10-Q/A 1 g69803e10-qa.txt EAGLE BANCSHARES, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QA [x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2000 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act OF 1934 Commission file number 0-14379 EAGLE BANCSHARES, INC. Incorporated in the State of Georgia IRS Employer Identification Number 58-1640222 Address: 4419 Cowan Road, Tucker, Georgia 30084-4441 Telephone: (770) 908-6690 Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Common stock, par value $1.00, which is listed on the Nasdaq National Market 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 Exchange 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 Applicable Only To Issuers Involved In Bankruptcy Proceedings During The Preceding Five Years: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No Not Applicable ---- ---- 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. Class: Common Stock, $1.00 Par Value Shares Outstanding at October 31, 2000: 5,637,135 Index of Exhibits on Page 38 2 EAGLE BANCSHARES, INC. AND SUBSIDIARIES FORM 10-QA FOR THE QUARTER ENDED SEPTEMBER 30, 2000 TABLE OF CONTENTS

2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS EAGLE BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)

3 4 EAGLE BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

4 5 EAGLE BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

5 6 EAGLE BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (Unaudited)

6 7 Eagle Bancshares, Inc. and Subsidiaries Notes to Interim Unaudited Consolidated Financial Statements September 30, 2000 A. Corporate Profile Eagle Bancshares, Inc. (the "Company") is a unitary savings and loan holding company engaged in community banking, mortgage banking, real estate development and sales, and mezzanine financing. The Company has three subsidiaries, Tucker Federal Bank (the "Bank"), Eagle Real Estate Advisors, Inc. ("EREA") and Eagle Bancshares Capital Group, Inc. ("EBCG"). Additionally, the Company invests in real estate through limited liability companies and consolidates these affiliates when at least a 50% equity ownership interest exists. B. Basis of Presentation: The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for preparation of the Securities and Exchange Commission Form 10-Q. Accordingly, they do not include all of the information and disclosures required for fair presentation in accordance with generally accepted accounting principles. These financial statements should therefore be read in conjunction with management's discussion and analysis of financial condition and results of operations included in this report and the complete annual report for the year ended March 31, 2000, which has been filed with the Company's most recent Form 10-K. In the opinion of management, all eliminations and normal recurring adjustments considered necessary for fair presentation have been included. Operating results for the six month period ended September 30, 2000, are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2001. C. Reclassification of Prior Period Amounts: Certain reclassifications have been made in the Company's financial statements for the prior fiscal period to conform to the classifications used in the financial statements for the current fiscal period. D. Restatement of Certain Amounts In the quarter ended June 30, 2000, the Company accrued $1,142,000 in pre-tax charges related to exiting its wholesale mortgage operations. As a result of an accounting only review performed by the Securities and Exchange Commission, the Company has agreed to adjust the recognition of charges between the first three quarters of the Company's fiscal year 2001. The Company is also adjusting the balance sheet value of fixed assets related to the wholesale mortgage business to recognize the impairment of the assets at June 30, 2000. The anticipated impairment of fixed assets at the time of sale had been accrued in June 2000 with the balance sheet to be adjusted at the time of the sale. This amendment reflects an adjustment to the timing of the recognition of expenses associated with the sale of the wholesale mortgage business, which occurred on December 29, 2000. There is no net effect on annual earnings resulting from the amendment. 7 8 The following tables reflect the original numbers as reported and as adjusted for the periods stated (dollars in thousands except per share data):

E. Disposal of Wholesale Lending Group In May 2000, after considering among other things, the historical profitability, trends in technology, declining margins, business prospects and exit costs, the Board of Directors authorized management to execute a detailed plan to exit the wholesale mortgage operation. This plan included informing personnel, retaining advisors, and determining the cost to dispose of the operation. . In July, a buyer, e-jumbo.com ("e-jumbo") was identified and negotiations for the sale of this division were finalized. Because of this process, the Company determined that a loss would be incurred in exiting this business line. The Company estimated costs associated with the disposition of this line of business and accrued for those costs in the June quarter as the June close process was being completed. On July 27 the Company received a letter agreement with proposed acquisition terms from e-jumbo. The letter agreement provided for e-jumbo to assume the responsibility for lease payments on the space occupied by the wholesale mortgage group in Ponte Vedre, Florida and payment of $90,000 for the fixed assets utilized by the division, including such items as computers, desks, the telephone system, etc. This contract provides for a closing by August 18, 2000, contingent upon final negotiation of a Purchase and Sale Agreement that is satisfactory to both parties. 8 9 During the quarter ended June 30, 2000, the Company recorded $1,002,000 in pre-tax charges related to exiting its wholesale mortgage operation. These charges included accruals of $135,000 in severance costs and $388,000 in contract termination fees. Following the approval of the exit plan at the Board of Directors meeting in May, management in the wholesale mortgage operation was notified. The Company entered into a separate agreement with one manager that provided terms for payment of an amount that approximated the pay out due under the manager's employment agreement. The accrual for contract termination fees includes remaining payments due on contracts, or contract cancellation payments, related to building leases, data processing and telecommunications. The contracts will have no future benefit to the Company upon disposal of the wholesale lending group. In addition, as a result of this plan, the Company evaluated the fixed assets to be disposed of and it was determined these assets had a book value of $569,000 and a fair value of $90,000. In accordance with SFAS 121, these fixed assets were written-down to their fair value during the June quarter and $479,000 in asset impairment costs was recorded On October 6, 2000, e-Jumbo terminated the agreement because they were unable to arrange necessary financing. Currently management is negotiating the sale of the operation to other purchasers; however, there are no binding agreements for such sale at this time. Therefore, the Company reversed the accrual of $523,000 at the end of September 2000. During the quarter ended September 30, 2000, Company recorded expenses of $198,000 in connection with the disposal of the wholesale lending group. These expenses included $148,000 in contract termination fees and $50,000 in transaction costs. For the six months ended September 30, 2000, charges related to the disposal of the wholesale lending group were $677,000, after the reversal of the $523,000 in related accruals recorded in the June 30, 2000 quarter. The following table shows the reconciliation of charges related to the disposal of the wholesale lending group as of September 30, 2000:

F. Computation Of Per Share Earnings Basic earnings per share are calculated with the weighted average number of common shares outstanding during each period. Diluted earnings per common share are based on the weighted average number of common shares outstanding during each period, plus common share equivalents calculated for stock options and restricted stock outstanding using the treasury stock method. In the calculation of basic and diluted earnings per share, net income is identical. Below is a reconciliation for the three month periods ended September 30, 2000 and 1999, of the difference between average basic common shares outstanding and average diluted common shares outstanding. 9 10

Below is a reconciliation for the six month periods ended September 30, 2000 and 1999, of the difference between average basic common shares outstanding and average diluted common shares outstanding.

G. Accumulated Other Comprehensive Income SFAS No. 130, "Reporting Comprehensive Income," establishes standards for the reporting and displaying of other comprehensive income. Comprehensive income is defined as the change in equity from all transactions other than those with stockholders. Other comprehensive income includes the change in net unrealized gains or losses on certain debt and equity securities, foreign currency transactions, and minimum pension liability adjustments. The Company's comprehensive income consists of net income and unrealized gains and losses on securities available for sale, net of income taxes. 10 11 Comprehensive income for the three and six month period ended September 30, 2000 and 1999 is calculated as follows:

H. Industry Segments SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," requires disclosure of certain information related to the Company's reportable operating segments. The reportable operating segments were determined based on management's internal reporting approach. The reportable segments consist of: community banking, mortgage banking, real estate development and sales, and mezzanine financing. The community banking segment offers a wide array of banking services to individual and corporate customers through 15 branch offices and over the Internet. The Company earns interest income from loans made to customers and interest and dividend income from investments in certain debt and equity securities. The community-banking segment also recognizes fees related to deposit services, lending, and other services provided to customers. The mortgage-banking segment originates residential mortgage loans through community bank branches, retail loan production offices and over the Internet. During the quarter, the Company purchased residential mortgage loans from correspondents through a wholesale lending operation. The mortgage-banking segment generates revenues through origination and processing fees, interest on residential mortgage loans and selling substantially all of the servicing rights for fixed rate residential mortgage loans to investors. The real estate development and sales segment performs real estate development activities in the Atlanta metropolitan area by investing in and developing land for residential subdivisions as well as by developing residential condominiums. The real estate development and sales segment also provides third party brokerage services for the Bank and for unaffiliated third parties. The mezzanine financing segment provides mezzanine financing to small- and medium-sized businesses that is not readily available from traditional commercial banking sources. The mezzanine financing segment generates revenues through interest, fees on loans and equity participation arrangements. No transactions with a single customer contributed 10% or more to the Company's total revenue. 11 12 The results for each reportable segment are included in the following table:

12 13 The results for each reportable segment are included in the following table:

13 14 I. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. This statement could increase volatility in earnings and other comprehensive income. Adoption of this statement is not expected to have a material impact on the Company's financial position or results of operation. In June 1999, the FASB issued SFAS No.137,"Accounting for Derivative Instruments and Hedging Activities - Deferral of Effective Date of FASB Statement No. 133", deferring the effective date of FASB Statement No. 133 to all fiscal quarters of fiscal years beginning after June 15, 2000. In June 2000, SFAS No. 133 was amended by SFAS No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging Activities". SFAS No. 138 addresses a limited number of issues causing implementation difficulties for numerous entities that apply SFAS No. 133. J. Treasury Stock During the quarter ended September 30, 1999, the Company's Board of Directors approved a stock repurchase program. The plan authorized the Company to purchase up to 300,000 shares of its common stock on the open market. As of March 31, 2000, the Company had repurchased 300,000 shares with a cost of approximately $5,410,000. K. Real Estate Investment Trust On April 30, 1999, TFB Management, Inc., TFB Management (NC), Inc., and TFB Management (RE), Inc., were incorporated as Delaware corporations. The Bank is the 100% owner of TFB Management, Inc., which is the 100% owner of TFB Management (NC), Inc., which is the 100% owner of TFB Management (RE), Inc. TFB Management (RE), Inc. was formed to qualify as a Real Estate Investment Trust ("REIT") under the Internal Revenue Code. This three-tier structure was utilized to reduce the Company's effective tax rate. L. A Warning About Forward-Looking Information This filing contains forward-looking statements. We may also make written forward-looking statements in our periodic reports to the Securities and Exchange Commission, in our proxy statements, in our offering circulars and prospectuses, in press releases and other written materials and in oral statements made by our officers, directors or employees to third parties. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. These statements are based on beliefs and assumptions of management and on information currently available to such management. Forward-looking statements include statements preceded by, followed by or that include the words "believes," "expects," "plans," "estimates" or similar expressions. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited to, the following: competitive pressures among depository and other financial institutions may increase significantly; changes in the interest rate environment may reduce margins; general economic or business conditions may lead to a 14 15 deterioration in credit quality or a reduced demand for credit; legislative or regulatory changes, including changes in accounting standards, may adversely affect the business in which the Company is engaged; changes may occur in the securities markets; and competitors of the Company may have greater financial resources and develop products that enable such competitors to compete more successfully than the Company. Management believes these forward-looking statements are reasonable; however, undue reliance should not be placed on such forward-looking statements, which are based on current expectations. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. The future results and shareholder values of the Company may differ materially form those expressed in the forward-looking statements contained in this report. Many of the factors that will determine these results and values are beyond the Company's ability to control or predict. 15 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SUMMARY FINANCIAL DATA

16 17 Overview The Company's net income for the quarter ended September 30, 2000, was $2,353,000 or $0.41 per diluted share, compared with $2,247,000 or $0.40 per diluted share for the same quarter last year. Net income for the current six month period decreased $1,546,000 or 32.98% to $3,142,000 or $0.55 per diluted share, compared to $4,688,000 or $0.84 per diluted share for the same period last year. The decrease is primarily attributable to one time charges associated with exiting the wholesale mortgage operation and a decline in mortgage production fees. Of the total $2,353,000 in net income or $0.41 per diluted share, the community banking operation accounted for $1,834,000 or $0.32 per diluted share; Eagle Real Estate Advisors, the real estate development and sales business, comprised $1,074,000 or $0.19 per diluted share; Eagle Bancshares Capital Group, the mezzanine financing unit, contributed $176,000 or $0.03 per diluted share; and Prime Eagle Mortgage Corporation, the mortgage banking group, accounted for a loss of $545,000 or $0.10 per diluted share. Other operations accounted for a loss of $186,000 or $0.03 per diluted share. Segment Discussion Mortgage Banking For the quarter ended September 30, 2000, the Company's mortgage banking operations resulted in losses of $545,000 or $0.10 per diluted share compared to losses of $1,694,000 or $0.30 per diluted share for the same quarter last year. For the six months ended September 30, 2000 the Company's mortgage banking activities resulted in losses of $1,941,000, compared with $2,544,000, in the same period a year ago. . After removing the effect of the $198,000 charge related to the sale of the wholesale mortgage division the loss for the quarter would have been $416,000 or $0.07 per diluted share and without the $677,000 related charge for the six months would have been $1,501,000 or $0.26 per diluted share. The Company entered into an agreement to sell its wholesale mortgage banking operation to e-Jumbo.com, based in Boston, Massachusetts. On October 6, 2000, e-Jumbo.com terminated the agreement because they were unable to secure financing to support the business. Management is currently negotiating to sell the division to other purchasers, however, no definitive agreements have been signed. The sale of the wholesale group will allow management to concentrate on building the Company's community banking franchise in Atlanta as well as its Internet banking business. The sale of the Company's wholesale mortgage banking group is a part of the strategy to exit commodity businesses. The Company's strategy for mortgage banking includes negotiating strategic alliances to reduce fixed expenses and interest rate risk associated with the origination and sale of mortgage loans. Community Banking For the quarter ended September 30, 2000, the Company's community banking operations resulted in income of $1,834,000 or $0.32 per diluted share versus income of $3,447,000 or $0.61 per diluted share, for the same quarter one year ago. For the six months ended September 30, 2000, the Company's community banking activities resulted in income of $3,857,000, compared with $5,627,000 in the same period a year ago. The decline in earnings for the September 2000 quarter compared to the September 1999 quarter is primarily due to the gain on the sale of the Towne Lake Branch and related deposits resulting in a before tax gain of $673,000 in the prior year as well as an increase in non-interest expense of $5,414,000 for the September 2000 quarter from $3,854,000 for the same quarter last year. Net interest income, after provision, declined to $8,430,000 for the September 2000 quarter from $8,766,000 for the September 1999 quarter and the Bank's efficiency ratio declined to 17 18 68.87% from 52.27%. The Bank's salaries and employee benefits increased to $3,171,000 for the September 2000 quarter from $2,431,000 for the same quarter one year ago. This was attributable to the reversal of certain bonus accruals in the September 1999 quarter. The Bank effected a reorganization in May 2000 to retool the Company for the new economy. The Bank's current combination of high-tech and high-touch financial solutions position Eagle to grow market share in Atlanta while unlocking the potential of e-commerce business. The Bank is co-branding Tucker Federal Bank and justrightbank.com to be Atlanta's click-and-mortar bank. Management will continue to emphasize cash management and its focus on being the bank of choice for small businesses. As trusted agents, Tucker Federal Bank ("TFB") and justrightbank.com ("JRB") will utilize NextBill.com's electronic bill presentment and payment software to help their customers make the transition from paper to electronic billing. Real Estate Development and Sales For the quarter ended September 30, 2000, Eagle Real Estate Advisors generated income of $1,074,000 or $0.19 per diluted share versus income of $552,000 or $0.10 per diluted share for the same quarter last year. For the six months ended September 30, 2000, Eagle Real Estate Advisors generated income of $1,339,000 compared with $1,700,000 in the same period a year ago. In the September 2000 quarter gains on the sale of investment in real estate were $2,383,000 versus $1,176,000 for the September 1999 quarter. Lot sales for the September 2000 quarter numbered 120 compared to 73 in the same quarter last year. Mezzanine Financing For the quarter ended September 30, 2000, Eagle Bancshares Capital Group generated income of $176,000 or $0.03 per diluted share, versus income of $238,000 or $0.04 per diluted share for the same quarter last year. For the six months ended September 30, 2000, Eagle Bancshares Capital Group generated income of $343,000 compared with $470,000 in the same period a year ago. The decline is principally due to accounting for the Company's ownership in NextBill.com using the equity method and recognizing a loss of $280,000 and $628,000 for the quarter and six months ended September 30, 2000. NextBill.com is a company that provides electronic bill presentment and payment services. Eagle Bancshares Capital Group owns $3,000,000 of NextBill.com Series A preferred stock at September 30, 2000 and has warrants to purchase 1,300,000 shares of common stock in NextBill.com, Inc. which would give Eagle Bancshares Capital Group a 60% fully diluted ownership interest. At September 30, 2000, NextBill.com has 700,000 common shares issued and outstanding. Eagle Bancshares Capital Group has made no subsequent investments in NextBill.com since its initial investment in the quarter ended March 31, 2000. EARNINGS ANALYSIS INTEREST RATE AND MARKET RISK The normal course of business activity exposes the Company to interest rate risk. Interest rate risk is managed within an overall asset and liability framework for the Company. The principal objectives of asset and liability management are to guide the sensitivity of net interest spreads to potential changes in interest rates and to enhance profitability in ways that promise sufficient reward for recognized and controlled risk. Funding positions are kept within predetermined limits designed to ensure that risk-taking is not excessive and that liquidity is properly managed. The Company employs sensitivity analysis in the form of a net interest income simulation to help characterize the market risk arising from changes in interest rates. In addition, fluctuations in interest rates usually result in changes in the fair market value of the Company's financial instruments, cash flows and net interest income. The Company's interest rate risk position is managed by the Asset Liability Committee ("ALCO"). ALCO's 18 19 objective is to optimize the Company's financial position, liquidity and net interest income, while remaining within the Board of Director's approved interest rate risk limits. The Company uses a simulation modeling process to measure interest rate risk and evaluate potential strategies. The Company's net interest income simulation includes all financial assets and liabilities. This simulation measures both the term risk and basis risk in the Company's asset and liabilities. The simulation also captures the option characteristics of products, such as caps and floors on floating rate loans, the right to pre-pay mortgage loans without penalty and the ability of customers to withdraw deposits on demand. These options are modeled through the use of primarily historical customer behavior and statistical analysis. These simulations incorporate assumptions regarding balance sheet growth, asset and liability mix, pricing and maturity characteristics of the existing and projected balance sheets. Other interest rate-related risks such as prepayment, basis and option risk are also considered. Simulation results quantify interest rate risk under various interest rate scenarios. Management then develops and implements appropriate strategies. The Board of Directors regularly reviews the overall interest rate risk position and asset and liability management strategies. The Company uses four standard scenarios - rates unchanged, expected rates, rising rates, and declining rates - in analyzing interest rate sensitivity. The expected scenario is based on the Company's projected future interest rates, while the rising and declining rate scenarios cover a 200 basis point upward and downward rate ramp. The Company closely monitors each scenario to manage interest rate risk. Management estimates the Company's annual net interest income would increase approximately $506,652 or 1.64%, and decrease approximately $851,109 or 2.76% in the rising and declining rate scenarios, respectively, versus the projection under unchanged rates. A fair market value analysis of the Company's balance sheet calculated under an instantaneous 100 basis point increase in rates over September 30, 2000, estimates an $11,834,000 or 11.51% decrease in market value. The Company estimates a like decrease in rates would increase market value $5,385,000 or 5.24%. These changes in market value represent less than 5.0% of the total carrying value of total assets at quarter-end. These simulated computations should not be relied upon as indicative of actual future results. Further, the computations do not contemplate certain actions that management may undertake in response to future changes in interest rates. In fiscal 2001, the Company will continue to face term risk and basis risk and may be confronted with several risk scenarios. If interest rates rise, net interest income may actually increase, if deposit rates lag increases in market rates. The Company could, however, experience significant pressure on net interest income if there is a substantial increase in deposit rates relative to market rates. A declining interest rate environment might result in a decrease in loan rates, while deposit rates remain relatively stable which could also create significant risk to net interest income. Net Interest Income - Quarterly Analysis Net interest income increased by $554,000 or 6.50% to $9,071,000 in the quarter ended September 30, 2000, from $8,517,000 for the same quarter last year. The net interest spread (the difference between the yield earned on interest-earning assets and the cost of interest-bearing liabilities) increased 6 basis points to 2.93% from 2.87% in the same period last year. The yield on interest-earning assets increased 70 basis points to 8.42% from 7.72% while the cost of interest-bearing liabilities increased 64 basis points to 5.49% from 4.85%. Interest income received on loans increased $2,932,000 or 17.30% to $19,880,000 for the quarter ended September 30, 2000, from $16,948,000 for the same quarter last year. The increase in interest received on loans was primarily attributable to an increase in the yield on loans during the 19 20 quarter ended September 30, 2000. The yield on loans increased 88 basis points to 8.91% for the September 2000 quarter compared to 8.03% in the same quarter last year. Interest received on mortgage-backed securities increased $355,000 or 16.50% to $2,506,000 for the quarter ended September 30, 2000, from $2,151,000 in the same quarter last year. Interest received on securities increased $81,000 or 3.46% to $2,421,000 for the September 2000 quarter from $2,340,000 in the same quarter last year. Interest expense increased $2,814,000 or 21.78% to $15,736,000 for the September 2000 quarter from $12,922,000 in the same quarter last year. This is primarily the result of an increase in the cost of the Company's interest-bearing liabilities coupled with an increase in deposits. Interest expense on deposits increased $2,014,000 or 22.75% to $10,865,000 from $8,851,000 in the same period in the prior year. The cost of deposits increased 89 basis points to 5.60% during the quarter from 4.71% in the prior year. Interest expense on FHLB advances and other borrowings increased $800,000 or 23.20% to $4,248,000 for the September 2000 quarter from $3,448,000 in the September 1999 quarter. The Bank's cost of FHLB advances and other borrowings increased 15 basis points to 4.99% from 4.84% in the same period in the prior year. The Bank utilizes short term FHLB advances to fund construction loans and loans held for sale. Interest expense on trust preferred securities was $623,000 for the September 2000 and 1999 quarters. Net Interest Income - Six Month Analysis Net interest income increased by $1,780,000 or 10.68% to $18,452,000 during the six months ended September 30, 2000, from $16,672,000 for the same period last year. The net interest spread (the difference between the yield earned on interest-earning assets and the cost of interest-bearing liabilities) increased 14 basis points to 2.98% from 2.84% in the same period last year. The improvement is primarily attributable to the increase in the yield on interest-earning assets resulting from a change in the loan mix. The yield on interest-earning assets increased 64 basis points to 8.35% from 7.71% while the cost of interest-bearing liabilities increased 50 basis points to 5.37% from 4.87%. Interest income received on loans increased $5,164,000 or 15.29% to $38,929,000 for the six months ended September 30, 2000, from $33,765,000 for the same period last year. The increase in interest received on loans was primarily attributable to an increase in originations of higher yielding loans. The yield on loans increased 80 basis points to 8.83% for the six months compared to 8.03% in the same period last year. Interest received on mortgage-backed securities increased $829,000 or 19.87% to $5,002,000 for the six months ended September 30, 2000 from $4,173,000 in the same period one year ago. Interest received on securities increased $42,000 or 0.87% to $4,869,000 in the September 2000 quarter from $4,827,000 in the prior period. Interest expense increased $4,255,000 or 16.31% to $30,348,000 for the six months ended September 30, 2000, from $26,093,000 in the same period one year ago. This is primarily the result of an increase in the cost of the Company's interest-bearing liabilities. Interest expense on deposits increased $1,828,000 or 9.87% to $20,348,000 from $18,520,000 in the same period in the prior year. The cost of deposits increased 65 basis points to 5.41% during the period from 4.76% in the prior period. Interest expense on FHLB advances and other borrowings increased $2,427,000 or 38.35% to $8,755,000 for the September 2000 quarter from $6,328,000 in the same period last year. The Bank's cost of FHLB advances and other borrowings increased 22 basis points to 5.01% from 4.79% in the same period in the prior year. The Bank utilizes short term FHLB advances to fund construction loans and loans held for sale. Interest expense on trust preferred securities was $1,245,000 for the six months ended September 30, 2000 and 1999. 20 21 The following tables reflect the average balances, the interest income or expense and the average yield and cost of funds of the Company's interest earning assets and interest bearing liabilities during the quarter and six months ended September 30, 2000 and 1999: AVERAGE BALANCE SHEET

(1)Non-accrual loans are included in average balances and income on such loans, if recognized, is recorded on a cash basis. (2)The yield for investment securities classified for sale is computed using historical amortized cost balances. Non-Interest Income Non-interest income increased by $397,000 or 8.62% to $5,001,000 for the quarter ended September 30, 2000, from $4,604,000 for the same period last year. Non-interest income decreased by $3,403,000 or 28.09% to $8,710,000 for the six months ended September 30, 2000, from $12,113,000 for the same period last year. Mortgage production fees have traditionally been the largest component of non-interest income and such fees for the September 2000 quarter decreased $139,000 or 9.52% to $1,321,000 compared to $1,460,000 in the same period last year. For the six months ended September 30, 2000, mortgage production fees decreased $1,680,000 or 39.60% to $2,562,000 compared to $4,242,000 for the same period last year. The decrease is primarily due to a decline in the volume of loans sold in secondary market. The volume of loans sold in the secondary market decreased by $333,862,000 or 56.97% to $252,141,000 during the six months ended September 30, 2000, from $586,003,000 during the same period last year. The dollar amount of loans originated and sold fluctuates based on the demand for mortgages in the Company's market. The margin received on loan sales fluctuates due to changes in the general interest rate environment. 22 23 The following table shows mortgage production fees, the dollar amount of permanent mortgage loans sold in the secondary market and the margin earned on those loans for the periods indicated:

Non-interest income generated from the Company's real estate subsidiary, Eagle Real Estate Advisors includes gains on the sale of real estate and real estate commissions. Revenues from these sources increased by $1,264,000 or 91.66% to $2,643,000 for the quarter ended September 30, 2000, compared to $1,379,000 for the same period last year. Gain on the sales of real estate and real estate commissions increased $248,000 or 6.53% to $4,047,000 for the six months ended September 30, 2000, compared to $3,799,000 for the same period last year. In the quarter ended September 30, 2000, $811,000 is attributable to the sale of 2.069 acres that were purchased in January 2000 and resold on September 29, 2000. Additionally, $544,000 is attributable to the sale of 6.15 acres that were purchased in January 2000 and resold on September 27, 2000. In the quarter ended June 30, 1999, $1,268,000 is attributable to the sale of the Company's Barnes and Noble Store. In the quarter ended September 30, 1999, $495,000 is attributable to the sale of 50.103 acres purchased and resold in August 1999. In addition, during the September 2000 quarter, 120 lots were sold compared to 73 lots in the same quarter last year. For the six months ended September 30, 2000, 174 lots were sold compared to 112 lots for the same period last year. Service charges increased $307,000 or 58.25% to $834,000 in the quarter ended September 30, 2000, compared to $527,000 in the same period one year ago. In addition, for the six months ended September 30, 2000, service charges increased $495,000 or 43.50% to $1,633,000 compared to $1,138,000 for the same period last year. The increase in service fees is attributable to the introduction of new deposit products by the Bank that are designed to increase fees received from service charges. In the quarter ended March 31, 2000, the Company made a strategic investment in an electronic bill presentment and payment ("EBPP") company, NextBill.com. It is the Company's intention to participate in the EBPP marketplace through its ownership in NextBill.com and services offered by its Internet site justrightbank.com. During the quarter ended September 30, 2000, the Company recorded a loss of $280,000 in connection with its investment in NextBill.com. Additionally, for the six months ended September 30, 2000, the Company recorded a loss of $628,000 in connection with its investment. Gains on sales of fixed assets decreased $122,000 or 69.32% to $54,000 during the quarter ended September 30, 2000, from $176,000 for the same period last year. During the six months ended September 30, 2000, gains on sales of fixed assets decreased $124,000 or 70.45% to $52,000 from $176,000 during the same period one year ago. Gains on sales of real estate acquired in settlement of loans decreased $74,000 or 74.75% to $25,000 in the September 2000 quarter from $99,000 during the same period one year ago. For the six months ended September 30, 2000 gains on sales of real estate acquired in settlement of loans decreased $109,000 or 81.34% to $25,000 from $134,000 during the same period one year ago. Miscellaneous non-interest income decreased $347,000 or 46.21% to $404,000 during the quarter ended September 30, 2000, from $751,000 for the same period last year. Miscellaneous non-interest income decreased $179,000 or 14.94% to $1,019,000 during the six months ended September 30, 2000, from $1,198,000 during the same period one year ago. 23 24 On September 25, 2000, the Company sold its branch location on Memorial Drive in DeKalb, County. The sale of the Memorial Drive branch location generated a gain of $59,000. The Company closed the Memorial Drive branch on June 30, 1999. On June 30, 1999, the Company sold its Towne Lake branch in Cherokee County. The sale of the Towne Lake deposits of $11,589,000 and branch location generated a gain of $673,000. Non-Interest Expense Non-interest expense increased by $161,000 or 1.65% to $9,896,000 for the quarter ended September 30, 2000, from $9,735,000 for the same period last year. In addition, for the six months ended September 30, 2000, non-interest expense increased $296,000 or 1.41% to $21,346,000 from $21,050,000 for the same period last year. Salaries and employee benefits decreased $129,000 or 2.63% to $4,778,000 for the quarter ended September 30, 2000, from $4,907,000 for the same period last year. For the six months ended September 30, 2000, salaries and employee benefits decreased $1,459,000 or 13.22% to $9,575,000 from $11,034,000 for the same period one year ago. This decrease is due to the Company's continuing strategic efforts to improve efficiency through a reduction of force. Occupancy expense decreased $223,000 or 14.83% to $1,281,000 in the quarter ended September 30, 2000, from $1,504,000 for the same period last year as a result of the sale of properties. Occupancy expense decreased $410,000 or 13.55% to $2,616,000 in the six months ended September 30, 2000, from $3,026,000 for the same period last year. Data processing expenses increased $53,000 or 7.59% to $751,000 in the quarter ended September 30, 2000, from $698,000 for the same period last year. During the six months ended September 30, 2000, data processing expense increased $171,000 or 12.53% to $1,536,000 from $1,365,000 for the same period one year ago. This increase is primarily attributable to enhancements associated with the Bank's Internet site, justrightbank.com and electronic banking services. Marketing expense increased $171,000 or 39.77% to $601,000 for the quarter ended September 30, 2000, from $430,000 for the same period last year. Marketing expense increased $138,000 or 12.56% to $1,237,000 for the six months ended September 30, 2000, from $1,099,000 for the same period one year ago. Professional services expense increased $574,000 or 141.38% to $980,000 in the quarter ended September 30, 2000, from $406,000 in the same period last year. During the six months ended September 30, 2000, professional services expense increased $1,049,000 or 125.48% to $1,885,000 from $836,000 during the same period last year. This increase is largely attributable to legal expenses incurred in connection with the Prime lawsuits. During the first quarter of fiscal 2001, the Company recorded $523,000 in pre-tax charges related to the exiting from its wholesale mortgage operation. These charges included severance related accruals and certain contract termination fees. In addition, as a result of this plan, the Company identified fixed assets with a book value of $569,000 and a fair value of $90,000. In accordance with SFAS 121, these fixed assets were written-down to their fair value during the June quarter. On October 6, 2000, e-Jumbo terminated the agreement because they were unable to arrange necessary financing. Currently management is negotiating the sale of the operation to other purchasers; however, there are no binding agreements for such sale at this time. Therefore, the Company reversed the accrual of $523,000 at the end of September 2000. During the quarter ended September 30, 2000, Company recorded expenses of $198,000 in connection with the disposal of the wholesale lending group. These expenses included $148,000 in contract termination fees and $50,000 in transaction costs. Miscellaneous expenses increased $48,000 or 2.85% to $1,732,000 for the quarter ended September 30, 2000, from $1,684,000 for the same period last year. For the six months ended September 30, 2000, miscellaneous expense increased $282,000 or 8.29% to $3,685,000 from $3,403,000 for the same period last year. 24 25 BALANCE SHEET ANALYSIS Investment Securities During the six months ended September 30, 2000, investment securities decreased to $270,881,000 from $271,808,000 at March 31, 2000 and increased from $266,380,000 at September 30, 1999, respectively. The Company classifies its securities in one of three categories: trading, available for sale, or held to maturity. The Company reports the effect of the change in fair value of securities classified as available for sale as a separate component of equity, net of income taxes. The Company has no trading securities. The investment securities portfolio at September 30, 2000, was comprised of $56,565,000 of investment securities held to maturity at amortized cost compared to $61,164,000 and $64,522,000 at March 31, 2000 and September 30, 1999, respectively. The Company has the ability and it is management's intent to hold these securities to maturity for investment purposes. In addition, investment securities available for sale had an estimated market value of $214,316,000 at September 30, 2000 compared to $210,644,000 and $201,858,000 at March 31, 2000 and September 30, 1999, respectively. Securities available for sale had a net unrealized loss as shown in the Company's stockholders' equity section of $5,643,000 at September 30, 2000 versus a net unrealized loss of $7,477,000 at March 31, 2000 and $4,623,000 at September 30, 1999. The Company holds no investment securities by any single issuer, other than those issued by an agency of the United States government, which equaled or exceeded 10% of stockholders' equity at September 30, 2000, March 31, 2000 or September 30, 1999. The following table reflects securities held in the Bank's securities portfolio for the periods indicated: INVESTMENT SECURITIES

25 26 Loan Portfolio and Concentration

The loan portfolio increased $10,796,000 or 1.38% to $791,670,000 at September 30, 2000, compared to $780,874,000 at March 31, 2000 and $125,898,000 or 18.91% compared to $665,772,000 at September 30, 1999. The majority of loan growth from September 30, 1999 was in construction loans, acquisition and development loans, residential first mortgages, non-residential real estate loans and home equity loans. The community banking group originates primarily construction and acquisition and development loans, non-residential real estate mortgages, commercial, consumer and home equity and second mortgage loans in the metro Atlanta area. Additionally, EBCG has invested $19,382,000 as of September 30, 2000, in mezzanine financing loans. These loan categories increased $11,062,000 or 1.85% to $609,743,000 at September 30, 2000 from $598,681,000 at March 31, 2000, and increased $89,262,000 or 17.15% from $520,481,000 at September 30, 1999. These loans represent 66.19% of gross loans receivable at September 30, 2000, compared to 64.69% and 65.82% March 31, 2000 and September 30, 1999, respectively. The mortgage-banking group originates single family residential mortgage loans which are sold to investors. These loans are classified as loans held for sale pending receipt of investor funds. Loans held for sale increased $42,282,000 or 85.87% to $91,522,000 at September 30, 2000 from $49,240,000 at March 31, 2000 and decreased $57,297,000 or 38.50% from $148,819,000 at September 30, 1999. Both groups contribute to the Company's portfolio of residential mortgage loans. Residential mortgage loans decreased $14,696,000 or 4.51% to $311,252,000 at September 30, 2000 from $325,948,000 at March 31, 2000 and increased $42,751,000 or 15.92% from $268,501,000 at September 30, 2000. During fiscal 2000, the Company grew the portfolio of residential mortgage loans through originations of single-family mortgage loans. Residential first mortgages are generally believed to be a conservative investment. 26 27 Non-Performing Assets At September 30, 2000, total problem assets were $24,058,000, a 22.48% increase, compared to $19,642,000 at March 31, 2000. At September 30, 2000, the Company had non-accrual loans of $12,977,000 compared to $8,604,000 at March 31, 2000 and $6,436,000 at September 30, 1999. Interest income not recognized on non-accrual loans amounted to $566,000 and $349,000 for the same period last year. At September 30, 2000, $7,535,000 or 58.06% of the non-accrual loans were mortgage loans secured by residential real estate. This compares to $7,004,000 or 81.40% at March 31, 2000 and $5,262,000 or 81.76% at September 30, 1999. Non-accrual construction loans grew to $1,858,000 or 14.32% at September 30, 2000, from $590,000 or 6.86% at March 31, 2000 and $383,000 or 5.95% at September 30, 1999. This increase in construction loans is attributable to nine relationships, all of which have balances below $450,000. Non-accrual non-residential loans increased to $2,698,000 or 20.79% at September 30, 2000, from $0 at March 31, 2000 and $38,000 or 0.59% at September 30, 1999. In addition, at September 30, 2000, the Asset Classification Committee (the "ACC") identified $9,356,000 as potential problem loans compared to $9,517,000 and $2,980,000 of potential problem loans at March 31, 2000 and September 30, 1999, respectively. At September 30, 2000, the Bank had one borrower located in the metro Atlanta area with three non-residential real estate loans totaling $2,296,000. Two of these loans were identified as non-accrual and one loan was identified as a potential problem. During the quarter ended September 30, 2000, the borrower filed for protection under a Chapter 11-reorganization of the Bankruptcy code. Management believes there is substantial collateral value to fully repay this obligation when the bankruptcy stay is lifted. Additionally, at September 30, 2000, the Bank had three borrowers located in the metro Atlanta area with loans classified as potential problems totaling $7,440,000 or 79.52% of the potential problem loans. These loans were current at September 30, 2000. One non-residential mortgage loan totaling $855,000 was identified as a potential problem due to a lack of current financial information and concerns regarding the borrower's cash flows. The loan is current and is performing in accordance with the terms of the note. One line of credit for construction of single family homes in central Florida totaling $3,031,000 was identified as a potential problem loan due to operating problems experienced outside their primary market. They have discontinued those operations and their credit has been reevaluated. Management expects their rating to be raised to special mention. The loan is current and is performing in accordance with the terms of the note. One borrower has two commercial loans totaling $3,554,000 that were identified by the OTS as potential problem loans. These loans are current and are performing in accordance with the terms of the notes. Real estate owned increased by $204,000 or 13.41% to $1,725,000 at September 30, 2000, from $1,521,000 at March 31, 2000 and $51,000 or 3.05% from $1,674,000 at September 30, 1999. Total problem assets as a percent of total assets increased to 1.83% at September 30, 2000 from 1.58% at March 31, 2000 and 0.93% at September 30, 1999. The following table reflects non-accrual loans, potential problem loans and real estate owned as of the dates indicated. Potential problem loans are those with respect to which management has doubts regarding the ability of the borrower to comply with current loan repayment terms and have been classified as such by the ACC, regardless of payment status. 27 28 NON-ACCRUAL ASSETS, POTENTIAL PROBLEM LOANS and REAL ESTATE OWNED

The following table reflects concentrations of non-accrual, potential problem loans and real estate owned by geographic location and type. NON-ACCRUAL ASSETS, POTENTIAL PROBLEM LOANS AND REAL ESTATE OWNED BY LOCATION AND TYPE

(1) Does not include allowance of $118,000; real estate owned, net equals $1,725,000. 28 29 Loan Impairment Impaired loans amounted to $2,562,000 at September 30, 2000, an increase of $2,264,000 or 759.73% from $298,000 at March 31, 2000 and $2,370,000 or 1234.38% from $192,000 at September 30, 1999. A loan is considered impaired when a loan is classified as non-accrual and based on current information, it is probable the Company will not receive all amounts due in accordance with the contractual terms of the loan agreement. Impaired loans exclude residential mortgages, construction loans secured by first mortgage liens, and groups of small homogeneous loans. At September 30, 2000, March 31, 2000 and September 30, 1999, the valuation allowance related to these impaired loans was $363,000, $133,000 and $39,000, respectively, which is included in the allowance for loan losses as presented in the table on the following page. At September 30, 2000, March 31, 2000 and September 30, 1999, all impaired loans had a related loan loss allowance. During the six months ended September 30, 2000, the Company had no charge-offs related to impaired loans. During the six months ended September 30, 1999, the Company charged-off $251,000 related to impaired loans. For the quarter and six months ended September 30, 2000, the average recorded investment in impaired loans was $2,560,000 and $2,492,000 compared to $258,000 and $372,000 for the same periods a year ago. Allowance for Loan Losses The Company set aside $500,000 and $100,000, respectively, of additional allowances for loan losses during the quarter ended September 30, 2000 and 1999. During the six months ended September 30, 2000, the Company set aside $950,000 compared to $400,000 for the same period last year. At September 30, 2000, allowances represented 0.95% of average loans outstanding for the quarter and six months ended September 30, 2000, compared to 1.07% and 1.09% for the same periods last year. During the quarter and six months ended September 30, 2000, the Company charged-off $484,000 and $829,000, respectively, compared to $352,000 and $878,000 for the same periods one year ago. In the quarter and six months ended September 30, 2000, net charge-offs represented 0.14% and 0.11% of average loans outstanding, compared to 0.14% and 0.19% for the same periods last year. Although charge-off experience continued to be favorable, management considered it prudent to increase the allowance for loan losses due to the increasing levels of non-accrual and potential problem loans. Loan loss allowances totaled $7,710,000 or 656% of quarter end annualized net charge-offs at September 30, 2000 compared to $7,191,000 or 453% of quarter end annualized net charge-offs, and $7,125,000 or 788% of quarter end annualized net charge-offs at March 31, 2000 and September 30, 1999, respectively. Loan loss allowances to total problem assets decreased to 32.05% at September 30, 2000 from 36.61% at March 31, 2000 and 64.25% at September 30, 1999. An allocation of the allowance for loan losses has been made according to the respective amounts deemed necessary to provide for the probability of incurred losses within the various loan categories. Although other relevant factors are considered, management believes that the level of loan loss allowance at June 30, 2000 was adequate based primarily on previous charge-off experience, adjusted for risk characteristics associated with changes in the composition and growth in the loan portfolio, the specific circumstances of the concentrations in the non-accrual and potential problem loans including the market value of collateral and economic conditions that may affect the borrowers' ability to repay and such other factors which, in management's judgment, deserve recognition under existing economic conditions. Additional allowance amounts are allocated by evaluating the loss potential of individual loans that management has considered impaired. The allowance for loan loss allocation is based on subjective judgment and estimates, and therefore is not necessarily indicative of the specific amounts or loan categories in which charge-offs may ultimately occur. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions and composition of the Company's loan portfolio. For information on non-performing assets see "Management's Discussion and Analysis of Financial Condition and Results of Operation - Non-Performing Assets". 29 30 The following tables provide an analysis of the allowance for losses and percentage of coverage to net-charge-offs. ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

Investment in Real Estate As a unitary thrift holding company, the Company is permitted to invest in real estate projects. The majority of the Company's investment in real estate is land to be developed or in process of development for residential subdivisions. In addition, the Company is also developing a condominium project. As of September 30, 2000, the Company has ownership interest in 13 real estate projects located in metropolitan Atlanta. On each real estate project, the Company capitalizes costs related to the purchase price of the land and the expenses associated with the development phase. Until the development phase is completed the investment and associated asset balance of the project increases. When development is completed and sales of lots or condominiums are closed, the Company's recorded investment in each project decreases. The Company's investment in real estate increased $12,935,000 or 28.77% to $57,891,000 from $44,956,000 at March 31, 2000 and $30,974,000 or 115.07% from $26,917,000 at September 30, 1999. The increase in investment in real estate from March 31, 2000 is primarily attributable to an increase in costs associated with the construction phase of the Company's high-rise condominium project, The Phoenix on Peachtree. In October 1999, the Company and an unaffiliated third party formed The Phoenix on Peachtree, LLC and purchased 0.90 acres of land in Fulton County, the city of Atlanta, Georgia. Construction of the condominiums is progressing as planned and currently there are contracts to sell 63.1% of the units. The Company has received a 10% non-refundable earnest money deposit associated with each contract. In addition, the increase in investment in real estate from September 30, 1999 is primarily 30 31 attributable to The Phoenix on Peachtree, as well as, the addition of two new development projects. In November 1999, the Company and an unaffiliated third party formed Eagle Mason Mill Development, LLC and purchased 16 acres of land in DeKalb County, Georgia, for the purpose of developing an 81-lot single-family residential community. As of September 30, 2000, the Company is in the process of developing all 81 lots. Additionally, in January 2000, the Company and an unaffiliated third party formed Eagle White Columns Development, LLC and purchased 54 developed residential lots and 217 acres in Fulton County, Georgia, surrounding and fronting an existing award winning 18 hole Tom Fazio signature golf course. The LLC plans to develop the acreage into single-family residential lots. As of September 30, 2000, the Company has sold 32 lots from the previously developed inventory of 54 lots and 40 lots, which were developed from the acreage purchased. For information on the gain on the sale of real estate see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Non-interest Income". The following table reflects the individual projects' investment in real estate:

Deposits Deposits are the Company's primary funding source. Total deposits increased by $73,566,000 or 9.55% to $843,518,000 from $769,952,000 at March 31, 2000 and $71,248,000 or 9.23% from $772,270,000 at September 30, 1999. The Bank uses traditional marketing methods to attract new customers. Its deposit network is serviced from its branches located in metro Atlanta and Internet banking site, justrightbank.com. The increase in deposits was primarily in certificates of deposits which increased $61,826,000 or 11.88% to $582,066,000 at September 30, 2000 from $520,240,000 at March 31, 2000 and $75,980,000 or 15.01% from $506,086,000 at September 30, 1999. Demand deposits including noninterest-bearing, interest-bearing, savings and money market accounts increased $11,740,000 or 4.70% to $261,452,000 at September 30, 2000, compared to $249,712,000 at March 31, 2000 and decreased $4,732,000 or 1.78% from $266,184,000 at September 30, 1999. The 31 32 weighted average interest rate on deposits increased to 5.33% at September 30, 2000 from 4.62% and 4.26% at March 31, 2000 and September 30, 1999, respectively. For the periods indicated, deposits are summarized by type and remaining term as follows:

The weighted average interest rate on time deposits at September 30, 2000, March 31, 2000 and September 30, 1999 was 6.33%, 5.67% and 5.39%, respectively. For the periods indicated, interest expense on deposits is summarized as follows:

Borrowings The FHLB system functions as an allowance credit facility for thrift institutions and certain other member institutions. The Bank utilizes advances from the FHLB to fund a portion of its assets. At September 30, 2000, advances were $245,900,000 compared to $292,500,000 at March 31, 2000. At September 30, 2000, the weighted average interest rate on these borrowings increased to 5.79% compared to 5.65% at March 31, 2000. In addition, EREA utilizes borrowings from third parties to fund real estate activities. Third party borrowings related to real estate activities increased $21,472,000 or 108.79% to $41,210,000 at September 30, 2000 from $19,738,000 at March 31, 2000. At September 30, 2000, the weighted average interest rate on third party borrowings related to real estate activities was 9.65% compared to 8.97% at March 31, 2000. 32 33 Liquidity and Capital Resources Liquidity Management The Asset and Liability Committee ("ALCO") manages the Company's liquidity needs to ensure there is sufficient cash flow to satisfy demand for credit and deposit withdrawals, to fund operations and to meet other Company obligations and commitments on a timely and cost effective basis. Deposits provide a significant portion of the Company's cash flow needs and continues to provide a relatively stable, low cost source of funds. The Company's other primary funding source was provided by advances from the Federal Home Loan Bank. The liquidity requirement may vary from time to time (between 4% and 10%) depending upon economic conditions and savings plans of all member savings institutions. Under current regulations, the Bank is required to maintain liquid assets of not less than 4% of the liquidity base at the end of the preceding calendar quarter. At September 30, 2000, the Company's liquidity ratio was 7.40%. At September 30, 2000, the Company had commitments to originate loans of approximately $19,397,000 and commitments to sell mortgage loans of approximately $21,480,000. The Company is committed to loan funds on unused variable rate lines of credit of $61,189,000 at September 30, 2000. In addition, the Company has issued $7,476,000 in letters of credit at September 30, 2000. The Company's funding sources for these commitments include loan repayments, deposits and FHLB advances. Beginning April 1, 1995, the Bank formed an operating subsidiary, PrimeEagle. This business unit generates revenues by originating permanent mortgage loans. Substantially all fixed rate permanent mortgage loans are sold to investors. Permanent mortgage loan originations decreased $219,029,000 or 42.66% to $294,423,000 for the six months ended September 30, 2000, compared to $513,452,000 for the same period last year. The Company manages the funding requirements of these loans primarily with short-term advances from the FHLB and deposits. Cash Flows from Operating Activities For the six months ended September 30, 2000, cash used by operating activities was $29,686,000 as compared to cash provided of $65,413,000 for same period last year. The primary reason is timing differences from the sale of loans held for sale versus originations of loans held for sale. During the six months ended September 30, 2000, the Company originated $294,423,000 of loans held for sale and sold $252,141,000 of loans held for sale. This resulted in a $42,282,000 use of cash. This compares to the same period last year, when the Company originated $513,452,000 of loans held for sale and sold $586,003,000 of loans held for sale, resulting in a $72,551,000 source of cash. Cash Flows from Investing Activities During the six months ended September 30, 2000, the Company used cash of $16,537,000 for investing activities compared to $43,624,000 for the same period last year. In the six months ended September 30, 2000, loan originations, net of repayments used cash of $12,505,000 compared to $42,742,000 in the same period last year. During the six months ended September 30, 2000, the Company purchased $9,869,000 in securities classified as available for sale. Comparatively, the Company purchased $20,860,000 in securities classified as available for sale and $9,884,000 in investment securities held to maturity in the same period last year. The Company generated cash flows from calls and maturities of investment securities held to maturity of $2,053,000 during the six months ended September 30, 2000, compared to $9,067,000 in the same period last year. In addition, in the six months ended September 30, 1999, the Company received proceeds from the sale of securities available for sale of $1,807,000. Principal payments on securities available for sale and investment securities held to maturity were $9,175,000 and $2,590,000 during the six months ended September 30, 2000. Principal payments on securities available for sale and investment securities held to maturity were $14,787,000 and $4,701,000 during the same period last year. During the six months ended 33 34 September 30, 2000, the Company invested an additional $24,414,000 into real estate projects and received proceeds of $15,004,000. During the six months ended September 30, 1999, the Company invested cash of $11,384,000 in real estate projects and received proceeds of $15,014,000. Cash Flows from Financing Activities Cash provided by financing activities during the six months ended September 30, 2000, was $47,428,000 compared to cash used of $31,451,000 during the same period one year ago. The increase in the Company's deposits is the most significant factor. Deposits increased by $73,566,000 during the six months ended September 30, 2000, as compared to a decrease of $107,395,000 during the same period last year. The Company borrowed $355,241,000 from the FHLB and repaid $380,058,000 during the six months. This compares to borrowings of $385,750,000 and repayments of $308,355,000 during the same period last year. The Company paid cash dividends to its shareholders of $1,804,000 and $1,783,000 for the six months ended September 30, 2000 and 1999, respectively. Capital The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") established five capital categories for financial institutions. The OTS places each federally chartered thrift institution into one of five categories: well capitalized, adequately capitalized, under capitalized, significantly under capitalized, and critically under capitalized. These classifications are based on the Bank's level of risk based capital, leverage ratios and its supervisory ratings. FDICIA defines "well capitalized" banks as entities having a total risk based capital ratio of 10% or higher, a tier one risk based capital ratio of 6% or higher and a leveraged ratio of 5% or higher. At September 30, 2000, the Bank was classified as "well capitalized" under the OTS regulations that implement the FDICIA provisions described above. The following table reflects the Bank's minimum regulatory capital requirements, actual capital and the level of excess capital by category. The Bank has historically maintained capital substantially in excess of the minimum requirement. During the year ended March 31, 2000, the Bank paid the Company cash dividends of $6,500,000. During the quarter ended June 30, 2000, the Company contributed capital of $1,000,000 to the Bank.

34 35 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In November 1992, after acquiring certain assets from the Resolution Trust Corporation, including various real estate loans, and four mortgage origination offices, the Bank entered into an Operating Agreement (the "Agreement") with two individuals and a corporation controlled by them (collectively, the "Plaintiffs") to assist in the management of the Bank's newly formed Prime Lending Division ("Prime"). The individual Plaintiffs became employees of the Bank and their corporation was to be paid a percentage of the net pretax profits of Prime. In mid-1997, a disagreement arose with respect to the allocation of expenses to Prime for purposes of calculating the net pretax profits of Prime. Plaintiffs filed suit on December 5, 1997 alleging, among other things, that the Bank had improperly calculated net pretax profits under the Agreement since April 1997. In January 1998, the Bank terminated the employment of the two individuals "for cause," terminated the Agreement and filed an Answer and Counterclaim. The Complaint as amended seeks, among other things (i) a declaration the Agreement was terminated "without cause" and that, pursuant to a purchase option in the Agreement, Plaintiffs therefore have the right to purchase the "assets" of Prime at 75% of fair market value; (ii) a declaration that the term "assets," as used in connection with the Plaintiffs' alleged purchase option, includes all outstanding loans that were originated by Prime at the time of their termination without having to net against the loans any corresponding liability incurred by the Bank in connection with these loans; (iii) alleged lost wages, benefits and other payments totaling approximately $4.6 million; (iv) alleged consequential damages in excess of $20 million, which represents the amount Plaintiffs believe another bank would have paid for the Prime Lending loan origination business and the net "assets" as Plaintiffs have defined them; and (v) unspecified punitive damages and attorneys fees. By Order of November 1, 2000, the trial court granted summary judgment in favor of Tucker Federal with respect to Plaintiffs' claims for punitive damages, holding that the only substantive claims of Plaintiffs remaining for trial are those founded on alleged breach of contract. The court also determined that genuine issues of material fact exist with respect to Tucker Federal's counterclaim against Plaintiffs. The Bank strongly denies Plaintiffs' entitlement to any relief and believes the Bank's Counterclaim has merit. The Bank believes, among other things, that Plaintiffs were properly terminated for cause, that Plaintiffs have no rights with respect to the purchase option, and that even if the purchase option were applicable, Plaintiffs would have no right to purchase any loans, but only certain tangible and intangible assets of the Bank, the value of which is estimated to be in the $1-2 million range. The Counterclaim, as amended, seeks compensatory damages presently estimated to total approximately $500,000 as well as punitive damages and attorneys fees. ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None 35 36 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION Shareholders who wish to present a proposal on matters appropriate for Shareholder action in accordance with rules and regulations of the Securities and Exchange Commission at the 2001 Annual Meeting of Shareholders ("2001 Annual Meeting") are required to provide notice to the Corporate Secretary of their intent to do so on or before March 1, 2001. The notice must provide the information (set forth in the Bylaws of the Company) set forth in applicable rules and regulations of the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended. This deadline applies to all shareholder proposals sought to be considered at the 2001 Annual Meeting. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (11) Computation of per share earnings (27) Restated Financial Data Schedule (for SEC use only) Reports on Form 8-K None 36 37 SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EAGLE BANCSHARES, INC. (Registrant) Date: May 30, 2001 /s/ Conrad J. Sechler, Jr. ---------------------------------------- Conrad J. Sechler, Jr. Chairman of the Board, President and Principal Executive Officer Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. Date: May 30, 2001 /s/ Richard B. Inman, Jr. ---------------------------------------- Richard B. Inman, Jr. Director, Secretary and Treasurer Date: May 30, 2001 /s/ Conrad J. Sechler, Jr. ---------------------------------------- Conrad J. Sechler, Jr. Chairman of the Board and President Date: May 30, 2001 /s/ Sheila E. Ray ---------------------------------------- Sheila E. Ray Chief Financial Officer 37 38 EAGLE BANCSHARES, INC. INDEX OF EXHIBITS

EAGLE BANCSHARES INC 10-Q/A