EXHIBIT 99(a)
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Eagle Bancorp, Inc.
We have audited the accompanying consolidated statements of financial condition
of Eagle Bancorp, Inc. and subsidiary as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based upon
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Eagle Bancorp,
Inc. and subsidiary at December 31, 1995 and 1994, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
Charleston, West Virginia /s/ Ernst & Young LLP
February 23, 1996
EAGLE BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
(dollars in thousands, except per share data)
December 31,
------------------
1995 1994
-------- --------
Assets
------
Cash and due from other depository
institutions................................ $ 6,955 $ 5,357
Interest-bearing deposits in other
institutions................................ 13,113 6,902
Securities (Note 4):
Available-for-sale at estimated fair value.. 2,412 2,631
Held-to-maturity (estimated fair value of
$9,189 and $8,516 at December 31, 1995
and 1994).................................. 9,134 8,555
-------- --------
Securities.............................. 11,546 11,186
Loans (Note 5):
Loans, net.................................. 356,107 352,142
Loans held for sale......................... 345 760
-------- --------
Net loans................................ 356,452 352,902
Premises and equipment (Note 6).............. 4,191 3,867
Other assets................................. 2,530 2,485
-------- --------
Total assets............................. $394,787 $382,699
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits (Note 7):
Noninterest-bearing......................... $ 12,469 $ 10,501
Interest-bearing............................ 287,274 267,162
-------- --------
Total deposits........................... 299,743 277,663
Advances from Federal Home Loan Bank of
Pittsburgh (Note 8)......................... 41,597 54,402
Advances by borrowers for taxes and insurance 1,590 1,675
Other liabilities............................ 3,845 3,071
-------- --------
Total liabilities........................ 346,775 336,811
-------- --------
Commitments and contingencies (Notes 5
and 14)
Stockholders' equity (Note 15):
Preferred stock, $.10 par value; 2,500,000
shares authorized; none issued............. -- --
Common stock, $.10 par value; 5,000,000
shares authorized; 2,729,468 issued
and outstanding at December 31, 1995
and 1994................................... 273 273
Additional paid-in capital.................. 11,969 11,969
Retained earnings........................... 35,770 33,646
-------- --------
Total stockholders' equity............... 48,012 45,888
-------- --------
Total liabilities and stockholders'
equity.................................. $394,787 $382,699
======== ========
See notes to consolidated financial statements.
EAGLE BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(dollars in thousands, except per share data)
Year Ended December 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
Interest and dividend income:.............................................
Loans (Note 5).......................................................... $ 27,928 $ 25,334 $ 22,979
Securities.............................................................. 895 693 869
Other interest income................................................... 532 453 271
---------- ---------- ----------
Total interest and dividend income................................ 29,355 26,480 24,119
---------- ---------- ----------
Interest expense:
Interest on deposits (Note 7)........................................... 13,786 10,522 9,951
Interest on borrowings.................................................. 1,611 1,263 77
---------- ---------- ----------
Total interest expense............................................ 15,397 11,785 10,028
---------- ---------- ----------
Net interest and dividend income.................................. 13,958 14,695 14,091
Provision for loan losses (Note 5)...................................... 245 384 498
---------- ---------- ----------
Net interest and dividend income after provision for loan losses.. 13,713 14,311 13,593
---------- ---------- ----------
Other income:
Loan servicing charges and late fees.................................... 314 277 226
Service charges on deposit accounts..................................... 411 347 295
Gains on sales of loans, net............................................ 1,012 121 751
Other................................................................... 399 271 355
---------- ---------- ----------
Total other income................................................ 2,136 1,016 1,627
---------- ---------- ----------
General and administrative expenses:
Compensation and employee benefits (Notes 9, 10 and 11)................. 3,755 3,444 2,999
Data processing......................................................... 938 767 716
Federal insurance premiums.............................................. 699 632 515
Premises and occupancy.................................................. 618 590 551
Equipment............................................................... 446 402 348
Other (Note 12)......................................................... 2,144 1,397 1,288
---------- ---------- ----------
Total general and administrative expenses......................... 8,600 7,232 6,417
---------- ---------- ----------
Income before income taxes................................................ 7,249 8,095 8,803
---------- ---------- ----------
Income tax expense (Note 13):
Current................................................................ 2,120 2,002 2,670
Deferred............................................................... 391 611 42
---------- ---------- ----------
Total income tax expense......................................... 2,511 2,613 2,712
---------- ---------- ----------
Net income................................................................ $ 4,738 $ 5,482 $ 6,091
========== ========== ==========
Net income per common and common equivalent share......................... $1.74 $2.01 $2.24
========== ========== ==========
Common and common equivalent shares....................................... 2,729,468 2,729,468 2,718,930
========== ========== ==========
See notes to consolidated financial statements.
EAGLE BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
(dollars in thousands, except per share data)
Additional ESOP Shares
Common Paid-In Retained Purchased
Stock Capital Earnings with Debt Total
----- -------- --------- ------------ ----------
Balance at January 1, 1993................... $134 $11,620 $26,710 $(393) $38,071
Two-for-one stock split May 14, 1993......... 134 (134) -- -- --
Cash dividends paid $.69 per share........... -- -- (1,859) -- (1,859)
Stock options exercised...................... 5 483 -- -- 488
Reduction in ESOP indebtedness............... -- -- -- 284 284
Net income................................... -- -- 6,091 -- 6,091
---- ------- ------- ----- -------
Balance at December 31, 1993................. 273 11,969 30,942 (109) 43,075
Cash dividends paid $1.01 per share.......... -- -- (2,757) -- (2,757)
Adjustment to opening retained earnings
for change in accounting method, net of
deferred income taxes of $91............... -- -- 178 -- 178
Change in unrealized net gains (losses)
on available-for-sale securities, net of
deferred income taxes of $102.............. -- -- (199) -- (199)
Reduction in ESOP indebtedness............... -- -- -- 109 109
Net income................................... -- -- 5,482 -- 5,482
---- ------- ------- ----- -------
Balance at December 31, 1994................. 273 11,969 33,646 -- 45,888
Cash dividends paid $1.00 per share.......... -- -- (2,729) -- (2,729)
Change in unrealized net gains (losses)
on available-for-sale securities, net of
deferred income taxes of $59.............. -- -- 115 -- 115
Net income................................... -- -- 4,738 -- 4,738
---- ------- ------- ----- -------
Balance at December 31, 1995................. $273 $11,969 $35,770 $ -- $48,012
==== ======= ======= ===== =======
See notes to consolidated financial statements.
EAGLE BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(dollars in thousands)
Year Ended December 31,
-------------------------------
1995 1994 1993
--------- -------- --------
Cash Flows:
From operating activities:
Net income............................................................. $ 4,738 $ 5,482 $ 6,091
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation......................................................... 384 355 316
Accretion, net of amortization....................................... (371) (419) (528)
Provision for losses on loans and real estate........................ 245 384 575
Loan fees deferred, net.............................................. (185) 168 472
Loans originated for sale............................................ (9,438) (5,360) (66,389)
Proceeds from loans sold............................................. 10,053 4,713 50,398
Gains on sales of loans.............................................. (1,012) (121) (751)
Gains on sales of other assets....................................... (35) (46) (140)
Deferred income tax expense.......................................... 391 611 42
Change in other assets and other accrued expenses.................... 783 (444) 32
--------- -------- --------
Net cash provided by (used in) operating activities............... 5,553 5,323 (9,882)
From investing activities:
Proceeds from maturities of held-to-maturity securities................ 4,728 -- --
Purchase of held-to-maturity securities................................ (5,662) (3,560) (448)
Principal repayments on mortgage-backed securities:
Available-for-sale................................................... 393 641 --
Held-to-maturity..................................................... 391 1,002 2,298
Purchase of marketable equity securities............................... -- -- (32)
Proceeds from sale of marketable equity securities..................... -- -- 1,552
Proceeds from sales of loans........................................... 49,127 -- 1,595
Loans originated less principal repayments............................. (52,508) (72,185) (16,179)
Purchases of premises and equipment.................................... (890) (435) (706)
Proceeds from sale of land............................................. 211 -- --
--------- -------- --------
Net cash used in investing activities............................. (4,210) (74,537) (11,920)
From financing activities:
Net increase in deposit accounts....................................... 22,085 10,286 30,864
(Decrease) increase in advances by borrowers for taxes and insurance... (85) 459 (63)
Advances from the Federal Home Loan Bank of Pittsburgh................. 316,257 143,832 28,276
Repayment of advances to the Federal Home Loan Bank of Pittsburgh...... (329,062) (89,682) (28,255)
Dividends paid on common stock......................................... (2,729) (2,757) (1,859)
Proceeds from exercise of stock options................................ -- -- 488
--------- -------- --------
Net cash provided by financing activities......................... 6,466 62,138 29,451
Increase (decrease) in cash and cash equivalents.................. 7,809 (7,076) 7,649
Cash and cash equivalents at beginning of year.................... 12,259 19,335 11,686
--------- -------- --------
Cash and cash equivalents at end of year.......................... $ 20,068 $ 12,259 $ 19,335
========= ======== ========
See notes to consolidated financial statements.
EAGLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(dollars in thousands)
(1) Summary of Significant Accounting Policies
------------------------------------------
The accounting and reporting policies of Eagle Bancorp, Inc. and
subsidiary (Company) conform with generally accepted accounting principles and
to general practices within the financial service industry. The preparation of
the financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. A
description of the significant accounting policies is presented below.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Eagle
Bancorp, Inc. and its wholly-owned subsidiary, First Empire Federal Savings and
Loan Association (Association) and its wholly-owned subsidiary, First Empire
Federal Services, Inc. All significant intercompany accounts and transactions
have been eliminated in the consolidated financial statements.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include cash and amounts due from other
depository institutions and interest-bearing deposits in other institutions.
Securities
----------
At the time of purchase of securities, management determines their
appropriate classification. If, at the time of purchase, management has the
intent and the Company has the ability to hold the debt securities until
maturity, or on a long-term basis, they are classified as held-to-maturity and
carried at cost, adjusted for amortization of premiums and accretion of
discounts, using a method which approximates the level yield method.
Securities to be held for indefinite periods of time and not to
maturity, or on a long-term basis, are classified as available-for-sale.
Beginning January 1, 1994 (See Note 4), retained earnings is adjusted for
unrealized holding gains and losses on securities classified as available-for-
sale, net of deferred income taxes. Securities held for indefinite periods of
time include securities that management intends to use as part of its asset and
liability management strategy and that may be sold in response to changes in
interest rates, resultant prepayment risk, and other factors related to interest
rate and resultant prepayment risk changes.
Loans
-----
Loans are stated at their unpaid principal balance net of premiums,
discounts and allowance for losses on loans. Interest on loans is credited to
income as earned and is accrued only if deemed collectible. The Company does
not accrue interest or amortize deferred loan fees on loans past due 90 days or
more unless the estimated net realizable value of the collateral and active
collection efforts provide reasonable assurance of full recovery.
When the accrual of interest is discontinued, accrued but unpaid interest is
charged against current year income. A loan is returned to an accruing status
when the borrower has performed satisfactorily and the collection of all
principal and interest contractually due is no longer in doubt.
Loans Held for Sale
-------------------
Loans held for sale consist of one-to-four family residential loans
originated for sale in the secondary market and are carried at the lower of cost
or fair value determined on an aggregate basis.
EAGLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
(dollars in thousands)
(1) Summary of Significant Accounting Policies - (Continued)
--------------------------------------------------------
Loan Fees and Discounts
-----------------------
Loan origination and commitment fees, net of certain loan origination
costs, are deferred and recognized over the lives of the related loans as an
adjustment of yield.
Discounts on real estate loans purchased are accreted to income over
the estimated remaining maturities of the loans, using a method which
approximates the level yield method.
Allowance for Losses on Loans
-----------------------------
The allowance for losses on loans is maintained at a level believed
adequate by management to absorb estimated losses in the loan portfolio.
Management's determination of the adequacy of the allowance is based on an on-
going evaluation of the portfolio, past loan loss experience, current economic
conditions, volume, growth and composition of the loan portfolio, commitments to
extend credit, and other relevant factors which management believes warrant
recognition in the period.
Premises and Equipment
----------------------
Premises and equipment are carried at cost less accumulated
depreciation. Depreciation is calculated generally using the straight-line
method for buildings and an accelerated method for equipment over the estimated
useful lives of the related assets of five to fifty years for buildings and
improvements and three to fifteen years for equipment.
Income Taxes
------------
The Company files consolidated state and federal income tax returns.
Deferred income taxes are provided for differences between the tax basis of an
asset or liability and its reported amount in the financial statements, at the
statutory tax rates that will be in effect when the differences are expected to
reverse. The Association provides for income taxes on a separate-return basis,
and remits to the Company amounts determined to be currently payable.
Net Income Per Common and Common Equivalent Share
-------------------------------------------------
Net income per common and common equivalent share is based on the
weighted average number of shares actually outstanding plus the shares that
would be outstanding assuming the exercise of dilutive stock options, all of
which are considered to be common stock equivalents. At December 31, 1995, 1994
and 1993, there were no outstanding stock options.
EAGLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
(dollars in thousands)
(2) Pending Acquisition
-------------------
On August 18, 1995, the Company and United Bankshares, Inc. (United)
entered into an Agreement and Plan of Merger, which sets forth the terms and
conditions under which the Company will be merged with and into United. As a
result of the transaction, shareholders of the Company will receive 1.15 shares
of the common stock of United for each share owned. The merger is contingent
upon receipt of regulatory and shareholder approvals. It is anticipated that
the merger will be consummated in the second quarter of 1996.
(3) Accounting Change
-----------------
In May 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage
Servicing Rights." Statement 122 amends Statement No. 65, "Accounting for
Certain Mortgage Banking Activities," and requires financial institutions to
recognize as separate assets rights to service mortgage loans for others,
whether those rights were acquired through purchase or through the origination
and subsequent sale of loans with servicing rights retained. Institutions are
required to allocate the total cost of the mortgage loans to the mortgage
servicing rights and the loans, based on their relative fair values, if it is
practicable to estimate those fair values. Financial institutions are required
to periodically assess capitalized servicing rights for impairment based on the
fair value of those rights. The Statement is to be applied prospectively, for
years beginning after December 15, 1995, with earlier application encouraged.
The Company adopted Statement 122 effective for its financial statements
for the quarter ended June 30, 1995. The impact of adopting the Statement in
1995 was an increase in income before income taxes of approximately $412,
representing capitalization of servicing rights on the sale of mortgage loans.
The fair value of the capitalized servicing rights was determined based on
market prices at the loan sale dates. Adoption of the Statement did not have a
material impact on the Company's financial statements for the quarter ended
March 31, 1995. Capitalized servicing rights are being amortized over the
period of estimated net servicing income, and are assessed for impairment
periodically, based on their fair values. The loans are aggregated by interest
rate and other terms for purposes of measuring impairment. All servicing rights
capitalized in 1995 represented the rights to service fixed-rate conventional
loans. At December 31, 1995, a valuation allowance was not necessary for
capitalized mortgage servicing rights.
(4) Securities
----------
A summary of securities is as follows:
Available-for-Sale Securities
----------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
December 31, 1995 Cost Gains Losses Value
- ----------------- ---- ---------- ---------- ----------
Mortgage-backed securities...... $2,270 $142 $ -- $2,412
====== ==== ==== ======
EAGLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
(dollars in thousands)
(4) Securities - (Continued)
------------------------
Held-to-Maturity Securities
-----------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
December 31, 1995 Cost Gains Losses Value
----------------- ------ ---------- ---------- ----------
U. S. Government obligation...... $1,003 $ 1 $-- $1,004
Agency obligations............... 2,748 8 -- 2,756
Corporate debt................... 855 15 -- 870
Federal Home Loan Bank stock..... 3,501 -- -- 3,501
Mortgage-backed securities....... 1,027 32 1 1,058
------ -- --- ------
$9,134 $56 $ 1 $9,189
====== === === ======
The U.S. government obligation is scheduled to mature in 1996 and has a
weighted-average yield of 8.9%. The agency obligations are scheduled to mature
as follows: $498 in 1996 with a weighted-average yield of 7.5% and $2,250 over
one year through five years with a weighted-average yield of 6.7%. The corporate
debt obligations are scheduled to mature in 1996 and have a weighted-average
yield of 6.5%. Expected maturities of the agency obligations may differ from
contractual maturities because the issuer may have the right to call or prepay
obligations.
Available-for-Sale Securities
----------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
December 31, 1994 Cost Gains Losses Value
----------------- ------ ---------- ---------- ----------
Mortgage-backed securities...... $2,663 $-- $32 $2,631
====== === === ======
Held-to-Maturity Securities
-----------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
December 31, 1994 Cost Gains Losses Value
----------------- ------ ---------- ---------- ----------
U. S. Government obligation...... $1,012 $ 3 $-- $1,015
Agency obligations............... 1,993 -- 10 1,983
Corporate debt................... 1,274 -- 5 1,269
Federal Home Loan Bank stock..... 2,776 -- -- 2,776
Mortgage-backed securities....... 1,500 9 36 1,473
------ --- -- ------
$8,555 $12 $51 $8,516
====== === === ======
EAGLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
(dollars in thousands)
(5) Loans
-----
A summary of loans is as follows:
December 31,
------------------
1995 1994
-------- --------
Real estate loans:
One-to-four unit residential................. $338,227 $339,690
One-to-four unit residential, held for sale.. 345 760
-------- --------
Total one to four unit residential........... 338,572 340,450
One-to-four unit residential construction,
net......................................... 576 604
Commercial real estate....................... 16,400 11,536
-------- --------
355,548 352,590
Consumer loans............................... 4,379 4,062
-------- --------
359,927 356,652
-------- --------
Less:
Net discount................................. 253 172
Deferred loan fees........................... 694 1,282
Allowance for losses on loans................ 2,528 2,296
-------- --------
3,475 3,750
-------- --------
$356,452 $352,902
======== ========
The Company primarily originates one-to-four family residential loans
within West Virginia. The Company's general policy is to lend up to 80% of the
appraised value of the property securing the loan, unless the borrower obtains
private mortgage insurance on the portion of the principal amount of the loan
that exceeds 80% of the property's appraised value.
Non-performing loans consisted of:
December 31,
------------------
1995 1994
-------- --------
Non-accrual loans........................... $1,364 $ 986
Accruing loans which are 90 days or more
delinquent................................. 537 548
------ ------
$1,901 $1,534
====== ======
The amount of interest income that would have been recorded on non-
accrual loans if they had been current was $151, $152 and $174 for the years
ended December 31, 1995, 1994 and 1993. The amounts included in income for the
respective periods were $61, $73 and $79.
A summary of activity in the allowance for losses on loans is as follows:
Year Ended December 31,
------------------------
1995 1994 1993
------ ------ ------
Balance, beginning of year............... $2,296 $1,960 $1,533
Provision for loan losses................ 245 384 498
Charge-offs.............................. (17) (54) (73)
Recoveries............................... 4 6 2
------ ------ ------
Balance, end of year..................... $2,528 $2,296 $1,960
====== ====== ======
The Company serviced loans for the benefit of others aggregating
approximately $99,685, $57,150, and $64,503 at December 31, 1995, 1994 and 1993.
These loans are not included in the consolidated financial statements.
EAGLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
(dollars in thousands)
(5) Loans - (Continued)
-------------------
Loan commitments at December 31, 1995 were approximately $3,493 and
$710 for fixed and adjustable-rate real estate loans. Interest rates on the
fixed-rate commitments ranged from 7.5% to 8.5%, and interest rates on the
adjustable-rate commitments ranged from 6.4% to 7.3%. At December 31, 1995, the
Company had outstanding commitments to fund line of credit equity loans in the
amount of $4,699. These commitments were approved under the Company's
established underwriting standards. It is the opinion of management that the
funding of these commitments will not result in any material losses.
In May 1993, the FASB issued Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan," which was
amended by Statement No. 118, "Accounting by Creditors for Impairment of a Loan
- - Income Recognition and Disclosures." The Statements require that certain
impaired loans be measured based on the present value of expected future cash
flows, discounted at the effective interest rate of the loan, or, as a practical
expedient, the loan may be valued at the fair value of the collateral if the
loan is collateral dependent. The Company adopted the Statements as of January
1, 1995. Adoption of the Statements did not have a material effect on the
Company. Impaired loans at December 31, 1995, average investment in impaired
loans during 1995 and the interest income recognized on impaired loans for the
year then ended were immaterial to the financial statements of the Company.
(6) Premises and Equipment
----------------------
A summary of premises and equipment is as follows:
December 31,
-----------------
1995 1994
------- --------
Land........................................ $ 482 $ 657
Buildings and leasehold improvements........ 4,667 4,162
Furniture, fixtures and equipment........... 2,896 2,594
------ ------
8,045 7,413
Less accumulated depreciation............... 3,854 3,546
------ ------
$4,191 $3,867
====== ======
(7) Deposits
--------
A summary of deposits is as follows:
December 31,
-----------------------------------------
1995 1994
------------------- -------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
--------- -------- -------- --------
Noninterest-bearing deposits......... $ 12,469 --% $ 10,501 --%
Interest-bearing deposits:
Passbook savings and club accounts... 58,519 3.00 82,641 3.75
NOW accounts......................... 15,012 2.05 16,184 2.74
Money market accounts................ 22,418 3.39 30,685 3.42
Time certificates.................... 191,325 5.64 137,652 4.83
-------- --------
$299,743 $277,663
======== ========
EAGLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
(dollars in thousands)
(7) Deposits - (Continued)
----------------------
A summary of interest rates on time certificates of deposit is as follows:
December 31, 1995
-----------------
3.00 - 3.99%.......................................... $ 272
4.00 - 4.99........................................... 24,721
5.00 - 5.99........................................... 108,911
6.00 - 6.99........................................... 48,732
7.00 - 7.99........................................... 6,679
8.00 - 8.99........................................... 1,096
9.00 and above........................................ 914
--------
$191,325
========
Scheduled maturities of time certificates of deposit are as follows:
December 31, 1995
-----------------
1996................................................. $153,006
1997................................................. 29,708
1998................................................. 3,096
1999 and thereafter.................................. 5,515
--------
$191,325
========
Interest expense by deposit category is as follows:
Year Ended December 31,
-------------------------
1995 1994 1993
------- ------- -------
Passbook savings and club accounts......... $ 2,338 $ 3,334 $ 2,811
NOW and money market accounts.............. 1,218 1,770 1,941
Time certificates.......................... 10,230 5,418 5,199
------- ------- -------
$13,786 $10,522 $ 9,951
======= ======= =======
The Company paid $10,790, $8,919 and $7,297 in interest on deposits
and borrowings for the years ended December 31, 1995, 1994 and 1993.
(8) Advances from Federal Home Loan Bank of Pittsburgh
--------------------------------------------------
A summary of advances from the Federal Home Loan Bank (FHLB) of Pittsburgh
is as follows:
December 31,
----------------------------------
1995 1994
---------------- ---------------
Interest Interest
Maturity Amount Rate Amount Rate
-------- ------- ------- ------- ----
Other short-term........................................ 1996 $41,000 5.85% $21,500 6.10%
Affordable-Housing advances............................. After 10 yrs 597 3.40 402 3.79
Flexline................................................ -- -- -- 32,500 5.94
------- -------
$41,597 $54,402
======= =======
EAGLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
(dollars in thousands)
(8) Advances from Federal Home Loan Bank of Pittsburgh -(Continued)
---------------------------------------------------------------
All advances from the FHLB of Pittsburgh are secured by single-family
mortgages. The Flexline is a floating-rate advance that may be repaid at any
time. Affordable-Housing advances were obtained under FHLB programs designed to
provide mortgage funds to low and moderate income borrowers. The maximum amount
of short-term borrowings outstanding at any month-end during 1995 approximated
$55.4 million. The combined average balance of short-term and Flexline
borrowings for 1995 and 1994 approximated $28.1 million and $27.5 million,
respectively. The combined weighted-average interest rate for the short-term
and Flexline borrowings for 1995 and 1994 approximated 5.73% and 4.59%,
respectively.
(9) Employee Stock Ownership Plan
-----------------------------
The Company has established an Employee Stock Ownership Plan (ESOP)
for employees age twenty-one or older who have completed at least one year of
credited service with the Company or its subsidiary. Contributions to the ESOP,
which are at the discretion of the Board of Directors, are allocated among the
employee participants on the basis of the ratio of their compensation to the
total compensation paid to all eligible participants who are to receive an
allocation for the year.
(10) Employee Pension and Profit Sharing Plans
-----------------------------------------
The Company has a qualified defined benefit pension plan covering all
full-time employees who are at least twenty and one-half years old and have
completed six months of service on the plan's anniversary date. Benefits under
the plan are generally based upon base pay for the highest five consecutive
years of the latest ten years of service. The Company's funding policy is to
contribute annually the amount deductible for tax purposes. Plan assets consist
of a group investment contract which includes investments in annuities, money
market funds, marketable securities, real estate and mortgages.
The following tables set forth the plan's funded status and amounts
recognized in the Company's Consolidated Statements of Financial Condition and
Operations:
December 31,
------------------
1995 1994
-------- --------
Actuarial present value of:
Vested benefits............................................... $2,490 $1,872
Nonvested benefits............................................ 56 37
------ ------
Accumulated benefit obligation................................ 2,546 1,909
Provision for future salary increases......................... 1,273 883
------ ------
Projected benefit obligation.................................. 3,819 2,792
Plan assets at fair value..................................... 3,208 2,805
------ ------
Funded status................................................. (611) 13
Unrecognized net asset........................................ (47) (50)
Prior service cost not yet recognized in net periodic
pension cost................................................. 23 25
Unrecognized loss (gain) from past experience different from
that assumed and effects of changes in assumptions........... 255 (309)
------ ------
Accrued pension cost included in other liabilities............ $ (380) $ (321)
====== ======
EAGLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
(dollars in thousands)
(10) Employee Pension and Profit Sharing Plans - (Continued)
-------------------------------------------------------
Year Ended December 31,
------------------------
1995 1994 1993
------ ------ ------
Net periodic pension cost included the following components:
Service cost.................................................. $ 165 $ 202 $ 156
Interest cost................................................. 200 187 179
Actual (return) loss on plan assets........................... (380) 107 (272)
Net amortization and deferral................................. 155 (337) 91
----- ----- -----
Net periodic pension cost..................................... $ 140 $ 159 $ 154
===== ===== =====
December 31,
------------------------
1995 1994 1993
------ ------ ------
Major assumptions:
Discount rate................................................. 6.25% 7.25% 5.75%
Rate of increase in future compensation levels................ 5.26 5.19 5.40
Expected long-term rate of return on plan assets.............. 7.75 7.75 7.75
The Company has a discretionary profit sharing plan that covers all
employees who have completed twelve months of service and have worked 1,000
hours of service prior to the plan anniversary date. Contributions to the plan
are at the discretion of the Board of Directors. Contributions of $87, $82 and
$50 were made for each of the years ended December 31, 1995, 1994 and 1993.
(11) Stock Incentive Plan
--------------------
The Company has a Stock Option and Stock Appreciation Rights Plan
(Stock Incentive Plan). The Stock Incentive Plan was adopted by the Company's
Board of Directors (Board) in 1988 and will continue in effect until 1998 unless
earlier terminated by the Board.
Pursuant to the Stock Incentive Plan, 55,000 shares of Common Stock
have been reserved for issuance by the Company upon exercise of options or stock
appreciation rights to officers and other key employees of the Company. Options
granted under the Stock Incentive Plan may be incentive stock options or non-
qualified options. The Stock Incentive Plan also provides for the granting of
stock appreciation rights. As of December 31, 1995, there were no stock options
or stock appreciation rights granted and outstanding.
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations
in accounting for its employee stock options, as opposed to the alternative fair
value method, using option pricing models, provided for under FASB Statement No.
123, "Accounting for Stock-Based Compensation." Because there were no
outstanding options or stock appreciation rights at December 31, 1995, net
income and net income per share would not change from that disclosed if computed
under the fair value methods of Statement 123.
EAGLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
(dollars in thousands)
(12) Other General and Administrative Expenses
-----------------------------------------
Major components of other general and administrative expenses are as
follows:
Year Ended December 31,
-------------------------
1995 1994 1993
------ ------ -------
Advertising and promotion............................. $ 355 $ 284 $ 282
Professional and legal................................ 753 252 234
Supplies and postage.................................. 329 289 224
Other................................................. 707 572 548
------ ------ ------
$2,144 $1,397 $1,288
====== ====== ======
(13) Federal and State Income Taxes
------------------------------
The components of income tax expense are as follows:
Year Ended December 31,
-----------------------
1995 1994 1993
------ ------ ------
Federal............................................... $2,488 $2,587 $2,615
State................................................. 23 26 97
------ ------ ------
$2,511 $2,613 $2,712
====== ====== ======
Savings and loan associations are required to provide a deferred tax
liability for bad debt reserves for tax purposes that arose in years beginning
after December 31, 1987, and to recognize a deferred tax benefit for the
allowance for losses on loans recorded in the financial statements. In
accordance with generally accepted accounting principles, the Company has not
provided a deferred tax liability for its statutory bad debt reserve arising
prior to December 31, 1987. At current tax rates, approximately $3,000 of
deferred tax liabilities would have been provided for such reserves.
EAGLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
(dollars in thousands)
(13) Federal and State Income Taxes - (Continued)
--------------------------------------------
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts of those assets and liabilities for income
tax purposes. Significant components of the Company's deferred tax assets and
liabilities are as follows:
December 31,
-----------------
1995 1994
-------- -------
Deferred Tax Assets:
Allowance for losses on loans............. $ 859 $ 799
Deferred loan fees........................ -- 16
Employee benefit accruals................. 167 166
Basis difference of assets acquired in
non-taxable transaction.................. 164 187
Other, net................................ -- 23
------ ------
Total deferred tax assets............... 1,190 1,191
------ ------
Deferred Tax Liabilities:
Statutory tax bad debt reserves........... 840 712
Loan discount income...................... 28 39
Premises and equipment.................... 141 131
Deferred loan fees........................ 143 --
Mortgage servicing rights................. 131 --
Other, net................................ 47 --
------ ------
Total deferred tax liabilities.......... 1,330 882
------ ------
Net deferred tax (liabilities) assets..... $ (140) $ 309
====== ======
The following is a reconciliation of income tax expense at the
statutory federal income tax rate of 34% to actual tax expense:
Year Ended December 31,
-----------------------
1995 1994 1993
------ ------ ------
Tax expense computed at statutory rate on income before taxes... $2,465 $2,752 $2,993
State taxes, net of federal tax benefit......................... 15 17 64
Other, net...................................................... 31 (156) (345)
------ ------ ------
Income tax expense.............................................. $2,511 $2,613 $2,712
====== ====== ======
Savings and loan associations that meet certain definitional tests and
other conditions prescribed by the Internal Revenue Code are permitted a bad
debt deduction computed as a percentage of taxable income before such
deduction. The applicable percentage was 8% for 1995, 1994 and 1993.
The cumulative amount of statutory bad debt reserves resulting from
such deductions constitutes a restriction, for tax purposes, of the use of
retained earnings. Approximately $11.3 million of retained earnings is so
restricted as of December 31, 1995. If any portion of this amount is used other
than to absorb loan losses, the amount will be subject to federal income tax at
the then prevailing corporate tax rates.
EAGLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
(dollars in thousands)
(13) Federal and State Income Taxes - (Continued)
--------------------------------------------
In 1993, the Company reduced its federal income tax liability by $267
as a result of tax deductible compensation expense from the exercise of non-
qualified stock options. The tax benefits were recorded in additional paid-in
capital as additional proceeds from the exercise of the options.
The Company made income tax payments of $2,283, $2,110 and $2,425
during the years ended December 31, 1995, 1994, and 1993.
(14) Commitments and Contingencies
-----------------------------
In the normal course of business, the Company and its subsidiary are
involved in various legal proceedings. In the opinion of management, such
proceedings will not materially impact the financial condition of the Company.
(15) Stockholders' Equity and Regulatory Capital
-------------------------------------------
The primary source of dividends paid by the Company is accumulated
dividends from the Association. The Association can pay cash dividends to the
Company in an amount up to 100% of its current year's net income on a cumulative
basis, so long as the Association's tangible equity capital to liabilities
ratio, prior and subsequent to any dividend payment, remains at or above 8%. If
such ratio is below 8%, the Association will not, without the prior approval of
the Office of Thrift Supervision (OTS), be permitted to declare or pay a cash
dividend on its capital stock in an amount in excess of one-half of the greater
of its net income for the current year or the average of its net income for the
current year and not more than the two immediately preceding years.
In addition to the foregoing, earnings of the Association appropriated
to bad debt reserves and deducted for federal income tax purposes are not
available for payment of cash dividends or other distributions to the Company
without payment of taxes at the then current tax rate by the Association on the
amount of earnings deemed removed from the reserves for such distribution. See
Note 13 to the Consolidated Financial Statements.
The Association is required to maintain specified amounts of capital
pursuant to the Financial Institutions Reform, Recovery and Enforcement Act of
1989 (FIRREA) and regulations thereunder. Savings associations are required to
maintain tangible capital (stockholders' equity less goodwill) amounting to not
less than 1.5% of total assets and core capital (tangible capital plus 90% of
purchased mortgage servicing rights and, subject to limitations, qualifying
supervisory goodwill) amounting to not less than 3% of total assets. In
addition, savings associations are required to maintain risk-based capital in an
amount equal to 8.0% of total assets and off-balance sheet instruments, as
adjusted to reflect their relative credit risks. At December 31, 1995, the
Association's tangible and core capital amounted to $35.2 million or 8.9% of
total assets, which exceeded applicable requirements by $29.2 and $23.3 million,
respectively. The Association's risk-based capital at December 31, 1995
amounted to $37.5 million or 17.2% of total risk-based assets of $218.3 million,
which exceeded applicable requirements by $20.0 million.
EAGLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
(dollars in thousands)
(16) Eagle Bancorp, Inc. (Parent Company Only) Condensed Financial Information
-------------------------------------------------------------------------
December 31,
-----------------
1995 1994
------- -------
Statements of Financial Condition
---------------------------------
Assets
Cash on deposit with subsidiary............... $13,136 $15,961
Investment in subsidiary...................... 35,305 29,903
Other assets.................................. 33 40
------- -------
Total assets................................ $48,474 $45,904
======= =======
Liabilities and stockholders' equity
Other liabilities............................. $ 462 $ 16
Stockholders' equity.......................... 48,012 45,888
------- -------
Total liabilities and stockholders' equity.. $48,474 $45,904
======= =======
Year Ended December 31,
-------------------------
1995 1994 1993
------- ------- -------
Statements of Operations
------------------------
Dividends from subsidiary...................................... $ -- $ -- $ 4,000
Operating expenses............................................. 582 119 108
------- ------- -------
(Loss) income before income taxes and equity in undistributed
earnings of subsidiary........................................ (582) (119) 3,892
Income tax (benefit) expense................................... (33) (40) 230
------- ------- -------
(Loss) income before equity in undistributed earnings of
subsidiary.................................................... (549) (79) 3,662
Equity in undistributed earnings of subsidiary................. 5,287 5,561 2,429
------- ------- -------
Net income..................................................... $ 4,738 $ 5,482 $ 6,091
======= ======= =======
Year Ended December 31,
-------------------------
1995 1994 1993
------- ------- -------
Statements of Cash Flows
------------------------
Cash Flows:
From operating activities:
Net income..................................................... $ 4,738 $ 5,482 $ 6,091
Adjustments to reconcile net income to net cash provided by
operating activities:
Net change in other assets and other liabilities............. 453 1 5
Equity in undistributed earnings of subsidiary............... (5,287) (5,561) (2,429)
------- ------- -------
Net cash (used in) provided by operating activities.......... (96) (78) 3,667
From financing activities:
Dividends paid on common stock................................ (2,729) (2,757) (1,859)
Net proceeds from exercise of stock options................... -- -- 488
------- ------- -------
Net cash used in financing activities......................... (2,729) (2,757) (1,371)
(Decrease) increase in cash................................... (2,825) (2,835) 2,296
Cash at beginning of year..................................... 15,961 18,796 16,500
------- ------- -------
Cash at end of year........................................... $13,136 $15,961 $18,796
======= ======= =======
EAGLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
(dollars in thousands)
(17) Fair Values of Financial Instruments
------------------------------------
FASB Statement No. 107, "Disclosures about Fair Value of Financial
Instruments," requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be sustained by
comparison to independent markets and, in many cases, could not be realized in
immediate settlement of the instrument. Statement 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and interest-bearing deposits approximate those assets'
fair values.
Securities: Fair values for securities are based on quoted market prices,
where available. If quoted market prices are not available, fair values
are based on quoted market prices of comparable instruments.
Loans: The fair values for one-to-four family residential mortgage loans
and other consumer loans are estimated using discounted cash flow analyses
using yields from similar products in the secondary market, adjusted for
the specific characteristics of the Company's portfolio. The fair values
for commercial real estate are estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit worthiness. The fair values
of loans held for sale are based on quoted market prices of comparable
instruments. The carrying amount of accrued interest approximates its
fair value.
Deposit liabilities: The fair values disclosed for demand deposits (e.g.,
interest and noninterest-bearing checking, passbook savings and money
market accounts) are, by definition, equal to the amount payable on demand
at the reporting date (i.e., their carrying amounts). Fair values for
certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on
time deposits.
Off-balance-sheet instruments: Fair values for the Company's off-balance-
sheet instruments (lending commitments and unused lines of credit) are
based on their carrying values, taking into account the remaining terms
and conditions of the agreements.
Borrowings: The fair values of the Company's borrowings (other than
deposits) are estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types of
borrowing arrangements.
EAGLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
(dollars in thousands)
(17) Fair Values of Financial Instruments - (Continued)
--------------------------------------------------
The carrying amounts and estimated fair values of financial instruments
are as follows:
December 31,
-------------------------------------------
1995 1994
--------------------- --------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------- ---------- -------- ----------
Cash and cash equivalents.. $ 20,068 $ 20,068 $ 12,259 $ 12,259
Securities................. 11,546 11,601 11,186 11,147
Loans...................... 356,452 360,120 352,902 336,167
Deposits................... 299,743 300,588 277,663 276,727
Advances from FHLB......... 41,597 41,547 54,402 54,312
EAGLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
(dollars in thousands)
(18) Selected Quarterly Financial Data (Unaudited)
---------------------------------------------
The following table sets forth the Company's quarterly results of
operations for the years ended December 31:
1995 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
---- ----------- ----------- ----------- -----------
Interest and dividend income... $7,365 $7,450 $7,209 $7,332
Interest expense............... 3,743 3,982 3,726 3,946
------ ------ ------ ------
Net interest income............ 3,622 3,468 3,483 3,386
Provision for loan losses...... 70 60 55 60
Gains on sales of loans, net... 34 288 638 52
Other income................... 262 280 286 296
Other expense.................. 1,964 1,930 2,150 2,557
------ ------ ------ ------
Income before taxes............ 1,884 2,046 2,202 1,117
Income taxes................... 616 640 688 567
------ ------ ------ ------
Net income..................... $1,268 $1,406 $1,514 $ 550
====== ====== ====== ======
Net income per share........... $ .46 $ .52 $ .55 $ .21
Dividends paid................. .44 .14 .14 .28
Market range:
High bid..................... 28.00 28.00 31.00 31.25
Low bid...................... 28.00 28.00 29.00 31.00
1994
----
Interest and dividend income... $6,047 $6,444 $6,878 $7,111
Interest expense............... 2,566 2,788 3,066 3,365
------ ------ ------ ------
Net interest income............ 3,481 3,656 3,812 3,746
Provision for loan losses...... 105 105 93 81
Gains on sales of loans, net... 33 60 7 21
Other income................... 216 216 229 234
Other expense.................. 1,731 1,742 1,808 1,951
------ ------ ------ ------
Income before taxes............ 1,894 2,085 2,147 1,969
Income taxes................... 627 613 670 703
------ ------ ------ ------
Net income..................... $1,267 $1,472 $1,477 $1,266
====== ====== ====== ======
Net income per share........... $ .46 $ .54 $ .54 $ .47
Dividends paid................. .59 .14 .14 .14
Market range:
High bid..................... 28.00 28.00 28.00 28.00
Low bid...................... 27.00 28.00 27.00 26.00