Financing Activities - The Company issued $40.00 million in 3.50% fixed-to-floating rate subordinated notes due 2032, with $10.00 million used to redeem 5.75% fixed senior notes[27]. - The Company issued $15.00 million in subordinated notes due in 2030 with a fixed interest rate of 5.50%[84]. - The Company completed a tender offer in June 2021, purchasing 250,000 shares at $24.00 per share, totaling approximately $6.28 million[28]. - The Company repurchased 100,000 shares at an average price of $22.71 per share in February 2022[26]. - The company authorized the repurchase of up to 100,000 shares of its common stock on July 22, 2021, but no shares were purchased during the year ended December 31, 2021[211]. Loan Portfolio Composition - As of December 31, 2021, the Company had $1.84 billion in residential 1-4 family mortgage loans, representing 10.82% of total loans[50]. - The Company’s loan portfolio includes $45.64 million in residential 1-4 family construction loans, accounting for 4.88% of the total loan portfolio as of December 31, 2021[52]. - Commercial real estate loans constituted 43.92% of the total loan portfolio, amounting to $410.57 million as of December 31, 2021[55]. - Commercial construction and development loans accounted for $92.40 million, or 9.88% of the total loan portfolio at the same date[56]. - Home equity loans represented $51.75 million, or 5.54% of total loans as of December 31, 2021[57]. - Consumer loans totaled $18.46 million, making up 1.97% of the total loan portfolio as of December 31, 2021[59]. - Commercial business loans amounted to $101.54 million, or 10.86% of the total loan portfolio, including $4.46 million in Paycheck Protection Program loans[63]. - Agricultural production loans were $46.34 million, representing 4.96% of the total loan portfolio as of December 31, 2021[63]. - As of December 31, 2021, approximately 12.12% of the total gross loan portfolio was comprised of farmland and agricultural production loans, totaling $113.34 million[190]. - The total amount of loans in process of origination for sale into the secondary market with interest rate lock commitments was $84.67 million as of December 31, 2021[70]. Growth Strategy and Acquisitions - The Company aims to enhance market share in Montana through organic growth and opportunistic acquisitions, with a focus on commercial real estate and business loans, which constituted approximately 76.79% of total loans as of December 31, 2021[43]. - The Company plans to acquire First Community Bancorp, Inc., adding $377 million in assets, $306 million in deposits, and $208 million in gross loans upon completion of the merger[32]. - The company’s growth strategy includes potential acquisitions, but there are risks associated with integrating acquired assets and managing growth effectively[180]. - The company’s growth strategy includes acquisitions, but successful integration of acquired businesses is critical to avoid adverse effects on financial condition and results of operations[186]. Employee Relations and Development - As of December 31, 2021, the company had 352 full-time employees and 18 part-time employees, with a good relationship with its employees[86]. - The company emphasizes employee retention through competitive wages, valuable benefits, and a commitment to employee well-being, which aids in retaining top-performing employees[87]. - The company invests in employee professional development, including tuition reimbursement for courses[89]. Regulatory Compliance and Risks - The company is classified as "well-capitalized" under the prompt corrective action framework as of December 31, 2021, meeting all minimum capital standards[114]. - Federal regulations require a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, and a total capital to risk-based assets of 8.0%[107]. - The bank's general permissible lending limit for loans-to-one-borrower is 15.0% of unimpaired capital and surplus, with an additional amount of 10.0% if the loan is fully secured[96]. - The bank is subject to extensive regulation and supervision by the Federal Reserve Bank of Minneapolis and the Montana Division of Banking and Financial Institutions[93]. - Eagle is subject to regulatory oversight by the Federal Reserve Board (FRB) and must comply with various regulations regarding transactions with affiliates and insiders[117][118]. - Eagle must obtain FRB approval before acquiring more than 5.0% of the voting stock of another bank or bank holding company[120]. - As of December 31, 2021, Eagle was in compliance with regulations governing extensions of credit to insiders[118]. - The company operates in a highly regulated environment, and changes in laws and regulations could materially impact operations and financial condition[194]. Financial Performance and Income Sources - The Company’s mortgage loan servicing fees increased to $4.10 million in 2021 from $3.21 million in 2020[48]. - The company sold $1.06 billion in mortgage loans during 2021, indicating significant growth in noninterest income from mortgage banking activities[175]. - For the year ended December 31, 2021, the company reported a significant increase in net interest income, driven by a favorable interest rate spread and growth in interest-earning assets[216]. - Noninterest income, primarily from service charges and loan fees, is expected to provide a steady revenue stream, particularly during periods of high mortgage loan origination volumes[217]. - The company recognizes the importance of fee income to reduce reliance on specialized lending, maintaining a significant loan serviced portfolio[218]. - Provisions for loan losses and general administrative expenses continue to impact net income, necessitating careful management of operational costs[217]. Market and Economic Conditions - The COVID-19 pandemic has adversely affected Eagle's business, financial position, and results of operations, with potential increases in credit losses and impacts on the deposit base[126][127]. - Economic conditions in local markets, particularly in Montana, may differ from national trends, affecting loan demand and credit quality[140]. - Changes in interest rates significantly impact Eagle's net interest income and overall financial condition[144]. - The retirement of LIBOR as a reference rate may create uncertainty and potential expenses for Eagle in implementing substitute indices[147][148]. - Competition in the banking and financial services industry is intense, with many competitors having greater resources and lending limits[150]. - The overall economic environment, including interest rates and government policies, remains a critical factor influencing the company's lending and deposit activities[215]. Operational Risks - The company is subject to physical and financial risks associated with climate change, which may lead to increased operational costs and regulatory compliance expenses[151]. - The company may experience adverse effects from technological changes allowing consumers to bypass traditional banking services, potentially leading to loss of fee income and customer deposits[191]. - The company faces risks related to system failures and security breaches, which could negatively impact earnings and customer trust[157]. - The company may face significant risks if the proposed merger with FCB is not completed, including costs related to the merger and potential negative market reactions[184]. - The company may face increased provisions for loan losses as it continues to grow its commercial loan portfolio, impacting net income[162]. - The company’s accounting policies require estimates and assumptions that could lead to material losses if incorrect, affecting financial reporting[166]. - The company’s operations are located in areas susceptible to severe weather events, which could disrupt business and adversely affect financial results[152]. Asset Management - The investment policy allows for investments in high credit quality instruments while maximizing total return within interest rate risk and liquidity management guidelines[73]. - The company’s investment in the Federal Home Loan Bank of Des Moines was valued at $1.70 million as of December 31, 2021, with potential impairment risks[197]. - The company has 27 locations, including 23 full-service branches, with a total book value of premises and equipment owned and leased amounting to $67.27 million[203]. - The common stock closing price on December 31, 2021, was $22.98 per share, with 6,794,811 shares outstanding held by approximately 874 shareholders[209]. - Recent acquisitions have expanded the company's agricultural loan portfolio, contributing to higher interest income and improved interest rate sensitivity[218]. - The company aims to mitigate dependence on the residential mortgage market through diversification into commercial loans and other lending products[218].
Eagle Bancorp Montana(EBMT) - 2021 Q4 - Annual Report