EAGLE BANCORP
M O N T A N A,
I N C.
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Steadfast growth in
unprecedented times.
2 0 10 A N N U AL
R E P O RT
E a g le B a n c o rp M o n t a n a,
I n c ., the stockholding company of American Federal Savings Bank,
completed its second-step conversion on April 5, 2010, from the partially-public mutual holding company
structure to the fully publicly-owned stock holding company structure. As part of that transaction, it also
completed a related stock offering. As a result of the conversion and offering, the Company became the
stock holding company for American Federal Savings Bank, and Eagle Financial MHC and Eagle Bancorp
ceased to exist. The Company sold a total of 2,464,274 shares of common stock at a purchase price of
$10.00 per share for gross proceeds of $24.6 million.
Helena—Main Branch
1400 Prospect Avenue, Helena, MT 59601
Helena—Neill Avenue
28 Neill Avenue, Helena, MT 59601
Helena—Skyway
2090 Cromwell Dixon Lane, Helena, MT 59602
Townsend
416 Broadway Street, Townsend, MT 59644
Boreman
1455 W. Oak Street, Bozeman, MT 59715
Butte
3401 Harrison Avenue, Butte, MT 59701
Tola! Assets
dollars in millions
Stock Price*
in dollars
D i v i d e n d s*
dollars per share
EPS*
basic, in dollars
300
0.60
0.50
0.40
0.30
0.10
0.05
06 07 08 09 10
06 07 08 09 10
06 07 08 09 10
06 07 08 09 10
'Calculated on a converted basis using 3.8 to I exchange ratio.
Financial Highlights
(Dollars in thousands)
2010
2009
2008
2007
2006
For the Years Ended June 30
Selected Financial Condition Data:
Total Assets
Net Loans
Total Securities
Total Deposits
Total Shareholders' Equity
Selected Operating Data:
Net Interest Income
Provision for Loan Losses
Non-interest Income
Non-interest Expense
Net Income
$325,739
$289,709
$279,907
$244,686
$226,178
169,502
167,197
168,149
158,140
140,858
114,653
82,663
80,435
65,695
65,216
197,939
187,199
178,851
179,647
174,342
52,432
27,792
25,634
24,088
22,545
$
9,802
$ 9,233
$
7,436
$
715
3,593
9,231
257
2,999
8,563
(175)
2,224
7,063
6,685
—
2,261
6,614
$
6,714
—
2,165
6,465
$
2,414
2,388
2,110
$
1,778
$
1,785
Non-Performing Assets to Total Assets Remain
Well Below Peers.
Non-Performing Assets to Total Assets
Peer Median
Peer Average
Eagle Bancorp
1.00
03/31/08
06/30/08
1
09/30/08
12/31/08
03/31/09
06/30/09
09/30/09
12/31/09
03/31/10
06/30/10
Eagle Bancorp MT, Inc.
To Our Stockholders, Customers, and Friends:
The Board of Directors, management, and staff of Eagle Bancorp Montana, Inc. and its wholly
owned subsidiary, American Federal Savings Bank, are pleased to present our annual report
for our fiscal year ended June 30, 2010.
The year's highlight was our successful second-step stock
community banks such as American Federal. Credit quality
offering, which closed on April 5th. We raised over $24
also continues to be a significant problem for many banks
million in gross proceeds, thanks to the strong support
throughout the U.S. Montana banks had avoided credit
of our stockholders, customers and communities. This
concerns until this year, with several now experiencing
additional capital puts the Company in an extremely strong
credit quality challenges, primarily in loans related to
position to take advantage of growth opportunities, through
land development. 1 am pleased to report that our non-
strategic acquisition or organic growth. I believe the timing
performing loans, although increasing slightly from last year,
of our offering worked in our favor, just after the capital
still remain significantly lower than our peers. Montana's
markets "thawed" and before the market became crowded
economy is projected to have slow growth over the next
with other financial institutions trying to raise capital. The
few years, and has maintained a lower unemployment rate
owners of Eagle Bancorp, the predecessor to Eagle Bancorp
than the national average throughout the recent national
Montana, Inc. (EBMT), received 3.8 new shares of EBMT
recession. The housing markets in Montana (with the
for every share they owned previously. New shareholders
exception of Bozeman, Missoula and Kalispell) have not
purchased shares that were valued at approximately 8 0% of
experienced the downturn seen in other parts of the country.
book value, allowing for future appreciation. The increased
number of shares also enabled the Company to move up
to the NASDAQ exchange, providing better liquidity for our
stockholders. We were also able to increase our dividend
by 2.3%, the tenth consecutive year of dividend increases.
The Company's performance marks another successful
year, with an increase in net income of $26,000, or 1.1%
over the previous year. Basic earnings per share also
increased from $0.59 to $0.50 (adjusted for the 3.8 to 1
exchange ratio). Two factors should be considered when
This past year has seen continued focus on the banking
reviewing this year's results:
industry and its role in the turbulence in financial markets
and the resulting impact on the national economy. This led
to Congress enacting historic financial reform legislation,
also known as the Dodd-Frank Act. The full impact of the
legislation will not be known for several years, as regulations
begin to be promulgated by the national banking regulatory
agencies. It is easy to predict that it will translate into
increased workloads and resultant higher costs at banks
across the country, with a disproportionate share falling on
• Short-term interest rates have continued to stay at
historically low levels, with long-term interest rates also
remaining low. The continued low level of short-term
interest rates has enabled us to lower our interest expense
again this year, leading to an increase in our net interest
income of over 6% (before provision for loan losses).
We did experience a decline in gain on sale of loans
of $936,000 compared to last year, when mortgage
refinance activity was at record levels.
//eSna^ '^'lAnoK
: 2010 Annual Report
American Federal's Prospect branch serves as headquarters to
Eagle Bancorp Montana, inc. and American Federal Savings Bank.
Their main office was constructed in February of 1997. American
Federal originated in Helena, in 1922 as "American Building
and Loan," a State Building and Loan Association specializing in
savings and home loans. Helena is the capital city of Montana and
the county seat of Lewis and Clark County. It is home to Carroll
College, a Catholic liberal arts university. Helena enjoys a good
degree of economic stability. It is a trading and transportation
center for nearby livestock, mining, and farming enterprises. The
economic health of Montana's state government is far better than
that of other states as job losses due to budget cuts are minimal.
• The Company increased its loan loss provision by
During the last quarter of our fiscal year, we did complete
$458,000 over the previous year. While the Company's
our preparation for complying with the Section 404(b)
level of non-performing loans is lower than its peers,
provision of the Sarbanes-Oxley Act, which requires our
loan delinquencies have increased, though they still
external audit firm to provide an attestation as to the
remain relatively low. However, the other quantitative
quality o f o ur internal controls over financial reporting.
and qualitative factors considered by management led
The Dodd-Frank reform bill subsequently removed that
to the decision to increase the provision. For example,
requirement for small reporting companies such as ours.
national and state unemployment numbers have
Although not required by law for a Company of our size,
increased during the year and home sale activity has
we are pleased that we have developed internal control
slowed. Also, our level of non-performing loans as
processes on par with larger companies.
a percentage of assets increased, from 0.43% to
1.05%. Our continued conservative underwriting
and stable local economies will serve us well during
the coming year.
Our retail branch operations continue to grow and improve.
We are pleased to announce that our new full service
branch on Oak Street, in Bozeman, opened in October
2009. It has proven to be a success in its first year, drawing
Total assets increased 12.44% (compared to last year's
strong deposit account growth with a larger presence in the
growth of 3.50%) driven by the proceeds of the stock
Bozeman market. We have closed our previous location
offering. Securities increased 39.22% while loans
on North 7th Avenue.
receivable increased 1.72%. Deposit growth continued
to be strong, with an increase of 5.74%, compared to last
year's 4.67%. The stock proceeds and our strong earnings
increased our core capital ratio to 16.10% from 9.59%.
Capital deficiencies and a lack of liquidity, the ability to
meet short term cash needs of depositors and creditors,
I would like to thank Don Campbell, who is retiring after
16 years of service on our Board of Directors. He has
been a dedicated and valuable member of our board and
our Audit Committee and we wish him well in his future
endeavors.
have been leading causes of bank failures in the past two
We sincerely appreciate the continuing trust and loyalty of
years. Our securities portfolio consists of high quality,
our constituencies—Stoc/f/70/c/ers, Customers, Employees
short-term investments that provide a large cushion to meet
and Communities. We will work to earn your continued
our liquidity needs. We have many sources of additional
confidence as we thank you for the privilege of serving you!
liquidity available to us if the need were to arise.
Very Sincerely,
In the coming year we intend to continue managing our
balance sheet growth. We plan to accomplish this by
funding loan portfolio growth with modest deposit growth
and maturities and repayments from our investment
portfolio. We continue to place an emphasis on growing
the Company's commercial and commercial real estate
Peter J. Johnson
loan portfolios.
President/CEO
Located in Gallatin County, Bozeman sits 95 miles southeast of
Helena and 100 miles north of West Yellowstone Park. Agriculture
plays a major role in the local economy, with tourism a close
second. American Federal has had a presence in Bozeman for
30 years and recently opened a new full service bank in October
2009. The new branch is a 20,000 square foot state of the art
office. Energy conservation was a top priority and the building
was designed to exceed the International Energy Conservation
Code. Recently, the Montana Contractors' Association presented
the architect and general contractor Excellence Awards in
"Craftsmanship" and "Best Commercial" categories. Bozeman's
economy continues to flourish with the influx of retirees and
natural beauty. Montana State University also contributes to
the strong local economic growth with support to a number
of high-tech firms who have chosen Bozeman as their base.
^^ms&fni-.L'iSidm
Eagle Bancorp MT, Inc. :: J
Directors & Executive Officers
DIRECTORS
EXECUTIVE OFFICERS
Don O. Campbell
Vice Chairman of the Board
Lynn E. Dickey
Retired
Larry A. Dreyer
Chairman of the Board
Rick F. Hays
Retired
Peter J. Johnson
President/Chief Executive Officer
Eagle Bancorp Montana, Inc.
James A. iVtaierle
Chairman of the Board of
Morhson-Maierle, Inc.
Thomas J. iVIcCarvel
Vice President of
Carroll College
; 2010 Annual Report
Peter J, Johnson
President/Chief Executive Officer
Eagle Bancorp Montana, Inc.
Robert M. Evans
Senior Vice President/Chief Information Officer/
Bank Security Officer
Clint J. iVlorrison
Senior Vice President/Chief Financial Officer
Michael C. iVlundt
Senior Vice President/Chief Lending Officer
Rachel R. Amdahl
Senior Vice President/Operations
CORPORATE SECRETARY
Charles H. Berger
EAGLE BANCORP
M O N T A N A,
I N C.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
and
REPORT OF ESfDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
June 30, 2010 and 2009
EAGLE BANCORP MONTANA, INC, AND SUBSIDIARY
Contents
Report of Independent Registered Public Accounting Firm
Financial Statements
Consolidated Statements of Financial Condition
Consolidated Statements of Income
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cashflows
Notes to Consolidated Financial Statements
Page
1
2
3
4
5
6
J^ Dam Kinard&Co, PC
C E R T I F I ED PUBLIC .•iCCOUKT/lNTS
Quality. Integrity. KnoiJikdge.
First Financial Bank Building
400 Pine St. Suite 500, Abilene, Texas 79601-5190
325.672.4000 / 800.S88.2S2S / f; 325.672.7049
www.dlccpa.C0in
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Eagle Bancorp Montana, Inc. and Subsidiary
We have audited the accompanying consolidated statements of financial condition of Eagle Bancorp
Montana, Inc. and Subsidiary as of June 30, 2010 and 2009 and the related consolidated statemeiits of
income, stockholders' equity and cash flows for years then ended. These financial statements are the
responsibility ofthe Company's management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its intemal control over financial reporting.
Our audits included consideration of intemal control over fmancial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's intemal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the 2010 and 2009 financial statements referred to above present fairly, in all material
respects, the financial position of Eagle Bancorp Montana, Inc. and Subsidiary as of June 30, 2010 and
2009, and the results of its operations and its cash flows for years then ended in conformity with accounting
principles generally accepted in the United States of America.
\
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'y K^i^i^Xz^ F^
DAVIS KINARD & CO, PC
Abilene, Texas
July 29, 2010
• 1-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
June 30, 2010 and 2009
(Dollars in Thousands, Except for Per Share Data)
Assets
Cash and due from banks
Interest bearing deposits in banks
Federal funds sold
Cash and cash equivalents
Securities available-for-sale
Securities held-to-maturity (fair value
approximates $125 in 2010 and $384 in 2009)
Preferred stock - FASB ASC 825, at market value
FHLB stock restricted, at cost
Investment in Eagle Bancorp Statutory Trust I
Mortgage loans held for sale
Loans receivable, net of deferred loan fees and
allowance for loan losses of $1,100 in 2010 and $525 in 2009
Accrued interest and dividend receivable
Mortgage servicing rights, net
Premises and equipment, net
Cash surrender value oflife insurance
Real estate and other assets aquired in settlement of loans
Other assets
Liabilities and Shareholders' Equity
Noninterest bearing
Interest bearing
Total deposits
Accrued expenses and other liabilities
FHLB advances and other borrowings
Subordinated debentures
Total liabilities
Shareholders' equity
Preferred stock, no par value; 1,000,000
shares authorized, no shares issued or outstanding
Common stock, $0.01 par value; 8,000,000 shares
authorized June 30, 2010; 9,000,000 authorized June 30, 2009
4,083,127 shares issued and outstanding June 30, 2010
1,223,572 shares issued, 1,076,072 shares outstanding June 30, 2009
Capital surplus
Unallocated common stock held by ESOP
Treasury stock, at cost
Retained eamings
Net accumulated other comprehensive gain/(loss)
Total shareholders' equity
The accompanying notes are an integral part
of these consolidated financial statements.
2010
2009
2,543 $
966
-
3,509
114,528
125
-
2,003
155
7,695
169,502
1,610
2,337
15,848
6,691
619
1,117
2,487
224
3,617
6,328
82,263
375
25
2,000
155
5,349
167,197
1,399
2,208
13,761
6,496
-
2,153
325,739 $
289,709
1,8,376 $
179,563
197,939
2,989
67,224
5,155
273,307
15,002
172,197
187,199
2,507
67,056
5,155
261,917
41
22,104
(1,889)
-
30,652
1,524
52,432
12
4,564
(18)
(5,034)
28,850
(582)
27,792
325,739 $
289,709
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Consolidated Statements of Income
Years Ended June 30, 2010 and 2009
(Dollars in Thousands, Except for Per Share Data)
2010
2009
Interest and dividend income
Loans, including fees
Securities available-for-sale
Securities held- to-maturity
Trust preferred securities
Deposits with banks
Total interest income
Interest expense
Deposits
FHLB advances and other borrowings
Subordinated debentures
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest income
Service charges on deposit accounts
Net gain on sale of loans
Mortgage loan service fees
Net realized gain on sales of available for sale securities
Net gain (loss) on preferred stock - FASB ASC 825
Other income
Total noninterest income
Noninterest expenses
Salaries and employee benefits
Occupancy and equipment expense
Data processing
Advertising
Amortization of mortgage servicing rights
Federal insurance premiums
Postage
Legal, accounting, and examination fees
Consulting fees
ATM processing
Other expense
Total noninterest expenses
Income before income taxes
Income tax expense
Net income
Basic eamings per share*
Diluted eamings per share *
10,857 $
4,003
11
9
27
14,907
2,161
2,635
309
5,105
9,802
715
9,087
765
1,280
770
33
84
661
3,593
4,750
1,177
407
438
487
275
144
318
170
69
996
9,231
3,449
1,035
2,414 $
0.60 S
;
0.54 $
11,411
3,893
20
9
15
15,348
3,161
2,645
309
6,115
9,233
257
8,976
745
2,216
628
54
(1,296)
652
2,999
4,411
900
370
394
598
307
151
231
114
62
1,025
8,563
3,412
1,024
2,388
0.59
0.52
* per share data is calculated on a converted basis using a 3.8 to 1.0 exchange ratio
The accompanying notes are an integral part
of these consolidated financial statements.
-3-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Years Ended June 30, 2010 and 2009
(Dollars in Thousands, Except for Per Share Data)
Balance at June 30,2008
$
-
$
12
Preferred
Stock
Common
Stock
Net income
Change in net unrealized depreciation on
available for sale securities and cash flow hedges, net
Total comprehensive income
Dividends paid ($ 1.02 per share)
Treasury stock purchased (760 shares @ $27.00)
EITF No. 06-4 & 06-10
ESOP shares allocated or committed
to be released for allocation (4,600) shares
Balance at June 30,2009
$
-
$
12
Net income
Change in net unrealized depreciation on
available for sale securities and cash flow hedges, net
Total comprehensive income
Dividends paid
Treasury stock purchased (805 shares (g $28.25)
Stock conversion
Stock sold/issued
ESOP allocated prior to conversion
ESOP shares allocated or committed
tobereleasedfor allocation (8,214) shares
(12)
41
Balance at June 30,2010
$
-
$
41
The accompanying notes are an integral part
of these consolidated financial statements.
Additional
Paid-in
Capital
Unallocated
ESOP
Shares
Treasury
Stock
Retained
Eamings
Accumulated
Other
Comprehensive
Loss
Total
4,487 $
(55)$
(5,013) $
27,025 $
(822) $
25,634
240
2,388
(435)
(128)
(21)
2,388
240
2,628
(435)
(21)
(128)
114
77
37
4,564 $
(18)$
(5,034) $
28,850 $
(582) $
27,792
2,414
(612)
2,106
2,414
2,106
4,520
(612)
(22)
480
20,123
68
83
(22)
5,056
(4,564)
22,053
(1,971)
50
1
18
82
22,104 $
(1,889) $
-
$
30,652 $
1,524 $
52,432
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended June 30, 2010 and 2009
(Dollars in Thousands, Except for Per Share Data)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to
net cash provided by (used in) operating activities
Provision for loan losses
Depreciation
Net amortization of securities premium & discounts
Amortization of capitalized mortgage servicing rights
Net gain on sale of loans
Net realized gain on sales of available-for-sale securities
Net recognized (gain) loss on preferred stock - FASB ASC 825
Net loss on sale of foreclosed real estate
Net loss on sale/disposal of fixed assets
Appreciation in cash surrender value of life insurance, net
Net change in
Loans held for sale
Accmed interest receivable
Other assets
Accmed expenses and other liabilities
Net cash provided by operating activities
Cash flows from investing activities
Activity in available-for-sale securities
Sales
Maturities, prepayments and calls
Purchases
Activity in held to maturity securities
Maturities, prepayments and calls
FHLB stock purchased
Loan originations and principal collections, net
Proceeds from sale of foreclosed real estate
Additions to premises and equipment
Net cash used in investing activities
Cash flows from financing activities
Net increase in deposits
Net change in federal funds purchased
Net change in advances from the FHLB and other borrowings
Purchase of treasury stock, at cost
Issuance of common stock
Purchase ESOP shares
Dividends paid
Net cash provided by flnancing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
The accompanying notes are an integral part
of these consolidated financial statements.
-5-
2010
2009
2,414 $
2,388
715
651
393
487
(1,280)
(33)
(84)
-
2
(195)
(793)
(211)
1,084
(748)
2,402
8,928
11,556
(50,266)
250
(3)
(3,820)
28
(2,771)
(36,098)
10,740
-
168
(22)
22,574
(1,971)
(612)
30,877
(2,819)
6,328
3,509 $
257
482
163
598
(2,216)
(54)
1,296
2
-
(211)
4,257
27
(1,603)
344
5,730
5,298
11,182
(20,114)
322
(285)
(471)
13
(6,163)
(10,218)
8,348
(3,000)
1,834
(21)
-
-
(435)
6,726
2,238
4,090
6,328
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE 1: Summary of Significant Accounting Policies
Nature of Operations
On April 5, 2010, Eagle Bancorp completed its second-step conversion from the partially-public
mutual holding company stmcture to the ftilly publicly-owned stock holding company stmcture.
As part of that transaction it also completed a related stock offering. As a result of the
conversion and offering, Eagle Bancorp Montana, Inc. ("the Company", or "Eagle") became the
stock holding company for American Federal Savings Bank ("the Bank"), and Eagle Financial
MHC and Eagle Bancorp ceased to exist. The Company sold a total of 2,464,274 shares of
common stock at a purchase price of $10.00 per share in the offering for gross proceeds of $24.6
million. Concurrent with the completion ofthe offering, shares of Eagle Bancorp common stock
owned by the public were exchanged. Stockholders of Eagle Bancorp received 3.800 shares of
the Company's common stock for each share of Eagle Bancorp common stock that they owned
immediately prior to completion ofthe transaction.
The Company's Employee Stock Ownership Plan ("ESOP"), which purchased shares in the
Offering, was authorized to purchase up to 12% ofthe shares sold in the Offering, or 197,142
shares. The ESOP completed its purchase of all such authorized shares in the Offering, at a total
cost of $1,971,420.
The Bank is a federally chartered savings bank subject to the regulations of the Office of Thrift
Supervision ("OTS"). The Bank is a member of the Federal Home Loan Bank System and its
deposit accounts are insured to the applicable limits by the Federal Deposit Insurance
Corporation ("FDIC").
The Bank is headquartered in Helena, Montana, and operates additional branches in Butte,
Bozeman, and Townsend, Montana. The Bank's market area is concentrated in south central
Montana, to which it primarily offers commercial, residential, and consumer loans. 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.
Collectively, Eagle Bancorp Montana Inc., and the Bank are referred to herein as "the
Company."
Principles of Consolidation
The consolidated fmancial statements include the accounts of Eagle Bancorp Montana Inc. and
the Bank. All significant intercompany transactions and balances have been eliminated in
consolidation.
Use of Estimates
In preparing financial statements in conformity with U.S. generally accepted accounting
principles, management is required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the balance sheet and reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those
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, and
the valuation of foreclosed assets. In connection with the determination of the estimated losses
on loans, foreclosed assets, and valuation of mortgage servicing rights, management obtains
independent appraisals and valuations.
-6-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE I: Summary of Significant Accounting Policies - continued
Significant Group Concentrations of Credit Risk
Most of the Company's business activity is with customers located within the south-central
Montana area. Note 3 discusses the types of securities that the Company invests in. Note 4
discusses the types of lending that the Company engages in. The Company does not have any
significant concentrations to any one industry or customer.
The Company carries certain assets with other financial institutions which are subject to credit
risk by the amount such assets exceed federal deposit insurance limits. At June 30, 2010 and
June 30, 2009, no account balances were held with correspondent banks that were in excess of
FDIC insured levels. Also, from time to time, the Company is due amounts in excess of FDIC
insurance limits for checks and transit items. Management monitors the financial stability of
correspondent banks and considers amounts advanced in excess of FDIC insurance limits to
present no significant additional risk to the Company.
Cash and Cash Equivalents
For the purpose of presentation in the consolidated statements of cash flows, cash and cash
equivalents are defined as those amounts included in the balance sheet captions "cash and due
from banks," "interest bearing deposits in banks," and "federal fiinds sold" all of which mature
within ninety days.
The Bank is required to maintain a reserve balance with the Federal Reserve Bank. The Bank
properly maintained amounts in excess of required reserves of $50,000 as of June 30, 2010 and
2009.
Investment Securities
The Company designates debt and equity securities as held-to-maturity, available-for-sale, or
trading.
Held-to-maturity - Debt investment securities that management has the positive intent and
ability to hold until maturity are classified as held-to-maturity and are carried at their remaining
unpaid principal balance, net of unamortized premiums or unaccreted discounts. Premiums are
amortized and discounts are accreted using the interest method over the period remaining until
maturity.
Available-for-sale - Investment securities that will be held for indefmite periods of time,
including securities that may be sold in response to changes in market interest or prepayment
rates, need for liquidity, and changes in the availability of and the yield of altemative
investments, are classified as available-for-sale. These assets are carried at fair value.
Unrealized gains and losses, net of tax, are reported as other comprehensive income. Gains and
losses on the sale of available-for-sale securities are recorded on the trade date and determined
using the specific identification method.
Declines in the fair value of individual held-to-maturity and available-for-sale securities below
their cost that are other than temporary are recognized by write-downs of the individual
securities to their fair value. Such write-downs would be included in eamings as realized losses.
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE 1: Summary of Significant Accounting Policies - continued
Trading ~ No investment securities were designated as trading at June 30, 2010 and 2009.
Securities - FASB ASC 825 - Beginning fiscal year, July 1, 2007 the Company elected to
account for its preferred stock under, FASB ASC 825 which allows an entity the irrevocable
option to elect fair value for the initial and subsequent measurement for certain financial assets
and liabilities on a contract-by-contract basis. Subsequent changes in fair value of these assets
are recognized in eaming when incurred. On July 1, 2007 a charge to retained eamings for
$118,000 was recorded in accordance with the implementation ofFASB ASC 825 to record the
unrealized loss (net of taxes) on preferred stock at that date.
Federal Home Loan Bank Stock
The Company's investment in Federal Home Loan Bank ("FHLB") stock is a restricted
investment carried at cost ($100 per share par value), which approximates its fair value. As a
member of the FHLB system, the Company is required to maintain a minimum level of
investment in FHLB stock based on specific percentages of its outstanding FHLB advances. The
Company may request redemption at par value of any stock in excess ofthe amount it is required
to hold. Stock redemptions are made at the discretion of the FHLB. The Bank redeemed no
FHLB shares during the years ended June 30, 2010 and 2009.
Mortgage Loans Held-for-Sale
Mortgage loans originated and intended for sale in the secondary market are carried at the lower
of cost or estimated market value, determined in aggregate, plus the fair value of associated
derivative financial instraments. Net unrealized losses, if any, are recognized in a valuation
allowance by a charge to income.
Loans
The Company grants mortgage, commercial and consumer loans to customers. A substantial
portion of the loan portfolio is represented by mortgage loans in south central Montana. The
ability of the Company's debtors to honor their contracts is dependent upon the general
economic conditions in this area.
Loans receivable that management has the intent and ability to hold until maturity are reported at
the outstanding principal balance adjusted for any charge-offs, allowance for loan losses, and
any deferred fees or costs on originated loans and unamortized premiums or unaccreted
discounts on purchased loans. Loan origination fees, net of certain direct origination costs are
deferred and amortized over the contractual life of the loan, as an adjustment of the yield, using
the interest method.
The accraal of interest on loans is discontinued at the time the loan is 90 days delinquent unless
the credit is well secured and in process of collection. Personal loans are typically charged off
no later than 180 days past due. Past due status is based on the contractual terms ofthe loan. In
all cases, loans are placed on nonaccraal or charged off at an earlier date if collection of principal
or interest is considered doubtful.
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE I: Summary of Significant Accounting Policies - continued
Loans - continued
All interest accraed but not collected for loans that are placed on nonaccraal or charged off is
reversed against interest income. The interest on these loans is accounted for on the cash-basis
or cost-recovery method, until qualifying for retum to accraal. Loans are retumed to accraal
status when all the principal and interest amounts contractually due are brought current and
future payments are reasonably assured.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a
provision for loan losses charged to eamings. Loan losses are charged against the allowance
when management believes the uncollectibility of a loan balance is confirmed. Subsequent
recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon
management's periodic review of the collectibility of the loans in light of historical experience,
the nature and volume of the loan portfolio, adverse situations that may affect the borrower's
ability to repay, estimated value of any underlying collateral and prevailing economic conditions.
This evaluation is inherently subjective as it requires estimates that are susceptible to significant
revisions as more information becomes available.
The allowance consists of specific, general and unallocated components. For such loans that are
classified as impaired, an allowance is established when the discounted cash flows (or collateral
value or observable market price) of the impaired loan is lower than the carrying value of that
loan. The general component covers non-classified loans and is based on historical loss
experience adjusted for qualitative factors. An unallocated component is maintained to cover
uncertainties that could affect management's estimate of probable losses. The unallocated
component of the allowance reflects the margin of imprecision inherent in the underlying
assumptions used in the methodologies for estimating specific and general losses in the portfolio.
A loan is considered impaired when, based on current information and events, it is probable that
the Company will be imable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. Factors considered by management in
determining impairment include payment status, collateral value, and the probability of
collecting scheduled principal and interest payments when due. Loans that experience
insignificant payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls on a case-by-
case basis, taking into consideration all the circumstances surrounding the loan and the borrower,
including the length of delay, the reasons for the delay, the borrower's prior payment record, and
Impairment is
the amount of the shortfall in relation to the principal and interest owed.
measured on a loan by loan basis for commercial and constraction loans by either the present
value of expected future cash flows discounted at the loan's effective interest rate, the loan's
obtainable market price, or the fair value of the collateral if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.
Accordingly, the Company does not separately identify individual consumer and residential
loans for impairment disclosures, unless such loans are subject of a restracturing agreement.
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE 1: Summary of Significant Accounting Policies - continued
Mortgage Servicing Rights
Servicing assets are recognized as separate assets when rights are acquired through purchase or
through sale of flnancial assets. Generally, purchased servicing rights are capitalized at the cost
to acquire the rights. For sales of mortgage loans, a portion ofthe cost of originating the loan is
allocated to the servicing right based on relative fair value. Fair value is based on a market price
valuation model that calculates the present value of estimated future net servicing income. The
valuation model incorporates assumptions that market participants would use in estimating
fiiture net servicing income, such as the cost to service, the discount rate, the custodial eamings
rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses.
Servicing assets are evaluated for impairment based upon the fair value ofthe rights as compared
to amortized cost.
Impairment is determined by stratifying rights into tranches based on
predominant characteristics, such as interest rate, loan type and investor type. Impairment is
recognized through a valuation allowance for an individual tranche, to the extent that the fair
value is less than the capitalized amount for the tranches. Ifthe Bank later determines that all or
a portion ofthe impairment no longer exists for a particular tranche, a reduction ofthe allowance
may be recorded as an increase to income. Capitalized servicing rights are reported in other
assets and are amortized into noninterest income in proportion to, and over the period of, the
estimated future net servicing income ofthe underlying financial assets.
Servicing fee income is recorded for fees eamed for servicing loans. The fees are based on a
contractual percentage of the outstanding principal and are recorded as income when eamed.
The amortization of mortgage servicing rights is netted against loan servicing fee income.
Cash Surrender Value of Life Insurance
Life insurance policies are initially recorded at cost at the date of purchase. Subsequent to
purchase, the policies are periodically adjusted for fair value. The adjustment to fair value
increases or decreases the carrying value ofthe policies and is recorded as an income or expense
on the consolidated statement of income. For the years ended June 30, 2010 and 2009 there
were no adjustments to fair value that were outside the normal appreciation in cash surrender
value.
Foreclosed Assets
Assets acquired through, or in lieu of, loan foreclosure are initially recorded fair value less
estimated selling cost at the date of foreclosure. All vsTite-downs based on the asset's fair value
at the date of acquisition are charged to the allowance for loan losses. After foreclosure,
property held for sale is carried at fair value less cost to sell. Impainnent losses on property to
be held and used are measured as the amount by which the carrying amount of a property
exceeds its fair value. Costs of significant property improvements are capitalized, whereas costs
relating to holding property are expensed. Valuations are periodically performed by
management, and any subsequent write-downs are recorded as a charge to operations, if
necessary, to reduce the carrying value of a property to the lower of its cost or fair value less cost
to sell.
-10-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE I: Summary of Significant Accounting Policies - continued
Premises and Equipment
Land is carried at cost. Property and equipment is recorded at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the expected usefiil
lives of the assets, ranging from 3 to 35 years. The costs of maintenance and repairs are
expensed as incurred, while major expenditures for renewals and betterments are capitalized.
Income Taxes
Income taxes are accounted for under the asset and liability method. Accordingly, deferred taxes
are recognized for the estimated future tax effects attributable to "temporary differences"
between the financial statement carrying amounts and the tax basis of existing assets and
liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which the temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax laws or
rates is recognized in income tax expense in the period that includes the enactment date of the
change. A deferred tax liability is recognized for all temporary differences that will result in
future taxable income. A deferred tax asset is recognized for all temporary differences that will
result in future tax deductions, subject to reduction of the asset by a valuation allowance in
certain circumstances. This valuation allowance is recognized if, based on an analysis of
available evidence, management determines that it is more likely than not that some portion or
all of the deferred tax asset will not be realized. The valuation allowance is subject to ongoing
adjustment based on changes in circumstances that affect management's judgment about the
realizability of the deferred tax asset. Adjustments to increase or decrease the valuation
allowance are charged or credited, respectively, to income tax expense.
Treasury Stock
Treasury stock is accounted for on the cost method and consists of no shares in 2010 and
148,260 shares in 2009.
Advertising Costs
The Company expenses advertising costs as they are incurred. Advertising costs were
approximately $438,000 and $394,000 for the years ended June 30, 2010 and 2009, respectively.
Employee Stock Ownership Plan
Compensation expense recognized for the Company's ESOP equals the fair value of shares that
have been allocated or committed to be released for allocation to participants. Any difference
between the fair value of the shares at the time and the ESOP's original acquisition cost is
charged or credited to stockholders' equity (capital surplus). The cost of ESOP shares that have
not yet been allocated or committed to be released is deducted from stockholders' equity.
-11-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE I: Summary of Significant Accounting Policies - continued
Earnings Per Share
Basic eamings per share ("EPS") is calculated by dividing net income by the weighted average
number of common shares outstanding for the period. Diluted EPS is calculated by dividing net
income by the weighted average number of common shares used to compute basic EPS plus the
incremental amount of potential common stock determined by the treasury stock method. For
purposes of computing EPS, outstanding common shares include all shares issued to the Mutual
Holding Company but exclude ESOP shares that have not been allocated or committed to be
released for allocation to participants. Due to the conversion and related stock offering
occurring on April 5, 2010 all EPS calculations are prepared using a 3.8 to 1.0 exchange ratio.
Financial Instruments
All derivative financial instraments that qualify for hedge accounting are recognized in the
financial statements and measured at fair value regardless of the purpose or intent for holding
them. Changes in the fair value of derivative financial instraments used as cash flow hedges are
recognized as a component of comprehensive income. At June 30, 2010 and 2009, the Company
was holding forward delivery commitments that qualify as derivative financial instraments.
The carrying value of the Company's financial instraments approximates fair value. The fair
value of the Company's financial instraments is generally determined by a third party's
valuation ofthe imderlying asset.
Recent Accounting Pronouncements
GAAP Codification - On July 1, 2009, the FASB's GAAP Codification became effective as the
sole authoritative source of GAAP. This codification reorganizes current GAAP for non
govemmental entities into a topical index to facilitate accounting research and to provide users
additional assurance that they have referenced all related literature pertaining to a given topic.
Existing GAAP prior to the Codification was not altered in the compilation of the GAAP
Codification.
The GAAP Codification encompasses all FASB Statements of Financial
Accounting Standards, Emerging Issues Task Force statements, FASB Staff Positions, FASB
Interpretations, FASB Derivative Implementation Guides, American Institute of Certified Public
Accountants Statement of Positions, Accounting Principles Board Opinions and Accounting
Research Bulletins along with the remaining body of GAAP effective as of June 30, 2009.
Financial Statements issued for all interim and annual periods ending after September 15, 2009,
will need to reference accounting guidance embodied in the Codification as opposed to
referencing the previously authoritative pronouncements.
On November 14, 2008, the Securities and Exchange Commission ("SEC") issued its long-
anticipated proposed Intemational Financial Reporting Standards ("IFRS") roadmap outiining
milestones that, if achieved, could lead to mandatory transition to IFRS for U.S. domestic
registrants starting in 2014. IFRS is a comprehensive series of accounting standards published
by the Intemational Accounting Standards Board ("lASB"). Under the proposed roadmap, the
Company could be required through its parent company to prepare financial statements in
accordance with IFRS, and the SEC will make a determination in 2011 regarding the mandatory
adoption of IFRS for U.S. domestic registrants. Management is currently assessing the impact
that this potential change would have on the Company's consolidated financial statements, and
will continue to monitor the development ofthe potential implementation of IFRS.
-12-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE I: Summary of Significant Accounting Policies - continued
Recent Accounting Pronouncements - continued
In April 2009, the FASB issued new guidance impacting ASC Topic 820, Fair Value
Measurements and Disclosures. This ASC provides additional guidance in determining fair
values when there is no active market or where the price inputs being used represent distressed
sales. It reaffirms the need to use judgment to ascertain if a formerly active market has become
inactive and in determining fair values when markets have become inactive. The adoption of
this new guidance did not have a material effect on Company's results ofoperations or financial
position.
In April 2009, the FASB issued new guidance impacting ASC 825-10-50, Financial Instruments,
which relates to fair value disclosures for any financial instraments that are not currently
reflected on the balance sheet of companies at fair value. This guidance amended existing
GAAP to require disclosures about fair value of flnancial instraments for interim reporting
periods of publicly traded companies as well as in annual financial statements. This guidance is
effective for interim and annual periods ending after June 15, 2009. The Company has presented
the necessary disclosures in Note 18 herein.
In June 2009, the FASB issued new authoritative accounting guidance under ASC Topic 810,
Consolidation , which amends prior guidance to change how a company determines when an
entity that is insufficiently capitalized or is not controlled through voting (or similar rights)
should be consolidated. The determination of whether a company is required to consolidate an
entity is based on, among other things, an entity's purpose and design and a company's ability to
direct the activities of the entity that most significantly
impact the entity's economic
performance. The new authoritative accounting guidance requires additional disclosures about
the reporting entity's involvement with variable-interest entities and any significant changes in
risk exposure due to that involvement as well as its affect on the entity's financial
statements. The new authoritative accounting guidance under ASC Topic 810 will be effective
January 1, 2010 and is not expected to have a significant impact on the Company's financial
statements.
In June 2009, the FASB issued ASC 860, Transfers and Servicing, to improve the information
included in an entity's financial statements about a transfer of financial assets and the effects ofa
transfer on its financial position, financial performance and cash flows. The guidance eliminates
the exceptions for qualifying special-purpose entities from the consolidation guidance and the
exception that permitted sale accounting for certain mortgage securitizations when a transferor
has not surrendered control over the transferred financial assets. In addition, the amendments
require enhanced disclosures about the risks that a transferor continues to be exposed to because
of its continuing involvement in transferred financial assets. The guidance is effective for the
first reporting period (including interim periods) that begins after November 15, 2009. The
Company does not expect that the adoption of this guidance will have a material effect on its
financial position, results ofoperations or cash flows.
-13-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE 1: Summary of Significant Accounting Policies - continued
Recent Accounting Pronouncements - continued
In August 2009, the FASB issued ASU No. 2009-05, Fair Value Measurements and Disclosures
(Topic 820) - Measuring Liabilities at Fair Value. This ASU provides amendments for fair
value measurements of liabilities. It provides clarification that in circumstances in which a
quoted price in an active market for the identical liability is not available, a reporting entity is
required to measure fair value using one or more techniques. ASU 2009-05 also clarifies that
when estimating a fair value of a liability, a reporting entity is not required to include a separate
input or adjustment to other inputs relating to the existence of a restriction that prevents the
transfer ofthe liability. ASU 2009-05 is effective for the first reporting period (including interim
periods) beginning after issuance or fourth quarter 2009. The adoption of the guidance did not
have a material effect on the Company's consolidated financial position or results ofoperations.
The FASB issued new authoritative accounting guidance under ASC Topic 855, Subsequent
Events, which established general standards of accounting for and disclosure of events that occur
after the balance sheet date but before financial statements are issued or available to be issued.
This guidance sets forth (i) the period after the balance sheet date during which management ofa
reporting entity should evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements, (ii) the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its financial statements
and (iii) the disclosures that an entity should make about events or transactions that occurred
after the balance sheet date. This new guidance was effective for the period ended June 30, 2010
and did not have a significant impact on the Company's consolidated financial statements
Reclassifications
Certain 2009 amounts have been reclassified to conform to the 2010 presentation.
NOTE 2: Earmngs Per Share
The following table sets forth the computation of basic and diluted eamings per share for the
years ended June 30:
(In Thousands)
Weighted average shares outstanding during the
year on which basic eamings per share is calculated
Add: weighted average of stock held in treasury
Average outstanding shares on which
2010
2009
4,035,183
430,778
4,074,556
563,388
diluted eamings per share is calculated
4,465,961
4,637,944
Net income applicable to common stockholders
Basic eamings per share
Diluted eamings per share
$
$
$_
2,414 $
0.60 $
0.54 $
2,338
0.59
0.52
-14-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE 3: Securities
The Company's investment policy requires that the Company purchase only high-grade
investment securities. Most municipal obligations are categorized as "AAA" or better by a
nationally recognized statistical rating organization. These ratings are achieved because the
securities are backed by the full faith and credit ofthe municipality and also supported by third-
party credit insurance policies. Mortgage backed securities and collateralized mortgage
obligations are issued by govemment sponsored corporations, including Federal Home Loan
Mortgage Corporation, Fannie Mae, and the Guaranteed National Mortgage Association. The
amortized cost and estimated fair values of securities, together with umealized gains and losses,
are as follows:
-15-
E A G LE B A N C O RP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
N O TE 3: Securities - continued
(Dollars in Thousands)
Available for Sale
U.S. Govemment and agency
Municipal obligations
Corporate obligations
Mortgage-backed securites - government-backed
Private lable CMOs
CMOs - govemment backed
Total securities available for sale
Held to Maturitv
Municipal obligations
Total securities held to maturity
Securities ASC 825
Preferred stock
(Dollars in Thousands)
Available for Sale
June 30,
2010
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Market
Value
31,852 $
35,181
7,110
1,690
957
35,902
418
752
341
65
-
963
$
(29) $
(521)
-
-
(115)
(38)
32,241
35,412
7,451
1,755
842
36,827
112,692 $
2,539
. $.
(703) $
114,528
125 $
125 $
125
125
June 30,
2009
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Market
Value
U.S. Govemment and agency
Municipal obligations
Corporate obligations
Mortgage-backed securites - government-backed
Private label CMOs
CMOs - govemment backed
$
3,893 $
14 $
(25) $
29,747
9,963
8,287
2,226
29,048
202
149
162
-
663
(1,056)
(619)
(5)
(382)
(4)
3,882
28,893
9,493
8,444
1,844
29,707
Total securities available for sale
83,164 $
1,190 $
(2,091) $
82,263
Held to Maturitv
Municpal obligations
Total securities held to maturity
Securities ASC 825
Preferred stock
375 $
375 $
9 $
9 $
2,000 $
2,000 $
(1,975) $
$
(1,975) $
384
384
25
25
-16-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE 3: Securities - continued
Beginning July 1, 2007 the Company elected to account for hs FHLMC and FNMA preferred
stock under FASB ASC 825, Fair Value Option for Financial Assets and Financial Liabilities,
which allows an entity the irrevocable option to elect fair value for the initial and subsequent
measurement for certain financial assets and liabilities on a contract-by-contract basis.
Subsequent changes in fair value of these assets are recognized in eamings when incurred.
Management elected to invoke the option to carry its preferred stock at fair value to more
accurately reflect the estimated realizability of the preferred stock at each financial reporting
date. The market value of preferred stock was $0 and $25,000 at June 30, 2010 and 2009,
respectively. These securities were sold during the second quarter of fiscal year 2010 resulting
in a loss on sale of $64,000 from their then carrying value. The gain and (loss) in market value
of $84,000 and ($1,296,000) for the years ending June 30, 2010 and 2009, respectively, is
included in noninterest income.
The Company has not entered into any interest rate swaps, options, or futures contracts relating
to investment securities.
Gross recognized gains on securities available-for-sale were $250,000 and $113,000 for the
years ended June 30, 2010 and 2009, respectively. Gross realized losses on securities available-
for-sale were $217,000, and $59,000 for the years ended June 30, 2010 and 2009, respectively.
The amortized cost and estimated fair value of securities at June 30, 2010 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.
June 30,
2010
Held to Maturity
Available for Sale
Amortized
Cost
Estimated
Market
Value
Amortized
Cost
Estimated
Market
Value
$
125 $
125 $
6,270 $
31,695
11,918
24,260
6,314
32,518
12,106
24,166
125
125
74,143
75,104
(Dollars 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 securites -
government-backed
Private lable CMOs
CMOs - govemment backed
1,690
957
35,902
112,692 $
1,755
842
36,827
114,528
Total
$
125 $
125 $
Maturities of securities do not reflect repricing opportunities present in adjustable rate securities.
-17-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE 3: Securities - continued
At June 30, 2010 and 2009, securities with a carrying value of $35,760,000 and $36,651,000,
respectively, were pledged to secure public deposits and for other purposes required or permitted
by law.
The following table discloses, as of June 30, 2010 and 2009, the Company's investment
securities that have been in a continuous unrealized-loss position for less than 12 months and
those that have been in a continuous unrealized loss position for 12 or more months:
(Dollars in Thousands)
Less than 12 months
12 months or longer
June 30,
2010
Estimated
Market
Value
Gross
Unrealized
Losses
Estimated
Market
Value
Gross
Unrealized
Losses
U.S. Govemment and agency $
Municipal obligations
Private label CMOs
Mortgage-backed & CMOs
$
3,679
5,712
467
6,729
27 $
129
14
38
$
872
3,884
374
-
2
392
101
-
Total
$
16,587
.$_
208 $
5,130
$_
495
June 30,
2009
U.S. Govemment and agency $
Municipal obligations
Corporate obligations
Private label CMOs
Mortgage-backed & CMOs
1,686
11,529
1,193
1,339
1,416
$
18 $
422
49
192
4
$
458
5,732
1,961
504
558
•
-
7
634
570
190
5
Total
$
17,163
_$_
685 $
9,213
_$_
1,406
The table above shows the Company's investment gross unrealized losses and fair values,
aggregated by investment category and length of time that the individual securities have been in
a continuous unrealized loss position at June 30, 2010 and 2009. 48 and 97 securities are in an
unrealized loss position as of June 30, 2010 and 2009, respectively.
Management evaluates securities for other-than-temporary impairment at least on a quarterly
basis, and more frequently when economic or market concems warrant such evaluation.
Consideration is given to (1) the length of time and the extent to which the fair value has been
less than cost, (2) the financial condition and near-term prospects ofthe issuer, and (3) the intent
and ability of the Bank to retain its investment in the issuer for a period of time sufficient to
allow for any anticipated recovery in fair value.
-18-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE 3: Securities - continued
At June 30, 2010, 41 U.S. Govemment and agency securities and municipal obligations have
unrealized losses with aggregate depreciation of less than 0.82% from the Company's amortized
cost basis. These unrealized losses are principally due to changes in interest rates and credit
spreads.
In analyzing an issuer's financial condition, management considers whether the
securities are issued by the federal govemment or its agencies, whether downgrades by bond
rating agencies have occurred, and industry analysts' reports. As management has the ability to
hold debt securities until maturity, or for the foreseeable future if classified as available for sale,
no declines are deemed to be other than temporary.
At June 30, 2010, 7 mortgage backed and CMO securities have unrealized losses with aggregate
depreciation of less than 0.4% from the Company's cost basis. We believe these unrealized
losses are principally due to the credit market's concems regarding the stability ofthe mortgage
market. Management considers available evidence to assess whether it is more likely-than-not
that all amounts due would not be collected. In such assessment, management considers the
severity and duration of the impairment, the credit ratings of the security, the overall deal and
payment stracture, including the Company's position within the stracture, underlying obligor,
financial condition and near term prospects of the issuer, delinquencies, defaults, loss severities,
recoveries, prepayments, cumulative loss projections, discounted cash flows and fair value
estimates. There has been no disraption of the scheduled cash flows on any of the securities.
Management's analysis as of June 30, 2010 revealed no expected credit losses on the securities.
Two of the CMO securities are non-agency securities (backed by Alt-A collateral) which have
ratings below investment grade from the credit rating agencies. The fair value of these two
securities represents less than 0.65% ofthe total fair value of all securities available for sale and
their unrealized loss is $108,000 as of June 30, 2010.
-19-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE 4: Loans
A summary ofthe balances of loans follows:
(Dollars in Thousands)
First mortgage loans:
Residential mortgage (1-4 family)
Commercial real estate
Real estate constraction
Other loans:
Home equity
Consumer
Commercial
Subtotal
Less: Allowance for loan losses
Deferred loan fees, net
June 30,
2010
2009
$
73,010 $
41,677
7,016
79,216
36,713
4,642
29,795
9,613
9,452
170,563
(1,100)
39
28,676
10,835
7,541
167,623
(525)
99
Total loans, net
$
169,502 $
167,197
Loans net of related allowance for loan losses on which the accraal of interest has been
discontinued were $2,402,000 and $990,000 at June 30, 2010 and 2009, respectively. Interest
income not accraed on these loans and cash interest income was immaterial for the years ended
June 30, 2010 and 2009. The allowance for loan losses on nonaccraal loans as of June 30, 2010
and 2009 was $380,000 and $12,000, respectively. The Company expects to collect all amounts
due on nonaccraal loans, including interest accraed at contractual rates. There were $2,104,000
($1,688,000 net of loss reserves of $416,000) of and $15,000 ($3,000 net of loss reserves of
$12,000) loans considered impaired at June 30, 2010 and 2009, respectively. As of June 30,
2010 and 2009, the Company had $29,000 and $251,000, respectively, of loans past due greater
than ninety days that were still accraing interest.
The following is a summary of changes in the allowance for loan losses:
June 30,
2010
2009
525 $
715
(143)
3
300
257
(47)
15
1,100 $
525
(Dollars in Thousands)
Balance at beginning of period
Provision (credit) for loan losses
Loans charged off
Recoveries of loans previously charged off
Balance at end of period
-20-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE 4: Loans - continued
Loans are granted to directors and officers of the Company in the ordinary course of business.
Such loans are made in accordance with policies established for all loans ofthe Company, except
that directors, officers, and employees may be eligible to receive discounts on loan origination
costs.
Loans receivable from directors and senior officers, and their related parties, of the Company at
June 30, 2010 and 2009, were $1,865,000 and $1,761,000, respectively. During the year ended
June 30, 2010, total principal additions amounted to $284,000 and total principal payments
amounted to $176,000. Interest income from all these loans was $117,000 and $140,000 for the
years ended June 30, 2010 and 2009, respectively. The Bank serviced, for the benefit of others,
$6,633,000 and $6,832,000 at June 30, 2010 and 2009, respectively, loans from directors and
senior officers.
NOTE 5: Mortgage Servicing Rights
The Company is servicing loans for the benefit of others totaling approximately $297,423,000
and $270,508,000 at June 30, 2010 and 2009, respectively. Servicing loans for others generally
consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to
investors, and foreclosure processing.
Custodial escrow balances maintained in connection with the foregoing loan servicing, and
included in demand deposits, were approximately $2,260,000 and $2,668,000 at June 30, 2010
and 2009, respectively.
The following is a summary of activity in mortgage servicing rights and the valuation allowance:
Years Ended June 30,
2010
2009
2,208 $
616
(487)
2,337
1,652
1,154
(598)
2,208
(Dollars in Thousands)
Mortgage servicing rights
Balance at beginning of period
Mortgage servicing rights capitalized
Amortization of mortgage servicing rights
Balance at end of period
Valuation allowance
Balance at beginning of period
Provision (credited) to operations
Balance at end of period
Net mortgage servicing rights
2,337 $
2,208
-21-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE S: Mortgage Servicing Rights - continued
The fair values of these rights were $2,400,000 and $2,389,000 at June 30, 2010 and June 30,
2009, respectively. The fair value of servicing rights was determined using discount rates
ranging from 9.0% to 20.0%., prepayment speeds ranging from 213%) to 405%, depending on
stratification ofthe specific right. The fair value was also adjusted for the affect of potential past
dues and foreclosures.
NOTE 6: Premises and Equipment
A summary ofthe cost and accumulated depreciation of premises and equipment follows:
(Dollars in Thousands)
Land, buildings, and improvements
Fumiture and equipment
Accumulated depreciation
June 30,
2010
2009
$
—
18,504 $
4,369
22,873
(7,025)
16,380
3,757
20,137
(6,376)
$_
15,848 $
13,761
Depreciation expense totaled $586,000 and $482,000 for the years ended June 30, 2010 and
2009, respectively.
NOTE 7: Deposits
The composition of deposits is summarized as follows:
(Dollars in Thousands)
Noninterest checking
Interest bearing checking (0.15%, 0.33%)
Passbook savings (0.21%, 0.41%)
Money market accounts (.24%, .64%)
Time certificates of deposits
June 30,
2010
2009
18,376 $
34,658
30,875
29,021
15,002
32,664
26,445
26,886
(2010 - .50% - 4.64%, 2009 - .75% - 5.35%)
85,009
86,202
197,939 $
187,199
The weighted average cost of deposit fiinds was .85% and 1.38% at June 30, 2010 and 2009,
respectively.
-22-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE 7: Deposits - continued
At June 30, 2010, the scheduled maturities of time deposits are as follows:
(Dollars in Thousands)
Within one year
One to two years
Two to three years
Three to four years
Thereafter
Total
Interest expense on deposits is summarized as follows:
(Dollars in Thousands)
Checking
Passbook savings
Money market accounts
Time certificates of deposits
$
61,005
15,876
4,547
2,850
731
$_
85,009
Years Ended June 30,
2010
2009
72 $
92
117
1,880
114
131
322
2,594
2,161 $
3,161
As of May 20, 2009 FDIC insurance covers deposits up to $250,000 through December 31,
2013. On July 21, 2010, this coverage was made permanent with the passage ofthe Frank-Dodd
Wall Street Reform and Consumer Protection Act. At June 30, 2010 the Company held
$17,787,000 in deposit accounts that included balances of $250,000 or more. The Bank is a
participant in the FDIC's Transactional Account Gaurantee Program, and as such noninterest
bearing accounts are fiilly insured until December 31, 2010 when the program expires. At June
30, 2010 the Company held $18,376,000, in noninterest bearing accounts.
At June 30, 2010 and 2009, the Company reclassified $53,000 and $148,000, respectively, in
overdrawn deposits as loans.
Directors' and senior officers' deposit accounts at June 30, 2010 and 2009, were $235,000 and
$299,000, respectively.
-23-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE 8: Advances from the Federal Home Loan Bank and other borrowings
Advances from the Federal Home Loan Bank of Seattie and other borrowings mature as follows:
(Dollars in Thousands)
Within one year
One to two years
Two to three years
Three to four years
Four to five years
Thereafter
Total
Federal Home Loan Advances
June 30,
2010
2009
13,224 $
18,000
16,000
9,000
9,000
2,000
10,667
8,389
18,000
16,000
9,000
5,000
67,224 $
67,056
The advances are due at maturity, with the exception oftwo advances, totaling, $10,000,000, that
are callable at the FHLB of Seattle's option. The advances are subject to prepayment penalties.
The interest rates on advances are fixed. The advances are collateralized by investment
securities pledged to the FHLB of Seattle and a blanket pledge of the Bank's 1-4 family
residential mortgage portfolio. The carrying value of the securities collateralized for these
advances was $1,135,081 as of June 30, 2009. At June 30, 2010 and 2009, the Company
exceeded the collateral requirements ofthe FHLB. The Company's investment in FHLB stock is
also pledged as collateral on these advances. The total FHLB funding line available to the
Company at June 30, 2010, was 30% oftotal Bank assets, or approximately $93.17 million. The
balance of advances was $44,224,000 and $44,056,000 at June 30, 2010 and 2009, respectively.
Other Borrowings
The Bank had $23,000,000 in stractured repurchase agreements with PNC Financial Service
Group, Inc. ("PNC") at June 30, 2010, and 2009. These agreements are collateralized by
corporate and municipal securities. The carrying value of these securities was $28,515,000 as of
June 30, 2010. These agreements include terms, under certain conditions, which allow PNC to
exercise a call option.
Federal Funds Purchased
The Bank has a $7,000,000 Federal Funds line of credit with PNC. The balance was $0 as of
June 30, 2010 and 2009.
The Bank has a $6,500,000 Federal Funds line of credit with Zions Bank. The balance was $0
as of June 30, 2010 and 2009.
-24-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE 8: Advances from the Federal Home Loan Bank and other borrowings - continued
Federal Reserve Bank Discount Window
For additional liquidity sources, the Bank has a credit facility at the Federal Reserve Bank's
Discount Window. The amount available to the Bank is limited by various collateral
requirements. The Bank has pledged one Agency security and one collateralized mortgage
obligation security at the Federal Reserve Bank that had a total carrying value of $5,547,000 as
of June 30, 2010. The account had $0 balance as of June 30, 2010 and 2009.
For all borrowings outstanding the weighted average interest rate for advances at June 30, 2010
and 2009 was 3.78%) and 4.02% respectively. The weighted average amount outstanding was
$66,090,000 and $67,772,000 for the years ended June 30, 2010 and 2009, respectively.
The maximum amount outstanding at any month-end was $68,500,000 and $73,789,000 during
the years ended June 30, 2010 and 2009, respectively.
NOTE 9: Subordinated Debentures
On September 28, 2005, the Company completed the private placement of $5,155,000 in
subordinated debentures to Eagle Bancorp Statutory Trast I ("the Trasf). The Trast funded the
purchase of the subordinated debentures through the sale of trast preferred securities to First
Tennessee Bank, N.A. with a liquidation value of $5,155,000. Using interest payments made by
the Company on the debentures, the Trast began paying quarterly dividends to preferred security
holders on December 15, 2005. The annual percentage rate of the interest payable on the
subordinated debentures and distributions payable on the preferred securities is fixed at 6.02%
until December 15, 2010 then becomes variable at 3-Month LIBOR plus 1.42%). Dividends on
the preferred securities are cumulative and the Trast may defer the payments for up to five years.
The preferred securities mature in December 15, 2035 unless the Company elects and obtains
regulatory approval to accelerate the maturity date to as early as December 15, 2010.
For the years ended June 30, 2010 and June 30, 2009, interest expense on the subordinated
debentures was $309,000.
Subordinated debt may be included in regulatory Tier 1 capital subject to a limitation that such
amounts not exceed 25% of Tier 1 capital. The remainder of subordinated debt is included in
Tier II capital. There is no limitation for inclusion of subordinated debt in total risk-based capital
and, as such, all subordinated debt was included in total risk-based capital.
NOTE 10: Legal Contingencies
Various legal claims also arise from time to time in the normal course of business which, in the
opinion of management, will have no material effect on the Company's financial statements.
-25-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE 11: Income Taxes
The components ofthe Company's income tax provision are as follows:
(Dollars in Thousands)
Current
U.S. federal
Montana
Deferred
U.S. federal
Montana
Total
Years Ended June 30,
2010
2009
(894) $
(247)
(1,141)
975
270
1,245
1,697
479
2,176
(149)
(72)
(221)
1,035 $
1,024
The nature and components of deferred tax assets and liabilities, which are a component of other
liabilities in 2010 and other assets in 2009 in the accompanying statement of financial condition,
are as follows:
June 30,
2010
2009
(Dollars in Thousands)
Deferred tax assets:
Deferred compensation
Loans receivable
Deferred loan fees
Securities available-for-sale & preferred stock FASB ASC 825
Other
$
Total deferred tax assets
Deferred tax liabilities:
Premises and equipment
Deferred loan fees
FHLB stock
Securities available-for-sale & preferred stock FASB ASC 825
Unrealized gain on hedging
Other
Total deferred tax liabilities
278 $
130
13
-
17
438
1,017
-
389
551
102
2,059
Net deferred tax (liability) asset
$
(1,621) $
272
34
-
862
16
1,184
210
11
389
20
630
554
The Company believes, based upon the available evidence, that all deferred tax assets will be
realized in the normal course of operations. Accordingly, these assets have not been reduced by
a valuation allowance.
-26-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE 11: Income Taxes - continued
A reconciliation ofthe Company's effective income tax provision to the statutory federal income
tax rate is as follows:
(Dollars in Thousands)
Federal income taxes at the statutory rate of 34%
State income taxes
Nontaxable income
Other, net
Income tax expense
Effective tax rate
Years Ended June 30,
2010
2009
$
1,173$
233
(541)
170
1,160
230
(451)
85_
$
1,035 $
1,024
30.0%
30.0%
Prior to January 1, 1987, the Company was allowed a special bad debt deduction limited
generally in the current year to 32%o (net of preference tax) of otherwise taxable income and
subject to certain limitations based on aggregate loans and savings account balances at the end of
the year. If the amounts that qualified as deductions for federal income tax purposes are later
used for purposes other than for bad debt losses, they will be subject to federal income tax at the
then current corporate rate. Retained eamings include approximately $852,000 and $525,000 at
June 30, 2010 and 2009, respectively, for which federal income tax has not been provided.
-27-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE 12: Comprehensive Income
Comprehensive income represents the sum of net income and items of "other comprehensive
income" that are reported directly in stockholders' equity, such as the change during the period
in the after-tax net unrealized gain or loss on securities available-for-sale.
The Company's other comprehensive income is summarized as follows for the years ended June
30:
2010
2009
(Dollars in Thousands)
Net unrealized holding loss arising during the year:
Available for sale securities, net of related income
tax (expense) benefit of($831) and $112, respectively
$
1,938 $
263
Forward delivery commitments, net of related
income tax expense of $82 and $6, respectively
191
15
Reclassification adjustment for net realized gain
included in net income, net of related income
tax expense of $9 and $16, respectively
(23)
(38)
Other comprehensive income
$
2,106 $
240
-28-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE 13: Supplemental Cash Flow Information
Years Ended June 30,
2010
2009
(Dollars in Thousands)
Supplemental Cash Flow Information
Cash paid during the year for interest
Cash paid during the year for income taxes
5,115 $
603
6,127
1,475
Non-Cash Investing Activities
Increase in market
value of securities available for sale
Mortgage servicing rights capitalized
ESOP shares released
NOTE 14: Regulatory Capital Requirements
(2,737) $
617
101
(321)
1,154
114
The Bank is subject to various regulatory capital requirements administered by federal banking
agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and
possibly additional discretionary - actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-
balance-sheet items as calculated under regulatory accounting practices. The Bank's capital
amounts and classifications are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to
maintain minimum amounts and ratios (set forth in the table below) of tangible and core capital
(as defined in the regulations) to total adjusted assets (as defined), and of risk-based capital (as
defined) to risk-weighted assets (as defined). Management believes, as of June 30, 2010 and
2009, that the Bank meets all capital adequacy requirements to which it is subject.
The most recent notification from the Office of Thrift Supervision ("OTS") (as of January 5,
2009) categorized the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well-capitalized, the Bank must maintain minimum
tangible, core, and risk-based ratios as set forth in the table below. The Bank's actual capital
amounts (in thousands) and ratios are presented in the table below:
-29-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE 14: Regulatory Capital Requirements - continued
(Dollars in Thousands)
Actual
Minimum
Capital
Requirement
Minimum
To Be Well
Capitalized Under
Prompt Cortective
Action Provisions
June 30, 2010:
Amount
Ratio
Amount
Ratio
Amount
Ratio
Total Risk-based Capital
to Risk "Weighted Assets
Consolidated
Bank
Tier 1 Capital to
Risk Weighted Assets
Consolidated
Bank
Tier I Capital to
Adjusted Total Assets
Consolidated
Bank
Tangible Capital to
Adjusted Total Assets
Consolidated
Bank
June 30,2009:
Total Risk-based Capital
to Risk Weighted Assets
Consolidated
Bank
Tier 1 Capital to
Risk Weighted Assets
Consolidated
Bank
Tier I Capital to
Adjusted Total Assets
Consolidated
Bank
Tangible Capital to
Adjusted Total Assets
Consolidated
Bank
$ 56,591
41,223
26.47 %
19.63
$ 17,103
16,799
8.00% $
8.00
N/A
20,999
N/A %
10.00
55,908
40,539
26.15
19.31
8,551
8,400
4.00
4.00
N/A
12,599
N/A
6.00
55,908
40,539
17.12
13.10
9,798
9,282
3.00
3.00
N/A
15,471
N/A
5.00
55,908
40,539
17.12
13.10
4,899
4,641
1.50
1.50
N/A
N/A
N/A
N/A
$ 33,886
27,592
16.61 %
13.66
$ 16,318
16,157
8.00% $
8.00
N/A
20,196
N/A %
10.00
33,374
27,079
16.36
13.41
8,159
8,078
4.00
4.00
N/A
12,118
N/A
6.00
33,374
27,079
11.50
9.53
8,709
8,522
3.00
3.00
N/A
14,203
N/A
5.00
33,374
27,079
11.50
9.53
4,354
4,261
1.50
1.50
N/A
N/A
N/A
N/A
-30-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE 14: Regulatory Capital Requirements - continued
A reconciliation of the Bank's capital (in thousands) determined by generally accepted
accounting principles to capital defined for regulatory purposes, is as follows:
(Dollars in Thousands)
Capital determined by generally
accepted accounting principles
Unrealized (gain) loss on securities available-for-sale
Unrealized gain on forward delivery commitments
Tier I (core) capital
General allowance for loan losses
2010
2009
42,009 $
(1,232)
(238)
40,539
684
26,687
439
(47)
27,079
513
Total risk based capital
$
41,223 $
27,592
Dividend Limitations
Under OTS regulations that became effective April 1, 1999, savings associations such as the
Bank generally may declare annual cash dividends up to an amount equal to net income for the
current year plus net income retained for the two preceding years. Dividends in excess of such
amount require OTS approval. The Bank has paid dividends totaling $1,000,000 and $1,552,000
to the Company during the years ended June 30, 2010, and 2009, respectively. The Company
had paid quarterly dividends of $0.26 per share for the first three fiscal quarters of fiscal year
ended June 30, 2010. For its fourth quarter fiscal year ended June 30, 2010, the Company paid a
dividend of $0.06842 per share ($0.26 on a converted basis with regards to the conversion that
occurred on April 5, 2010) to its shareholders. The Company paid four quarterly dividends of
$.255 per share to its shareholders for the year ended June 30, 2009.
Liquidation Rights
Eagle Bancorp Montana, Inc. holds a liquidation account for the benefit of certain depositors of
American Federal Savings Bank who remain depositors of the Bank at the time of liquidation.
The liquidation account is designed to provide payments to these depositors of their liquidation
interests in the event of a liquidation of Eagle and the Bank, or the Bank alone. In the unlikely
event that Eagle and the Bank were to liquidate in the future, all claims of creditors, including
those of depositors, would be paid first, followed by distribution to depositors as of November
30, 2008 (who continue to be the Bank's depositors) of the liquidation account maintained by
Eagle. Also, in a complete liquidation of both entities, or of just the Bank, when Eagle has
insufficient assets to fund the liquidation account distribution due to depositors and the Bank has
positive net worth, the Bank would immediately pay amounts necessary to fund Eagle's
remaining obligations under the liquidation account. If Eagle is completely liquidated or sold
apart from a sale or liquidation of the Bank, then the rights of such depositors in the liquidation
account maintained by Eagle would be surrendered and treated as a liquidation account in the
Bank, the "bank liquidation accounf and these depositors shall have an equivalent interest in the
bank liquidation account and the same rights and terms as the liquidation account.
-31-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consohdated Financial Statements
June 30, 2010 and 2009
NOTE 14: Regulatory Capital Requirements - continued
Liquidation Rights - continued
After two years from the date of conversion and upon the written request ofthe OTS, Eagle will
eliminate or transfer the liquidation account and the interests in such account to the Bank and the
liquidation account would become the liquidation account of the Bank and not subject in any
manner or amount to Eagle's creditors. Also, under the rales and regulations of the OTS, no
post-conversion merger, consolidation, or similar combination or transaction with another
depository institution in which Eagle or the Bank is not the surviving institution would be
considered a liquidation and, in such a transaction, the liquidation account would be assumed by
the surviving institution.
NOTE 15: Related Party Transactions
The Bank has contracted with a subsidiary of a company which is partially owned by one of the
Company's directors. The Bank paid $103,000 during the year ended June 30, 2010 for support
services, and an additional $157,000 for computer hardware and software used by the Bank for
its computer network. For the year ended June 30, 2009, expenditures were $54,000 for support
services and $83,000 for computer hardware and software.
In 2007, the Bank also made a constraction loan, in the normal course of lending, to this same
affiliated entity for the constraction of an office building. In fiscal 2008 the constraction was
completed and the loan was refinanced into $7,500,000 permanent financing. On July 9, 2008,
80 percent, or $6.0 milhon was sold to the Montana Board of Investments. As of June 30, 2010
this loan's principal balance was $7,102,000 ($1,420,000 net of participation sold). The Bank
maintains the servicing for this loan and the loan is current.
NOTE 16: Employee Benefits
Profit Sharing Plan
The Company provides a noncontributory profit sharing plan for eligible employees who have
completed one year of service. The amount ofthe Company's annual contribution, limited to a
maximum of 15% of qualified employees' salaries, is determined by the Board of Directors.
Profit sharing expense was $169,000 and $182,000 for the years ended June 30, 2010 and 2009,
respectively.
The Company's profit sharing plan includes a 401(k) feature. At the discretion ofthe Board of
Directors, the Company may match up to 50% of participants' contributions up to a maximum of
4% of participants' salaries. For the years ended June 30, 2010 and 2009, the Company's match
totaled $48,000 and $47,000, respectively.
-32-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE 16: Employee Benefits - continued
Deferred Compensation Plans - continued
The Company has entered into deferred compensation contracts with current key employees.
The contracts provide fixed benefits payable in equal annual installments upon retirement. The
Company purchased life insurance contracts that may be used to fund the payments. The charge
to expense is based on the present value computations of anticipated liabilities. For the years
ended June 30, 2010 and 2009, the total expense was $106,000 and $102,000, respectively.
The Company has recorded a liability for the deferred compensation plan of $926,000 and
$908,000 at June 30, 2010 and 2009, respectively, which is included in the balance of accraed
expenses and other liabilities.
Employee Stock Ownership Plan
The Company has established an ESOP for eligible employees who meet certain age and service
requirements. At inception, in April 2000, the ESOP borrowed $368,000 from Eagle Bancorp
and used the funds to purchase 46,006 shares of common stock, at $8 per share, in the initial
offering. This borrowing was fully paid on December 31, 2009. Again, in conjunction with the
subsequent offering in April 2010, the ESOP borrowed $1,971,420 from Eagle Bancorp
Montana, Inc. and used the funds to purchase 197,142 shares ofcommon stock, at $10 per share.
The Bank makes periodic contributions to the ESOP sufficient to satisfy the debt service
requirements of the loan that has a twelve-year term and bears interest at 8%. The ESOP uses
these contributions, and any dividends received by the ESOP on unallocated shares, to make
principal and interest payments on the loan.
Shares purchased by the ESOP are held in a suspense account by the plan trastee until allocated
to participant accounts. Shares released from the suspense account are allocated to participants
on the basis of their relative compensation in the year of allocation. Participants become vested
in the allocated shares over a period not to exceed seven years. Any forfeited shares are
allocated to other participants in the same proportion as contributions.
Total ESOP expenses of $123,000 and $107,000 were recognized in fiscal 2010 and 2009,
respectively. 4600 shares were released and allocated to participants during the year ended June
30, 2009. 2,300 shares, prior to the April 5, 2010 conversion, were released and allocated to
participants during the year ended June 30, 2010. 8,214 shares, subsequent to the conversion on
April 5, 2010, were allocated to participants during the year ended June 30, 2010.The cost ofthe
188,928 ESOP shares ($1,889,280 at June 30, 2010) that have not yet been allocated or
committed to be released to participants is deducted from stockholders' equity. The fair value of
these shares was approximately $1,842,048 at that date.
Stock Incentive Plan
The Company adopted the Stock Incentive Plan ("the Plan") on October 19, 2000. The Plan
provides for different types of awards including stock options, restricted stock and perfonnance
shares. Under the Plan, 23,000 shares of restricted stock were granted to directors and certain
officers during fiscal 2001. These shares of restricted stock vest in equal installments over five
years beginning one year from the grant date.
There were no stock options granted under the Plan as of June 30, 2010.
-33-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE 17: Financial Instruments and Off-Balance-Sheet Activities
All financial instraments held or issued by the Company are held or issued for purposes other
than trading. In the ordinary course of business, the Company enters into off-balance-sheet
financial
instraments consisting of commitments to extend credit and forward delivery
commitments for the sale of whole loans to the secondary market.
Commitments to extend credit - In response to marketplace demands, the Company routinely
makes commitments to extend credit for fixed rate and variable rate loans with or without rate
lock guarantees. When rate lock guarantees are made to customers, the Company becomes
subject to market risk for changes in interest rates that occur between the rate lock date and the
date that a firm commitment to purchase the loan is made by a secondary market investor.
Generally, as interest rates increase, the market value of the loan commitment goes down. The
opposite effect takes place when interest rates decline.
Commitments to extend credit are agreements to lend to a customer as long as the borrower
satisfies the Company's underwriting standards and related provisions of the bonowing
agreements. Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. The Company uses the same credit policies in making
commitments to extend credit as it does for on-balance-sheet instraments. Collateral is required
for substantially all loans, and normally consists of real property. The Company's experience
has been that substantially all loan commitments are completed or terminated by the bonower
within 3 to 12 months.
The notional amounts of the Company's commitments to extend credit at fixed and variable
interest rates were approximately $9,029,000 and $12,440,000 at June 30, 2010 and 2009,
respectively. Fixed rate commitments are extended at rates ranging from 4.00% to 8.00% and
4.50% to 8.0% at June 30, 2010 and 2009, respectively. The Company has lines of credit
representing credit risk of approximately $59,373,000 and $52,288,000 at June 30, 2010 and
2009, respectively, of which approximately $32,012,000 and $26,838,000 had been drawn at
June 30, 2010 and 2009, respectively. The Company has credit cards issued representing credit
risk of approximately $727,000 and $675,000 at June 30, 2010 and 2009, respectively, of which
approximately $30,000 and $21,000 had been drawn at June 30, 2010 and 2009, respectively.
The Company has letters of credits issued representing credit risk of approximately $2,432,000
and $1,347,000 at June 30, 2010 and 2009, respectively.
Forward delivery commitments - The Company uses mandatory sell forward delivery
commitments to sell whole loans. These commitments are also used as a hedge against exposure
to interest-rate risks resulting from rate locked loan origination commitments on certain
mortgage loans held-for-sale. Gains and losses in the items hedged are defened and recognized
in other comprehensive income until the commitments are completed. At the completion of the
commitments the gains and losses are recognized in the Company's income statement.
As of June 30, 2010 and 2009, the Company had entered into commitments to deliver
approximately $7,437,000 and $5,344,000 respectively, in loans to various investors, all at fixed
interest rates ranging from 2.75% to 7.125% and 4.25% to 5.63%, at June 30, 2010 and 2009,
respectively. The Company had approximately $340,000 and $68,000 of gains defened as a
result of the forward delivery commitments entered into as of June 30, 2010 and 2009,
respectively. The total amount of the gain is expected to be taken into income within the next
twelve months.
-34-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE 17: Financial Instruments and Off-Balance-Sheet Activities - continued
The Company did not have any gains or losses reclassified into eamings as a result of the
ineffectiveness of its hedging activities. The Company considers its hedging activities to be
highly effective.
The Company did not have any gains or losses reclassified into eamings as a result of the
discontinuance of cash flow hedges because it was probable that the original forecasted
transaction would not occur by the end of the originally specified time frame as of June 30,
2010.
The Company has no other off-balance-sheet anangements or transactions with unconsolidated,
special purpose entities that would expose the Company to liability that is not reflected on the
face ofthe financial statements.
NOTE 18: Fair Value Disclosures
FASB ASC 820 defines fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants. A fair value
measurement assumes that the transaction to sell the asset or transfer the liability occurs in the
principal market for the asset or liability or, in the absence of a principal market, the most
advantageous market for the asset or liability. The price in the principal (or most advantageous)
market used to measure the fair value ofthe asset or liability shall not be adjusted for transaction
costs. An orderly transaction is a transaction that assumes exposure to the market for a period
prior to the measurement date to allow for marketing activities that are usual and customary for
transactions involving such assets and liabilities; it is not a forced transaction. Market
participants are buyers and sellers in the principal market that are (i) independent, (ii)
knowledgeable, (iii) able to transact and (iv) willing to transact.
FASB ASC 820 requires the use of valuation techniques that are consistent with the market
approach, the income approach and/or the cost approach. The market approach uses prices and
other relevant information generated by market transactions involving identical or comparable
assets and liabilities. The income approach uses valuation techniques to convert ftiture amounts,
such as cash flows or eamings, to a single present amount on a discounted basis. The cost
approach is based on the amount that cunentiy would be required to replace the service capacity
of an asset (replacement costs). Valuation techniques should be consistently applied. Inputs to
valuation techniques refer to the assumptions that market participants would use in pricing the
asset or liability. Inputs may be observable, meaning those that reflect the assumptions market
participants would use in pricing the asset or liability developed based on market data obtained
from independent sources, or unobservable, meaning those that reflect the reporting entity's own
assumptions about the assumptions market participants would use in pricing the asset or liability
developed based on the best information available in the circumstances. In that regard, FASB
ASC 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to
quoted prices in active markets for identical assets or liabilities and the lowest priority to
unobservable inputs. The fair value hierarchy is as follows:
-35-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE 18: Fair Value Disclosures - continued
• Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities
that the reporting entity has the ability to access at the measurement date.
« Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for
the asset or liability, either directly or indirectly. These include quoted prices for similar
assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities
in markets that are not active, inputs other than quoted prices that are observable for the asset
or liability (for example, interest rates, volatilities, prepayment speeds, loss severities, credit
risks and default rates) or inputs that are derived principally from or conoborated by
observable market data by conelation or other means.
• Level 3 Inputs - Significant unobservable inputs that reflect an entity's own assumptions that
market participants would use in pricing the assets or liabilities.
A description of the valuation methodologies used for assets and liabilities measured at fair
value, as well as the general classification of such instniments pursuant to the valuation
hierarchy, is set forth below.
In general, fair value is based upon quoted market prices, where available. If such quoted market
prices are not available, fair value is based upon intemally developed models that primarily use,
as inputs, observable market-based parameters. Valuation adjustments may be made to ensure
that financial instraments are recorded at fair value. While management believes the Company's
valuation methodologies are appropriate and consistent with other market participants, the use of
different methodologies or assumptions to determine the fair value of certain financial
instraments could result in a different estimate of fair value at the reporting date.
Available for Sale Securities - Securities classified as available for sale are reported at fair value
utilizing Level 1 and Level 2 inputs. For these securities, the Company obtains fair value
measurements from an independent pricing service. The fair value measurements consider
observable data that may include 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, among other things.
Impaired Loans ~ Impaired loans are reported at the fair value of the underlying collateral if
repayment is expected solely from the collateral. Collateral values are estimated using Level 3
inputs based on intemally customized discounting criteria.
Preferred Stock - FASB ASC 825- Freddie Mac and Fannie Mae prefened stock are reported at
fair value utilizing Level 1 and Level 2inputs. For these securities, the Company obtains fair
value measurements from an independent pricing service. The fair value measurements consider
observable data that may include 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, among other things.
Loans Held for Sale - These loans are reported at the lower of cost or fair value. Fair value is
determined based on expected proceeds based on sales contracts and commitments and are
considered Level 2 inputs.
-36-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE 18: Fair Value Disclosures - continued
Repossessed Assets - Fair values are valued at the time the loan is foreclosed upon and the asset
is transfened from loans. The value is based upon primary third party appraisals, less costs to
sell. The appraisals are generally discounted based on management's historical knowledge,
changes in market conditions from the time of valuation, and/or management's expertise and
knowledge ofthe client and client's business. Such discounts are typically significant and result
in Level 3 classification of the inputs for determining fair value. Repossessed assets are
reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted
accordingly, based on same or similar factors above.
The following table summarizes financial assets and financial liabilities measured at fair value
on a recumng basis as of June 30, 2010 and 2009, segregated by the level ofthe valuation inputs
within the fair value hierarchy utilized to measure fair value (dollars in thousands):
Available for sale securities
Loans held-for-sale
$
$"
-
Level 1
Inputs
June 30, 2010
Level 2
Inputs
114,528 $
7,695
Level 3
Inputs
Total Fair
Value
114,528
7,695
' $'
Available for sale securities
Prefened stock - FASB ASC 825
Loans held-for-sale
$~
June 30, 2009
Level 1
Inputs
~ $~
-
Level 2
Inputs
82,263 $
25
5,349
Level 3
Inputs
" $"
Total Fair
Value
82,263
25
5,349
Certain financial assets and financial liabilities are measured at fair value on a nonrecurring
basis; that is, the instraments are not measured at fair value on an ongoing basis but are subject
to fair value adjustments in certain circumstances (for example, when there is evidence of
impainnent). The following table summarizes financial assets and financial liabilities measured
at fair value on a nomecuning basis as of June 30, 2010 and 2009, segregated by the level ofthe
valuation inputs within the fair value hierarchy utilized to measure fair value (dollars in
thousands):
-37-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE 18: Fair Value Disclosures
continued
June 30,2010
Level 1
Inputs
$
$"
-
Level 2
Inputs
-
2,400
Level 3
Inputs
Total Fair
Value
$
1,688
' $"
619
1,688
2,400
619
June 30, 2009
Level 1
Inputs
-
~ $"
$
Level 2
Inputs
-
2,389
Level 3
Inputs
Total Fair
Value
$
3
' $'
3
2,389
Impaired loans
Mortgage servicing rights
Repossessed assets
Impaired loans
Mortgage servicing rights
Repossessed assets
During the year ended June 30, 2010, certain impaired loans were remeasured and reported at
fair value through a specific valuation allowance allocation of the allowance for possible loan
losses based upon the fair value of the underlying collateral. Impaired loans with a carrying
value of $2,101,000 were reduced by specific valuation allowance allocations totaling $416,000
to a total reported fair value of $1,685,000 based on collateral valuations utilizing Level 3
valuation inputs.
As of June 30, 2010, mortgage servicing rights were remeasured and reported at the lower of
cost or fair value through a valuation allowance based upon the fair value of the calculated
servicing rights. Servicing rights with a carrying value of $2,337,000 were lower than fair value
of $2,400,000 based on collateral valuations utilizing Level 2 valuation inputs, and as such are
reported at the lower value of cost.
Certain non-fmancial assets and non-financial liabilities measured at fair value on a recuning
and non-recuning basis include goodwill, other intangible assets and other non-financial long-
lived assets. As stated above, FASB ASC 820 will be applicable to these fair value
measurements that began on January 1, 2009.
Those financial instraments not subject to the initial implementation of FASB ASC 820 are
required under SFAS 107 to disclose the fair value of financial instraments, both assets and
liabilities recognized and not recognized in the statement of fmancial position, for which it is
practicable to estimate fair value. Below is a table that summarizes the fair market values of aU
financial instraments of the Company at June 30, 2010 and 2009, followed by methods and
assumptions that were used by the Company in estimating the fair value of the classes of
financial instniments not covered by FASB ASC 820.
The estimated fair value amounts of financial instraments have been determined by the
Company using available market
information and appropriate valuation methodologies.
However, considerable judgment is required to interpret data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts
the Company could realize in a cunent market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the estimated fair
value amounts.
-38-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE 18: Fair Value Disclosures - continued
(Dollars in Thousands)
Financial Assets:
Cash and cash equivalents
Securities held-to-maturity
FHLB stock
Loans receivable, net
Cash value oflife insurance
Financial Liabilities:
June 30,
2010
2009
Carrying
Amount
Estimated
Fair
Value
Carrying
Amount
Estimated
Fair
Value
$
3,509 $
125
2,003
169,502
6,691
3,509 $
125
2,003
176,037
6,691
6,328 $
375
2,000
167,197
6,496
6,328
384
2,000
172,408
6,496
100,997
88,284
70,524
3,899
Deposits
Time certificates of deposit
Advances from the FHLB & other
borrowings
Subordinated debentures
112,930
85,009
67,224
5,155
112,930
86,770
66,117
3,872
100,997
86,202
67,056
5,155
The following methods and assumptions were used by the Company in estimating the fair value
ofthe following classes of financial instraments.
Cash and interest-bearing accounts - The carrying amounts approximate fair value due to the
relatively short period of time between the origination of these instraments and their expected
realization.
Stock in the FHLB - The fair value of stock in the FHLB approximates redemption value.
Loans receivable - Fair values are estimated by stratifying the loan portfolio into groups of loans
with similar financial characteristics. Loans are segregated by type such as real estate,
commercial, and consumer, with each category further segmented into fixed and adjustable rate
interest terms.
For mortgage loans, the Company uses the secondary market rates in effect for loans that have
similar characteristics. The fair value of other fixed rate loans is calculated by discounting
scheduled cash flows through the anticipated maturities adjusted for prepayment estimates.
Adjustable interest rate loans are assumed to approximate fair value because they generally
reprice within the short term.
Fair values are adjusted for credit risk based on assessment of risk identified with specific loans,
and risk adjustments on the remaining portfolio based on credit loss experience.
Assumptions regarding credit risk are judgmentally determined using specific bonower
information, intemal credit quality analysis, and historical information on segmented loan
categories for non-specific bonowers.
-39-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE 18: Fair Value Disclosures - continued
Cash surrender value of life insurance - The carrying amount for cash sunender value of life
insurance approximates fair value as policies are recorded at redemption value.
Deposits and time certificates of deposit - The fair value of deposits with no stated maturity,
such as checking, passbook, and money market, is equal to the amount payable on demand. The
fair value of time certificates of deposit is based on the discounted value of contractual cash
flows. The discount rate is estimated using the rates cunentiy offered for deposits of similar
maturities.
Advances from the FHLB & Subordinated Debentures - The fair value of the Company's
advances and debentures are estimated using discounted cash flow analysis based on the interest
rate that would be effective June 30, 2010 and 2009, respectively if the bonowings repriced
according to their stated terms.
NOTE 19: Condensed Parent Company Financial Statements
Set forth below is the condensed statements of financial condition as of June 30, 2010 and 2009,
of Eagle Bancorp together with the related condensed statements of income and cash flows for
the years ended June 30, 2010 and 2009.
-40-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE 19: Condensed Parent Company Financial Statements - continued
Condensed Statements of Financial Condition
(Dollars in Thousands)
Assets
Cash and cash equivalents
Securities available for sale
Prefened stock - FASB ASC 825
Investment in Eagle Bancorp Statutory Trast I
Investment in American Federal Savings Bank
Other assets
Total assets
Liabilities and stockholders' equitv
Accounts payable and accraed expenses
Long-term subordinated debt
Stockholders' Equity
2010
2009
301
14,892
$
-
155
42,010
242
318
5,491
25
155
26,688
283
57,600
%_
32,960
13
5,155
52,432
13
5,155
27,792
Total liabilities and stockholders' equity
57,600
%_
32,960
Condensed Statements of Income
(Dollars in Thousands)
Interest income
Interest expense
Noninterest expense
Loss before income taxes
Income tax benefit
Loss before equity in undistributed
2010
2009
387 $
(310)
(144)
(67)
(20)
146
(310)
(114)
(278)
(83)
eamings of American Federal Savings Bank
(47)
(195)
Equity in undistributed eamings
of American Federal Savings Bank
Net income
2,461
2,583
2,414 $
2,388
-41-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
NOTE 19: Condensed Parent Company Financial Statements - continued
Condensed Statements of Cash Flow
(Dollars in Thousands)
Cash flows from operating activities
Net income
Adjustments to reconcile net income
to net cash used in operating activities:
Equity in undistributed eamings
of American Federal Savings Bank
Other adjustments, net
Net cash used in operating activities
Cash flows from investing activities
Cash contribution from American Federal Savings Bank
Cash contribution to American Federal Savings Bank
Activity in available for sale securities
Sales
Maturities, prepayments and calls
Purchases
Net cash provided by investing activities
Cash flows from financing activities
Common stock issued
ESOP payments and dividends
ESOP shares purchased
Payments to purchase treasury stock
Dividends paid
Net cash used in financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of period
2010
2009
$
2,414 $
2,388
(2,461)
(165)
(212)
1,000
(12,000)
8
912
(9,830)
(19,910)
22,574
136
(1,971)
(22)
(612)
20,105
(17)
318
(2,583)
94
(101)
1,302
89
279
(1,152)
518
-
120
-
(21)
(435)
(336)
81
237
Cash and cash equivalents at end of period
301 $
318
-42-
E A G LE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2010 and 2009
N O TE 20: Quarterly Results of Operations (Unaudited)
The following is a condensed summary of quarterly resuhs of operations for the years ended
June 30, 2010 and 2009:
Year ended June 30, 2010
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(Dollars in Thousands, except per share data)
$
Interest and dividend income
Interest expense
Net interest income
Loan loss provision
Net interest income after loan loss
provision
Non interest income
Non interest expense
Income before income tax expense
Income tax expense
Net income
Comprehensive income (loss)
Basic eamings per common share *
$
$
$
Diluted eamings per common share * $
3,724 $
1,341
2,383
135
2,248
1,061
2,103
1,206
362
844 $
3,798 $
1,353
2,445
107
2,338
937
2,485
790
237
553 $
1,890 $
(624) $
0.21 $
0.18 $
0.14 $
0.12 $
3,686 $
1,216
2,470
214
2,256
722
2,254
724
244
480 $
216 $
0.12 $
0.10 $
*calculated on a converted basis using a 3.8 to 1.0 exchange ratio
Year ended June 30, 2009
$
Interest and dividend income
Interest expense
Net interest income
Loan loss provision
Net interest income after loan loss
provision
Non interest income
Non interest expense
Income before income tax expense
Income tax expense
Net income
Comprehensive income (loss)
Basic eamings per common share
Diluted eamings per common share
3,816 $
1,580
2,236
-
2,236
(504)
1,849
(117)
(17)
(100) $
556 $
0.43 $
0.38 $
3,943 $
1,575
2,368
34
2,334
444
2,056
722
198
524 $
215 $
0.20 $
0.18 $
3,822 $
1,512
2,310
72
2,238
1,526
2,251
1,513
454
1,059 $
236 $
0.50 $
0.44 $
3,690
1,186
2,504
259
2,245
873
2,389
729
192
537
624
0.14
0.14
3,760
1,441
2,319
151
2,168
1,533
2,407
1,294
389
905
(921)
0.083
0.73
-43-
Shareholder Information
STOCK LISTING
Symbol: EBMT
NASDAQ Global
SHAREHOLDER SERVICES AGENT
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07106-3572
800.368.5948
www.rtco.com
INVESTOR INFORMATION
Copies of reports filed with the Securities and
Exchange Commission are available without
charge through the Internet at www.sec.gov
or the Investor Relations section of our website
at www.americanfederalsavingsbank.com
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Davis, Kinard & Co., P.C.
400 Pine Street, Suite 600
Abilene, TX 79601
325.672.4000
www.dkcpa.com
CORPORATE HEADQUARTERS
1400 Prospect Avenue
Helena, MT 59601
406.442.3080
SHAREHOLDER CONTACT
Charles Berger, Corporate Secretary
American Federal Savings Bank
P.O. Box 4999
Helena, MT 59604-4999
406.442.3080
fax: 406.457.4013
cberger@amfedsb.com
CORPORATE COUNSEL
Nixon Peabody, LLP
401 9th Street, N.W.
Suite 900
Washington, DC 20004
202.585.8000
www.nixonpeabody.com
Annual Report Design by Curran & Connors, Inc. / www.curran-connors.com
Photography by Kurt Keller / www.kurtkellerphoto.com
EBMT
N A S D AQ
L I S T ED
EAGLE BANCORP
M O N T A N A,
I N C.
1400 PROSPECT AVENUE
HELENA, MT 59601