Unassociated Document
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 December 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
|
1,078,822
shares outstanding
|
As
of February 1, 2008
Transitional
Small Business Disclosure Format (Check one): Yes o No x
EAGLE
BANCORP AND SUBSIDIARY
PART
I.
|
FINANCIAL
INFORMATION
|
|
|
|
|
Item
1.
|
Financial
Statements
|
|
|
|
|
|
Consolidated
Statements of Financial Condition as of December 31, 2007 (unaudited)
and
June 30, 2007
|
1
and 2
|
|
|
|
|
Consolidated
Statements of Income for the three and six months ended December
31, 2007
and 2006 (unaudited)
|
3
and 4
|
|
|
|
|
Consolidated
Statements of Changes in Stockholders' Equity for the six months
ended
December 31, 2007 (unaudited)
|
5
|
|
|
|
|
Consolidated
Statements of Cash Flows for the six months ended December 31, 2007
and
2006 (unaudited)
|
6
and 7
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
8
to 12
|
|
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition or Plan of
Operations
|
13
to 19
|
|
|
|
Item
3.
|
Controls
and Procedures
|
20
|
PART
II.
|
OTHER
INFORMATION
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
21
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
21
|
Item
3.
|
Defaults
Upon Senior Securities
|
21
|
Item
4.
|
Submission
of Matters to a Vote of Security-Holders
|
22
|
Item
5.
|
Other
Information
|
22
|
Item
6.
|
Exhibits
|
22
|
|
|
|
Signatures
|
|
23
|
|
|
|
Exhibit
31.1
|
|
|
|
|
|
Exhibit
31.2
|
|
|
|
|
|
Exhibit
32.1
|
|
|
EAGLE
BANCORP AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
(Dollars
in Thousands, Except for Per Share Data)
|
|
|
December
31,
|
|
|
June
30,
|
|
|
|
|
2007
|
|
|
2007
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
ASSETS
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
4,426
|
|
$
|
2,709
|
|
Interest-bearing
deposits with banks
|
|
|
350
|
|
|
360
|
|
Total
cash and cash equivalents
|
|
|
4,776
|
|
|
3,069
|
|
|
|
|
|
|
|
|
|
Investment
securities FAS 159, at market value
|
|
|
1,401
|
|
|
0
|
|
Investment
securities available-for-sale, at market value
|
|
|
61,280
|
|
|
64,774
|
|
Investment
securities held-to-maturity, at cost
|
|
|
726
|
|
|
921
|
|
Investment
in nonconsolidated subsidiary
|
|
|
155
|
|
|
155
|
|
Federal
Home Loan Bank stock, at cost
|
|
|
1,315
|
|
|
1,315
|
|
Mortgage
loans held-for-sale
|
|
|
748
|
|
|
1,175
|
|
Loans
receivable, net of deferred loan fees and allowance for loan losses
of
|
|
|
|
|
|
|
|
$515
at December 31, 2007 and $518 at June 30, 2007
|
|
|
164,626
|
|
|
158,140
|
|
Accrued
interest and dividends receivable
|
|
|
1,352
|
|
|
1,333
|
|
Mortgage
servicing rights, net
|
|
|
1,651
|
|
|
1,628
|
|
Property
and equipment, net
|
|
|
6,419
|
|
|
5,806
|
|
Cash
surrender value of life insurance
|
|
|
6,165
|
|
|
5,764
|
|
Real
estate acquired in settlement of loans, net of allowance for
losses
|
|
|
0
|
|
|
0
|
|
Other
assets
|
|
|
372
|
|
|
606
|
|
Total
assets
|
|
$
|
250,986
|
|
$
|
244,686
|
|
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)
|
|
|
December
31,
|
|
|
June
30,
|
|
|
|
|
2007
|
|
|
2007
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Deposit
accounts:
|
|
|
|
|
|
|
|
Noninterest
bearing
|
|
$
|
12,967
|
|
$
|
13,694
|
|
Interest
bearing
|
|
|
162,037
|
|
|
165,953
|
|
Federal
funds purchased
|
|
|
0
|
|
|
3,800
|
|
Advances
from Federal Home Loan Bank and other borrowings
|
|
|
43,700
|
|
|
30,000
|
|
Long-term
subordinated debentures
|
|
|
5,155
|
|
|
5,155
|
|
Accrued
expenses and other liabilities
|
|
|
1,988
|
|
|
1,996
|
|
Total
liabilities
|
|
|
225,847
|
|
|
220,598
|
|
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; 1,079,822 and 1,084,357 outstanding at December 31,
2007
and June 30, 2007, respectively)
|
|
|
12
|
|
|
12
|
|
Additional
paid-in capital
|
|
|
4,441
|
|
|
4,387
|
|
Unallocated
common stock held by employee stock ownership plan
("ESOP")
|
|
|
(74
|
)
|
|
(92
|
)
|
Treasury
stock, at cost (143,750 and 139,215 shares at December 31, 2007 and
|
|
|
|
|
|
|
|
June
30, 2007, respectively
|
|
|
(4,908
|
)
|
|
(4,759
|
)
|
Retained
earnings
|
|
|
25,805
|
|
|
25,448
|
|
Accumulated
other comprehensive loss
|
|
|
(137
|
)
|
|
(908
|
)
|
Total
stockholders' equity
|
|
|
25,139
|
|
|
24,088
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
250,986
|
|
$
|
244,686
|
|
See
accompanying notes to consolidated financial statements.
EAGLE
BANCORP AND SUBSIDIARY
QUARTERLY
CONSOLIDATED
STATEMENTS OF INCOME
(Dollars
in Thousands, Except for Per Share Data)
|
|
|
December
31,
|
|
|
Six
Months Ended
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and Dividend Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and fees on loans
|
|
$
|
2,751
|
|
$
|
2,378
|
|
$
|
5,419
|
|
$
|
4,689
|
|
Interest
on deposits with banks
|
|
|
27
|
|
|
16
|
|
|
34
|
|
|
28
|
|
Securities
held-to-maturity
|
|
|
9
|
|
|
11
|
|
|
18
|
|
|
22
|
|
Securities
available-for-sale
|
|
|
704
|
|
|
696
|
|
|
1,426
|
|
|
1,356
|
|
FHLB
dividends
|
|
|
3
|
|
|
1
|
|
|
5
|
|
|
1
|
|
Total
interest and dividend income
|
|
|
3,494
|
|
|
3,102
|
|
|
6,902
|
|
|
6,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,171
|
|
|
1,042
|
|
|
2,356
|
|
|
1,976
|
|
FHLB
advances and other borrowings
|
|
|
471
|
|
|
355
|
|
|
910
|
|
|
686
|
|
Subordinated
debentures
|
|
|
75
|
|
|
75
|
|
|
150
|
|
|
150
|
|
Total
interest expense
|
|
|
1,717
|
|
|
1,472
|
|
|
3,416
|
|
|
2,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
1,777
|
|
|
1,630
|
|
|
3,486
|
|
|
3,284
|
|
Loan
loss provision
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Net
interest income after loan loss provision
|
|
|
1,777
|
|
|
1,630
|
|
|
3,486
|
|
|
3,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
gain on sale of loans
|
|
|
183
|
|
|
190
|
|
|
382
|
|
|
309
|
|
Demand
deposit service charges
|
|
|
190
|
|
|
128
|
|
|
356
|
|
|
263
|
|
Mortgage
loan servicing fees
|
|
|
137
|
|
|
133
|
|
|
270
|
|
|
271
|
|
Net
gain on sale of available-for-sale securities
|
|
|
0
|
|
|
1
|
|
|
0
|
|
|
1
|
|
Net
loss on securities FAS 159
|
|
|
(390
|
)
|
|
0
|
|
|
(431
|
)
|
|
0
|
|
Other
|
|
|
149
|
|
|
140
|
|
|
276
|
|
|
285
|
|
Total
noninterest income
|
|
|
269
|
|
|
592
|
|
|
853
|
|
|
1,129
|
|
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)
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Noninterest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
1,008
|
|
|
914
|
|
|
1,954
|
|
|
1,752
|
|
Occupancy
expenses
|
|
|
130
|
|
|
133
|
|
|
265
|
|
|
275
|
|
Furniture
and equipment depreciation
|
|
|
70
|
|
|
68
|
|
|
141
|
|
|
147
|
|
In-house
computer expense
|
|
|
84
|
|
|
70
|
|
|
158
|
|
|
141
|
|
Advertising
expense
|
|
|
70
|
|
|
60
|
|
|
133
|
|
|
153
|
|
Amortization
of mtg servicing fees
|
|
|
75
|
|
|
73
|
|
|
141
|
|
|
149
|
|
Federal
insurance premiums
|
|
|
5
|
|
|
5
|
|
|
10
|
|
|
11
|
|
Postage
|
|
|
33
|
|
|
21
|
|
|
56
|
|
|
39
|
|
Legal,
accounting, and examination fees
|
|
|
65
|
|
|
66
|
|
|
121
|
|
|
124
|
|
Consulting
fees
|
|
|
7
|
|
|
20
|
|
|
22
|
|
|
36
|
|
ATM
processing
|
|
|
13
|
|
|
10
|
|
|
27
|
|
|
22
|
|
Other
|
|
|
227
|
|
|
221
|
|
|
427
|
|
|
428
|
|
Total
noninterest expense
|
|
|
1,787
|
|
|
1,661
|
|
|
3,455
|
|
|
3,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before provision for income taxes
|
|
|
259
|
|
|
561
|
|
|
884
|
|
|
1,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
40
|
|
|
100
|
|
|
201
|
|
|
253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
219
|
|
$
|
461
|
|
$
|
683
|
|
$
|
883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
0.20
|
|
$
|
0.43
|
|
$
|
0.64
|
|
$
|
0.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$
|
0.18
|
|
$
|
0.38
|
|
$
|
0.56
|
|
$
|
0.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding (basic eps)
|
|
|
1,070,862
|
|
|
1,072,540
|
|
|
1,071,651
|
|
|
1,073,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding (diluted eps)
|
|
|
1,213,612
|
|
|
1,209,012
|
|
|
1,213,035
|
|
|
1,208,435
|
|
See
accompanying notes to consolidated financial statements.
EAGLE
BANCORP AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For
the Six Months Ended December 31, 2007 (Unaudited)
(Dollars
in Thousands, Except for Per Share Data)
|
|
|
STOCK
|
|
|
STOCK
|
|
|
CAPITAL
|
|
|
|
|
|
STOCK
|
|
|
EARNINGS
|
|
|
INCOME
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2007
|
|
$
|
-
|
|
$
|
12
|
|
$
|
4,387
|
|
$
|
(92
|
)
|
$
|
(4,759
|
)
|
$
|
25,448
|
|
$
|
(908
|
)
|
$
|
24,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
683
|
|
|
-
|
|
|
683
|
|
Other
comprehensive income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
771
|
|
|
771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid ($.24 per share)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(209
|
)
|
|
-
|
|
|
(209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury
stock purchased (1,250 shares @ $33.00; 3,285 shares @
$32.75)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(149
|
)
|
|
-
|
|
|
-
|
|
|
(149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FAS
159 Adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ESOP
shares allocated or committed to be released for allocation (1,150
shares)
|
|
|
-
|
|
|
-
|
|
|
54
|
|
|
18
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
$
|
-
|
|
$
|
12
|
|
$
|
4,441
|
|
$
|
(74
|
)
|
$
|
(4,908
|
)
|
$
|
25,805
|
|
$
|
(137
|
)
|
$
|
25,139
|
|
See
accompanying notes to consolidated financial statements.
EAGLE
BANCORP AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Dollars
in Thousands, Except for Per Share Data)
|
|
Six
Months Ended
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
683
|
|
$
|
883
|
|
Adjustments
to reconcile net income to net cash from operating
activities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
228
|
|
|
249
|
|
Net
amortization of marketable securities premium and
discounts
|
|
|
113
|
|
|
318
|
|
Amortization
of capitalized mortgage servicing rights
|
|
|
141
|
|
|
149
|
|
Gain
on sale of loans
|
|
|
(382
|
)
|
|
(309
|
)
|
Net
realized gain on sale of available-for-sale securities
|
|
|
-
|
|
|
(1
|
)
|
Increase
in cash surrender value of life insurance
|
|
|
(101
|
)
|
|
(91
|
)
|
Loss
in investment securities, FAS 159
|
|
|
431
|
|
|
-
|
|
Change
in assets and liabilities:
|
|
|
|
|
|
|
|
(Increase)
decrease in assets:
|
|
|
|
|
|
|
|
Accrued
interest and dividends receivable
|
|
|
(19
|
)
|
|
(68
|
)
|
Loans
held-for-sale
|
|
|
807
|
|
|
(825
|
)
|
Other
assets
|
|
|
154
|
|
|
432
|
|
Increase
(decrease) in liabilities:
|
|
|
|
|
|
|
|
Accrued
expenses and other liabilities
|
|
|
(293
|
)
|
|
(254
|
)
|
Net
cash provided by operating activities
|
|
|
1,662
|
|
|
483
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Purchase
of securities:
|
|
|
|
|
|
|
|
Investment
securities available-for-sale
|
|
|
(3,990
|
)
|
|
(13,720
|
)
|
Proceeds
from maturities, calls and principal payments:
|
|
|
|
|
|
|
|
Investment
securities held-to-maturity
|
|
|
195
|
|
|
56
|
|
Investment
securities available-for-sale
|
|
|
6,630
|
|
|
8,977
|
|
Proceeds
from sales of investment securities available-for-sale
|
|
|
-
|
|
|
3,316
|
|
Net
increase in loans receivable, excludes transfers to real estate acquired
in settlement of loans
|
|
|
(6,651
|
)
|
|
(6,610
|
)
|
Purchase
of property and equipment
|
|
|
(841
|
)
|
|
(225
|
)
|
Purchase
of bank owned life insurance
|
|
|
(300
|
)
|
|
(342
|
)
|
Net
cash used in investing activities
|
|
|
(4,957
|
)
|
|
(8,548
|
)
|
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)
|
|
Six
Months Ended
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
increase in checking and savings accounts
|
|
$
|
$(4,641
|
)
|
$
|
$993
|
|
Net
decrease in federal funds
|
|
|
(3,800
|
)
|
|
(2,175
|
)
|
Payments
on FHLB advances and other borrowings
|
|
|
(5,000
|
)
|
|
(9,334
|
)
|
FHLB
advances and other borrowings
|
|
|
18,700
|
|
|
21,000
|
|
Purchase
of treasury stock
|
|
|
(148
|
)
|
|
(166
|
)
|
Dividends
paid
|
|
|
(209
|
)
|
|
(194
|
)
|
Net
cash provided by financing activities
|
|
|
4,902
|
|
|
10,124
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
1,707
|
|
|
2,059
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, beginning of period
|
|
|
3,069
|
|
|
2,871
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, end of period
|
|
$
|
4,776
|
|
$
|
4,930
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$
|
3,385
|
|
$
|
2,926
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for income taxes
|
|
$
|
530
|
|
$
|
322
|
|
|
|
|
|
|
|
|
|
NON-CASH
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Increase
in market value of securities available-for-sale
|
|
$
|
(1,093
|
)
|
$
|
(957
|
)
|
|
|
|
|
|
|
|
|
Mortgage
servicing rights capitalized
|
|
$
|
165
|
|
$
|
108
|
|
See
accompanying notes to consolidated financial statements.
EAGLE
BANCORP AND SUBSIDIARY
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 six month periods ended December 31,
2007 are not necessarily indicative of the results to be expected for the fiscal
year ending June 30, 2008 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, 2007.
NOTE
2. INVESTMENT
SECURITIES
Investment
securities are summarized as follows:
(Dollars
in thousands)
|
|
December
31, 2007 (Unaudited)
|
|
June
30, 2007 (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
|
|
$
|
3,079
|
|
$
|
(16
|
)
|
$
|
3,063
|
|
$
|
3,690
|
|
$
|
(47
|
)
|
$
|
3,643
|
|
Municipal
obligations
|
|
|
22,046
|
|
|
(144
|
)
|
|
21,902
|
|
|
21,198
|
|
|
(470
|
)
|
|
20,728
|
|
Corporate
obligations
|
|
|
11,722
|
|
|
8
|
|
|
11,730
|
|
|
13,847
|
|
|
(224
|
)
|
|
13,623
|
|
Mortgage-backed
securities
|
|
|
7,457
|
|
|
(17
|
)
|
|
7,440
|
|
|
8,107
|
|
|
(235
|
)
|
|
7,872
|
|
Collateralized
mortgage obligations
|
|
|
17,192
|
|
|
(47
|
)
|
|
17,145
|
|
|
17,408
|
|
|
(333
|
)
|
|
17,075
|
|
Corporate
preferred stock
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
2,000
|
|
|
(167
|
)
|
|
1,833
|
|
Total
|
|
$
|
61,496
|
|
$
|
(216
|
)
|
$
|
61,280
|
|
$
|
66,250
|
|
$
|
(1,476
|
)
|
$
|
64,774
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
obligations
|
|
$
|
675
|
|
$
|
15
|
|
$
|
690
|
|
$
|
826
|
|
$
|
9
|
|
$
|
835
|
|
Mortgage-backed
securities
|
|
|
51
|
|
|
-
|
|
|
51
|
|
|
95
|
|
|
-
|
|
|
95
|
|
Total
|
|
$
|
726
|
|
$
|
15
|
|
$
|
741
|
|
$
|
921
|
|
$
|
9
|
|
$
|
930
|
|
Beginning
July 1, 2007 the Company elected to account for its preferred stock under SFAS
No. 159 Fair
Value Option for Financial Assets and Financial Liabilities,
which
allows an entity the irrevocable option to elect fair value for the initial
and
subsequent measurement for certain financial assets and liabilities on a
contract-by-contract basis. Subsequent changes in fair value of these assets
are
recognized in earnings when incurred. The market value of preferred stock was
$1,401,000, $1,792,000, and $1,833,000 at December 31, 2007, September 30,
2007
and July 1, 2007, respectively, resulting in a loss in value of $390,000 and
$431,000 for the three and six month periods ending December 31, 2007,
respectively, and is included in noninterest income.
EAGLE
BANCORP AND SUBSIDIARY
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE
3. LOANS
RECEIVABLE
Loans
receivable consist of the following:
|
|
|
December
31,
|
|
|
June
30,
|
|
|
|
|
2007
|
|
|
2007
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
(Dollars
in
Thousands)
|
First
mortgage loans:
|
|
|
|
|
|
|
|
Residential
mortgage (1-4 family)
|
|
$
|
86,136
|
|
$
|
81,958
|
|
Commercial
real estate
|
|
|
29,012
|
|
|
25,621
|
|
Real
estate construction
|
|
|
6,103
|
|
|
8,253
|
|
|
|
|
|
|
|
|
|
Other
loans:
|
|
|
|
|
|
|
|
Home
equity
|
|
|
26,508
|
|
|
24,956
|
|
Consumer
|
|
|
11,108
|
|
|
11,438
|
|
Commercial
|
|
|
6,186
|
|
|
6,366
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
165,053
|
|
|
158,592
|
|
|
|
|
|
|
|
|
|
Less:
Allowance for loan losses
|
|
|
(515
|
)
|
|
(518
|
)
|
Add:
Deferred loan fees, net
|
|
|
88
|
|
|
66
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
164,626
|
|
$
|
158,140
|
|
Loans
net of related allowance for loan losses on which the accrual of interest has
been discontinued were $29 and $21 at December 31, 2007 and June 30, 2007,
respectively. Classified assets, including real estate owned, totaled $147
and
$391 at December 31, 2007 and June 30, 2007, respectively.
The
following is a summary of changes in the allowance for loan losses:
|
|
|
Six
Months Ended
|
|
|
Year
Ended
|
|
|
|
|
December
31,
|
|
|
June
30,
|
|
|
|
|
2007
|
|
|
2007
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
(Dollars
in Thousands)
|
Balance,
beginning of period
|
|
$
|
518
|
|
$
|
535
|
|
Reclassification
to repossessed property reserve
|
|
|
0
|
|
|
0
|
|
Provision
charged to operations
|
|
|
0
|
|
|
0
|
|
Charge-offs
|
|
|
(7
|
)
|
|
(29
|
)
|
Recoveries
|
|
|
4
|
|
|
12
|
|
Balance,
end of period
|
|
$
|
515
|
|
$
|
518
|
|
EAGLE
BANCORP AND SUBSIDIARY
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE
4. DEPOSITS
Deposits
are summarized as follows:
|
|
|
December
31,
|
|
|
June
30,
|
|
|
|
|
2007
|
|
|
2007
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
(Dollars
in Thousands)
|
Noninterest
checking
|
|
$
|
12,965
|
|
$
|
13,694
|
|
Interest-bearing
checking
|
|
|
31,695
|
|
|
30,953
|
|
Passbook
|
|
|
22,349
|
|
|
22,521
|
|
Money
market
|
|
|
20,593
|
|
|
23,292
|
|
Time
certificates of deposit
|
|
|
87,402
|
|
|
89,187
|
|
Total
|
|
$
|
175,004
|
|
$
|
179,647
|
|
NOTE
5. EARNINGS
PER SHARE
Basic
earnings per share for the three months ended December 31, 2007 is computed
using 1,070,862 weighted average shares outstanding. Earnings per share for
the
six months ended December 31, 2007 is computed using 1,071,651 weighted average
shares outstanding. Basic earnings per share for the three months ended December
31, 2006 is computed using 1,072,540 weighted average shares outstanding.
Earnings per share for the nine months ended December 31, 2006 is computed
using
1,073,100 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 1,213,612 for the three months
ended December 31, 2007 and 1,213,035 for the six months ended December 31,
2007. Diluted earnings per share for the three months and six months ended
December 31, 2007 is computed using 1,209,012 and 1,208,435 weighted average
shares outstanding, respectively.
NOTE
6. DIVIDENDS
AND STOCK REPURCHASE PROGRAM
This
fiscal year Eagle has paid two dividends of $0.24 per share on August 24, 2007,
and November 16, 2007. A dividend of $0.24 per share was declared on January
17,
2008, payable February 8, 2008 to stockholders of record on January 25, 2008.
Eagle Financial MHC, Eagle’s mutual holding company, has waived the receipt of
dividends on its 648,493 shares.
At
their
regular meeting of January 17, 2008, the Company’s Board of Directors announced
a stock repurchase program for up to 28,750 shares. This represents
approximately 6.7% 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
February 1, 2008, 1,000 shares have been repurchased.
EAGLE
BANCORP AND SUBSIDIARY
NOTES
TO
CONSOLIDATED 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)
|
|
|
December
31,
|
|
|
June
30,
|
|
|
|
|
2007
|
|
|
2007
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
(Dollars
in Thousands)
|
Mortgage
Servicing Rights
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
1,628
|
|
$
|
1,722
|
|
Servicing
rights capitalized
|
|
|
165
|
|
|
211
|
|
Servicing
rights amortized
|
|
|
(142
|
)
|
|
(305
|
)
|
Ending
balance
|
|
|
1,651
|
|
|
1,628
|
|
|
|
|
|
|
|
|
|
Valuation
Allowance
|
|
|
|
|
|
|
|
Beginning
balance
|
|
|
0
|
|
|
0
|
|
Provision
|
|
|
(0
|
)
|
|
(0
|
)
|
Adjustments
|
|
|
0
|
|
|
0
|
|
Ending
balance
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
Net
Mortgage Servicing Rights
|
|
$
|
1,651
|
|
$
|
1,628
|
|
EAGLE
BANCORP AND SUBSIDIARY
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE
8. RECENTLY ISSUED PRONOUNCEMENTS
In
June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an
Interpretation of FASB Statement No. 109 (FIN 48).” The interpretation
prescribes a recognition threshold and measurement attribute for financial
statement recognition and measurement of a tax position taken or expected to
be
taken in a tax return. Benefits from tax positions must be recognized in the
financial statements only when it is more likely than not that the tax position
will be sustained upon examination by the appropriate taxing authority that
would have full knowledge of all relevant information. A tax position that
meets
the more-likely-than-not recognition threshold is measured at the largest amount
of benefit that is greater than fifty percent likely of being realized upon
ultimate settlement. Tax positions that previously failed to meet the
more-likely-than-not recognition threshold must be recognized in the first
subsequent financial reporting period in which that threshold is met. Previously
recognized tax positions that no longer meet the more-likely-than-not
recognition threshold must be derecognized in the first subsequent financial
reporting period in which that threshold is no longer met. FIN 48 also provides
guidance on the accounting for and disclosure of unrecognized tax benefits,
interest and penalties. The new interpretation was effective for the Bank
January 1, 2007. The implementation of the provisions of the new
interpretation did not have a significant impact on the Bank’s consolidated
financial position or results of operations. The Bank files income tax returns
in the U. S. federal jurisdiction and is no longer subject to U. S. federal
income tax examinations by tax authorities for years before 2004.
In
September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements”
which defines fair value, establishes a framework for measuring fair value
in
accordance with generally accepted accounting principles, and expands
disclosures about fair value measurements. SFAS No. 157 was effective for
the Bank on July 1, 2007 and did not have a significant impact on the
Bank’s consolidated financial statements.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities”, which permits entities to
choose to measure many financial instruments and certain other items at fair
value. The objective of the new pronouncement is to improve financial reporting
by providing companies with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. SFAS No. 159 is
effective for the Bank July 1, 2007. See Note 2 for information on the impact
of
the adoption of this statement.
EAGLE
BANCORP AND SUBSIDIARY
MANAGEMENT
DISCUSSION 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
movement 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 servicing 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.
Recently,
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 competition and more costly
wholesale funding will likely be needed to supplement deposit
growth.
The
quarter began shortly after the Federal Reserve Bank’s Federal Open Market
Committee (“FOMC”) lowered the fed funds target rate by 50 basis points in mid
September. The FOMC continued to reduce the fed funds target rate during the
quarter ending December 31, 2007 with two rate cuts, each by 25 basis points.
More recently in January 2008, the FOMC lowered the fed funds target rate by
an
additional 125 basis points. As a result, the short end of the yield curve
has
fallen, thus bringing some steepness back into the yield curve particularly
after the two year point of the curve. With this change, net interest income
began to slightly increase during the quarter. Management expects this trend
to
continue over the next quarter, as rates on deposits and other funding sources
will be priced off the lower, shorter end of the yield curve.
EAGLE
BANCORP AND SUBSIDIARY
MANAGEMENT
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Financial
Condition
Comparisons
of results in this section are between the six months ended December 31, 2007
and June 30, 2007.
Total
assets increased by $6.30 million, or 2.57%, to $250.99 million at December
31,
2007, from $244.69 million at June 30, 2007. Total liabilities increased by
$5.25 million to $225.85 million at December 31, 2007, from $220.60 million
at
June 30, 2007. Total equity increased $1.05 million to $25.14 million at
December 31, 2007 from $24.09 million at June 30, 2007.
Loans
receivable increased $6.49 million, or 4.10%, to $164.63 million at December
31,
2007 from $158.14 million at June 30, 2007. Residential mortgage loans were
the
category with the largest increase, $4.18 million, and most other loan
categories showed increases in the six month period. Total loan originations
were $62.40 million for the six months ended December 31, 2007, with single
family mortgages accounting for $35.64 million of the total. Home equity loan
and construction loan originations totaled $8.54 million and $5.28 million,
respectively, for the same period. Commercial real estate and land development
loan originations totaled $6.29 million. Loans held for sale decreased to
$748,000 at December 31, 2007 from $1.18 million at June 30, 2007. Investment
securities available-for-sale (“AFS”) decreased $3.49 million, or 5.39%, to
$61.28 million at December 31, 2007 from $64.77 million at June 30, 2007. Of
that decrease, $1.80 million was the result of accounting for preferred stock
under SFAS No. 159, which has its own line on the face of the balance sheet.
Otherwise, the investment category with the largest decrease was corporate
bonds, which decreased $1.89 million.
Advances
and other borrowings increased $9.9 million, to $43.70 million from $33.80
million, while deposits decreased $4.64 million. Certificates of deposit and
money market accounts were the categories of deposits which declined most
significantly, while interest bearing checking increased. The certificates
of
deposit decrease was $1.79 million and included a cancellation by the Bank
of a
$4.4 million brokered certificate of deposit. The bank had no brokered deposits
as of December 31, 2007
Total
equity increased as a result of net income of $683,000, and a decrease in other
comprehensive loss of $771,000 (due to a decrease in net unrealized loss on
securities available-for-sale) offset by purchases of treasury stock and the
payment of two quarterly $0.24 per share regular cash dividends.
Results
of Operations for the Three Months Ended December 31, 2007 and
2006
Net
Income.
Eagle’s
net income was $219,000 and $461,000 for the three months ended December 31,
2007, and 2006, respectively. The decrease of $242,000, or 52.49%, was due
to a
decrease in noninterest income of $323,000, offset by a increase in net interest
income of $147,000 and an increase in noninterest expense of $126,000. Eagle’s
tax provision was $60,000 lower in the current quarter. Basic earnings per
share
were $0.20 for the current period, compared to $0.43 for the previous year’s
period. The decrease in net income was significantly impacted by the recognition
of loss in market value on certain preferred stock held in the Company’s
investment portfolio.
Net
Interest Income.
Net
interest income increased to $1.777 million for the quarter ended December
31,
2007, from $1.630 million for the previous year’s quarter. This increase of
$147,000 was the result of an increase in interest expense of $245,000 offset
by
the increase in interest and dividend income of $392,000.
Interest
and Dividend Income.
Total
interest and dividend income was $3.494 million for the quarter ended December
31, 2007, compared to $3.102 million for the quarter ended December 31, 2006,
representing an increase of $392,000, or 12.64%. Interest and fees on loans
increased to $2.751 million for the three months ended December 31, 2007 from
$2.378 million for the same period ended December 31, 2006. This increase of
$373,000, or 15.69%, was due primarily to the increase in the average balances
on loans for the quarter ended December 31, 2007. Average balances for loans
receivable, net, for the quarter ended December 31, 2007 were $164.14 million,
compared to $147.86 million for the previous year. This represents an increase
of $16.28 million, or 11.01%. The average interest rate earned on loans
receivable increased by 27 basis points, from 6.43% to 6.70%. Interest and
dividends on investment securities AFS increased to $704,000 for the quarter
ended December 31, 2007 from $696,000 for the same quarter last year. Average
balances on investments decreased to $62.17 million for the quarter ended
December 31, 2007, compared to $67.06 million for the quarter ended December
31,
2006. The average interest rate earned on investments increased to 4.59% from
4.22%. Interest on deposits with banks increased to $27,000 from $16,000, due
to
increases in average balances.
EAGLE
BANCORP AND SUBSIDIARY
MANAGEMENT
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results
of Operations for the Three Months Ended December 31, 2007 and 2006 -
continued
Interest
Expense.
Total
interest expense increased to $1.717 million for the quarter ended December
31,
2007, from $1.472 million for the quarter ended December 31, 2006, an increase
of $245,000, or 16.64%, due to increases in interest paid on borrowings and
deposits. Interest on deposits increased to $1.171 million for the quarter
ended
December 31, 2007, from $1.042 million for the quarter ended December 31, 2006.
This increase of $129,000, or 12.38%, was the result of an increase in average
rates paid on deposit accounts. Interest bearing checking accounts and
certificates of deposit showed increases in average rates paid, while money
market accounts had decreases. Average balances in interest-bearing deposit
accounts increased slightly to $163.73 million for the quarter ended December
31, 2007, compared to $163.02 million for the same quarter in the previous
year.
A significant increase in the average balance of borrowings, partially offset
by
a decrease in the average rate paid, resulted in an increase in interest paid
on
borrowings to $546,000 versus $430,000 paid in the previous year’s quarter. The
average rate paid on borrowings decreased from 5.20% last year to 5.15% this
year. The average rate paid on liabilities decreased 5 basis points from the
quarter ended December 31, 2006 to the quarter ended December 31, 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 Eagle’s subsidiary,
American Federal Savings Bank (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 a 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. The Bank made no provision for loan losses for either the quarter
ended December 31, 2007 or the quarter ended December 31, 2007. This is a
reflection of the continued strong asset quality of the Bank’s loan portfolio.
Total classified assets decreased slightly from $391,000 at June 30, 2007 to
$147,000 at December 31, 2007, and total less than 0.09% of total loans. The
Bank currently has no foreclosed real estate.
Noninterest
Income. Total
noninterest income decreased to $269,000 for the quarter ended December 31,
2007, from $592,000 for the quarter ended December 31, 2006, a decrease of
$323,000 or 54.56%. This decrease is substantially due to a loss in market
value
on investments in certain preferred stock, issued by Fannie Mae and Freddie
Mac.
Under Statement of Financial Accounting Standard (SFAS) No. 159 Fair
Value Option for Financial Assets and Financial Liabilities,
which
the company implemented July 1, 2007, a company elects fair value for the
initial and subsequent measurement for certain financial assets and liabilities
on a contract-by-contract basis and subsequent changes in fair value are
recognized in earnings when incurred. For the three month period ending December
31, 2007, the market value of Fannie Mae and Freddie Mac preferred stock, owned
by Eagle, decreased $390,000. In recent months both agencies announced major
write-downs of asset values during the quarter, which impacted their common
equity prices as well. They also each issued new offerings of preferred stock
to
increase capital. These new issues have higher coupons than the preferred stock
held by Eagle, which also contributed to the decline in the market value of
the
issues held by Eagle. This loss was partially offset by increases in demand
deposit service charges of $62,000. This increase is partly attributable to
the
bank implementing a new overdraft protection plan this fiscal year. Net gain
on
sale of loan decreased $7,000. Other noninterest income increased to $149,000
for the quarter ended December 31, 2007 from $140,000 for the quarter ended
December 31, 2006. This was primarily due to increased fee income on electronic
payments. The other categories of noninterest income had small changes.
Noninterest
Expense.
Noninterest expense increased by $126,000 or 7.59% to $1.787 million for the
quarter ended December 31, 2007, from $1.661 million for the quarter ended
December 31, 2006. This increase was primarily due to increases in salaries
and
employee benefits of $94,000 and in-house computer expense of $14,000. The
increase in other salaries and employee benefits expense was due to merit
raises, and other inflationary items such as health care premiums. Increases
in
in-house computer expense were due to installing and implementing new network
servers and various new software applications. Other expense categories showed
minor changes.
Income
Tax Expense.
Eagle’s
income tax expense was $40,000 for the quarter ended December 31, 2007, compared
to $100,000 for the quarter ended December 31, 2006. The effective tax rate
for
the quarter ended December 31, 2007 was 15.44% and was 17.83% for the quarter
ended December 31, 2006.
EAGLE
BANCORP AND SUBSIDIARY
MANAGEMENT
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results
of Operations for the Six Months Ended December 31, 2007 and
2006
Net
Income.
Eagle’s
net income was $683,000 and $883,000 for the six months ended December 31,
2007
and 2006, respectively. The decrease of $200,000, or 22.65%, in net income
was
the result of an increase in net interest income of $202,000 and a decrease
noninterest income of $276,000, along with an increase in noninterest expense
of
$178,000. Eagle’s tax provision was $52,000 lower in the current period. Basic
earnings per share for the period ended December 31, 2007 were $0.64 compared
to
$0.82 per share for the period ended December 31, 2006.
Net
Interest Income.
Net
interest income increased to $3.486 million for the six months ended December
31, 2007 from $3.284 million for the six months ended December 31, 2006. This
increase of $202,000 was the result of an increase in an interest and dividend
income of $806,000 offset by an increase in interest expense of
$604,000.
Interest
and Dividend Income.
Total
interest and dividend income was $6.902 million for the six months ended
December 31, 2007, compared to $6.096 million for the same period ended December
31, 2006, representing an increase of $806,000, or 13.22%. Interest and fees
on
loans increased to $5.419 million for 2007 from $4.689 million for 2006. This
increase of $730,000, or 15.57%, was due to an increase in the average balances
of loans receivable for the six months ended December 31, 2007 and an increase
in the average interest rate on such loans. Average balances for loans
receivable, net, for this period were $163.41 million, compared to $146.11
million for the previous year. This is an increase of $17.30 million, or 11.84%.
The average interest rate earned on loans receivable increased by 21 basis
points, to 6.63% from 6.42%. Interest and dividends on investment securities
available-for-sale (AFS) increased to $1.426 million for the six months ended
December 31, 2007 from $1.356 million for the same period ended December 31,
2006. Interest on deposits with banks increased to $34,000 from $28,000.
Interest
Expense.
Total
interest expense increased to $3.416 million for the six months ended December
31, 2007 from $2.812 million for the six months ended December 31, 2006, an
increase of $604,000, or 21.48%. Interest on deposits increased to $2.356
million for the six months ended December 31, 2007 from $1.976 million for
the
six months ended December 31, 2006. This increase of $380,000, or 19.23%, 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 certificates of deposit increased from 2006 to 2007, while the average rate
paid on all liabilities increased by 42 basis points from the six month period
ended December 31, 2006 to the six month period ended December 31, 2007. Average
balances in interest-bearing deposits increased to $164.67 million for the
six
month period ended December 31, 2007 compared to $162.04 million for the same
period in the previous year. Interest paid on borrowings increased to $1.06
million for the six months ended December 31, 2007 from $836,000 for the same
period ended December 31, 2006. The increase in borrowing costs was due to
increases in the average balances, partially offset by a decrease in the average
rate paid. Average balances of borrowings increased to $42.22 million in 2007
compared to $31.94 million in 2006. The average rate paid on borrowings
decreased 19 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, 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 six month
periods ended December 31, 2007 or December 31, 2006. This is a reflection
of
the continued strong asset quality of the Bank’s loan portfolio. Total
classified assets decreased slightly from $391,000 at June 30, 2007 to $147,000
at December 31, 2007, and total less than 0.09% of total loans. The Bank
currently has no foreclosed real estate.
Noninterest
Income.
Total
noninterest income decreased to $853,000 for the six months ended December
31,
2007, from $1.129 million for the six months ended December 31, 2006, a decrease
of $276,000, or 24.45%. This decrease is principally due to a loss in market
value on investments in certain preferred stock, issued by Fannie Mae and
Freddie Mac. The Company implemented Statement of Financial Accounting Standard
(SFAS) No. 159 Fair
Value Option for Financial Assets and Financial Liabilities,
on July
1, 2007 which requires the recognition of losses for investments whose value
has
been impaired as described above. For the six month period ending December
31,
2007, the market value of Fannie Mae and Freddie Mac preferred stock, owned
by
Eagle, decreased $431,000. Net gain on sale of loans increased to $382,000
for
the six months ended December 31, 2007 from $309,000 for the six months ended
December 31, 2006, an increase of $73,000, or 23.62% due to the sale of a higher
percentage of mortgage originations. Other categories of noninterest income
showed minor changes.
EAGLE
BANCORP AND SUBSIDIARY
MANAGEMENT
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results
of Operations for the Six Months Ended December 31, 2007 and 2006 -
continued
Noninterest
Expense.
Noninterest expense increased by $178,000, or 5.43% to $3.455 million for the
six months ended December 31, 2007, from $3.277 million for the six months
ended
December 31, 2006. This increase was primarily due to increases in salaries
and
employee benefits of $202,000, in-house computer expenses of $17,000 and postage
expense of $17,000. The increase in salaries and employee benefits expense
was
due to merit raises, and other inflationary items such as health care premiums.
Increases in in-house computer expenses were due to installing and implementing
new network servers and various new software applications. Expenses for postage
increased partly due to costs related to privacy mailings and other
statement-stuffer items. Other categories of noninterest expense showed modest
changes.
Income
Tax Expense.
Eagle’s
income tax expense was $201,000 for the six months ended December 31, 2007,
compared to $253,000 for the six months ended December 31, 2006. The effective
tax rate for the six months ended December 31, 2007 was 22.74% and was 22.27%
for the six months ended December 31, 2006.
Liquidity,
Interest Rate Sensitivity and Capital Resources
The
company’s bank subsidiary is required to maintain minimum levels of liquid
assets as defined by the Office of Thrift Supervision (“OTS”) regulations and
guidance. 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 8.30% and 15.23% for the months ended December 31, 2007 and December 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 and other
correspondent banks. 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
September 30, 2007 (the most recent report available), the Bank’s measure of
sensitivity to interest rate movements, as measured by the OTS, weakened from
the previous quarter. The Bank’s capital ratio as measured by the OTS also
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.
As
of
December 31, 2007, the Bank’s regulatory capital was in excess of all applicable
regulatory requirements. At December 31, 2007, the Bank’s tangible, core, and
risk-based capital ratios amounted to 10.23%, 10.23%, and 14.46%, respectively,
compared to regulatory requirements of 1.5%, 3.0%, and 8.0%, respectively.
See
the following table (dollars in thousands):
EAGLE
BANCORP AND SUBSIDIARY
MANAGEMENT
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Liquidity,
Interest Rate Sensitivity and Capital Resources -
continued
|
|
(Unaudited)
|
|
|
At
December 31, 2007
|
|
|
|
|
|
|
For
Capital
|
|
|
|
|
|
|
|
Adequacy
|
|
|
|
|
Dollar
|
|
|
Purposes
|
|
|
|
|
Amount
|
|
|
%
of Assets
|
|
Tangible
capital:
|
|
|
|
|
|
|
|
Capital
level
|
|
$
|
25,201
|
|
|
10.23
|
%
|
Requirement
|
|
|
3,694
|
|
|
1.50
|
|
Excess
|
|
$
|
21,507
|
|
|
8.73
|
%
|
Core
capital:
|
|
|
|
|
|
|
|
Capital
level
|
|
$
|
25,201
|
|
|
10.23
|
%
|
Requirement
|
|
|
7,387
|
|
|
3.00
|
|
Excess
|
|
$
|
17,814
|
|
|
7.23
|
%
|
Risk-based
capital:
|
|
|
|
|
|
|
|
Capital
level
|
|
$
|
25,670
|
|
|
14.63
|
%
|
Requirement
|
|
|
14,202
|
|
|
8.00
|
|
Excess
|
|
$
|
11,468
|
|
|
6.46
|
%
|
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.
EAGLE
BANCORP AND SUBSIDIARY
MANAGEMENT
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Application
of Critical Accounting Policies - continued
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
CONTROLS
AND PROCEDURES
CONTROLS
AND PROCEDURES
Based
on
their evaluation, the Company’s Chief Executive Officer, Peter J. Johnson, and
Chief Financial Officer, Clint J. Morrison, have concluded the Company’s
disclosure controls and procedures are effective as of December 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 significant 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 proceeding 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
purchase of its common stock for the three months ended December 31,
2007. |
|
(a)
|
(b)
|
(c)
|
(d)
|
|
|
|
Total
Number
|
Maximum
|
|
|
|
of
Shares
|
Number
of
|
|
|
|
Purchased
|
Shares
that
|
|
Total
|
|
as
Part of
|
May
Yet Be
|
|
Number
of
|
Average
|
Publicly
|
Purchased
|
|
Shares
|
Price
Paid
|
Announced
Plans
|
Under
the Plans
|
Period
|
Purchased*
|
Per
Share
|
or
Programs
|
or
Programs
|
|
|
|
|
|
October
2007
|
3,285
|
$32.75
|
3,285
|
0
|
10-01-07
|
|
|
|
|
10-31-07
|
|
|
|
|
|
|
|
|
|
November
2007
|
None
|
N/A
|
N/A
|
N/A
|
11-01-07
|
|
|
|
|
11-30-07
|
|
|
|
|
|
|
|
|
|
December
2007
|
None
|
N/A
|
N/A
|
N/A
|
12-01-07
|
|
|
|
|
12-31-07
|
|
|
|
|
Total
|
3,285
|
$32.75
|
3,285
|
0
|
*The
Company publicly announced a stock repurchase program on July 21, 2005. The
Company was 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 December 31, 2007, 28,750 shares had been
repurchased.
The
Company publicly announced a stock repurchase program on January 17, 2008.
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 February 1, 2008, 1,000 shares have been
repurchased.
|
Defaults
Upon Senior Securities.
|
|
|
|
Not
applicable. |
EAGLE
BANCORP AND SUBSIDIARY
Part
II - OTHER INFORMATION (CONTINUED)
|
Submission
of Matters to a Vote of Security Holders.
|
|
|
|
The proxy statement for the Annual
Meeting of
Stockholders was mailed on September 17, 2007. The following matters
were
voted on at the meeting held on October 18,
2007: |
1.
|
Election
of directors for three-year terms expiring in 2010:
|
|
|
|
|
|
|
|
|
|
For:
|
|
Against:
|
|
|
|
Don
O. Campbell
|
1,089,411
|
|
1,378
|
|
|
|
Rick
F. Hays
|
1,088,911
|
|
1,878
|
|
|
|
Peter
J. Johnson
|
1,090,011
|
|
778
|
|
|
|
|
|
|
|
|
|
2.
|
Ratification
of appointment of Davis, Kinard & Co., P.C. as auditors for the fiscal
year ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
For:
|
|
Against:
|
|
Abstain:
|
|
|
1,088,979
|
|
500
|
|
1,310
|
|
31.1 |
Certification
by Peter J. Johnson, 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 Clint
J.
Morrison, 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 Peter
J. Johnson,
Chief Executive Officer, and Clint J. Morrison, Chief Financial Officer,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002. |
|
|
a) |
Reports on Form 8-K |
|
|
|
On January 17, 2008, the registrant
furnished
under Item 2.02 of Form 8-K a press release announcing its earnings
for
the second quarter of 2008 fiscal year. Also, on January 17, 2008,
the
registrant furnished Item 8.01 of Form 8-K a press release announcing
a
stock repurchase program for the company
shares. |
EAGLE
BANCORP AND SUBSIDIARY
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: February
11, 2008
|
By:
|
/s/ Peter
J. Johnson
|
|
Peter
J. Johnson
|
|
President/CEO
|
|
|
|
|
|
|
|
|
Date: February
11, 2008
|
By:
|
/s/ Clint
J. Morrison
|
|
Clint
J. Morrison
|
|
Senior
Vice President/CFO
|