had
nonaccrual loans aggregating approximately $9,713,000, $6,692,000, and
$7,948,000, respectively. The interest income not recognized on these
loans amounted to $280,000, $386,000, and $431,000 for the years ended
March 31, 2000, 1999, and 1998, respectively.
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. Management considers a loan to be impaired when the
loan is classified as nonaccrual or, based on current information, when
it is probable that 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 in the accompanying
consolidated statements of financial condition. At March 31, 2000 and
1999, all impaired loans had a related loan loss allowance. During 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.
<PAGE> 16
- 8 -
At March 31, 2000, 1999, and 1998, an analysis of the allowance for
loan losses is as follows (in thousands):
<TABLE>
<CAPTION>
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Allowance for loan losses, beginning of year $ 7,345 $ 6,505 $ 5,198
Charge-offs (1,797) (1,821) (1,548)
Recoveries 743 480 254
Provision for loan losses 900 2,181 2,601
------- ------- -------
Allowance for loan losses, end of year $ 7,191 $ 7,345 $ 6,505
======= ======= =======
</TABLE>
Substantially all of the Company's loans held for investment are
secured by real estate in Georgia, Florida, North Carolina, and
Tennessee. Additionally, no single customer accounted for more than 2%
of the Company's loans in fiscal years 2000 or 1999.
The Company was servicing loans for others with aggregate principal
balances of approximately $26,844,000, $20,175,000, and $24,979,000 at
March 31, 2000, 1999, and 1998, respectively.
At March 31, 2000 and 1999, the Company had sold approximately
$1,608,000 and $2,884,000, respectively, of loans with recourse. The
recourse period is 3 to 12 months on a substantial majority of these
loans. Investors can exercise their recourse options in the event the
borrowers default on the loans during the recourse period. During the
years ended March 31, 2000, 1999, and 1998, the Company has incurred
nominal losses from the repurchase of recourse loans.
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 up to 30 years and interest rates ranging from 6.875% to 9.50%.
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 of approximately $57,839,000 at
March 31, 2000. These off-balance sheet commitments represent the
unused portion of home equity lines of credit, which are secured by
residential real estate and commercial lines of credit. In addition,
the Company has issued approximately $5,355,000 in letters of credit at
March 31, 2000.
5. PREMISES AND EQUIPMENT
At March 31, 2000 and 1999, premises and equipment are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Land $ 3,977 $ 4,502
Office buildings and improvements 17,443 15,957
Furniture, fixtures, and equipment 14,996 13,353
------- -------
36,416 33,812
Less accumulated depreciation 12,212 10,537
------- -------
$24,204 $23,275
======= =======
</TABLE>
6. INVESTMENTS IN REAL ESTATE
The Company has ownership interests in 12 real estate projects as of
March 31, 2000. As a unitary thrift holding company, the Company is
permitted to invest in real estate. The most significant portion of the
Company's investment in real estate is land to be developed or in
process of development for residential
<PAGE> 17
- 9 -
subdivisions. All 12 real estate investments are located in
metropolitan Atlanta. The Company consolidates each project on a
line-by-line basis.
The following tables reflect the individual projects' financial
information (in thousands):
<TABLE>
<CAPTION>
REAL COMPANY'S COMPANY'S
ESTATE TOTAL TOTAL SHARE OF NET SHARE OF
PROPERTY DEBT EQUITY EQUITY INCOME NET INCOME
-------- ----- ------ --------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Investments in real estate at March 31, 2000:
Union Hill, LLC $ 1,764 $ 374 $1,393 $1,014 $ 1,803 $ 901
Rivermoore Park, LLC 9,929 4,601 6,743 6,743 659 659
Lebanon Road, LLC 0 0 54 33 815 505
Windsor Parkway Development, LLC 1,805 1,110 2,383 2,383 1,414 1,414
Johnson Road Development, LLC 1,857 1,013 885 885 348 348
BN Development Co., Inc. 0 0 0 0 1,204 1,204
Riverside Road Development, LLC (1) 1,566 0 1,154 1,154 0 0
The Phoenix on Peachtree, LLC 4,134 2,804 754 754 (279) (279)
Eagle Mason Mill Development, LLC (1) 8,262 7,174 1,033 1,033 0 0
Eagle Timm Valley Development, LLC (1) 1,815 1,112 645 645 0 0
Eagle Acworth Development II, LLC (1) 603 391 559 559 0 0
Eagle Acworth Development III, LLC (1) 2,182 1,457 713 713 0 0
Eagle White Columns Development, LLC 11,039 9,386 2,106 2,106 105 105
Investments in real estate at March 31, 1999:
Union Hill, LLC 2,937 1,077 1,890 1,262 1,020 844
Rivermoore Park, LLC 11,086 8,000 8,735 8,735 1,745 1,745
Lebanon Road, LLC 1,530 894 673 559 353 239
Windsor Parkway Development, LLC (2) 3,866 2,752 1,089 1,089 0 0
Johnson Road Development, LLC (2) 1,578 1,052 634 634 0 0
BN Development Co., Inc. 6,602 5,247 1,822 1,822 145 145
</TABLE>
(1) As of March 31, 2000, the operations of this property were
insignificant.
(2) As of March 31, 1999, the operations of this property were
insignificant.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair
values of the Company's financial instruments at March 31, 2000 and
1999 (in thousands):
<TABLE>
<CAPTION>
2000 1999
-------------------- ---------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Financial assets:
Cash and amounts due from banks $ 28,572 $ 28,572 $ 27,839 $ 27,839
Securities:
Available-for-sale 210,644 210,644 204,618 204,618
Held-to-maturity 61,164 59,312 68,298 69,266
Stock in FHLB 14,665 14,665 8,736 8,736
Loans receivable 780,874 759,680 623,270 631,779
Loans held for sale 49,240 49,817 221,370 225,470
Accrued interest receivable 8,882 8,882 7,766 7,766
Financial liabilities:
Deposits 769,952 768,786 879,665 887,308
FHLB advances and other borrowings 362,372 351,112 221,552 221,702
Guaranteed preferred beneficial interests in
debentures 28,750 19,550 28,750 28,247
Accrued interest payable 4,789 4,789 6,111 6,111
</TABLE>
<PAGE> 18
- 10 -
The following methods and assumptions were used by the Company in
estimating the fair values of financial instruments:
- Cash and amounts due from banks are valued at their carrying
amounts reported in the consolidated statements of financial
condition, which are reasonable estimates of fair value due to
the relatively short period to maturity of these instruments.
- Securities are valued at quoted market prices, where available.
If quoted market prices are not available, fair values are based
on quoted market prices of comparable instruments. Stock in FHLB
is carried at cost, since no ready market exists for this stock
and it has no quoted market value.
- Loans receivable are valued on the basis of estimated cash
flows, discounted using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for
the same remaining maturities. The carrying amount of accrued
interest receivable approximates its fair value.
- Loans held for sale are valued based on outstanding commitments
from investors or current investor yields.
- Deposits with no defined maturity, such as demand deposits,
savings accounts, NOW, and money market accounts, have fair
values equal to the amounts payable on demand, which are equal
to their respective carrying amounts. Fair values of
certificates of deposit are estimated using a discounted cash
flow calculation using the rates currently offered for deposits
of similar remaining maturities. The intangible value of
long-term relationships with depositors is not taken into
account in estimating the fair value. The carrying amount of
accrued interest payable approximates its fair value.
- Fair values of FHLB advances and other borrowings are estimated
using a discounted cash flow calculation using the Company's
current incremental borrowing rates for similar types of
instruments.
- Guaranteed preferred beneficial interests in debentures are
valued at quoted market prices.
- Off-balance sheet instruments include commitments to extend
credit and standby letters of credit. The fair values of such
instruments are based on fees currently charged for similar
arrangements in the marketplace, adjusted for changes in terms
and credit risk, as appropriate. The carrying values of these
unamortized fees and, hence, the fair values of the related
commitments were not significant as of March 31, 2000 and 1999.
8. DEPOSITS
At March 31, 2000 and 1999, deposits are summarized by type and
remaining term as follows (in thousands):
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Demand deposits:
Noninterest-bearing deposits $ 53,085 $ 45,737
Interest-bearing deposits 97,769 122,183
Money market 65,530 85,516
Savings 33,328 36,922
-------- --------
Total demand deposits 249,712 290,358
-------- --------
</TABLE>
<PAGE> 19
- 11 -
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Time deposits:
Maturity one year or less $379,324 $427,203
Maturity greater than one year through two years 47,547 71,337
Maturity greater than two years through three years 46,039 25,568
Maturity greater than three years 47,330 65,199
-------- --------
Total time deposits 520,240 589,307
-------- --------
Total deposits $769,952 $879,665
======== ========
</TABLE>
The weighted average interest rate on time deposits at March 31, 2000
and 1999 was 5.67% and 5.60%, respectively.
Interest expense on deposits for the years ended March 31, 2000, 1999,
and 1998 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Interest-bearing demand deposits $ 3,172 $ 3,608 $ 1,721
Money market 3,052 2,772 1,033
Savings 598 912 1,053
Time deposits 28,796 34,675 25,959
------- ------- -------
$35,618 $41,967 $29,766
======= ======= =======
</TABLE>
<PAGE> 20
- 12 -
9. FHLB ADVANCES AND OTHER BORROWINGS
FHLB advances and other borrowings at March 31, 2000 and 1999 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
FHLB advances $292,500 $157,500
-------- --------
Other borrowings:
4.84% note payable with interest payable quarterly;
outstanding principal becomes callable on September 30, 2000
with maturity of the agreement occurring on September 30, 2005 50,000 50,000
9.25% construction loan with available credit of up to
$30,446,000 and with interest adjusting to the note holder's
base rate plus .25% and payable monthly through February 10,
2003; outstanding principal is payable in full on
February 10, 2003 2,804 0
9.00% construction loan with available credit of up to
$11,100,000 and with interest adjusting to the note holder's
base rate plus .25% and payable monthly through February 28,
2005; outstanding principal is payable in full on
February 28, 2005 8,026 0
7.00% note payable with interest and principal payable in
full at maturity on March 1, 2001 1,353 0
9.25% construction loan with available credit of up to
$7,800,000 and with interest adjusting to the note holder's
base rate plus .25% and payable monthly through November 15,
2001; outstanding principal is payable in full on
November 15, 2001 7,174 0
5.30% structured debt, with interest payable quarterly;
outstanding principal becomes callable on March 24, 2000
with maturity of the agreement occurring March 24, 2005 0 12,500
Other 515 1,552
-------- --------
Total other borrowings 69,872 64,052
-------- --------
$362,372 $221,552
======== ========
</TABLE>
At March 31, 2000, FHLB advances are at least 125% collateralized by
unencumbered mortgage loans and approximately $110,145,000 of
investment securities. The advances mature at various dates through
March 2010. The weighted average interest rate on FHLB advances was
5.65% and 5.38% at March 31, 2000 and 1999, respectively. Maximum
short-term borrowings during the years ended March 31, 2000 and 1999
were $104,000,000 and $155,521,000, respectively.
Mortgage notes payable are secured by real estate of the Company. The
4.84% note payable is secured by certain U.S. government and agency
securities.
<PAGE> 21
- 13 -
As of March 31, 2000, repayments of FHLB advances and other borrowings,
based on contractual maturities, are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal year:
<S> <C>
2001 $ 93,983
2002 32,179
2003 2,810
2004 25,374
2005 33,026
Thereafter 175,000
--------
$362,372
========
</TABLE>
10. INCOME TAXES
Income tax expense for the years ended March 31, 2000, 1999, and 1998 is
allocated as follows (in thousands):
<TABLE>
<CAPTION>
2000 1999 1998
------ ------- -------
<S> <C> <C> <C>
Current expense (benefit):
Federal $1,443 $ 3,785 $ 5,327
State 0 531 524
------ ------- -------
1,443 4,316 5,851
------ ------- -------
Deferred expense (benefit):
Federal 2,992 643 (2,360)
State 0 (61) (451)
------ ------- -------
2,992 582 (2,811)
------ ------- -------
$4,435 $ 4,898 $ 3,040
====== ======= =======
</TABLE>
The following is a summary of the differences between the income tax
expense as shown in the accompanying financial statements and the
income tax expense which would result from applying the federal
statutory tax rate for fiscal years 2000, 1999, and 1998 to income
before income taxes (in thousands):
<TABLE>
<CAPTION>
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Expected income tax expense $ 4,749 $ 5,292 $ 3,488
(Decrease) increase in income taxes resulting from:
State income taxes, net of federal income tax benefit 0 306 47
Income tax credits (173) (173) (173)
Interest and dividend income (142) (361) (266)
Other 1 (166) (56)
------- ------- -------
Actual income tax expense $ 4,435 $ 4,898 $ 3,040
======= ======= =======
</TABLE>
<PAGE> 22
- 14 -
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
March 31, 2000 and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
Deferred tax assets:
Loans receivable, due to allowance for loan losses $2,474 $2,585
Loans held for sale, mark-to-market adjustment recognized for tax purposes 200 870
Deposit base premium, due to difference in amortization method for tax purposes 294 293
Employee benefits, due to differences in expense recognition methods for tax
purposes 998 872
Net operating loss carryforward 235 260
Net unrealized loss on securities available for sale, not recognized for tax
purposes 4,575 174
Loans receivable, due to differences in deferred loan fees and costs
recognition for tax purposes 75 0
Other 252 131
------ ------
Gross deferred tax assets 9,103 5,185
------ ------
Deferred tax liabilities:
FHLB stock, due to dividends not recognized for tax purposes $ 0 $ 19
Loans receivable, due to differences in deferred loan fees and costs
recognition for tax purposes 0 610
Premises and equipment, due to differences in depreciation methods for tax
purposes 374 497
Interest income, due to income not recognized for tax purposes 3,261 0
------ ------
Gross deferred tax liabilities 3,635 1,126
------ ------
Net deferred tax assets $5,468 $4,059
====== ======
</TABLE>
No valuation allowance for net deferred tax assets has been recorded as
of March 31, 2000 and 1999 based on management's assessment that it is
more likely than not that these assets will be realized. This
assessment is based primarily on the level of historical taxable income
and projections for future taxable income over the periods in which the
deferred tax assets are deductible.
Under the Internal Revenue Code (the "Code"), the Bank was allowed a
special bad debt deduction related to additions to tax bad debt
allowances established for the purpose of absorbing losses. The
provisions of the Code permitted the Bank to deduct from taxable income
an allowance for bad debt equal to the greater of 8% of taxable income
before such deduction or actual charge-offs. Retained earnings at March
31, 2000 and 1999 include approximately $3,900,000 for which no federal
income tax has been provided. These amounts represent allocations of
income to bad debt allowances and are subject to federal income tax in
future years at the then-current corporate rate if the Bank no longer
qualifies as a bank for federal income tax purposes and in certain
other circumstances, as defined in the Code.
11. COMMON STOCK AND STOCK PLANS
DIRECTOR PLANS
EAGLE BANCSHARES, INC. 1994 DIRECTORS STOCK OPTION INCENTIVE
PLAN ("DSOP")
The DSOP provides for grants of nonqualified stock options to
be made to directors of the Company or Tucker Federal Bank.
Options to purchase 2,000 shares of common stock are granted
at the fair market value of the common stock on the grant date
upon initially becoming a director of the Company or Tucker
Federal Bank. These shares are exercisable immediately on
<PAGE> 23
- 15 -
the date of grant. In addition, the option to purchase 1,500
shares of common stock is granted upon beginning any
subsequent term as a director of the Company or Tucker Federal
Bank. These options vest at the rate of 500 shares per full
year of service thereafter.
All options granted under the DSOP expire no later than the
date immediately following the tenth anniversary of the date
of grant and may expire sooner in the event of the disability
or death of the optionee or if the optionee ceases to serve as
a director.
TUCKER FEDERAL SAVINGS AND LOAN ASSOCIATION DIRECTORS'
RETIREMENT PLAN
Participants under the Directors' Retirement Plan will receive
a benefit in the form of a monthly annuity for the life of the
participant. Payments commence as of the first day of the
month following the later of (i) the date on which the
participant is no longer a director or (ii) the date on which
the participant attains age 65. These payments continue until
the first day of the month in which the participant's death
occurs.
The amount of a participant's monthly payments under the
Directors' Retirement Plan is generally equal to the product
of (i) the average monthly compensation paid for service as a
director and (ii) a percentage based on the participant's
years of service. As of March 31, 2000 and 1999, the plan is
underfunded. The liability and expense attributable to this
plan are insignificant to the Company's financial position.
In addition to the monthly benefit provided to a participant
under the Directors' Retirement Plan, a participant is
generally entitled to an additional lump-sum benefit if the
participant has completed certain years-of-service
requirements. The lump-sum benefit payable to such
participants is 2,000 shares of common stock or a cash payment
equal to the fair market value (as determined in accordance
with the provisions of the Company's DSOP) of such 2,000
shares, whichever is elected by the participant.
EMPLOYEE STOCK PLANS
1986 EMPLOYEE STOCK OPTION AND INCENTIVE PLAN
In 1986, at the time of the Bank's conversion to a federally
chartered stock association, the board of directors adopted,
and the Company's shareholders approved, the Employee Stock
Option and Incentive Plan. The plan provided for grants of
nonincentive stock options and stock appreciation rights equal
to 10% of the shares issued in the Bank's conversion from
mutual to stock form. This plan expired in 1996 in accordance
with the original termination date.
1995 EMPLOYEE STOCK INCENTIVE PLAN ("ESIP")
The ESIP provides for awards of incentive stock options
("ISOs"), nonqualified stock options ("NQSOs"), reload
options, and restricted stock awards. Awards under the ESIP
are granted at the fair market value of the common stock on
the date of grant, unless otherwise determined by the ESIP
committee. ISOs may not be granted at less than 100% of the
fair market value of the common stock on the date of grant.
NQSOs may not be granted at less than 75% of the fair market
value of the common stock on the date of grant. Awards become
exercisable in accordance with a schedule established by the
ESIP committee at the time of grant and are typically three to
five years but in no event longer than ten years. Rights with
regard to all nonvested options cease immediately upon the
termination of employment, unless such termination is due to a
change in control. Options vest 100% upon a change in control
of the Company.
<PAGE> 24
- 16 -
EAGLE BANCSHARES, INC. PERFORMANCE STOCK PLAN
The board of directors of the Company approved and adopted the
Eagle Bancshares, Inc. Performance Stock Plan (the
"Performance Plan") effective as of April 1, 1999.
Participants in the Performance Plan include named senior
executive officers and directors of the Company and Tucker
Federal. Participants are granted a specified number of shares
of Restricted Stock under the DSOP or the 1995 ESIP, as
applicable, and Phantom Stock ("Units") on each date of grant.
The Performance Plan provides that if all or any part of a
grant of Restricted Stock may not be made under the DSOP or
the 1995 ESIP, as applicable, then the recipient will be
granted Units in lieu of Restricted Stock.
Grants of Restricted Stock or Units may be made in any Plan
Year based upon the percentage increase in earnings per share
or Annual Stock Price provided either increase is greater than
15%. When a grant is made to a participant, vesting in the
Restricted Stock or Units is subject to the Company achieving
a 200% increase in earnings per share or annual stock price.
In order to be fully vested, the per share price of Company
Common Stock on March 31, 1999 must double or earnings per
share of the Company as of the fiscal year end March 31, 1999
must double. When full vesting of the Restricted Stock or
Units shall occur, the grant becomes nonforfeitable on a date
which is five years following the date of attaining the
performance goal or prior to such date on the occurrence of a
change in control, as defined in the Performance Plan, the
retirement of the participant at age 65 or termination of
employment of the participant, without cause. During the
period after grant of Restricted Stock or Units but prior to
vesting, the participant will be entitled to receive dividends
as declared on the Restricted Stock or Units as of each
dividend record date. Any grantor portion thereof which is not
vested on the date the participant ceases to perform services
will be forfeited as of such date. The cash value of the Units
granted to a recipient will be paid to the recipient in a
single lump sum within sixty days of the date that the Units
become vested and not subject to forfeiture. The value of each
Unit will be equal to the value of a share of the Company's
Common Stock on the date of determination. As of March 31,
2000, no shares of Restricted Stock or Units have been granted
under this plan.
TUCKER FEDERAL SAVINGS AND LOAN ASSOCIATION 401(K) SAVINGS AND
EMPLOYEE STOCK OWNERSHIP TRUST
Effective April 1, 1994, the Company merged the Employee Stock
Ownership Plan into its 401(k) plan to form the Tucker Federal
Savings and Loan Association 401(k) Savings and Employee Stock
Ownership Trust ("ESOP"). During the year ended March 31,
1999, the ESOP borrowed $2,000,000 from the Company to acquire
88,400 shares of common stock. These shares become available
to be allocated to plan participants as principal reductions
are applied to the debt. Compensation expense from the
eventual allocation of these shares will be measured based on
the fair value of the shares on the date the shares are
committed to be allocated. At March 31, 1999, the fair value
of these shares was $1,524,900. At March 31, 2000, 85,655
shares were unallocated. The fair value of the unallocated
shares at March 31, 2000 was $1,434,700. The note will be
repaid from the Company's contributions to the plan and from
dividends paid on unallocated shares, and accordingly, the
note is reflected as a reduction in stockholders' equity.
Eligible employees participate in the 401(k) Savings and ESOP,
and the Company's contribution is allocated to the
participants in proportion to their compensation to total
eligible compensation. The Company's contribution is
determined annually by the board of directors, and in fiscal
years 2000, 1999, and 1998, the contribution was approximately
$464,000, $470,000, and $492,000, respectively.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The Dividend Reinvestment and Stock Purchase Plan was established to
provide stockholders with an easy way to purchase additional shares of
the Company's common stock. The plan allows stockholders to reinvest
their quarterly dividends and make cash investments in stock for a
minimum of $25 and a maximum of $5,000 per quarter with no brokerage
commissions or administrative charges.
<PAGE> 25
- 17 -
All shareholders of record are eligible to participate in the plan.
Beneficial owners of shares of common stock must either arrange for the
holder of record to join the plan or have the shares they wish to
enroll in the plan transferred into their own names.
The Company adopted the disclosure provisions in SFAS No. 123,
"Accounting for Stock-Based Compensation," on April 1, 1996. As
permitted by the provisions of SFAS No. 123, the Company applies
Accounting Principles Board ("APB") Opinion No. 25 and the related
interpretations in accounting for its stock option plans and,
accordingly, does not recognize compensation cost.
A summary of the Company's stock option activity during the three-year
period ended March 31, 2000 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
NUMBER PRICE
------- --------
<S> <C> <C>
Outstanding at March 31, 1997 395,934 $ 10.34
Granted 167,217 16.56
Exercised (55,606) 7.48
-------
Outstanding at March 31, 1998 507,545 12.82
Granted 69,250 18.93
Exercised and expired (97,564) 11.07
-------
Outstanding at March 31, 1999 479,231 13.43
Granted 115,000 18.96
Exercised and expired (137,564) 14.58
-------
Outstanding at March 31, 2000 456,667 15.12
=======
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE RANGE OF
EXERCISE EXERCISE
NUMBER PRICE PRICES
------ -------- --------------
<S> <C> <C> <C>
Outstanding options exercisable as of:
March 31, 1998 297,448 $11.07 $3.375-$20.000
March 31, 1999 258,409 11.23 $3.375-$20.000
March 31, 2000 294,595 13.33 $3.375-$24.875
</TABLE>
The weighted average remaining contractual life of options outstanding
at March 31, 2000 is approximately 6.5 years. The weighted average fair
value of stock option grants during fiscal years 2000, 1999, and 1998
is $584,459, $64,159, and $797,326, respectively. The fair value of
these grants was determined using the following assumptions as of March
31, 2000, 1999, and 1998:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Weighted average risk-free interest rate 6.07% 5.05% 6.41%
Expected option life 7 YEARS 7 years 7 years
Expected stock price volatility 31.00% 30.00% 29.00%
Expected dividend yield 3.33% 3.20% 2.40%
</TABLE>
As previously indicated, the Company accounts for its stock option
plans using the principles of APB Opinion No. 25 and related
interpretations. Accordingly, no compensation cost has been recognized
for its fixed stock option plans. Had compensation cost for the
Company's stock-based plans been determined based on the fair value at
the grant dates for awards under those plans consistent with the
<PAGE> 26
- 18 -
method of SFAS No. 123, the Company's net income and earnings per share
("EPS") would have been as reflected in the pro forma amounts below (in
thousands, except per share data):
<TABLE>
<CAPTION>
2000 1999 1998
------ ------- ------
<S> <C> <C> <C>
Net income:
As reported $9,532 $10,222 $7,210
Pro forma 9,100 9,911 6,983
EPS:
Basic:
As reported $ 1.71 $ 1.79 $ 1.27
Pro forma 1.63 1.74 1.23
Diluted:
As reported 1.69 1.74 1.23
Pro forma 1.61 1.69 1.20
</TABLE>
During the year ended March 31, 1995, the Company awarded two officers
of the Bank 15,000 each nontransferable restricted shares of the
Company's common stock. The market value of the shares at the date of
award was $338,000 and was amortized by charges to compensation expense
over the three-year vesting period. During the year ended March 31,
1998, the Company awarded an officer of the Bank 20,000 nontransferable
restricted shares of the Company's common stock. The market value of
these shares at the date of award was $355,000 and was being amortized
by charges to compensation expense over the three-year vesting period.
During the year ended March 31, 2000, 13,333 shares of nontransferable
restricted shares, associated with the March 31, 1998 award, were
forfeited. Compensation expense related to these awards for the years
ended March 31, 2000, 1999, and 1998 was $0, $118,000, and $73,000,
respectively. Additionally, certain officers of the Company are
employed under various employment agreements, which expire at various
times over the next three years.
12. DEFERRED COMPENSATION PLAN
Effective April 1, 1999, the board of directors of the Company adopted
the Eagle Bancshares, Inc. Deferred Compensation Plan (the "Deferred
Compensation Plan"). Eligible consultants, outside directors and
employees who are among a select group of management or highly
compensated employees can elect by the beginning of each fiscal year to
defer compensation or fees that they would otherwise receive during
such fiscal year. The Company, at its discretion, may credit a matching
contribution in any amount it chooses for participants who make such
deferrals. Earnings and losses are credited to the deferrals and
matching contributions. Benefits payable under the Deferred
Compensation Plan are unsecured obligations of the Company, but the
Company currently intends to contribute participant deferrals, as well
as the Company's matching contributions, to a grantor trust that will
hold such amounts to pay benefits under the Deferred Compensation Plan.
As part of their annual deferral elections, participants can elect to
receive their benefits at retirement, disability, death, termination of
employment, or at least three years after their elections. In certain
other circumstances, participants can receive their benefits earlier,
such as in the event of a personal hardship, a change of control of the
Company, or simply with the approval of the Administrative Committee
which in that event will reduce the amount of the benefit payable at
10%. The Company can amend or terminate the Deferred Compensation Plan
at any time, and in the event of termination, the participants would
receive their benefits. The Company's contribution for fiscal year 2000
was approximately $64,000.
13. DIVIDEND AND LOAN RESTRICTIONS
The source of funds for payment of dividends by the Company is
primarily dividends paid to the Company by the Bank. The Bank's ability
to pay dividends to the Company is subject to the financial performance
of the Bank, which is dependent on, among other things, the local
economy, the success of
<PAGE> 27
- 19 -
the Bank's lending activities, compliance by the Bank with applicable
regulations, investment performance, and the ability to generate fee
income. The Bank currently is in compliance with the regulatory capital
requirements. As of March 31, 2000, the Bank's primary regulators
categorized the Bank as well capitalized. A well-capitalized
institution, as defined, is permitted to make capital distributions
during a calendar year without receiving advanced regulatory approval
up to the higher of (i) 100% of its net income to date plus the amount
that would reduce by one-half its surplus capital ratio at the
beginning of the calendar year or (ii) 75% of its net income over the
most recent four-quarter period. Any distributions in excess of that
amount require prior OTS approval with the opportunity for the OTS to
object to the distribution. In addition, a savings association must
provide the OTS with a 30-day advanced written notice of all proposed
capital distributions, whether or not advanced approval is required by
OTS regulations. Currently, the Bank periodically notifies the OTS of
the gross amount of dividends it intends to pay to the Company. As of
March 31, 2000, the Bank had distributed to the Company all amounts
that can be distributed based on notice to the OTS. 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
year 1998, the Bank paid a dividend in the form of loans to the Company
in the amount of $10,525,000, which were then contributed by the
Company to EBCG. The Company contributed capital of $12,000,000 to the
Bank during fiscal 1999. During fiscal 2000, the Company contributed
capital of $3,300,000 to EBCG.
The Bank is subject to certain restrictions under the Federal Reserve
Act, including restrictions on extensions of credit to its affiliates.
In particular, the Bank is prohibited from lending to the parent
company and its nonbank subsidiaries unless the loans are secured by
specified collateral. Such secured loans and other regulated
transactions made by the Bank are limited, as to each of its
affiliates, in the amount of 10% of the Bank's capital stock and
surplus, as defined, and are limited, in the aggregate, to 20% of the
Bank's capital stock and surplus, as defined.
14. INDUSTRY SEGMENTS
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," requires disclosure of certain information related to the
Company's reportable operating segments. The reportable operating
segments were determined based on management's internal reporting
approach. The reportable segments consist of: community banking,
mortgage banking, real estate development and sales, and mezzanine
financing. The community banking segment offers a wide array of banking
services to individual and corporate customers and earns interest
income from loans made to customers and interest and dividend income
from investments in certain debt and equity securities. The community
banking segment also recognizes fees related to deposit services,
lending, and other services provided to customers. The mortgage banking
segment originates residential mortgage loans through retail loan
production offices and purchases residential mortgage loans from
correspondents through a wholesale lending office. The mortgage banking
segment generates revenues through origination and processing fees,
interest on residential mortgage loans, and selling substantially all
of the fixed rate residential mortgage loans to investors. The mortgage
banking segment's primary source of fee income is derived from services
including loan application and origination, the gain or loss on the
sale of loans to third parties, and from the sale of mortgage servicing
rights. The real estate development and sales segment performs real
estate development activities in the Atlanta metropolitan area by
investing in land for the development of residential properties. The
real estate development and sales segment also provides third-party
brokerage services for the Bank and for unaffiliated third parties. The
mezzanine financing segment provides mezzanine financing to small- and
medium-sized businesses that is not readily available from traditional
commercial banking sources. The mezzanine financing segment generates
revenues through interest, fees on loans, and equity participation
agreements. No transactions with a single customer contributed 10% or
more to the Company's total revenue.
<PAGE> 28
- 20 -
The results for each reportable segment are included in the following table
(dollars in thousands):
<TABLE>
<CAPTION>
REAL ESTATE
MORTGAGE DEVELOPMENT MEZZANINE
BANKING BANKING AND SALES FINANCING OTHER
----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
March 31, 2000:
Net interest income (expense) $ 35,045 $ (66) $ (49) $ 2,347 $ (1,881)
Noninterest (expense) income (19,291) (7,263) 6,114 (234) 145
Depreciation on premises and equipment 2,215 516 36 0 17
Income tax expense (benefit) 4,809 (2,951) 2,426 845 (694)
Net income 10,094 (4,427) 3,639 1,268 (1,042)
Provision for loan losses 851 49 0 0 0
Total assets 1,172,911 70,799 60,478 23,195 12,414
Expenditures for additions to premises and equipment 4,838 308 557 0 0
Total revenues from external customers 82,334 16,464 8,466 1,974 1,166
Intersegment revenues 11,099 253 61 373 1,019
March 31, 1999:
Net interest income (expense) 32,021 56 (134) 3,209 (1,080)
Noninterest (expense) income (22,762) 1,986 3,227 9 769
Depreciation on premises and equipment 1,772 522 10 0 14
Income tax expense (benefit) 1,700 798 1,237 1,287 (124)
Net income 5,425 1,197 1,856 1,931 (187)
Provision for loan losses 2,134 47 0 0 0
Total assets 1,174,227 253,355 36,907 19,573 14,479
Expenditures for additions to premises and equipment 2,811 548 113 0 0
Total revenues from external customers 67,702 38,963 4,827 3,167 1,562
Intersegment revenues 24,613 1,763 64 189 1,177
March 31, 1998:
Net interest income (expense) 31,079 509 (457) 345 466
Noninterest (expense) income (18,542) (3,152) 2,445 0 158
Depreciation on premises and equipment 1,467 524 6 15 0
Income tax expense (benefit) 2,914 (1,057) 795 138 250
Net income 7,022 (1,586) 1,193 207 374
Provision for loan losses 2,601 0 0 0 0
Total assets 1,112,013 344,039 28,358 10,924 8,940
Expenditures for additions to premises and equipment 2,702 733 9 0 0
Total revenues from external customers 67,328 16,046 3,504 345 1,026
Intersegment revenues 6,338 936 46 0 709
<CAPTION>
ELIMINATIONS CONSOLIDATED
------------ ------------
<S> <C> <C>
March 31, 2000:
Net interest income (expense) $ (273) $ 35,123
Noninterest (expense) income 273 (20,256)
Depreciation on premises and equipment 0 2,784
Income tax expense (benefit) 0 4,435
Net income 0 9,532
Provision for loan losses 0 900
Total assets (94,726) 1,245,071
Expenditures for additions to premises and equipment 0 5,703
Total revenues from external customers 0 110,404
Intersegment revenues (12,805) 0
March 31, 1999:
Net interest income (expense) (107) 33,965
Noninterest (expense) income 107 (16,664)
Depreciation on premises and equipment 0 2,318
Income tax expense (benefit) 0 4,898
Net income 0 10,222
Provision for loan losses 0 2,181
Total assets (268,541) 1,230,000
Expenditures for additions to premises and equipment 0 3,472
Total revenues from external customers 0 116,221
Intersegment revenues (27,806) 0
March 31, 1998:
Net interest income (expense) (49) 31,893
Noninterest (expense) income 49 (19,042)
Depreciation on premises and equipment 0 2,012
Income tax expense (benefit) 0 3,040
Net income 0 7,210
Provision for loan losses 0 2,601
Total assets (354,791) 1,149,483
Expenditures for additions to premises and equipment 0 3,444
Total revenues from external customers 0 88,249
Intersegment revenues (8,029) 0
</TABLE>
<PAGE> 29
- 21 -
15. REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements which
involve quantitative measures of the Bank's assets, liabilities, and
certain off-balance sheet items, as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are
also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain amounts and ratios (set forth in
the table below) of total and Tier 1 risk-based capital to
risk-weighted assets, of Tier 1 capital to adjusted total assets, and
of tangible capital to average total assets, as defined. Management
believes that as of March 31, 2000, the Bank meets all capital adequacy
requirements to which it is subject. As of March 31, 2000, the Bank's
primary regulators categorized the Bank as well-capitalized. There are
no conditions or events that management believes may have changed the
Bank's category. A summary of actual, required, and well-capitalized
total and Tier 1 capital, Tier 1 leverage, and tangible capital ratios
as of March 31, 2000 and 1999 is presented below (dollars in
thousands):
<TABLE>
<CAPTION>
TO BE WELL-
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
------------------ ------------------ -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
2000:
Risk-based ratios:
Tier 1 capital $69,061 9.12% $30,280 4.0% $45,419 6.0%
Total capital 75,794 10.01 60,559 8.0 75,699 10.0
Tier 1 leverage 69,061 5.75 48,050 4.0 60,062 5.0
Tangible equity 69,061 5.51 18,803 1.5 N/A N/A
1999:
Risk-based ratios:
Tier 1 capital 69,810 9.97 28,012 4.0 42,018 6.0
Total capital 76,996 10.99 56,024 8.0 70,029 10.0
Tier 1 leverage 69,810 5.77 48,421 4.0 60,526 5.0
Tangible equity 69,810 5.25 19,951 1.5 N/A N/A
</TABLE>
16. GUARANTEED PREFERRED BENEFICIAL INTERESTS IN DEBENTURES
On July 29, 1998, the Company closed a public offering of 1,150,000 of
8.50% Cumulative Trust Preferred Securities (the "Preferred
Securities") offered and sold by EBI Capital Trust I (the "Trust"),
having a liquidation amount of $25 each. The proceeds from such
issuances, together with the proceeds of the related issuance of common
securities of the Trust purchased by the Company, were invested in
8.50% Subordinated Debentures (the "Debentures") of the Company. The
sole asset of the Trust is the Debentures. The Debentures are unsecured
and rank junior to all the 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 rank subordinate and junior in right
of payment to all liabilities of the Company. The Preferred Securities
are subject to redemptions 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
<PAGE> 30
- 22 -
used to repay existing debt associated with the Company's real estate
investment in Rivermoore Park, LLP and to invest in investment-grade
preferred securities of approximately $3,500,000, held as available for
sale by the Company. The remainder of the net proceeds was used for
general corporate purposes.
17. EARNINGS PER SHARE
Weighted average common and common equivalent shares for the years
ended March 31, 2000, 1999, and 1998 are computed as follows:
<TABLE>
<CAPTION>
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Average common shares--basic 5,567,844 5,714,113 5,690,680
Effect of dilutive common share equivalents 79,722 151,510 148,257
--------- --------- ---------
Average common shares--diluted 5,647,566 5,865,623 5,838,937
========= ========= =========
</TABLE>
18. TREASURY STOCK
During fiscal 1999, the Company's board of directors approved a stock
repurchase program. The plan authorizes the Company to purchase up to
300,000 shares of its common stock on the open market. As of March 31,
2000, the Company had repurchased 300,000 shares with a cost of
approximately $5,410,000.
19. ACCUMULATED OTHER COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income," establishes standards
for the reporting and displaying of other comprehensive income.
Comprehensive income is defined as the change in equity from all
transactions other than those with stockholders. Other comprehensive
income includes the change in net unrealized gains or losses on certain
debt and equity securities, foreign currency transactions, and minimum
pension liability adjustments. The Company's comprehensive income
consists of net income and unrealized gains and losses on securities
available for sale, net of income taxes.
Comprehensive income for the years ended March 31, 2000, 1999, and 1998
is presented as follows (in thousands):
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- -------
<S> <C> <C> <C>
Unrealized (losses) gains, net recognized in other accumulated
comprehensive income:
Before income tax $(11,595) $ (1,809) $ 3,005
Income tax (4,401) (688) 1,142
-------- -------- -------
Net of income tax $ (7,194) $ (1,121) $ 1,863
======== ======== =======
</TABLE>
<PAGE> 31
- 23 -
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- -------
<S> <C> <C> <C>
Amounts reported in net income:
Gains (losses) on sales and calls of securities available for
sale $ 19 $ 469 $ (82)
Net accretion (amortization) on securities 104 (148) 15
-------- -------- -------
Reclassification adjustment 123 321 (67)
Income tax (expense) benefit (47) (122) 25
-------- -------- -------
Reclassification adjustment, net of tax $ 76 $ 199 $ (42)
======== ======== =======
Amounts reported in other accumulated comprehensive income:
Unrealized (losses) gains arising during the period, net of tax $ (7,118) $ (922) $ 1,821
Less reclassification adjustment, net of tax 76 199 (42)
-------- -------- -------
Unrealized (losses) gains, net recognized in other accumulated
comprehensive income, net (7,194) (1,121) 1,863
Net income 9,532 10,222 7,210
-------- -------- -------
Total comprehensive income $ 2,338 $ 9,101 $ 9,073
======== ======== =======
</TABLE>
20. FINANCIAL INFORMATION OF EAGLE BANCSHARES, INC. (PARENT ONLY)
Eagle Bancshares, Inc.'s condensed statements of financial condition as
of March 31, 2000 and 1999 and related condensed statements of income
and cash flows for the years ended March 31, 2000, 1999, and 1998 are
as follows (in thousands):
CONDENSED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
ASSETS
2000 1999
-------- --------
<S> <C> <C>
Cash $ 1,627 $ 1,388
Securities available for sale 3,186 3,895
Investment in subsidiaries 100,313 96,791
Deferred income taxes 309 40
Other assets 1,603 3,884
-------- --------
Total assets $107,038 $105,998
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Guaranteed preferred beneficial interests in debentures $ 28,750 $ 28,750
Other liabilities 3,817 2,431
Stockholders' equity 74,471 74,817
-------- --------
Total liabilities and stockholders' equity $107,038 $105,998
======== ========
</TABLE>
<PAGE> 32
- 24 -
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
2000 1999 1998
------ -------- -------
<S> <C> <C> <C>
Interest and other income $ 982 $ 851 $ 429
Management fee income from subsidiaries 780 780 562
Gain (loss) on securities available for sale 0 259 (72)
Cash dividends from the Bank 6,500 0 3,410
------ -------- -------
Total income 8,262 1,890 4,329
Interest expense 2,489 1,687 0
General and administrative expenses 1,410 1,313 929
------ -------- -------
Income (loss) before income taxes and equity in
undistributed earnings of subsidiaries 4,363 (1,110) 3,400
Income tax provision 960 292 564
------ -------- -------
Income (loss) before equity in undistributed earnings of
subsidiaries 3,403 (1,402) 2,836
Equity in undistributed earnings of subsidiaries 6,129 11,624 4,374
------ -------- -------
Net income $9,532 $ 10,222 $ 7,210
====== ======== =======
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 9,532 $ 10,222 $ 7,210
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Equity in undistributed earnings of subsidiaries (6,129) (11,624) (4,374)
Amortization of restricted stock award 50 118 73
(Gain) loss on securities available for sale 0 (259) 72
Deferred income tax (benefit) expense (269) (144) 14
Decrease (increase) in other assets 3,232 (3,182) 561
Increase (decrease) in other liabilities 1,584 701 (180)
-------- -------- -------
Net cash provided by (used in) operating activities 8,000 (4,168) 3,376
-------- -------- -------
Cash flows from investing activities:
Purchases of securities available for sale 0 (4,000) 0
Proceeds from sales of securities available for sale 0 2,261 0
Proceeds from calls of securities available for sale 0 1,006 1,930
Capital distributions from subsidiaries 15,531 1,689 1,969
Capital contributions to subsidiaries (19,678) (17,470) (4,433)
-------- -------- -------
Net cash used in investing activities (4,147) (16,514) (534)
-------- -------- -------
</TABLE>
<PAGE> 33
- 25 -
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- -------
<S> <C> <C> <C>
Cash flows from financing activities:
Cash dividends paid $ (3,559) $ (3,619) $(3,406)
Stock options exercised 664 957 429
Purchase of treasury stock (811) (4,599) 0
Issuance of ESOP note payable to acquire common stock 0 (2,000) 0
Principal reduction of ESOP note payable 92 187 671
Issuance of trust preferred securities 0 28,750 0
-------- -------- -------
Net cash (used in) provided by financing activities (3,614) 19,676 (2,306)
-------- -------- -------
Net increase (decrease) in cash 239 (1,006) 536
Cash at beginning of year 1,388 2,394 1,858
-------- -------- -------
Cash at end of year $ 1,627 $ 1,388 $ 2,394
======== ======== =======
Supplemental disclosures of noncash financing and investing
activities:
Dividends payable to shareholders $ 902 $ 891 $ 861
======== ======== =======
</TABLE>
21. COMMITMENTS AND CONTINGENCIES
In November 1992, after acquiring certain assets from the Resolution
Trust Corporation, including various real estate loans and four
mortgage origination offices, the Bank entered into an Operating
Agreement (the "Agreement") with two individuals and a corporation
controlled by them (collectively, the "Plaintiffs") to assist in the
management of the Bank's newly formed Prime Lending Division ("Prime").
The individual Plaintiffs became employees of the Bank and their
corporation was to be paid a percentage of the net pretax profits of
Prime. In mid-1997, a disagreement arose with respect to the allocation
of expenses to Prime for purposes of calculating the net pretax profits
of Prime. Plaintiffs filed suit on December 5, 1997 alleging, among
other things, that the Bank had improperly calculated net pretax
profits under the Agreement since April 1997. In January 1998, the Bank
terminated the employment of the two individuals "for cause,"
terminated the Agreement, and filed an Answer and Counterclaim.
The Complaint as amended seeks, among other things: (i) a declaration
that 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.
