Eagle Bancorp Montana(EBMT) - 2020 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) Presents Eagle Bancorp Montana, Inc.'s unaudited consolidated financial statements for Q2 and H1 2020, detailing financial condition, income, and cash flows, with explanatory notes Consolidated Statements of Financial Condition As of June 30, 2020, total assets grew to $1.25 billion, an 18.4% increase from $1.05 billion at year-end 2019, driven by growth in loans and securities Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 | Dec 31, 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Total Assets | $1,248,434 | $1,054,260 | +18.4% | | Total cash and cash equivalents | $52,888 | $24,918 | +112.3% | | Loans receivable, net | $830,329 | $770,635 | +7.7% | | Securities available-for-sale | $174,526 | $126,875 | +37.6% | | Goodwill | $20,798 | $15,836 | +31.3% | | Total Liabilities | $1,106,905 | $932,601 | +18.7% | | Total deposits | $955,444 | $808,993 | +18.1% | | Total Shareholders' Equity | $141,529 | $121,659 | +16.3% | Consolidated Statements of Income For Q2 2020, net income significantly increased to $5.7 million from $3.2 million in Q2 2019, primarily driven by a substantial increase in noninterest income Key Income Statement Data (in thousands, except per share data) | Metric | Q2 2020 | Q2 2019 | 6 Months 2020 | 6 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $10,423 | $9,694 | $20,900 | $19,069 | | Loan loss provision | $1,227 | $697 | $1,897 | $1,301 | | Noninterest Income | $13,698 | $5,503 | $22,002 | $9,197 | | Noninterest Expense | $15,133 | $10,473 | $27,981 | $21,494 | | Net Income | $5,735 | $3,247 | $9,662 | $4,430 | | Diluted EPS | $0.84 | $0.51 | $1.41 | $0.69 | - Net gain on sale of loans was a major driver of income, increasing to $7.92 million in Q2 2020 from $3.36 million in Q2 2019, and to $13.33 million for the first six months of 2020 from $5.96 million in the prior year period[23] Notes to the Unaudited Consolidated Financial Statements The notes provide detailed explanations of the financial statements, including the acquisition of Western Holding Company of Wolf Point (WHC) and COVID-19 related loan modifications - On January 1, 2020, Eagle completed its merger with Western Holding Company of Wolf Point (WHC) for a total consideration of $14.97 million, resulting in $4.96 million of goodwill[56][62] - In response to COVID-19, the company offered payment deferrals for up to 90 days on 222 loans totaling $77.7 million and interest-only payments for up to six months for 93 borrowers with $48.0 million in loans as of June 30, 2020[115] - The company participated in the SBA's Paycheck Protection Program (PPP), funding 742 loans totaling $44.85 million as of June 30, 2020[96][190] - In June 2020, the company issued $15 million in subordinated notes due 2030 with a fixed rate of 5.50% for the first five years[126] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting strong Q2 results driven by mortgage banking and the WHC acquisition, and addressing COVID-19 impacts Recent Events The company's Q2 2020 performance was strong, influenced by the COVID-19 pandemic and the acquisition of Western Holding Company (WHC) - The bank offered significant loan accommodations due to COVID-19, including 90-day deferrals for 222 loans ($77.73 million) and interest-only payments for 93 borrowers ($47.98 million)[188] - The company actively participated in the Paycheck Protection Program (PPP), funding 742 loans for its small business clients totaling $44.85 million by June 30, 2020[190] - The acquisition of Western Holding Company of Wolf Point (WHC) was completed on January 1, 2020, for total consideration of $14.97 million, including $6.5 million in cash and $8.47 million in stock[199] Financial Condition Total assets grew 18.4% to $1.25 billion by June 30, 2020, driven by the WHC acquisition and organic growth, with significant increases in loans and deposits - Net loans receivable increased by $59.7 million (7.7%) to $830.3 million, with the WHC acquisition contributing $43.4 million of this growth[207] - Total deposits increased by $146.5 million (18.1%), with noninterest-bearing checking accounts growing by $71.2 million (35.6%)[216] - Nonperforming loans increased to $8.43 million (1.00% of total loans) from $5.45 million (0.70% of total loans) at year-end 2019[214] - Shareholders' equity increased by $19.9 million (16.3%) to $141.5 million, primarily due to $8.5 million in stock issued for the WHC acquisition and $9.7 million in net income[218] Results of Operations For Q2 2020, net income rose to $5.7 million from $3.2 million in Q2 2019, driven by a surge in noninterest income, particularly from gains on loan sales Q2 2020 vs Q2 2019 Performance (in millions) | Metric | Q2 2020 | Q2 2019 | Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $10.42 | $9.69 | +$0.73 | | Loan Loss Provision | $1.23 | $0.70 | +$0.53 | | Noninterest Income | $13.70 | $5.50 | +$8.20 | | Noninterest Expense | $15.13 | $10.47 | +$4.66 | | Net Income | $5.74 | $3.25 | +$2.49 | - The increase in noninterest income was largely due to a rise in net gain on sale of loans to $7.92 million in Q2 2020 from $3.36 million in Q2 2019, driven by higher mortgage origination volume and margins[235] - The loan loss provision for Q2 2020 included a specific qualitative adjustment of approximately $777,000 due to the economic slowdown from COVID-19[235] - Net interest margin for Q2 2020 was 3.85%, a decrease from 4.31% in Q2 2019, reflecting pressure from the lower interest rate environment[222] Liquidity and Capital Resources The company maintained a strong liquidity and capital position as of June 30, 2020, with all capital ratios exceeding regulatory requirements - The Bank is deemed "well capitalized" under regulatory standards as of June 30, 2020[253] Key Capital Ratios (as of June 30, 2020) | Ratio | Actual Level | Minimum for Adequacy | | :--- | :--- | :--- | | Total risk-based capital to risk weighted assets | 15.61% | 10.50% | | Tier I capital to risk weighted assets | 14.43% | 8.50% | | Common equity tier I capital to risk weighted assets | 14.43% | 7.00% | | Tier I capital to adjusted total average assets | 11.14% | 4.00% | - The bank utilized the Federal Reserve's Payroll Protection Program Loan Funding (PPPLF) facility, with $23.79 million in borrowings outstanding as of June 30, 2020[251] Quantitative and Qualitative Disclosures About Market Risk This section has been omitted as allowed for a smaller reporting company - The company, as a smaller reporting company, has omitted the disclosures for this item[264] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2020, with a previously identified material weakness remediated - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2020[265] - A material weakness in internal control over financial reporting related to the review of manual journal entries, identified at year-end 2019, was successfully remediated as of June 30, 2020[266][267] PART II. OTHER INFORMATION Legal Proceedings The company is not involved in any pending material legal proceedings beyond those in the ordinary course of business - There are no material legal proceedings involving the Company or its subsidiary[269] Risk Factors 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, 2019 - No material changes in risk factors were reported since the last Annual Report on Form 10-K[271] Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's stock repurchase activities, including the expiration of a prior plan and authorization of a new one - During Q2 2020, the company repurchased 1,281 shares of its common stock at an average price of $16.95 per share under its July 2019 plan[275] - On July 23, 2020, the Board authorized a new stock repurchase plan for up to 100,000 shares, expiring July 23, 2021[272] Exhibits This section lists the exhibits filed with the report, including corporate governance documents, debt agreements, and CEO/CFO certifications - Filed exhibits include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[283] - The Form of Subordinated Note Purchase Agreement dated June 10, 2020, is included as an exhibit[283]