Eagle Bancorp Montana(EBMT) - 2019 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements of Eagle Bancorp Montana, Inc. and its subsidiaries, including statements of financial condition, income, comprehensive income, changes in shareholders' equity, and cash flows, along with detailed notes to these statements Consolidated Statements of Financial Condition The Consolidated Statements of Financial Condition show a significant increase in total assets and liabilities from December 31, 2018, to September 30, 2019, primarily driven by the Big Muddy Bancorp acquisition and growth in loans and deposits | Metric | Sep 30, 2019 ($ Thousands) | Dec 31, 2018 ($ Thousands) | | :------------------------- | :------------------------- | :------------------------- | | Total Assets | 1,022,221 | 853,903 | | Loans Receivable, net | 745,369 | 610,333 | | Total Liabilities | 901,771 | 759,097 | | Total Deposits | 789,461 | 626,611 | | Total Shareholders' Equity | 120,450 | 94,806 | Consolidated Statements of Income The Consolidated Statements of Income reflect a substantial increase in net income for both the three and nine months ended September 30, 2019, compared to the prior year, primarily due to higher net interest income and noninterest income, despite increased loan loss provisions and noninterest expenses | Metric | 3 Months Ended Sep 30, 2019 ($ Thousands) | 3 Months Ended Sep 30, 2018 ($ Thousands) | | :------------------------- | :---------------------------------------- | :---------------------------------------- | | Net Income | 4,105 | 1,632 | | Net Interest Income | 9,699 | 7,477 | | Basic Earnings Per Share | 0.64 | 0.30 | | Diluted Earnings Per Share | 0.63 | 0.30 | | Metric | 9 Months Ended Sep 30, 2019 ($ Thousands) | 9 Months Ended Sep 30, 2018 ($ Thousands) | | :------------------------- | :---------------------------------------- | :---------------------------------------- | | Net Income | 8,535 | 3,538 | | Net Interest Income | 28,768 | 22,134 | | Basic Earnings Per Share | 1.33 | 0.65 | | Diluted Earnings Per Share | 1.32 | 0.65 | Consolidated Statements of Comprehensive Income The Consolidated Statements of Comprehensive Income indicate a significant rise in comprehensive income for both the three and nine months ended September 30, 2019, largely attributable to positive changes in the fair value of available-for-sale investment securities | Metric | 3 Months Ended Sep 30, 2019 ($ Thousands) | 3 Months Ended Sep 30, 2018 ($ Thousands) | | :-------------------------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Comprehensive Income | 4,964 | 614 | | Change in fair value of investment securities available-for-sale | 1,166 | (1,237) | | Metric | 9 Months Ended Sep 30, 2019 ($ Thousands) | 9 Months Ended Sep 30, 2018 ($ Thousands) | | :-------------------------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Comprehensive Income | 11,673 | 588 | | Change in fair value of investment securities available-for-sale | 4,617 | (4,036) | Consolidated Statements of Changes in Shareholders' Equity The Consolidated Statements of Changes in Shareholders' Equity demonstrate a notable increase in total equity for the nine months ended September 30, 2019, primarily driven by net income, other comprehensive income, and stock issued for the BMB acquisition, partially offset by dividends and treasury stock repurchases | Metric | Sep 30, 2019 ($ Thousands) | Sep 30, 2018 ($ Thousands) | | :------------------------------------------------ | :------------------------- | :------------------------- | | Total Shareholders' Equity | 120,450 | 91,992 | - Total shareholders' equity increased by $25,644 Thousands from January 1, 2019, to September 30, 2019, primarily due to $16,435 Thousands from stock issued for the Big Muddy Bancorp, Inc. acquisition, $8,535 Thousands in net income, and $3,138 Thousands in other comprehensive income, partially offset by $1,797 Thousands in dividends paid and $1,210 Thousands in treasury stock purchased[27] Consolidated Statements of Cash Flows The Consolidated Statements of Cash Flows show a shift from net cash provided by operating activities in 2018 to net cash used in 2019, while financing activities provided substantial cash, mainly from increased deposits, contributing to an overall net increase in cash and cash equivalents | Cash Flow Activity (9 Months Ended Sep 30) | 2019 ($ Thousands) | 2018 ($ Thousands) | | :----------------------------------------- | :----------------- | :----------------- | | Net cash (used in) provided by operating activities | (3,629) | 9,113 | | Net cash used in investing activities | (35,900) | (37,404) | | Net cash provided by financing activities | 41,614 | 29,822 | | Net increase in cash and cash equivalents | 2,085 | 1,531 | | Cash and cash equivalents, end of period | 13,286 | 8,968 | - Net increase in deposits for the nine months ended September 30, 2019, was $70,144 Thousands, significantly higher than $18,548 Thousands in the prior year, contributing to increased cash from financing activities[34] Notes to the Unaudited Consolidated Financial Statements This section provides detailed explanatory notes to the unaudited consolidated financial statements, covering the basis of presentation, mergers and acquisitions, investment securities, loans receivable, troubled debt restructurings, mortgage servicing rights, deposits, other long-term debt, earnings per share, dividends and stock repurchase programs, accumulated other comprehensive income, derivatives and hedging activities, fair value disclosures, and recent accounting pronouncements NOTE 1. BASIS OF PRESENTATION This note outlines the company's corporate structure, its wholly-owned subsidiary Opportunity Bank of Montana, and its operational history, detailing recent and proposed mergers and the principles of consolidation applied to the financial statements - Eagle Bancorp Montana, Inc. is a Delaware corporation that holds 100% of the capital stock of Opportunity Bank of Montana, a Montana chartered commercial bank[37] - The company completed the merger with Big Muddy Bancorp, Inc. on January 1, 2019, and has a proposed acquisition of Western Holding Company of Wolf Point expected to close in Q4 2019[37] - The Bank's principal business involves accepting deposits and investing in various types of loans and securities, operating 22 full-service branches[37] NOTE 2. MERGERS AND ACQUISITIONS This note provides detailed financial information regarding the completed acquisitions of Big Muddy Bancorp, Inc. (BMB) in January 2019 and TwinCo, Inc. in January 2018, including consideration paid, assets acquired, liabilities assumed, and resulting goodwill, along with pro forma results for BMB BMB Acquisition (January 1, 2019) | Metric | Amount ($ Thousands) | | :-------------------------------- | :------------------- | | Total Consideration Paid | 16,436 | | Cash Consideration | 1 | | Common Stock Issued | 16,435 | | Total Assets Acquired | 107,516 | | Total Liabilities Assumed | 94,666 | | Goodwill Resulting from Acquisition | 3,586 | TwinCo Acquisition (January 31, 2018) | Metric | Amount ($ Thousands) | | :-------------------------------- | :------------------- | | Total Consideration Paid | 18,930 | | Cash Consideration | 9,900 | | Common Stock Issued | 9,030 | | Total Assets Acquired | 96,049 | | Total Liabilities Assumed | 82,209 | | Goodwill Resulting from Acquisition | 5,090 | - Accretion of loan discount for BMB acquired loans was $1,163 Thousands and for TwinCo acquired loans was $184 Thousands for the nine months ended September 30, 2019[43] NOTE 3. INVESTMENT SECURITIES This note summarizes the company's available-for-sale investment securities portfolio, detailing its composition, fair values, and unrealized gains and losses, and explains management's assessment of temporary impairment due to market conditions Securities Available-for-Sale (Fair Value) | Category | Sep 30, 2019 ($ Thousands) | Dec 31, 2018 ($ Thousands) | | :-------------------------------- | :------------------------- | :------------------------- | | U.S. government and agency | 14,129 | 9,347 | | Municipal obligations | 53,355 | 68,278 | | Corporate obligations | 11,403 | 11,119 | | Mortgage-backed securities | 11,687 | 19,348 | | Collateralized mortgage obligations | 35,823 | 23,875 | | Asset-backed securities | 9,986 | 10,198 | | Total | 136,383 | 142,165 | - Net realized gain on sale of available-for-sale securities was $49 Thousands for the nine months ended September 30, 2019, compared to a net loss of $113 Thousands in the prior year[45] - As of September 30, 2019, 22 securities were in unrealized loss positions, which management believes are temporarily impaired due to changing market conditions, not credit concerns[48] NOTE 4. LOANS RECEIVABLE This note details the composition of the loan portfolio, activity in the allowance for loan losses, internal loan classifications, and delinquency information, highlighting significant growth in the loan portfolio and the corresponding increase in the allowance for loan losses Loans Receivable Composition | Category | Sep 30, 2019 ($ Thousands) | Dec 31, 2018 ($ Thousands) | | :------------------------- | :------------------------- | :------------------------- | | Residential 1-4 family | 143,067 | 144,107 | | Commercial real estate | 416,157 | 328,438 | | Home equity | 56,537 | 52,159 | | Consumer | 19,012 | 16,565 | | Commercial | 119,952 | 76,762 | | Total Loans, net | 745,369 | 610,333 | Allowance for Loan Losses Activity (9 Months Ended Sep 30) | Metric | 2019 ($ Thousands) | 2018 ($ Thousands) | | :------------------------- | :----------------- | :----------------- | | Beginning balance | 6,600 | 5,750 | | Charge-offs | (457) | (168) | | Recoveries | 62 | 48 | | Provision | 1,995 | 720 | | Ending balance | 8,200 | 6,350 | Loan Delinquency and Impairment | Metric | Sep 30, 2019 ($ Thousands) | Dec 31, 2018 ($ Thousands) | | :------------------------------------------------ | :------------------------- | :------------------------- | | Total non-accrual loans | 3,711 | 2,290 | | Loans past due 30-89 days and still accruing | 2,490 | 2,032 | | Loans past due 90 days and greater and still accruing | - | 1,477 | | Total impaired loans (Recorded Investment) | 3,711 | 2,559 | NOTE 5. TROUBLED DEBT RESTRUCTURINGS This note defines troubled debt restructurings (TDRs) and the types of modifications offered, reporting on a new restructured home equity loan in 2018 and confirming no defaults within 12 months of restructuring during the quarter ended September 30, 2019 - One new restructured home equity loan occurred in 2018 with a recorded investment of $23 Thousands at the time of restructure, which is currently on non-accrual status[69] - No troubled debt restructured loans defaulted within 12 months of restructuring during the quarter ended September 30, 2019[69] - As of September 30, 2019, the Company had no commitments to lend additional funds to loan customers whose terms had been modified in troubled debt restructures[69] NOTE 6. MORTGAGE SERVICING RIGHTS This note provides information on the company's mortgage servicing rights (MSRs), including the total volume of loans serviced for others and the activity in MSRs, highlighting the increase in the fair value of MSRs and changes in prepayment speeds Mortgage Servicing Rights Activity | Metric | Sep 30, 2019 ($ Thousands) | Dec 31, 2018 ($ Thousands) | | :-------------------------------- | :------------------------- | :------------------------- | | Mortgage loans serviced for others | 1,112,454 | 964,967 | | Mortgage servicing rights, net (ending balance) | 8,218 | 7,100 | | Fair value of servicing rights | 8,924 | 8,700 | | Weighted average prepayment speed | 176.00% PSA | 119.00% PSA | - Mortgage servicing rights capitalized increased to $2,231 Thousands for the nine months ended September 30, 2019, from $1,275 Thousands in the prior year[72] NOTE 7. DEPOSITS This note presents a detailed breakdown of deposit accounts by category, showing a substantial increase in total deposits, primarily driven by the BMB acquisition and growth in time certificates of deposit, including brokered CDs Deposits Composition | Category | Sep 30, 2019 ($ Thousands) | Dec 31, 2018 ($ Thousands) | | :------------------------- | :------------------------- | :------------------------- | | Noninterest checking | 199,086 | 142,788 | | Interest bearing checking | 111,215 | 105,115 | | Savings | 124,587 | 108,234 | | Money market | 124,764 | 108,050 | | Time certificates of deposit | 229,809 | 162,424 | | Total | 789,461 | 626,611 | - Time certificates of deposits at September 30, 2019, included $10,180 Thousands related to fixed rate brokered CDs and $16,000 Thousands related to fixed rate brokered certificates through CDARS[75] NOTE 8. OTHER LONG-TERM DEBT This note details the company's other long-term debt, comprising senior notes and subordinated debentures, and reports the associated interest expenses for the three and nine months ended September 30, 2019 and 2018 Other Long-Term Debt (Principal Amount) | Debt Type | Sep 30, 2019 ($ Thousands) | Dec 31, 2018 ($ Thousands) | | :-------------------------------- | :------------------------- | :------------------------- | | Senior notes fixed at 5.75%, due 2022 | 10,000 | 10,000 | | Subordinated debentures fixed at 6.75%, due 2025 | 10,000 | 10,000 | | Subordinated debentures variable, due 2035 | 5,155 | 5,155 | | Total | 25,155 | 25,155 | - Interest expense on other long-term debt was $360 Thousands for the three months ended September 30, 2019, and $1,089 Thousands for the nine months ended September 30, 2019[76] NOTE 9. EARNINGS PER SHARE This note provides the weighted average shares outstanding used for basic and diluted earnings per share calculations for the three and nine months ended September 30, 2019, and 2018 Weighted Average Shares Outstanding | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Basic | 6,403,693 | 5,460,452 | | Diluted | 6,425,380 | 5,524,912 | Weighted Average Shares Outstanding | Metric | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Basic | 6,420,711 | 5,411,356 | | Diluted | 6,442,934 | 5,475,816 | NOTE 10. DIVIDENDS AND STOCK REPURCHASE PROGRAM This note details the company's dividend declarations and payments, noting an increase in the quarterly dividend per share, and outlines the stock repurchase programs, including a new authorization in July 2019 and shares repurchased under a prior plan - A dividend of $0.095 per share was declared on July 18, 2019, and paid on September 6, 2019, an increase from $0.0925 per share in prior quarters[80] - The Board authorized a new stock repurchase program on July 18, 2019, for up to 100,000 shares, expiring July 18, 2020; no shares were purchased under this plan during Q3 2019[80] - Under a prior plan, 42,000 shares were purchased in Q1 2019 at an average price of $17.43 per share, and 28,000 shares in Q2 2019 at an average price of $17.09 per share[80] NOTE 11. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) This note provides a summary of the activity in accumulated other comprehensive income (loss), highlighting a significant positive change in 2019, mainly due to unrealized gains on available-for-sale investment securities Accumulated Other Comprehensive Income (Loss) Activity | Metric | Jan 1, 2019 ($ Thousands) | Sep 30, 2019 ($ Thousands) | | :------------------------------------------------------------------------------------------------ | :------------------------ | :------------------------- | | Balance, Accumulated Other Comprehensive Income (Loss) | (1,111) | 2,027 | | Other comprehensive income, before reclassifications and income taxes (9 months ended Sep 30, 2019) | N/A | 3,747 | NOTE 12. DERIVATIVES AND HEDGING ACTIVITIES This note describes the company's use of interest rate lock commitments and forward TBA mortgage-backed securities for hedging interest rate risk in mortgage loan financing, reporting net gains from these derivative activities - The company uses interest rate lock commitments and forward To-Be-Announced (TBA) mortgage-backed securities to hedge against price or interest rate movements on loan commitments[86] Derivative Instruments (Notional Amount) | Instrument | Sep 30, 2019 ($ Thousands) | Dec 31, 2018 ($ Thousands) | | :-------------------------------- | :------------------------- | :------------------------- | | Interest rate lock commitments | 70,490 | 18,745 | | Forward TBA mortgage-backed securities | 77,000 | 16,000 | - A net gain of $1,393 Thousands was recorded in noninterest income for the three months ended September 30, 2019, and $864 Thousands for the nine months ended September 30, 2019, from derivative activities[86] NOTE 13. FAIR VALUE DISCLOSURES This note explains the fair value hierarchy and valuation methodologies for financial assets and liabilities measured at fair value on both a recurring and nonrecurring basis, providing tables that summarize these fair values and the inputs used - Available-for-sale securities are reported at fair value using Level 1 and Level 2 inputs, while loans held-for-sale use Level 2 inputs[87] - Interest rate lock commitments are considered Level 3 inputs, and forward TBA mortgage-backed securities are Level 2 inputs[87] - Impaired loans and real estate and other repossessed assets are valued using Level 3 inputs, based on collateral appraisals and management's knowledge[90] Estimated Fair Values of Financial Instruments (Sep 30, 2019) | Category | Total Estimated Fair Value ($ Thousands) | Carrying Amount ($ Thousands) | | :------------------------------------------ | :------------------------------------- | :---------------------------- | | Cash and cash equivalents | 13,286 | 13,286 | | FHLB stock | 4,167 | 4,167 | | FRB stock | 2,526 | 2,526 | | Loans receivable, net | 747,382 | 745,369 | | Mortgage servicing rights | 8,924 | 8,218 | | Non-maturing interest bearing deposits | 360,566 | 360,566 | | Noninterest bearing deposits | 199,086 | 199,086 | | Time certificates of deposit | 229,648 | 229,809 | | FHLB advances and other borrowings | 76,799 | 76,699 | | Other long-term debt | 24,828 | 25,155 | NOTE 14. RECENT ACCOUNTING PRONOUNCEMENTS This note discusses the adoption of ASU No. 2016-02 (Leases) in Q1 2019, which resulted in recording right-of-use assets and lease liabilities but had no significant financial statement impact, and outlines the upcoming ASU No. 2016-13 (Credit Losses - CECL) and ASU No. 2017-04 (Goodwill Impairment Testing), noting the expected impact of CECL on the allowance for loan losses - The company adopted ASU No. 2016-02, Leases (Topic 842), in Q1 2019, recording $2,374 Thousands in right-of-use assets and corresponding lease liabilities, with no significant impact on consolidated financial statements[102] - ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) (CECL), is effective for fiscal years beginning after December 15, 2022, and is expected to result in an increase in the allowance for loan and lease losses[102] - ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350), simplifying goodwill impairment testing, will be effective January 1, 2020, and is not expected to have a significant impact[102] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective and analysis of the company's financial condition and results of operations, covering an overview of business activities, detailed financial condition, net interest income analysis, and results of operations for the three and nine months ended September 30, 2019 and 2018, as well as liquidity, capital resources, and interest rate risk Overview This overview describes Eagle Bancorp Montana's primary business as a commercial bank, focusing on lending, deposits, and investments, highlighting strategic goals of improving net interest margin and fee income, controlling expenses, and growth through both organic expansion and recent/proposed acquisitions - The company's primary business is the ownership of Opportunity Bank of Montana, focusing on consumer and commercial lending, deposit acquisition, and securities investment[104] - Management's strategy focuses on increasing net interest margin, other fee income, and controlling operating expenses through loan portfolio and deposit base growth[104] - Recent acquisitions include Big Muddy Bancorp, Inc. (January 2019) and TwinCo, Inc. (January 2018), with a proposed acquisition of Western Holding Company of Wolf Point expected in Q4 2019, adding approximately $100 million in assets[104] Financial Condition This section details the company's financial position as of September 30, 2019, compared to December 31, 2018, showing significant increases in total assets and liabilities, primarily driven by the BMB acquisition and organic growth in loans and deposits Key Financial Condition Metrics | Metric | Sep 30, 2019 ($ Millions) | Dec 31, 2018 ($ Millions) | Change ($ Millions) | Change (%) | | :------------------------- | :------------------------ | :------------------------ | :------------------ | :--------- | | Total Assets | 1,020 | 853.90 | 168.32 | 19.70% | | Loans Receivable | 745.37 | 610.33 | 135.04 | 22.1% | | Total Liabilities | 901.77 | 759.10 | 142.67 | 18.8% | | Total Deposits | 789.46 | 626.61 | 162.85 | 26.0% | Investment Activities This subsection summarizes the company's investment portfolio, primarily available-for-sale securities, noting a decrease in total securities due to reduced municipal obligations, partially offset by increased collateralized mortgage obligations - Securities available-for-sale decreased by $5.79 million (4.1%) to $136.38 million at September 30, 2019, from $142.17 million at December 31, 2018[108] - The decrease was primarily due to a $14.92 million reduction in municipal obligations, partially offset by an $11.94 million increase in collateralized mortgage obligations[108] Lending Activities This subsection details the composition and growth of the loan portfolio, along with nonperforming assets and collection procedures, highlighting substantial growth in loans receivable, particularly in commercial real estate and commercial categories, and stable nonperforming asset levels - Loans receivable, net, increased by $135.04 million to $745.37 million at September 30, 2019, driven by the BMB acquisition ($89.20 million) and organic growth ($45.83 million)[111] - Commercial real estate loans increased by $87.72 million, and total commercial loans increased by $43.19 million[111] Nonperforming Assets | Metric | Sep 30, 2019 ($ Thousands) | Dec 31, 2018 ($ Thousands) | | :----------------------------------------- | :------------------------- | :------------------------- | | Total nonperforming loans | 3,711 | 3,767 | | Real estate owned and other repossessed property, net | 91 | 107 | | Total nonperforming assets | 3,802 | 3,874 | | Total nonperforming loans to total loans | 0.49% | 0.61% | | Total allowance for loan loss to nonperforming loans | 220.96% | 175.21% | Deposits and Other Sources of Funds This subsection discusses the significant increase in total deposits, largely attributable to the BMB acquisition and growth in time certificates of deposit, including brokered CDs, and notes a decrease in FHLB advances as other borrowing sources were utilized - Deposits increased by $162.85 million (26.0%) to $789.46 million at September 30, 2019, primarily due to the BMB acquisition and $70.14 million in organic growth[113] - Certificates of deposit increased by $67.39 million, noninterest checking by $56.30 million, money market by $16.71 million, and savings by $16.35 million[113] - FHLB advances and other borrowings decreased by $25.52 million (25.0%) to $76.70 million at September 30, 2019, as brokered CDs and CDARS were utilized as alternative borrowing sources[113] Shareholders' Equity This subsection reports a substantial increase in total shareholders' equity, primarily driven by stock issued for the BMB acquisition, net income, and other comprehensive income, partially offset by dividends and treasury stock repurchases - Total shareholders' equity increased by $25.64 million (27.0%) to $120.45 million at September 30, 2019, from $94.81 million at December 31, 2018[114] - The increase was primarily due to $16.44 million from stock issued for the BMB acquisition, $8.54 million in net income, and $3.14 million in other comprehensive income, partially offset by $1.80 million in dividends paid and $1.21 million in treasury stock purchased[114] Analysis of Net Interest Income This section analyzes the components of net interest income, the company's primary earnings source, showing an increase for both the three and nine months ended September 30, 2019, driven by higher interest income from loans and investments, despite increased interest expense Net Interest Income Metrics (3 Months Ended Sep 30) | Metric | 2019 | 2018 | | :-------------------------------- | :----- | :----- | | Net Interest Income ($ Thousands) | 9,699 | 7,477 | | Interest Rate Spread | 3.87% | 3.76% | | Net Interest Margin | 4.15% | 3.95% | | Average Yield on Total Interest Earning Assets | 5.04% | 4.66% | | Average Rate on Total Interest Bearing Liabilities | 1.17% | 0.90% | Net Interest Income Metrics (9 Months Ended Sep 30) | Metric | 2019 | 2018 | | :-------------------------------- | :----- | :----- | | Net Interest Income ($ Thousands) | 28,768 | 22,134 | | Interest Rate Spread | 4.00% | 3.80% | | Net Interest Margin | 4.26% | 3.97% | | Average Yield on Total Interest Earning Assets | 5.11% | 4.62% | | Average Rate on Total Interest Bearing Liabilities | 1.11% | 0.82% | Rate/Volume Analysis This section provides a detailed breakdown of the changes in interest income and expense, attributing them to shifts in both volume and interest rates for the three and nine months ended September 30, 2019, and 2018, with volume increases in interest-earning assets and interest-bearing liabilities being the primary drivers of net interest income growth Change in Net Interest Income (3 Months Ended Sep 30, 2019 vs 2018) | Driver | Change ($ Thousands) | | :------------------------- | :------------------- | | Due to Volume | 2,073 | | Due to Rate | 149 | | Total Change | 2,222 | Change in Net Interest Income (9 Months Ended Sep 30, 2019 vs 2018) | Driver | Change ($ Thousands) | | :------------------------- | :------------------- | | Due to Volume | 5,519 | | Due to Rate | 1,115 | | Total Change | 6,634 | - For the three months ended September 30, 2019, the increase in interest income from loans receivable was $3,030 Thousands, with $2,452 Thousands attributed to volume and $578 Thousands to rate[119] Results of Operations for the Three Months Ended September 30, 2019 and 2018 This section provides a detailed analysis of the company's financial performance for the three months ended September 30, 2019, compared to the same period in 2018, highlighting significant increases in net income, net interest income, and noninterest income, partially offset by higher expenses and loan loss provisions Key Financial Results (3 Months Ended Sep 30) | Metric | 2019 ($ Thousands) | 2018 ($ Thousands) | Change ($ Thousands) | Change (%) | | :------------------------- | :----------------- | :----------------- | :------------------- | :--------- | | Net Income | 4,105 | 1,632 | 2,473 | 151.5% | | Net Interest Income | 9,699 | 7,477 | 2,222 | 29.7% | | Noninterest Income | 8,420 | 3,465 | 4,955 | 143.0% | | Net Gain on Sale of Loans | 5,492 | 2,290 | 3,202 | 139.8% | | Noninterest Expense | 12,224 | 8,756 | 3,468 | 39.6% | | Loan Loss Provision | 694 | 194 | 500 | 257.7% | - The increase in noninterest expense was largely due to a $2,440 Thousands increase in salaries and employee benefits, driven by higher commission-based compensation and additional staff[124] Results of Operations for the Nine Months Ended September 30, 2019 and 2018 This section analyzes the company's financial performance for the nine months ended September 30, 2019, compared to the same period in 2018, showing a more than doubling of net income, driven by substantial increases in net interest income and noninterest income, despite higher noninterest expenses and loan loss provisions Key Financial Results (9 Months Ended Sep 30) | Metric | 2019 ($ Thousands) | 2018 ($ Thousands) | Change ($ Thousands) | Change (%) | | :------------------------- | :----------------- | :----------------- | :------------------- | :--------- | | Net Income | 8,535 | 3,538 | 4,997 | 141.2% | | Net Interest Income | 28,768 | 22,134 | 6,634 | 30.0% | | Noninterest Income | 17,617 | 8,618 | 8,999 | 104.4% | | Net Gain on Sale of Loans | 11,451 | 5,449 | 6,002 | 110.1% | | Noninterest Expense | 33,718 | 25,714 | 8,004 | 31.1% | | Loan Loss Provision | 2,000 | 720 | 1,280 | 177.8% | - Mortgage loan sales increased to $329.05 million for the nine months ended September 30, 2019, from $205.06 million in the prior year, with gross margin on sales increasing from 2.66% to 3.48%[125] - The increase in noninterest expense was largely due to a $4.57 million increase in salaries and employee benefits and a $1.10 million increase in acquisition costs[125] Liquidity and Capital Resources This section discusses the company's liquidity management and capital adequacy, noting that the Bank maintained liquidity levels above internal minimums and remained "well capitalized" under regulatory requirements, with strong capital ratios exceeding Basel III phase-in schedules - The Bank exceeded its internal policy minimums for "basic surplus" and "basic surplus with FHLB" liquidity ratios as of September 30, 2019, and December 31, 2018[128] - The Bank is deemed "well capitalized" pursuant to State of Montana and FRB rules, with all regulatory capital ratios exceeding minimum requirements as of September 30, 2019[128] Regulatory Capital Ratios (Sep 30, 2019) | Ratio | Actual Capital Level | Minimum Required (Basel III phase-in) | Excess Capital | | :----------------------------------------- | :------------------- | :------------------------------------ | :------------- | | Total risk-based capital to risk weighted assets | 15.70% | 10.50% | 5.20% | | Tier I capital to risk weighted assets | 14.62% | 8.50% | 6.12% | | Common equity tier I capital to risk weighted assets | 14.62% | 7.00% | 7.62% | | Tier I capital to adjusted total average assets | 11.21% | 4.00% | 7.21% | Interest Rate Risk This section addresses the company's exposure to interest rate risk and its management practices, noting that the Bank's asset/liability committee monitors and manages this risk, aiming to maintain or increase net interest income within acceptable policy limits for interest rate sensitivity - The Bank's asset/liability committee monitors and manages interest rate risk, with policies established and approved annually by the Board[129] - Policy limits dictate that projected net interest income should not be reduced by more than 15.0% for an immediate 200 basis point increase in rates, or by more than 10.0% for an immediate 100 basis point decrease[129] Net Interest Income Sensitivity (Sep 30, 2019) | Change in Market Interest Rates (Basis Points) | Year 1 Rate Sensitivity | Year 2 Rate Sensitivity | | :--------------------------------------------- | :---------------------- | :---------------------- | | +200 | 1.50% | 3.70% | | -100 | -2.70% | -4.20% | Impact of Inflation and Changing Prices This section clarifies that the financial statements are prepared using historical dollars and that interest rates, rather than general inflation levels, have a more significant and direct impact on the company's financial performance - Financial statements are prepared in accordance with generally accepted accounting principles, using historical dollars without considering changes in purchasing power due to inflation[131] - Interest rates have a greater impact on the company's performance than the general levels of inflation[131] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item is omitted from the report due to Eagle Bancorp Montana, Inc.'s status as a smaller reporting company - This item has been omitted based on Eagle Bancorp Montana, Inc.'s status as a smaller reporting company[132] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of September 30, 2019, and concluded they were effective, with no material changes to internal control over financial reporting occurring during the last quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of September 30, 2019[135] - There were no material changes in the company's internal control over financial reporting during the last quarter[135] PART II. OTHER INFORMATION Item 1. Legal Proceedings. This section states that neither the company nor the Bank is involved in any material legal proceedings beyond those occurring in the ordinary course of business - 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[138] Item 1A. Risk Factors. This section confirms that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2018 - There have not been any material changes in the risk factors previously disclosed in Part I, Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2018[140] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. This section details the company's common stock repurchase programs, including the expiration of a prior plan after share repurchases in Q1 and Q2 2019, and the authorization of a new plan in July 2019, under which no shares were purchased in Q3 2019 - Under a prior plan, 42,000 shares were purchased in Q1 2019 at an average price of $17.43 per share, and 28,000 shares were purchased in Q2 2019 at an average price of $17.09 per share; this plan expired on July 19, 2019[140] - A new stock repurchase plan was authorized on July 18, 2019, for up to 100,000 shares, expiring on July 18, 2020; no shares were purchased under this new plan during the three months ended September 30, 2019[140] Item 3. Defaults Upon Senior Securities. This item is not applicable to the company - This item is not applicable[144] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[145] Item 5. Other Information. This section states that no other information is reported under this item - No other information is reported under this item[146] Item 6. Exhibits. This section lists all exhibits filed with the Form 10-Q, including merger agreements, corporate governance documents, certifications by the CEO and CFO, and XBRL documents - Exhibits include the Agreement and Plan of Merger for Western Holding Company of Wolf Point (2.1), Amended and Restated Certificate of Incorporation (3.1), Bylaws (3.3), and Certifications by CEO and CFO (31.1, 31.2, 32.1)[147] - XBRL Instance Document and Taxonomy Extension Documents are also filed as exhibits (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE)[147] Signatures This section confirms the official signing of the report by the company's President/CEO and Executive Vice President/CFO/COO on November 6, 2019 - The report was signed by Peter J. Johnson, President/CEO, and Laura F. Clark, Executive Vice President/CFO/COO, on November 6, 2019[150]