Eagle Bancorp Montana, Inc 10-Q for FY2021 Q1
Eagle Bancorp Montana, Inc. (EBMT)
About this 10-Q
Eagle Bancorp Montana, Inc filed this 10-Q on May 6, 2021, covering the quarter ended March 31, 2021 (FY2021 Q1).
Headline figures
Quarter ended March 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net income
- $5.27M
- up 34.1% from net income of $3.93M a year earlier
- Diluted EPS
- $0.78
- up 36.8% from $0.57 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____ to _____.
Commission file number
Eagle Bancorp Montana, Inc.
(Exact name of small business issuer as specified in its charter)
| | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(
(Issuer's telephone number)
Website address: www.opportunitybank.com
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| | Smaller reporting company |
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| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (defined in Rule 12b-2 of the Exchange Act). Yes
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered |
| | | |
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:
| Common stock, par value $0.01 per share | |
As of April 30, 2021
| PART I. |
FINANCIAL INFORMATION |
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| Item 1. |
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Condensed Consolidated Statements of Financial Condition as of March 31, 2021 and December 31, 2020 |
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Condensed Consolidated Statements of Income for the three months ended March 31, 2021 and 2020 |
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Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 |
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Notes to the Unaudited Condensed Consolidated Financial Statements |
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| Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
28 |
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| Item 3. |
39 |
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| Item 4. |
40 |
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| PART II. |
OTHER INFORMATION |
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| Item 1. |
41 |
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| Item 1A. | Risk Factors | 41 |
| Item 2. |
41 |
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| Item 3. |
41 |
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| Item 4. |
41 |
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| Item 5. |
42 |
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| Item 6. |
42 |
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Cautionary Note Regarding Forward-Looking Statements
This report includes “forward-looking statements” within the meaning and protections of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “will,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “project,” “could,” “intend,” “target” and other similar words and expressions of the future. These forward-looking statements include, but are not limited to:
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statements of our goals, intentions and expectations; |
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statements regarding our business plans, prospects, growth and operating strategies; |
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statements regarding the current global COVID-19 pandemic; |
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statements regarding the asset quality of our loan and investment portfolios; and |
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estimates of our risks and future costs and benefits. |
These forward-looking statements are based on current beliefs and expectations of the management of Eagle Bancorp Montana, Inc. (“Eagle” or the “Company”) and Opportunity Bank of Montana (“OBMT” or the “Bank”), Eagle’s wholly-owned subsidiary, and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.
The following factors, among others, could cause the Company’s actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
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changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements; |
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the negative impacts and disruptions resulting from the continuing outbreak of the novel coronavirus, or COVID-19, and the steps taken by governmental and other authorities to contain, mitigate and combat the pandemic, on the economies and communities we serve, which may likely have an adverse impact on our credit portfolio, goodwill, stock price, borrowers and the economy as a whole both globally and domestically; |
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local, regional, national and international economic and market conditions and events and the impact they may have on us, our customers and our assets and liabilities; |
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competition among depository and other financial institutions; |
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risks related to the concentration of our business in Montana, including risks associated with changes in the prices, values and sales volume of residential and commercial real estate in Montana; |
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inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments; |
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our ability to attract deposits and other sources of funding or liquidity; |
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changes or volatility in the securities markets; |
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our ability to implement our growth strategy, including identifying and consummating suitable acquisitions, raising additional capital to finance such transactions, entering new markets, possible failures in realizing the anticipated benefits from such acquisitions and an inability of our personnel, systems and infrastructure to keep pace with such growth; |
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the effect of acquisitions we may make, if any, including, without limitation, the failure to achieve expected revenue growth and/or expense savings from such acquisitions; |
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risks related to the integration of any businesses we have acquired or expect to acquire, including exposure to potential asset quality and credit quality risks and unknown or contingent liabilities, the time and costs associated with integrating systems, technology platforms, procedures and personnel; |
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potential impairment on the goodwill we have recorded or may record in connection with business acquisitions; |
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political developments, uncertainties or instability; |
| ● | our ability to enter new markets successfully and capitalize on growth opportunities; | |
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the need to retain capital for strategic or regulatory reasons; |
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changes in consumer spending, borrowing and savings habits; |
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our ability to continue to increase and manage our commercial and residential real estate, multi-family and commercial business loans; |
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possible impairments of securities held by us, including those issued by government entities and government sponsored enterprises; |
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the level of future deposit insurance premium assessments; |
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our ability to develop and maintain secure and reliable information technology systems, effectively defend ourselves against cyberattacks, or recover from breaches to our cybersecurity infrastructure; |
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the failure of assumptions underlying the establishment of allowance for possible loan losses and other estimates; |
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changes in the financial performance and/or condition of our borrowers and their ability to repay their loans when due; and |
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the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Securities and Exchange Commission, the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters. |
Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see the Item 1A, “Risk Factors” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections contained elsewhere in this report, as well as our Annual Report on Form 10-K for the year ended December 31, 2020, any subsequent Reports on Form 10-Q and Form 8-K, and other filings with the SEC. We do not undertake any obligation to publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently occur, or of which we hereafter become aware.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in Thousands, Except for Per Share Data)
(Unaudited)
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| ASSETS: | ||||||||
| Cash and due from banks | $ | $ | ||||||
| Interest-bearing deposits in banks | ||||||||
| Federal funds sold | ||||||||
| Total cash and cash equivalents | ||||||||
| Securities available-for-sale | ||||||||
| Federal Home Loan Bank ("FHLB") stock | ||||||||
| Federal Reserve Bank ("FRB") stock | ||||||||
| Mortgage loans held-for-sale, at fair value | ||||||||
| Loans receivable, net of allowance for loan losses of $ at March 31, 2021 and $ at December 31, 2020 | ||||||||
| Accrued interest and dividends receivable | ||||||||
| Mortgage servicing rights, net | ||||||||
| Premises and equipment, net | ||||||||
| Cash surrender value of life insurance, net | ||||||||
| Goodwill | ||||||||
| Core deposit intangible, net | ||||||||
| Deferred tax asset, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Continued)
(Dollars in Thousands, Except for Per Share Data)
(Unaudited)
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| LIABILITIES: | ||||||||
| Deposit accounts: | ||||||||
| Noninterest-bearing | $ | $ | ||||||
| Interest-bearing | ||||||||
| Total deposits | ||||||||
| Accrued expenses and other liabilities | ||||||||
| Deferred tax liability, net | ||||||||
| FHLB advances and other borrowings | ||||||||
| Other long-term debt: | ||||||||
| Principal amount | ||||||||
| Unamortized debt issuance costs | ( | ) | ( | ) | ||||
| Total other long-term debt, net | ||||||||
| Total liabilities | ||||||||
| SHAREHOLDERS' EQUITY: | ||||||||
| Preferred stock (par value $ per share; shares authorized; shares issued or outstanding) | ||||||||
| Common stock (par value $ per share; shares authorized; shares issued; shares outstanding at March 31, 2021 and December 31, 2020, respectively) | ||||||||
| Additional paid-in capital | ||||||||
| Unallocated common stock held by Employee Stock Ownership Plan ("ESOP") | ( | ) | ( | ) | ||||
| Treasury stock, at cost | ( | ) | ( | ) | ||||
| Retained earnings | ||||||||
| Accumulated other comprehensive income, net of tax | ||||||||
| Total shareholders' equity | ||||||||
| Total liabilities and shareholders' equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except for Per Share Data)
(Unaudited)
| Three Months Ended |
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| March 31, |
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| 2021 |
2020 |
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| INTEREST AND DIVIDEND INCOME: |
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| Interest and fees on loans |
$ | $ | ||||||
| Securities available-for-sale |
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| FHLB and FRB dividends |
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| Other interest income |
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| Total interest and dividend income |
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| INTEREST EXPENSE: |
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| Deposits |
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| FHLB advances and other borrowings |
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| Other long-term debt |
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| Total interest expense |
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| NET INTEREST INCOME |
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| Loan loss provision |
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| NET INTEREST INCOME AFTER LOAN LOSS PROVISION |
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| NONINTEREST INCOME: |
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| Service charges on deposit accounts |
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| Net gain on sale of mortgage loans |
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| Mortgage banking, net |
( |
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| Interchange and ATM fees |
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| Appreciation in cash surrender value of life insurance |
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| Other noninterest income |
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| Total noninterest income |
$ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Continued)
(Dollars in Thousands, Except for Per Share Data)
(Unaudited)
| Three Months Ended |
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| March 31, |
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| 2021 |
2020 |
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| NONINTEREST EXPENSE: |
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| Salaries and employee benefits |
$ | $ | ||||||
| Occupancy and equipment expense |
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| Data processing |
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| Advertising |
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| Amortization |
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| Loan costs |
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| Federal Deposit Insurance Corporation ("FDIC") insurance premiums |
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| Postage |
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| Professional and examination fees |
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| Acquisition costs |
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| Other noninterest expense |
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| Total noninterest expense |
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| INCOME BEFORE PROVISION FOR INCOME TAXES |
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| Provision for income taxes |
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| NET INCOME |
$ | $ | ||||||
| BASIC EARNINGS PER SHARE |
$ | $ | ||||||
| DILUTED EARNINGS PER SHARE |
$ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
(Unaudited)
| Three Months Ended |
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| March 31, |
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| 2021 |
2020 |
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| NET INCOME |
$ | $ | ||||||
| OTHER ITEMS OF COMPREHENSIVE (LOSS) INCOME BEFORE TAX: |
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| Change in fair value of securities available-for-sale |
( |
) | ||||||
| Income tax benefit (provision) related to securities available-for-sale |
( |
) | ||||||
| COMPREHENSIVE INCOME | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 2021 and 2020
(Dollars in Thousands, Except for Per Share Data)
(Unaudited)
| ACCUMULATED | ||||||||||||||||||||||||||||||||
| ADDITIONAL | UNALLOCATED | OTHER | ||||||||||||||||||||||||||||||
| PREFERRED | COMMON | PAID-IN | ESOP | TREASURY | RETAINED | COMPREHENSIVE | ||||||||||||||||||||||||||
| STOCK | STOCK | CAPITAL | SHARES | STOCK | EARNINGS | INCOME (LOSS) | TOTAL | |||||||||||||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Dividends paid ($ per share) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Stock compensation expense | ||||||||||||||||||||||||||||||||
| ESOP shares allocated ( shares) | ||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
| Balance at January 1, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||||||||||||||
| Dividends paid ($ per share) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Stock issued in connection with Western Holding Company of Wolf Point acquisition | ||||||||||||||||||||||||||||||||
| Stock compensation expense | ||||||||||||||||||||||||||||||||
| ESOP shares allocated ( shares) | ||||||||||||||||||||||||||||||||
| Balance at March 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
| Three Months Ended |
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| March 31, |
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| 2021 |
2020 |
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| CASH FLOWS FROM OPERATING ACTIVITIES: |
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| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
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| Loan loss provision |
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| (Recovery) impairment of mortgage servicing rights |
( |
) | ||||||
| Depreciation |
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| Net amortization of investment securities premiums and discounts |
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| Amortization of mortgage servicing rights |
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| Amortization of core deposit intangible and tax credits |
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| Amortization of right-of-use assets |
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| Compensation expense related to restricted stock awards |
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| ESOP compensation expense for allocated shares |
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| Deferred income tax provision (benefit) |
( |
) | ||||||
| Net gain on sale of loans |
( |
) | ( |
) | ||||
| Originations of loans held-for-sale | ( |
) | ( |
) | ||||
| Proceeds from sales of loans held-for-sale |
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| Net loss on sale of real estate owned and other repossessed assets |
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| Net gain on sale/disposal of premises and equipment |
( |
) | ||||||
| Net appreciation in cash surrender value of life insurance |
( |
) | ( |
) | ||||
| Net change in: |
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| Accrued interest and dividends receivable |
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| Other assets |
( |
) | ||||||
| Accrued expenses and other liabilities |
( |
) | ||||||
| Net cash provided by operating activities |
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| CASH FLOWS FROM INVESTING ACTIVITIES: |
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| Activity in available-for-sale securities: |
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| Maturities, principal payments and calls |
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| Purchases |
( |
) | ( |
) | ||||
| FHLB stock redeemed (purchased) |
( |
) | ||||||
| Net cash received from acquisitions |
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| Loan origination and principal collection, net |
( |
) | ||||||
| Proceeds from sale of real estate and other repossessed assets acquired in settlement of loans |
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| Purchases of premises and equipment, net |
( |
) | ( |
) | ||||
| Net cash used in investing activities |
$ | ( |
) | $ | ( |
) | ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in Thousands)
(Unaudited)
| Three Months Ended |
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| March 31, |
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| 2021 |
2020 |
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| CASH FLOWS FROM FINANCING ACTIVITIES: |
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| Net increase (decrease) in deposits |
$ | $ | ( |
) | ||||
| Net short-term advances from FHLB and other borrowings |
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| Long-term advances from FHLB and other borrowings |
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| Payments on long-term FHLB and other borrowings |
( |
) | ( |
) | ||||
| Dividends paid |
( |
) | ( |
) | ||||
| Net cash provided by (used in) financing activities |
( |
) | ||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
( |
) | ||||||
| CASH AND CASH EQUIVALENTS, beginning of period |
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| CASH AND CASH EQUIVALENTS, end of period |
$ | $ | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: |
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| Cash paid during the period for interest |
$ | $ | ||||||
| Cash paid during the period for income taxes |
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| NONCASH INVESTING AND FINANCING ACTIVITIES: |
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| (Decrease) increase in fair value of securities available-for-sale |
$ | ( |
) | $ | ||||
| Mortgage servicing rights recognized |
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| Loans transferred to real estate and other assets acquired in foreclosure |
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| Stock issued in connection with acquisitions |
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See Note 2. Mergers and Acquisitions for additional information related to assets acquired and liabilities assumed in acquisitions.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Eagle Bancorp Montana, Inc. (“Eagle” or the “Company”), is a Delaware corporation that holds
In September 2017, the Company entered into an Agreement and Plan of Merger with TwinCo, Inc. ("TwinCo"), a Montana corporation, and TwinCo’s wholly-owned subsidiary, Ruby Valley Bank, a Montana chartered commercial bank to acquire
In August 2018, the Company entered into an Agreement and Plan of Merger with Big Muddy Bancorp, Inc. (“BMB”), a Montana corporation and BMB’s wholly-owned subsidiary, The State Bank of Townsend (“SBOT”), a Montana chartered commercial bank to acquire
In August 2019, the Company entered into an Agreement and Plan of Merger ("Merger Agreement") with Western Holding Company of Wolf Point (“WHC”), a Montana corporation, and WHC’s wholly-owned subsidiary, Western Bank of Wolf Point, a Montana chartered commercial bank (“WB”). The Merger Agreement provided that, upon the terms and subject to the conditions set forth in the Merger Agreement, WHC would merge with and into Eagle, with Eagle continuing as the surviving corporation. The merger closed on January 1, 2020. WB operated one branch in Wolf Point, Montana. In addition, Western Financial Services, Inc. ("WFS") was acquired through the WHC merger. WFS facilitates deferred payment contracts for Bank customers that produce agricultural products.
The Bank currently has 23 full service branches. The Bank’s principal business is accepting deposits and, together with funds generated from operations and borrowings, investing in various types of loans and securities. The Bank also operates certain branches under the names Dutton State Bank, Farmers State Bank of Denton and The State Bank of Townsend.
Basis of Financial Statement Presentation and Use of Estimates
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). It is recommended that these unaudited interim condensed consolidated financial statements be read in conjunction with the Company’s Annual Report on Form 10-K with all of the audited information and footnotes required by U.S. GAAP for complete financial statements for the year ended December 31, 2020, as filed with the SEC on March 10, 2021. In the opinion of management, all normal adjustments and recurring accruals considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included.
The results of operations for the three-month period ended March 31, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or any other period. In preparing condensed consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the condensed consolidated statement of financial condition and reported amounts of revenues and expenses during the reporting period. Actual results could differ from estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, mortgage servicing rights, the fair value of financial instruments, the valuation of goodwill and deferred tax assets and liabilities.
Principles of Consolidation
The condensed consolidated financial statements include Eagle, the Bank, Eagle Bancorp Statutory Trust I (the “Trust”) and WFS. All significant intercompany transactions and balances have been eliminated in consolidation.
Reclassifications
Certain prior period amounts were reclassified to conform to the presentation for 2021. These reclassifications had no impact on net income or shareholders’ equity.
Subsequent Events
The Company has evaluated events and transactions subsequent to March 31, 2021 for recognition and/or disclosure.
NOTE 2. MERGERS AND ACQUISITIONS
Effective January 1, 2020, Eagle completed its previously announced merger with WHC. At the effective time of the Merger, WHC merged with and into Eagle, with Eagle continuing as the surviving corporation. The acquisition closed after receipt of approvals from regulatory authorities, approval of WHC shareholders and the satisfaction of other closing conditions. The total consideration paid was $
This transaction was accounted for under the acquisition method of accounting.
All of the assets acquired and liabilities assumed were recognized at their acquisition-date fair value, while transaction costs and restructuring costs associated with the business combinations were expensed as incurred. Determining the fair value of assets and liabilities is a complicated process involving significant judgement regarding methods and assumptions used to calculate estimated fair values. The excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill. The goodwill recorded is not deductible for federal income tax purposes.
The following table summarizes the fair values of the assets acquired and liabilities assumed, consideration paid and the resulting goodwill.
| WHC | ||||
| January 1, | ||||
| 2020 | ||||
| (In Thousands) | ||||
| Assets acquired: | ||||
| Cash and cash equivalents | $ | |||
| Securities available-for-sale | ||||
| Loans receivable | ||||
| Premises and equipment | ||||
| Cash surrender value of life insurance | ||||
| Core deposit intangible | ||||
| Other assets | ||||
| Total assets acquired | $ | |||
| Liabilities assumed: | ||||
| Deposits | $ | |||
| Accrued expenses and other liabilities | ||||
| Other borrowings | ||||
| Total liabilities assumed | $ | |||
| Net assets acquired | $ | |||
| Consideration paid: | ||||
| Cash | $ | |||
| Common stock issued ( shares) | ||||
| Total consideration paid | $ | |||
| Goodwill resulting from acquisition | $ | |||
Goodwill recorded for the WHC acquisition during the three months ended March 31, 2020 was $
WHC investments were written up $
NOTE 2. MERGERS AND ACQUISITIONS – continued
For acquisitions, the fair value analysis of the loan portfolios resulted in a valuation adjustment for each loan based on an amortization schedule of expected cash flow. Individual amortization schedules were used for each loan over a certain amount and those with specifically identified loss exposure. The remainder of the loans were grouped by type and risk rating into loan pools (based on loan type, fixed or variable interest rate, revolving or term payments and risk rating). Yield inputs for the amortization schedules included contractual interest rates, estimated prepayment speeds, liquidity adjustments and market yields. Credit inputs for the amortization schedules included probability of payment default, loss given default rates and individually identified loss exposure.
The total accretable discount on WHC acquired loans was $
Fair value adjustments of $
Core deposit intangible assets of $
Direct costs related to the acquisition were expensed as incurred. There were no acquisition costs recorded during the three months ended March 31, 2021. The Company recorded acquisition costs related to WHC of $
Operations of acquired entities have been included in the condensed consolidated financial statements since date of acquisition. The Company does not consider them as separate reporting segments and does not track the amount of revenues and net income attributable since acquisition. As such, it is impracticable to determine such amounts for the period from acquisition date through March 31, 2021. The accompanying condensed consolidated statements of income include the results of operations of WHC since the January 1, 2020 acquisition date.
NOTE 3. INVESTMENT SECURITIES
The amortized cost and fair values of securities, together with unrealized gains and losses, were as follows:
| March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||
| Gross | Gross | |||||||||||||||||||||||||||||||
| Amortized | Unrealized | Fair | Amortized | Unrealized | Fair | |||||||||||||||||||||||||||
| Cost | Gains | (Losses) | Value | Cost | Gains | (Losses) | Value | |||||||||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||||||||||
| Available-for-Sale: | ||||||||||||||||||||||||||||||||
| U.S. government obligations | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| U.S. treasury obligations | ||||||||||||||||||||||||||||||||
| Municipal obligations | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Corporate obligations | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Mortgage-backed securities | ( | ) | ||||||||||||||||||||||||||||||
| Collateralized mortgage obligations | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Asset-backed securities | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
For the three months ended March 31, 2021 and 2020, there were
The amortized cost and fair value of securities by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
| March 31, 2021 | ||||||||
| Amortized | Fair | |||||||
| Cost | Value | |||||||
| (In Thousands) | ||||||||
| Due in one year or less | $ | $ | ||||||
| Due from one to five years | ||||||||
| Due from five to ten years | ||||||||
| Due after ten years | ||||||||
| Mortgage-backed securities | ||||||||
| Collateralized mortgage obligations | ||||||||
| Total | $ | $ | ||||||
As of March 31, 2021 and December 31, 2020, securities with a fair value of $
The Company’s investment securities that have been in a continuous unrealized loss position for less than twelve months and those that have been in a continuous unrealized loss position for twelve or more months were as follows:
| March 31, 2021 | ||||||||||||||||
| Less Than 12 Months | 12 Months or Longer | |||||||||||||||
| Gross | Gross | |||||||||||||||
| Fair | Unrealized | Fair | Unrealized | |||||||||||||
| Value | Losses | Value | Losses | |||||||||||||
| (In Thousands) | ||||||||||||||||
| Municipal obligations | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Corporate obligations | ( | ) | ||||||||||||||
| Mortgage-backed securities and collateralized mortgage obligations | ( | ) | ||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
NOTE 3. INVESTMENT SECURITIES – continued
| December 31, 2020 | ||||||||||||||||
| Less Than 12 Months | 12 Months or Longer | |||||||||||||||
| Gross | Gross | |||||||||||||||
| Fair | Unrealized | Fair | Unrealized | |||||||||||||
| Value | Losses | Value | Losses | |||||||||||||
| (In Thousands) | ||||||||||||||||
| Municipal obligations | $ | $ | ( | ) | $ | $ | ||||||||||
| Corporate obligations | ( | ) | ||||||||||||||
| Mortgage-backed securities and collateralized mortgage obligations | ( | ) | ( | ) | ||||||||||||
| Total | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
Unrealized losses associated with investments are believed to be caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of the securities and not due to concerns regarding the underlying credit of the issuers or the underlying collateral. The Company does not intend to sell the securities, and it is not likely to be required to sell these securities prior to maturity. Based on the Company's evaluation of these securities,
NOTE 4. LOANS RECEIVABLE
Loans receivable consisted of the following:
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (In Thousands) | ||||||||
| Real estate loans: | ||||||||
| Residential 1-4 family | $ | $ | ||||||
| Commercial real estate | ||||||||
| Other loans: | ||||||||
| Home equity | ||||||||
| Consumer | ||||||||
| Commercial | ||||||||
| Total | ||||||||
| Deferred loan fees, net | ( | ) | ( | ) | ||||
| Allowance for loan losses | ( | ) | ( | ) | ||||
| Total loans, net | $ | $ | ||||||
Within the commercial real estate loan category above, $
NOTE 4. LOANS RECEIVABLE – continued
Allowance for loan losses activity was as follows:
| Residential | Commercial | Home | ||||||||||||||||||||||
| 1-4 Family | Real Estate | Equity | Consumer | Commercial | Total | |||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||
| Allowance for loan losses: | ||||||||||||||||||||||||
| Beginning balance, January 1, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Recoveries | ||||||||||||||||||||||||
| Provision | ||||||||||||||||||||||||
| Ending balance, March 31, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Ending balance, March 31, 2021 allocated to loans individually evaluated for impairment | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Ending balance, March 31, 2021 allocated to loans collectively evaluated for impairment | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Loans receivable: | ||||||||||||||||||||||||
| Ending balance, March 31, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Ending balance, March 31, 2021 of loans individually evaluated for impairment | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Ending balance, March 31, 2021 of loans collectively evaluated for impairment | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Residential | Commercial | Home | ||||||||||||||||||||||
| 1-4 Family | Real Estate | Equity | Consumer | Commercial | Total | |||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||
| Allowance for loan losses: | ||||||||||||||||||||||||
| Beginning balance, January 1, 2020 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Recoveries | ||||||||||||||||||||||||
| Provision | ||||||||||||||||||||||||
| Ending balance, March 31, 2020 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Ending balance, March 31, 2020 allocated to loans individually evaluated for impairment | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Ending balance, March 31, 2020 allocated to loans collectively evaluated for impairment | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Loans receivable: | ||||||||||||||||||||||||
| Ending balance, March 31, 2020 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Ending balance, March 31, 2020 of loans individually evaluated for impairment | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Ending balance, March 31, 2020 of loans collectively evaluated for impairment | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
NOTE 4. LOANS RECEIVABLE – continued
Internal classification of the loan portfolio was as follows:
| March 31, 2021 | ||||||||||||||||||||||||
| Special | ||||||||||||||||||||||||
| Pass | Mention | Substandard | Doubtful | Loss | Total | |||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||
| Real estate loans: | ||||||||||||||||||||||||
| Residential 1-4 family | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Residential 1-4 family construction | ||||||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||
| Commercial construction and development | ||||||||||||||||||||||||
| Farmland | ||||||||||||||||||||||||
| Other loans: | ||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||
| Agricultural | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| December 31, 2020 | ||||||||||||||||||||||||
| Special | ||||||||||||||||||||||||
| Pass | Mention | Substandard | Doubtful | Loss | Total | |||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||
| Real estate loans: | ||||||||||||||||||||||||
| Residential 1-4 family | $ | $ | $ | $ | $ | |||||||||||||||||||
| Residential 1-4 family construction | ||||||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||
| Commercial construction and development | ||||||||||||||||||||||||
| Farmland | ||||||||||||||||||||||||
| Other loans: | ||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||
| Agricultural | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
NOTE 4. LOANS RECEIVABLE – continued
The following tables include information regarding delinquencies within the loan portfolio.
| March 31, 2021 | ||||||||||||||||||||||||
| Loans Past Due and Still Accruing | ||||||||||||||||||||||||
| 90 Days | ||||||||||||||||||||||||
| 30-89 Days | and | Nonaccrual | Current | Total | ||||||||||||||||||||
| Past Due | Greater | Total | Loans | Loans | Loans | |||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||
| Real estate loans: | ||||||||||||||||||||||||
| Residential 1-4 family | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Residential 1-4 family construction | ||||||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||
| Commercial construction and development | ||||||||||||||||||||||||
| Farmland | ||||||||||||||||||||||||
| Other loans: | ||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||
| Agricultural | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| December 31, 2020 | ||||||||||||||||||||||||
| Loans Past Due and Still Accruing | ||||||||||||||||||||||||
| 90 Days | ||||||||||||||||||||||||
| 30-89 Days | and | Nonaccrual | Current | Total | ||||||||||||||||||||
| Past Due | Greater | Total | Loans | Loans | Loans | |||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||
| Real estate loans: | ||||||||||||||||||||||||
| Residential 1-4 family | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Residential 1-4 family construction | ||||||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||
| Commercial construction and development | ||||||||||||||||||||||||
| Farmland | ||||||||||||||||||||||||
| Other loans: | ||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||
| Agricultural | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
NOTE 4. LOANS RECEIVABLE – continued
The following tables include information regarding impaired loans.
| March 31, 2021 | ||||||||||||
| Unpaid | ||||||||||||
| Recorded | Principal | Related | ||||||||||
| Investment | Balance | Allowance | ||||||||||
| (In Thousands) | ||||||||||||
| Real estate loans: | ||||||||||||
| Residential 1-4 family | $ | $ | $ | |||||||||
| Residential 1-4 family construction | ||||||||||||
| Commercial real estate | ||||||||||||
| Commercial construction and development | ||||||||||||
| Farmland | ||||||||||||
| Other loans: | ||||||||||||
| Home equity | ||||||||||||
| Consumer | ||||||||||||
| Commercial | ||||||||||||
| Agricultural | ||||||||||||
| Total | $ | $ | $ | |||||||||
| December 31, 2020 | ||||||||||||
| Unpaid | ||||||||||||
| Recorded | Principal | Related | ||||||||||
| Investment | Balance | Allowance | ||||||||||
| (In Thousands) | ||||||||||||
| Real estate loans: | ||||||||||||
| Residential 1-4 family | $ | $ | $ | |||||||||
| Residential 1-4 family construction | ||||||||||||
| Commercial real estate | ||||||||||||
| Commercial construction and development | ||||||||||||
| Farmland | ||||||||||||
| Other loans: | ||||||||||||
| Home equity | ||||||||||||
| Consumer | ||||||||||||
| Commercial | ||||||||||||
| Agricultural | ||||||||||||
| Total | $ | $ | $ | |||||||||
NOTE 4. LOANS RECEIVABLE – continued
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| Average Recorded Investment | ||||||||
| (In Thousands) | ||||||||
| Real estate loans: | ||||||||
| Residential 1-4 family | $ | $ | ||||||
| Residential 1-4 family construction | ||||||||
| Commercial real estate | ||||||||
| Commercial construction and development | ||||||||
| Farmland | ||||||||
| Other loans: | ||||||||
| Home equity | ||||||||
| Consumer | ||||||||
| Commercial | ||||||||
| Agricultural | ||||||||
| Total | $ | $ | ||||||
Interest income recognized on impaired loans for the three months ended March 31, 2021 and 2020 is considered insignificant. Interest payments received on a cash basis related to impaired loans were $
As of March 31, 2021 and December 31, 2020, there were troubled debt restructured (“TDR”) loans of $
During the three months ended March 31, 2021, there was
During the three months ended March 31, 2020, there was new TDR loan. The recorded investment for the commercial construction and development loan at time of restructure was $
There were
As of March 31, 2021, the Company had
The Company has offered borrowers accommodations due to the impact from COVID-19, including 90-day deferrals, interest only payments and forbearances, which are not considered TDR's as they met the criteria established in the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). In addition, the Montana Board of Investments ("MBOI") offered 12-months of interest payment assistance to 32 qualified borrowers. As of March 31, 2021, loan modifications for
NOTE 5. MORTGAGE SERVICING RIGHTS
The Company is servicing mortgage loans for the benefit of others which are not included in the condensed consolidated statements of financial condition and have unpaid principal balances of $
Custodial balances maintained in connection with the foregoing loan servicing are included in noninterest checking deposits and were $
The following table is a summary of activity in mortgage servicing rights:
| As of or For the |
||||||||
| Three Months Ended |
||||||||
| March 31, |
||||||||
| 2021 |
2020 |
|||||||
| (In Thousands) |
||||||||
| Mortgage servicing rights: |
||||||||
| Beginning balance |
$ | $ | ||||||
| Mortgage servicing rights capitalized |
||||||||
| Amortization of mortgage servicing rights |
( |
) | ( |
) | ||||
| Ending balance |
$ | $ | ||||||
| Valuation allowance: |
||||||||
| Beginning balance |
( |
) | ||||||
| Recovery (impairment) of mortgage servicing rights |
( |
) | ||||||
| Ending balance |
( |
) | ( |
) | ||||
| Mortgage servicing rights, net |
$ | $ | ||||||
Impairment expense on mortgage servicing rights was recorded during the year ended December 31, 2020, as a result of faster than expected prepayment speed assumptions. However, a recovery of $
The fair values of these rights were $
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Key assumptions: | ||||||||
| Discount rate |
|
| ||||||
| Prepayment speed range |
|
| ||||||
| Weighted average prepayment speed |
|
| ||||||
NOTE 6. DEPOSITS
Deposits are summarized as follows:
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (In Thousands) | ||||||||
| Noninterest checking | $ | $ | ||||||
| Interest-bearing checking | ||||||||
| Savings | ||||||||
| Money market | ||||||||
| Time certificates of deposit | ||||||||
| Total | $ | $ | ||||||
Time certificates of deposits include $
NOTE 7. OTHER LONG-TERM DEBT
Other long-term debt consisted of the following:
| March 31, 2021 | December 31, 2020 | |||||||||||||||
| Unamortized | Unamortized | |||||||||||||||
| Debt | Debt | |||||||||||||||
| Principal | Issuance | Principal | Issuance | |||||||||||||
| Amount | Costs | Amount | Costs | |||||||||||||
| (In Thousands) | ||||||||||||||||
| Senior notes fixed at %, due | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Subordinated debentures fixed at % to floating, due | ( | ) | ( | ) | ||||||||||||
| Subordinated debentures variable at 3-Month Libor plus %, due | ||||||||||||||||
| Total other long-term debt | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
In June 2020, the Company completed the issuance of $
In February 2017, the Company completed the issuance, through a private placement, of $
In June 2015, the Company completed the issuance of $
In September 2005, the Company completed the private placement of $
NOTE 8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table includes information regarding the activity in accumulated other comprehensive income (loss).
| Unrealized |
||||
| Gains (Losses) |
||||
| on Securities |
||||
| Available-for-Sale |
||||
| (In Thousands) |
||||
| Balance, January 1, 2021 |
$ | |||
| Other comprehensive loss, before reclassifications and income taxes |
( |
) | ||
| Income tax benefit |
||||
| Total other comprehensive loss |
( |
) | ||
| Balance, March 31, 2021 |
$ | |||
| Balance, January 1, 2020 |
$ | |||
| Other comprehensive income, before reclassifications and income taxes |
||||
| Income tax provision |
( |
) | ||
| Total other comprehensive income |
||||
| Balance, March 31, 2020 | $ | |||
NOTE 9. EARNINGS PER SHARE
The computations of basic and diluted earnings per share are as follows:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| (Dollars in Thousands, Except Per Share Data) | ||||||||
| Basic weighted average shares outstanding | ||||||||
| Dilutive effect of stock compensation | ||||||||
| Diluted weighted average shares outstanding | ||||||||
| Net income available to common shareholders | $ | $ | ||||||
| Basic earnings per share | $ | $ | ||||||
| Diluted earnings per share | $ | $ | ||||||
There were
NOTE 10. DERIVATIVES AND HEDGING ACTIVITIES
The Company enters into commitments to originate and sell mortgage loans. The Bank uses derivatives to hedge the risk of changes in fair values of interest rate lock commitments and mortgage loans held-for-sale. An optimal amount of mortgage loans are sold directly into bulk commitments with investors at the time an interest rate is locked, other loans are sold on an individual best efforts basis at the time an interest rate is locked, and the remaining balance of locked loans are hedged using To-Be-Announced (“TBA”) mortgage-backed securities or bulk mandatory forward loan sale commitments.
Derivatives are accounted for as free-standing or economic derivatives and are measured at fair value. Derivatives are recorded as either other assets or other liabilities on the condensed consolidated statements of condition.
Derivatives are summarized as follows:
| March 31, 2021 |
December 31, 2020 |
|||||||||||||||||||||||
| Notional |
Fair Value |
Notional |
Fair Value |
|||||||||||||||||||||
| Amount |
Asset |
Liability |
Amount |
Asset |
Liability |
|||||||||||||||||||
| (In Thousands) |
||||||||||||||||||||||||
| Interest rate lock commitments |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Forward TBA mortgage-backed securities |
||||||||||||||||||||||||
Changes in the fair value of the derivatives are recorded in mortgage banking, net within noninterest income on the condensed consolidated statements of income. Net losses of $
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
Assets and liabilities that are measured at fair value are grouped in three levels within the fair value hierarchy based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
The fair value hierarchy is as follows:
| ■ | Level 1 Inputs – Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities. |
| ■ | Level 2 Inputs – Valuations are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuations for which all significant assumptions are observable or can be corroborated by observable market data. |
| ■ | Level 3 Inputs – Valuations are based on unobservable inputs that may include significant management judgment and estimation. |
A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy at the reporting date, is set forth below.
Available-for-Sale Securities – Securities classified as available-for-sale are reported at fair value utilizing Level 1 (nationally recognized securities exchanges) and Level 2 inputs. For level 2 securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include but is not limited to dealer quotes, market spreads, cash flows, the U. S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayments speeds, credit information and the bond’s terms and conditions.
Loans Held-for-Sale – These loans are reported at fair value. Fair value is determined based on expected proceeds based on committed sales contracts and commitments of similar loans if not already committed and are considered Level 2 inputs.
Derivative Instruments – The fair value of the interest rate lock commitments, forward TBA mortgage-backed securities and mandatory forward commitments are estimated using quoted or published market prices for similar instruments and adjusted for factors such as pull-through rate assumptions based on historical information, where appropriate. Interest rate lock commitments are considered Level 3 inputs and forward TBA mortgage-backed securities and mandatory forward commitments are considered Level 2 inputs.
Impaired Loans – Impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral or using a discounted cash flow if the loan is not collateral dependent. Collateral values are estimated using Level 3 inputs based on internally customized discounting criteria.
Real Estate and Other Repossessed Assets – Fair values are determined at the time the loan is foreclosed upon and the asset is transferred from loans. The value is based primarily on third party appraisals, less costs to sell and are considered Level 3 inputs for determining fair value. Repossessed assets are reviewed and evaluated periodically for additional impairment and adjusted accordingly.
Mortgage Servicing Rights – The fair value of mortgage servicing rights are estimated using net present value of expected cash flows based on a third party model that incorporates industry assumptions and is adjusted for factors such as prepayment speeds and are considered Level 3 inputs.
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS – continued
The following tables summarize financial assets and financial liabilities measured at fair value on a recurring basis, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value.
| March 31, 2021 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total Fair | |||||||||||||
| Inputs | Inputs | Inputs | Value | |||||||||||||
| (In Thousands) | ||||||||||||||||
| Financial assets: | ||||||||||||||||
| Available-for-sale securities | ||||||||||||||||
| U.S. government obligations | $ | $ | $ | $ | ||||||||||||
| U.S. treasury obligations | ||||||||||||||||
| Municipal obligations | ||||||||||||||||
| Corporate obligations | ||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| Collateralized mortgage obligations | ||||||||||||||||
| Asset-backed securities | ||||||||||||||||
| Loans held-for-sale | ||||||||||||||||
| Interest rate lock commitments | ||||||||||||||||
| Forward TBA mortgage-backed securities | ||||||||||||||||
| December 31, 2020 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total Fair | |||||||||||||
| Inputs | Inputs | Inputs | Value | |||||||||||||
| (In Thousands) | ||||||||||||||||
| Financial assets: | ||||||||||||||||
| Available-for-sale securities | ||||||||||||||||
| U.S. government obligations | $ | $ | $ | $ | ||||||||||||
| U.S. treasury obligations | ||||||||||||||||
| Municipal obligations | ||||||||||||||||
| Corporate obligations | ||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| Collateralized mortgage obligations | ||||||||||||||||
| Asset-backed securities | ||||||||||||||||
| Loans held-for-sale | ||||||||||||||||
| Interest rate lock commitments | ||||||||||||||||
| Financial liabilities: | ||||||||||||||||
| Forward TBA mortgage-backed securities | ||||||||||||||||
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS – continued
Certain financial assets may be measured at fair value on a nonrecurring basis. These assets are subject to fair value adjustments that result from the application of lower of cost or fair value accounting or write-downs of individual assets, such as impaired loans that are collateral dependent, real estate and other repossessed assets and mortgage servicing rights.
The following table summarizes financial assets measured at fair value on a nonrecurring basis for which a nonrecurring change in fair value has been recorded during the reporting periods presented:
| March 31, 2021 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total Fair | |||||||||||||
| Inputs | Inputs | Inputs | Value | |||||||||||||
| (In Thousands) | ||||||||||||||||
| Impaired loans | $ | $ | $ | $ | ||||||||||||
| Mortgage servicing rights | ||||||||||||||||
| December 31, 2020 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total Fair | |||||||||||||
| Inputs | Inputs | Inputs | Value | |||||||||||||
| (In Thousands) | ||||||||||||||||
| Impaired loans | $ | $ | $ | $ | ||||||||||||
| Mortgage servicing rights | ||||||||||||||||
The following table represents the Banks’s Level 3 financial assets and liabilities, the valuation techniques used to measure the fair value of those financial assets and liabilities, and the significant unobservable inputs and the ranges of values for those inputs.
| Principal | Significant | Range of | |||||
| Valuation | Unobservable | Significant Input | |||||
| Instrument | Technique | Inputs | Values | ||||
| Impaired loans | Fair value of underlying collateral | Discount applied to the obtained appraisal | |||||
| Mortgage servicing rights | Discounted cash flows | Discount rate | |||||
| Prepayment speeds | |||||||
| Interest rate lock commitments | Internal pricing model | Pull-through expectations |
The following tables provide a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the three months ended March 31, 2021.
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| Interest Rate Lock Commitments | ||||||||
| (In Thousands) | ||||||||
| Beginning balance | $ | $ | ||||||
| Purchases and issuances | ||||||||
| Sales and settlements | ( | ) | ( | ) | ||||
| Ending balance | $ | $ | ||||||
| Net change in unrealized gains relating to items held at end of period | $ | ( | ) | $ | ||||
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS – continued
The tables below summarize the estimated fair values of financial instruments of the Company, whether or not recognized at fair value on the condensed consolidated statements of condition. The tables are followed by methods and assumptions that were used by the Company in estimating the fair value of the classes of financial instruments.
| March 31, 2021 | ||||||||||||||||||||
| Total | ||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Estimated | Carrying | ||||||||||||||||
| Inputs | Inputs | Inputs | Fair Value | Amount | ||||||||||||||||
| (In Thousands) | ||||||||||||||||||||
| Financial assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| FHLB stock | ||||||||||||||||||||
| FRB stock | ||||||||||||||||||||
| Loans receivable, gross | ||||||||||||||||||||
| Accrued interest and dividends receivable | ||||||||||||||||||||
| Mortgage servicing rights | ||||||||||||||||||||
| Financial liabilities: | ||||||||||||||||||||
| Non-maturing interest-bearing deposits | ||||||||||||||||||||
| Noninterest-bearing deposits | ||||||||||||||||||||
| Time certificates of deposit | ||||||||||||||||||||
| Accrued expenses and other liabilities | ||||||||||||||||||||
| FHLB advances and other borrowings | ||||||||||||||||||||
| Other long-term debt | ||||||||||||||||||||
| December 31, 2020 | ||||||||||||||||||||
| Total | ||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Estimated | Carrying | ||||||||||||||||
| Inputs | Inputs | Inputs | Fair Value | Amount | ||||||||||||||||
| (In Thousands) | ||||||||||||||||||||
| Financial assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| FHLB stock | ||||||||||||||||||||
| FRB stock | ||||||||||||||||||||
| Loans receivable, gross | ||||||||||||||||||||
| Accrued interest and dividends receivable | ||||||||||||||||||||
| Mortgage servicing rights | ||||||||||||||||||||
| Financial liabilities: | ||||||||||||||||||||
| Non-maturing interest-bearing deposits | ||||||||||||||||||||
| Noninterest-bearing deposits | ||||||||||||||||||||
| Time certificates of deposit | ||||||||||||||||||||
| Accrued expenses and other liabilities | ||||||||||||||||||||
| FHLB advances and other borrowings | ||||||||||||||||||||
| Other long-term debt | ||||||||||||||||||||
NOTE 12. RECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Pronouncements
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) to remove disclosure requirements that no longer are considered cost beneficial, modify/clarify specific requirements of certain disclosures and add disclosure requirements identified as relevant. The amendment became effective for the Company on January 1, 2020 and did not have a significant impact on the condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
In September 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The standard requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. The standard also requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. Additionally, the standard amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.
In October 2019, the FASB amended the effective date of the standard. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. An entity will apply the amendments in this update through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach).
The Company believes the amendments in this update will have an impact on the Company’s condensed consolidated financial statements and is continuing to evaluate the significance of that impact, even though the adoption date has been deferred. In that regard, we have established a working group composed of individuals from the finance and credit administration areas of the Company. We are currently developing an implementation plan, including assessment of processes, segmentation of the loan portfolio and identifying and adding data fields necessary for analysis. The adoption of this standard is likely to result in an increase in the allowance for loan and lease losses as a result of changing from an “incurred loss” model to an “expected loss” model. While we currently cannot reasonably estimate the impact of adopting this standard, we expect the impact will be influenced by the composition, characteristics and quality of our loan and securities portfolios, as well as the general economic conditions and forecasts as of the adoption date.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350) to amend and simplify current goodwill impairment testing to eliminate Step 2 from the current provisions. Under the new guidance, an entity should perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying value and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if a quantitative impairment test is necessary. The guidance is effective for the Company on January 1, 2023 and adoption of the standard is being evaluated to assess the impact on the Company’s condensed consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) which provides temporary optional expedients to ease the financial reporting burdens of the expected market transition from London Interbank Offered Rate (“LIBOR”) to an alternative reference rate such as SOFR. The guidance was effective upon issuance and generally can be applied through December 31, 2022. The Company is currently evaluating this guidance to determine the date of adoption and the potential impact.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Company’s primary business activity is the ownership of its wholly owned subsidiary, Opportunity Bank of Montana (the “Bank”). The Bank is a Montana chartered commercial bank that focuses on both consumer and commercial lending. It engages in typical banking activities: acquiring deposits from local markets and originating loans and investing in securities. The Bank’s primary component of earnings is its net interest margin (also called spread or margin), the difference between interest income and interest expense. The net interest margin is managed by management (through the pricing of its products and by the types of products offered and kept in portfolio), and is affected by changes in market interest rates. The Bank also generates noninterest income in the form of fee income and gain on sale of loans.
The Bank has a strong mortgage lending focus, with a large portion of its loan originations represented by single-family residential mortgages, which has enabled it to successfully market home equity loans, as well as a wide range of shorter term consumer loans for various personal needs (automobiles, recreational vehicles, etc.). The Bank has also focused on adding commercial loans to its portfolio, both real estate and non-real estate. We have made significant progress in this initiative. The purpose of this diversification is to mitigate the Bank’s dependence on the residential mortgage market, as well as to improve our ability to manage our interest rate spread. Recent acquisitions have added to our agricultural loans, which generally have shorter maturities and nominally higher interest rates. This has provided additional interest income and improved interest rate sensitivity. The Bank’s management recognizes that fee income will also enable it to be less dependent on specialized lending and it now maintains a significant loan serviced portfolio which provides a steady source of fee income. Fee income is also supplemented with fees generated from deposit accounts. The Bank has a high percentage of non-maturity deposits, such as checking accounts and savings accounts, which allows management flexibility in managing its spread. Non-maturity deposits and certificates of deposits do not automatically reprice as interest rates rise. Gain on sale of loans also provides significant noninterest income in periods of high mortgage loan origination volumes. Such income will be adversely affected in periods of lower mortgage activity.
Management continues to focus on improving the Bank’s earnings. Management believes the Bank needs to continue to concentrate on increasing net interest margin, other areas of fee income and control of operating expenses to achieve earnings growth going forward. Management’s strategy of growing the loan portfolio and deposit base is expected to help achieve these goals as follows: loans typically earn higher rates of return than investments; a larger deposit base should yield higher fee income; increasing the asset base will reduce the relative impact of fixed operating costs. The biggest challenge to the strategy is funding the growth of the statement of financial condition in an efficient manner. Though deposit growth has been steady, it may become more difficult to maintain due to significant competition and possible reduced customer demand for deposits as customers may shift into other asset classes.
The level and movement of interest rates impacts the Bank’s earnings as well. The Federal Open Market Committee changed the federal funds target rate from 1.75% to 0.25% during the year ended December 31, 2020. The rate remained at 0.25% during the three months ended March 31, 2021. The rate reductions add continued pressure on loan yields.
Recent Events
COVID-19
The Company’s performance for the first quarter of 2021 was strong due to higher mortgage banking operations, as a result of a historically low interest rate environment and substantial gains from loan sales. However, the Company also continues to see the impact of the COVID-19 pandemic and its consequences on our Montana communities. The Bank is focused on supporting our customers, communities and employees while prudently managing risk. The Bank is closely monitoring borrowers and businesses serviced and is providing debt service relief for those that have been impacted.
Recent Events– continued
COVID-19 – continued
On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) providing economic relief for the country, including the $349 billion Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) to fund short-term loans for small businesses. In April 2020, additional funding was approved for the PPP. Eagle began taking loan applications from its small business clients immediately after the program was implemented, and as of the close of the program, had helped 764 customers receive $45.71 million in SBA PPP loans. The Bank has processed applications for PPP loan forgiveness for customers, with 576 loans representing $30.20 million now paid in full. The remaining 188 PPP loans represent $15.23 million.
On December 27, 2020, the Consolidated Appropriations Act (“CAA”) was signed into law, providing new COVID-19 stimulus relief, and it included $284 billion allocated for another round of PPP lending, extending the program to March 31, 2021. On March 31, 2021, the program was extended to May 31, 2021. The program offers new PPP loans for companies that did not receive a PPP loan in 2020, and also “second draw” loans targeted at hard-hit businesses that have already spent their initial PPP proceeds. During the first quarter of 2021, Eagle supported 446 borrowers receiving $15.23 million in new PPP funding.
While all industries have and may continue to experience adverse impacts as a result of the COVID-19 pandemic, we had exposures in the following impacted industries, as a percentage of gross loans excluding loans held-for-sale and PPP loans as of March 31, 2021: hotels and lodging (4.4%), health and social assistance (3.0%), bars and restaurants (3.0%), casinos (1.2%) and nursing homes (0.5%). The Bank continues to reach out to specific borrowers to assess the risks and understand their needs.
The Bank has offered multiple accommodation options to its clients, including 90-day deferrals, forbearances and interest only payments. In addition, the Montana Board of Investments ("MBOI") offered 12-months of interest payment assistance to qualified borrowers. As of March 31, 2021, loan modifications for 41 nonresidential borrowers represented $27.83 million in loans, or 3.4% of gross loans excluding loans held-for-sale, compared to 40 borrowers representing $29.00 million, or 3.5% of gross loans excluding loans held-for-sale, as of December 31, 2020. The Bank qualified 32 borrowers for the MBOI program representing $27.25 million in loans, which are included in modification totals. Only one loan in the hotel and lodging industry was approved in the MBOI loan program and was considered a troubled debt restructured (“TDR”) loan as of March 31, 2021 and December 31, 2020. No other loans that had been modified related to COVID-19 were reported as TDR’s due to the CARES Act exemption. As of March 31, 2021, there remain approximately 26 forbearances approved for residential mortgage loans, of which 24 are sold and serviced. Utilization of credit lines were 81.6% at the end of the first quarter compared to 82.7% at the end of the fourth quarter, which aligns with historical usage rates.
Our fee income could be reduced due to COVID-19. In keeping with guidance from regulators, we are actively working with COVID-19 affected customers to waive fees from a variety of sources, such as, but not limited to, insufficient funds and overdraft fees, early withdrawal fees, ATM fees, account maintenance fees, etc. These reductions in fees are thought, at this time, to be temporary in conjunction with the length of the expected COVID-19 related economic crisis. At this time, we are unable to project the materiality of such an impact, but recognize the breadth of the economic impact is likely to impact our fee income in future periods.
As of March 31, 2021, our capital ratios were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand an extended economic recession brought about by COVID-19, our reported and regulatory capital ratios could be adversely impacted by further credit losses. We rely on cash on hand as well as dividends from our subsidiary bank to service our debt. If our capital deteriorates such that our subsidiary bank is unable to pay dividends to us for an extended period of time, we may not be able to service our debt.
While certain valuation assumptions and judgments will change to account for pandemic-related circumstances such as widening credit spreads, we do not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP.
As of December 31, 2020, our goodwill was not impaired. COVID-19 could cause a further and sustained decline in our stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to perform a goodwill impairment test and result in an impairment charge being recorded for that period. In the event that we conclude that all or a portion of our goodwill is impaired, a noncash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital. At March 31, 2021 we had goodwill of $20.80 million.
The Company is committed to assisting our customers and communities in this time of need, and as we start to reopen. The State of Montana ended their phased approach to reopening and lifted the state-wide mask mandate on February 12, 2021. However, counties are able to make their own health orders and require residents to wear masks. On March 22, 2021, all of our lobbies opened while still requiring everyone to practice necessary safeguards. Management is encouraging its employees to receive the COVID-19 vaccine upon availability.
Acquisitions
The Bank has used growth through mergers or acquisition in addition to its strategy of organic growth. In January 2020, Eagle acquired Western Holding Company of Wolf Point ("WHC"), a Montana corporation, and WHC's wholly-owned subsidiary, Western Bank of Wolf Point ("WB"), a Montana chartered commercial bank. In the transaction, Eagle acquired one retail bank branch in Wolf Point, Montana.
Financial Condition
Comparisons of financial condition in this section are between March 31, 2021 and December 31, 2020.
Total assets were $1.31 billion at March 31, 2021, an increase of $53.79 million, or 4.3% from $1.26 billion at December 31, 2020. The increase was largely due to an increase in interest-bearing deposits in banks and securities available-for sale, partially offset by a decrease in loans receivable, net. Interest-bearing deposits increased by $39.44 million from December 31, 2020 and has been impacted by PPP loan payoffs and deposit growth. Securities available-for-sale increased by $17.33 million from December 31, 2020. Loans receivable, net decreased by $12.06 million from December 31, 2020. Total liabilities were $1.16 billion at March 31, 2021, an increase of $50.89 million, or 4.6%, from $1.10 billion at December 31, 2020. The increase was largely due to an increase in deposits, partially offset by a reduction in FHLB advances and other borrowings. Total deposits increased by $60.32 million from December 31, 2020. However, FHLB advances and other borrowings decreased $5.21 million from December 31, 2020. Total shareholders’ equity increased by $2.89 million from December 31, 2020.
Financial Condition Details
Investment Activities
The following table summarizes investment activities:
| March 31, |
December 31, |
|||||||||||||||
| 2021 |
2020 |
|||||||||||||||
| Fair Value |
Percentage of Total |
Fair Value |
Percentage of Total |
|||||||||||||
| (Dollars in Thousands) |
||||||||||||||||
| Securities available-for-sale: |
||||||||||||||||
| U.S. government obligations |
$ | 2,106 | 1.17 | % | $ | 2,245 | 1.38 | % | ||||||||
| U.S. treasury obligations | 23,032 | 12.78 | 5,657 | 3.47 | ||||||||||||
| Municipal obligations |
97,665 | 54.17 | 99,088 | 60.81 | ||||||||||||
| Corporate obligations |
10,743 | 5.96 | 10,663 | 6.54 | ||||||||||||
| Mortgage-backed securities |
7,077 | 3.93 | 7,669 | 4.71 | ||||||||||||
| Collateralized mortgage obligations |
33,377 | 18.51 | 31,189 | 19.14 | ||||||||||||
| Asset-backed securities |
6,276 | 3.48 | 6,435 | 3.95 | ||||||||||||
| Total securities available-for-sale |
$ | 180,276 | 100.00 | % | $ | 162,946 | 100.00 | % | ||||||||
Securities available-for-sale were $180.28 million at March 31, 2021, an increase of $17.33 million, or 10.6%, from $162.95 million at December 31, 2020. The increase was largely due to $25.66 million in purchases, including $17.39 million of U.S. treasury obligations. The purchases were slightly offset by principal payments.
Financial Condition – continued
Lending Activities
The following table includes the composition of the Bank’s loan portfolio by loan category:
| March 31, |
December 31, |
|||||||||||||||
| 2021 |
2020 |
|||||||||||||||
| Amount |
Percent of Total |
Amount |
Percent of Total |
|||||||||||||
| (Dollars in thousands) |
||||||||||||||||
| Real estate loans: |
||||||||||||||||
| Residential 1-4 family (1) |
$ | 100,948 | 12.13 | % | $ | 110,802 | 13.14 | % | ||||||||
| Residential 1-4 family construction |
35,558 | 4.27 | 46,290 | 5.49 | ||||||||||||
| Total residential 1-4 family |
136,506 | 16.40 | 157,092 | 18.63 | ||||||||||||
| Commercial real estate |
329,772 | 39.65 | 316,668 | 37.56 | ||||||||||||
| Commercial construction and development |
66,718 | 8.02 | 65,281 | 7.74 | ||||||||||||
| Farmland |
67,592 | 8.13 | 65,918 | 7.82 | ||||||||||||
| Total commercial real estate |
464,082 | 55.80 | 447,867 | 53.12 | ||||||||||||
| Total real estate loans |
600,588 | 72.20 | 604,959 | 71.75 | ||||||||||||
| Other loans: |
||||||||||||||||
| Home equity |
53,270 | 6.40 | 56,563 | 6.71 | ||||||||||||
| Consumer |
19,424 | 2.33 | 20,168 | 2.39 | ||||||||||||
| Commercial |
108,956 | 13.10 | 109,209 | 12.95 | ||||||||||||
| Agricultural |
49,642 | 5.97 | 52,242 | 6.20 | ||||||||||||
| Total commercial loans |
158,598 | 19.07 | 161,451 | 19.15 | ||||||||||||
| Total other loans |
231,292 | 27.80 | 238,182 | 28.25 | ||||||||||||
| Total loans |
831,880 | 100.00 | % | 843,141 | 100.00 | % | ||||||||||
| Deferred loan fees |
(2,541 | ) | (2,038 | ) | ||||||||||||
| Allowance for loan losses |
(11,900 | ) | (11,600 | ) | ||||||||||||
| Total loans, net |
$ | 817,439 | $ | 829,503 | ||||||||||||
|
|
(1) |
Excludes loans held-for-sale. |
Loans receivable, net decreased $12.06 million, or 1.5%, to $817.44 million at March 31, 2021 from $829.50 million at December 31, 2020. Total residential loans decreased $20.58 million, home equity loans decreased $3.29 million, total commercial loans decreased $2.85 million and consumer loans decreased $744,000. However, these decreases were partially offset by an increase in total commercial real estate loans of $16.21 million.
Total loan originations were $364.34 million for the three months ended March 31, 2021. Total residential 1-4 family originations were $275.43 million, which includes $267.17 million of loans held-for-sale originations. Total commercial real estate originations were $54.20 million. Total commercial originations were $30.22 million which includes $15.23 million of SBA PPP loans. Home equity loan originations totaled $2.66 million. Consumer loan originations totaled $1.83 million. Loans held-for-sale increased by $5.99 million to $60.61 million at March 31, 2021 from $54.62 million at December 31, 2020.
Generally, our collection procedures provide that when a loan is 15 or more days delinquent, the borrower is sent a past due notice. If the loan becomes 30 days delinquent, the borrower is sent a written delinquency notice requiring payment. If the delinquency continues, subsequent efforts are made to contact the delinquent borrower, including face to face meetings and counseling to resolve the delinquency. All collection actions are undertaken with the objective of compliance with the Fair Debt Collection Act.
For mortgage loans and home equity loans, if the borrower is unable to cure the delinquency or reach a payment agreement, we will institute foreclosure actions. If a foreclosure action is taken and the loan is not reinstated, paid in full or refinanced, the property is sold at judicial sale at which we may be the buyer if there are no adequate offers to satisfy the debt. Any property acquired as the result of foreclosure, or by deed in lieu of foreclosure, is classified as real estate owned until such time as it is sold or otherwise disposed of. When real estate owned is acquired, it is recorded at its fair market value less estimated selling costs. The initial recording of any loss is charged to the allowance for loan losses. Subsequent write-downs are recorded as a charge to operations. As of March 31, 2021 there was no real estate owned and other repossessed property. As of December 31, 2020, there was $25,000 of real estate owned and other repossessed property.
The State of Montana placed a freeze on foreclosures on March 28, 2020. Subsequently it released the freeze effective May 24, 2020 with the exception of continued protection for those individuals deemed vulnerable to the coronavirus. The Federal foreclosure moratorium that began March 18, 2020 was extended to June 30, 2021. However, the Bank has had minimal impact due to foreclosures affected by these freezes.
Financial Condition – continued
Lending Activities– continued
The following table sets forth information regarding nonperforming assets:
| March 31, |
December 31, |
|||||||
| 2021 |
2020 |
|||||||
| (Dollars in Thousands) |
||||||||
| Nonaccrual loans |
||||||||
| Real estate loans: |
||||||||
| Residential 1-4 family |
$ | 675 | $ | 684 | ||||
| Residential 1-4 family construction |
337 | 337 | ||||||
| Commercial real estate |
668 | 631 | ||||||
| Commercial construction and development |
- | 36 | ||||||
| Farmland |
1,866 | 2,245 | ||||||
| Other loans: |
||||||||
| Home equity |
93 | 94 | ||||||
| Consumer |
145 | 151 | ||||||
| Commercial |
546 | 537 | ||||||
| Agricultural |
1,327 | 1,542 | ||||||
| Accruing loans delinquent 90 days or more |
||||||||
| Real estate loans: |
||||||||
| Residential 1-4 family |
- | 34 | ||||||
| Residential 1-4 family construction |
- | 170 | ||||||
| Farmland |
147 | - | ||||||
| Other loans: |
||||||||
| Commercial | - | 6 | ||||||
| Agricultural |
464 | 182 | ||||||
| Restructured loans: |
||||||||
| Real estate loans: |
||||||||
| Commercial real estate |
1,748 | 1,633 | ||||||
| Commercial construction and development |
- | 14 | ||||||
| Other loans: |
||||||||
| Home equity |
16 | 17 | ||||||
| Agricultrual |
79 | 160 | ||||||
| Total nonperforming loans |
8,111 | 8,473 | ||||||
| Real estate owned and other repossessed property, net |
- | 25 | ||||||
| Total nonperforming assets |
$ | 8,111 | $ | 8,498 | ||||
| Total nonperforming loans to total loans | 0.98 | % | 1.00 | % | ||||
| Total nonperforming loans to total assets | 0.62 | % | 0.67 | % | ||||
| Total allowance for loan loss to nonperforming loans |
146.71 | % | 136.91 | % | ||||
| Total nonperforming assets to total assets | 0.62 | % | 0.68 | % | ||||
Nonaccrual loans as of March 31, 2021 and December 31, 2020 include $1.09 million and $1.28 million, respectively of acquired loans that deteriorated subsequent to the acquisition date.
As of March 31, 2021, loan modifications for 41 borrowers represented $27.83 million in loans compared to 40 borrowers representing $29.00 million as of December 31, 2020. As of March 31, 2021 there are approximately 26 forbearances remaining for residential mortgage loans, of which 24 are sold and serviced.
Financial Condition – continued
Deposits and Other Sources of Funds
The following table includes deposit accounts by category:
| March 31, |
December 31, |
|||||||||||||||
| 2021 |
2020 |
|||||||||||||||
| Percent |
Percent |
|||||||||||||||
| Amount |
of Total |
Amount |
of Total |
|||||||||||||
| (Dollars in Thousands) |
||||||||||||||||
| Noninterest checking |
$ | 331,589 | 30.32 | % | $ | 318,389 | 30.82 | % | ||||||||
| Interest-bearing checking |
174,840 | 15.99 | 160,614 | 15.55 | ||||||||||||
| Savings |
197,748 | 18.09 | 179,868 | 17.41 | ||||||||||||
| Money market |
224,107 | 20.49 | 202,407 | 19.59 | ||||||||||||
| Total |
928,284 | 84.89 | 861,278 | 83.37 | ||||||||||||
| Certificates of deposit accounts: |
||||||||||||||||
| IRA certificates | 25,453 | 2.33 | 24,693 | 2.39 | ||||||||||||
| Brokered certificates | 495 | 0.05 | 495 | 0.05 | ||||||||||||
| Other certificates |
139,172 | 12.73 | 146,617 | 14.19 | ||||||||||||
| Total certificates of deposit |
165,120 | 15.11 | 171,805 | 16.63 | ||||||||||||
| Total deposits |
$ | 1,093,404 | 100.00 | % | $ | 1,033,083 | 100.00 | % | ||||||||
Deposits increased by $60.32 million, or 5.8%, to $1.09 billion at March 31, 2021 from $1.03 billion at December 31, 2020. Money market increased by $21.70 million, savings increased by $17.88 million, interest-bearing checking increased by $14.23 million, and noninterest checking increased by $13.20 million. Certificates of deposit decreased by $6.69 million. The decrease in time certificates of deposit was driven by a decrease in other certificates of $7.45 million. Due to the low interest rate environment, some depositors were compelled to move funds from other certificates to non-maturity deposits upon maturity.
The following table summarizes borrowing activity:
| March 31, |
December 31, |
|||||||||||||||
| 2021 |
2020 |
|||||||||||||||
| Net |
Percent |
Net |
Percent |
|||||||||||||
| Amount |
of Total |
Amount |
of Total |
|||||||||||||
| (Dollars in Thousands) |
||||||||||||||||
| FHLB advances and other borrowings |
$ | 11,862 | 28.46 | % | $ | 17,070 | 36.43 | % | ||||||||
| Other long-term debt: |
||||||||||||||||
| Senior notes fixed at 5.75%, due 2022 |
9,963 | 23.91 | 9,952 | 21.23 | ||||||||||||
| Subordinated debentures fixed at 5.50% to floating, due 2030 |
14,693 | 35.26 | 14,684 | 31.34 | ||||||||||||
| Subordinated debentures variable, due 2035 |
5,155 | 12.37 | 5,155 | 11.00 | ||||||||||||
| Total other long-term debt |
29,811 | 71.54 | 29,791 | 63.57 | ||||||||||||
| Total borrowings |
$ | 41,673 | 100.00 | % | $ | 46,861 | 100.00 | % | ||||||||
FHLB advances and other borrowings decreased by $5.21 million, or 30.5% to $11.86 million at March 31, 2021 from $17.07 million at December 31, 2020. The decrease was primarily due to maturities of FHLB advances.
Shareholders’ Equity
Total shareholders’ equity increased $2.89 million, or 1.9%, to $155.83 million at March 31, 2021 from $152.94 million at December 31, 2020. This was primarily due to net income of $5.27 million. The increase in net income was partly offset by other comprehensive loss of $1.90 million and dividends paid of $661,000.
Analysis of Net Interest Income
The Bank’s earnings have historically depended primarily upon net interest income, which is the difference between interest income earned on loans and investments and interest paid on deposits and any borrowed funds. It is the single largest component of Eagle’s operating income. Net interest income is affected by (i) the difference between rates of interest earned on loans and investments and rates paid on interest-bearing deposits and borrowings (the “interest rate spread”) and (ii) the relative amounts of loans and investments and interest-bearing deposits and borrowings.
The following table includes average balances for financial condition items, as well as, interest and dividends and average yields related to the average balances. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields include the effect of deferred fees and discounts and premiums that are amortized or accreted to interest income or expense.
| For the Three Months Ended March 31, |
||||||||||||||||||||||||
| 2021 |
2020 |
|||||||||||||||||||||||
| Average |
Interest |
Average |
Interest |
|||||||||||||||||||||
| Daily |
and |
Yield/ |
Daily |
and |
Yield/ |
|||||||||||||||||||
| Balance |
Dividends |
Cost(4) |
Balance |
Dividends |
Cost(4) |
|||||||||||||||||||
| (Dollars in Thousands) |
||||||||||||||||||||||||
| Assets: |
||||||||||||||||||||||||
| Interest-earning assets: |
||||||||||||||||||||||||
| Investment securities |
$ | 163,423 | $ | 877 | 2.18 | % | $ | 171,263 | $ | 1,027 | 2.41 | % | ||||||||||||
| FHLB and FRB stock |
4,947 | 69 | 5.66 | 7,371 | 94 | 5.12 | ||||||||||||||||||
| Loans receivable(1) |
890,042 | 11,029 | 5.03 | 840,427 | 11,432 | 5.46 | ||||||||||||||||||
| Other earning assets |
79,620 | 26 | 0.13 | 19,973 | 78 | 1.57 | ||||||||||||||||||
| Total interest-earning assets |
1,138,032 | 12,001 | 4.28 | 1,039,034 | 12,631 | 4.88 | ||||||||||||||||||
| Noninterest-earning assets |
138,933 | 114,701 | ||||||||||||||||||||||
| Total assets |
$ | 1,276,965 | $ | 1,153,735 | ||||||||||||||||||||
| Liabilities and equity: |
||||||||||||||||||||||||
| Interest-bearing liabilities: |
||||||||||||||||||||||||
| Deposit accounts: |
||||||||||||||||||||||||
| Checking |
$ | 171,721 | $ | 10 | 0.02 | % | $ | 133,829 | $ | 18 | 0.05 | % | ||||||||||||
| Savings |
182,566 | 27 | 0.06 | 139,302 | 46 | 0.13 | ||||||||||||||||||
| Money market |
215,138 | 110 | 0.21 | 151,392 | 176 | 0.47 | ||||||||||||||||||
| Certificates of deposit |
168,321 | 255 | 0.61 | 254,512 | 1,099 | 1.73 | ||||||||||||||||||
| Advances from FHLB and other borrowings including long-term debt |
44,375 | 460 | 4.20 | 112,758 | 815 | 2.90 | ||||||||||||||||||
| Total interest-bearing liabilities |
782,121 | 862 | 0.45 | 791,793 | 2,154 | 1.09 | ||||||||||||||||||
| Noninterest checking |
317,036 | 213,753 | ||||||||||||||||||||||
| Other noninterest-bearing liabilities |
21,837 | 15,837 | ||||||||||||||||||||||
| Total liabilities |
1,120,994 | 1,021,383 | ||||||||||||||||||||||
| Total equity |
155,971 | 132,352 | ||||||||||||||||||||||
| Total liabilities and equity |
$ | 1,276,965 | $ | 1,153,735 | ||||||||||||||||||||
| Net interest income/interest rate spread(2) |
$ | 11,139 | 3.83 | % | $ | 10,477 | 3.79 | % | ||||||||||||||||
| Net interest margin(3) |
3.97 | % | 4.04 | % | ||||||||||||||||||||
| Total interest-earning assets to interest-bearing liabilities |
145.51 | % | 131.23 | % | ||||||||||||||||||||
| (1) Includes loans held-for-sale. |
| (2) Interest rate spread represents the difference between the average yield on interest-earning assets and the average rate on interest-bearing liabilities. |
| (3) Net interest margin represents income before the provision for loan losses divided by average interest-earning assets. |
| (4) For purposes of this table, tax exempt income is not calculated on a tax equivalent basis. |
Rate/Volume Analysis
The following tables present the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: (1) changes in volume multiplied by the old rate; (2) changes in rate, which are changes in rate multiplied by the old volume; and (3) changes not solely attributable to rate or volume, which have been allocated proportionately to the change due to volume and the change due to rate.
| For the Three Months Ended March 31, |
||||||||||||||||||||||||
| 2021 |
2020 |
|||||||||||||||||||||||
| Due to |
Due to |
|||||||||||||||||||||||
| Volume |
Rate |
Net |
Volume |
Rate |
Net |
|||||||||||||||||||
| (In Thousands) |
||||||||||||||||||||||||
| Interest-earning assets: |
||||||||||||||||||||||||
| Investment securities | $ | (47 | ) | $ | (103 | ) | $ | (150 | ) | $ | 207 | $ | (138 | ) | $ | 69 | ||||||||
| FHLB and FRB stock | (31 | ) | 6 | (25 | ) | 3 | (4 | ) | (1 | ) | ||||||||||||||
| Loans receivable(1) | 675 | (1,078 | ) | (403 | ) | 1,573 | (189 | ) | 1,384 | |||||||||||||||
| Other earning assets | 233 | (285 | ) | (52 | ) | 78 | (20 | ) | 58 | |||||||||||||||
| Total interest-earning assets |
830 | (1,460 | ) | (630 | ) | 1,861 | (351 | ) | 1,510 | |||||||||||||||
| Interest-bearing liabilities: |
||||||||||||||||||||||||
| Checking, savings and money market accounts | 93 | (186 | ) | (93 | ) | 27 | 91 | 118 | ||||||||||||||||
| Certificates of deposit | (372 | ) | (472 | ) | (844 | ) | 200 | 234 | 434 | |||||||||||||||
| Advances from FHLB and other borrowings including long-term debt | (494 | ) | 139 | (355 | ) | (97 | ) | (47 | ) | (144 | ) | |||||||||||||
| Total interest-bearing liabilities |
(773 | ) | (519 | ) | (1,292 | ) | 130 | 278 | 408 | |||||||||||||||
| Change in net interest income |
$ | 1,603 | $ | (941 | ) | $ | 662 | $ | 1,731 | $ | (629 | ) | $ | 1,102 | ||||||||||
| (1) Includes loans held-for-sale. |
Results of Operations for the Three Months Ended March 31, 2021 and 2020
Net Income. Eagle’s net income for the three months ended March 31, 2021 was $5.27 million compared to $3.93 million for the three months ended March 31, 2020. The increase of $1.34 million was due to an increase in noninterest income of $5.09 million and an increase in net interest income after loan loss provision of $1.03 million, partially offset by an increase in noninterest expense of $4.36 million and an increase in provision for income taxes of $1.76 million. Basic and diluted earnings per share were both $0.78 for the current period. Basic earnings per share was $0.58 and diluted earnings per share was $0.57 for the prior year comparable period.
Net Interest Income. Net interest income increased to $11.14 million for the three months ended March 31, 2021, from $10.48 million for the same quarter in the prior year. The increase of $662,000, or 6.3%, was the result of a decrease in interest expense of $1.29 million, partially offset by a decrease in interest and dividend income of $630,000.
Interest and Dividend Income. Interest and dividend income was $12.00 million for the three months ended March 31, 2021, compared to $12.63 million for the three months ended March 31, 2020, a decrease of $630,000 or 5.0%. Interest and fees on loans decreased to $11.03 million for the three months ended March 31, 2021 from $11.43 million for the three months ended March 31, 2020. This decrease of $403,000, or 3.5%, was due to decrease in the average yield of loans for the quarter ended March 31, 2021 partially offset by an increase in the average balance of loans. Net fee income of $1.53 million earned on PPP loans for the three months ended March 31, 2021, along with the 1.0% contractual rate on PPP loans contributed to the downward push on loan yield. The average interest rate earned on loans receivable decreased by 43 basis points, from 5.46% to 5.03%. Interest accretion on purchased loans was $189,000 for the three months ended March 31, 2021 which resulted in a 7 basis point increase in net interest margin compared to $558,000 for the three months ended March 31, 2020 which resulted in a 22 basis point increase in net interest margin. Average balances for loans receivable, including loans held-for-sale, for the three months ended March 31, 2021 were $890.04 million, compared to $840.43 million for the prior year period. This represents an increase of $49.61 million, or 5.9% and was impacted by PPP loans and organic growth. Interest and dividends on investment securities available-for-sale decreased by $150,000, or 14.6% period over period. Average interest rates earned on investments decreased to 2.18% for the three months ended March 31, 2021 from 2.41% for the three months ended March 31, 2020. In addition, average balances for investments decreased to $163.42 million for the three months ended March 31, 2021, from $171.26 million for the three months ended March 31, 2020.
Results of Operations for the Three Months Ended March 31, 2021 and 2020 – continued
Interest Expense. Total interest expense was $862,000 for the three months ended March 31, 2021 compared to $2.15 million for the three months ended March 31, 2020. The decrease of $1.29 million or 60.0% was due to a decrease in interest expense on deposits of $937,000, as well as a net decrease in interest expense on total borrowings of $355,000. The average balance for total deposits was $1.05 billion for three months ended March 31, 2021 compared to $892.79 million for the three months ended March 31, 2020. This increase was impacted by PPP funding and economic stimulus. However, the overall average rate on total deposits was 0.15% for the three months ended March 31, 2021 compared to 0.60% for the three months ended March 31, 2020. The average rate paid on total borrowings increased from 2.90% for the three months ended March 31, 2020, to 4.20% for the three months ended March 31, 2021. However, the average balance for total borrowings decreased from $112.76 million for the three months ended March 31, 2020 to $44.38 million for the three months ended March 31, 2021 due to increased liquidity levels.
Loan Loss Provision. Loan loss provisions are charged to earnings to maintain the total allowance for loan losses at a level considered adequate by the Bank to provide for probable loan losses based on prior loss experience, volume and type of lending we conduct and past due loans in portfolio. The Bank’s policies require the review of assets on a quarterly basis. The Bank classifies loans if warranted. While management believes it uses the best information available to make a determination with respect to the allowance for loan losses, it recognizes that future adjustments may be necessary. Using this methodology, the Bank recorded $299,000 in loan loss provisions for the three months ended March 31, 2021. Loan loss provisions were $670,000 for the three months ended March 31, 2020, which included $220,000 related to the potential impact of Covid-19. Management believes the level of total allowances is adequate to cover estimated losses inherent in the portfolio. However, if the economic forecast worsens relative to the assumptions we utilized, our allowance for credit losses will increase accordingly in future periods.
Noninterest Income. Total noninterest income was $13.39 million for the three months ended March 31, 2021, compared to $8.30 million for the three months ended March 31, 2020. The increase of $5.09 million is largely due to an increase in net gain on sale of loans which increased $8.87 million, partially offset by a decrease in mortgage banking, net of $4.11 million. During the three months ended March 31, 2021, $260.49 million residential mortgage loans were sold compared to $132.12 million in the same period in the prior year. In addition, gross margin on sale of mortgage loans for the three months ended March 31, 2021 was 5.48% compared to 4.10% for the three months ended March 31, 2020.
Noninterest Expense. Noninterest expense was $17.21 million for the three months ended March 31, 2021 compared to $12.85 million for the three months ended March 31, 2020. The increase of $4.36 million or 33.9% is primarily due to increased salaries and employee benefits expense of $4.41 million. The increase in salaries expense is due in part to higher commission-based compensation related to mortgage loan growth and additional staff. Mortgage compensation and benefits increased $3.63 million for the three months ended March 31, 2021 compared to the same period in the prior year.
Provision for Income Taxes. Provision for income taxes was $1.76 million for the three months ended March 31, 2021, compared to $1.34 million for the three months ended March 31, 2020 due to increased income before provision for income taxes. The effective tax rate for the three months ended March 31, 2021 was 25.0% compared to 25.4% for the three months ended March 31, 2020.
Liquidity and Capital Resources
Liquidity
The Bank is required to maintain minimum levels of liquid assets as defined by the Montana Division of Banking and FRB regulations. The liquidity requirement is retained for safety and soundness purposes, and that appropriate levels of liquidity will depend upon the types of activities in which the company engages. For internal reporting purposes, the Bank uses policy minimums of 1.0%, and 8.0% for “basic surplus” and “basic surplus with FHLB” as internally defined. In general, the “basic surplus” is a calculation of the ratio of unencumbered short-term assets reduced by estimated percentages of CD maturities and other deposits that may leave the Bank in the next 90 days divided by total assets. “Basic surplus with FHLB” adds to “basic surplus” the additional borrowing capacity the Bank has with the FHLB of Des Moines. The Bank exceeded those minimum ratios as of March 31, 2021 and December 31, 2020.
Liquidity and Capital Resources - continued
The Bank’s primary sources of funds are deposits, repayment of loans and mortgage-backed securities, maturities of investments, funds provided from operations, advances from the FHLB of Des Moines and other borrowings. Scheduled repayments of loans and mortgage-backed securities and maturities of investment securities are generally predictable. However, other sources of funds, such as deposit flows and loan prepayments, can be greatly influenced by the general level of interest rates, economic conditions and competition. The Bank uses liquidity resources principally to fund existing and future loan commitments. It also uses them to fund maturing certificates of deposit and demand deposit withdrawals. In addition, the Bank uses liquidity resources for investment purposes, to meet operating expenses and capital expenditures, and maintain adequate liquidity levels.
Liquidity may be adversely affected by unexpected deposit outflows, higher interest rates paid by competitors, and similar matters. Management monitors projected liquidity needs and determines the level desirable based in part on Eagle’s commitments to make loans and management’s assessment of Eagle’s ability to generate funds.
Through the quarter ended March 31, 2021, the liquidity level has steadily increased, as a result of PPP loan payoffs and deposit growth.
Capital Resources
As of March 31, 2021, the Bank’s internally determined measurement of sensitivity to interest rate movements as measured by a 200 basis point rise in interest rates scenario, increased the economic value of equity (“EVE”) by 23.3% compared to an increase of 15.0% at December 31, 2020. The Bank is within the guidelines set forth by the Board of Directors for interest rate risk sensitivity in rising interest rate scenarios.
The Bank’s regulatory capital was in excess of all applicable regulatory requirements and the Bank is deemed "well capitalized" pursuant to State of Montana and FRB rules as of March 31, 2021. The Bank's Tier I leverage ratio increased slightly from 11.72% as of December 31, 2020 to 11.94% as of March 31, 2021, compared to a regulatory requirement of 4.00%. The Bank’s total capital, Tier 1 capital and common equity Tier 1 capital leverage ratios were 17.33%, 16.08% and 16.08%, respectively, compared to regulatory requirements of 10.50%, 8.50% and 7.00%, respectively. All of these ratios with the exception of the Tier 1 leverage ratio include the capital conservation buffer of 2.50%. The Bank’s capital position helps to mitigate its interest rate risk exposure.
| March 31, 2021 |
||||||||
| (Unaudited) |
||||||||
| Dollar |
% of |
|||||||
| Amount |
Assets |
|||||||
| (Dollars in Thousands) |
||||||||
| Total risk-based capital to risk weighted assets: |
||||||||
| Actual capital level |
$ | 159,007 | 17.33 | % | ||||
| Minimum required for capital adequacy purposes |
96,333 | 10.50 | ||||||
| Excess capital |
$ | 62,674 | 6.83 | % | ||||
| Tier I capital to risk weighted assets: |
||||||||
| Actual capital level |
$ | 147,533 | 16.08 | % | ||||
| Minimum required for capital adequacy purposes |
77,984 | 8.50 | ||||||
| Excess capital |
$ | 69,549 | 7.58 | % | ||||
| Common equity tier I capital to risk weighted assets: |
||||||||
| Actual capital level |
$ | 147,533 | 16.08 | % | ||||
| Minimum required for capital adequacy purposes |
64,222 | 7.00 | ||||||
| Excess capital |
$ | 83,311 | 9.08 | % | ||||
| Tier I capital to adjusted total average assets: |
||||||||
| Actual capital level |
$ | 147,533 | 11.94 | % | ||||
| Minimum required for capital adequacy purposes |
49,414 | 4.00 | ||||||
| Excess capital |
$ | 98,119 | 7.94 | % | ||||
Impact of Inflation and Changing Prices
Our condensed consolidated financial statements and the accompanying notes, which are found in Part I, Item 1, have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time and due to inflation. The impact of inflation is reflected in the increased cost of our operations. Interest rates have a greater impact on our performance than do the general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.
Interest Rate Risk
Interest rate risk is the potential for loss of future earnings resulting from adverse changes in the level of interest rates. Interest rate risk results from several factors and could have a significant impact on the Company’s net interest income, which is the Company primary source of net income. Net interest income is affected by changes in interest rates, the relationship between rates on interest-bearing assets and liabilities, the impact of interest fluctuations on asset prepayments and the mix of interest-bearing assets and liabilities.
Although interest rate risk is inherent in the banking industry, banks are expected to have sound risk management practices in place to measure, monitor and control interest rate exposures. The objective of interest rate risk management is to contain the risks associated with interest rate fluctuations. The process involves identification and management of the sensitivity of net interest income to changing interest rates.
The ongoing monitoring and management of this risk is an important component of the Company’s asset/liability committee, which is governed by policies established by the Company’s Board that are reviewed and approved annually. The Board delegates responsibility for carrying out the asset/liability management policies to the Bank’s asset/liability committee. In this capacity, the asset/liability committee develops guidelines and strategies impacting the Company’s asset/liability management related activities based upon estimated market risk sensitivity, policy limits and overall market interest rate levels and trends. The Company’s goal of its asset and liability management practices is to maintain or increase the level of net interest income within an acceptable level of interest rate risk. Our asset and liability policy and strategies are expected to continue as described so long as competitive and regulatory conditions in the financial institution industry and market interest rates continue as they have in recent years.
The Bank has established acceptable levels of interest rate risk as follows for an instantaneous and permanent shock in rates: Projected net interest income over the next twelve months (i.e. year-1) and the subsequent twelve months (i.e. year-2) will not be reduced by more than 15.0% given an immediate increase in interest rates of up to 200 basis points or by more than 10.0% given an immediate decrease in interest rates of up to 100 basis points.
The following table includes the Bank’s net interest income sensitivity analysis.
| Changes in Market |
Rate Sensitivity |
|||||
| Interest Rates |
As of March 31, 2021 |
Policy |
||||
| (Basis Points) |
Year 1 |
Year 2 |
Limits |
|||
| +200 |
8.00% |
12.30% |
-15.00% |
|||
| -100 |
-3.10% |
-7.50% |
-10.00% |
|||
Item 3. Quantitative and Qualitative Disclosures About Market Risk
This item has been omitted based on Eagle’s status as a smaller reporting company.
Item 4. Controls and Procedures
As of the end of the period covered by this report, we conducted an evaluation under the supervision and with the participation of our management including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”) of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to management to allow timely decisions regarding required disclosure. Based on that evaluation, our CEO and CFO concluded that as of March 31, 2021, our disclosure controls and procedures were effective. During the last quarter, there were no changes in the Company’s internal control over financial reporting that have materially affected, or were reasonably likely to materially affect, the Company’s internal control over financial reporting.
| Legal Proceedings. |
Neither the Company nor the Bank is involved in any pending legal proceeding other than non-material legal proceedings occurring in the ordinary course of business.
| Risk Factors |
There have not been any material changes in the risk factors previously disclosed in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020 and any subsequently filed Quarterly Reports on Form 10-Q.
| Unregistered Sales of Equity Securities and Use of Proceeds. |
On July 23, 2020, Eagle's Board of Directors (the "Board") authorized the repurchase of up to 100,000 shares of its common stock. Under the plan, shares may be purchased by the Company on the open market or in privately negotiated transactions. The extent to which the company repurchases its shares and the timing of such repurchase will depend upon market conditions and other corporate considerations. During the third quarter of 2020, 41,337 shares were purchased under this plan at an average price of $15.75 per share. However, no shares were purchased during the fourth quarter of 2020 or the first quarter of 2021. The plan expires on July 23, 2021.
On July 18, 2019, the Board authorized the repurchase of up to 100,000 shares of its common stock. Under the plan, shares could be purchased by the Company on the open market or in privately negotiated transactions. The extent to which the company repurchased its shares and the timing of such repurchase depended upon market conditions and other corporate considerations. No shares were purchased under this plan during the year ended December 31, 2019 or the first quarter of 2020. However, during the second quarter of 2020, 1,281 shares were purchased at an average price of $16.95 per share. In addition, during the third quarter of 2020, 20,158 shares were purchased at an average price of $15.60 per share. The plan expired on July 18, 2020.
| Defaults Upon Senior Securities. |
Not applicable.
| Mine Safety Disclosures |
Not applicable.
Part II - OTHER INFORMATION - continued
| Other Information. |
None.
| Exhibits. |
| Exhibit Number |
Description |
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| 3.1 |
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| 3.2 |
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| 3.3 |
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| 31.1 |
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| 31.2 |
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| 32.1 |
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| 101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
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| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
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| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
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| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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.
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EAGLE BANCORP MONTANA, INC. |
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| Date: May 6, 2021 |
By: |
/s/ Peter J. Johnson |
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Peter J. Johnson |
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President/CEO |
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| Date: May 6, 2021 |
By: |
/s/ Laura F. Clark |
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Laura F. Clark |
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Executive Vice President/CFO/COO |
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Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302(a) OF THE
SARBANES-OXLEY ACT OF 2002
I, Peter J. Johnson certify that:
|
1. |
I have reviewed this quarterly report on Form 10-Q of Eagle Bancorp Montana, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: May 6, 2021
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/s/ Peter J. Johnson |
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Peter J. Johnson |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
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Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302(a) OF THE
SARBANES-OXLEY ACT OF 2002
I, Laura F. Clark certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of Eagle Bancorp Montana, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: May 6, 2021
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/s/ Laura F. Clark |
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Laura F. Clark |
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Executive Vice President, Chief Financial Officer and Chief Operating Officer (Principal Financial Officer) |
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Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Eagle Bancorp Montana, Inc. (the ‘Company’) on Form 10-Q for the period ended March 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the ‘Report’), we, Peter J. Johnson, Chief Executive Officer of the Company, and Laura F. Clark, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the undersigned’s best knowledge and belief:
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(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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/s/ Peter J. Johnson |
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/s/ Laura F. Clark |
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Peter J. Johnson |
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Laura F. Clark |
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Chief Executive Officer (Principal Executive Officer) May 6, 2021 |
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Chief Financial Officer and Principal Accounting Officer (Principal Financial Officer) May 6, 2021 |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished to the Securities and Exchange Commission and shall not be considered filed as part of the Report.