UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended June 30, 1998
Commission File Number: 000-20739
EAGLE BANCGROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
37-1353957
(IRS Employer Identification No.)
301 Fairway Drive, Bloomington, IL 61701
(309) 663-6345
(Address, including zip code, and telephone number, including area code,
of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No __
As of August 7, 1998, there were 1,126,608 shares of the Registrant's
Common Stock, par value $.01 per share, outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Eagle BancGroup, Inc.
Consolidated Statements of Condition
(amounts in thousands)
June 30 December 31
1998 1997
ASSETS
Cash and due from banks 987 1,628
Fed funds sold and overnight deposits 4,943 3,386
Investment securities 18,756 13,037
Mortgage backed securities 27,261 24,596
Federal Home Loan Bank stock 1,322 1,310
Loans, net 116,109 122,409
Premises and equipment 2,750 2,834
Other assets 1,957 1,937
Total Assets 174,085 171,137
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits 132,019 131,452
FHLB advances 20,000 18,000
Other liabilities 1,090 1,380
Total Liabilities 153,109 150,832
Capital stock 13 13
Paid in capital 12,422 12,323
Retained earnings 10,666 10,134
Treasury stock (2,070) (2,055)
Accumulated other comprehensive income (55) (110)
Total Stockholders' Equity 20,976 20,305
Total Liabilities and
Stockholders' Equity 174,085 171,137
Note: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
Eagle BancGroup, Inc.
Consolidated Statements of Income
(amounts in thousands except per share data)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
Interest income:
Interest and fees on loans 2,328 2,392 4,709 4,556
Investment securities and other
interest earning assets 310 276 595 543
Mortgage-backed securities 408 467 786 1,003
Federal funds sold 58 5 107 12
Total Interest Income 3,104 3,140 6,197 6,114
Interest expense:
Deposits:
Passbooks 141 148 280 295
MMDA and NOW 86 47 157 89
Certificates of deposit 1,515 1,566 3,034 3,144
Borrowings 310 279 638 475
Total Interest Expense 2,052 2,040 4,109 4,003
Net Interest Income Before
Provision for Loan Loss 1,052 1,100 2,088 2,111
Provision for loan losses 60 60 120 120
Net Interest Income After
Provision for Loan Losses 992 1,040 1,968 1,991
Non-interest income:
Gains on loans sold 246 14 483 31
Other 87 147 169 229
Total Non-Interest Income 333 161 652 260
Non-interest expense:
Salaries and employee benefits 567 513 1,135 992
Net occupancy expense 138 137 276 270
Federal deposit insurance premium 21 22 41 26
Data processing expense 73 72 140 142
Other 201 200 392 373
Total Non-Interest Expense 1,000 944 1,984 1,803
Income Before Federal Income Tax 325 257 636 448
Federal income tax expense 123 87 233 152
Net Income 202 170 403 296
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period (2) 261 53 (13)
Less: reclassification adjustment for
losses (gains) included in
net income (1) (38) 2 (41)
Other comprehensive income (3) 223 55 (54)
Comprehensive Income 199 393 458 242
Per Share Data:
Basic Earnings Per Share 0.19 0.15 0.37 0.25
Diluted Earnings Per Share 0.18 0.15 0.36 0.25
Dividends Per Share 0.00 0.00 0.00 0.00
See accompanying notes.
Eagle BancGroup, Inc.
Consolidated Statements of Cash Flows
(amounts in thousands)
For the Six Months
Ended June 30,
1998 1997
Cash Flows from Operating Activities
Net income 403 296
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 120 120
Provision for depreciation 154 141
Amortization of premiums and discounts
on investment securities (63) 17
Losses (gains) on securities sold, net 4 (62)
Gains on loans sold, net (483) (31)
Compensation expense related to incentive plans 227 126
Proceeds from sale of loans originated for sale 39,193 2,762
Loans originated for sale (40,453) (2,718)
Increase in accrued interest receivable (45) (19)
(Decrease) increase in accrued interest payable (4) 3
Decrease (increase) in other assets 30 (5)
Increase in other liabilities (287) (22)
Net Cash (Used In) Provided By Operating Activities (1,204) 608
Cash Flows from Investing Activities
Investment securities:
Purchases (15,346) (2,543)
Proceeds from sales 9,796 2,049
Mortgage-backed securities:
Purchases (8,864) (1,916)
Proceeds from sales 2,268 9,674
Principal collected 3,975 1,850
Purchase of FHLB stock (12) (148)
Principal collected on loans 34,900 21,496
Loans originated, net (27,005) (35,108)
Purchases of premises and equipment (122) (122)
Purchase of other real estate (25) -
Net Cash Used In Investing Activities (435) (4,768)
Cash Flows from Financing Activities
Increase in savings, demand and NOW accounts, net 1,741 (64)
Decrease in certificate accounts, net (1,172) (2,544)
Proceeds from FHLB advances 9,000 24,750
Principal payments on FHLB advances (7,000) (19,000)
Purchase of treasury stock (14) (1,008)
Purchase of MDRP shares - (840)
Net Cash Provided By Financing Activities 2,555 1,294
Increase (decrease) in cash and cash equivalents 916 (2,866)
Cash and cash equivalents at beginning of period 5,014 7,060
Cash and Cash Equivalents at End of Period 5,930 4,194
See accompanying notes.
Eagle BancGroup, Inc.
Notes to Consolidated Financial Statements
1. Basis of Presentation
The unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and therefore do not include all information and disclosures required by
generally accepted accounting principles for complete financial statements.
All adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the periods reported, consisting only of normal
recurring adjustments, have been included in the accompanying consolidated
financial statements. Operating results for the three months ended March 31,
1998 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1997.
2. Earnings Per Share and Dividends
Basic earnings per share is computed by dividing net income for the period by
the weighted average number of shares outstanding of 1,096,075 and 1,177,649 for
the six months ended June 30, 1998 and 1997, respectively, and 1,097,217 and
1,155,788 for the three months ended June 30, 1998 and 1997, respectively.
Diluted earnings per share is computed by dividing net income for the period by
the weighted average number of common shares and common share equivalents
outstanding of 1,115,488 and 1,179,296 for the six months ended June 30, 1998
and 1997, respectively, and 1,123,054 and 1,157,980 for the three months ended
June 30, 1998 and 1997, respectively. Common share equivalents assume exercise
of stock instruments and use of proceeds to purchase treasury stock at the
average market price for the period. The Company has not yet paid any
dividends.
3. Comprehensive Income
The Company has adopted Statement of Financial Accounting Standards No. 130,
'Reporting Comprehensive Income' (SFAS 130) which requires disclosure of
comprehensive income in the financial statements. The Company has included this
disclosure in the statements of income. Comprehensive income consists of the
net income or loss of an entity plus or minus the change in equity of the entity
during the period from transactions, other events and circumstances resulting
from non-owner sources. The statements of income for the six and three months
ended June 30, 1997 have been restated to include disclosure of comprehensive
income for each period.
4. Year 2000
In the first six months of 1998, the Company continued efforts to verify that
its information systems are Year 2000 compliant. Certification of compliance of
the Company's in-house hardware is expected by the end of third quarter of 1998.
In the fourth quarter of 1998, the Company will begin a series of compliance
tests on its primary data provider. Planning for these tests commenced in the
second quarter of 1998. Contact with the Company's significant loan and
deposit customers will be initiated in the third quarter of 1998. Follow-up
contact with third party software providers continues as needed in order to
monitor their compliance efforts. The Company's information systems are very
dependent upon the performance of outside vendors. The Company will test and
monitor compliance as much as possible but cannot guarantee that all outside
vendors will become Year 2000 compliant. To date, costs associated with the
Y2K compliance effort have not been material.
Eagle BancGroup, Inc.
Item 2. Management's Discussion and Analysis
RESULTS OF OPERATIONS
GENERAL: Eagle BancGroup, Inc. (the 'Company') had net income of $202,000, or
$.19 per share, in the three months ended June 30, 1998 compared to $170,000,
or $.15 per share, in the three months ended June 30, 1997. In the six months
ended June 30, 1998, the Company had net income of $403,000, or $.37 per share,
compared to $296,000, or $.25 per share, in the same period in 1997. The
increase in net income in the 1998 periods over the 1997 periods is primarily
due to much higher gains on sales of residential mortgage loans in 1998.
NET INTEREST INCOME: Net interest income decreased to $1,052,000 in the second
quarter of 1998 from $1,100,000 in the second quarter of 1997 and decreased to
$2,088,000 in the first six months of 1998 from $2,111,000 in the first six
months of 1997. In the second quarter, interest income decreased to $3,104,000
in 1998 from $3,140,000 in 1997 while interest expense increased to $2,052,000
in 1998 from $2,040,000 in 1997. In the first six months, interest income
increased to $6,197,000 in 1998 from $6,114,000 in 1997 and interest expense
increased to $4,109,000 in 1998 from $4,003,000 in 1997. The decrease in net
interest income in both the three and six months ended June 30, 1998 compared
to the same periods in 1997 was due to a decrease in the interest rate spread,
which was 1.92% in both the three and six months ended June 30, 1998 compared
to 2.01% in the first six months of 1997 and 2.10% in the second quarter of
1997. The interest rate spread is calculated as the difference between the
yield on average interest earning assets and the cost of average interest
bearing liabilities.
The interest rate spread decreased due to several factors. In the first two
months of 1998, the Company took out $9,000,000 in Federal Home Loan Bank
advances, with an average cost of 4.93%, to prefund repayment of $7,000,000 in
FHLB advances, with an average cost of 6.11%, that matured in the second
quarter. In the interim, the advance proceeds were invested in short-term
securities that earned only a narrow spread over the cost of the advances, which
decreased the interest rate spread overall. In addition, the yield on average
loans decreased to 7.90% in the first half of 1998 from 8.08% in the same period
in 1997 and to 7.91% in the second quarter of 1998 from 8.17% in the second
quarter of 1997. While average loans increased to $120,229,000 in the first
half of 1998 from $113,693,000 in the first half of 1997 due to increased
originations of commercial loans, actual total loans decreased during 1998 from
$122,409,000 at December 31, 1997 to $116,109,000 at June 30, 1998. The
decrease in loan balances relates primarily to repayment of higher rate
residential mortgage loans in 1998 during a period of heavy refinancing
activity and resulted in the decrease in yields on average loans in 1998 from
1997.
Total average interest earning assets increased to $171,945,000 in the first
half of 1998 from $165,181,000 in the same period in 1997 and to $172,239,000
in the second quarter of 1998 from $166,370,000 in the second quarter of 1997
due to investment of the FHLB advance proceeds. Average interest bearing
liabilities increased to $155,067,000 in the first six months of 1998 from
$148,008,000 in the same period in 1997 and to $154,995,000 in the second
quarter of 1998 from $149,627,000 in the second quarter of 1997 due to the new
FHLB advances. The yield on average interest earning assets was 7.27% in the
first half of 1998 and 7.23% in the second quarter of 1998 compared to 7.46%
and 7.57%, respectively, in the same periods in 1997. The cost of average
interest bearing liabilities was 5.34% in the first six months of 1998 and
5.31% in the second quarter of 1998 compared to 5.45% and 5.47%, respectively,
in the same periods in 1997.
The decline in the cost of average interest bearing liabilities is due to the
decreased cost of FHLB advances and average deposits in 1998 from 1997. The
cost of average advances decreased to 5.52% in the first half of 1998 from 5.93%
in the first half of 1997 and to 5.41% in the second quarter of 1998 from 6.08%
in the second quarter of 1997. The cost of average deposits decreased due to a
shift in balances to lower yielding demand and savings deposits from time
deposits in 1998 from 1997. Average total deposits were $131,774,000 in the
first half of 1998 compared to $131,844,000 in the first half of 1997. Average
demand and savings deposits increased to $28,075,000 in the first half of 1998
from $24,507,000 in the same period in 1997 while average time deposits
decreased to $103,699,000 in the first half from $107,337,000 in the same
period in 1997. In the first half of both years, the cost of average time
deposits was 5.90% while the cost of average demand and savings deposits was
around 3.15%. Comparing the second quarters of both years was very similar as
average total deposits changed little but average demand and savings deposits
increased and average time deposits decreased resulting in the decrease in the
cost of average deposits in 1998 from 1997.
The net interest margin, net interest income divided by average interest earning
assets, also declined in both periods in 1998 from the same periods in 1997 due
to the decrease in the interest rate spread. In both the first half and second
quarter of 1998, the net interest margin was 2.45% compared to 2.56% in the
first half of 1997 and 2.65% in the second quarter of 1997.
All loans contractually past due 90 days or more at June 30, 1998 were
classified as non-accrual. Interest income on these loans is recognized only
upon cash payment and no interest income is accrued. In the first six months
of 1998, cash interest payments of $7,000 were included in interest income.
Had the loans not been past due 90 days or more, interest income of $13,000
would have accrued. Total non-accrual loans at June 30, 1998 were $239,000.
PROVISION FOR LOAN LOSS: In the first half of both 1998 and 1997, the provision
for loan losses was $120,000 and in the second quarter of both 1998 and 1997,
the provision for loan losses was $60,000. The provision is determined as the
amount necessary to maintain the allowance for loan losses at a level deemed
adequate to absorb estimated future losses inherent in the loan portfolio. The
allowance for loan losses was $959,000, or .82% of total loans, at June 30, 1998
compared to $935,000, or .76% of total loans, at December 31, 1997. Loans
amounting to $104,000 were charged against the allowance for loan losses in the
first six months of 1998 while $8,000 was added to the allowance for loan losses
due to recoveries of loans previously charged off.
NON-INTEREST INCOME: Due to the significant increase in gains on sales of
residential mortgage loans, non-interest income increased to $652,000 in the
first six months of 1998 from $260,000 in the same period in 1997 and to
$333,000 in the second quarter of 1998 from $161,000 in the second quarter of
1997. Gains on sales of residential mortgage loans were $483,000 in the first
half of 1998 compared to $31,000 in the first half of 1997. In the second
quarter, gains on sales of residential mortgage loans were $246,000 in 1998
compared to $14,000 in 1997. Proceeds from residential mortgage loan sales were
$39,193,000 in the first half of 1998 compared to $2,762,000 in the first half
of 1997. Other non-interest income decreased to $169,000 in the first half of
1998 from $229,000 in the same period in 1997 due to gains on sales of
securities, which were $62,000 in 1997 compared to $(4,000) in 1998. In the
second quarter, gains on sales of securities were $58,000 in 1997 compared to
$1,000 in 1998 resulting in a decrease in other non-interest income to $87,000
in 1998 from $147,000 in 1998.
NON-INTEREST EXPENSE: Non-interest expense increased to $1,984,000 in the
first half of 1997 from $1,803,000 in the first half of 1997 due primarily to
salaries and employee benefits expense, which was $1,135,000 in 1998 compared
to $992,000 in 1997. The increase in salaries and employee benefits expense is
primarily due to increased expense related to employee benefit plans in 1998
over 1997 as well as staff additions and other normal increases in employee
costs. Federal Deposit Insurance premiums increased to $41,000 in the first six
months of 1998 from $26,000 in the same period in 1997 due to a one time
premium rebate received in 1997. Other non-interest expense increased to
$392,000 in the first half of 1998 from $373,000 in the same period in 1997 due
to advertising expense, which increased $29,000 in the first half of 1998 from
the first half of 1997 due to higher radio advertising and public relations
expense in 1998 than 1997. As a percentage of average assets, non-interest
expense was 2.23% in the first half of 1998 compared to 2.10% in the first
half of 1997.
Non-interest expense increased to $1,000,000 in the second quarter of 1998 from
$944,000 in the second quarter of 1997 due to salaries and employee benefits
expense, which was $567,000 in the second quarter of 1998 and $513,000 in the
second quarter of 1997. The increase in 1998 over 1997 was due primarily to
higher expense related to employee benefit plans.
INCOME TAX EXPENSE: Due to increased income before tax, the provision for
income tax increased to $233,000 in the first half of 1998 from $152,000 in the
first half of 1997 and to $123,000 in the second quarter of 1998 from $87,000
in the second quarter of 1997. The effective tax rate for both periods in 1998
was 37% compared to 34% for both periods in 1997.
FINANCIAL CONDITION
At June 30, 1998, total assets were $174,085,000 compared to $171,137,000 at
December 31, 1997. Investment and mortgage-backed securities increased to
$46,017,000 at June 30, 1998 from $37,633,000 at December 31, 1998 due to
investment of funds received from sales of residential mortgage loans and FHLB
advance proceeds. Net loans decreased to $116,109,000 at June 30, 1998 from
$122,409,000 at December 31, 1997 as increased commercial real estate,
commercial and consumer loans were more than offset by decreased residential
mortgage loans. The decrease in residential mortgage loans was primarily due
to portfolio loans that were refinanced in the first six months of 1998 and
subsequently sold. Total deposits increased slightly to $132,019,000 at June
30, 1998 from $131,452,000 at December 31,1997 and FHLB advances increased to
$20,000,000 at June 30, 1998 from $18,000,000 at December 31, 1997.
Stockholders' equity increased to $20,976,000, or 12.0% of total assets, at
June 30, 1998 from $20,305,000, or 11.9% of total assets, at December 31, 1997
primarily due to net income in the first half of 1998. Book value per share
increased to $17.82 per share at June 30, 1998 from $17.24 per share at
December 31, 1997.
Savings institutions are required to maintain minimum capital levels measured by
three ratios: Risk-based capital to risk weighted assets ratio of 8.00%; Core
capital to tangible assets ratio of 3.00%; and Tangible core capital to adjusted
tangible assets ratio of 1.5%. The Company's savings institution subsidiary had
ratios of 17.04%, 10.07% and 10.07%, respectively, at June 30, 1998 compared to
16.30%, 9.99% and 9.99%, respectively, at December 31, 1997.
Savings institutions are also required to maintain a minimum 4% liquidity ratio
measured as the ratio of cash, cash equivalents, short-term investments and
certain long-term investments to deposits and certain borrowed funds. The
Company's savings institution subsidiary had liquidity ratios of 14.37% and
12.07% at June 30, 1998 and December 31, 1997, respectively.
At June 30, 1998, funds committed for loan originations and loans in process
totaled $5,471,000 and unused lines of credit totaled $3,675,000. Cash and cash
equivalents, scheduled principal and interest payments on loans, mortgage-backed
and investment securities, new deposits and borrowed funds are sources of funds
used to meet these commitments. Funds are primarily invested in residential
mortgage, commercial, commercial real estate and consumer loans and investment
and mortgage-backed securities and are also used for deposit interest payments,
maturities and withdrawals.
Eagle BancGroup, Inc.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its annual meeting on April 15, 1998.
(b) The following directors were elected to a three-year (expiring to 2001)
term:
Donald L. Fernandes
Steven J. Wannemacher
David R. Wampler
Directors whose term in office continued after the meeting are as follows:
Robert P. Dole (term expires in 1999)
Louis F. Ulbrich (term expires in 1999)
Gerald A. Bradley (term expires in 2000)
William J. Hanfland (term expires in 2000)
(c) The voting results of the director elections were as follows:
A total of 1,030,493 shares, representing 87.5% of total outstanding shares,
were present in person or by proxy at the meeting.
Each director received 1,007,468 votes for election, representing 97.8% of
votes cast, with 23,025 votes withheld for each, representing 2.2% of votes
cast. The voting results were identical for all three directors.
No other matters were submitted to a vote of shareholders.
(d) not applicable
Item 6. Exhibits and Reports on Form 8-K
Eagle BancGroup, Inc. did not file any reports on Form 8-K during the three
months ended June 30, 1998.
The following exhibits are included herein:
(27) - Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATE: August 10, 1998 /s/ Gerald A. Bradley
---------------------
GERALD A. BRADLEY
Chairman of the Board
DATE: August 10, 1998 /s/ Donald L. Fernandes
-----------------------
DONALD L. FERNANDES
President and Chief Executive Officer