UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-QSB
x
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
For
the quarterly period ended March 31,
2007
|
o
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
|
|
For
the transition period from __________ to
__________.
|
Commission
file number 0-29687
Eagle
Bancorp
(Exact
name of small business issuer as specified in its charter)
United
States
|
|
81-0531318
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
1400
Prospect Avenue, Helena, MT 59601
(Address
of principal executive offices)
(406)
442-3080
(Issuer's
telephone number)
Website
address:
www.americanfederalsavingsbank.com
Check
whether the issuer (1) filed all reports to be filed by Section 13 or 15(d)
of
the Exchange Act during the past 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
o
Indicate
by check mark whether the registrant is a shell company (defined in Rule 12b-2
of the Exchange Act). Yes o
No x
APPLICABLE
ONLY TO CORPORATE ISSUERS
State
the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date:
Common
stock, par value $0.01 per share
|
1,085,357
shares outstanding
|
As
of May 4, 2007
|
Transitional
Small Business Disclosure Format (Check one): Yes o No x
EAGLE
BANCORP AND SUBSIDIARY
TABLE
OF
CONTENTS
|
|
|
|
|
PART
I.
|
|
FINANCIAL
INFORMATION
|
|
|
|
|
|
|
|
Item
1.
|
|
Financial
Statements
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Financial Condition as of March 31, 2007 (unaudited)
and
June 30, 2006
|
|
1
and 2
|
|
|
|
|
|
|
|
Consolidated
Statements of Income for the three months ended March 31, 2007 and
2006
(unaudited) and the nine months ended March 31, 2007 and 2006
(unaudited)
|
|
3
and 4
|
|
|
|
|
|
|
|
Consolidated
Statements of Changes in Stockholders' Equity for the nine months
ended
March 31, 2007
|
|
5
|
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the nine months ended March 31, 2007
and 2006
(unaudited)
|
|
6
and 7
|
|
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
8
to 11
|
|
|
|
|
|
Item
2.
|
|
Management's
Discussion and Analysis or Plan of Operation
|
|
12
to 17
|
|
|
|
|
|
Item
3.
|
|
Controls
and Procedures
|
|
18
|
|
|
|
|
|
PART
II.
|
|
OTHER
INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
Item
1.
|
|
Legal
Proceedings
|
|
19
|
Item
2.
|
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
19
|
Item
3.
|
|
Defaults
Upon Senior Securities
|
|
19
|
Item
4.
|
|
Submission
of Matters to a Vote of Security-Holders
|
|
19
|
Item
5.
|
|
Other
Information
|
|
19
|
Item
6.
|
|
Exhibits
|
|
20
|
|
|
|
|
|
Signatures
|
|
|
|
21
|
|
|
|
|
|
Exhibit
31.1
|
|
|
|
22
and 23
|
|
|
|
|
|
Exhibit
31.2
|
|
|
|
24
and 25
|
|
|
|
|
|
Exhibit
32.1
|
|
|
|
26
|
EAGLE
BANCORP AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
(Dollars
in Thousands, Except for Per Share Data)
|
|
March
31,
2007
|
|
June
30,
2006
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
ASSETS
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
3,808
|
|
$
|
2,844
|
|
Interest-bearing
deposits with banks
|
|
|
188
|
|
|
27
|
|
Total
cash and cash equivalents
|
|
|
3,996
|
|
|
2,871
|
|
|
|
|
|
|
|
|
|
Investment
securities available-for-sale, at market value
|
|
|
67,317
|
|
|
64,198
|
|
Investment
securities held-to-maturity, at cost
|
|
|
951
|
|
|
1,018
|
|
Investment
in Eagle Bancorp Statutory Trust I
|
|
|
155
|
|
|
155
|
|
Federal
Home Loan Bank stock, at cost
|
|
|
1,315
|
|
|
1,315
|
|
Mortgage
loans held-for-sale
|
|
|
1,766
|
|
|
918
|
|
Loans
receivable, net of deferred loan fees
and
allowance for loan losses of $523 at
March
31, 2007 and $535 at June 30, 2006
|
|
|
151,256
|
|
|
140,858
|
|
Accrued
interest and dividends receivable
|
|
|
1,303
|
|
|
1,211
|
|
Mortgage
servicing rights, net
|
|
|
1,659
|
|
|
1,722
|
|
Property
and equipment, net
|
|
|
5,844
|
|
|
5,962
|
|
Cash
surrender value of life insurance
|
|
|
5,713
|
|
|
5,230
|
|
Real
estate acquired in settlement of loans,
net
of allowance for losses
|
|
|
—
|
|
|
—
|
|
Other
assets
|
|
|
371
|
|
|
720
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
241,646
|
|
$
|
226,178
|
|
See
accompanying notes to consolidated financial statements.
EAGLE
BANCORP AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION (Continued)
(Dollars
in Thousands, Except for Per Share Data)
|
|
March
31,
2007
|
|
June
30,
2006
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Deposit
accounts:
|
|
|
|
|
|
Noninterest
bearing
|
|
$
|
13,552
|
|
$
|
12,575
|
|
Interest
bearing
|
|
|
167,806
|
|
|
161,767
|
|
Advances
from Federal Home Loan Bank and other borrowings
|
|
|
28,696
|
|
|
22,371
|
|
Long-term
subordinated debentures
|
|
|
5,155
|
|
|
5,155
|
|
Accrued
expenses and other liabilities
|
|
|
2,058
|
|
|
1,765
|
|
Total
liabilities
|
|
|
217,267
|
|
|
203,633
|
|
Stockholders'
Equity:
|
|
|
|
|
|
|
|
Preferred
stock (no par value, 1,000,000 shares
authorized,
none issued or outstanding)
|
|
|
—
|
|
|
—
|
|
Common
stock (par value $0.01 per share;
9,000,000
shares authorized; 1,223,572 shares
issued;
1,085,357 and 1,091,722 shares outstanding at
March
31, 2007 and June 30, 2006, respectively)
|
|
|
12
|
|
|
12
|
|
Additional
paid-in capital
|
|
|
4,358
|
|
|
4,274
|
|
Unallocated
common stock held by employee
stock
ownership plan ("ESOP")
|
|
|
(101
|
)
|
|
(129
|
)
|
Treasury
stock, at cost
|
|
|
(4,726
|
)
|
|
(4,521
|
)
|
Retained
earnings
|
|
|
25,102
|
|
|
24,056
|
|
Accumulated
other comprehensive loss
|
|
|
(266
|
)
|
|
(1,147
|
)
|
Total
stockholders' equity
|
|
|
24,379
|
|
|
22,545
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
241,646
|
|
$
|
226,178
|
|
See
accompanying notes to consolidated financial statements.
EAGLE
BANCORP AND SUBSIDIARY
QUARTERLY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars
in Thousands, Except for Per Share Data)
|
|
Three
Months Ended
March
31,
|
|
Nine
Months Ended
March
31,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
Interest
and Dividend Income:
|
|
|
|
|
|
|
|
|
|
Interest
and fees on loans
|
|
$
|
2,509
|
|
$
|
1,978
|
|
$
|
7,198
|
|
$
|
5,665
|
|
Interest
on deposits with banks
|
|
|
11
|
|
|
5
|
|
|
39
|
|
|
52
|
|
FHLB
stock dividends
|
|
|
3
|
|
|
—
|
|
|
4
|
|
|
—
|
|
Securities
available-for-sale
|
|
|
726
|
|
|
665
|
|
|
2,082
|
|
|
1,928
|
|
Securities
held-to-maturity
|
|
|
11
|
|
|
13
|
|
|
33
|
|
|
40
|
|
Total
interest and dividend income
|
|
|
3,260
|
|
|
2,661
|
|
|
9,356
|
|
|
7,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,072
|
|
|
770
|
|
|
3,048
|
|
|
2,153
|
|
Advances
and other borrowings
|
|
|
385
|
|
|
136
|
|
|
1,071
|
|
|
340
|
|
Subordinated
debentures
|
|
|
75
|
|
|
75
|
|
|
225
|
|
|
152
|
|
Total
interest expense
|
|
|
1,532
|
|
|
981
|
|
|
4,344
|
|
|
2,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
1,728
|
|
|
1,680
|
|
|
5,012
|
|
|
5,040
|
|
Loan
loss provision
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net
interest income after loan loss provision
|
|
|
1,728
|
|
|
1,680
|
|
|
5,012
|
|
|
5,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
gain on sale of loans
|
|
|
153
|
|
|
70
|
|
|
462
|
|
|
371
|
|
Demand
deposit service charges
|
|
|
114
|
|
|
124
|
|
|
377
|
|
|
403
|
|
Mortgage
loan servicing fees
|
|
|
134
|
|
|
138
|
|
|
405
|
|
|
459
|
|
Net
gain on sale of available-for-sale securities
|
|
|
(5
|
)
|
|
(10
|
)
|
|
(4
|
)
|
|
(9
|
)
|
Other
|
|
|
148
|
|
|
152
|
|
|
433
|
|
|
410
|
|
Total
noninterest income
|
|
|
544
|
|
|
474
|
|
|
1,673
|
|
|
1,634
|
|
See
accompanying notes to consolidated financial statements.
EAGLE
BANCORP AND SUBSIDIARY
QUARTERLY
CONSOLIDATED STATEMENTS OF INCOME (Continued)
(Dollars
in Thousands, Except for Per Share Data)
|
|
Three
Months Ended
March
31,
|
|
Nine
Months Ended
March
31,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
Noninterest
Expense:
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
943
|
|
|
918
|
|
|
2,695
|
|
|
2,656
|
|
Occupancy
expenses
|
|
|
135
|
|
|
140
|
|
|
410
|
|
|
398
|
|
Furniture
and equipment depreciation
|
|
|
69
|
|
|
78
|
|
|
216
|
|
|
235
|
|
In-house
computer expense
|
|
|
70
|
|
|
66
|
|
|
211
|
|
|
201
|
|
Advertising
expense
|
|
|
43
|
|
|
40
|
|
|
196
|
|
|
156
|
|
Amortization
of mtg servicing fees
|
|
|
66
|
|
|
67
|
|
|
215
|
|
|
265
|
|
Federal
insurance premiums
|
|
|
5
|
|
|
6
|
|
|
16
|
|
|
18
|
|
Postage
|
|
|
25
|
|
|
27
|
|
|
64
|
|
|
69
|
|
Legal,
accounting, and examination fees
|
|
|
54
|
|
|
39
|
|
|
178
|
|
|
134
|
|
Consulting
fees
|
|
|
20
|
|
|
14
|
|
|
56
|
|
|
44
|
|
ATM
processing
|
|
|
13
|
|
|
12
|
|
|
35
|
|
|
36
|
|
Other
|
|
|
217
|
|
|
227
|
|
|
645
|
|
|
651
|
|
Total
noninterest expense
|
|
|
1,660
|
|
|
1,634
|
|
|
4,937
|
|
|
4,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before provision for income taxes
|
|
|
612
|
|
|
520
|
|
|
1,748
|
|
|
1,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
159
|
|
|
117
|
|
|
412
|
|
|
464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
453
|
|
$
|
403
|
|
$
|
1,336
|
|
$
|
1,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
0.42
|
|
$
|
0.37
|
|
$
|
1.25
|
|
$
|
1.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$
|
0.37
|
|
$
|
0.33
|
|
$
|
1.11
|
|
$
|
1.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding (basic eps)
|
|
|
1,072,347
|
|
|
1,077,376
|
|
|
1,072.849
|
|
|
1,078,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding (diluted eps)
|
|
|
1,210,162
|
|
|
1,205,562
|
|
|
1,209,011
|
|
|
1,204,411
|
|
See
accompanying notes to consolidated financial statements.
EAGLE
BANCORP AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For
the
Nine Months Ended March 31, 2007
(Dollars
in Thousands, Except for Per Share Data)
|
|
PREFERRED
STOCK
|
|
COMMON
STOCK
|
|
ADDITIONAL
PAID-IN
CAPITAL
|
|
UNALLOCATED
ESOP
SHARES
|
|
TREASURY
STOCK
|
|
RETAINED
EARNINGS
|
|
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME
|
|
TOTAL
|
|
Balance,
June 30, 2006
|
|
$
|
—
|
|
$
|
12
|
|
$
|
4,274
|
|
$
|
(129
|
)
|
$
|
(4,521
|
)
|
$
|
24,056
|
|
$
|
(1,147
|
)
|
$
|
22,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,336
|
|
|
—
|
|
|
1,336
|
|
Other
comprehensive income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
881
|
|
|
881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid ($.66 per share)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(290
|
)
|
|
—
|
|
|
(290
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury
stock purchased (3,100 shares @ $31.90; 1,065 shares @ $32.00;
1,000
shares @ $32.60; 1,200 shares @ $33.00)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(205
|
)
|
|
—
|
|
|
—
|
|
|
(205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ESOP
shares allocated or committed to be released for allocation (3,450
shares)
|
|
|
—
|
|
|
—
|
|
|
84
|
|
|
28
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2007
|
|
$
|
—
|
|
$
|
12
|
|
$
|
4,358
|
|
$
|
(101
|
)
|
$
|
(4,726
|
)
|
$
|
25,102
|
|
$
|
(266
|
)
|
$
|
24,379
|
|
See
accompanying notes to consolidated financial statements.
EAGLE
BANCORP AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Dollars
in Thousands, Except for Per Share Data)
|
|
Nine
Months Ended March
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(Unaudited)
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net
income
|
|
$
|
1,336
|
|
$
|
1,347
|
|
Adjustments
to reconcile net income to net cash
from
operating activities:
|
|
|
|
|
|
|
|
Provision
for mortgage servicing rights valuation losses
|
|
|
—
|
|
|
(46
|
)
|
Depreciation
|
|
|
365
|
|
|
384
|
|
Net
amortization of marketable securities premium
And
discounts
|
|
|
423
|
|
|
739
|
|
Amortization
of capitalized mortgage servicing rights
|
|
|
215
|
|
|
265
|
|
Gain
on sale of loans
|
|
|
(462
|
)
|
|
(371
|
)
|
Net
realized loss on sale of available-for-sale securities
|
|
|
4
|
|
|
9
|
|
Restricted
stock award
|
|
|
—
|
|
|
53
|
|
Increase
in cash surrender value of life insurance
|
|
|
(140
|
)
|
|
(136
|
)
|
Loss
on sale of real estate owned
|
|
|
—
|
|
|
6
|
|
Change
in assets and liabilities:
|
|
|
|
|
|
|
|
(Increase)
decrease in assets:
|
|
|
|
|
|
|
|
Accrued
interest and dividends receivable
|
|
|
(89
|
)
|
|
(79
|
)
|
Loans
held-for-sale
|
|
|
(373
|
)
|
|
2,098
|
|
Other
assets
|
|
|
365
|
|
|
(129
|
)
|
Increase
(decrease) in liabilities:
|
|
|
|
|
|
|
|
Accrued
expenses and other liabilities
|
|
|
(116
|
)
|
|
359
|
|
Net
cash provided by operating activities
|
|
|
1,528
|
|
|
4,499
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Purchase
of securities:
|
|
|
|
|
|
|
|
Investment
securities held-to-maturity
|
|
|
—
|
|
|
—
|
|
Investment
securities available-for-sale
|
|
|
(19,273
|
)
|
|
(6,207
|
)
|
Proceeds
from maturities, calls and principal payments:
|
|
|
|
|
|
|
|
Investment
securities held-to-maturity
|
|
|
82
|
|
|
129
|
|
Investment
securities available-for-sale
|
|
|
11,991
|
|
|
12,296
|
|
FHLB
stock redeemed
|
|
|
—
|
|
|
—
|
|
Proceeds
from sales of investment securities available-for-sale
|
|
|
5,122
|
|
|
1,627
|
|
Net
increase in loans receivable, excludes transfers
to
real estate acquired in settlement of loans
|
|
|
(10,579
|
)
|
|
(22,515
|
)
|
Purchase
of stock in non-consolidated subsidiaries
|
|
|
—
|
|
|
(155
|
)
|
See
accompanying notes to consolidated financial statements.
EAGLE
BANCORP AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)
(Dollars
in Thousands, Except for Per Share Data)
|
|
Nine
Months Ended March
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(Unaudited)
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES (CONTINUED):
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(247
|
)
|
|
(152
|
)
|
Purchase
of bank owned life insurance
|
|
|
(342
|
)
|
|
—
|
|
Proceeds
from the sale of real estate acquired in the settlement of
loans
|
|
|
—
|
|
|
69
|
|
Net
cash used in investing activities
|
|
|
(13,246
|
)
|
|
(14,908
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
increase (decrease) in checking and savings accounts
|
|
|
7,015
|
|
|
4,149
|
|
Net
(decrease) increase in federal funds
|
|
|
(4,175
|
)
|
|
—
|
|
Payments
on FHLB advances
|
|
|
(20,501
|
)
|
|
(3,876
|
)
|
FHLB
advances
|
|
|
31,000
|
|
|
5,000
|
|
Issue
of subordinated debentures
|
|
|
—
|
|
|
5,155
|
|
Sale
(purchase) of treasury stock
|
|
|
(206
|
)
|
|
(505
|
)
|
Dividends
paid
|
|
|
(290
|
)
|
|
(270
|
)
|
Net
cash provided by financing activities
|
|
|
12,843
|
|
|
9,653
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
1,125
|
|
|
(756
|
)
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, beginning of period
|
|
|
2,871
|
|
|
4,966
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, end of period
|
|
$
|
3,996
|
|
$
|
4,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$
|
4,445
|
|
$
|
2,785
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for income taxes
|
|
$
|
531
|
|
$
|
574
|
|
|
|
|
|
|
|
|
|
NON-CASH
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
(Increase)
decrease in market value of securities available-for-sale
|
|
$
|
(1,401
|
)
|
$
|
690
|
|
|
|
|
|
|
|
|
|
Mortgage
servicing rights capitalized
|
|
$
|
152
|
|
$
|
137
|
|
See
accompanying notes to consolidated financial statements.
EAGLE
BANCORP AND SUBSIDIARY
NOTES
TO
CONSOLDIATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE
1: BASIS OF PRESENTATION
The
accompanying unaudited consolidated financial statements have been prepared
in
accordance with instructions for Form 10-QSB. Accordingly, they do not include
all of the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements.
However, such information reflects all adjustments (consisting of normal
recurring adjustments) which are, in the opinion of management, necessary for
a
fair presentation of results for the unaudited interim periods.
The
results of operations for the three and nine month periods ended March 31,
2007
are not necessarily indicative of the results to be expected for the fiscal
year
ending June 30, 2007 or any other period. The unaudited consolidated financial
statements and notes presented herein should be read in conjunction with the
audited consolidated financial statements and related notes thereto included
in
Eagle’s Form 10-KSB dated June 30, 2006.
NOTE
2: INVESTMENT SECURITIES
Investment
securities are summarized as follows:
(Dollars
in Thousands, Except for Per Share Data)
|
|
March
31, 2007 (Unaudited)
|
|
June
30, 2006 (Audited)
|
|
|
|
AMORTIZED
COST
|
|
GROSS
UNREALIZED
GAINS/(LOSSES)
|
|
FAIR
VALUE
|
|
AMORTIZED
COST
|
|
GROSS
UNREALIZED
GAINS/(LOSSES)
|
|
FAIR
VALUE
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
government and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agency
obligations
|
|
$
|
3,925
|
|
$
|
(45
|
)
|
$
|
3,880
|
|
$
|
7,448
|
|
$
|
(152
|
)
|
$
|
7,296
|
|
Municipal
obligations
|
|
|
19,881
|
|
|
76
|
|
|
19,957
|
|
|
17,471
|
|
|
(328
|
)
|
|
17,143
|
|
Corporate
obligations
|
|
|
14,863
|
|
|
(150
|
)
|
|
14,713
|
|
|
16,059
|
|
|
(442
|
)
|
|
15,617
|
|
Mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
8,757
|
|
|
(97
|
)
|
|
8,660
|
|
|
6,949
|
|
|
(202
|
)
|
|
6,747
|
|
Collateralized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgage
obligations
|
|
|
18,348
|
|
|
(149
|
)
|
|
18,199
|
|
|
16,330
|
|
|
(513
|
)
|
|
15,817
|
|
Corporate
preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
|
|
|
2,000
|
|
|
(92
|
)
|
|
1,908
|
|
|
1,800
|
|
|
(222
|
)
|
|
1,578
|
|
Total
|
|
$
|
67,774
|
|
$
|
(457
|
)
|
$
|
67,317
|
|
$
|
70,053
|
|
$
|
(1,859
|
)
|
$
|
64,198
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
obligations
|
|
$
|
827
|
|
$
|
15
|
|
$
|
842
|
|
$
|
828
|
|
$
|
12
|
|
$
|
840
|
|
Mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
124
|
|
|
1
|
|
|
125
|
|
|
190
|
|
|
—
|
|
|
190
|
|
Total
|
|
$
|
951
|
|
$
|
16
|
|
$
|
967
|
|
$
|
1,018
|
|
$
|
12
|
|
$
|
1,030
|
|
EAGLE
BANCORP AND SUBSIDIARY
NOTES
TO
CONSOLDIATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE
3: LOANS
RECEIVABLE
Loans
receivable consist of the following:
|
|
March 31, 2007
|
|
June 30, 2006
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
(Dollars
in Thousands)
|
|
|
|
|
|
First
mortgage loans:
|
|
|
|
|
|
|
|
Residential
mortgage (1-4 family)
|
|
$
|
80,046
|
|
$
|
75,913
|
|
Commercial
real estate
|
|
|
24,292
|
|
|
18,648
|
|
Real
estate construction
|
|
|
6,151
|
|
|
6,901
|
|
|
|
|
|
|
|
|
|
Other
loans:
|
|
|
|
|
|
|
|
Home
equity
|
|
|
24,067
|
|
|
20,191
|
|
Consumer
|
|
|
11,059
|
|
|
11,820
|
|
Commercial
|
|
|
6,124
|
|
|
7,861
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
151,739
|
|
|
141,334
|
|
|
|
|
|
|
|
|
|
Less:
Allowance for loan losses
|
|
|
(523
|
)
|
|
(535
|
)
|
Deferred
loan fees
|
|
|
40
|
|
|
59
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
151,256
|
|
$
|
140,858
|
|
Loans
net
of related allowance for loan losses on which the accrual of interest has been
discontinued were $5 and $345 at March 31, 2007 and June 30, 2006, respectively.
Classified assets, including real estate owned, totaled $278 and $700 at March
31, 2007 and June 30, 2006, respectively.
The
following is a summary of changes in the allowance for loan losses:
|
|
Nine Months Ended March 31, 2007
|
|
Twelve
Months Ended June 30, 2006
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
(Dollars
in Thousands)
|
|
|
|
|
|
Balance,
beginning of period
|
|
$
|
535
|
|
$
|
573
|
|
Reclassification
to repossessed
property
reserve
|
|
|
—
|
|
|
(15
|
)
|
Provision
charged to operations
|
|
|
—
|
|
|
—
|
|
Charge-offs
|
|
|
(22
|
)
|
|
(48
|
)
|
Recoveries
|
|
|
10
|
|
|
25
|
|
Balance,
end of period
|
|
$
|
523
|
|
$
|
535
|
|
EAGLE
BANCORP AND SUBSIDIARY
NOTES
TO
CONSOLDIATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE
4: DEPOSITS
Deposits
are summarized as follows:
|
|
March 31, 2007
|
|
June 30, 2006
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
(Dollars
in Thousands)
|
|
|
|
|
|
|
|
Noninterest
checking
|
|
$
|
13,552
|
|
$
|
12,575
|
|
Interest-bearing
checking
|
|
|
32,227
|
|
|
29,571
|
|
Passbook
|
|
|
23,545
|
|
|
24,438
|
|
Money
market
|
|
|
24,294
|
|
|
29,129
|
|
Time
certificates of deposit
|
|
|
87,740
|
|
|
78,629
|
|
Total
|
|
$
|
181,358
|
|
$
|
174,342
|
|
NOTE
5: EARNINGS PER SHARE
Basic
earnings per share for the three months ended March 31, 2007 is computed using
1,072,347 weighted average shares outstanding. Earnings per share for the nine
months ended March 31, 2007 is computed using 1,072,849 weighted average shares
outstanding. Basic earnings per share for the three months ended March 31,
2006
is computed using 1,077,376 weighted average shares outstanding. Earnings per
share for the nine months ended March 31, 2006 is computed using 1,078,540
weighted average shares outstanding. Diluted earnings per share is computed
using the treasury stock method by adjusting the number of shares outstanding
by
the shares purchased. The weighted average shares outstanding for the diluted
earnings per share calculations are 1,210,162 for the three months ended March
31, 2007 and 1,209,011 for the nine months ended March 31, 2007. Diluted
earnings per share for the three months and nine months ended March 31, 2006
is
computed using 1,205,562 and 1,204,411 weighted average shares outstanding,
respectively.
NOTE
6: DIVIDENDS AND STOCK REPURCHASE PROGRAM
This
fiscal year Eagle has paid three dividends of $0.22 per share, on August 25,
2006, November 17, 2006 and February 9, 2007. A dividend of $0.22 per share
was
declared on April 19, 2007, payable May 18, 2007 to stockholders of record
on
May 4, 2007. Eagle Financial MHC, Eagle’s mutual holding company, has waived the
receipt of dividends on its 648,493 shares.
At
their
regular meeting of July 21, 2005, the Company’s Board of Directors approved a
stock repurchase program for up to 28,750 shares. This represents approximately
6% of the outstanding common stock held by the public. The repurchased shares
will be held as treasury stock and will be held for general corporate purposes
and/or issuance pursuant to Eagle’s benefit plans. As of May 5, 2007, 23,215
shares have been purchased under this program.
EAGLE
BANCORP AND SUBSIDIARY
NOTES
TO
CONSOLDIATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE
7: MORTGAGE
SERVICING RIGHTS
The
Bank
allocates its total cost in mortgage loans between mortgage servicing rights
and
loans, based upon their relative fair values, when loans are subsequently sold
or securitized, with the servicing rights retained. Fair values are generally
obtained from an independent third party. Impairment of mortgage servicing
rights is measured based upon the characteristics of the individual loans,
including note rate, term, underlying collateral, current market conditions,
and
estimates of net servicing income. If the carrying value of the mortgage
servicing rights exceeds the estimated fair market value, a valuation allowance
is established for any decline, which is viewed to be temporary. Charges to
the
valuation allowance are charged against or credited to mortgage servicing
income. Periodic independent valuations of the mortgage servicing rights are
performed. As a result of the most recent valuation, no temporary decline in
the
fair value was determined to have occurred, and no valuation allowance has
been
established. The following schedules show the activity in the mortgage servicing
rights and the valuation allowance.
(Dollar
amounts in thousands)
|
|
Nine Months Ended
March
31, 2007
|
|
Twelve Months
Ended
June
30, 2006
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
(Dollars
in Thousands)
|
|
|
|
|
|
Mortgage
Servicing Rights
|
|
|
|
|
|
Beginning
balance
|
|
$
|
1,722
|
|
$
|
1,903
|
|
Servicing
rights capitalized
|
|
|
152
|
|
|
174
|
|
Servicing
rights amortized
|
|
|
(215
|
)
|
|
(355
|
)
|
Ending
balance
|
|
|
1,659
|
|
|
1,722
|
|
|
|
|
|
|
|
|
|
Valuation
Allowance
|
|
|
|
|
|
|
|
Beginning
balance
|
|
|
—
|
|
|
46
|
|
Provision
|
|
|
—
|
|
|
(46
|
)
|
Adjustments
|
|
|
—
|
|
|
—
|
|
Ending
balance
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Net
Mortgage Servicing Rights
|
|
$
|
1,659
|
|
$
|
1,722
|
|
EAGLE
BANCORP AND SUBSIDIARY
ITEM
2: MANAGEMENT’S DISCUSSIONS AND ANALYSIS OR PLAN OF
OPERATION
Note
Regarding Forward-Looking Statements
This
report contains certain “forward-looking statements.” Eagle Bancorp (“Eagle” or
the “Company”) desires to take advantage of the “safe harbor” provisions of the
Private Securities Litigation Reform Act of 1995 and is including this statement
for the express purpose of availing itself of the protections of the safe harbor
with respect to all such forward-looking statements. These forward-looking
statements, which are included in Management’s Discussion and Analysis, describe
future plans or strategies and include Eagle’s expectations of future financial
results. The words “believe,” “expect,” “anticipate,” “estimate,” “project”, and
similar expressions identify forward-looking statements. Eagle’s ability to
predict results or the effect of future plans or strategies or qualitative
or
quantitative changes based on market risk is inherently uncertain. Factors
which
could affect actual results but are not limited to include (i) change in general
market interest rates, (ii) general economic conditions, (iii) local economic
conditions, (iv) legislative/regulatory changes, (v) monetary and fiscal
policies of the U.S. Treasury and Federal Reserve, (vi) changes in the quality
or composition of Eagle’s loan and investment portfolios, (vii) demand for loan
products, (viii) deposit flows, (ix) competition, and (x) demand for financial
services in Eagle’s markets. These factors should be considered in evaluating
the forward-looking statements. You are cautioned not to place undue reliance
on
these forward-looking statements which speak only as of their
dates.
Overview
The
Company’s primary activity is its ownership of its wholly owned subsidiary,
American Federal Savings Bank (the “Bank”). The Bank is a federally chartered
savings bank, engaging in typical banking activities: acquiring deposits from
local markets and investing in loans and investment securities. The Bank’s
primary component of earnings is its net interest margin (also called spread
or
margin), the difference between interest income and interest expense. The net
interest margin is managed by management (through the pricing of its products
and by the types of products offered and kept in portfolio), and is affected
by
moves in interest rates. Noninterest income in the form of fee income and gain
on sale of loans adds to the Bank’s income.
The
Bank
has a strong mortgage lending focus, with the majority of its loans in
single-family residential mortgages. This has led to successfully marketing
home
equity loans to its customers, as well as a wide range of shorter term consumer
loans for various personal needs (automobiles, recreational vehicles, etc.).
In
recent years the Bank has focused on adding commercial loans to its portfolio,
both real estate and non-real estate. The purpose of this diversification is
to
mitigate the Bank’s dependence on the mortgage market, as well as to improve its
ability to manage its spread. The Bank’s management recognizes the need for
sources of fee income to complement its margin, and the Bank now maintains
a
significant loan serviced portfolio, which provides a steady source of fee
income. The gain on sale of loans also provides significant fee income in
periods of high mortgage loan origination volumes. Fee income is also
supplemented with fees generated from the Bank’s deposit accounts. The Bank has
a high percentage of non-maturity deposits, such as checking accounts and
savings accounts, which allows management flexibility in managing its spread.
Non-maturity deposits do not automatically reprice as interest rates rise,
as do
certificates of deposit.
For
the
past two years, management’s focus has been on improving the Bank’s core
earnings. Core earnings can be described as income before taxes, with the
exclusion of gain on sale of loans and adjustments to the market value of the
Bank’s loan serviced portfolio. Management believes that the Bank will need to
continue to focus on increasing net interest margin, other areas of fee income,
and control operating expenses to achieve earnings growth going forward.
Management’s strategy of growing the bank’s loan portfolio and deposit base is
expected to help achieve these goals: loans typically earn higher rates of
return than investments; a larger deposit base will yield higher fee income;
increasing the asset base will reduce the relative impact of fixed operating
costs. The biggest challenge to the strategy is funding the growth of the Bank’s
balance sheet in an efficient manner. Deposit growth will be difficult to
maintain due to fierce competition and wholesale funding (which is usually
more
expensive than retail deposits) will likely be needed to supplement deposit
growth.
The
level
and movement of interest rates impacts the Bank’s earnings as well. The yield
curve continues to be flat, i.e. short-term interest rates are approximately
at
the same level as long-term interest rates. This can have a negative impact
on
the Bank’s net interest margin as its deposits are typically priced relative to
short-term rates, while the majority of its loan products are priced relative
to
long-term rates. The Bank has been able to partially offset this effect by
reinvesting investment proceeds in the loan portfolio, because as noted earlier,
loans typically earn higher rates of return than investments. Additionally,
many
of the Bank’s investments which mature in the coming year are at low (below
current market) interest rates, affording an opportunity to reinvest the
proceeds at the current higher rates and increasing interest income in the
coming quarters.
Financial
Condition
Comparisons
of results in this section are between the nine months ended March 31, 2007
and
June 30, 2006.
EAGLE
BANCORP AND SUBSIDIARY
Total
assets increased by $15.47 million, or 6.84%, to $241.65 million at March 31,
2007, from $226.18 million at June 30, 2006. Total liabilities increased by
$13.64 million to $217.27 million at March 31, 2007, from $203.63 million at
June 30, 2006. Total equity increased $1.83 million to $24.38 million at March
31, 2007 from $22.55 million at June 30, 2006.
Loans
receivable increased $10.40 million, or 7.38%, to $151.26 million at March
31,
2007 from $140.86 million at June 30, 2006. The commercial real estate and
land
loan category showed the largest increase of $5.64 million in the nine month
period (see Note 3 to the financial statements on page 9 for more details).
Total loan originations were $90.80 million for the nine months ended March
31,
2007, with single family mortgages accounting for $47.14 million of the total.
Construction loan originations (including those for commercial real estate
and
land development loans) totaled $15.66 million. Home equity and commercial
real
estate and land loan originations totaled $12.92 million and $9.26 million,
respectively, for the same period. Consumer loan originations totaled $3.85
million. Loans held for sale increased to $1.77 million at March 31, 2007 from
$918,000 at June 30, 2006. Investment securities available-for-sale (AFS)
increased $3.12 million, or 4.86%, to $67.32 million at March 31, 2007 from
$64.20 million at June 30, 2006. The investment category with the largest
increase was collateralized mortgage obligations, which increased $2.81 million.
Deposits
increased $7.02 million, or 4.03%, to $181.36 million at March 31, 2007 from
$174.34 million at June 30, 2006. Certificates of deposit (CDs) had the largest
increase, primarily due to the issuance of $4.4 million in brokered CDs.
Checking accounts also increased, while money market accounts decreased.
Advances and other borrowings increased $6.33 million, to $28.70 million from
$22.37 million.
Total
equity increased as a result of earnings for the nine months of $1.34 million,
and a decrease in other comprehensive loss of $881,000 (due to a decrease in
net
unrealized loss on securities available-for-sale) offset by purchases of
treasury stock and the payment of three quarterly $0.22 per share regular cash
dividends.
Results
of Operations for the Three Months Ended March 31, 2007 and
2006
Net
Income.
Eagle’s
net income was $453,000 and $403,000 for the three months ended March 31, 2007,
and 2006, respectively. The increase in net income of $50,000, or 12.41%, was
due to an increase in noninterest income of $70,000 and net interest income
of
$48,000, offset by an increase in noninterest expense of $26,000. Eagle’s tax
provision was $42,000 higher in the current quarter. Basic earnings per share
were $0.42 for the current period, compared to $0.37 for the previous year’s
period.
Net
Interest Income.
Net
interest income increased $48,000 for the current quarter. Total interest and
dividend income increased $599,000, which was partially offset by the increase
in interest expense of $551,000.
Interest
and Dividend Income.
Total
interest and dividend income was $3.260 million for the quarter ended March
31,
2007, compared to $2.661 million for the quarter ended March 31, 2006,
representing an increase of $599,000, or 22.51%. Interest and fees on loans
increased to $2.509 million for the three months ended March 31, 2007 from
$1.978 million for the same period ended March 31, 2006. This increase of
$531,000, or 26.85%, was due primarily to the increase in the average balances.
Average balances for loans receivable, net, increased for the quarter ended
March 31, 2007 to $150.83 million, compared to $127.07 million for the previous
year. This represents an increase of $23.76 million, or 18.70%. The average
interest rate earned on loans receivable increased by 42 basis points, from
6.23% to 6.65%. The collection of interest on a large commercial loan which
had
previously been on non-accrual also contributed to the increase in interest
income on loans.
Interest
and dividends on investment securities available-for-sale (AFS) increased to
$726,000 for the quarter ended March 31, 2007 from $665,000 for the same quarter
last year. Average balances on investments decreased slightly to $67.47 million
for the quarter ended March 31, 2007, compared to $67.96 million for the quarter
ended March 31, 2006. The average interest rate earned on investments increased
to 4.37% from 3.99%.
EAGLE
BANCORP AND SUBSIDIARY
Results
of Operations for the Three Months Ended March 31, 2007 and 2006 -
continued
Interest
Expense.
Total
interest expense increased to $1.532 million for the quarter ended March 31,
2007, from $981,000 for the quarter ended March 31, 2006, an increase of
$551,000, or 56.17%, as interest paid on both borrowings and deposits increased.
Interest on deposits increased to $1.072 million for the quarter ended March
31,
2007. This increase of $302,000, or 39.22%, was primarily due to increases
in
average rates paid, as average balances increased slightly. The average rate
paid on deposits increased 70 basis points from the quarter ended March 31,
2006
to the quarter ended March 31, 2007. Money market accounts and certificates
of
deposit had increases in average rates paid, while rates on passbook savings
and
checking accounts were unchanged. A significant increase in the average balance
of borrowings, as well as an increase in the average rate paid, resulted in
an
increase in interest paid on borrowings to $460,000 in the current quarter
compared to $211,000 in the previous year’s quarter.
Provision
for Loan Losses.
Provisions for loan losses are charged to earnings to maintain the total
allowance for loan losses at a level considered adequate by the Bank, to provide
for probable loan losses based on prior loss experience, volume and type of
lending conducted by the Bank, available peer group information, and past due
loans in portfolio. The Bank’s policies require the review of assets on a
quarterly basis. The Bank classifies loans as well as other assets if warranted.
While the Bank believes it uses the best information available to make a
determination with respect to the allowance for loan losses, it recognizes
that
future adjustments may be necessary. No provision was made for loan losses
for
either the quarter ended March 31, 2007 or the quarter ended March 31, 2006.
This is a reflection of the continued strong asset quality of the Bank’s loan
portfolio. Total classified assets decreased from $700,000 at June 30, 2006
to
$278,000 at March 31, 2007. The Bank currently has no foreclosed real
estate.
Noninterest
Income. Total
noninterest income increased to $544,000 for the quarter ended March 31, 2007,
from $474,000 for the quarter ended March 31, 2006, an increase of $70,000
or
14.77%. This was primarily due to an increase in net gain on sale of loans
of
$83,000. Management has chosen to sell a larger percentage of residential
mortgage originations to provide for additional fee income. The other categories
of noninterest income had small changes.
Noninterest
Expense.
Noninterest expense increased by $26,000 or 1.59% to $1.660 million for the
quarter ended March 31, 2007, from $1.634 million for the quarter ended March
31, 2006. This increase was primarily due to increases in salaries and benefits
of $25,000 and legal and accounting fees of $15,000, partially offset by
decreases in “other” noninterest expense of $10,000 (lower credit card expenses)
and furniture and fixtures depreciation of $9,000 (items becoming fully
depreciated). The increase in salaries and benefits was due to normal merit
increases. The increase in legal and accounting fees was due to outsourcing
the
Bank’s internal audit function and higher legal fees at the holding company
level. Other expense categories showed minor changes.
Income
Tax Expense.
Eagle’s
income tax expense was $159,000 for the quarter ended March 31, 2007, compared
to $117,000 for the quarter ended March 31, 2006. The effective tax rate for
the
quarter ended March 31, 2007 was 25.98% and was 22.50% for the quarter ended
March 31, 2006.
Results
of Operations for the Nine Months Ended March 31, 2007 and
2006
Net
Income.
Eagle’s
net income was $1.336 million and $1.347 million for the nine months ended
March
31, 2007 and 2006, respectively. The decrease of $11,000, or 0.82%, was due
to
an increase in noninterest expense of $74,000 and a decrease in net interest
income of $28,000, partially offset by an increase in noninterest income of
$39,000. Eagle’s tax provision was $52,000 lower in the current nine month
period. Basic earnings per share were $1.25 in each nine month period.
Net
Interest Income.
Net
interest income decreased to $5.012 million for the nine months ended March
31,
2007 from $5.040 million for the nine months ended March 31, 2006. This decrease
of $28,000 was the result of an increase in interest expense of $1.699 million,
partially offset by an increase in interest and dividend income of $1.671
million.
EAGLE
BANCORP AND SUBSIDIARY
Results
of Operations for the Nine Months Ended March 31, 2007 and 2006 -
continued
Interest
and Dividend Income.
Total
interest and dividend income was $9.356 million for the nine months ended March
31, 2007, compared to $7.685 million for the same period ended March 31, 2006,
representing an increase of $1.671 million, or 21.74%. Interest and fees on
loans increased to $7.198 million for 2007 from $5.665 million for 2006. This
increase of $1.533 million, or 27.06%, was due primarily to an increase in
the
average balances of loans receivable for the nine months ended March 31, 2007.
Average balances for loans receivable, net, for this period were $147.68
million, compared to $120.44 million for the previous year’s period. This is an
increase of $27.24 million, or 22.62%. The average interest rate earned on
loans
receivable increased by 23 basis points, to 6.50%. Interest and dividends on
investment securities available-for-sale (AFS) increased to $2.082 million
for
the nine months ended March 31, 2007 from $1.928 million for the nine months
ended March 31, 2006. Interest on securities held-to-maturity (HTM) decreased
to
$33,000 from $40,000. Average balances on investment securities decreased to
$66.65 million for the nine months ended March 31, 2007 compared to $70.73
million for the same period ended March 31, 2006. The average interest rate
earned on investments increased 52 basis points, to 4.23% from
3.71%.
Interest
Expense.
Total
interest expense increased to $4.344 million for the nine months ended March
31,
2007 from $2.645 million for the nine months ended March 31, 2006, an increase
of $1.699 million, or 64.23%. Interest on deposits increased to $3.048 million
for the nine months ended March 31, 2007 from $2.153 million for the nine months
ended March 31, 2006. This increase of $895,000, or 41.57%, was the result
of an
increase in average rates paid on deposit accounts accompanied by a small
increase in average balances in deposit accounts. Average rates paid on deposits
increased 71 basis points from 2006 to 2007. Money market accounts and
certificates of deposit had increases in average rates paid, while checking
accounts and passbook savings rates were unchanged. Average balances in
interest-bearing deposits increased to $162.53 million for the nine month period
ended March 31, 2007 compared to $160.76 million for the same period in the
previous year. Interest paid on borrowings increased to $1.296 million for
the
nine months ended March 31, 2007 from $492,000 for the same period ended March
31, 2006. The increase was due to increases in the average balances of
borrowings from $14.58 million in 2006 to $33.28 million in 2007. The average
rate paid on borrowings increased 69 basis points from 2006 to
2007.
Provision
for Loan Losses.
Provisions for loan losses are charged to earnings to maintain the total
allowance for loan losses at a level considered adequate by the Bank, to provide
for probable loan losses based on prior loss experience, volume and type of
lending conducted by the Bank, available peer group information, and past due
loans in portfolio. The Bank’s policies require the review of assets on a
quarterly basis. The Bank classifies loans as well as other assets if warranted.
While the Bank believes it uses the best information available to make a
determination with respect to the allowance for loan losses, it recognizes
that
future adjustments may be necessary. No provision was made for loan losses
for
either of the nine month periods ended March 31, 2007 or March 31, 2006. This
is
a reflection of the continued strong asset quality of the Bank’s loan portfolio.
Total classified assets decreased to $278,000 at March 31, 2007 from $700,000
at
June 30, 2006. The Bank currently has no foreclosed real estate.
Noninterest
Income.
Total
noninterest income increased to $1.673 million for the nine months ended March
31, 2007, from $1.634 million for the nine months ended March 31, 2006, an
increase of $39,000, or 2.39%. This was due to increases in net gain on sale
of
loans and other noninterest income, offset by smaller declines in the other
categories of noninterest income. Net gain on sale of loans was higher due
to
selling a higher percentage of mortgage originations. The increase in other
noninterest income was due primarily to increased fee income on electronic
payments.
Noninterest
Expense.
Noninterest expense increased by $74,000, or 1.52% to $4.937 million for the
nine months ended March 31, 2007, from $4.863 million for the nine months ended
March 31, 2006. This increase was primarily due to increases in legal and
accounting fees of $44,000, advertising expense of $40,000 and salaries and
benefits of $39,000. Legal and accounting fees were higher due to the
outsourcing of the Bank’s internal audit function and higher legal fees at the
holding company level. Advertising expenses were higher due to increased
promotion of deposit products. The increase in salaries and benefits was
primarily due to normal raises. These were partially offset by a decrease in
the
amortization of mortgage servicing fees of $50,000, due to a slowdown in
mortgage loan prepayments. Other categories of noninterest expense showed modest
changes.
Income
Tax Expense.
Eagle’s
income tax expense was $412,000 for the nine months ended March 31, 2007,
compared to $464,000 for the nine months ended March 31, 2006. The effective
tax
rate for the nine months ended March 31, 2007 was 23.57% and was 25.62% for
the
nine months ended March 31, 2006.
EAGLE
BANCORP AND SUBSIDIARY
Liquidity,
Interest Rate Sensitivity and Capital Resources
The
company’s subsidiary, American Federal Savings Bank (the Bank), is required to
maintain minimum levels of liquid assets as defined by the Office of Thrift
Supervision (OTS) regulations. The OTS has eliminated the statutory requirement
based upon a percentage of deposits and short-term borrowings. The OTS states
that the liquidity requirement is retained for safety and soundness purposes,
and that appropriate levels of liquidity will depend upon the types of
activities in which the company engages. For internal reporting purposes, the
Bank uses the previous regulatory definitions of liquidity. The Bank’s average
liquidity ratio was 15.05% and 15.94% for the months ended March 31, 2007 and
March 31, 2006, respectively.
The
Bank’s primary sources of funds are deposits, repayment of loans and
mortgage-backed securities, maturities of investments, funds provided from
operations, and advances from the Federal Home Loan Bank of Seattle. Scheduled
repayments of loans and mortgage-backed securities and maturities of investment
securities are generally predictable. However, other sources of funds, such
as
deposit flows and loan prepayments, can be greatly influenced by the general
level of interest rates, economic conditions and competition. The Bank uses
liquidity resources principally to fund existing and future loan commitments.
It
also uses them to fund maturing certificates of deposit, demand deposit
withdrawals and to invest in other loans and investments, maintain liquidity,
and meet operating expenses.
Liquidity
may be adversely affected by unexpected deposit outflows, higher interest rates
paid by competitors, and similar matters. Management monitors projected
liquidity needs and determines the level desirable, based in part on commitments
to make loans and management’s assessment of the bank’s ability to generate
funds.
At
December 31, 2006 (the most recent report available), the Bank’s measure of
sensitivity to interest rate movements, as measured by the OTS, improved from
the previous quarter. The Bank’s capital ratio as measured by the OTS decreased
slightly during the same period. The Bank is well within the guidelines set
forth by the Board of Directors for interest rate risk sensitivity. During
the
current quarter, the Bank purchased an interest rate cap in the nominal amount
of $15 million. The cap is tied to the London Interbank Borrowing Rate (LIBOR)
and is intended to offset potential increases in interest rate expenses to
the
Bank’s retail certificate of deposit base. Management has determined that the
interest rate cap does not quality for hedge accounting, and that it will be
carried at fair value, with any subsequent changes in its value shown in the
income statement. As of March 31, 2007 the interest rate cap had declined in
value by approximately $17,000 (from a purchase price of $32,000).
As
of
March 31, 2007, the Bank’s regulatory capital was in excess of all applicable
regulatory requirements. At March 31, 2007, the Bank’s tangible, core, and
risk-based capital ratios amounted to 10.65%, 10.65%, and 14.89%, respectively,
compared to regulatory requirements of 1.5%, 3.0%, and 8.0%, respectively.
See
the following table (amounts in thousands):
|
|
(Unaudited)
At
March 31, 2007
|
|
|
|
Dollar
Amount
|
|
For
Capital
Adequacy
Purposes
%
of Assets
|
|
Tangible
capital:
|
|
|
|
|
|
Capital
level
|
|
$
|
25,330
|
|
|
10.65
|
%
|
Requirement
|
|
|
3,567
|
|
|
1.50
|
|
Excess
|
|
$
|
21,763
|
|
|
9.15
|
%
|
Core
capital:
|
|
|
|
|
|
|
|
Capital
level
|
|
$
|
25,330
|
|
|
10.65
|
%
|
Requirement
|
|
|
7,134
|
|
|
3.00
|
|
Excess
|
|
$
|
18,196
|
|
|
7.65
|
%
|
Risk-based
capital:
|
|
|
|
|
|
|
|
Capital
level
|
|
$
|
25,816
|
|
|
14.89
|
%
|
Requirement
|
|
|
13,868
|
|
|
8.00
|
|
Excess
|
|
$
|
11,948
|
|
|
6.89
|
%
|
EAGLE
BANCORP AND SUBSIDIARY
Impact
of Inflation and Changing Prices
Our
financial statements and the accompanying notes have been prepared in accordance
with generally accepted accounting principles, which require the measurement
of
financial position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time
and
due to inflation. The impact of inflation is reflected in the increased cost
of
our operations. Interest rates have a greater impact on our performance than
do
the general levels of inflation. Interest rates do not necessarily move in
the
same direction or to the same extent as the prices of goods and
services.
Application
of Critical Accounting Policies
There
are
a number of accounting estimates performed by the Company in preparing its
financial statements. Some of the estimates are developed internally, while
others are obtained from independent third parties. Examples of estimates using
external sources are the fair market value of investment securities, fair value
of mortgage servicing rights, deferred compensation, and appraised value of
foreclosed properties. It is management’s assertion that the external sources
have access to resources, methodologies, and markets that provide adequate
assurances that no material impact would occur due to changes in assumptions.
The following accounting estimates are performed internally:
Allowance
for Loan and Lease Losses (ALLL)- Management applies its knowledge of current
local economic and real estate market conditions, historical experience, loan
portfolio composition, and the assessment of delinquent borrowers’ situations,
to determine the adequacy of its ALLL reserve. These factors are reviewed by
the
Bank’s federal banking regulator and the Company’s external auditors on a
regular basis. The current level of the ALLL reserve is deemed to be more than
adequate given the above factors, with no material impact expected due to a
difference in the assumptions.
Deferred
Loan Fees - Management applies time study and statistical analysis to determine
loan origination costs to be capitalized under FAS 91. The analysis is reviewed
by the Company’s external auditors for reasonableness. No material impact is
expected if different assumptions are used, as many of our loans have a short
duration.
Deferred
Tax Assets - Management expects to realize the deferred tax assets due to the
continued profitability of the Company.
Fair
Value of Other Financial Instruments - Management uses an internal model to
determine fair value for its loan portfolio and certificates of deposit. The
assumptions entail spreads over the Treasury yield curve at appropriate maturity
benchmarks. Assumptions incorporating different spreads would naturally deliver
varying results, however due to short-term nature of the loan portfolio and
certificates of deposit, changes in the results would be mitigated. Currently,
the fair value is only presented as footnote information, and changes due to
new
assumptions would not, in management’s opinion, affect the reader’s opinion of
the Company’s financial condition.
Economic
Life of Fixed Assets - Management determines the useful life of its buildings,
furniture, and equipment for depreciation purposes. These estimates are reviewed
by the Company’s external auditors for reasonableness. No material impact is
expected if different assumptions were to be used.
EAGLE
BANCORP AND SUBSIDIARY
ITEM
3: CONTROLS AND PROCEDURES
Based
on
their evaluation, the Company’s Chief Executive Officer, Larry A. Dreyer, and
Chief Financial Officer, Peter J. Johnson, have concluded the Company’s
disclosure controls and procedures are effective as of March 31, 2007 to ensure
that information required to be disclosed in the reports that the Company files
or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities
and
Exchange Commission’s rules and forms. During the last fiscal quarter, there
have been no changes in the Company’s internal control over financial reporting
that have materially affected, or are reasonably likely to materially affect,
the Company’s internal control over financial reporting.
EAGLE
BANCORP AND SUBSIDIARY
Part
II - OTHER INFORMATION
Item
1. Legal Proceedings.
Neither
the Company nor the Bank is involved in any pending legal proceedings other
than
non-material legal proceedings occurring in the ordinary course of
business.
Item
2. Unregistered Sales of Equity Securities Use of
Proceeds.
c)
|
Small
Business Issuer Purchases of Equity Securities.
The
following table summarizes the Company’s purchases of its common stock for
the three months ended March 31,
2007.
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
Period
|
|
Total
Number
of
Shares
Purchased*
|
|
Average
Price
Paid
Per
Share
|
|
Total
Number of
Shares
Purchased as
Part
of Publicly
Announced
Plans
or
Programs
|
|
Maximum
Number
of
Shares that May
Yet
Be Purchased Under the Plans or Programs
|
|
January
2007
1-1-07
to
1-31-07
|
|
|
1,200
|
|
$
|
33.00
|
|
|
1,200
|
|
|
5,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
2007
2-1-07
to
2-28-07
|
|
|
None
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
2007
3-1-07
to
3-31-7
|
|
|
None
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,200
|
|
$
|
33.00
|
|
|
1,200
|
|
|
N/A
|
|
*The
Company publicly announced a stock repurchase program on July 21, 2005. The
Company is authorized to acquire up to 28,750 shares of common stock with the
price subject to market conditions. No expiration date was set for the
repurchase program. As of May 5, 2007, 23,215 shares had been
repurchased.
Item
3. Defaults Upon Senior Securities.
Not
applicable.
Item
4. Submission of Matters to a Vote of Security
Holders.
Non
applicable.
None.
EAGLE
BANCORP AND SUBSIDIARY
Part
II - OTHER INFORMATION - continued
Item
6. Exhibits.
31.1
Certification by Larry A. Dreyer, Chief Executive Officer, pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 (a) of the Sarbanes-Oxley Act of 2002.
31.2
Certification by Peter J. Johnson, Chief Financial Officer, pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 (a) of the Sarbanes-Oxley Act of 2002.
32.1
Certification by Larry A. Dreyer, Chief Executive Officer, and Peter J. Johnson,
Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
EAGLE
BANCORP AND SUBSIDIARY
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused
this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
|
|
EAGLE
BANCORP
|
|
|
|
Date: May
10, 2007
|
By:
|
/s/ Larry
A. Dreyer
|
|
Larry
A. Dreyer
|
|
Title:
President/CEO
|
|
|
|
|
|
|
Date: May
10, 2007
|
By:
|
/s/ Peter
J. Johnson
|
|
Peter
J. Johnson
|
|
Title:
Executive Vice President/CFO
|