61
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year Commission file number
ended December 31, 1997 0-19228
EAGLE BANCORP, INC.
(Name of small business issuer in its charter)
Georgia 58-1860526
(State of Incorporation) (I.R.S. Employer
Identification No.)
335 South Main Street
Statesboro, Georgia 30458
(Address of principal executive office)(Zip Code)
(912) 764-8900
(Issuer's telephone number, including area code)
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
Check whether Issuer (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
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained herein, and no disclosure will 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-KSB or any amendment to
this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year were $5,985,043.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at March 1, 1998 was $13,108,125 based on private trades at $15.00
per share, although there is no established trading market.
The number of shares outstanding of Issuer's class of common stock at March
1, 1998 was 873,875 shares of common stock.
Documents Incorporated By Reference: Portions of the Proxy Statement for the
1997 Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission within 120 days of the Registrant's fiscal year end are incorporated
by reference into Part III.
Page 1 of 59
Exhibit Index on Page 57
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TABLE OF CONTENTS
Page
PART I
ITEM 1. DESCRIPTION OF BUSINESS 3
ITEM 2. DESCRIPTION OF PROPERTIES 12
ITEM 3. LEGAL PROCEEDINGS 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 13
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 13
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION 13
ITEM 7. FINANCIAL STATEMENTS 32
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 55
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT 55
ITEM 10. EXECUTIVE COMPENSATION 55
ITEM 11. SECURITY OWNERSHIP OF CERTAI5
BENEFICIAL OWNERS AND MANAGEMENT 56
ITEM 12. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS 56
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 56
SIGNATURES 57
2
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) Business Development
Eagle Bancorp, Inc. (the "Company"), Statesboro, Georgia, was incorporated as a
Georgia business corporation on September 19, 1989, for the purpose of becoming
a bank holding company by acquiring all of the common stock of Eagle Bank and
Trust, Statesboro, Georgia (the "Bank") upon its formation. The Company filed
applications to the Board of Governors of the Federal Reserve System (the
"Board") and the Georgia Department of Banking and Finance (the "DBF") for prior
approval to become a bank holding company. The Company received Board approval
on May 11, 1990, and the DBF approval on March 5, 1990. The Company became a
bank holding company within the meaning of the federal Bank Holding Company Act
(the "Act") and the Georgia bank holding company law (the "Georgia Act") upon
the acquisition of all of the Common Stock of the Bank on September 7, 1990.
The Bank currently is the sole operating subsidiary of the Company. On January
5, 1990, the Bank received the approval of its Articles of Incorporation from
the DBF and its permit to begin business was issued by the DBF on February 18,
1991. The Bank opened for business on February 20, 1991. The deposits at the
Bank are insured by the Federal Deposit Insurance Corporation (the "FDIC").
(b) Business of Issuer
The Bank conducts a general commercial banking business in its primary service
area, emphasizing the banking needs of individuals and small- to medium-sized
businesses. The Company and the Bank conduct business from the main office
located at 335 South Main Street, Statesboro, Georgia 30458, and from the Bank's
branch facility located at 726 Northside Drive East, Statesboro, Georgia 30458.
The Company is authorized to engage in any activity permitted by law to a
corporation, subject to applicable Federal regulatory restrictions on the
activities of bank holding companies. The Company was formed for the purpose of
becoming a holding company to own 100% of the stock of the Bank. The holding
company structure provides the Company with greater flexibility than the Bank.
While the Company has no present plans to engage actively in any nonbanking
business activities, management anticipates studying the feasibility of
establishing or acquiring subsidiaries to engage in other business activities to
the extent permitted by law.
The principal business of the Bank is to accept deposits from the public and to
make loans and other investments in and around Bulloch County, Georgia, its
primary service area.
The Bank offers a full range of deposit services that are typically available
from financial institutions, including NOW accounts, demand, savings and other
time deposits. In addition, retirement accounts such as Individual Retirement
Accounts are available. All deposit accounts are insured by the FDIC up to the
maximum amount currently permitted by law.
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The Bank offers a full range of commercial and personal loans. The Bank makes
loans to individuals for purposes such as home mortgage financing, personal
vehicles and various consumer purchases, and other personal and family needs.
The Bank makes commercial loans to businesses predominantly in the primary
service area for purposes such as equipment and machinery purchases, commercial
real estate purchases and working capital.
The Bank's lending philosophy is to make loans, taking into consideration the
safety of the Bank's depositors' funds, the preservation of the Bank's
liquidity, the interest of the Company's shareholders, and the welfare of the
community. Interest income from the Bank's lending operations is the principal
component of the Bank's income, so therefore prudent lending is essential for
the prosperity of the Bank.
The Bank's loan portfolio at December 31, 1997, contains approximately 12% real
estate construction loans, 57% real estate mortgage loans, 18% commercial loans,
3% agricultural loans, and 10% consumer loans. The Bank's loan to deposit and
Federal Home Loan Bank match funding ratio at December 31, 1997 was
approximately 84% with management's goal to maintain a loan to deposit and
Federal Home Loan Bank match funding ratio between 75% and 85%.
The principal sources of income for the Bank are interest and fees collected on
loans, interest and dividends collected on other investments, and mortgage
brokerage fees. The principal expenses of the Bank are interest paid on
deposits, employee compensation, office and equipment expenses, and other
overhead expenses.
The Bank's business plan relies principally upon local advertising and
promotional activity and upon personal contacts by its directors, officers and
shareholders to attract business and to acquaint potential customers with the
Bank's personalized services. The Bank emphasizes a high degree of personalized
client service to provide for each customer's banking needs. The Bank's
marketing approach emphasizes the advantages of dealing with an independent,
locally-owned and managed state chartered bank to meet the particular needs of
individuals, professionals and small-to- medium-size businesses in the
community. All banking services will be continually evaluated with regard to
their profitability and efforts will be made to modify the Bank's business plan
if the plan does not prove successful. The Bank does not currently offer trust
or permissible securities services.
Supervision and Regulation
Regulation of the Bank. The operations of the Bank are subject to state and
federal statutes applicable to state chartered banks whose deposits are insured
by the FDIC and the regulations of the DBF and the FDIC. Such statutes and
regulations relate to, among other things, required reserves, investments,
loans, mergers and consolidations, issuance of securities, payment of dividends,
establishment of branches and other aspects of the Bank's operations. Under the
provisions of the Federal Reserve Act, the Bank is subject to certain
restrictions on any extensions of credit to the Company or, with certain
exceptions, other affiliates, and on the taking of such stock or securities as
collateral on loans to any borrower. In addition, the Bank is prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit or the providing of any property or service.
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The Bank, as a state chartered bank, will be permitted to branch to the extent
that banks are permitted to branch under Georgia law. In January 1996, the
Georgia legislature passed a bill designed to eliminate Georgia's current
branching restrictions. The new legislation provides that effective after July
1, 1996, banks in Georgia, with prior approval of the DBF (and the appropriate
federal regulatory authority), may establish up to three new branches to be
located in any county in the state. Effective July 1, 1998, Georgia banks may
establish an unlimited number of branches in any county in the state, upon
receipt of appropriate regulatory approvals.
The FDIC adopted final risk-based capital guidelines for all FDIC insured state
chartered banks that are not members of the Federal Reserve System effective
December 31, 1990. All banks are required to maintain a minimum ratio of total
capital to risk weighted assets of 8 percent (of which at least 4 percent must
consist of Tier 1 capital). Tier 1 capital of state chartered banks (as defined
in regulations) generally consists of (i) common stockholders equity; (ii)
noncumulative perpetual preferred stock and related surplus; and (iii) minority
interests in the equity accounts of consolidated subsidiaries.
In addition, the FDIC adopted a minimum ratio of Tier 1 capital to total assets
of banks. This capital measure is generally referred to as the leverage capital
ratio. The FDIC has established a minimum leverage capital ratio of 3 percent if
the FDIC determines that the institution is not anticipating or experiencing
significant growth and has well-diversified risk, including no undue interest
rate exposure, excellent asset quality, high liquidity, good earnings and, in
general, is considered a strong banking organization, rated Composite 1 under
the Uniform Financial Institutions Rating System. Other financial institutions
are expected to maintain leverage capital at least 100 to 200 basis points above
the minimum level.
On December 19, 1991, the Federal Deposit Insurance Corporation Improvement Act
of 1991 (the "Improvement Act") was enacted into law. The Improvement Act
provides for, among other matters, addressing the safety and soundness of
deposit insurance funds, prompt regulatory corrective action by federal agencies
when a bank begins to experience difficulties that may threaten loss to the
FDIC, revised limitations on borrowings by insiders of banks, the parent bank
holding companies and their affiliates, limited guarantees of capital
restoration by bank holding companies of their subsidiary banks and new
provisions for depository institution conversions. The FDIC has adopted
regulations which, among other matters, implement provisions of the Improvement
Act that require or permit the FDIC to take specific supervisory actions when
FDIC-insured institutions come within one of five specific capital categories.
The five capital categories are designated as (1) well capitalized, (2)
adequately capitalized, (3) undercapitalized, (4) significantly
undercapitalized, and (5) critically undercapitalized. At December 31, 1996, the
Bank was categorized as "well capitalized" under provisions of the Improvement
Act. The full effects of the Improvement Act will only be known over time.
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Regulation of the Company. The Company is a bank holding company within the
meaning of the Act and the Georgia Act. As a bank holding company, the Company
is required to file with the Board an annual report and such additional
information as the Board may require pursuant to the Act. The Board may also
make examinations of the Company and each of its subsidiaries. Bank holding
companies are required by the Act to obtain approval from the Board prior to
acquiring, directly or indirectly, ownership or control of more than 5% of the
voting shares of a bank. The Act also prohibits bank holding companies, with
certain exceptions, from acquiring more than 5% of the voting shares of any
company that is not a bank and from engaging in any business other than banking
or managing or controlling banks and other subsidiaries authorized by the Act or
furnishing services to, or performing services for, its subsidiaries without the
prior approval of the Board. The Board is empowered to differentiate between
activities that are initiated de novo by a bank holding company or a subsidiary
and activities commenced by acquisition of a going concern. The Company has no
present intention to engage in nonbanking activities.
Pursuant to Section 4 (j) of the Bank Holding Company Act (12 U.S.C. Section
1843 (j)), a bank holding company must submit a written notice to the Federal
Reserve Board at least sixty days before engaging, directly or indirectly, in a
non-banking activity authorized under Section 4(c)(8), which authorizes holding
companies to engage in activities that are closely related to banking or
managing or controlling banks. The processing period begins to run form the date
the Federal Reserve Board receives a complete notice, and may be extended under
certain circumstances. In acting on a notice to engage in Section 4(c)(8)
activities, the Federal Reserve Board is required by certain sections of the
Bank Holding Company Act to consider whether the benefits of the proposed
activity (such as greater convenience, increased competition, or gains in
efficiency) outweigh the potential adverse effects (such as undue concentration
of resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices). Section 4(c)(8) also requires that proposals to engage in
permissible activities are subject to public notice and an opportunity for a
hearing only in case of an acquisition of a savings association. Section 4(j) of
the Bank Holding Company Act was amended by the Economic Growth and Regulatory
Paperwork Reduction Act of 1996, enacted as a part of the Omnibus Consolidated
Appropriations Act for Fiscal Year 1997 to permit a well-capitalized and
well-managed bank holding company, that controls predominantly well-capitalized
and well-managed depository institutions, as defined by amendments to The Bank
Holding Company Act, to engage de novo in any permissible 4(c)(8) activity or
acquire any company engaged in permissible 4(c)(8) activities (except for an
insured depository institution, i.e., a savings association) under expedited
procedures. To be eligible for the expedited procedures, the book value of the
assets acquired may not exceed 10% of the holding company's consolidated risk
weighted assets and the consideration paid may not exceed 15% of Tier One
capital. The Federal Reserve Board may adjust these percentages. In addition, no
administrative enforcement action may have been commenced or be pending nor may
any cease and desist order pursuant to Section 8 of the FDIC Act have been
issued or be pending against the holding company or any of its depository
institution subsidiaries.
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While all qualifying holding companies engaging in Section 4(c) (8) activities
under the expedited procedures must provide notice to the Federal Reserve Board,
the notice provisions differ. First, to engage de novo directly or through a
subsidiary in activities that the Fed has already approved by regulation, the
bank holding company must provide notice within ten days after commencing the
activity. Second, to engage in activities that the Fed has permitted by order or
to acquire the shares or assets of an existing company, the bank holding company
must provide notice at least twelve business days prior to commencing the
activity during which time the Fed may require the full 60-day notice procedure.
As a bank holding company, the Company is subject to capital adequacy guidelines
as established by the Board. The Board established risk based capital guidelines
for bank holding companies effective March 15, 1989. Beginning on December 31,
1992, the minimum required ratio for total capital to risk weighted assets
became 8 percent (of which at least 4 percent must consist of Tier 1 capital).
Tier 1 capital (as defined in regulations of the Board) consists of common and
qualifying preferred stock and minority interests in equity accounts of
consolidated subsidiaries, less goodwill and other intangible assets required to
be deducted under the Board's guidelines.
The Board's guidelines apply on a consolidated basis to bank holding companies
with total consolidated assets of $150 million or more. For bank holding
companies with less than $150 million in total consolidated assets (such as the
Company), the guidelines will be applied on a bank only basis, unless the bank
holding company is engaged in nonbanking activity involving significant leverage
or has significant amount of debt outstanding that is held by the general
public. The Board has stated that risk based capital guidelines establish
minimum standards and that bank holding companies generally are expected to
operate well above the minimum standards.
The Company is also a bank holding company within the meaning of the Georgia
Act, which provides that, without the prior approval of the DBF, it is unlawful
(i) for any bank holding company to acquire direct or indirect ownership or
control of more than 5% of the voting shares of any bank, (ii) for any bank
holding company or subsidiary thereof, other than a bank, to acquire all or
substantially all of the assets of a bank, or (iii) for any bank holding company
to merge or consolidate with any other bank holding company.
It also is unlawful for any company to acquire direct or indirect ownership or
control of more than 5% of the voting shares of any bank in Georgia unless such
bank has been in existence and continuously operating or incorporated as a bank
for a period of five years or more prior to the date of application to the DBF
for approval of such acquisition. Bank holding companies themselves are
prohibited from acquiring another bank until the initial bank in the bank
holding company has been incorporated for a period of twenty-four months.
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The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act") allows adequately capitalized and managed bank holding
companies to acquire existing banks across state lines without regard to whether
the acquisition is expressly authorized under state law. Certain requirements
such as minimum age restrictions for banks to be acquired will be preserved.
Further, under the Interstate Banking Act, effective June 1, 1997 a bank holding
company may consolidate its 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 enact legislation 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 in" to 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% of the total
amount of insured deposits in the United States or (ii) 30% of the total insured
deposits in the home state of the target bank, unless such 30% limitation is
waived by the home state on a basis which does not discriminate against
out-of-state institutions.
The Riegle Community Development and Regulatory Improvement Act of 1994 (the
"Improvement Act") provides for the creation of a community development
financial institutions' fund to promote economic revitalization in community
development. Banks and thrift institutions are allowed to participate in such
community development banks. The Improvement Act also contains (i) provisions
designed to enhance small business capital formation and to enhance disclosure
with regard to high cost mortgages for the protection of consumers, and (ii)
more than 50 regulatory relief provisions that apply to banks and thrift
institutions, including the coordination of examinations by various federal
agencies, coordination of frequency and types of reports financial institutions
are required to file and reduction of examinations for well capitalized
institutions.
Bank holding companies may be compelled by bank regulatory authorities to invest
additional capital in the event a subsidiary bank experiences either significant
loan losses or rapid growth of loans or deposits. In addition, the Company may
be required to provide additional capital to any additional banks it acquires as
a condition to obtaining the approvals and consents of regulatory authorities in
connection with such acquisitions.
The Company is an "affiliate" of the Bank within the meaning of the Federal
Reserve Act, which imposes restrictions on loans to the Company by the Bank or
investments by the Bank in securities of the Company and on the use of such
securities as collateral security for loans by the Bank to any borrower.
However, recent legislation exempts from the insider lending restrictions of
Section 22(h) of the Federal Reserve Act (12 U.S.C. Section 375(b)) company-wide
benefit or compensation plans that are widely available to employees of the Bank
and that did not give preference to any officer, director or principal
shareholder (or any related interest) over other employees of the bank. In
addition, the Federal Reserve Board may now exempt, by regulation, the
prohibition on preferential loans to executive officers and directors of
affiliates who do not have the authority to participate in the major
policy-making functions of the Bank, provided that the assets of these
affiliates do not exceed 10% of the consolidated assets of the holding company
and the affiliate is not controlled by another company.
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Recent Regulatory Developments. On September 3, 1996, President Clinton signed
the Omnibus Consolidated Appropriations Act for FY 1997. Subtitle G of Title Two
of that Act is titled the "Deposit Insurance Funds Act of 1996" (Deposit
Insurance Funds Act), which among other things provides for the recapitalization
of the Savings Association Insurance Fund ("SAIF") as of October 1, 1996. To
accomplish this recapitalization, the FDIC imposed a special assessment on each
insured depository institution with deposits assessable under the SAIF so that
SAIF would achieve its designated reserve ratio (DRR) on the first business day
of the first month after the date of the enactment of the Deposit Insurance
Funds Act. Because the legislation was enacted as of September 30, 1996, under
the Deposit Insurance Funds Act, SAIF achieved its DRR and became fully
capitalized on October 1, 1996. For purposes of the SAIF special assessment, the
amount of SAIF-assessable deposits is determined as of March 31, 1995. However,
the term "SAIF-assessable deposits" includes deposits assumed after March 31,
1995 if the deposits were assumed from an institution that is no longer insured
when the special assessment to recapitalize SAIF is imposed under this section.
Therefore, some institutions will be required to pay the special assessment on
SAIF insured deposits that were assumed after March 31, 1995.
A major part of the plan to recapitalize SAIF involves imposing a one-time
special assessment on SAIF-assessable deposits that may be paid in two
installments under certain conditions. Subject to certain statutory adjustments,
the FDIC has discretion to determine the rates of the assessments after
considering certain factors, including the most recent SAIF balance, data on
insured deposits, and any other factors that the FDIC has discretion to
determine the rates of the assessments after considering certain factors,
including the most recent SAIF balance, data on insured deposits, and any other
factors that the FDIC deems appropriate. This one-time special assessment is
subject to certain exceptions, and the FDIC has discretion to issue orders
exempting weak institutions from paying this special assessment if the exemption
will reduce the risk to SAIF. The FDIC prescribed guidelines for issuing such an
exemption within 30 days of enactment of the Deposit Insurance Funds Act. The
Act required FDIC to exempt from the special assessment (1) institutions that
existed on October 1, 1995 and held no SAIF assessable deposits before January
1, 1993, (2) federal savings banks newly established in April, 1994 to acquire
the deposits of savings institutions in default that received assistance from
the RTC in connection with the transactions, and (3) an SAIF insured savings
association that, before January 1, 1987, was a federal savings bank insured by
the FSLIC for the purpose of acquiring the assets or assuming the liabilities of
a national bank in a transaction consummated after July 1, 1986 and had assets
less than $150 million. Exempt institutions generally are required to pay
semi-annual assessments at former rates under the schedule applicable to SAIF
fund members on June 30, 1995, with certain exceptions.
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There are three statutory adjustments that the FDIC must consider in setting the
SAIF recapitalization rates. The first of these relates to Oakar transactions,
which are generally defined to include bank purchases of SAIF-assessable
deposits. Generally, Bank Insurance Fund (BIF) members acquiring SAIF-assessable
deposits in Oakar transactions prior to March 31, 1995 (or after March 31, 1995
if the institution from which the deposits were acquired is no longer insured at
the time the special assessment is imposed), are subject to the SAIF special
assessment but the amount of assessable deposits would, as a general
proposition, be reduced by 20% for purposes of the assessment if certain
conditions are satisfied. The 20% haircut for these BIF members applies for
purposes of the special assessment and for purposes of future semi-annual
assessments on SAIF-assessable deposits that were acquired prior to March 31,
1995. To be eligible for the 20% haircut, a BIF member must satisfy certain
requirements that are based on a suggested attributable deposit amount as of
June 30, 1995.
The second statutory adjustment the FDIC must consider for purposes of computing
this special assessment relates to "converted associations," a term defined by
the Act. An institution meeting one of the Act's definitions of "converted
association" may also reduce by 20% the amount of deposits that are SAIF insured
as of March 31, 1995 (or after March 31 1995 is subject to the special
assessment because the institution from which the deposits were acquired is no
longer insured at the time the special assessment is imposed). In addition to
"converted associations," Sasser banks - a savings association that converted to
a bank charter prior to SAIF reaching its DRR and as a result the resulting bank
was required to remain an SAIF member - may qualify under this second adjustment
under very limited criteria.
Third, if payment of the special assessment would pose a significant risk that
an insured depository institution or its holding company may default on payments
under debt obligations or preferred stock, the institution may elect to pay the
special assessment under extended terms that would include a supplemental
special assessment.
The SAIF was initially capitalized through the issuance of bond obligations by
the Financing Corporation (FICO), commonly referred to as FICO bonds. The
Deposit Insurance Funds Act also addresses repayment of the interest on those
bonds. Beginning with the semi-annual periods after December 31, 1996,
assessments to pay approximately $8 million in interest on FICO bonds will be
shared among all insured depository institutions, including insured national
banks, instead of only SAIF members. For purposes of the assessments to pay the
interest on the FICO bonds, BIF assessable deposits will be assessed at a rate
of 20% of the assessment rate applicable to SAIF-assessable deposits until
December 31, 1999. After the earlier of December 31, 1999 or the date the last
savings association ceases to exist, full pro rata sharing of FICO assessments
will begin.
For purposes of paying the interest on the FICO bonds, "BIF assessable deposits"
means deposits that are subject to assessments under BIF. The term
"SAIF-assessable deposits" means deposits that are assessable under SAIF and
includes any deposits that were assumed after March 31, 1995 if the insured
institution from which the deposits were acquired is not insured when the SAIF
special assessment is imposed.
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The Deposit Insurance Funds Act also provides that, as of the date of enactment
and ending on the earlier of December 31, 1999 or the date that the last savings
association ceases to exist, the federal banking agencies must take appropriate
action to prohibit deposit shifting from SAIF to BIF, including enforcement
actions, denial of applications, or imposing exit and interest fees as if the
transaction qualified as a conversion. The legislation requires the Office of
the Comptroller of the Currency, the FDIC, the Federal Reserve Board, and the
Office of Thrift Supervision to take necessary actions to prevent insured
depository institutions and depository institution holding companies from
facilitating or encouraging the shifting of deposits from SAIF-assessable to
BIF-assessable for the purpose of evading the assessments imposed on
SAIF-assessable deposits. The FDIC may issue regulations to prevent deposit
shifting. It is a rule of construction, however, that this portion of the
Deposit Insurance Funds Act does not prohibit an institution from engaging in
conduct or activity that is part of the ordinary course of business and is not
directed at depositors of an insured affiliated institution.
The Deposit Insurance Funds Act also provides for the merger of BIF and SAIF
into the Deposit Insurance Fund (DIF) on January 1, 1999, if no insured
depository institution is a "savings association" on that date. If an insured
savings association still exists on January 1, 1999, the Deposit Insurance Funds
Act does not make provision for the merger of the funds to occur on a subsequent
date. For purposes of the BIF/SAIF merger, the term "savings association" is
defined as having the same meaning as it does in section 3(b) of the FDI Act (12
U.S.C. Section 1813 (b)), and thus includes both federal and state savings
associations.
If immediately before the merger, the SAIF reserve ratio exceeds the DRR, the
excess will be placed in DIF's special reserve. While the DIF special reserve
will not be included for purposes of calculating the DIF DRR and the FDIC an not
refund any amount in the special reserve, it can be drawn upon for emergency
purposes if the reserve ratio of the DIF should drop below 50% of its DRR for a
sustained period of time. This portion of the Deposit Insurance Fund Act also
makes conforming changes to the FDI Act and other provisions of the law
effective on January 1, 1999 if the funds are so merged. If the funds are not
merged, the Deposit Insurance Fund Act establishes an SAIF special reserve as of
January 1, 1999 that will consist of the excess in the SAIF over the DRR as of
that date. While the amount in the SAIF special reserve can not be used to
calculate any future DRR and can not be used for refunds from the SAIF, it would
be available for emergency purposes if the reserve ratio of the SAIF is less
than 50% of its DRR for a sustained period of time.
The Deposit Insurance Funds Act also required the FDIC on such basis as it deems
appropriate to refund any amounts in excess of the DRR to BIF members and, after
it is established, to DIF members. There are no similar provisions for refunds
to SAIF members. A member cannot, however, receive any refund for any
semi-annual assessment period that exceeds the assessment paid during that
period. Institutions that are not "well-capitalized" or that have other
weaknesses are not eligible for refunds. The refund provision becomes effective
as of the end of any semi-annual assessment period beginning after the date of
enactment of the Deposit Insurance Funds Act.
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The United States Congress and the Georgia General Assembly periodically
consider and adopt legislation that results in, and could further result in,
deregulation, among other matters, of banks and other financial institutions.
Such legislation could modify or eliminate geographic restrictions on banks and
bank holding companies and current prohibitions with other financial
institutions, including mutual funds, securities brokerage firms, insurance
companies, banks from other states and investment banking firms. The effect of
any such legislation on the business of the Company or the Bank cannot be
accurately predicted. The Company cannot predict what legislation might be
enacted or what other implementing regulations might be adopted, and if enacted
or adopted, the effect thereof.
Competition
The banking business is highly competitive. The Bank competes with other
commercial banks in its primary service area.
Banks generally compete with other financial institutions through the banking
products and services offered, the pricing of services, the level of service
provided, the convenience and availability of services, and the degree of
expertise and the personal manner in which services are offered. The Bank
encounters strong competition from most of the financial institutions in the
Bank's primary service area. In the conduct of certain areas of its banking
business, the Bank also competes with credit unions, consumer finance companies,
mortgage companies, insurance companies, money market mutual funds and other
financial institutions, some of which are not subject to the same degree of
regulation and restrictions imposed upon the Bank. Many of these competitors
have substantially greater resources and lending limits than the Bank has and
offer certain services, such as trust services, that the Bank does not provide
presently. Management believes that competitive pricing and personalized service
will provide it with a method to compete effectively in the primary service
area.
Employees
As of December 31, 1997, the Bank employed 30 full-time employees and 6
part-time employees. Except for the officers of the Bank who presently serve as
officers of the Company, the Company does not have any employees. Neither the
Company nor the Bank is a party to any collective bargaining agreement, and
management believes the Bank enjoys satisfactory relations with its employees.
ITEM 2. DESCRIPTION OF PROPERTIES
The operations of the Company and the Bank are conducted from the Bank's main
office located at 335 South Main Street, Statesboro, Georgia and from the Bank's
branch facility located at 726 Northside Drive East, Statesboro, Georgia. The
Bank owns both facilities which contain approximately 11,500 and 2,500 square
feet, respectively.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor the Bank is a party to any pending legal proceedings,
other than routine litigation incidental to the Bank's business, which
management believes would have a material effect upon the operations or
financial condition of the Company or the Bank.
12
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the Company's
fourth quarter of the fiscal year ended December 31, 1997.
II
ITEM 5. MARKET FOR ISSUER'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
As of December 31, 1997, there were approximately 924 shareholders of record of
the Company's common stock. Although there is no established trading market for
the Company's common stock, the Company is aware of 12 private trades during the
1997 fiscal year at prices ranging from $13.00 to $15.00 per share. On October
20, 1997, the Company declared a cash dividend in the amount of $.32 per share
payable January 15, 1998. Certain regulatory requirements restrict the amount of
dividends that can be paid to the Company by the Bank without obtaining the
prior approval of the DBF. No assurance can be given that dividends will
continue to be declared, or if declared, by the Company, what the amount of the
dividends will be.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
Introduction
The Company is a one-bank holding company providing a full range of banking
services to individual and corporate customers in the Bulloch County and
surrounding areas through its wholly-owned bank subsidiary, the Bank. The Bank
operates under a state charter granted by the DBF and serves its customers from
its two banking facilities in Statesboro, Georgia. The following discussion of
the Company's financial condition and results of operations should be read in
conjunction with the Company's consolidated financial statements and related
notes presented in Item 7 of this Annual Report on Form 10-KSB.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
13
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for Eagle Bancorp, Inc. and
subsidiary should be read in conjunction with the consolidated financial
statements and related notes included in another section of this Annual
Report on Form 10-KSB.
<TABLE>
Years Ended December 31,
------------------------
1997 1996 1995
---- ---- ----
(amounts in thousands, except per share
information and financial ratios)
Income Statement data:
<S> <C> <C> <C>
Interest income $ 5,238 $ 4,657 $ 4,236
Interest expense (2,538) (2,269) (1,988)
------ ------ ------
Net interest income 2,700 2,388 2,248
Provision for possible loan losses (116) (108) (75)
Noninterest income 747 642 490
Noninterest expense (2,350) (2,171) (1,953)
Income tax expense (307) (250) (210)
---- ---- ----
Net income $ 674 $ 502 $ 500
======= ======= =======
Balance sheet data:
Loans, net of unearned income $49,474 $42,639 $37,442
======= ======= =======
Deposits $55,667 $52,465 $44,883
======= ======= =======
Total assets $66,335 $60,730 $52,774
======= ======= =======
Average shareholders' equity $ 6,534 $ 6,336 $ 6,122
======= ======= =======
Average assets $63,694 $56,045 $49,974
======= ======= =======
Per share data:
Net income
Basic $ .78 $ .58 $ .58
========= ========== =========
Diluted $ .76 $ .57 $ .57
========= ========== =========
Book value $ 7.73 $ 7.25 $ 7.19
========= ========== =========
Cash dividends declared $ .32 $ .50 $ .25
========= ========== =========
Financial ratios:
Return on average assets 1.06% .90% 1.00%
==== === ====
Return on average shareholders' equity 10.31% 7.92% 8.17%
===== ==== ====
Dividend payout ratio 44.21% 85.97% 43.12%
===== ===== =====
Average shareholders' equity to average assets 10.26% 11.31% 12.25%
===== ===== =====
</TABLE>
Note: Per share data has been restated for all periods presented to
reflect a three-for-two stock split effected in May, 1995.
14
<PAGE>
RESULTS OF OPERATIONS
The Company's net income and basic earnings per share for the year ended
December 31, 1997 were $673,941 or $0.78 per share compared to net
income and basic earnings per share for the year ended December 31, 1996
of $501,856 or $0.58 per share. Net income and basic earnings per share
for the year ended December 31, 1995 were $500,180 or $.58 per share.
Increases in net interest income of approximately $312,000 in 1997,
$140,000 in 1996 and $171,000 in 1995 and increases in noninterest
income of approximately $104,000 in 1997, $152,000 in 1996 and $95,000
in 1995 are the primary reasons the Company increased its profitability
during 1997, 1996 and 1995. The Company's total assets grew from
approximately $60.7 million at December 31, 1996 to $66.3 million at
December 31, 1997 or approximately 9.23%. The Company's total assets
grew from approximately $52.8 million at December 31, 1995 to $60.7 at
December 31, 1996 or approximately 15%. The decrease in the growth rate
from approximately 15% in 1996 to approximately 9.23% in 1997 was the
result of the increase competition within the local market area and the
bank's emphasis on maintaining its net interest margin. Noninterest
expense increased approximately $179,000 in 1997 and $218,000 in 1996
primarily relating to increased salary and occupancy expense.
The following table summarizes the results of operations and certain
financial ratios of the Company for each of the years in the three-year
period ended December 31, 1997.
<TABLE>
Years ended December 31,
------------------------
1997 1996 1995
---- ---- ----
(amounts in thousands, except share and
per share information and financial ratios
<S> <C> <C> <C>
Interest income $ 5,238 $ 4,657 $ 4,236
Interest expense (2,538) (2,269) (1,988)
------ ------ ------
Net interest income 2,700 2,388 2,248
Provision for possible loan losses (116) (108) (75)
Noninterest income 747 643 490
Noninterest expense (2,350) (2,171) (1,953)
Income tax expense 307) ( 250) ( 210)
-------- ------- ------
Net Income $ 674 $ 502 $ 500
======= ======= ======
Basic Earnings Per Share $ 0.78 $ 0.58 $ 0.58
======= ====== =======
Diluted Earnings Per Share $ 0.76 $ 0.57 $ 0.57
======= ====== =======
</TABLE>
15
<PAGE>
<TABLE>
Years ended December 31,
------------------------
1997 1996 1995
---- ---- ----
(amounts in thousands, except share and
pershare information and financial ratios)
<S> <C> <C> <C>
Return on average assets 1.06% .90% 1.00%
==== === ====
Return on average shareholders' equity 10.31% 7.92% 8.17%
===== ==== ====
Dividend payout ratio 44.21% 85.97% 43.12%
===== ===== =====
Average loans to average deposits 86.07% 82.96% 82.32%
===== ===== =====
Loan to deposit ratio (period-end) 88.87% 81.27% 83.49%
===== ===== =====
Average shareholders' equity to average assets 10.26% 11.31% 12.25%
===== ===== =====
Shareholders' equity to assets (period-end) 10.18% 10.31% 11.74%
===== ===== =====
</TABLE>
Note: Per share data has been restated for all periods presented to
reflect a three-for-two stock split effected in May, 1995.
Net Interest Income
The Company's net interest income, the difference between interest
income on interest-earning assets and interest expense on
interest-bearing liabilities, is the Company's principal source of
income. Interest-earning assets for the Company include loans, federal
funds sold, investment securities, and interest-earning deposits in
financial institutions. The Company's interest-bearing liabilities
include its interest-bearing deposit liabilities, federal funds
purchased, and advances from the Federal Home Loan Bank.
In 1997, net interest income was $2,700,000, representing an increase of
$312,000 or 13.05% when compared to 1996 of $2,388,000. Net interest
income for 1996 was approximately 6.23% higher than 1995 net interest
income of $2,248,000. The average yield earned on interest earning
assets was 9.00% in 1997, 9.19% in 1996 and 9.31% in 1995. The average
rate paid on interest-bearing liabilities was 5.00% in 1997, 5.13% in
1996 and 5.07% in 1995. The Company's net interest margin (net interest
income divided by average interest-earning assets) equaled 4.64% in
1997, 4.72% in 1996 and 4.94% in 1995. The decline in net interest
margin is attributable to the intensely competitive market for quality
loans in the Bank's market area. The Company's average loan to deposit
ratio in 1997 was 86.1%, 1996 was 83.0% as compared to 82.3% for 1995.
The Bank's loan to deposit ratio at December 31, 1997 was
88.87%,December 31, 1996 was 81.27% and 83.49% at December 31, 1995.
16
<PAGE>
The following table presents average balance sheets, yields, and
interest earned on interest-earning assets and rates and interest paid
on interest-bearing liabilities of the Company for the years ended
December 31, 1997 and 1996.
<TABLE>
Years ended December 31,
------------------------
1997 1996
---- ----
Average Yields/ Average Yields/
balances Interest rates balances Interest rates
-------- -------- ----- -------- -------- -----
(amounts in thousands, except percentages and ratios)
ASSETS
Interest-earning assets:
Interest-earning deposits in
<S> <C> <C> <C> <C> <C> <C>
financial institutions $ 0 0 0% $ 32 1 3.13%
Federal funds sold 1,190 65 5.38 1,084 59 5.44
Investment securities 11,160 660 5.91 10,222 580 5.67
Loans, net (1)(2) 45,874 4.513 9.84 39,403 4,024 10.21
------ ----- ---- ------ ----- -----
Total interest-earning assets $58,224 5,238 9.00% 50,741 4,664 9.19%
======= ===== ==== ====== ===== ====
Noninterest-earning assets:
Cash and due from banks 2,008 1,990
Premises and equipment, net 2,482 2,509
Other assets 980 805
--- ---
Total noninterest-earning assets 5,470 5,304
----- -----
TOTAL ASSETS $63,694 $56,045
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits $ 6,967 179 2.57% $ 6,706 175 2.61%
Money market & savings accounts 5,509 168 3.05 4,741 145 3.06
Certificates of deposit 32,909 1,878 5.71 29,268 1,733 5.92
Individual retirement accounts 3,239 194 5.99 2,823 179 6.34
Other Borrowed Funds 2,132 119 5.58 623 37 5.84
----- --- ---- --- -- ----
Total interest-bearing liabilities 50,756 2,538 5.00% 44,161 2,269 5.13%
====== ===== ==== ====== ===== ====
Noninterest-bearing liabilities and shareholders" equity:
Noninterest-bearing demand deposits $ 5,459 $ 4,681
Other liabilities 944 867
Shareholders' equity 6,535 6,336
----- -----
Total noninterest-bearing
liabilities and shareholders'
equity 12,938 11,884
------ ------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $63.694 $ 56,045
======= ========
INTEREST RATE DIFFERENTIAL (3) 4.00% 4.06%
==== ====
NET INTEREST INCOME $ 2,700 $ 2,395
======= =======
NET INTEREST MARGIN (4) 4.64% 4.72%
==== ====
AVERAGE INTEREST-EARNING
ASSETS TO AVERAGE TOTAL ASSETS 91.41% 90.54%
===== =====
AVERAGE LOANS TO AVERAGE DEPOSITS 86.07% 82.96%
===== =====
17
<PAGE>
</TABLE>
(1) Average loans are shown net of unearned income/deferred loan
cost and the allowance for possible loan losses. Nonperforming
loans are included.
(2) Interest income includes loan fees as follows
(amounts in thousands): 1997 - $90, 1996 - $173, 1995 - $156
(3) Interest rate differential is the average yield earned on
interest-earning assets less the average rate paid on
interest-bearing liabilities.
(4) Net interest margin is net interest income divided by average
interest-earning assets.
The following table presents the changes in the Company's net interest
income as a result of changes in the volume (changes in volume
multiplied by prior rate) and rate (changes in rate multiplied by prior
volume) of its interest-earning assets and interest-bearing liabilities
from 1996 to 1997 and from 1995 to 1996.
<TABLE>
1997 vs. 1996 1996 vs. 1995
------------- -------------
Volume(1) Rate(1) Net Change Volume (1) Rate(1) Net Change
--------- ------- ---------- ---------- ------- ----------
Interest Income:
Interest-earning deposits
<S> <C> <C> <C> <C> <C> <C>
in financial institutions $ (0) (0) (0) $ (3) (2) (5)
Federal funds sold 6 (1) (5) (24) (6) (30)
Investment securities 53 28 81 103 24 127
Loans, including fees 634 (146) 488 402 (66) 336
--- ---- --- --- --- ---
Total interest income 693 (119) 574 478 (50) 428
=== ==== === === === ===
Interest expense:
Individual retirement
accounts 25 (10) 15 32 10 42
Money Market and
Savings Deposits 23 (0) 23 (3) (15) (18)
Certificates of deposits 206 (61) 145 222 20 242
Interest-bearing demand
deposits 7 (3) 4 3 (25) (22)
Other borrowed funds 84 (2) 82 37 0 37
-- -- -- -- - --
Total interest expense 345 (76) 269 291 (10) 281
=== === === === === ===
Net interest income $ 348 (43) 305 $ 187 (40) 147
====== === === ======= === ===
</TABLE>
(1) The change in interest due to both rate and volume has been
allocated to the volume and rate components in proportion to the
relationship of the dollar amounts of the change in each.
Allowance for Possible Loan Losses
The Company provides for possible loan losses based upon information
available at the end of each period. By evaluating the adequacy of the
allowance for possible loan losses at the end of each period, management
maintains the allowance for possible loan losses at a level adequate to
provide for losses that can reasonably be anticipated. The level of the
allowance for possible loan losses is based on management's periodic
loan-by-loan evaluation of its loan portfolio, as well as its assessment
of prevailing and anticipated economic conditions in Southeast Georgia.
18
<PAGE>
A substantial portion of the Company's loans are secured by real estate,
including real estate and other collateral in Bulloch County and
surrounding counties. Accordingly, the ultimate collectability of a
substantial portion of the Company's loan portfolio is susceptible to
changes in economic conditions in these market areas.
The allowance for possible loan losses approximated 1.43% of outstanding
loans at December 31, 1997 and 1.50% of outstanding loans at December
31, 1996. The allowance increased to $706,237 at December 31, 1997 from
$639,500 at December 31, 1996. This increase in allowance for possible
loan losses reflects management's evaluation as discussed above, the
growth in loans, and the Company's goal of maintaining an allowance for
possible loan losses to outstanding loans at a target level of 1.40%.The
Company experienced net charge-offs in 1997 of approximately $50,000 as
compared to net charge-offs of approximately $38,000 in 1996. As the
Company continues to grow and as the Company's loan portfolio continues
to mature, management believes that net charge-offs could possibly
increase in 1998 and future years. While management uses available
information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in economic conditions. In
addition, regulatory agencies, as an integral part of their examination
process, periodically review the Company's allowance for possible 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.
19
<PAGE>
The following table summarizes the changes in the allowance for possible
loan losses arising from loans charged off and recoveries on loans
previously charged off during 1997, 1996, and 1995:
<TABLE>
Years ended December 31,
------------------------
1997 1996 1995
---- ---- ----
(amounts in thousands, except ratios)
<S> <C> <C> <C>
Average loans outstanding, net of unearned income, deferred
costs and allowance for possible loan losses $ 45,874 $ 39,403 $ 35,542
======== ======== ========
Allowance for possible loan losses at beginning of year 640 570 528
Loans-Consumer installment(charged off) ( 71) (59) (35)
Recoveries of loans - Consumer installment
previously charged off 21 21 2
-- -- -
Net loans (charged off) recovered ( 50) (38) (33)
Additions to allowance for possible loan losses charged
to income 116 108 75
--- --- --
Allowance for possible loan losses at end of year $ 706 $ 640 $ 570
======== ======== =======
Ratio of net loans charged off to average loans
outstanding, net of unearned income 0.11% 0.10% 0.09%
==== ==== ====
Allowance for possible loan losses to loans,
net of unearned income 1.43% 1.50% 1.52%
==== ==== ====
</TABLE>
Nonperforming Loans, Nonperforming Assets, and Underperforming Loans
Nonperforming loans include loans placed on nonaccrual status and
restructured loans. Nonperforming assets include nonperforming loans,
real estate acquired through foreclosure, and repossessed assets.
Underperforming loans consist of loans which are past due with respect
to principal or interest more than 90 days which are not classified as
nonaccrual loans.
Interest on loans is recognized using the simple interest method based
on the principal balance outstanding. Interest accruals including
accruals of interest on impaired loans are discontinued when either
principal or interest becomes 90 days past due, or when in management's
opinion, after considering economic and business conditions and
collection efforts, the borrower's financial condition is such that it
is not reasonable to expect such interest will be collected. Interest
income is subsequently recognized only to the extent cash payments are
received.
Management is not aware of any loans classified for regulatory purposes
as loss, doubtful, substandard, or special mention that have not been
disclosed which (1) represent or result from trends or uncertainties
which management reasonably expects will materially impact future
operating results, liquidity, or capital resources, or (2) represent
material credits about which management is aware of any information
which causes management to have serious doubts as to the abilities of
such borrower to comply with the loan repayment terms. Potential problem
loans are loans classified as substandard, doubtful, or loss by
management.
20
<PAGE>
Nonperforming loans were $48,000 at December 31, 1997 and $123,000 at
December 31, 1966. Nonperforming loans represented 0.09% of outstanding
loans at December 31, 1997, as compared to 0.29% of outstanding loans at
December 31, 1996. The Company has continued to emphasize asset quality
during 1997. The Company restructured one loan in the amount of $571,980
in 1995 which was adequately secured by real estate, which if not
included in the ratios, would result in a nonperforming loan ratio of
0.15% at December 31, 1995. The Company received payment of all unpaid
principal and interest related to this loan in March, 1996.
The table below provides information concerning nonperforming and
underperforming loans and certain asset quality ratios at December 31,
1997, 1996 and 1995:
<TABLE>
December 31,
------------
1997 1996 1995
---- ---- ----
(amounts in thousands,
except ratios)
<S> <C> <C> <C>
Nonperforming loans $ 48 $ 123 $ 629
Underperforming loans $ 2 $ 0 $ 0
Potential problem loans $ 399 $ 611 $ 291
Asset quality ratios:
Nonperforming loans to total loans, net of unearned
income 0.09% 0.29% 1.68%
Underperforming loans to total loans, net of unearned
income 0.00% 0.00% 0.00%
Potential problem loans to total loans, net of unearned
income 0.81% 1.43% 0.78%
Nonperforming, underperforming and potential problem
loans to total loans, net of unearned income 0.91% 1.72% 2.46%
Allowance for possible loan losses to nonperforming loans 14.71x 5.20x 0.91x
Allowance for possible loan losses to nonperforming,
underperforming, and potential problem loans 1.57x 0.87x 0.62x
</TABLE>
21
<PAGE>
The Company has allocated the allowance for possible loan losses
according to the amount deemed to be reasonably necessary to provide for
the possibility of losses being incurred within the categories of loans
set forth in the table below. This allocation is based on management's
evaluation of the loan portfolio under current economic conditions,
adequacy and nature of collateral, and such factors which, in the
judgment of management, deserve recognition in estimating loan losses.
Because the allocation is based on estimates and subjective judgment, it
is not necessarily indicative of specific amounts or loan categories in
which charge-offs may occur.
The amount of such components of the allowance for possible loan losses
and the ratio of each loan category to loans outstanding are presented
below:
<TABLE>
December 31,
------------
1997 1996 1995
---- ---- ----
Allowance %(1) Allowance %(1) Allowance %(1)
--------- ---- --------- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C>
Real estate $ 402 56 $ 378 61 $ 380 62
Real estate - construction 85 12 45 7 46 8
Commercial and agricultural 148 22 147 22 63 19
Consumer 71 10 70 10 79 11
-- -- -- -- -- --
Total $ 706 100 $ 640 100 $ 570 100
===== === ====== === ====== ===
</TABLE>
(1) Loan amount in each category expressed as a percentage of total
loans outstanding.
Noninterest Income
Noninterest income of $746,839 in 1997, $642,461 in 1996 and $490,534 in
1995 is primarily comprised of mortgage loan referral fees in 1997 of
$233,734, 1996 of $245,897 and $113,289 in 1995 and service charges on
deposit accounts. The increase of $104,378 or 16.25% in 1997 from 1996
in noninterest income is primarily attributable to the increase in a new
accounts receivable financing product introduced in 1997 and service
charges on deposit accounts. The substantial portion of service charges
on deposit accounts includes monthly transaction fees on demand accounts
and fees for returned checks. The Company continually evaluates the
pricing of its demand deposit products to ensure such products remain
competitive in the marketplace, while providing appropriate levels of
noninterest income to the Company to cover the costs of servicing and
maintaining such accounts.
22
<PAGE>
Securities gains (losses), net of $1,293 were recognized by the Company
during 1997 compared to ($10,467) in 1996 and resulted from the
Company's sale of investment securities to meet loan demand.
Noninterest Expense
Noninterest expense increased $179,138 or 8.25% in 1997 compared to 1996
and increased $218,073 or 11.17% in 1996 compared to 1995. Noninterest
expense for 1997 was $2,350,170, for 1996 was $2,171,032, and for 1995
was $1,952,959 and represented approximately 3.68%, 3.87% and 3.91% of
average assets in 1997, 1996 and 1995 respectively. Salaries and
employee benefits expense was the largest component of noninterest
expense. Salaries and employee benefits expense was $1,142,200 in 1997,
$1,071,636 in 1996 and $953,836 in 1995 and represented approximately
48.60%, 49.36% and 48.84% of non-interest expense in 1997, 1996 and 1995
respectively. These amounts include wages, payroll taxes, group medical
insurance, profit sharing plan contributions, and all benefits paid to
the Company's employees. The increase in salaries and employee benefits
expense of approximately $70,565 is attributable to normal salary
increases and an increase in group medical insurance premiums. Occupancy
and equipment expenses of approximately $307,272 in 1997, $272,664 in
1996 and $222,197 in 1995 also represented approximately 13.07%, 12.56%
and 11.37% of noninterest expense in 1997, 1996 and 1995 respectively.
All other expenses of approximately $900,698 in 1997, $826,732 in 1996
and $776,926 in 1995 represented approximately 38.33%, 38.08% and 39.78%
of noninterest expense in 1997, 1996 and 1995 respectively. FDIC
insurance expense decreased by approximately $48,000 in 1996 and $40,000
in 1995 due to decreased assessments from the Bank Insurance Fund. The
more significant components of other operating expenses for each of the
last three years are shown as follows:
<TABLE>
Years ended December 31,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Stationery and supplies 65,225 84,717 74,317
Postage 62,402 56,267 51,066
Advertising and marketing 59,862 52,366 51,605
Professional fees - legal and accounting 85,590 74,864 54,471
Data Processing (1) 161,304 109,217 87,845
Directors fees 58,900 53,300 55,400
</TABLE>
(1) The bank renewed its core data processing agreement in February,
1997 which resulted in this expense increasing.
23
<PAGE>
Income Taxes
The Company provided income tax expense of $306,600 for 1997, $250,000
for 1996 and $210,000 for 1995 representing effective tax rates of
approximately 32%, 33% and 30% respectively. The Company's effective tax
rate was lower in 1995 because of the impact of the reduction of the
valuation allowance for deferred tax assets recorded in 1995. Refer to
note 10 to the consolidated financial statements for further disclosure
of income taxes. The Company believes its effective income tax rate will
increase in 1998 to an effective rate of approximately 36%. The Company
will continue to seek appropriate tax planning strategies such as
investing in tax-free securities in an effort to minimize its effective
tax rate.
Net Income
The Company achieved net income of $673,941 or approximately 0.78 per
common share outstanding for 1997,$501,856 or approximately $0.58 per
common share outstanding for 1996, net income of $500,180 or
approximately $0.58 per common share outstanding during 1995.
Loan Portfolio
The Company does not have any concentrations of loans exceeding 10% of
total loans of which management is aware and which are not otherwise
disclosed as a category of loans in the table below or in another
section of this annual report on Form 10-KSB.
Average loans were $46.0 million in 1997, $40.0 million in 1996, and
$36.1 million in 1995. Average loans as a percentage of average
interest-earning assets were 78.8%, 77.7%, and 79.4% respectively.
Average loans as a percentage of average total assets were 72.0%, 70.3%,
and 72.2% respectively.
The following two tables present the composition of the Company's loan
portfolio at December 31, 1997, 1996 and 1995 and the contractual
maturities and interest rate sensitivity of certain categories of loans
as of December 31, 1997.
24
<PAGE>
<TABLE>
December 31,
------------
1997 1996 1995
---- ---- ----
(amounts in thousands)
<S> <C> <C> <C>
Commercial, financial and agricultural $ 32,072 $ 29,312 $ 24,806
Real estate - construction 5,699 3,097 2,932
Real estate - mortgage 6,705 6,538 6,221
Consumer 5,006 3,693 3,511
----- ----- -----
Total loans 49,482 42,640 37,470
Less:
Allowance for possible loan losses (706) (640) (570)
Unearned income (8) (1) (28)
-- -- ---
Loans , net $ 48,768 $ 41,999 $ 36,872
========= ========= ========
</TABLE>
<TABLE>
Maturing
--------
After one
Within but within After
one year five years five years
-------- ---------- ----------
(amounts in thousands)
<S> <C> <C> <C>
Commercial, financial and agricultural $ 11,398 $ 17,764 $ 2,910
Real estate - construction 5,699 0 0
Real estate - mortgage 3,026 3,071 608
Consumer 2,259 2,293 454
Summary of loans:
Total fixed rate due after one year $ 27,048
Total adjustable rate due after one year 52
--
Total loans due after one year $27,100
=======
</TABLE>
Actual repayments of loans may differ from the contractual maturities
reflected above because borrowers may have the right to prepay
obligations with or without prepayment penalties. Additionally, the
refinancing of such loans or the potential delinquency of such loans
could also cause differences between the contractual maturities
reflected above and the actual repayment of such loans.
Investment Securities
The Company's investment securities portfolio serves several essential
functions, such as providing a vehicle for the investment of available
funds, furnishing liquidity, and supplying securities to pledge as
required for certain deposits. Average investment securities increased
$.9 million or 9.17% in 1997 as compared to 1996 and increased $1.9
million or 22.7% in 1996 compared to 1995. The increase in average
investment securities results from the Company's growth in deposits and
other borrowings. During 1997, 1996 and 1995 average investment
securities comprised 19.2, 20.1%, and 18.3% of average interest-earning
assets, respectively, and 17.5%, 18.2%, and 16.7% of average total
assets, respectively.
25
<PAGE>
The two tables below present the carrying values and the composition of
investment securities at the end of each of the past two years and the
contractual maturities and yields of investment securities at December
31, 1997. Expected maturities may differ from contractual maturities
because issuers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
December 31,
------------
1997 1996
---- ----
Available Held to Available Held to
for Sale Maturity for Sale Maturity
-------- -------- -------- --------
(amounts in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury $ 0 $ 1,742 $ 997 $ 1,740
U.S. Government Agencies 3,403 2,800 2,887 2,050
State, County and Municipal 2,950 0 2,857 0
Federal Home Loan Bank Stock 244 0 158 0
--- - --- -
Total investment securities $ 6,597 $ 4,542 $ 6,899 $ 3,790
========= ======= ======= ========
</TABLE>
<TABLE>
Maturing
--------
within after one but after
one year within five years five years
Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ -----
(amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 0 0% $ 1,742 6.47% $ 0 0%
U.S. Government Agencies 300 4.98 5,403 6.39 500 6.25
State, County and Municipal 790 3.81 1,696 3.94 464 5.81
Federal Home Loan Bank 0 0 0 0 244 7.25
- - - - --- ----
Total investment
securities $ 1,090 4.13% $ 8,841 5.89% $1,208 6.28%
======== ==== ======== ==== ====== ====
</TABLE>
<TABLE>
December 31, 1997
-----------------
Investment Securities Investments Securities
Available for sale Held to maturity
------------------ ----------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Due in one year $ 790 $ 790 $ 300 $ 300
Due after one year through five years 5,087 5,099 3,742 3,772
Due after five years through ten years 705 708 500 497
Over ten years 0 0 0 0
- - - -
$ 6,582 $ 6,597 $ 4,542 $ 4,569
======== ======== ========= ========
</TABLE>
Excluding obligations of the U.S. Treasury and U.S. Government agencies,
the Company did not have any investment which exceeded 10% of the
Company's shareholders' equity at December 31, 1997.
26
<PAGE>
Deposits
Average deposits increased $5.9 million to $54.1 million or 12.61% in
1997, $5.0 million or 11.68% from $48.2 million during 1996. The
increase in average deposits represents growth in the Company's existing
market and reflects the results of the Company's marketing efforts in
attracting new customers from competing financial institutions.
The average deposits by type, their relationship to total average
deposits, and the average rate paid on deposits by type for the years
ended December 31, 1997 and 1996 are presented below.
<TABLE>
December 31,
------------
1997 1996
---- ----
Amount % Rate Amount % Rate
------ - ---- ------ - ----
(amounts in thousands, except percentages and ratios)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 5,459 10% 0 $ 4,681 10% 0
Interest-bearing demand deposits 6,967 13 2.57 6,706 14 2.61
Money Market and Savings accounts 5,509 10 3.05 4,741 10 3.06
Certificates of deposit 32,909 61 5.71 29,268 60 5.92
Individual retirement accounts 3,239 6 5.99 2,823 6 6.34
----- - ---- ----- - ----
Total average deposits $ 54,083 100% 4.97% $48,219 100% 5.13%
======== === ==== ======= === ====
</TABLE>
The maturities of certificates of deposits and individual retirement
accounts of $100,000 or more as of December 31, 1997 and 1996 are
presented below.
<TABLE>
December 31,
------------
1997 1996
---- ----
(amounts in thousands)
<S> <C> <C>
Three months or less $ 3,984 $ 4,509
Over three months through six months 3,220 2,068
Over six months through 12 months 2,728 1,820
Over 12 months 1,886 2,818
----- -----
Total certificates of deposit and individual
retirement accounts of $100,000 or more $11,818 $11,215
======= =======
</TABLE>
The Company has analyzed the composition of certificates of deposit and
individual retirement accounts of $100,000 or more. The large deposits
comprised 20.71% of average deposits during 1997 compared to 22.6% of
average deposits for 1996. Total deposits included large deposits of
$11,818,000 and $11,215,000 at December 31, 1997 and 1996, representing
21.23% and 21.38% of total deposits at the end of these periods,
respectively. These large deposits are with governmental bodies in the
local community that the Company serves or are with individuals who
reside in the local area and to whom the Company has had consistent
deposit relations since the Company's inception. There is no material
reliance on brokered deposits as a source of large deposit funding.
27
<PAGE>
Liquidity and Interest Rate Sensitivity
Liquidity management involves the matching of the cash flow requirements
of customers, with depositors withdrawing funds or borrowers requiring
loans, and the ability of the Company to meet those requirements.
Management monitors and maintains appropriate levels of assets and
liabilities so that maturities of assets are such that adequate funds
are provided to meet customer withdrawals and loan requests.
The Company's liquidity position depends primarily upon the liquidity of
its assets relative to its need to respond to short-term demand for
funds caused by withdrawals from deposit accounts and loan funding
commitments. Primary sources of liquidity are scheduled payments on the
Company's loans and interest on and maturities of its investments.
Occasionally, the Company will sell investment securities in connection
with the management of its interest sensitivity gap. The Company may
also utilize its cash and due from banks, interest-earning deposits in
financial institutions and federal funds sold to meet liquidity
requirements as needed.
The Company also has the ability on a short-term basis to purchase
federal funds from other financial institutions. Presently, the Company
has made arrangements with commercial banks for short-term unsecured
advances up to $5,000,000 and with the Federal Home Loan Bank, Atlanta,
Ga. for a secured credit line of $7,000,000.
The relative interest rate sensitivity of the Company's assets and
liabilities indicates the extent to which the Company's net interest
income may be affected by interest rate movements. The Company's ability
to reprice assets and liabilities in the same dollar amounts and at the
same time minimizes interest rate risk. One method of measuring the
impact of interest rate changes on net interest income is to measure, in
a number of time frames the interest sensitivity gap by subtracting
interest-sensitive liabilities from interest-sensitive assets, as
reflected in the following table. Such interest-sensitivity gap
represents the risk or opportunity, in repricing. If more assets than
liabilities are repriced at a given time in a rising rate environment,
net interest income improves; in a declining rate environment, net
interest income deteriorates. Conversely, if more liabilities than
assets are repriced while interest rates are rising, net interest income
deteriorates; if interest rates are falling, net interest income
improves. The Company's strategy in minimizing interest rate risk is to
minimize the impact of short-term interest rate movements on its net
interest income while managing its middle and long-term interest
sensitivity gap in light of overall economic trends in interest rates.
Because of continued pressures of rising rates and the Company's net
liability sensitive position in the one year horizon at December 31,
1997, the Company believes downward pressure on its net interest margin
could have a negative impact on net interest income in 1998.
28
<PAGE>
The following table illustrates the relative sensitivity of the Company
to changing interest rates as of December 31, 1997.
<TABLE>
0-90 days 91-365 days One to five years Over five years
--------- ----------- ----------------- ---------------
Current Current Cumulative Current Cumulative Current Cumulative
------- ------- ---------- ------- ---------- ------------------
(amounts in thousands, except ratios)
Interest-sensitive assets:
<S> <C> <C> <C> <C> <C> <C> <C>
Loans $ 14,500 $ 10,835 $ 25,335 $ 21,233 $ 46,568 $ 2,914 $ 49,482
Investment securities 90 1,000 1,090 8,841 9,931 1,208 11,139
Federal Funds Sold 1,280 0 1,280 0 1,280 0 1,280
----- - ----- - ----- - -----
Total interest-sensitive assets 15,870 11,835 27,705 30,074 57,779 4,122 61,901
====== ====== ====== ====== ====== ===== ======
Interest-sensitive liabilities:
NOW, Money Market,
and savings accounts 11,829 - 11,829 - 11,829 - 11,829
Certificates of deposits and IRA's
$100,000 or more 3,984 5,948 9,932 1,886 11,818 - 11,818
Other certificates of deposits and IRA's 6,421 14,164 20,585 5,259 25,844 - 25,844
Other borrowed funds 44 1,133 1,177 711 1,888 756 2,644
-- ----- ----- --- ----- --- -----
Total interest sensitive liabilities $ 22,278 $ 21,245 $ 43,523 $ 7,856 $ 51,379 $ 756 $ 52,135
======== ========== ======== ======= ======== ======= ========
Interest-sensitivity gap $(6,408) $ (9,410) $(15,818) $22,218 $ 6,400 $ 3,366 $ 9,766
======= ========== ======== ======= ======== ======= ========
Ratio to interest-sensitive assets (10.35)% (15.20)% (25.55)% 35.89% 10.34% 5.44% 15.78%
====== ====== ====== ===== ===== ==== =====
</TABLE>
Management believes that the NOW, Money Market and savings offers a
degree of stability in interest rate sensitivity which is not reflected
in the above table.
Eagle Bancorp, Inc. believes that cash on hand of approximately $338,431
at December 31, 1997 should be sufficient to fund its holding company
annual cash requirements for the foreseeable future which consist
principally of holding company annual cash expenses of approximately
$65,000 and the funding of a $0.32 per share cash dividend of $279,640
which was paid on January 15, 1998.
Capital Resources
The Company continues to maintain a satisfactory level of capital which
exceeds regulatory requirements and is available for supporting future
growth. The Company's level of capital can be measured by its average
shareholders' equity to average assets ratio of 10.26%,,11.31% and
12.25% during 1997, 1996 and 1995, respectively.
29
<PAGE>
At December 31, 1997 the Company's regulatory capital and the required
minimum amounts under existing regulatory requirements are summarized as
follows:
Eagle Bancorp, Inc. and Subsidiary:
<TABLE>
Required
Actual Minimum Excess
------ ------- ------
% Amount % Amount % Amount
- ------ - ------ - ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Risk Based Capital 13.95% $7,376 8.00% $4,055 5.95% $3,321
Tier 1 Capital 12.70 6,742 8.00 4,055 4.70 2,687
Leverage Capital Ratio 10.54 6,742 4.00 2,548 6.54 4,194
</TABLE>
Eagle Bank and Trust:
<TABLE>
Required
Actual Minimum Excess
------ ------- ------
% Amount % Amount % Amount
- ------ - ------ - ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Risk Based Capital 13.95% $7,372 8.00% $4,053 5.95% $3,319
Tier 1 Capital 12.69 6,739 8.00 4,053 4.69 2,686
Leverage Capital Ratio 10.58 6,739 4.00 2,547 6.58 4,192
</TABLE>
The Company is not aware of any recommendations by regulatory
authorities which, if implemented would have a significant impact on its
liquidity, capital resources, or operations.
The Georgia Department of Banking and Finance requires that
state-chartered banks in Georgia maintain a ratio of primary capital, as
defined, to total assets of not less than 6%. The Company intends to
maintain a satisfactory level of capital necessary to satisfy regulatory
requirements and to accommodate expected growth patterns.
Inflation
Inflation impacts the growth in total assets in the banking industry and
causes a need to increase equity capital at higher than normal rates in
order to meet regulatory capital requirements. The Company copes with
the effects of inflation through effectively managing its interest rate
sensitivity gap position and by periodically reviewing and adjusting the
pricing of services to consider current costs.
30
<PAGE>
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued Statements
of Financial Accounting Standards (SFAS) No. 130 `'Reporting Comprehensive
Income". This statement established standards for reporting and displaying
comprehensive income and its components in a full set of general-purpose
financial statements. This is effective for fiscal years beginning after
December 15, 1997. The Company does not expect any material changes to its
current reporting format in response to this statement.
Also, in June 1997, the Financial Accounting Standards Board issued SFAS No. 131
`'Disclosure about Segments of an Enterprise and Related information" and is
effective for fiscal years beginning after December 15, 1997. This statement
establishes standards for reporting operating segments by public business
enterprises in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports to shareholders. The adoption of this statement will have no effect on
the financial statements of the Company.
YEAR 2000 Computer Issue
The Company has developed preliminary plans to address the possible exposures
related to the impact on its financial, informational and operational systems of
the Year 2000. The data processing systems and software include those developed
and maintained by the Company's data processor (Marshall & Isley)and purchased
software which is run on in-house computer networks. The Company's data
processor and those vendors, which have been contacted, have indicated that
their hardware and/or software will be Year 2000 ready by the end of 1998. This
will allow time for the testing for compliance during 1999. While there will be
some capital expenditures (approximately $200,000 to $250,000) during 1998,
expenses incurred are not expected to have a material effect on the Company's
consolidated financial statements.
31
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements, notes thereto and independent auditors'
report thereon included on the following pages are incorporated herein by
reference.
Index to Consolidated Financial Statements
Independent Auditors' Report 34
Consolidated Balance Sheets - December 31, 1997 and 1996. 36
Consolidated Statements of Income for the
Years Ended December 31, 1997, 1996 and 1995 37
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995 38
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997, 1996 and 1995 39
Notes to Consolidated Financial Statements - 40
32
<PAGE>
EAGLE BANCORP, INC. AND SUBSIDIARY
Consolidated Financial Statements
December 31, 1997 and 1996
With Independent Auditors' Report Thereon
33
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
Eagle Bancorp, Inc.
We have audited the accompanying consolidated balance sheet of Eagle Bancorp,
Inc. and subsidiary as of December 31, 1997, and the related consolidated
statements of income, shareholders' equity, and cash flows for the year then
ended. 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 audit. The financial statements of Eagle Bancorp, Inc.
and subsidiary as of December 31, 1996 and 1995 were audited by other auditors
whose report dated February 7, 1997, expressed an unqualified opinion on those
financial statements.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides 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 Bancorp, Inc.
and subsidiary at December 31, 1997 and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/Tiller, Stewart & Company, LLC
Savannah, Georgia
January 15, 1998
34
<PAGE>
Independent Auditors' Report
The Board of Directors
Eagle Bancorp, Inc.:
We have audited the accompanying consolidated balance sheet of Eagle Bancorp,
Inc. and subsidiary as of December 31, 1996, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the years
in the two-year period ended December 31, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 Bancorp, Inc.
and subsidiary at December 31, 1996, and the results of their operations and
their cash flows for each of the years in the two year period ended December 31,
1996 in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
February 7, 1997
35
<PAGE>
<TABLE>
EAGLE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------------------------------------------
1997 1996
--------------------------- -------------------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 1,677,651 $ 2,237,822
Federal funds sold 1,280,000 1,500,000
--------- ---------
Total cash and cash equivalents 2,957,651 3,737,822
Interest-bearing deposits with other banks 1,000,000
Investment securities available for sale 6,597,422 6,898,784
Investment securities held to maturity
(estimated market value of $4,568,561
in 1997 and $3,791,932 in 1996) 4,541,697 3,790,335
Loans 49,474,280 42,638,858
Less allowance for loan losses (706,237) (639,500)
-------- --------
Loans, net 48,768,043 41,999,358
Premises and equipment, net 2,437,122 2,474,386
Other assets 1,033,491 829,308
--------- -------
Total assets $ 66,335,426 $ 60,729,993
============= ============
LIABILITIES
Deposits:
Noninterest-bearing $ 6,175,919 $ 5,184,539
Interest-bearing 49,491,445 47,280,321
---------- ----------
Total deposits 55,667,364 52,464,860
Federal Home Loan Bank advances 2,643,507 548,250
Federal funds purchased 200,000
Other liabilities 1,272,136 1,257,832
--------- ---------
Total liabilities 59,583,007 54,470,942
---------- ----------
SHAREHOLDERS' EQUITY
Common stock - par value $1 per share;
authorized 10,000,000 shares;
issued and outstanding 873,875 shares
in 1997 and 862,845 shares in 1996 873,875 862,845
Additional paid-in capital 4,887,567 4,821,527
Retained earnings 980,884 586,583
Net unrealized gain (loss) on investment securities
available for sale, net of deferred income taxes 10,093 (11,904)
------ -------
Total shareholders' equity 6,752,419 6,259,051
--------- ---------
Total liabilities and shareholders' equity $ 66,335,426 $ 60,729,993
============= ============
</TABLE>
See notes to consolidated financial statements
36
<PAGE>
<TABLE>
EAGLE BANCORP, INC, AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
----------------------- --------------------- -------------------
INTEREST INCOME
<S> <C> <C> <C>
Loans $ 4,512,884 $ 4,017,584 $ 3,687,797
Investment securities:
Taxable 538,524 491,027 419,279
Tax-exempt 122,054 88,815 33,191
Federal funds sold 63,557 58,743 89,364
Deposits in other banks 1,186 1,055 6,429
----- ----- -----
Total interest income 5,238,205 4,657,224 4,236,060
--------- --------- ---------
INTEREST EXPENSE
Deposits 2,419,477 2,232,006 1,986,892
Federal Home Loan Bank advances 75,274 35,221
Other borrowed funds 43,582 1,728 1,060
------ ----- -----
Total interest expense 2,538,333 2,268,955 1,987,952
--------- --------- ---------
NET INTEREST INCOME 2,699,872 2,388,269 2,248,108
PROVISION FOR LOAN LOSSES 116,000 75,503 107,842
------- ------ -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,583,872 2,280,427 2,172,605
NONINTEREST INCOME
Service charges on deposit accounts 122,221 116,391 105,786
Other service charges and fees 256,299 223,665 217,102
Net realized gain (loss) on sales of available
for sale securities 1,293 (10,467) (4,531)
Other noninterest income 367,026 312,872 172,177
------- ------- -------
746,839 642,461 490,534
------- ------- -------
NONINTEREST EXPENSES
Salaries and employee benefits 1,142,200 1,071,636 953,836
Occupancy 307,272 272,664 222,197
Other noninterest expenses 900,698 826,732 776,926
------- ------- -------
2,350,170 2,171,032 1,952,959
--------- --------- ---------
INCOME BEFORE INCOME TAXES 980,541 751,856 710,180
PROVISION FOR INCOME TAXES 306,600 250,000 210,000
------- ------- -------
NET INCOME $ 673,941 $ 501,856 $ 500,180
=============== ================= ============
Basic earnings per share $ 0.78 $ 0.58 $ 0.58
=============== ================= ============
Diluted earnings per share $ 0.76 $ 0.57 $ 0.57
=============== ================= ============
See Notes to Consolidated Financial Statements
</TABLE>
37
<PAGE>
<TABLE>
EAGLE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 and 1995
- ---------------------------------------------------------------------------------------------------------------------------------
Net
Unrealized
Gain (Loss)
on
Investment
Additional Securities
Common Stock Paid-In Retained Available
Shares Amount Capital Earnings for Sale Total
------ ------ ------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1994 $ 862,755 862,755 4,820,841 $ (92,862) 5,822,393 231,659
Net income 500,180 500,180
Cash paid in lieu of
fractional shares
In connection with stock
split (349) (349)
Cash dividends declared,
$.25 per share (215,689) (215,689)
Net change in unrealized
gain (loss) on
investment securities
available for sale 92,396 92,396
BALANCE - DECEMBER 31, 1995
862,755 862,755 4,820,492 516,150 (466) 6,198,931
------- ------- --------- ------- ---- ---------
Net income 501,856 501,856
Issuance of stock 90 90 1,035 1,125
Cash dividends declared,
$.50 per share (431,423) (431,423)
Net change in unrealized
gain (loss) on
investment securities
available for sale (11,438) (11,438)
BALANCE - DECEMBER 31, 1996 862,845 862,845 4,821,527 586,583 (11,904) 6,259,051
------- ------- --------- ------- ------- ---------
Net income 673,941 673,941
Issuance of stock 11,030 11,030 66,040 77,070
Cash dividends declared,
$.32 per share (279,640) (279,640)
Net change in unrealized
gain (loss) on
investment securities
available for sale 21,997 21,997
BALANCE - DECEMBER 31, 1997 873,875 $ 873,875 $ 980,884 $ 10,093 $ 4,887,567 $ 6,752,419
======= ============ ============ ======== ============ ===========
See Notes to Statements Consolidated Financial
</TABLE>
38
<PAGE>
<TABLE>
EAGLE BANCORP, INC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 and 1995
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 673,941 $ 501,856 $ 500,180
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 179,211 165,622 134,666
Amortization and accretion, net (22,024) (20,593) 13,211
Amortization of net deferred loan fees
(4,977) 757
Provision for loan losses 116,000 107,842
75,503
Net realized (gain) loss on available for sale securities
(1,293) 10,467 4,531
Compensation expense under stock options
1,125
Changes in:
Other assets (216,028) (83,997) (68,650)
Other liabilities 169,587 244,430 49,543
------- ------- ------
Net cash provided by operating activities 899,394 726,888 904,628
------- ------- -------
INVESTING ACTIVITIES
Net (increase) decrease in time deposits in other banks 1,000,000 (1,000,000)
Proceeds from maturities of investment securities:
Held to maturity securities 500,000 1,050,000
Available for sale securities 2,143,333 550,000
Proceeds from sales of available for sale securities 1,895,484 1,739,405 992,938
Purchase of investment securities:
Held to maturity securities (1,245,625) (1,727,027) (748,359)
Available for sale securities (1,542,700) (1,613,872) (4,250,098)
Net increase in loans (6,884,685) (5,229,898) (3,994,395)
Additions to premises and equipment (141,947) (91,313) (618,177)
-------- ------- --------
Net cash used for investing activities (6,419,473) (7,980,263) (4,817,200)
---------- ---------- ----------
FINANCING ACTIVITIES
Net increase in deposits 3,202,504 7,582,171 4,179,869
Federal Home Loan Bank advance proceeds 2,180,000 590,000
Repayment of Federal Home Loan Bank advances (84,743) (41,750)
Net increase (decrease) in other borrowings (200,000) (500,000) 700,000
Dividends paid (431,423) (215,689)
Cash paid in lieu of fractional shares
(349)
Issuance of stock
73,570 0 0
------ - -
Net cash provided by financing activities 4,739,908 7,414,732 4,879,520
--------- --------- ---------
Increase (decrease) in cash and cash equivalents (780,171) 161,357 966,948
Cash and cash equivalents - beginning 3,737,822 3,576,465 2,609,517
--------- --------- ---------
Cash and cash equivalents - ending $ 2,957,651 $ 3,737,822 $ 3,576,465
=========== =========== ===========
See notes to consolidated financial statements
</TABLE>
39
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - Eagle Bancorp, Inc. (the "Company") through its
wholly-owned subsidiary, Eagle Bank And Trust (the "Bank"), provides a
full range of banking services from its main office and branch
facilities to individuals and business throughout Bulloch and
surrounding counties.
Basis of Presentation - The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiary. All
intercompany balances and transactions have been eliminated. The
accounting and reporting policies and practices of the Company conform
to generally accepted accounting principles and to general practice
within the banking industry. The following is a summary of the more
significant of such policies and practices.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles 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.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for loan losses.
The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb credit losses inherent in
the loan portfolio. Management's periodic evaluation of the adequacy of
the allowance is based on the Bank's past loss experience, known and
inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to pay, the estimated value of the underlying
collateral, current economic conditions, and other pertinent factors.
The allowance for loan losses is increased by charges to income and
recoveries on loans previously charged off as uncollectable. Decreases
in the allowance occur as loans deemed uncollectable are charged to the
allowance.
Investment Securities Available for Sale - Investments securities
available for sale are carried at market value. The related unrealized
gain or loss, net of tax, is included as a separate component of
shareholders' equity. Premiums and discounts are amortized and accreted
using a method which approximates a level yield. Gains and losses from
dispositions are based on the net proceeds and adjusted carrying
amounts of the securities sold, using the specific identification
method.
Investment Securities Held to Maturity - Investment securities held to
maturity are stated at cost, adjusted for amortization of premiums and
accretion of discounts which are recognized as adjustments to interest
income. The Company has the intent and ability to hold these investment
securities to maturity. Premiums and discounts are amortized and
accreted using a method which approximates a level yield. Gains and
losses on dispositions are based on the net proceeds and the adjusted
carrying amounts of the security sold, using the specific
identification method.
Loans - Effective January 1, 1995, the Bank adopted Statement of
Financial Accounting Standards No. 114 (as amended by No. 118),
"Accounting by Creditors for Impairment of a Loan." SFAS 114
establishes the accounting by creditors for impairment of loans by
specifying how allowances for credit losses related to certain loans
should be determined. This statement also addresses the accounting by
creditors for certain loans that are restructured in a troubled debt
restructuring. When a loan is impaired, the amount of the impairment is
measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate.
40
<PAGE>
For collateral dependent loans, impairment is measured based on a loan's
observable market price or the fair value of the collateral.
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal amounts adjusted for any charge-offs, the
allowance for possible loan losses, and any deferred fees or costs.
Interest on loans is recognized using the simple interest method based
on the principal balance outstanding. Interest accruals including
accruals of interest on impaired loans are discontinued when either
principal or interest becomes 90 days past due, or when in management's
opinion, after considering economic and business conditions and
collection efforts, the borrower's financial condition is such that it
is not reasonable to expect such interest will be collected. Interest
income is subsequently recognized only to the extent cash payments are
received.
Loan fees, net of direct origination costs, are deferred and amortized
over the terms of the loans using a method which approximates a level
yield.
Premises and Equipment - Property is stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method
over the estimated useful lives of such assets.
Income Taxes - The provision for income taxes is based upon amounts
reported in the statements of income (after exclusion of non-taxable
income such as interest on state and municipal securities) and consist
of taxes currently due plus deferred taxes related primarily to
temporary differences between the basis of the allowance for loan
losses and accumulated depreciation. The deferred tax assets and
liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled. Deferred tax assets and
liabilities are reflected at income tax rates applicable to the period
in which the temporary differences are expected to be realized or
settled. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision for income
taxes.
Reclassifications - Certain amounts in the 1996 and 1995 consolidated
financial statements have been reclassified to conform with the
presentation adopted in 1997. Cash and Cash Equivalents - For purposes
of reporting cash flows, cash and cash equivalents include cash on hand
and amounts due from banks and federal funds sold.
Recent Accounting Pronouncements - In June 1997, the Financial
Accounting Standards Board (FASB) issued Statements of Financial
Accounting Standards (SFAS) No. 130 "Reporting Comprehensive Income".
This statement established standards for reporting and displaying
comprehensive income and its components in a full set of
general-purpose financial statements. This is effective for fiscal
years beginning after December 15, 1997.
41
<PAGE>
Also, in June 1997, the Financial Accounting Standards Board issued
SFAS No. 131 "Disclosure about Segments of an Enterprise and Related
Information" and is effective for fiscal years beginning after December
15, 1997. This statement establishes standards for reporting operating
segments by public business enterprises in annual financial statements
and requires that those enterprises report selected information about
operating segments in interim financial reports to shareholders. The
adoption of this statement will have no effect on the financial
statements of the Company.
2. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain certain reserve balances in the form
of vault cash. Such reserve requirements totaled approximately $199,000
and $212,000 at December 31, 1997 and 1996, respectively.
3. SECURITIES
Debt and equity securities have been classified according to
management's intent. The amortized cost, estimated market value and
gross unrealized gains and losses on securities are as follows:
<TABLE>
<CAPTION>
Available For Sale Securities
-------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Costs Gains Losses Value
----- ----- ------ -----
December 31, 1997:
<S> <C> <C> <C> <C>
- --------------------------------------
U.S. Government agencies $ 3,396,930 $ 9,806 $ 3,283 $ 3,403,453
State, county, and municipal
securities 2,940,664 10,636 1,631 2,949,669
--------- ------ ----- ---------
Total debt securities 6,337,594 20,442 4,914 6,353,122
Federal Home Loan Bank stock 244,300 0 0 244,300
------- - - -------
Total $ 6,581,894 $ 20,442 $ 4,914 $ 6,597,422
============= ======== ======= ===========
December 31, 1996:
- --------------------------------------
U.S. Treasury and
U.S. Government agencies $ 3,890,204 $ 11,989 $ 18,043) $ 3,884,150
State, county, and municipal
securities 2,868,494 6,855 (19,115) 2,856,234
--------- ----- ------- ---------
Total debt securities 6,758,698 18,844 (37,158) 6,740,384
Federal Home Loan Bank stock 158,400 0 0 158,400
------- - - -------
Total $ 6,917,098 $ 18,844 $ (37,158) $ 6,898,784
=========== ======== ========= ===========
Held To Maturity Securities
-------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Costs Gains Losses Value
---------------- ---------------- ---------------- ----------------
December 31, 1997:
- --------------------------------------
U.S. Treasury and
U.S. Government agencies $ 4,541,697 $ 33,795 $ 6,931 $ 4,568,561
----------- -------- ------- -----------
$ 4,541,697 $ 33,795 $ 6,931 $ 4,568,561
=========== ======== ======= ===========
December 31, 1996:
- --------------------------------------
U.S. Treasury and
U.S. Government agencies $ 3,790,335 $ 36,868 $ (35,271) $ 3,791,932
----------- -------- --------- -----------
Total $ 3,790,335 $ 36,868 $ (35,271) $ 3,791,932
=========== ======== ========= ===========
</TABLE>
Gross realized gains and gross realized losses on available-for-sale
securities were $4,500 and $3,207, respectively, in 1997. Gross
realized losses on available-for-sale securities were $10,467 in 1996.
The amortized cost and estimated market value of debt securities at
December 31, 1997, by contractual maturity are as follows:
42
<PAGE>
<TABLE>
Available for sale Held to maturity
----------------------------- -----------------------------
Amortized Market Amortized Market
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Due in one year or less $ 790,000 $ 790,010 $ 299,672 $ 298,080
Due after one year through
five years 5,087,443 5,098,640 3,742,025 3,773,291
Due after five years through
ten years 460,151 464,472 500,000 497,190
------- ------- ------- -------
$ 6,337,594 $ 6,353,122 $ 4,541,697 $ 4,568,561
=========== =========== =========== ===========
</TABLE>
Securities with a carrying amount of approximately $4,797,000 at
December 31, 1997 and approximately $2,500,000 at December 31, 1996
were pledged to secure deposits of public funds and for other purposes
required or permitted by law.
4........LOANS
Loans are summarized as follows:
<TABLE>
December 31,
------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
Agricultural $ 1,699,641 $ 1,301,3141
Commercial 8,443,154 8,275,067
Commercial real estate 21,655,639 19,194,293
Real estate construction 5,699,007 3,097,285
Residential real estate 6,705,326 6,538,226
Consumer 5,271,768 4,231,252
--------- ---------
49,474,535 42,637,437
Net deferred loan fees (costs) (255) 1,421
---- -----
$ 49,474,280 $ 42,638,858
============ ============
</TABLE>
An analysis of the allowance for loan losses follows:
<TABLE>
1997 1996 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Balance, beginning of year $ 639,500 $ 570,000 $ 527,500
Provision for loan losses 116,000 107,842 75,503
Loans charged off (70,498) (59,423) (35,179)
Recoveries 21,235 21,081 2,176
------ ------ -----
Balance, end of year $ 706,237 $ 639,500 $ 570,000
========= ========= =========
</TABLE>
Loans having recorded investments of approximately $48,000 at December
31, 1997 and approximately $123,000 at December 31, 1996 have been
identified as impaired in accordance with the provisions of FASB No.
114. The total allowance for possible loan losses related to these
loans was $8,000 and $18,000 at December 31, 1997 and 1996,
respectively.
43
<PAGE>
In the normal course of its lending activities, the Company is a party
to financial instruments with off-balance-sheet risk. These financial
instruments include commitments to extend credit and standby letters of
credit. The Company's exposure to credit loss in the event of
non-performance by the other party of the financial instrument for
commitments to extend credit and standby letters of credit is
represented by contractual amount of those instruments. The Company
uses the same credit policies in making these commitments as it does
for on-balance-sheet instruments and evaluates each customer's credit
worthiness on a case-by-case basis. At December 31, 1997, the Company
had outstanding loan commitments of approximately $6,136,000 and
standby letters of credit of approximately $102,000. The amount of
collateral obtained, if deemed necessary, for these commitments by the
Company, upon extension of credit, is based on management's credit
evaluation of the customer. Collateral held, if any, varies but may
include inventory, equipment, real estate, or other property. The
Bank's loans are primarily concentrated in its market area of the City
of Statesboro, Georgia and surrounding Bulloch county.
5. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bank has direct and indirect
loans outstanding to certain directors, executive officers, and
principal shareholders, including their associates. Such loans are made
on the same terms as those prevailing at the time for comparable
transactions with unaffiliated customers. The following is a summary of
the activity of loans to directors, executive officers, and principal
shareholders:
<TABLE>
December 31,
------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
Balance, beginning of year $ 1,749,000 $ 1,850,000
Amounts advanced 2,045,000 1,939,000
Repayments (1,990,000) (2,040,000)
---------- ----------
Balance, end of year $ 1,804,000 $ 1,749,000
=========== ===========
</TABLE>
44
<PAGE>
6. PREMISES AND EQUIPMENT
Premises and equipment is summarized as follows:
<TABLE>
December 31,
------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
Building and improvements $ 1,473,463 $ 1,469,358
Furniture and equipment 927,150 813,653
Automobiles 58,142 33,798
------ ------
2,458,755 2,316,809
Less accumulated depreciation 826,614 647,404
------- -------
1,632,141 1,669,405
Land 804,981 804,981
------- -------
$ 2,437,122 $ 2,474,386
=========== ===========
</TABLE>
7. INTEREST-BEARING DEPOSITS
Interest-bearing deposits are summarized as follows:
<TABLE>
December 31,
------------------------------------
1997 1996
------------------------------------
<S> <C> <C>
NOW $ 6,867,140 $ 7,420,192
Money market 2,137,149 3,077,437
Savings 2,824,983 2,586,187
Certificates of deposits,
$100,000 or more 11,817,762 10,319,613
Other time deposits 25,844,411 23,876,892
---------- ----------
$ 49,491,445 $ 47,280,321
============ ============
</TABLE>
Scheduled maturities of certificates of deposit are as follows:
<TABLE>
Years Ended December 31,
- ---------------------------
<S> <C> <C>
1998 $ 30,517,479
1999 4,335,023
2000 1,691,063
2001 1,118,608
---------
$ 37,662,173
============
</TABLE>
45
<PAGE>
8. FEDERAL HOME LOAN BANK ADVANCES
The Bank has an agreement for advances with the Federal Home Loan Bank
of Atlanta. These advances are secured by a blanket floating lien
agreement which provides a security interest in all unencumbered first
mortgage residential loans and by stock in the Federal Home Loan Bank.
Advances from the Federal Home Loan Bank are summarized as follows:
<TABLE>
December 31,
----------------------------------------
1997 1996
-------------------- -------------------
<S> <C> <C>
Advance payable - interest payable monthly
at 6.81%, monthly principal reductions
of $2,417 through March 2006. $ 239,249 $ 268,250
Advance payable - interest payable monthly
at 7.01%, monthly principal reductions
of $2,500 through April 2006. 250,000 280,000
Advance payable - interest payable monthly
at 6.70%, monthly principal reductions
of $3,167 through July 2007. 360,981
Advance payable - interest payable monthly
at 6.18%, monthly principal reductions
of $6,667 through November 2007. 793,277
Advance payable - interest payable monthly
at 6.06%, principal due June 1998. 1,000,000 0
--------- -
$ 2,643,507 $ 548,250
=========== =========
Aggragate annual maturities of FHLB advances:
Years Ended December 31, 1998 $ 1,173,814
1999 177,000
2000 177,000
2001 177,000
2002 177,000
thereafter 761,693
-------
$ 2,643,507
===========
</TABLE>
9. CREDIT ARRANGEMENTS
At December 31, 1997, federal funds line of credit arrangements
aggregating $5,000,000 were available to the Bank from corresponding
banking institutions. There are no commitment fees and compensation
balances are not required. The Bank also has a Blanket Floating Lien
Agreement with the Federal Home Loan Bank of Atlanta. Under this
agreement, the Bank has a credit line up to seventy-five percent of the
book value of its one-to-four family first mortgage loans.
46
<PAGE>
10. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
Years Ended December 31,
----------------------------------------------------
1997 1996 1995
--------------- ---------------- ----------------
<S> <C> <C> <C>
Current $ 340,600 $ 269,128 $ 272,760
Deferred (34,000) (19,128) (62,760)
------- ------- -------
$ 306,600 $ 250,000 $ 210,000
========= ========= =========
</TABLE>
The provision for income taxes is less than computed by applying the
statutory federal income tax rate of 34% to income before income taxes
as indicated by the following:
<TABLE>
Years Ended December 31,
---------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Income tax at statutory rate $ 333,384 $ 255,631 $ 241,461
Increase (decrease) in taxes:
Tax-exempt interest (33,507) (19,247) (7,673)
Valuation allowance for deferred tax assets (29,718)
Other 6,723 13,616 5,930
----- ------ -----
Provision for income taxes $ 306,600 $ 250,000 $ 210,000
========= ========= =========
</TABLE>
The components of net deferred tax assets are as follows:
<TABLE>
December 31,
----------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses 262,000 203,000
State tax credit carryforwards 4,000 14,000
Unrealized loss on investment securities
available for sale 0 6,000
- -----
Total deferred tax assets 266,000 223,000
------- -------
Deferred tax liabilities:
Accumulated depreciation 70,000 54,000
Unrealized gain on investment securities
available for sale 5,000
Other 6,000 4,000
----- -----
Total deferred tax liabilities 81,000 58,000
------ ------
Net deferred tax assets 185,000 165,000
======= =======
</TABLE>
47
<PAGE>
The Company recognizes deferred income tax assets and liabilities for
differences between the financial statement carrying amounts and the
tax bases of assets and liabilities which will result in future
deductible or taxable amounts and for net operating loss and tax credit
carryforwards. A valuation allowance is then established to reduce the
deferred income tax assets to the level at which it is "more likely
than not" that the tax benefits will be realized. Realization of tax
benefits of deductible temporary differences and operating loss and tax
credit carryforwards depends on having sufficient taxable income within
the carryback and carryforward periods. Sources of taxable income that
may allow for the realization of tax benefits include 1) taxable income
in the current year or prior years that is available through carryback,
2) future taxable income that will result from the reversal of existing
taxable temporary differences, and 3) future taxable income generated
by future operations. During the year ended December 31, 1995, the
Company decreased its valuation allowance for deferred income tax
assets by $29,718, as accumulated deficits were recovered and taxable
income was generated. Based on the availability of carrybacks to prior
taxable periods, management believes that the Company, more likely than
not, will realize the net deferred tax assets recorded at December 31,
1997.
11. PROFIT SHARING PLAN
The Eagle Bank Profit Sharing Plan (the "Plan") provides employees of
the Bank a vehicle to save for retirement. The Plan allows the Bank to
make annual discretionary contributions for the benefit of plan
participants. All employees of the Bank can participate in the Plan
after they have met certain eligibility requirements. Under the terms
of the plan employer contributions are allocated to participants in the
same proportion that the participant's compensation, as defined, bears
to the total compensation of all participants for the year. For the
years ended December 31, 1997, 1996 and 1995, employer contributions
were $40,000, $30,000 and $25,000, respectively.
48
<PAGE>
12. SUPPLEMENTAL CASH FLOW INFORMATION
Certain supplemental disclosure of cash flow information and noncash
investing and financing activities follows:
Years Ended December 31,
------------------------
1997 1996 1995
---- ---- ----
<TABLE>
<S> <C> <C> <C>
Cash paid during the year for:
Income taxes $ 260,542 $ 316,093 $ 379,699
========= ========= =========
Interest $ 2,489,244 $ 2,204,231 $ 1,609,873
=========== =========== ===========
</TABLE>
13. REGULATORY REQUIREMENTS
The approval of the Georgia Department of Banking and Finance is
required if dividends declared by the Bank to the Company in any year
will exceed 50% of the net income of the Bank for the previous calendar
year. As of December 31, 1997, the Bank could declare approximately
$375,000 of dividends without prior approval.
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possible
additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital
guidelines that 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 the
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 minimum amounts and ratios (set
forth in the table below) of Tier 1 capital (as defined in the
regulations) to total average assets (as defined) and minimum ratios of
Tier 1 and total capital (as defined) to risk-weighted assets (as
defined). Management believes, as of December 31, 1997, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the
FDIC categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the
table. There are no conditions or events since that notification
that management believes have changed the institution's category.
<TABLE>
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
December 31, 1997:
Total Capital ( to Risk Weighted Assets )
<S> <C> <C> <C> <C> <C> <C>
Consolidated $ 7,375,745 15% $ 4,054,829 8% $ 5,068,537 10%
Bank $ 7,372,581 15% $ 4,053,885 8% $ 5,067,356 10%
Tier 1 Capital ( to Risk Weighted Assets )
Consolidated $ 6,742,326 13% $ 2,027,415 4% $ 3,041,122 6%
Bank $ 6,739,162 13% $ 2,026,942 4% $ 3,040,413 6%
Tier 1 Capital ( to Average Assets )
Consolidated $ 6,742,326 11% $ 2,547,761 4% $ 3,184,701 5%
Bank $ 6,739,162 11% $ 2,547,297 4% $ 3,184,121 5%
December 31, 1996:
Total Capital ( to Risk Weighted Assets )
Consolidated $ 6,842,455 15% $ 3,652,080 8% $ 4,565,100 10%
Bank $ 6,561,517 14% $ 3,652,080 8% $ 4,565,100 10%
Tier 1 Capital ( to Risk Weighted Assets )
Consolidated $ 6,270,955 14% $ 1,826,040 4% $ 2,739,060 6%
Bank $ 5,990,017 13% $ 1,826,040 4% $ 2,739,060 6%
Tier 1 Capital ( to Average Assets )
Consolidated $ 6,270,955 11% $ 2,367,400 4% $ 2,959,250 5%
Bank $ 5,990,017 10% $ 2,367,400 4% $ 2,959,250 5%
</TABLE>
49
<PAGE>
14. STOCK OPTIONS
The Company has an Incentive Stock Option Plan which provides for
granting of 120,000 stock options to officers and certain key employees
of the Bank. The exercise price of these options is equal to the fair
market value of the Company's stock on the date of grant. The maximum
term of the options is ten years and they vest and become exercisable
at such times and in such installments as the Board of Directors shall
provide in each individual stock option agreement. There are 55,882
remaining stock options authorized to be granted under this plan as of
December 31, 1997.
<TABLE>
Shares Exercise Price
------ --------------
<S> <C> <C> <C> <C>
Options outstanding - December 31, 1994 44,118 $6.67
Options granted
Options exercised 0 0
- -
Options outstanding - December 31, 1995 44,118 $6.67
Options granted
Options exercised 0 0
- -
Options outstanding - December 31, 1996 44,118 $6.67
Options granted 20,000 $14.00
Options exercised (11,030) $6.67
------- -----
Options outstanding - December 31, 1997 53,088 $6.67 - $14.00
====== ===== ======
</TABLE>
As of December 31, 1997, the total outstanding options under the plan
had a weighted average exercise price of $9.43 and a weighted average
remaining contractual life of 2.75 years.
The Company has elected not to adopt the fair value method of
accounting for employee stock options as prescribed by Statement of
Financial Accounting Standards (SFAS) No. 123 "Accounting for
Stock-Based Compensation" issued by the Financial Accounting Standards
Board. Instead, as permitted by SFAS No. 123, the Company has elected
to continue to apply the intrinsic value method of accounting
prescribed under the provisions of Accounting Principles Board
Statement No. 25, "Accounting for Stock Issued to Employees".
Accordingly, no compensation cost has been recognized for options
granted in 1997. Had compensation cost been determined on the basis of
fair value pursuant to SFAS No. 123, net income and earnings per share
would have been reduced to the Pro forma amounts as disclosed below:
<TABLE>
<S> <C> <C>
Years Ended December 31, 1997 As reported Proforma
----------------------------- ----------- --------
Net income: $ 673,941 $ 650,941
----------- ========= =========
Earnings per share:
-------------------
Basic $ 0.78 $ 0.75
====== ======
Diluted $ 0.76 $ 0.74
====== ======
</TABLE>
The fair value of each option granted in 1997 is estimated on the date
of grant using the Black Scholes option pricing model with the
following assumptions: dividend yield of 2.5%; risk free interest rate
of 5.89%; expected life of options of five years and expected
volatility of near 0%.
50
<PAGE>
15. EARNINGS PER SHARE
Earnings per share has been calculated in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No.
128 "Earnings Per Share" issued by the Financial Accounting Standards
Board. SFAS No. 128 requires presentation of earnings per share on a
basic computation and a diluted computation. The basic computation
divides net income by only the weighted average number of common shares
outstanding for the year and the diluted computation gives effect to
all diluted common shares that were outstanding during the year.
Earnings per share amounts for 1996 and 1995 have been restated to give
effect to the application of this new standard.
The following data shows the amounts used in computing earnings per
share and the effect on income and the weighted average number of
shares of dilutive potential common stock.
<TABLE>
Years Ended December 31,
------------------------------------------------------------
1997 1996 1995
-------------------- ------------------- -------------------
Income available to common shareholders:
<S> <C> <C> <C>
Used in basic earnings per share $ 673,941 $ 501,856 $ 500,180
========= ========= =========
Used in diluted earnings per share $ 673,941 $ 501,856 $ 500,180
========= ========= =========
Weighted average number of common
shares used in basic earnings per share 865,143 862,845 862,755
Effect of dilutive securities:
Stock options 17,324 22,353 20,577
------ ------ ------
Weighted average number of common
and dilutive potential common shares
used in diluted earnings per share 882,467 885,198 883,332
======= ======= =======
</TABLE>
16. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following disclosures of the estimated fair value of financial
instruments is made in accordance with requirements of Statement of
Financial Standards No, 107, "Disclosures about Fair Value of Financial
Instruments". The estimated fair value amounts have been determined by
the Company using available market information and appropriate
valuation methodologies. However, considerable judgment is necessarily
required to interpret market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts.
The following methods and assumptions were used by the Company in
estimating fair values of financial instruments:
Cash and cash equivalents and interest-bearing deposits in other
financial institutions - The carrying amounts of these assets
approximates fair value because of their short-term maturities.
51
<PAGE>
Investments Securities - Fair values for investment securities are
based on quoted market prices.
Loans - For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying
values. The fair values for all other loans are estimated using
discounted cash flow analyses, using interest rates currently being
offered for loans with similar terms to borrowers of similar credit
quality. The carrying value of off-balance-sheet commitments
approximates fair value based on the fact that the Company generally
does not offer lending commitments to its customers for long periods
and, the underlying rates of the commitments approximate market rates.
Deposit liabilities - Fair values of certificates of deposit are
estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates of similar terms
and remaining maturities. The carrying amounts of all other deposits,
due to their nature, approximate their fair values.
Federal Home Loan Bank advances - Fair value for fixed-rate borrowings
from the Federal Home Loan Bank are estimated using a discounted cash
flow calculation that considers interest rates currently being offered
on advances of similar terms to maturity.
Federal funds purchased - The carrying amount of federal funds
purchased approximates fair values.
The carrying values and estimated fair values of the Company's
financial instruments were as follows:
<TABLE>
December 31, 1997 December 31, 1996
--------------------------------- ---------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
--------------- --------------- --------------- ---------------
Financial assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents
and interest-earning deposits $ 2,957,651 $ 2,957,651 $ 4,737,822 $ 4,737,822
Investment securities:
Available for sale 6,597,422 6,597,422 6,898,784 6,898,784
Held to maturity 4,541,697 4,568,561 3,790,335 3,791,932
Loans, net 48,768,043 49,477,938 41,999,358 41,951,522
Financial liabilities:
Deposits $ 55,667,364 $ 55,893,556 $ 52,464,860 $ 52,624,058
Federal Home Loan advances 2,643,507 2,685,613 548,250 554,724
Other borrowed funds 200,000 200,000
</TABLE>
52
<PAGE>
17. OTHER NONINTEREST EXPENSES
The major components of other noninterest expenses are as follows:
<TABLE>
December 31,
--------------------------------------------------
1997 1996 1995
--------------- --------------- --------------
<S> <C> <C> <C>
Postage $ 62,402 $ 56,267 $ 51,605
Stationery and supplies 61,205 84,717 74,317
Advertising and marketing 58,824 52,366 51,605
Professional services 85,589 74,864 54,471
Data processing 129,081 109,217 87,845
Director fees 58,900 53,300 55,400
Other 444,697 396,001 401,683
------- ------- -------
Total $ 900,698 $ 826,732 $ 776,926
========= ========= =========
</TABLE>
18. EAGLE BANCORP, INC. (PARENT ONLY) FINANCIAL INFORMATION
Eagle Bancorp, Inc. condensed balance sheets and the related condensed
statements of income and cash flows follow:
<TABLE>
Condensed Balance Sheets
December 31,
------------------------------------
1997 1996
---------------- ----------------
Assets
<S> <C> <C>
Cash $ 338,431 $ 774,702
Investment in Bank 6,749,255 5,978,113
Other assets 11,809
------
Total assets $ 7,099,495 $ 6,752,815
=========== ===========
Liabilities
Dividends payable $ 279,640 $ 431,423
Other liabilities 67,436 62,341
------ ------
Total liabilities 347,076 493,764
------- -------
Shareholders' equity
Common Stock 873,875 862,845
Additional paid-in capital 4,887,567 4,821,527
Retained Earnings 980,884 586,583
Net unrealized gain ( loss) on investment
securities available for sale, net of taxes 10,093 (11,904)
------ -------
Total shareholders' equity 6,752,419 6,259,051
--------- ---------
Total liabilities and shareholders' equity $ 7,099,495 $ 6,752,815
=========== ===========
</TABLE>
53
<PAGE>
Condensed Statements of Income
<TABLE>
Years Ended December 31,
-------------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
Noninterest expenses $ 75,204 $ 113,778 $ 73,925
-------- --------- --------
Loss before equity in undistributed
income of Bank (75,204) (113,778) (73,925)
Equity in undistributed income of Bank 749,145 615,634 574,105
------- ------- -------
Net income $ 673,941 $ 501,856 $ 500,180
========= ========= =========
</TABLE>
<TABLE>
Condensed Statements of Cash Flows
Years Ended December 31,
----------------------------------------------------
1997 1996 1995
---------------- --------------- --------------
Operating Activities
<S> <C> <C> <C>
Net income $ 673,941 $ 501,856 $ 500,180
Adjustments to reconcile net income
to net cash used for operating activities:
Equity in undistributed income of Bank (749,145) (615,634) (574,105)
Compensation expense under stock awards
and options 1,125
Amortization of organization costs 382 4,584
Decrease (increase) in other assets (11,809) 28,420
Increase (decrease) in other liabilities 8,595 10,964 (28,105)
----- ------ -------
Net cash used for operating activities (78,418) (101,307) (69,026)
======= ======== =======
Financing Activities
Cash paid in lieu of fractional shares in
connection with stock split (349)
Exercise of stock options 73,570
Dividends paid (431,423) (215,689) 0
-------- -------- -
Net cash used for financing activities (357,853) (215,689) (349)
-------- -------- ----
Decrease in cash (436,271) (316,996) (69,375)
Cash - beginning of year 774,702 1,091,698 1,161,073
------- --------- ---------
Cash - end of year $ 338,431 $ 774,702 $ 1,091,698
========= ========= ===========
</TABLE>
54
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
......... ACCOUNTING AND FINANCIAL DISCLOSURE
There are no changes in or disagreements with accountants on accounting and
financial disclosure for the year ended December 31, 1997. On January 21, 1997
the Board of Directors of Eagle Bancorp, Inc. voted not to renew the appointment
of KPMG Peat Marwick LLP as the Company's independent auditor for the year
ending December 31, 1997. The engagement of Tiller, Stewart and Company, LLC
became effective March 31, 1997. The decision to engage Tiller, Stewart and
Company, LLC was made because of lower professional fees.
On January 29, 1997 the Company filed a Form 8-K, SEC File Number 000-19228,
disclosing the foregoing change in principal accountants. On February 10, 1997,
the Company filed an amendment to this Form 8-K as required. Both Form 8-K filed
January 29, 1997, and Form 8-K/A filed February 10, 1997, are incorporated
herein by reference as, respectively, Exhibits 99.1 16.1.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information set forth under the caption "Election of Directors" and "Bank
Management" in the Proxy Statement to be utilized in connection with the
Company's 1998 Annual Shareholders Meeting is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information contained under the caption "Compensation of Executive Officers
and Directors" in the Proxy Statement to be utilized in connection with the
Company's 1998 Annual Shareholders Meeting is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
......... OWNERS AND MANAGEMENT
The information contained under the caption "Principal Shareholders" in the
Proxy Statement to be utilized in connection with the Company's 1998 Annual
Shareholders Meeting is incorporated herein by reference.
55
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the caption "Certain Relationships and Related
Transactions" in the Proxy Statement to be utilized in connection with the
Company's 1998 Annual Shareholders Meeting is incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a)......1. Financial Statements
The consolidated financial statements, notes thereto and independent
auditors' report thereon, filed as part hereof, are listed in Item 7.
.........2. Financial Statement Schedules
.........All schedules have been omitted as the required information is not
applicable.
.........3. Exhibits
.........Exhibit Numbers
3.1* Articles of Incorporation
.........3.2* Bylaws
.........3.3* Form of Stock Purchase Warrant
10.1* Employment Contract between Andrew M. Williams III and Statesboro
Financial Partners 10.2* Employment Agreement between Erskine Russell
and Statesboro Financial Partners 10.3* 1990 Employee Stock Option Plan
10.4* Amendment to Employment Contract between Andrew M. Williams III
and Eagle Bank and Trust 10.5* 1996 Employment Contract between Eagle
Bancorp, Inc., Eagle Bank & Trust and Andrew M.
Williams, III
16.1**Letter on Change in Certifying Accountant
22.1 Subsidiaries of the Company. The sole subsidiary of the
Company is Eagle Bank and Trust, Statesboro, Georgia, which is
wholly-owned by the Company.
.........27 Financial Data Schedule
*Items 3.1 through 10.5, as listed above, were previously filed by the
Company as Exhibits (with the same respective Exhibit Numbers as
indicated herein) to the Company's Registration Statement (Registration
No. 33-31490-A) and such documents are incorporated herein by
reference.
.........
.........**The letter required by Item 304(a)(3), stating whether the former
accountants agrees or disagreeswith statements made by the Company
.........relating to its change in accountants, was filed with the Commission on
February 10, 1997, on Form 8-K/A, and is incorporated herein by
reference.
(b) .....Reports on Form 8-K
A Form 8-K was filed on January 29, 1997 regarding the change in
Registrant's independent accountants, and an amendment thereto, filed
February 10, 1997, on Form 8-K/A, included the letter from the former
accountants required by Item 304 of Regulation S-B.
56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized on March 18, 1997.
EAGLE BANCORP, INC.
By: /s/ Andrew M. Williams III
Andrew M. Williams III
President
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 indicated on March 18, 1998.
<TABLE>
<S> <C> <C> <C>
Signature Title Signature Title
--------- ----- --------- -----
Andrew M. Williams III President (Principal Robert D. Coston Director
Executive Officer), Director
Lemuel A. Deal Director Julian B. Hodges, Jr. Director
Robert E. Lane Director James B. Lanier, Jr. Director
Betty K. Minick Director Thad J. Morris, Jr. Director
Paul E. Parker Director W. Dale Parker Director and Secretary
Erskine Russell Director Marcus B. Seligman Director
Solly Trapnell Director Paul A. Whitlock, Jr. Director
William Earl Green Principal Financial
Officer and Principal
Accounting Officer
57
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
(Replace this text with the legend, if applicable)
</LEGEND>
<CIK> 0000865792
<NAME> EAGLE BANCORP, INC. \GA\
<MULTIPLIER> 1000
<CURRENCY> U.S. dollars
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 2958
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4542
<INVESTMENTS-CARRYING> 11124
<INVESTMENTS-MARKET> 11166
<LOANS> 49474
<ALLOWANCE> 706
<TOTAL-ASSETS> 66335
<DEPOSITS> 55667
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1272
<LONG-TERM> 2644
0
0
<COMMON> 874
<OTHER-SE> 5878
<TOTAL-LIABILITIES-AND-EQUITY> 66335
<INTEREST-LOAN> 4513
<INTEREST-INVEST> 660
<INTEREST-OTHER> 65
<INTEREST-TOTAL> 5238
<INTEREST-DEPOSIT> 2419
<INTEREST-EXPENSE> 2538
<INTEREST-INCOME-NET> 2700
<LOAN-LOSSES> 116
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 2350
<INCOME-PRETAX> 981
<INCOME-PRE-EXTRAORDINARY> 981
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 674
<EPS-PRIMARY> 0.78
<EPS-DILUTED> 0.76
<YIELD-ACTUAL> 9.00
<LOANS-NON> 48
<LOANS-PAST> 323
<LOANS-TROUBLED> 28
<LOANS-PROBLEM> 399
<ALLOWANCE-OPEN> 640
<CHARGE-OFFS> 71
<RECOVERIES> 21
<ALLOWANCE-CLOSE> 706
<ALLOWANCE-DOMESTIC> 706
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
