Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
For
the quarterly period ended December 31,
2008
|
¨
|
TRANSITION
REPORT PURSUANT TO 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 registrant 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
(Registrant's
telephone number)
Website
address:
www.americanfederalsavingsbank.com
Indicate
by check mark whether the registrant has (1) filed all reports to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.
Yes x No ¨
Indicate
by a check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
|
Large
accelerated filer
|
¨
|
Accelerated
filer ¨
|
|
|
Non-accelerated
filer
|
¨
|
Smaller reporting company
|
x
|
|
(Do
not check if smaller
|
|
|
|
|
reporting
company)
|
|
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x
APPLICABLE
ONLY TO CORPORATE ISSUERS
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
Common
stock, par value $0.01 per share
|
1,075,312 shares
outstanding
|
As of
February 10, 2009
EAGLE
BANCORP AND SUBSIDIARY
TABLE OF
CONTENTS
|
|
PAGE
|
PART
I.
|
FINANCIAL
INFORMATION
|
|
|
|
|
Item
1.
|
Financial
Statements
|
|
|
|
|
|
Consolidated
Statements of Financial Condition as of December 31, 2008 (unaudited) and
June 30, 2008
|
1
and 2
|
|
|
|
|
Consolidated
Statements of Income for the three and six months ended December 31, 2008
and 2007 (unaudited)
|
3
and 4
|
|
|
|
|
Consolidated
Statements of Changes in Stockholders' Equity for the six months ended
December 31, 2008 and 2007(unaudited)
|
5
|
|
|
|
|
Consolidated
Statements of Cash Flows for the six months ended December 31, 2008 and
2007 (unaudited)
|
6
and 7
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
8
to 13
|
|
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
14
to 20
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosure About Market Risk
|
21
|
|
|
|
Item
4.
|
Controls
and Procedures
|
22
|
|
|
|
PART
II.
|
OTHER
INFORMATION
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
23
|
Item
1A.
|
Risk
Factors
|
23
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
23
|
Item
3.
|
Defaults
Upon Senior Securities
|
23
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
24
|
Item
5.
|
Other
Information
|
24
|
Item
6.
|
Exhibits
|
24
|
|
|
|
Signatures
|
|
25
|
|
|
|
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,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
ASSETS
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$ |
5,526 |
|
|
$ |
3,541 |
|
Interest-bearing
deposits with banks
|
|
|
127 |
|
|
|
549 |
|
Total
cash and cash equivalents
|
|
|
5,653 |
|
|
|
4,090 |
|
|
|
|
|
|
|
|
|
|
Preferred
stock - SFAS 159, at market value
|
|
|
35 |
|
|
|
1,321 |
|
Securities
available-for-sale, at market value
|
|
|
77,029 |
|
|
|
78,417 |
|
Investment
securities held-to-maturity, at cost
|
|
|
381 |
|
|
|
697 |
|
Investment
in Eagle Bancorp Statutory Trust I
|
|
|
155 |
|
|
|
155 |
|
Federal
Home Loan Bank stock, at cost
|
|
|
1,925 |
|
|
|
1,715 |
|
Mortgage
loans held-for-sale
|
|
|
1,871 |
|
|
|
7,370 |
|
Loans
receivable, net of deferred loan fees and allowance for loan losses
of $340 at December 31, 2008 and $300 at June 30,
2008
|
|
|
178,584 |
|
|
|
168,149 |
|
Accrued
interest and dividends receivable
|
|
|
1,433 |
|
|
|
1,426 |
|
Mortgage
servicing rights, net
|
|
|
1,512 |
|
|
|
1,652 |
|
Property
and equipment, net
|
|
|
10,848 |
|
|
|
8,080 |
|
Cash
surrender value of life insurance
|
|
|
6,403 |
|
|
|
6,285 |
|
Real
estate acquired in settlement of loans, net of allowance for
losses
|
|
|
- |
|
|
|
- |
|
Other
assets
|
|
|
1,494 |
|
|
|
550 |
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
287,323 |
|
|
$ |
279,907 |
|
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,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
Deposit
accounts:
|
|
|
|
|
|
|
Noninterest
bearing
|
|
$ |
12,902 |
|
|
$ |
14,617 |
|
Interest
bearing
|
|
|
168,378 |
|
|
|
164,234 |
|
Federal
funds purchased
|
|
|
3,900 |
|
|
|
3,000 |
|
Advances
from Federal Home Loan Bank and other borrowings
|
|
|
69,889 |
|
|
|
65,222 |
|
Subordinated
debentures
|
|
|
5,155 |
|
|
|
5,155 |
|
Accrued
expenses and other liabilities
|
|
|
2,178 |
|
|
|
2,045 |
|
Total
liabilities
|
|
|
262,402 |
|
|
|
254,273 |
|
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; 1,075,312 and 1,076,072 outstanding at December 31, 2008
and June 30, 2008, respectively)
|
|
|
12 |
|
|
|
12 |
|
Additional
paid-in capital
|
|
|
4,526 |
|
|
|
4,487 |
|
Unallocated
common stock held by employee stock ownership plan
("ESOP")
|
|
|
(37 |
) |
|
|
(55 |
) |
Treasury
stock, at cost (148,260 and 147,500 shares at December 31, 2008 and
June 30, 2008, respectively
|
|
|
(5,034 |
) |
|
|
(5,013 |
) |
Retained
earnings
|
|
|
27,102 |
|
|
|
27,025 |
|
Accumulated
other comprehensive loss
|
|
|
(1,648 |
) |
|
|
(822 |
) |
Total
stockholders' equity
|
|
|
24,921 |
|
|
|
25,634 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$ |
287,323 |
|
|
$ |
279,907 |
|
See
accompanying notes to consolidated financial statements.
EAGLE
BANCORP AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF INCOME
(Dollars
in Thousands, Except for Per Share Data)
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Interest
and Dividend Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and fees on loans
|
|
$ |
2,955 |
|
|
$ |
2,751 |
|
|
$ |
5,792 |
|
|
$ |
5,419 |
|
Interest
on deposits with banks
|
|
|
1 |
|
|
|
27 |
|
|
|
5 |
|
|
|
34 |
|
Securities
held-to-maturity
|
|
|
5 |
|
|
|
9 |
|
|
|
10 |
|
|
|
18 |
|
Securities
available-for-sale
|
|
|
977 |
|
|
|
704 |
|
|
|
1,940 |
|
|
|
1,426 |
|
FHLB
dividends
|
|
|
5 |
|
|
|
3 |
|
|
|
12 |
|
|
|
5 |
|
Total
interest and dividend income
|
|
|
3,943 |
|
|
|
3,494 |
|
|
|
7,759 |
|
|
|
6,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
830 |
|
|
|
1,171 |
|
|
|
1,692 |
|
|
|
2,356 |
|
FHLB
advances and other borrowings
|
|
|
670 |
|
|
|
471 |
|
|
|
1,313 |
|
|
|
910 |
|
Subordinated
debentures
|
|
|
75 |
|
|
|
75 |
|
|
|
150 |
|
|
|
150 |
|
Total
interest expense
|
|
|
1,575 |
|
|
|
1,717 |
|
|
|
3,155 |
|
|
|
3,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
2,368 |
|
|
|
1,777 |
|
|
|
4,604 |
|
|
|
3,486 |
|
Loan
loss provision
|
|
|
(34 |
) |
|
|
- |
|
|
|
(34 |
) |
|
|
- |
|
Net
interest income after loan loss provision
|
|
|
2,334 |
|
|
|
1,777 |
|
|
|
4,570 |
|
|
|
3,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
gain on sale of loans
|
|
|
238 |
|
|
|
183 |
|
|
|
421 |
|
|
|
382 |
|
Demand
deposit service charges
|
|
|
181 |
|
|
|
190 |
|
|
|
371 |
|
|
|
356 |
|
Mortgage
loan servicing fees
|
|
|
(83 |
) |
|
|
137 |
|
|
|
57 |
|
|
|
270 |
|
Net
gain on sale of available-for-sale securities
|
|
|
- |
|
|
|
- |
|
|
|
57 |
|
|
|
- |
|
Net
loss on securities SFAS 159
|
|
|
(47 |
) |
|
|
(390 |
) |
|
|
(1,286 |
) |
|
|
(431 |
) |
Other
|
|
|
155 |
|
|
|
149 |
|
|
|
320 |
|
|
|
276 |
|
Total
noninterest income
|
|
|
444 |
|
|
|
269 |
|
|
|
(60 |
) |
|
|
853 |
|
See
accompanying notes to consolidated financial statements.
EAGLE
BANCORP AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF INCOME (Continued)
(Dollars
in Thousands, Except for Per Share Data)
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Noninterest
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
1,146 |
|
|
|
1,008 |
|
|
|
2,192 |
|
|
|
1,954 |
|
Occupancy
expenses
|
|
|
136 |
|
|
|
130 |
|
|
|
285 |
|
|
|
265 |
|
Furniture
and equipment depreciation
|
|
|
65 |
|
|
|
70 |
|
|
|
132 |
|
|
|
141 |
|
In-house
computer expense
|
|
|
101 |
|
|
|
84 |
|
|
|
174 |
|
|
|
158 |
|
Advertising
expense
|
|
|
103 |
|
|
|
70 |
|
|
|
194 |
|
|
|
133 |
|
Amortization
of mtg servicing fees
|
|
|
66 |
|
|
|
75 |
|
|
|
137 |
|
|
|
141 |
|
Federal
insurance premiums
|
|
|
9 |
|
|
|
5 |
|
|
|
16 |
|
|
|
10 |
|
Postage
|
|
|
45 |
|
|
|
33 |
|
|
|
78 |
|
|
|
56 |
|
Legal,
accounting, and examination fees
|
|
|
65 |
|
|
|
65 |
|
|
|
113 |
|
|
|
121 |
|
Consulting
fees
|
|
|
19 |
|
|
|
7 |
|
|
|
62 |
|
|
|
22 |
|
ATM
processing
|
|
|
14 |
|
|
|
13 |
|
|
|
28 |
|
|
|
27 |
|
Other
|
|
|
287 |
|
|
|
227 |
|
|
|
494 |
|
|
|
427 |
|
Total
noninterest expense
|
|
|
2,056 |
|
|
|
1,787 |
|
|
|
3,905 |
|
|
|
3,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before provision for income taxes
|
|
|
722 |
|
|
|
259 |
|
|
|
605 |
|
|
|
884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
198 |
|
|
|
40 |
|
|
|
181 |
|
|
|
201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
524 |
|
|
$ |
219 |
|
|
$ |
424 |
|
|
$ |
683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
0.49 |
|
|
$ |
0.20 |
|
|
$ |
0.40 |
|
|
$ |
0.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$ |
0.43 |
|
|
$ |
0.18 |
|
|
$ |
0.35 |
|
|
$ |
0.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding (basic eps)
|
|
|
1,069,952 |
|
|
|
1,070,862 |
|
|
|
1,069,581 |
|
|
|
1,071,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding (diluted eps)
|
|
|
1,218,212 |
|
|
|
1,213,612 |
|
|
|
1,217,635 |
|
|
|
1,213,035 |
|
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, 2008 and 2007 (Unaudited)
(Dollars
in Thousands, Except for Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCUMULATED
|
|
|
|
|
|
|
|
|
|
|
|
|
ADDITIONAL
|
|
|
UNALLOCATED
|
|
|
|
|
|
|
|
|
OTHER
|
|
|
|
|
|
|
PREFERRED
|
|
|
COMMON
|
|
|
PAID-IN
|
|
|
ESOP
|
|
|
TREASURY
|
|
|
RETAINED
|
|
|
COMPREHENSIVE
|
|
|
|
|
|
|
STOCK
|
|
|
STOCK
|
|
|
CAPITAL
|
|
|
SHARES
|
|
|
STOCK
|
|
|
EARNINGS
|
|
|
INCOME (LOSS)
|
|
|
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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SFAS
159 Adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(117 |
) |
|
|
|
|
|
|
(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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2008
|
|
$ |
- |
|
|
$ |
12 |
|
|
$ |
4,487 |
|
|
$ |
(55 |
) |
|
$ |
(5,013 |
) |
|
$ |
27,025 |
|
|
$ |
(822 |
) |
|
$ |
25,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
424 |
|
|
|
- |
|
|
|
424 |
|
Other
comprehensive income (loss)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(826 |
) |
|
|
(826 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income (loss)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(402 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid ($.255 per share)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(218 |
) |
|
|
- |
|
|
|
(218 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury
stock purchased (760 shares @ $27.00)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(21 |
) |
|
|
- |
|
|
|
- |
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EITF
No. 06-4 & 06-10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(129 |
) |
|
|
|
|
|
|
(129 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ESOP
shares allocated or committed to be released for allocation (1,150
shares)
|
|
|
- |
|
|
|
- |
|
|
|
39 |
|
|
|
18 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2008
|
|
$ |
- |
|
|
$ |
12 |
|
|
$ |
4,526 |
|
|
$ |
(37 |
) |
|
$ |
(5,034 |
) |
|
$ |
27,102 |
|
|
$ |
(1,648 |
) |
|
$ |
24,921 |
|
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,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
income
|
|
$ |
424 |
|
|
$ |
683 |
|
Adjustments
to reconcile net income to net cash from operating
activities:
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
34 |
|
|
|
- |
|
Provision
for mortgage servicing rights valuation losses
|
|
|
239 |
|
|
|
- |
|
Depreciation
|
|
|
222 |
|
|
|
228 |
|
Net
amortization of marketable securities premium and
discounts
|
|
|
88 |
|
|
|
113 |
|
Amortization
of capitalized mortgage servicing rights
|
|
|
137 |
|
|
|
141 |
|
Gain
on sale of loans
|
|
|
(421 |
) |
|
|
(382 |
) |
Net
realized gain on sale of available-for-sale securities
|
|
|
(57 |
) |
|
|
- |
|
Increase
in cash surrender value of life insurance
|
|
|
(118 |
) |
|
|
(101 |
) |
Loss
in investment securities, SFAS 159
|
|
|
1,286 |
|
|
|
431 |
|
Change
in assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase)
decrease in assets:
|
|
|
|
|
|
|
|
|
Accrued
interest and dividends receivable
|
|
|
(6 |
) |
|
|
(19 |
) |
Loans
held-for-sale
|
|
|
(105 |
) |
|
|
807 |
|
Other
assets
|
|
|
(944 |
) |
|
|
154 |
|
Increase
(decrease) in liabilities:
|
|
|
|
|
|
|
|
|
Accrued
expenses and other liabilities
|
|
|
415 |
|
|
|
(293 |
) |
Net
cash provided by operating activities
|
|
|
1,194 |
|
|
|
1,762 |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase
of securities:
|
|
|
|
|
|
|
|
|
Investment
securities available-for-sale
|
|
|
(9,639 |
) |
|
|
(3,990 |
) |
Proceeds
from maturities, calls and principal payments:
|
|
|
|
|
|
|
|
|
Investment
securities held-to-maturity
|
|
|
315 |
|
|
|
195 |
|
Investment
securities available-for-sale
|
|
|
5,779 |
|
|
|
6,630 |
|
FHLB
stock (purchased) redeemed
|
|
|
(210 |
) |
|
|
- |
|
Proceeds
from sales of investment securities available-for-sale
|
|
|
4,062 |
|
|
|
- |
|
Net
increase in loans receivable, excludes transfers to real estate acquired
in settlement of loans
|
|
|
(4,706 |
) |
|
|
(6,651 |
) |
Purchase
of property and equipment
|
|
|
(2,989 |
) |
|
|
(841 |
) |
Purchase
of bank owned life insurance
|
|
|
- |
|
|
|
(300 |
) |
Net
cash used in investing activities
|
|
|
(7,388 |
) |
|
|
(4,957 |
) |
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,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
Net
increase (decrease) in checking and savings accounts
|
|
$ |
2,429 |
|
|
$ |
(4,641 |
) |
Net
decrease (increase) in federal funds
|
|
|
900 |
|
|
|
(3,800 |
) |
Payments
on FHLB advances and other borrowings
|
|
|
(6,333 |
) |
|
|
(5,000 |
) |
FHLB
advances and other borrowings
|
|
|
11,000 |
|
|
|
18,700 |
|
Purchase
of treasury stock
|
|
|
(21 |
) |
|
|
(148 |
) |
Dividends
paid
|
|
|
(218 |
) |
|
|
(209 |
) |
Net
cash provided by financing activities
|
|
|
7,757 |
|
|
|
4,902 |
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
1,563 |
|
|
|
1,707 |
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, beginning of period
|
|
|
4,090 |
|
|
|
3,069 |
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, end of period
|
|
$ |
5,653 |
|
|
$ |
4,776 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$ |
3,161 |
|
|
$ |
3,385 |
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for income taxes
|
|
$ |
943 |
|
|
$ |
530 |
|
|
|
|
|
|
|
|
|
|
NON-CASH
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Decrease
(Increase) in market value of securities
available-for-sale
|
|
$ |
1,155 |
|
|
$ |
(1,093 |
) |
|
|
|
|
|
|
|
|
|
Mortgage
servicing rights capitalized
|
|
$ |
236 |
|
|
$ |
165 |
|
See
accompanying notes to consolidated financial statements.
EAGLE
BANCORP AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE
1. BASIS OF
PRESENTATION
The
accompanying unaudited consolidated financial statements have been prepared in
accordance with instructions for Form 10-Q. 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 period ended December 31, 2008
are not necessarily indicative of the results to be expected for the fiscal year
ending June 30, 2009 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, 2008.
NOTE
2. INVESTMENT
SECURITIES
Investment
securities are summarized as follows:
(Dollars
in thousands)
|
|
December 31, 2008 (Unaudited)
|
|
|
June 30, 2008 (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
|
|
$ |
1,205 |
|
|
$ |
2 |
|
|
$ |
1,207 |
|
|
$ |
2,242 |
|
|
$ |
(10 |
) |
|
$ |
2,232 |
|
Municipal
obligations
|
|
|
23,837 |
|
|
|
(1,146 |
) |
|
|
22,691 |
|
|
|
22,790 |
|
|
|
(600 |
) |
|
|
22,190 |
|
Corporate
obligations
|
|
|
12,765 |
|
|
|
(1,263 |
) |
|
|
11,502 |
|
|
|
12,811 |
|
|
|
(89 |
) |
|
|
12,722 |
|
Mortgage-backed
securities
|
|
|
9,837 |
|
|
|
(100 |
) |
|
|
9,737 |
|
|
|
13,135 |
|
|
|
(119 |
) |
|
|
13,016 |
|
Collateralized
mortgage obligations
|
|
|
31,760 |
|
|
|
132 |
|
|
|
31,892 |
|
|
|
28,580 |
|
|
|
(356 |
) |
|
|
28,224 |
|
Common
stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
82 |
|
|
|
(49 |
) |
|
|
33 |
|
Total
|
|
$ |
79,404 |
|
|
$ |
(2,375 |
) |
|
$ |
77,029 |
|
|
$ |
79,640 |
|
|
$ |
(1,223 |
) |
|
$ |
78,417 |
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
obligations
|
|
$ |
375 |
|
|
$ |
11 |
|
|
$ |
386 |
|
|
$ |
675 |
|
|
$ |
11 |
|
|
$ |
686 |
|
Mortgage-backed
securities
|
|
|
6 |
|
|
|
- |
|
|
|
6 |
|
|
|
22 |
|
|
|
- |
|
|
|
22 |
|
Total
|
|
$ |
381 |
|
|
$ |
11 |
|
|
$ |
392 |
|
|
$ |
697 |
|
|
$ |
11 |
|
|
$ |
708 |
|
Beginning
July 1, 2007 the Company elected to account for its investment in 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 $35,000 and $1,321,000 at December 31, 2008
and June 30, 2008, respectively, resulting in a loss in value of $1,286,000 for
the six month period ended December 31, 2008, 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,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
(Dollars in Thousands)
|
|
First
mortgage loans:
|
|
|
|
|
|
|
Residential
mortgage (1-4 family)
|
|
$ |
89,814 |
|
|
$ |
86,751 |
|
Commercial
real estate
|
|
|
34,037 |
|
|
|
28,197 |
|
Real
estate construction
|
|
|
6,401 |
|
|
|
7,317 |
|
|
|
|
|
|
|
|
|
|
Other
loans:
|
|
|
|
|
|
|
|
|
Home
equity
|
|
|
29,869 |
|
|
|
28,034 |
|
Consumer
|
|
|
11,822 |
|
|
|
11,558 |
|
Commercial
|
|
|
6,869 |
|
|
|
6,502 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
178,812 |
|
|
|
168,359 |
|
|
|
|
|
|
|
|
|
|
Less:
Allowance for loan losses
|
|
|
(340 |
) |
|
|
(300 |
) |
Add:
Deferred loan fees, net
|
|
|
112 |
|
|
|
90 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
178,584 |
|
|
$ |
168,149 |
|
Loans net
of related allowance for loan losses on which the accrual of interest has been
discontinued were $224,000 and $0 at December 31, 2008 and June 30, 2008,
respectively. Classified assets, including real estate owned, totaled $373,000
and $106,000 at December 31, 2008 and June 30, 2008, respectively.
The
following is a summary of changes in the allowance for loan losses:
|
|
Six Months
Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
|
$ |
300 |
|
|
$ |
518 |
|
Reclassification
to repossessed property reserve
|
|
|
0 |
|
|
|
0 |
|
Provision
charged to operations
|
|
|
34 |
|
|
|
(175 |
) |
Charge-offs
|
|
|
(1 |
) |
|
|
(54 |
) |
Recoveries
|
|
|
7 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
Balance,
end of period
|
|
$ |
340 |
|
|
$ |
300 |
|
EAGLE
BANCORP AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE
4. DEPOSITS
Deposits
are summarized as follows:
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
Noninterest
checking
|
|
$ |
12,902 |
|
|
$ |
14,617 |
|
Interest-bearing
checking
|
|
|
33,427 |
|
|
|
30,720 |
|
Passbook
|
|
|
22,885 |
|
|
|
23,906 |
|
Money
market
|
|
|
26,736 |
|
|
|
25,275 |
|
Time
certificates of deposit
|
|
|
85,330 |
|
|
|
84,333 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
181,280 |
|
|
$ |
178,851 |
|
NOTE
5. EARNINGS
PER SHARE
Basic
earnings per share for the three months ended December 31, 2008 is computed
using 1,069,952 weighted average shares outstanding. Basic earnings
per share for the six months ended December 31, 2008 is computed using 1,069,581
weighted average shares outstanding. Basic earnings per share for the
three months ended December 31, 2007 is computed using 1,070,862 weighted
average shares outstanding. Basic earnings per share for the six
months ended December 31, 2007 is computed using 1,071,651. 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
1,218,212 for the three months ended December 31, 2008 and 1,213,612 for the
three months ended December 31, 2007. The weighted average shares
outstanding for diluted earnings per share calculations are 1,217,635 for the
six months ended December 31, 2008 and 1,213,035 for the six months ended
December 31, 2007.
NOTE
6. DIVIDENDS
AND STOCK REPURCHASE PROGRAM
This
fiscal year Eagle has paid two dividends of $0.255 per share on August 22, 2008,
and November 21, 2008. A dividend of $0.255 per share was declared on
January 15, 2009, payable February 20, 2009 to stockholders of record on January
30, 2009. 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 represented
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 December 31, 2008, 4,510 shares have been
purchased under this program.
NOTE
7. FAIR
VALUE DISCLOSURES
SFAS 157
defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants. A
fair value measurement assumes that the transaction to sell the asset or
transfer the liability occurs in the principal market for the asset or liability
or, in the absence of a principal market, the most advantageous market for the
asset or liability. The price in the principal (or most advantageous) market
used to measure the fair value of the asset or liability shall not be adjusted
for transaction costs. An orderly transaction is a transaction that assumes
exposure to the market for a period prior to the measurement date to allow for
marketing activities that are usual and customary for transactions involving
such assets and liabilities; it is not a forced transaction. Market participants
are buyers and sellers in the principal market that are (i) independent,
(ii) knowledgeable, (iii) able to transact and (iv) willing to
transact.
EAGLE
BANCORP AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE
7. FAIR
VALUE DISCLOSURES -
continued
SFAS 157
requires the use of valuation techniques that are consistent with the market
approach, the income approach and/or the cost approach. The market approach uses
prices and other relevant information generated by market transactions involving
identical or comparable assets and liabilities. The income approach uses
valuation techniques to convert future amounts, such as cash flows or earnings,
to a single present amount on a discounted basis. The cost approach is based on
the amount that currently would be required to replace the service capacity of
an asset (replacement costs). Valuation techniques should be consistently
applied. Inputs to valuation techniques refer to the assumptions that market
participants would use in pricing the asset or liability. Inputs may be
observable, meaning those that reflect the assumptions market participants would
use in pricing the asset or liability developed based on market data obtained
from independent sources, or unobservable, meaning those that reflect the
reporting entity’s own assumptions about the assumptions market participants
would use in pricing the asset or liability developed based on the best
information available in the circumstances. In that regard, SFAS 157 establishes
a fair value hierarchy for valuation inputs that gives the highest priority to
quoted prices in active markets for identical assets or liabilities and the
lowest priority to unobservable inputs. The fair value hierarchy is as
follows:
|
•
|
|
Level
1 Inputs – Unadjusted quoted prices in active markets for identical assets
or liabilities that the reporting entity has the ability to access at the
measurement date.
|
|
|
|
|
|
•
|
|
Level
2 Inputs – Inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly or indirectly.
These include quoted prices for similar assets or liabilities in active
markets, quoted prices for identical or similar assets or liabilities in
markets that are not active, inputs other than quoted prices that are
observable for the asset or liability (for example, interest rates,
volatilities, prepayment speeds, loss severities, credit risks and default
rates) or inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
|
|
|
|
|
|
•
|
|
Level
3 Inputs – Significant unobservable inputs that reflect an entity’s own
assumptions that market participants would use in pricing the assets or
liabilities.
|
A
description of the valuation methodologies used for assets and liabilities
measured at fair value, as well as the general classification of such
instruments pursuant to the valuation hierarchy, is set forth
below.
In
general, fair value is based upon quoted market prices, where available. If such
quoted market prices are not available, fair value is based upon internally
developed models that primarily use, as inputs, observable market-based
parameters. Valuation adjustments may be made to ensure that financial
instruments are recorded at fair value.
While
management believes the Company’s valuation methodologies are appropriate and
consistent with other market participants, the use of different methodologies or
assumptions to determine the fair value of certain financial instruments could
result in a different estimate of fair value at the reporting date.
Investment
Securities Available for Sale – Securities classified as available for sale are
reported at fair value utilizing Level 1 and Level 2 inputs. For these
securities, the Company obtains fair value measurements from an independent
pricing service. The fair value measurements consider observable data that may
include dealer quotes, market spreads, cash flows, the U. S. Treasury yield
curve, live trading levels, trade execution data, market consensus prepayments
speeds, credit information and the bond’s terms and conditions, among other
things.
Preferred
Stock - SFAS 159 – Freddie Mac and Fannie Mae preferred stock are reported at
fair value utilizing Level 1 and Level 2 inputs. For these securities, the
Company obtains fair value measurements from an independent pricing service. The
fair value measurements consider observable data that may include dealer quotes,
market spreads, cash flows, the U. S. Treasury yield curve, live trading levels,
trade execution data, market consensus prepayments speeds, credit information
and the bond’s terms and conditions, among other things.
Loans
Held for Sale – These loans are reported at the lower of cost or fair value.
Fair value is determined based on expected proceeds based on sales contracts and
commitments and are considered Level 2 inputs.
EAGLE
BANCORP AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE
7. FAIR
VALUE DISCLOSURES -
continued
Impaired
Loans – Impaired loans are reported at the fair value of the underlying
collateral if repayment is expected solely from the collateral. Collateral
values are estimated using Level 3 inputs based on internally customized
discounting criteria.
Mortgage
Servicing Rights – Fair values are estimated by stratifying the mortgage
servicing portfolio into groups of loans with similar financial characteristics,
such as loan type, interest rate, and expected maturity. The Company
obtains market survey data estimates and bid quotations from secondary market
investors who regularly purchase mortgage servicing
rights. Assumptions regarding loan payoffs are determined using
historical information on segmented loan categories for nonspecific
borrowers.
The
following table summarizes financial assets and financial liabilities measured
at fair value on a recurring basis as of December 31, 2008, segregated by
the level of the valuation inputs within the fair value hierarchy utilized to
measure fair value (dollars in thousands):
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total Fair
|
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities available-for-sale
|
|
$ |
- |
|
|
$ |
77,029 |
|
|
$ |
- |
|
|
$ |
77,029 |
|
Preferred
stock - SFAS 159
|
|
|
- |
|
|
|
35 |
|
|
|
- |
|
|
|
35 |
|
Loans
held-for-sale
|
|
|
- |
|
|
|
1,871 |
|
|
|
- |
|
|
|
1,871 |
|
Certain
financial assets and financial liabilities are measured at fair value on a
nonrecurring basis; that is, the instruments are not measured at fair value on
an ongoing basis but are subject to fair value adjustments in certain
circumstances (for example, when there is evidence of
impairment). The following table summarizes financial assets and
financial liabilities measured at fair value on a nonrecurring basis as of
December 31, 2008, segregated by the level of the valuation inputs within
the fair value hierarchy utilized to measure fair value (dollars in
thousands):
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total Fair
|
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Mortgage
servicing rights
|
|
|
- |
|
|
|
1,512 |
|
|
|
- |
|
|
|
1,512 |
|
During
the six months ended December 31, 2008, certain impaired loans were remeasured
and reported at fair value through a specific valuation allowance allocation of
the allowance for possible loan losses based upon the fair value of the
underlying collateral. Impaired loans with a carrying value of $45,000 were
reduced by specific valuation allowance allocations totaling $45,000 to a total
reported fair value of $0 based on collateral valuations utilizing Level 3
valuation inputs.
During
the six months ended December 31, 2008, mortgage servicing rights were
remeasured and reported at fair value through a valuation allowance based upon
the fair value of the calculated servicing rights. Servicing rights with a
carrying value of $1,751,000 were reduced by the valuation allowance totaling
$239,000 to a total reported fair value of $1,512,000 based on collateral
valuations utilizing Level 2 valuation inputs.
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
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51 (“SFAS
160”). SFAS 160 (a) amends ARB 51 to establish accounting and reporting
standards for the noncontrolling interest in a subsidiary and the
deconsolidation of a subsidiary; (b) changes the way the consolidated income
statement is presented; (c) establishes a single method of accounting for
changes in a parent’s ownership interest in a subsidiary that do not result in
deconsolidation; (d) requires that a parent recognize a gain or loss in net
income when a subsidiary is deconsolidated; and (e) requires expanded
disclosures in the consolidated financial statements that clearly identify and
distinguish between the interests of the parent’s owners and the interests of
the noncontrolling owners of a subsidiary. The accounting provisions
of SFAS 160 must be applied prospectively, but the presentation and disclosure
requirements must be applied retrospectively to provide comparability in the
financial statements. Early adoption is prohibited. SFAS
160 is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008. The Company is in the
process of determining the impact of adopting this new accounting principle on
its consolidated financial position, results of operations and cash
flows
In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations—a replacement
of FASB No. 141 (“SFAS 141(R)”). SFAS 141(R) requires (a) a
company to recognize the assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree at fair value as of the acquisition
date; and (b) an acquirer in preacquisition periods to expense all
acquisition-related costs, among various other modifications to SFAS No.
141. SFAS 141(R) requires that any adjustments to an acquired
entity’s deferred tax asset and liability balance that occur after the
measurement period be recorded as a component of income tax
expense. This accounting treatment is required for business
combinations consummated before the effective date of SFAS No. 141(R)
(non-prospective), otherwise SFAS 141(R) must be applied prospectively. The
presentation and disclosure requirements must be applied retrospectively to
provide comparability in the financial statements. Early adoption is
prohibited. SFAS 141(R) is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2008. The impact of this standard is dependent upon the level of
future acquisitions.
In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an Amendment of FASB Statement
No. 133 (“SFAS 161”). SFAS 161 requires companies to
provide qualitative disclosures about the objectives and strategies for using
derivatives, quantitative data about the fair value of gains and losses on
derivative contracts, and details of credit-risk-related contingent features in
their hedged positions. The statement also requires companies to disclose
more information about the location and amounts of derivative instruments in
financial statements; how derivatives and related hedges are accounted for under
SFAS 133, Accounting for
Derivative Instruments and Hedging Activities; and how the hedges affect
the entity’s financial position, financial performance and cash
flows. SFAS 161 is effective for periods beginning after
November 15, 2008. The Company will comply with the disclosure
provisions of SFAS 161 to the extent it has entered into derivative transactions
in the year of adoption.
On
November 14, 2008, the Securities and Exchange Commission (“SEC”) issued its
long-anticipated proposed International Financial Reporting Standards (“IFRS”)
roadmap outlining milestones that, if achieved, could lead to mandatory
transition to IFRS for U.S. domestic registrants starting in
2014. IFRS is a comprehensive series of accounting standards
published by the International Accounting Standards Board
(IASB). Under the proposed roadmap, the Company could be required
through its parent company to prepare financial statements in accordance with
IFRS, and the SEC will make a determination in 2011 regarding the mandatory
adoption of IFRS for U.S. domestic registrants. Management is
currently assessing the impact that this potential change would have on the
Company’s consolidated financial statements, and will continue to monitor the
development of the potential implementation of IFRS.
EAGLE
BANCORP AND SUBSIDIARY
MANAGEMENT
DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
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. Words
such as “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.
At the
end of the first quarter of the fiscal year the Federal Housing Finance Agency,
working with the U.S. Treasury, placed Fannie Mae and Freddie Mac into
conservatorship. This event and instability in the markets in general
caused unprecedented volatility across all sectors of the financial
markets. The Federal Reserve Bank’s Federal Open Market
Committee (FOMC) lowered the fed funds target rate by 175 basis points during
the quarter ending with a range of zero percent to
..25%. As a result, the short end of the yield curve
fell, bringing some steepness back into the yield curve after the two year point
of the curve compared to a year ago. The net interest income
increased compared to net interest income for the same quarter a year ago.
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 AND RESULTS OF OPERATIONS
Overview
- continued
On
November 5, 2008, Eagle Financial Mutual Holding Company, the mutual holding
company and majority owner of Eagle Bancorp submitted an application to the
Office of Thrift Supervision (the “OTS”), the Company’s and its wholly owned
subsidiary bank’s, American Federal Savings Bank, primary federal banking
regulator to participate in the U.S. Treasury Department’s Capital Purchase
Program (“CPP”). The application requested $6 million in
preferred shares. The OTS, encouraged the application as the
Company is considered a strong, well-capitalized institution. At present,
Treasury has not issued the terms for mutual institution participation in CPP
and has not stated when they will be available. Upon issuance of the terms
and rules for mutual institutions, management and the board of directors will
perform a review and determine whether it is in the best interest of the company
to participate.
Financial
Condition
Comparisons
of results in this section are between the six months ended December 31, 2008
and June 30, 2008.
Total
assets increased by $7.42 million, or 2.65%, to $287.32 million at December 31,
2008, from $279.91 million at June 30, 2008. Total liabilities
increased by $8.13 million to $262.40 million at December 31, 2008, from $254.27
million at June 30, 2008. Total equity decreased $713,000 to $24.92
million at December 31, 2008 from $25.63 million at June 30, 2008.
Loans
receivable increased $10.44 million, or 6.21%, to $178.58 million at December
31, 2008 from $168.15 million at June 30, 2008. Commercial Real
Estate loans were the category with the largest increase, $5.84 million, and
most other loan categories showed increases in the six month
period. Total loan originations were $69.86 million for the six
months ended December 31, 2008, with single family mortgages accounting for
$40.42 million of the total. Home equity loan and construction loan
originations totaled $8.16 million and $2.49 million, respectively, for the same
period. Commercial real estate and land development loan originations
totaled $13.20 million. Loans held for sale decreased to $1.87
million at December 31, 2008 from $7.37 million at June 30, 2008. Investment
securities available-for-sale (AFS) decreased $1.39 million, or 1.77%, to $77.03
million at December 31, 2008 from $78.42 million at June 30,
2008. Preferred stock – SFAS 159 decreased $1.287 million to $35,000
at December 31, 2008 from $1.32 million at June 30, 2008. That
reduction in value was a charge against earnings, and is included in “net gain
(loss) on securities FAS 159 in the Consolidated Statements of
Income. Mortgage-backed securities was the investment category with
the largest decrease, which decreased $3.28 million. This was
primarily due to sales activity.
Advances
and other borrowings increased $4.67 million, to $69.89 million at December 31,
2008 from $65.22 million at June 30, 2008. Deposits increased $2.43
million to $181.28 million at December 31, 2008 from $178.85 million at June 30,
2008. Noninterest checking and statement savings accounts were the
categories of deposits which declined, while interest bearing checking, money
market accounts, and certificates of deposits increased.
Total
equity decreased as a result of purchases of treasury stock and the payment of
two quarterly $0.255 per share regular cash dividends, and an increase in other
comprehensive loss of $826,000 (due to an increase in net unrealized loss on
securities available-for-sale). These were partially offset by net
income of $424,000.
Results
of Operations for the Three Months Ended December 31, 2008 and 2007
Net
Income. Eagle’s net income was $524,000 and $219,000 for the
three months ended December 31, 2008, and 2007, respectively. The
increase of $305,000, or 139.27%, was due to an increase in net interest income
after loan loss provision of $557,000, an increase in noninterest income of
$175,000, offset by an increase in noninterest expense of
$269,000. Eagle’s tax provision was $158,000 higher in the current
quarter. Basic earnings per share were $0.49 for the current period,
compared to $0.20 for the previous year’s period. The increase
in net income over the prior period was significantly impacted by the
recognition of loss on certain preferred stock held in the Company’s investment
portfolio during the prior period.
Net Interest Income After Loan Loss
Provision. Net interest income increased to $2.334 million for
the quarter ended December 31, 2008, from $1.777 million for the previous year’s
quarter. This increase of $557,000 was the result of a decrease in
interest expense of $142,000 and the increase in interest and dividend income of
$449,000, offset by the loan loss provision of $34,000.
EAGLE
BANCORP AND SUBSIDIARY
MANAGEMENT
DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
Results
of Operations for the Three Months Ended December 31, 2008 and 2007 -
continued
Interest and Dividend
Income. Total interest and dividend income was $3.943 million
for the quarter ended December 31, 2008, compared to $3.494 million for the
quarter ended December 31, 2007, representing an increase of $449,000, or
12.85%. Interest and fees on loans increased to $2.955 million for
the three months ended December 31, 2008 from $2.751 million for the same period
ended December 31, 2007. This increase of $204,000, or 7.42%, was due
primarily to the increase in the average balances on loans for the quarter ended
December 31, 2008. Average balances for loans receivable, net, for
the quarter ended December 31, 2008 were $180.34 million, compared to $164.14
million for the previous year. This represents an increase of $16.20
million, or 9.87%. The average interest rate earned on loans
receivable decreased by 15 basis points, from 6.70% to
6.55%. Interest and dividends on investment securities
available-for-sale (AFS) increased to $977,000 for the quarter ended December
31, 2008 from $704,000 for the same quarter last year. Average
balances on investments increased to $75.57 million for the quarter ended
December 31, 2008, compared to $62.17 million for the quarter ended December 31,
2007. The average interest rate earned on investments increased to
5.20% from 4.59%.
Interest
Expense. Total interest expense decreased to $1.575 million
for the quarter ended December 31, 2008, from $1.717 million for the
quarter ended December 31, 2007, a decrease of $142,000, or 8.27%, due to a
decrease in interest paid on deposits offset by increases in interest paid on
borrowings. Interest on deposits decreased to $830,000 for the
quarter ended December 31, 2008, from $1.171 million for the quarter ended
December 31, 2007. This decrease of $341,000, or 29.12%, was the
result of an decrease in average rates paid on deposit
accounts. Interest bearing checking accounts increased in average
rates paid from .22% to .36%. Money market accounts had
decreased from .65% to .61%. Average balances in interest-bearing
deposit accounts increased to $167.76 million for the quarter ended December 31,
2008, compared to $163.73 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 $745,000 versus $546,000 paid in the previous year’s
quarter. The average rate paid on borrowings decreased from 5.15%
last year to 4.10% this year. The average rate paid on liabilities
decreased 73 basis points from the quarter ended December 31, 2007 to the
quarter ended December 31, 2008.
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, national and local economic
conditions, 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. In that connection the Bank added $34,000 to its provision
for loan losses for the quarter ended December 31, 2008. Total
classified assets increased from $106,000 at June 30, 2008 to $373,000 at
December 31, 2008, and total less than 0.21% of total loans. The Bank currently
has no foreclosed real estate.
Noninterest Income. Total
noninterest income increased to $444,000 for the quarter ended December 31,
2008, from $269,000 for the quarter ended December 31, 2007, an increase of
$175,000 or 65.06%. This increase is substantially due to the prior
period’s loss in market value on investments in certain preferred stock, issued
by Fannie Mae and Freddie Mac, which are accounted for under Statement of
Financial Accounting Standard (SFAS) No. 159 Fair Value Option for Financial
Assets and Financial Liabilities. For the three month period
ended December 31, 2008 and 2007, the market value of Fannie Mae and Freddie Mac
preferred stock, owned by Eagle, decreased $47,000 and $390,000,
respectively. Net gain on sale of loans increased $55,000 to $238,000
for the quarter ended December 31, 2008. However, mortgage loan
servicing fees decreased $220,000. This decrease is solely due to
provision for valuation allowance on mortgage serving rights of
$239,000. No provision for valuation allowance on mortgage servicing
rights was incurred in the quarter ended December 31, 2007. Other noninterest
income increased to $155,000 for the quarter ended December 31, 2008 from
$149,000 for the quarter ended December 31, 2007. This was primarily
due to increased fee income on electronic payments. The service
charges on deposit accounts decreased to $181,000 from $190,000 due to lesser
activity.
Noninterest
Expense. Noninterest expense increased by $269,000 or 15.05%
to $2.056 million for the quarter ended December 31, 2008, from $1.787 million
for the quarter ended December 31, 2007. This increase was primarily
due to increases in salaries and employee benefits of $138,000 and advertising
expense of $33,000. 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 advertising were due to
advertising a new checking account line-up and other products. Other
expense categories showed minor changes.
EAGLE
BANCORP AND SUBSIDIARY
MANAGEMENT
DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
Results
of Operations for the Three Months Ended December 31, 2008 and 2007 -
continued
Income Tax
Expense. Eagle’s income tax expense was $158,000 for the
quarter ended December 31, 2008, compared to $40,000 for the quarter ended
December 31, 2007. The effective tax rate for the quarter ended
December 31, 2008 was 27.42% and was 15.44% for the quarter ended December 31,
2007.
Results
of Operations for the Six Months Ended December 31, 2008 and 2007
Net
Income. Eagle’s net income was $424,000 and $683,000 for the
six months ended December 31, 2008 and 2007, respectively. The
decrease of $259,000, or 37.92%, in net income for the six month period was the
result of an increase in net interest income of $1.084 million and a decrease in
noninterest income of $913,000, along with an increase in noninterest expense of
$450,000. Eagle’s tax provision was $20,000 lower in the current
period. Basic earnings per share for the period ended December 31,
2008 were $0.40 compared to $0.64 per share for the period ended December 31,
2007.
Net Interest Income After Loan Loss
Provision. Net interest income after loan loss provision
increased to $4.570 million for the six months ended December 31, 2008 from
$3.486 million for the six months ended December 31, 2007. This
increase of $1.084 million was the result of an increase in interest and
dividend income of $857,000 along with a decrease in interest expense of
$261,000, offset by a provision for loan loss of $34,000.
Interest and Dividend
Income. Total interest and dividend income was $7.759 million
for the six months ended December 31, 2008, compared to $6.902 million for the
same period ended December 31, 2007, representing an increase of $857,000, or
12.42%. Interest and fees on loans increased to $5.792 million for
2008 from $5.419 million for 2007. This increase of $373,000, or
6.88%, was due to an increase in the average balances of loans receivable for
the six months ended December 31, 2008 partially offset by a decrease in the
average interest rate on such loans. Average balances for loans
receivable, net, for this period were $177.35 million, compared to $163.41
million for the previous year. This is an increase of $13.94 million,
or 8.53%. The average interest rate earned on loans receivable
decreased by 10 basis points, to 6.53% from 6.63%. Interest and
dividends on investment securities available-for-sale (AFS) increased to $1.940
million for the six months ended December 31, 2008 from $1.426 million for the
same period ended December 31, 2007. Interest on deposits with banks
decreased to $5,000 from $34,000.
Interest
Expense. Total interest expense decreased to $3.155 million
for the six months ended December 31, 2008 from $3.416 million for the six
months ended December 31, 2007, a decrease of $261,000, or
7.64%. Interest on deposits decreased to $1.692 million for the six
months ended December 31, 2008 from $2.356 million for the six months ended
December 31, 2007. This decrease of $664,000, or 28.18%, was the
result of a decrease 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 decreased from 2007 to 2008, while the average
rate paid on all liabilities decreased by 67 basis points from the six month
period ended December 31, 2007 to the six month period ended December 31,
2008. Average balances in interest-bearing deposits increased to
$166.47 million for the six month period ended December 31, 2008 compared to
$164.67 million for the same period in the previous year. Interest
paid on borrowings increased to $1.463 million for the six months ended December
31, 2008 from $1.06 million for the same period ended December 31,
2007. The increase in borrowing costs was due to increases in the
average balances. Average balances of borrowings increased to $71.79
million in 2008 compared to $42.22 million in 2007. The average rate
paid on borrowings decreased 97 basis points from 2007 to 2008.
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, national and local economies, 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. Accordingly,
$34,000 was provided for loan losses for the six month period ended December 31,
2008. Total classified assets increased from $106,000 at June 30,
2008 to $373,000 at December 31, 2008, and total less than 0.21% of total loans.
The Bank currently has no foreclosed real estate.
EAGLE
BANCORP AND SUBSIDIARY
MANAGEMENT
DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
Results
of Operations for the Six Months Ended December 31, 2008 and 2007 - continued
Noninterest
Income. Total noninterest income decreased to negative
($60,000) for the six months ended December 31, 2008, from $853,000 for the six
months ended December 31, 2008, a decrease of $913,000, or
107.03%. This decrease was almost exclusively attributable due to a
loss in market value on investments in certain preferred stock, issued by Fannie
Mae and Freddie Mac which is accounted for under Statement of Financial
Accounting Standard (SFAS) No. 159 Fair Value Option for Financial
Assets and Financial Liabilities. For the six month period
ending December 31, 2008, the market value of Fannie Mae and Freddie Mac
preferred stock, owned by Eagle, decreased $1.286 million, while it decreased
$431,000 for the same six month period last year. Eagle’s value of
these preferred stock, at December 31, 2008, is $35,000 which represents the
remaining exposure for these securities to the Company should these preferred
stock become valueless. Net gain on sale of loans increased to
$421,000 for the six months ended December 31, 2008 from $382,000 for the six
months ended December 31, 2007, an increase of $39,000, or 10.21% due to the
sale of a higher percentage of mortgage originations. Other
categories of noninterest income showed minor changes.
Noninterest
Expense. Noninterest expense increased by $450,000, or 13.02%
to $3.905 million for the six months ended December 31, 2008, from $3.455
million for the six months ended December 31, 2007. This increase was
primarily due to increases in salaries and employee benefits of $238,000,
advertising of $61,000, consulting fees of $40,000. The increase in
salaries and employee benefits expense was due to merit raises, and other
inflationary items such as health care premiums. The increase in
advertising was due to more advertising campaigns for a new checking account
line-up and other products. Increases in consulting were due to
utilizing two consulting firms for product development and advertising
promotions. Other categories of noninterest expense showed modest
changes.
Income Tax
Expense. Eagle’s income tax expense was $181,000 for the six
months ended December 31, 2008, compared to $201,000 for the six months ended
December 31, 2007. The effective tax rate for the six months ended
December 31, 2008 was 29.92% and was 22.74% for the six months ended December
31, 2007.
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 5.63% and 8.30% for
the months ended December 31, 2008 and December 31, 2007,
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, 2008 (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, 2008, the Bank’s regulatory capital was in excess of all applicable
regulatory requirements. At December 31, 2008, the Bank’s tangible,
core, and risk-based capital ratios amounted to 9.02%, 9.02%, and 12.88%,
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 AND RESULTS OF OPERATIONS
Liquidity,
Interest Rate Sensitivity and Capital Resources - continued
|
|
(Unaudited)
|
|
|
|
At December 31, 2008
|
|
|
|
|
|
|
For Capital
|
|
|
|
|
|
|
Adequacy
|
|
|
|
Dollar
|
|
|
Purposes
|
|
|
|
Amount
|
|
|
% of Assets
|
|
Tangible
capital:
|
|
|
|
|
|
|
Capital
level
|
|
$ |
25,585 |
|
|
|
9.02
|
% |
Requirement
|
|
|
4,256 |
|
|
|
1.50 |
|
Excess
|
|
$ |
21,329 |
|
|
|
6.02
|
% |
Core
capital:
|
|
|
|
|
|
|
|
|
Capital
level
|
|
$ |
25,585 |
|
|
|
9.02
|
% |
Requirement
|
|
|
8,512 |
|
|
|
3.00 |
|
Excess
|
|
$ |
17,073 |
|
|
|
5.88
|
% |
Risk-based
capital:
|
|
|
|
|
|
|
|
|
Capital
level
|
|
$ |
25,880 |
|
|
|
12.88
|
% |
Requirement
|
|
|
16,079 |
|
|
|
8.00 |
|
Excess
|
|
$ |
9,801 |
|
|
|
4.88
|
% |
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 SFAS 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 AND RESULTS OF OPERATIONS
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 the
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
QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK
Not
applicable.
EAGLE
BANCORP AND SUBSIDIARY
CONTROLS
AND PROCEDURES
CONTROLS AND
PROCEDURES
The
Company’s Chief Executive Officer, Peter J. Johnson, and Chief Financial
Officer, Clint J. Morrison, evaluated the effectiveness of the Company’s
disclosure controls and procedures (as defined in Exchange Act rules 13a-15(e)
and 15d-15(e)) as of December 31, 2008, and based on this review, have concluded
the Company’s disclosure controls and procedures are effective as of December
31, 2008 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 (as defined in Exchange Act rules
13a-15(f) and 15d-15(f)) 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.) Purchases
of Equity Securities.
The
following table summarizes the Company’s purchase of its common stock for the
three months ended December 31, 2008.
|
|
(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
2008
|
|
None
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
10-01-08
to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10-31-09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
2008
|
|
None
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
11-01-08
to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11-30-08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
2008
|
|
None
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
12-01-08
to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12-31-08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
0
|
|
$ |
0 |
|
|
|
0 |
|
|
|
N/A |
|
*The
Company publicly announced a stock repurchase program on July 17, 2008. 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, 2008, 4,510 shares had been repurchased
under this plan
Item
3.
|
Defaults
Upon Senior Securities.
|
Not
applicable.
Part
II - OTHER INFORMATION (CONTINUED)
Item
4.
|
Submission
of Matters to a Vote of Security
Holders.
|
The
proxy statement for the Annual Meeting of Stockholders was mailed on
September 15, 2008. The following matters were voted on at the
meeting held on October 16, 2008:
|
|
|
|
|
1.
|
Election
of directors for three-year terms expiring in 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
|
|
Against
|
|
|
|
|
Larry
A. Dreyer
|
990,911
|
|
507
|
|
|
|
|
Lynn
E. Dickey
|
989,411
|
|
2,007
|
|
|
|
|
|
|
|
|
|
|
2.
|
Ratification
of appointment of Davis, Kinard & Co., P.C. as auditors for the fiscal
year ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
For
|
|
Against
|
|
Abstain
|
|
|
|
988,703
|
|
115
|
|
2,600
|
None.
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.
On
January 15, 2009, the registrant furnished under Item 2.02 of Form 8-K a press
release announcing its earnings for the second quarter of 2009 fiscal
year.
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: February
12, 2009
|
By:
|
/s/ Peter
J. Johnson
|
|
Peter
J. Johnson
|
|
President/CEO
|
|
|
|
Date: February
12, 2009
|
By:
|
/s/ Clint
J. Morrison
|
|
Clint
J. Morrison
|
|
Senior
Vice
President/CFO
|