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1400 proSpect avenue Helena, Mt 59601
2012 annual report
EaglE Bancorp Montana, Inc. is the stock
holding company of american Federal Savings Bank. american Federal was
founded in 1922 in Helena, Montana as a Montana chartered building and loan
association. In 1975, the Bank adopted a federal thrift charter. the Bank still
maintains its headquarters and two other branches in Helena, with additional
branches in Bozeman, Butte and townsend, Montana. the Bank’s market
area is concentrated in south central Montana, to which it 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.
FInancIal HIgHlIgHtS
For the Years Ended June 30 (Dollars in thousands)
2012
2011
2010
2009
2008
SElEctED FInancIal conDItIon Data
total assets
net loans
total Securities
total Deposits
total Shareholders’ Equity
$327,299
173,839
89,277
219,989
53,650
$331,093
185,471
102,700
209,186
52,485
$325,739
169,502
114,653
197,939
52,432
$289,709
167,197
82,663
187,199
27,792
$279,907
168,149
80,435
178,851
25,634
SElEctED opEratIng Data
net Interest Income
provision for loan losses
non-interest Income
non-interest Expense
$10,931
1,101
4,174
11,034
$10,873
948
4,623
11,082
$9,802
715
3,593
9,231
$9,233
257
2,999
8,563
$7,436
(175)
2,224
7,063
nEt IncoME
$2,178
$2,410
$2,414
$ 2,388
$2,110
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
NON-PERFORMING ASSETS TO TOTAL ASSETS
Peer Median
Eagle Bancorp Montana, Inc.
6.03%
5.77%
5.22%
6.41%
5.99%
7.33%
6.91%
6.78%
7.01%
6.81%
1.04%
1.02%
1.16%
1.09%
0.39%
1.94%
1.24%
1.69%
1.62%
1.70%
2010 Q1
2010 Q2
2010 Q3
2010 Q4
2011 Q1
2011 Q2
2011 Q3
2011 Q4
2012 Q1
2012 Q2
Source: SNL Financial
SHareHolDer InForMatIon
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
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
photo: BrIDger range, ©John lambing, 2012
cover photo: gallatIn rIver anD BrIDgerS, ©John lambing, 2012
0%1%2%3%4%5%6%7%8%9%2010 Q12010 Q22010 Q32010 Q42011 Q12011 Q22011 Q32011 Q42012 Q12012 Q2NON-PERFORMING ASSETS TO TOTAL ASSETSPeer MedianEagle Bancorp Montana, Inc.5.77%6.03%5.22%6.41%7.33%5.99%0.39%1.04%1.02%1.16%1.09%1.24%6.91%1.94%7.01%6.78%1.69%1.62%6.81%1.70%Source: SNL Financialbasic in dollarsadjusted for exchange ratio00.450.50.550.60809101112EPSin dollarsadjusted for exchange ratio46810120809101112STOCK PRICEdollars in millionsTOTAL ASSETS1502002503003500809101112For the Years ended June 30 (Dollars in thousands) 2012 2011 2010 2009 2008SelecteD FInancIal conDItIon Data total assets $327,299 $331,093 $325,739 $289,709 $279,907net loans 173,839 185,471 169,502 167,197 168,149 total Securities 89,277 102,700 114,653 82,663 80,435 total Deposits 219,989 209,186 197,939 187,199 178,851 total Shareholders’ equity 53,650 52,485 52,432 27,792 25,634SelecteD operatIng Data net Interest Income $10,931 10,873 $9,802 $9,233 $7,436 provision for loan losses 1,101 948 715 257 (175) non-interest Income 4,174 4,623 3,593 2,999 2,224non-interest expense 11,034 11,082 9,231 8,563 7,063 net IncoMe $2,178 2,410 $2,414 $ 2,388 $2,110 eagle Bancorp Mt, Inc 2HelenaMaIn oFFIce1400 prospect avenueHelena, Mt 59601HelenaDowntown28 neill avenueHelena, Mt 59601HelenaSkYwaY SHoppIng center2090 cromwell Dixon ln.Helena, Mt 59602Bozeman1455 west oak StreetBozeman, Mt 59715Butte3401 Harrison avenueButte, Mt 59701townsend416 Broadwaytownsend, Mt 59644123456dollars per share00.050.10.150.20.250.30809101112adjusted for exchange ratioDIVIDENDS0%1%2%3%4%5%6%7%8%9%2010 Q12010 Q22010 Q32010 Q42011 Q12011 Q22011 Q32011 Q42012 Q12012 Q2NON-PERFORMING ASSETS TO TOTAL ASSETSPeer MedianEagle Bancorp Montana, Inc.5.77%6.03%5.22%6.41%7.33%5.99%0.39%1.04%1.02%1.16%1.09%1.24%6.91%1.94%7.01%6.78%1.69%1.62%6.81%1.70%Source: SNL Financialbasic in dollarsadjusted for exchange ratio00.450.50.550.60809101112EPSin dollarsadjusted for exchange ratio46810120809101112STOCK PRICEdollars in millionsTOTAL ASSETS1502002503003500809101112For the Years ended June 30 (Dollars in thousands) 2012 2011 2010 2009 2008SelecteD FInancIal conDItIon Data total assets $327,299 $331,093 $325,739 $289,709 $279,907net loans 173,839 185,471 169,502 167,197 168,149 total Securities 89,277 102,700 114,653 82,663 80,435 total Deposits 219,989 209,186 197,939 187,199 178,851 total Shareholders’ equity 53,650 52,485 52,432 27,792 25,634SelecteD operatIng Data net Interest Income $10,931 10,873 $9,802 $9,233 $7,436 provision for loan losses 1,101 948 715 257 (175) non-interest Income 4,174 4,623 3,593 2,999 2,224non-interest expense 11,034 11,082 9,231 8,563 7,063 net IncoMe $2,178 2,410 $2,414 $ 2,388 $2,110 eagle Bancorp Mt, Inc 2HelenaMaIn oFFIce1400 prospect avenueHelena, Mt 59601HelenaDowntown28 neill avenueHelena, Mt 59601HelenaSkYwaY SHoppIng center2090 cromwell Dixon ln.Helena, Mt 59602Bozeman1455 west oak StreetBozeman, Mt 59715Butte3401 Harrison avenueButte, Mt 59701townsend416 Broadwaytownsend, Mt 59644123456dollars per share00.050.10.150.20.250.30809101112adjusted for exchange ratioDIVIDENDS september 19, 2012
to our StockHolDerS, cuStoMerS, anD FrIenDS:
september 19, 2012
to our StockHolDerS, cuStoMerS, anD FrIenDS:
the coming year will see exciting changes for the company.
our company’s dedicated staff is spending significant time
and effort ensuring a successful integration of the new
Sterling locations into american Federal’s branch network.
We pledge the same level of commitment to those
communities as we have always done in our current markets.
—peter J. Johnson, president and chief executive officer
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, 2012.
tHe BIggeSt newS for the company in the past year
was our announcement on July 2nd of our agreeMent
to purcHaSe Seven Montana BrancHeS FroM
SterlIng FInancIal corporatIon. this transaction will
double our branch network and increase our footprint across
southern Montana, while entering the two largest markets in
the state, Billings and Missoula. we also will be acquiring
Sterling’s Montana mortgage banking and wealth
management business lines. efforts to integrate
these operations are currently underway, and
we expect to close the transaction, pending
regulatory approval, before the end
of 2012. this transaction is, we
believe, a positive one for
our company and its shareholders because it provides us
with entry into new markets and permits the kind of growth,
through a single transaction, that otherwise would take several
years if we pursued a series of smaller transactions. we will
become, upon approval from our regulators, the sixth largest
bank (in terms of deposits) headquartered in Montana. we are
excited about the new customer base we will be working with,
and of course, about the melding of Sterling’s Montana staff
with our own great employees.
while the environment for community banks continues to be
a challenge, the company marked another successful year,
with increases in book value and an increased cash dividend.
net income of $2.2 million declined due to increased expenses
related to merger and acquisition activity. Still our core
components of earnings were stable and basic earnings per
share decreased only slightly to $0.59 from $0.62. Book value
per share increased, to $13.83 at year end compared to $13.39
for the previous year.
the company was able to increase its net interest margin
this year, to 3.68% from 3.62%. this was accomplished on
a slightly smaller balance sheet primarily by paying off high
rate borrowings that matured during the year, thus reducing
our cost of funds. lower mortgage loan originations led to a
decrease of $500,000 in net gain on sale of loans. we did see
a corresponding decrease of $529,000 in the amortization of
mortgage servicing rights.
the coming year will see exciting changes for the company.
our company’s dedicated staff is spending significant time
and effort ensuring a successful integration of the new
Sterling locations into american Federal’s branch network.
We pledge the same level of commitment to those
communities as we have always done in our current markets.
—peter J. Johnson, president and chief executive officer
our asset quality remains strong as non-performing loans
remained relatively low. non-performing assets did increase
slightly, to 1.70% of assets, compared to 1.24% at the end of
the Board of Directors, management, and staff of eagle
last year, but remain well below peer averages, as reported
Bancorp Montana, Inc. and its wholly owned subsidiary,
by Snl Financial. throughout the year we have continued to
american Federal Savings Bank, are pleased to present
add to our allowance for loan losses, with our provisions for
our annual report for our fiscal year ended June 30, 2012.
loan losses increasing $153,000 in fiscal year 2012. thankfully,
Montana’s economy is again projected by the Bureau of
tHe BIggeSt newS for the company in the past year
Business and economic research at the university of Montana
was our announcement on July 2nd of our agreeMent
to have higher growth over the next few years and as a result
to purcHaSe Seven Montana BrancHeS FroM
our local markets should see increased income growth during
SterlIng FInancIal corporatIon. this transaction will
the coming year. 2012 mid-year statistics from the Montana
double our branch network and increase our footprint across
association of realtors covering the eight largest markets in
the state showed an increase in homes sold of 7.2% over the
same period in 2011.
southern Montana, while entering the two largest markets in
the state, Billings and Missoula. we also will be acquiring
Sterling’s Montana mortgage banking and wealth
management business lines. efforts to integrate
these operations are currently underway, and
total assets decreased by 1.1% while our loan portfolio shrank
6.3%, primarily in residential mortgage and home equity loans.
we expect to close the transaction, pending
the commercial real estate loan portfolio held constant while
regulatory approval, before the end
commercial loans increased by $4.8 million. capital is a major
of 2012. this transaction is, we
believe, a positive one for
our company and its shareholders because it provides us
with entry into new markets and permits the kind of growth,
through a single transaction, that otherwise would take several
years if we pursued a series of smaller transactions. we will
become, upon approval from our regulators, the sixth largest
bank (in terms of deposits) headquartered in Montana. we are
excited about the new customer base we will be working with,
and of course, about the melding of Sterling’s Montana staff
with our own great employees.
while the environment for community banks continues to be
a challenge, the company marked another successful year,
with increases in book value and an increased cash dividend.
net income of $2.2 million declined due to increased expenses
related to merger and acquisition activity. Still our core
components of earnings were stable and basic earnings per
share decreased only slightly to $0.59 from $0.62. Book value
per share increased, to $13.83 at year end compared to $13.39
for the previous year.
the company was able to increase its net interest margin
this year, to 3.68% from 3.62%. this was accomplished on
a slightly smaller balance sheet primarily by paying off high
rate borrowings that matured during the year, thus reducing
our cost of funds. lower mortgage loan originations led to a
decrease of $500,000 in net gain on sale of loans. we did see
a corresponding decrease of $529,000 in the amortization of
mortgage servicing rights.
our asset quality remains strong as non-performing loans
remained relatively low. non-performing assets did increase
slightly, to 1.70% of assets, compared to 1.24% at the end of
last year, but remain well below peer averages, as reported
by Snl Financial. throughout the year we have continued to
add to our allowance for loan losses, with our provisions for
loan losses increasing $153,000 in fiscal year 2012. thankfully,
Montana’s economy is again projected by the Bureau of
Business and economic research at the university of Montana
to have higher growth over the next few years and as a result
our local markets should see increased income growth during
the coming year. 2012 mid-year statistics from the Montana
association of realtors covering the eight largest markets in
the state showed an increase in homes sold of 7.2% over the
same period in 2011.
total assets decreased by 1.1% while our loan portfolio shrank
6.3%, primarily in residential mortgage and home equity loans.
the commercial real estate loan portfolio held constant while
commercial loans increased by $4.8 million. capital is a major
eagle Bancorp Montana, Inc. and its subsidiary, american Federal Savings Bank, look forward to the acquisition of
SterlIng FInancIal corporatIon’S Montana BrancHeS.
this transaction will double american Federal’s branch network and increase our footprint across southern
Montana. we will be making our entrance into five new markets: Missoula, Hamilton, livingston, Big timber and
Billings, Montana. Billings and Missoula hold the top two rankings for largest cities in Montana.
eagle Bancorp Montana, Inc. and its subsidiary, american Federal Savings Bank, look forward to the acquisition of
SterlIng FInancIal corporatIon’S Montana BrancHeS.
this transaction will double american Federal’s branch network and increase our footprint across southern
Montana. we will be making our entrance into five new markets: Missoula, Hamilton, livingston, Big timber and
Billings, Montana. Billings and Missoula hold the top two rankings for largest cities in Montana.
Billings is located in the south-central portion of the state and continues to experience rapid growth and a strong
economy. Billings has avoided the economic downturn, as well as avoided the housing bust. with the Bakken oil
play in eastern Montana and western north Dakota, the largest oil discovery in u.S. history, as well as the Heath
shale oil play just north of Billings, the city's already rapid growth rate is escalating.
Billings is located in the south-central portion of the state and continues to experience rapid growth and a strong
economy. Billings has avoided the economic downturn, as well as avoided the housing bust. with the Bakken oil
play in eastern Montana and western north Dakota, the largest oil discovery in u.S. history, as well as the Heath
shale oil play just north of Billings, the city's already rapid growth rate is escalating.
Missoula is the county seat of Missoula county. It is located along the clark Fork and Bitterroot rivers in western Montana
and at the convergence of five mountain ranges. today, the city’s largest employers are the university of Montana and
Missoula’s two hospitals. the city is also home to the Montana grizzlies, one of the strongest college football programs in
the Division I Football championship Subdivision of the national collegiate athletic association (ncaa).
Missoula is the county seat of Missoula county. It is located along the clark Fork and Bitterroot rivers in western Montana
and at the convergence of five mountain ranges. today, the city’s largest employers are the university of Montana and
Missoula’s two hospitals. the city is also home to the Montana grizzlies, one of the strongest college football programs in
the Division I Football championship Subdivision of the national collegiate athletic association (ncaa).
Source: www.wikipedia.org
Source: www.wikipedia.org
3 eagle Bancorp Mt, Inc
photo: YellowStone rIver, ©John lambing, 2012
3 eagle Bancorp Mt, Inc
photo: YellowStone rIver, ©John lambing, 2012
september 19, 2012
to our StockHolDerS, cuStoMerS, anD FrIenDS:
september 19, 2012
to our StockHolDerS, cuStoMerS, anD FrIenDS:
the coming year will see exciting changes for the company.
our company’s dedicated staff is spending significant time
and effort ensuring a successful integration of the new
Sterling locations into american Federal’s branch network.
We pledge the same level of commitment to those
communities as we have always done in our current markets.
—peter J. Johnson, president and chief executive officer
our company and its shareholders because it provides us
with entry into new markets and permits the kind of growth,
through a single transaction, that otherwise would take several
years if we pursued a series of smaller transactions. we will
become, upon approval from our regulators, the sixth largest
bank (in terms of deposits) headquartered in Montana. we are
excited about the new customer base we will be working with,
and of course, about the melding of Sterling’s Montana staff
with our own great employees.
while the environment for community banks continues to be
a challenge, the company marked another successful year,
with increases in book value and an increased cash dividend.
net income of $2.2 million declined due to increased expenses
related to merger and acquisition activity. Still our core
components of earnings were stable and basic earnings per
share decreased only slightly to $0.59 from $0.62. Book value
per share increased, to $13.83 at year end compared to $13.39
for the previous year.
the company was able to increase its net interest margin
this year, to 3.68% from 3.62%. this was accomplished on
a slightly smaller balance sheet primarily by paying off high
rate borrowings that matured during the year, thus reducing
our cost of funds. lower mortgage loan originations led to a
decrease of $500,000 in net gain on sale of loans. we did see
a corresponding decrease of $529,000 in the amortization of
mortgage servicing rights.
component of the strength of a financial institution like ours
the coming year will see exciting changes for the company.
and I am pleased to note that our tier one capital ratio remains
our company’s dedicated staff is spending significant time
very strong at 17.43%. as noted earlier we now have a great
opportunity as a result of the Sterling branch transaction to
and effort ensuring a successful integration of the new
deploy some of this excess capital in a transaction that we
Sterling locations into american Federal’s branch network.
believe will produce good returns for our shareholders over
the next several years and which we will be able to realize
We pledge the same level of commitment to those
in a single, efficient transaction as opposed to multiple
communities as we have always done in our current markets.
transactions over several years.
—peter J. Johnson, president and chief executive officer
the coming year will see exciting changes for the company.
our company’s dedicated staff is spending significant time and
our company and its shareholders because it provides us
effort ensuring a successful integration of the new Sterling
with entry into new markets and permits the kind of growth,
locations into american Federal’s branch network. we pledge
through a single transaction, that otherwise would take several
the same level of commitment to those communities as we
years if we pursued a series of smaller transactions. we will
have always done in our current markets.
become, upon approval from our regulators, the sixth largest
we SIncerelY apprecIate tHe contInuIng
bank (in terms of deposits) headquartered in Montana. we are
truSt anD loYaltY oF our conStItuencIeS—
excited about the new customer base we will be working with,
StockHolDerS, cuStoMerS, eMploYeeS anD
and of course, about the melding of Sterling’s Montana staff
coMMunItIeS. we will work to earn your continued
with our own great employees.
confidence and we thank you for the privilege of serving you!
while the environment for community banks continues to be
a challenge, the company marked another successful year,
very Sincerely,
with increases in book value and an increased cash dividend.
net income of $2.2 million declined due to increased expenses
related to merger and acquisition activity. Still our core
components of earnings were stable and basic earnings per
share decreased only slightly to $0.59 from $0.62. Book value
peter J. Johnson, president/ceo
per share increased, to $13.83 at year end compared to $13.39
for the previous year.
our asset quality remains strong as non-performing loans
remained relatively low. non-performing assets did increase
slightly, to 1.70% of assets, compared to 1.24% at the end of
last year, but remain well below peer averages, as reported
by Snl Financial. throughout the year we have continued to
add to our allowance for loan losses, with our provisions for
loan losses increasing $153,000 in fiscal year 2012. thankfully,
Montana’s economy is again projected by the Bureau of
Business and economic research at the university of Montana
to have higher growth over the next few years and as a result
our local markets should see increased income growth during
the coming year. 2012 mid-year statistics from the Montana
association of realtors covering the eight largest markets in
the state showed an increase in homes sold of 7.2% over the
same period in 2011.
total assets decreased by 1.1% while our loan portfolio shrank
6.3%, primarily in residential mortgage and home equity loans.
the commercial real estate loan portfolio held constant while
commercial loans increased by $4.8 million. capital is a major
the company was able to increase its net interest margin
this year, to 3.68% from 3.62%. this was accomplished on
a slightly smaller balance sheet primarily by paying off high
rate borrowings that matured during the year, thus reducing
our cost of funds. lower mortgage loan originations led to a
decrease of $500,000 in net gain on sale of loans. we did see
a corresponding decrease of $529,000 in the amortization of
mortgage servicing rights.
our asset quality remains strong as non-performing loans
remained relatively low. non-performing assets did increase
slightly, to 1.70% of assets, compared to 1.24% at the end of
last year, but remain well below peer averages, as reported
by Snl Financial. throughout the year we have continued to
add to our allowance for loan losses, with our provisions for
loan losses increasing $153,000 in fiscal year 2012. thankfully,
Montana’s economy is again projected by the Bureau of
Business and economic research at the university of Montana
to have higher growth over the next few years and as a result
our local markets should see increased income growth during
the coming year. 2012 mid-year statistics from the Montana
association of realtors covering the eight largest markets in
the state showed an increase in homes sold of 7.2% over the
same period in 2011.
total assets decreased by 1.1% while our loan portfolio shrank
6.3%, primarily in residential mortgage and home equity loans.
the commercial real estate loan portfolio held constant while
commercial loans increased by $4.8 million. capital is a major
component of the strength of a financial institution like ours
and I am pleased to note that our tier one capital ratio remains
very strong at 17.43%. as noted earlier we now have a great
opportunity as a result of the Sterling branch transaction to
deploy some of this excess capital in a transaction that we
believe will produce good returns for our shareholders over
the next several years and which we will be able to realize
in a single, efficient transaction as opposed to multiple
transactions over several years.
the coming year will see exciting changes for the company.
our company’s dedicated staff is spending significant time and
effort ensuring a successful integration of the new Sterling
locations into american Federal’s branch network. we pledge
the same level of commitment to those communities as we
have always done in our current markets.
we SIncerelY apprecIate tHe contInuIng
truSt anD loYaltY oF our conStItuencIeS—
StockHolDerS, cuStoMerS, eMploYeeS anD
coMMunItIeS. we will work to earn your continued
confidence and we thank you for the privilege of serving you!
very Sincerely,
peter J. Johnson, president/ceo
eagle Bancorp Montana, Inc. and its subsidiary, american Federal Savings Bank, look forward to the acquisition of
SterlIng FInancIal corporatIon’S Montana BrancHeS.
this transaction will double american Federal’s branch network and increase our footprint across southern
Montana. we will be making our entrance into five new markets: Missoula, Hamilton, livingston, Big timber and
Billings, Montana. Billings and Missoula hold the top two rankings for largest cities in Montana.
eagle Bancorp Montana, Inc. and its subsidiary, american Federal Savings Bank, look forward to the acquisition of
SterlIng FInancIal corporatIon’S Montana BrancHeS.
this transaction will double american Federal’s branch network and increase our footprint across southern
Montana. we will be making our entrance into five new markets: Missoula, Hamilton, livingston, Big timber and
Billings, Montana. Billings and Missoula hold the top two rankings for largest cities in Montana.
Billings is located in the south-central portion of the state and continues to experience rapid growth and a strong
economy. Billings has avoided the economic downturn, as well as avoided the housing bust. with the Bakken oil
play in eastern Montana and western north Dakota, the largest oil discovery in u.S. history, as well as the Heath
shale oil play just north of Billings, the city's already rapid growth rate is escalating.
Billings is located in the south-central portion of the state and continues to experience rapid growth and a strong
economy. Billings has avoided the economic downturn, as well as avoided the housing bust. with the Bakken oil
play in eastern Montana and western north Dakota, the largest oil discovery in u.S. history, as well as the Heath
shale oil play just north of Billings, the city's already rapid growth rate is escalating.
Missoula is the county seat of Missoula county. It is located along the clark Fork and Bitterroot rivers in western Montana
and at the convergence of five mountain ranges. today, the city’s largest employers are the university of Montana and
Missoula’s two hospitals. the city is also home to the Montana grizzlies, one of the strongest college football programs in
the Division I Football championship Subdivision of the national collegiate athletic association (ncaa).
Missoula is the county seat of Missoula county. It is located along the clark Fork and Bitterroot rivers in western Montana
and at the convergence of five mountain ranges. today, the city’s largest employers are the university of Montana and
Missoula’s two hospitals. the city is also home to the Montana grizzlies, one of the strongest college football programs in
the Division I Football championship Subdivision of the national collegiate athletic association (ncaa).
Source: www.wikipedia.org
Source: www.wikipedia.org
photo: YellowStone rIver, ©John lambing, 2012
eagle Bancorp Mt, Inc 4
photo: YellowStone rIver, ©John lambing, 2012
eagle Bancorp Mt, Inc 4
DIrectorS
eXecutIve oFFIcerS
DIrectorS
eXecutIve oFFIcerS
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. MaIerle
chairman of the Board of
Morrison-Maierle, Inc.
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. MorrISon
Senior vice president /chief Financial officer
MIcHael c. MunDt
Senior vice president /chief lending officer
racHel r. aMDaHl
Senior vice president /operations
tHoMaS J. Mccarvel
vice president of carroll college
corporate SecretarY
Maureen J. ruDe
operations Director of
the Montana Homeownership network /
neighbor works Montana
5 eagle Bancorp Mt, Inc
cHarleS H. Berger
Stock lIStIng
Symbol: eBMt
naSDaQ global
lYnn e. DIckeY
retired
peter J. JoHnSon
president /chief executive officer
eagle Bancorp Montana, Inc.
larrY a. DreYer
chairman of the Board
SHareHolDer InForMatIon
roBert M. evanS
Senior vice president /chief Information officer /
Bank Security officer
rIck F. HaYS
retired
SHareHolDer ServIceS
agent
registrar and transfer company
10 commerce Drive
cranford, nJ 07106-3572
800.368.5948
www.rtco.com
peter J. JoHnSon
president /chief executive officer
eagle Bancorp Montana, Inc.
JaMeS a. MaIerle
chairman of the Board of
Morrison-Maierle, Inc.
tHoMaS J. Mccarvel
vice president of carroll college
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
5 eagle Bancorp Mt, Inc
Maureen J. ruDe
operations Director of
the Montana Homeownership network /
neighbor works Montana
clInt J. MorrISon
Senior vice president /chief Financial officer
MIcHael c. MunDt
Senior vice president /chief lending officer
racHel r. aMDaHl
Senior vice president /operations
corporate SecretarY
cHarleS H. Berger
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
Form 10–K
Form 10–K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
June 30, 2012
or
For the fiscal year ended
June 30, 2012
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
For the transition period from
to
For the transition period from
to
Commission file number
1-34682
Commission file number
1-34682
Eagle Bancorp Montana, Inc.
(Exact name of registrant as specified in its charter)
Eagle Bancorp Montana, Inc.
(Exact name of registrant as specified in its charter)
[ This Page Intentionally Left Blank ]
Delaware
State or other jurisdiction of
incorporation or organization
[ This Page Intentionally Left Blank ]
27-1449820
(I.R.S. Employer
Identification No.)
Delaware
State or other jurisdiction of
incorporation or organization
27-1449820
(I.R.S. Employer
Identification No.)
1400 Prospect Avenue, Helena, MT
(Address of principal executive offices)
59601
(Zip Code)
1400 Prospect Avenue, Helena, MT
(Address of principal executive offices)
59601
(Zip Code)
Registrant’s telephone number, including area code
406-442-3080
Registrant’s telephone number, including area code
406-442-3080
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Title of each class
Name of each exchange on which registered
Common stock, par value $0.01
The NASDAQ Stock Market LLC
Common stock, par value $0.01
The NASDAQ Stock Market LLC
Securities registered pursuant to section 12(g) of the Act:
Securities registered pursuant to section 12(g) of the Act:
(Title of Class)
(Title of Class)
(Title of Class)
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes No
Yes No
Yes No
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
June 30, 2012
or
For the fiscal year ended
June 30, 2012
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from
to
For the transition period from
to
Commission file number
1-34682
Commission file number
1-34682
Eagle Bancorp Montana, Inc.
(Exact name of registrant as specified in its charter)
Eagle Bancorp Montana, Inc.
(Exact name of registrant as specified in its charter)
Delaware
State or other jurisdiction of
incorporation or organization
1400 Prospect Avenue, Helena, MT
(Address of principal executive offices)
27-1449820
(I.R.S. Employer
Identification No.)
Delaware
State or other jurisdiction of
incorporation or organization
27-1449820
(I.R.S. Employer
Identification No.)
59601
(Zip Code)
1400 Prospect Avenue, Helena, MT
(Address of principal executive offices)
59601
(Zip Code)
Registrant’s telephone number, including area code
406-442-3080
Registrant’s telephone number, including area code
406-442-3080
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Title of each class
Name of each exchange on which registered
Common stock, par value $0.01
The NASDAQ Stock Market LLC
Common stock, par value $0.01
The NASDAQ Stock Market LLC
Securities registered pursuant to section 12(g) of the Act:
Securities registered pursuant to section 12(g) of the Act:
(Title of Class)
(Title of Class)
(Title of Class)
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No
Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes No
Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes No
The aggregate market value of the common stock held by non-affiliates of Eagle, computed by reference to the closing price
at which the stock was sold as of December 31, 2011 was $31,126,000. The outstanding number of shares of common stock of
Eagle as of August 1, 2012, was 3,878,971.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s definitive Proxy Statement to be filed with the Securities and Exchange Commission within 120
days after the Company’s fiscal year end is incorporated by reference into Part III of this Form 10-K.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
TABLE OF CONTENTS
Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
ITEM 1.
ITEM 1A.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
ITEM 1B.
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
ITEM 2.
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
ITEM 3.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
ITEM 4.
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act.
PART I
DESCRIPTION OF BUSINESS. ...................................................................................................... 2
RISK FACTORS. ........................................................................................................................... 28
UNRESOLVED STAFF COMMENTS. ......................................................................................... 31
PROPERTIES. ................................................................................................................................ 31
LEGAL PROCEEDINGS. .............................................................................................................. 32
(REMOVED AND RESERVED). .................................................................................................. 32
PART II
Yes No
Page
Accelerated filer
Large accelerated filer
ITEM 5.
Smaller reporting company
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. ....................................... 33
SELECTED FINANCIAL DATA. ................................................................................................. 34
Non-accelerated filer (Do not check if a smaller reporting company)
ITEM 6.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. ...................................................................................................... 34
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. .............. 42
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. ............................................... 42
The aggregate market value of the common stock held by non-affiliates of Eagle, computed by reference to the closing price
ITEM 7A.
at which the stock was sold as of December 31, 2011 was $31,126,000. The outstanding number of shares of common stock of
Eagle as of August 1, 2012, was 3,878,971.
ITEM 8.
ITEM 9.
Portions of the Company’s definitive Proxy Statement to be filed with the Securities and Exchange Commission within 120
ITEM 9A(T).
days after the Company’s fiscal year end is incorporated by reference into Part III of this Form 10-K.
ITEM 9B.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
DOCUMENTS INCORPORATED BY REFERENCE
AND FINANCIAL DISCLOSURE. ............................................................................................... 42
CONTROLS AND PROCEDURES. .............................................................................................. 42
OTHER INFORMATION. ............................................................................................................. 43
PART III
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. ....................... 44
EXECUTIVE COMPENSATION. ................................................................................................. 44
Yes No
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.............................................. 45
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE. ......................................................................................................................... 45
PRINCIPAL ACCOUNTING FEES AND SERVICES. ................................................................ 45
EXHIBITS, FINANCIAL STATEMENT SCHEDULES. ............................................................. 45
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
ITEM 15.
TABLE OF CONTENTS
Page
DESCRIPTION OF BUSINESS. ...................................................................................................... 2
RISK FACTORS. ........................................................................................................................... 28
UNRESOLVED STAFF COMMENTS. ......................................................................................... 31
PROPERTIES. ................................................................................................................................ 31
LEGAL PROCEEDINGS. .............................................................................................................. 32
(REMOVED AND RESERVED). .................................................................................................. 32
PART I
PART II
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. ....................................... 33
SELECTED FINANCIAL DATA. ................................................................................................. 34
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. ...................................................................................................... 34
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. .............. 42
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. ............................................... 42
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE. ............................................................................................... 42
ITEM 9A(T).
CONTROLS AND PROCEDURES. .............................................................................................. 42
ITEM 9B.
OTHER INFORMATION. ............................................................................................................. 43
PART III
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. ....................... 44
EXECUTIVE COMPENSATION. ................................................................................................. 44
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.............................................. 45
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE. ......................................................................................................................... 45
PRINCIPAL ACCOUNTING FEES AND SERVICES. ................................................................ 45
EXHIBITS, FINANCIAL STATEMENT SCHEDULES. ............................................................. 45
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 8.
ITEM 9.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
ITEM 15.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes No
Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes No
The aggregate market value of the common stock held by non-affiliates of Eagle, computed by reference to the closing price
at which the stock was sold as of December 31, 2011 was $31,126,000. The outstanding number of shares of common stock of
Eagle as of August 1, 2012, was 3,878,971.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s definitive Proxy Statement to be filed with the Securities and Exchange Commission within 120
days after the Company’s fiscal year end is incorporated by reference into Part III of this Form 10-K.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
TABLE OF CONTENTS
Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
ITEM 1.
ITEM 1A.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
ITEM 1B.
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
ITEM 2.
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
ITEM 3.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
ITEM 4.
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act.
PART I
DESCRIPTION OF BUSINESS. ...................................................................................................... 2
RISK FACTORS. ........................................................................................................................... 28
UNRESOLVED STAFF COMMENTS. ......................................................................................... 31
PROPERTIES. ................................................................................................................................ 31
LEGAL PROCEEDINGS. .............................................................................................................. 32
(REMOVED AND RESERVED). .................................................................................................. 32
PART II
Yes No
Page
Accelerated filer
Large accelerated filer
ITEM 5.
Smaller reporting company
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. ....................................... 33
SELECTED FINANCIAL DATA. ................................................................................................. 34
Non-accelerated filer (Do not check if a smaller reporting company)
ITEM 6.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. ...................................................................................................... 34
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. .............. 42
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. ............................................... 42
The aggregate market value of the common stock held by non-affiliates of Eagle, computed by reference to the closing price
ITEM 7A.
at which the stock was sold as of December 31, 2011 was $31,126,000. The outstanding number of shares of common stock of
Eagle as of August 1, 2012, was 3,878,971.
ITEM 8.
ITEM 9.
Portions of the Company’s definitive Proxy Statement to be filed with the Securities and Exchange Commission within 120
ITEM 9A(T).
days after the Company’s fiscal year end is incorporated by reference into Part III of this Form 10-K.
ITEM 9B.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
DOCUMENTS INCORPORATED BY REFERENCE
AND FINANCIAL DISCLOSURE. ............................................................................................... 42
CONTROLS AND PROCEDURES. .............................................................................................. 42
OTHER INFORMATION. ............................................................................................................. 43
PART III
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. ....................... 44
EXECUTIVE COMPENSATION. ................................................................................................. 44
Yes No
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.............................................. 45
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE. ......................................................................................................................... 45
PRINCIPAL ACCOUNTING FEES AND SERVICES. ................................................................ 45
EXHIBITS, FINANCIAL STATEMENT SCHEDULES. ............................................................. 45
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
ITEM 15.
TABLE OF CONTENTS
Page
PART I
DESCRIPTION OF BUSINESS. ...................................................................................................... 2
RISK FACTORS. ........................................................................................................................... 28
UNRESOLVED STAFF COMMENTS. ......................................................................................... 31
PROPERTIES. ................................................................................................................................ 31
LEGAL PROCEEDINGS. .............................................................................................................. 32
(REMOVED AND RESERVED). .................................................................................................. 32
PART II
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. ....................................... 33
SELECTED FINANCIAL DATA. ................................................................................................. 34
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. ...................................................................................................... 34
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. .............. 42
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. ............................................... 42
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE. ............................................................................................... 42
CONTROLS AND PROCEDURES. .............................................................................................. 42
OTHER INFORMATION. ............................................................................................................. 43
PART III
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. ....................... 44
EXECUTIVE COMPENSATION. ................................................................................................. 44
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.............................................. 45
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE. ......................................................................................................................... 45
PRINCIPAL ACCOUNTING FEES AND SERVICES. ................................................................ 45
EXHIBITS, FINANCIAL STATEMENT SCHEDULES. ............................................................. 45
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A(T).
ITEM 9B.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
ITEM 15.
CAUTIONARY LANGUAGE ABOUT FORWARD-LOOKING STATEMENTS
CAUTIONARY LANGUAGE ABOUT FORWARD-LOOKING STATEMENTS
PART I
PART I
This Annual Report on Form 10-K includes “forward-looking statements” within the meaning and protections of Section
27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of
1934, as amended, or the Exchange Act. All statements other than statements of historical fact are statements that could be
forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,”
“will,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,”
“plan,” “project,” “could,” “intend,” “target” and other similar words and expressions of the future. These forward-looking
statements include, but are not limited to: (i) statements of our goals, intentions and expectations; (ii) statements regarding
our business plans, prospects, growth and operating strategies; (iii) statements regarding the asset quality of our loan and
investment portfolios; and (iv) estimates of our risks and future costs and benefits.
These forward-looking statements are based on current beliefs and expectations of our management and are inherently
subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our
control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies
and decisions that are subject to change. The following factors, among others, could cause actual results to differ
materially from the anticipated results or other expectations expressed in the forward-looking statements:
changes in laws or government regulations or policies affecting financial institutions, including changes
in regulatory fees and capital requirements;
general economic conditions, either nationally or in our market areas, that are worse than expected;
competition among depository and other financial institutions;
changes in the prices, values and sales volume of residential and commercial real estate in Montana;
inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of
financial instruments;
adverse changes or volatility in the securities markets;
our ability to enter new markets successfully and capitalize on growth opportunities;
our ability to successfully integrate acquired businesses;
changes in consumer spending, borrowing and savings habits;
changes in our organization, compensation and benefit plans;
our ability to continue to increase and manage our commercial and residential real estate, multi-family,
and commercial business loans;
possible impairments of securities held by us, including those issued by government entities and
government sponsored enterprises;
the level of future deposit premium assessments;
the impact of a recurring recession on our loan portfolio (including cash flow and collateral values),
investment portfolio, customers and capital market activities;
the impact of the current restructuring of the U.S. financial and regulatory system;
the failure of assumptions underlying the establishment of allowance for possible loan losses and other
estimates;
General
ITEM 1.
DESCRIPTION OF BUSINESS.
This Annual Report on Form 10-K includes “forward-looking statements” within the meaning and protections of Section
27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of
1934, as amended, or the Exchange Act. All statements other than statements of historical fact are statements that could be
forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,”
“will,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,”
“plan,” “project,” “could,” “intend,” “target” and other similar words and expressions of the future. These forward-looking
statements include, but are not limited to: (i) statements of our goals, intentions and expectations; (ii) statements regarding
our business plans, prospects, growth and operating strategies; (iii) statements regarding the asset quality of our loan and
investment portfolios; and (iv) estimates of our risks and future costs and benefits.
Eagle Bancorp Montana, Inc. (“Eagle” or “the Company”), is a Delaware corporation that holds 100% of the capital stock
of American Federal Savings Bank (“American Federal” or “the Bank”), a federally chartered stock savings bank
headquartered in Helena, Montana. Eagle’s principal business is to hold the capital stock of American Federal. On
April 5, 2010, Eagle completed a second-step conversion from a partially-public mutual holding company structure to a
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 in the offering for gross proceeds of $24.6
million. Concurrent with the completion of the offering, each share of Eagle Bancorp common stock owned by the public
was exchanged for 3.800 shares of the Company’s common stock owned immediately prior to completion of the
transaction.
These forward-looking statements are based on current beliefs and expectations of our management and are inherently
subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our
control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies
and decisions that are subject to change. The following factors, among others, could cause actual results to differ
materially from the anticipated results or other expectations expressed in the forward-looking statements:
changes in laws or government regulations or policies affecting financial institutions, including changes
in regulatory fees and capital requirements;
American Federal was founded in 1922 as a Montana chartered building and loan association and has conducted operations
in Helena since that time. In 1975, the Bank adopted a federal thrift charter. The Bank currently has six full service
offices. We also have seven automated teller machines located in our market area and we participate in the CashCard® and
Money Pass® ATM networks. The Bank’s website can be found at www.americanfederalsavingsbank.com. The contents
on or accessible through, our website are not incorporated into this filing.
general economic conditions, either nationally or in our market areas, that are worse than expected;
competition among depository and other financial institutions;
Business Strategy
changes in the prices, values and sales volume of residential and commercial real estate in Montana;
Business Strategy
inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of
financial instruments;
Our strategy is to continue profitable operations through building a diversified loan portfolio and positioning the Bank as a
full-service community bank that offers both retail and commercial loan and deposit products in all of its markets. We
believe that this focus will enable us to continue to grow our franchise, while maintaining our commitment to customer
service, high asset quality, and sustained net earnings. The following are the key elements of our business strategy:
our ability to enter new markets successfully and capitalize on growth opportunities;
adverse changes or volatility in the securities markets;
our ability to successfully integrate acquired businesses;
Continue to diversify our portfolio through growth in commercial real estate and commercial business loans as a
complement to our traditional single family residential real estate lending. Such loans now constitute about 45.6%
of total loans;
changes in consumer spending, borrowing and savings habits;
changes in our organization, compensation and benefit plans;
Continue to emphasize the attraction and retention of lower cost long-term core deposits;
our ability to continue to increase and manage our commercial and residential real estate, multi-family,
and commercial business loans;
Seek opportunities where presented to acquire other institutions or expand our branch structure;
possible impairments of securities held by us, including those issued by government entities and
government sponsored enterprises;
Maintain our high asset quality levels; and
the level of future deposit premium assessments;
Operate as a community-oriented independent financial institution that offers a broad array of financial services
with high levels of customer service.
the impact of a recurring recession on our loan portfolio (including cash flow and collateral values),
investment portfolio, customers and capital market activities;
Our results of operations may be significantly affected by our ability to effectively implement our business strategy
including our plans for expansion through strategic acquisitions. If we are unable to effectively integrate and manage
acquired or merged businesses or attract significant new business through our branching efforts, our financial performance
may be negatively affected.
the failure of assumptions underlying the establishment of allowance for possible loan losses and other
estimates;
the impact of the current restructuring of the U.S. financial and regulatory system;
changes in the financial performance and/or condition of our borrowers and their ability to repay their
loans when due; and
Montana in the Economic Downturn
changes in the financial performance and/or condition of our borrowers and their ability to repay their
loans when due; and
the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies,
as well as the Securities and Exchange Commission, the Public Company Accounting Oversight Board,
the Financial Accounting Standards Board and other accounting standard setters.
Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these
forward-looking statements. For a further list and description of various risks, relevant factors and uncertainties that could
cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see
the Item 1A, “Risk Factors” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” sections contained elsewhere in this report, as well as other reports that we file with the SEC.
Market Area
the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies,
as well as the Securities and Exchange Commission, the Public Company Accounting Oversight Board,
the Financial Accounting Standards Board and other accounting standard setters.
From our headquarters in Helena, Montana, we operate six full service retail banking offices, including our main office.
Our other full service branches are located in Helena – Neill (opened 1987), Helena – Skyway (opened 2009), Bozeman
(opened 1980, relocated 2009), Butte (opened 1979) and Townsend (opened 1979), Montana. The original Bozeman
branch opened in 1980 was closed August 1, 2010 due to reduced use by customers as a result of the new location opened
in October 2009 approximately one mile away.
Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these
forward-looking statements. For a further list and description of various risks, relevant factors and uncertainties that could
cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see
the Item 1A, “Risk Factors” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” sections contained elsewhere in this report, as well as other reports that we file with the SEC.
1
2
1
2
ITEM 1.
DESCRIPTION OF BUSINESS.
General
Eagle Bancorp Montana, Inc. (“Eagle” or “the Company”), is a Delaware corporation that holds 100% of the capital stock
of American Federal Savings Bank (“American Federal” or “the Bank”), a federally chartered stock savings bank
headquartered in Helena, Montana. Eagle’s principal business is to hold the capital stock of American Federal. On
April 5, 2010, Eagle completed a second-step conversion from a partially-public mutual holding company structure to a
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 in the offering for gross proceeds of $24.6
million. Concurrent with the completion of the offering, each share of Eagle Bancorp common stock owned by the public
was exchanged for 3.800 shares of the Company’s common stock owned immediately prior to completion of the
transaction.
American Federal was founded in 1922 as a Montana chartered building and loan association and has conducted operations
in Helena since that time. In 1975, the Bank adopted a federal thrift charter. The Bank currently has six full service
offices. We also have seven automated teller machines located in our market area and we participate in the CashCard® and
Money Pass® ATM networks. The Bank’s website can be found at www.americanfederalsavingsbank.com. The contents
on or accessible through, our website are not incorporated into this filing.
Our strategy is to continue profitable operations through building a diversified loan portfolio and positioning the Bank as a
full-service community bank that offers both retail and commercial loan and deposit products in all of its markets. We
believe that this focus will enable us to continue to grow our franchise, while maintaining our commitment to customer
service, high asset quality, and sustained net earnings. The following are the key elements of our business strategy:
Continue to diversify our portfolio through growth in commercial real estate and commercial business loans as a
complement to our traditional single family residential real estate lending. Such loans now constitute about 45.6%
of total loans;
Continue to emphasize the attraction and retention of lower cost long-term core deposits;
Seek opportunities where presented to acquire other institutions or expand our branch structure;
Maintain our high asset quality levels; and
Operate as a community-oriented independent financial institution that offers a broad array of financial services
with high levels of customer service.
Our results of operations may be significantly affected by our ability to effectively implement our business strategy
including our plans for expansion through strategic acquisitions. If we are unable to effectively integrate and manage
acquired or merged businesses or attract significant new business through our branching efforts, our financial performance
may be negatively affected.
Montana in the Economic Downturn
Market Area
From our headquarters in Helena, Montana, we operate six full service retail banking offices, including our main office.
Our other full service branches are located in Helena – Neill (opened 1987), Helena – Skyway (opened 2009), Bozeman
(opened 1980, relocated 2009), Butte (opened 1979) and Townsend (opened 1979), Montana. The original Bozeman
branch opened in 1980 was closed August 1, 2010 due to reduced use by customers as a result of the new location opened
in October 2009 approximately one mile away.
CAUTIONARY LANGUAGE ABOUT FORWARD-LOOKING STATEMENTS
CAUTIONARY LANGUAGE ABOUT FORWARD-LOOKING STATEMENTS
PART I
PART I
General
ITEM 1.
DESCRIPTION OF BUSINESS.
This Annual Report on Form 10-K includes “forward-looking statements” within the meaning and protections of Section
27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of
1934, as amended, or the Exchange Act. All statements other than statements of historical fact are statements that could be
forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,”
“will,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,”
“plan,” “project,” “could,” “intend,” “target” and other similar words and expressions of the future. These forward-looking
statements include, but are not limited to: (i) statements of our goals, intentions and expectations; (ii) statements regarding
our business plans, prospects, growth and operating strategies; (iii) statements regarding the asset quality of our loan and
investment portfolios; and (iv) estimates of our risks and future costs and benefits.
Eagle Bancorp Montana, Inc. (“Eagle” or “the Company”), is a Delaware corporation that holds 100% of the capital stock
of American Federal Savings Bank (“American Federal” or “the Bank”), a federally chartered stock savings bank
headquartered in Helena, Montana. Eagle’s principal business is to hold the capital stock of American Federal. On
April 5, 2010, Eagle completed a second-step conversion from a partially-public mutual holding company structure to a
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 in the offering for gross proceeds of $24.6
million. Concurrent with the completion of the offering, each share of Eagle Bancorp common stock owned by the public
was exchanged for 3.800 shares of the Company’s common stock owned immediately prior to completion of the
transaction.
These forward-looking statements are based on current beliefs and expectations of our management and are inherently
subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our
control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies
and decisions that are subject to change. The following factors, among others, could cause actual results to differ
materially from the anticipated results or other expectations expressed in the forward-looking statements:
changes in laws or government regulations or policies affecting financial institutions, including changes
in regulatory fees and capital requirements;
American Federal was founded in 1922 as a Montana chartered building and loan association and has conducted operations
in Helena since that time. In 1975, the Bank adopted a federal thrift charter. The Bank currently has six full service
offices. We also have seven automated teller machines located in our market area and we participate in the CashCard® and
Money Pass® ATM networks. The Bank’s website can be found at www.americanfederalsavingsbank.com. The contents
on or accessible through, our website are not incorporated into this filing.
general economic conditions, either nationally or in our market areas, that are worse than expected;
competition among depository and other financial institutions;
ITEM 1.
DESCRIPTION OF BUSINESS.
General
Eagle Bancorp Montana, Inc. (“Eagle” or “the Company”), is a Delaware corporation that holds 100% of the capital stock
of American Federal Savings Bank (“American Federal” or “the Bank”), a federally chartered stock savings bank
headquartered in Helena, Montana. Eagle’s principal business is to hold the capital stock of American Federal. On
April 5, 2010, Eagle completed a second-step conversion from a partially-public mutual holding company structure to a
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 in the offering for gross proceeds of $24.6
million. Concurrent with the completion of the offering, each share of Eagle Bancorp common stock owned by the public
was exchanged for 3.800 shares of the Company’s common stock owned immediately prior to completion of the
transaction.
American Federal was founded in 1922 as a Montana chartered building and loan association and has conducted operations
in Helena since that time. In 1975, the Bank adopted a federal thrift charter. The Bank currently has six full service
offices. We also have seven automated teller machines located in our market area and we participate in the CashCard® and
Money Pass® ATM networks. The Bank’s website can be found at www.americanfederalsavingsbank.com. The contents
on or accessible through, our website are not incorporated into this filing.
Business Strategy
changes in the prices, values and sales volume of residential and commercial real estate in Montana;
Business Strategy
inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of
financial instruments;
Our strategy is to continue profitable operations through building a diversified loan portfolio and positioning the Bank as a
full-service community bank that offers both retail and commercial loan and deposit products in all of its markets. We
believe that this focus will enable us to continue to grow our franchise, while maintaining our commitment to customer
service, high asset quality, and sustained net earnings. The following are the key elements of our business strategy:
our ability to enter new markets successfully and capitalize on growth opportunities;
adverse changes or volatility in the securities markets;
our ability to successfully integrate acquired businesses;
Continue to diversify our portfolio through growth in commercial real estate and commercial business loans as a
complement to our traditional single family residential real estate lending. Such loans now constitute about 45.6%
of total loans;
changes in consumer spending, borrowing and savings habits;
changes in our organization, compensation and benefit plans;
Continue to emphasize the attraction and retention of lower cost long-term core deposits;
our ability to continue to increase and manage our commercial and residential real estate, multi-family,
and commercial business loans;
Seek opportunities where presented to acquire other institutions or expand our branch structure;
possible impairments of securities held by us, including those issued by government entities and
government sponsored enterprises;
Maintain our high asset quality levels; and
the level of future deposit premium assessments;
Operate as a community-oriented independent financial institution that offers a broad array of financial services
with high levels of customer service.
the impact of a recurring recession on our loan portfolio (including cash flow and collateral values),
investment portfolio, customers and capital market activities;
Our results of operations may be significantly affected by our ability to effectively implement our business strategy
including our plans for expansion through strategic acquisitions. If we are unable to effectively integrate and manage
acquired or merged businesses or attract significant new business through our branching efforts, our financial performance
may be negatively affected.
the failure of assumptions underlying the establishment of allowance for possible loan losses and other
estimates;
the impact of the current restructuring of the U.S. financial and regulatory system;
changes in the financial performance and/or condition of our borrowers and their ability to repay their
Montana in the Economic Downturn
changes in the financial performance and/or condition of our borrowers and their ability to repay their
loans when due; and
Market Area
the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies,
as well as the Securities and Exchange Commission, the Public Company Accounting Oversight Board,
the Financial Accounting Standards Board and other accounting standard setters.
From our headquarters in Helena, Montana, we operate six full service retail banking offices, including our main office.
Our other full service branches are located in Helena – Neill (opened 1987), Helena – Skyway (opened 2009), Bozeman
(opened 1980, relocated 2009), Butte (opened 1979) and Townsend (opened 1979), Montana. The original Bozeman
branch opened in 1980 was closed August 1, 2010 due to reduced use by customers as a result of the new location opened
in October 2009 approximately one mile away.
Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these
forward-looking statements. For a further list and description of various risks, relevant factors and uncertainties that could
cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see
the Item 1A, “Risk Factors” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” sections contained elsewhere in this report, as well as other reports that we file with the SEC.
Our strategy is to continue profitable operations through building a diversified loan portfolio and positioning the Bank as a
full-service community bank that offers both retail and commercial loan and deposit products in all of its markets. We
believe that this focus will enable us to continue to grow our franchise, while maintaining our commitment to customer
service, high asset quality, and sustained net earnings. The following are the key elements of our business strategy:
Continue to diversify our portfolio through growth in commercial real estate and commercial business loans as a
complement to our traditional single family residential real estate lending. Such loans now constitute about 45.6%
of total loans;
Continue to emphasize the attraction and retention of lower cost long-term core deposits;
Seek opportunities where presented to acquire other institutions or expand our branch structure;
Maintain our high asset quality levels; and
Operate as a community-oriented independent financial institution that offers a broad array of financial services
with high levels of customer service.
Our results of operations may be significantly affected by our ability to effectively implement our business strategy
including our plans for expansion through strategic acquisitions. If we are unable to effectively integrate and manage
acquired or merged businesses or attract significant new business through our branching efforts, our financial performance
may be negatively affected.
Montana in the Economic Downturn
Market Area
From our headquarters in Helena, Montana, we operate six full service retail banking offices, including our main office.
Our other full service branches are located in Helena – Neill (opened 1987), Helena – Skyway (opened 2009), Bozeman
(opened 1980, relocated 2009), Butte (opened 1979) and Townsend (opened 1979), Montana. The original Bozeman
branch opened in 1980 was closed August 1, 2010 due to reduced use by customers as a result of the new location opened
in October 2009 approximately one mile away.
1
2
1
2
This Annual Report on Form 10-K includes “forward-looking statements” within the meaning and protections of Section
27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of
1934, as amended, or the Exchange Act. All statements other than statements of historical fact are statements that could be
forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,”
“will,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,”
“plan,” “project,” “could,” “intend,” “target” and other similar words and expressions of the future. These forward-looking
statements include, but are not limited to: (i) statements of our goals, intentions and expectations; (ii) statements regarding
our business plans, prospects, growth and operating strategies; (iii) statements regarding the asset quality of our loan and
investment portfolios; and (iv) estimates of our risks and future costs and benefits.
These forward-looking statements are based on current beliefs and expectations of our management and are inherently
subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our
control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies
and decisions that are subject to change. The following factors, among others, could cause actual results to differ
materially from the anticipated results or other expectations expressed in the forward-looking statements:
changes in laws or government regulations or policies affecting financial institutions, including changes
in regulatory fees and capital requirements;
general economic conditions, either nationally or in our market areas, that are worse than expected;
competition among depository and other financial institutions;
changes in the prices, values and sales volume of residential and commercial real estate in Montana;
inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of
financial instruments;
adverse changes or volatility in the securities markets;
our ability to enter new markets successfully and capitalize on growth opportunities;
our ability to successfully integrate acquired businesses;
changes in consumer spending, borrowing and savings habits;
changes in our organization, compensation and benefit plans;
our ability to continue to increase and manage our commercial and residential real estate, multi-family,
and commercial business loans;
possible impairments of securities held by us, including those issued by government entities and
government sponsored enterprises;
the level of future deposit premium assessments;
the impact of a recurring recession on our loan portfolio (including cash flow and collateral values),
investment portfolio, customers and capital market activities;
the impact of the current restructuring of the U.S. financial and regulatory system;
the failure of assumptions underlying the establishment of allowance for possible loan losses and other
estimates;
loans when due; and
the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies,
as well as the Securities and Exchange Commission, the Public Company Accounting Oversight Board,
the Financial Accounting Standards Board and other accounting standard setters.
Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these
forward-looking statements. For a further list and description of various risks, relevant factors and uncertainties that could
cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see
the Item 1A, “Risk Factors” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” sections contained elsewhere in this report, as well as other reports that we file with the SEC.
Montana is one of the largest states in terms of land mass but ranks as one of the least populated states. According to U.S.
Census Bureau data for 2010, it had a population of 989,415. Helena, where we are headquartered, is Montana’s state
capital. It is also the county seat of Lewis and Clark County, which has a population of approximately 63,395 and is
located within 120 miles of four of Montana’s other five largest cities: Missoula, Great Falls, Bozeman and Butte. It is
approximately midway between Yellowstone and Glacier National Parks. Its economy has shown moderate growth, in
terms of both employment and income. State government and the numerous offices of the federal government comprise
the largest employment sector. Helena also has significant employment in the service industries. Specifically, it has
evolved into a central health care center with employment in the medical and the supporting professions as well as the
medical insurance industry. The local economy is also dependent to a lesser extent upon ranching and agriculture. These
have been more cyclical in nature and remain vulnerable to severe weather conditions, increased competition, both
domestic and international, as well as commodity prices.
Bozeman is approximately 95 miles southeast of Helena. It is located in Gallatin County, which has a population of
approximately 89,513. Bozeman is home to Montana State University and experienced fairly significant growth from 1990
to 2007, in part due to the growth of the University as well as the increased tourism for resort areas in and near Bozeman.
Agriculture, however, remains an important part of Bozeman’s economy. Bozeman has also become an attractive location
for retirees, primarily from the West Coast, owing to its many winter and summer recreational opportunities and the
presence of the University. Of the four communities that we serve, Bozeman has experienced the largest impact of the
national and global economic downturn.
Butte, Montana is approximately 64 miles southwest of Helena. Butte and the surrounding Silver-Bow County have a
population of approximately 34,200. Butte’s economy is somewhat reliant on the mining industry. Butte’s economy has
been volatile from the fluctuations in metal and mineral commodity prices.
Townsend is the smallest community in which we operate. It has a population of about 1,878. Townsend is located in
Broadwater County which has a population of approximately 5,612. Many of its residents commute to other Montana
locations for work. Other employment in Townsend is primarily in agriculture and services. Townsend is approximately
32 miles southeast of Helena.
On July 2, 2012, we announced the execution of a definitive agreement with Sterling Savings Bank of Spokane,
Washington, to acquire certain liabilities and assets of Sterling’s seven branch operations in Montana. This transaction is
subject to approval of federal bank regulators and is expected to close in late 2012.
Competition
We face strong competition in our primary market area for the attraction of retail deposits and the origination of loans.
Historically, Montana was a unit banking state. This means that the ability of Montana state banks to create branches was
either prohibited or significantly restricted. As a result of unit banking, Montana has a significant number of independent
financial institutions serving a single community in a single location. While the state’s population is approximately
989,000 people, there are 57 credit unions in Montana as well as two federally chartered thrift institutions, and 74
commercial banks as of June 30, 2012. Our most direct competition for depositors has historically come from locally
owned and out-of-state commercial banks, thrift institutions and credit unions operating in our primary market area. The
number of such competitor locations has increased significantly in recent years. Our competition for loans also comes
from banks, thrifts and credit unions in addition to mortgage bankers and brokers. Our principal market areas can be
characterized as markets with moderately increasing incomes, relatively low unemployment, increasing wealth (particularly
in the growing resort areas such as Bozeman), and moderate population growth.
Lending Activities
General.
American Federal Savings Bank primarily originates one- to four-family residential real estate loans and, to a lesser extent,
commercial real estate loans, real estate construction loans, home equity loans, consumer loans and commercial business
loans. Commercial real estate loans include loans on multi-family dwellings, loans on nonresidential property and loans on
developed and undeveloped land. Home equity loans include loans secured by the borrower’s primary residence.
Typically, the property securing such loans is subject to a prior lien. Consumer loans consist of loans secured by collateral
other than real estate, such as automobiles, recreational vehicles and boats. Personal loans and lines of credit are made on
deposits held by the Bank and on an unsecured basis. Commercial business loans consist of business loans and lines of
credit on a secured and unsecured basis.
2012
At June 30,
Loan Portfolio Composition.
The following table analyzes the composition of the Bank’s loan portfolio by loan category at the dates indicated:
Montana is one of the largest states in terms of land mass but ranks as one of the least populated states. According to U.S.
Census Bureau data for 2010, it had a population of 989,415. Helena, where we are headquartered, is Montana’s state
capital. It is also the county seat of Lewis and Clark County, which has a population of approximately 63,395 and is
located within 120 miles of four of Montana’s other five largest cities: Missoula, Great Falls, Bozeman and Butte. It is
approximately midway between Yellowstone and Glacier National Parks. Its economy has shown moderate growth, in
terms of both employment and income. State government and the numerous offices of the federal government comprise
the largest employment sector. Helena also has significant employment in the service industries. Specifically, it has
evolved into a central health care center with employment in the medical and the supporting professions as well as the
Amount
medical insurance industry. The local economy is also dependent to a lesser extent upon ranching and agriculture. These
have been more cyclical in nature and remain vulnerable to severe weather conditions, increased competition, both
domestic and international, as well as commodity prices.
Real estate loans:
Residential mortgage (one- to four-family) (1)
Commercial real estate
Real estate construction
Total real estate loans
61,671
64,672
Bozeman is approximately 95 miles southeast of Helena. It is located in Gallatin County, which has a population of
approximately 89,513. Bozeman is home to Montana State University and experienced fairly significant growth from 1990
1,455
to 2007, in part due to the growth of the University as well as the increased tourism for resort areas in and near Bozeman.
127,798
Agriculture, however, remains an important part of Bozeman’s economy. Bozeman has also become an attractive location
for retirees, primarily from the West Coast, owing to its many winter and summer recreational opportunities and the
presence of the University. Of the four communities that we serve, Bozeman has experienced the largest impact of the
national and global economic downturn.
35.11% $
36.82%
0.83%
72.76%
70,003
64,701
5,020
139,724
37.34%
34.52%
2.68%
74.54%
Percent of
Total
Percent of
Total
(Dollars in thousands)
Amount
2011
$
Butte, Montana is approximately 64 miles southwest of Helena. Butte and the surrounding Silver-Bow County have a
population of approximately 34,200. Butte’s economy is somewhat reliant on the mining industry. Butte’s economy has
been volatile from the fluctuations in metal and mineral commodity prices.
13.50%
5.00%
8.74%
27.24%
27,816
9,343
10,564
47,723
14.84%
4.98%
5.64%
25.46%
Other loans:
Home equity
Consumer
Commercial
Total other loans
Total loans
Townsend is the smallest community in which we operate. It has a population of about 1,878. Townsend is located in
175,628
Broadwater County which has a population of approximately 5,612. Many of its residents commute to other Montana
locations for work. Other employment in Townsend is primarily in agriculture and services. Townsend is approximately
32 miles southeast of Helena.
100.00%
100.00%
187,447
On July 2, 2012, we announced the execution of a definitive agreement with Sterling Savings Bank of Spokane,
Washington, to acquire certain liabilities and assets of Sterling’s seven branch operations in Montana. This transaction is
subject to approval of federal bank regulators and is expected to close in late 2012.
176
1,800
Less:
Deferred loan fees (expenses)
Allowance for loan losses
23,709
8,778
15,343
47,830
164
1,625
Total loans, net
Competition
$
173,839
$
185,471
Total loans, net
$
173,839
$
185,471
(1) Excludes loans held for sale.
Fee Income.
American Federal Savings Bank receives lending related fee income from a variety of sources. Its principal source of this
income is from the origination and servicing of sold mortgage loans. Fees generated from mortgage loan servicing, which
generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors and
foreclosure processing for loans held by others, were $891,000 and $830,000 for the years ended June 30, 2012 and 2011,
respectively. Other loan related fee income for contract collections, late charges, credit life commissions and credit card
fees were $86,000 and $78,000 for the years ended June 30, 2012 and 2011, respectively.
We face strong competition in our primary market area for the attraction of retail deposits and the origination of loans.
Historically, Montana was a unit banking state. This means that the ability of Montana state banks to create branches was
either prohibited or significantly restricted. As a result of unit banking, Montana has a significant number of independent
financial institutions serving a single community in a single location. While the state’s population is approximately
989,000 people, there are 57 credit unions in Montana as well as two federally chartered thrift institutions, and 74
commercial banks as of June 30, 2012. Our most direct competition for depositors has historically come from locally
owned and out-of-state commercial banks, thrift institutions and credit unions operating in our primary market area. The
number of such competitor locations has increased significantly in recent years. Our competition for loans also comes
from banks, thrifts and credit unions in addition to mortgage bankers and brokers. Our principal market areas can be
characterized as markets with moderately increasing incomes, relatively low unemployment, increasing wealth (particularly
in the growing resort areas such as Bozeman), and moderate population growth.
Loan Maturity Schedule.
The following table sets forth the estimated maturity of the loan portfolio of the Bank at June 30, 2012. Balances exclude
deferred loan fees and allowance for loan losses. Scheduled principal repayments of loans do not necessarily reflect the
actual life of such assets. The average life of a loan is typically substantially less than its contractual terms because of
prepayments. In addition, due on sale clauses on loans generally give American Federal Savings Bank the right to declare
loans immediately due and payable in the event, among other things, that the borrower sells the real property, subject to the
mortgage, and the loan is not paid off. All mortgage loans are shown to be maturing based on the date of the last payment
required by the loan agreement, except as noted.
General.
American Federal Savings Bank primarily originates one- to four-family residential real estate loans and, to a lesser extent,
commercial real estate loans, real estate construction loans, home equity loans, consumer loans and commercial business
loans. Commercial real estate loans include loans on multi-family dwellings, loans on nonresidential property and loans on
developed and undeveloped land. Home equity loans include loans secured by the borrower’s primary residence.
Typically, the property securing such loans is subject to a prior lien. Consumer loans consist of loans secured by collateral
other than real estate, such as automobiles, recreational vehicles and boats. Personal loans and lines of credit are made on
deposits held by the Bank and on an unsecured basis. Commercial business loans consist of business loans and lines of
credit on a secured and unsecured basis.
Lending Activities
Loan Portfolio Composition.
The following table analyzes the composition of the Bank’s loan portfolio by loan category at the dates indicated:
At June 30,
2012
2011
(Dollars in thousands)
Amount
Amount
Percent of
Total
Percent of
Total
35.11% $
36.82%
0.83%
72.76%
70,003
64,701
5,020
139,724
13.50%
5.00%
8.74%
27.24%
27,816
9,343
10,564
47,723
37.34%
34.52%
2.68%
74.54%
14.84%
4.98%
5.64%
25.46%
175,628
100.00%
187,447
100.00%
176
1,800
61,671
64,672
1,455
127,798
23,709
8,778
15,343
47,830
164
1,625
Residential mortgage (one- to four-family) (1)
$
Real estate loans:
Commercial real estate
Real estate construction
Total real estate loans
Other loans:
Home equity
Consumer
Commercial
Total other loans
Total loans
Less:
Deferred loan fees (expenses)
Allowance for loan losses
(1) Excludes loans held for sale.
Fee Income.
American Federal Savings Bank receives lending related fee income from a variety of sources. Its principal source of this
income is from the origination and servicing of sold mortgage loans. Fees generated from mortgage loan servicing, which
generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors and
foreclosure processing for loans held by others, were $891,000 and $830,000 for the years ended June 30, 2012 and 2011,
respectively. Other loan related fee income for contract collections, late charges, credit life commissions and credit card
fees were $86,000 and $78,000 for the years ended June 30, 2012 and 2011, respectively.
Loan Maturity Schedule.
The following table sets forth the estimated maturity of the loan portfolio of the Bank at June 30, 2012. Balances exclude
deferred loan fees and allowance for loan losses. Scheduled principal repayments of loans do not necessarily reflect the
actual life of such assets. The average life of a loan is typically substantially less than its contractual terms because of
prepayments. In addition, due on sale clauses on loans generally give American Federal Savings Bank the right to declare
loans immediately due and payable in the event, among other things, that the borrower sells the real property, subject to the
mortgage, and the loan is not paid off. All mortgage loans are shown to be maturing based on the date of the last payment
required by the loan agreement, except as noted.
3
4
3
4
Montana is one of the largest states in terms of land mass but ranks as one of the least populated states. According to U.S.
Census Bureau data for 2010, it had a population of 989,415. Helena, where we are headquartered, is Montana’s state
capital. It is also the county seat of Lewis and Clark County, which has a population of approximately 63,395 and is
located within 120 miles of four of Montana’s other five largest cities: Missoula, Great Falls, Bozeman and Butte. It is
approximately midway between Yellowstone and Glacier National Parks. Its economy has shown moderate growth, in
terms of both employment and income. State government and the numerous offices of the federal government comprise
the largest employment sector. Helena also has significant employment in the service industries. Specifically, it has
evolved into a central health care center with employment in the medical and the supporting professions as well as the
medical insurance industry. The local economy is also dependent to a lesser extent upon ranching and agriculture. These
have been more cyclical in nature and remain vulnerable to severe weather conditions, increased competition, both
domestic and international, as well as commodity prices.
Bozeman is approximately 95 miles southeast of Helena. It is located in Gallatin County, which has a population of
approximately 89,513. Bozeman is home to Montana State University and experienced fairly significant growth from 1990
to 2007, in part due to the growth of the University as well as the increased tourism for resort areas in and near Bozeman.
Agriculture, however, remains an important part of Bozeman’s economy. Bozeman has also become an attractive location
for retirees, primarily from the West Coast, owing to its many winter and summer recreational opportunities and the
presence of the University. Of the four communities that we serve, Bozeman has experienced the largest impact of the
national and global economic downturn.
Butte, Montana is approximately 64 miles southwest of Helena. Butte and the surrounding Silver-Bow County have a
population of approximately 34,200. Butte’s economy is somewhat reliant on the mining industry. Butte’s economy has
been volatile from the fluctuations in metal and mineral commodity prices.
Townsend is the smallest community in which we operate. It has a population of about 1,878. Townsend is located in
Broadwater County which has a population of approximately 5,612. Many of its residents commute to other Montana
locations for work. Other employment in Townsend is primarily in agriculture and services. Townsend is approximately
32 miles southeast of Helena.
On July 2, 2012, we announced the execution of a definitive agreement with Sterling Savings Bank of Spokane,
Washington, to acquire certain liabilities and assets of Sterling’s seven branch operations in Montana. This transaction is
subject to approval of federal bank regulators and is expected to close in late 2012.
Competition
We face strong competition in our primary market area for the attraction of retail deposits and the origination of loans.
Historically, Montana was a unit banking state. This means that the ability of Montana state banks to create branches was
either prohibited or significantly restricted. As a result of unit banking, Montana has a significant number of independent
financial institutions serving a single community in a single location. While the state’s population is approximately
989,000 people, there are 57 credit unions in Montana as well as two federally chartered thrift institutions, and 74
commercial banks as of June 30, 2012. Our most direct competition for depositors has historically come from locally
owned and out-of-state commercial banks, thrift institutions and credit unions operating in our primary market area. The
number of such competitor locations has increased significantly in recent years. Our competition for loans also comes
from banks, thrifts and credit unions in addition to mortgage bankers and brokers. Our principal market areas can be
characterized as markets with moderately increasing incomes, relatively low unemployment, increasing wealth (particularly
in the growing resort areas such as Bozeman), and moderate population growth.
Lending Activities
General.
American Federal Savings Bank primarily originates one- to four-family residential real estate loans and, to a lesser extent,
commercial real estate loans, real estate construction loans, home equity loans, consumer loans and commercial business
loans. Commercial real estate loans include loans on multi-family dwellings, loans on nonresidential property and loans on
developed and undeveloped land. Home equity loans include loans secured by the borrower’s primary residence.
Typically, the property securing such loans is subject to a prior lien. Consumer loans consist of loans secured by collateral
other than real estate, such as automobiles, recreational vehicles and boats. Personal loans and lines of credit are made on
deposits held by the Bank and on an unsecured basis. Commercial business loans consist of business loans and lines of
credit on a secured and unsecured basis.
2012
At June 30,
Loan Portfolio Composition.
The following table analyzes the composition of the Bank’s loan portfolio by loan category at the dates indicated:
Montana is one of the largest states in terms of land mass but ranks as one of the least populated states. According to U.S.
Census Bureau data for 2010, it had a population of 989,415. Helena, where we are headquartered, is Montana’s state
capital. It is also the county seat of Lewis and Clark County, which has a population of approximately 63,395 and is
located within 120 miles of four of Montana’s other five largest cities: Missoula, Great Falls, Bozeman and Butte. It is
approximately midway between Yellowstone and Glacier National Parks. Its economy has shown moderate growth, in
terms of both employment and income. State government and the numerous offices of the federal government comprise
the largest employment sector. Helena also has significant employment in the service industries. Specifically, it has
evolved into a central health care center with employment in the medical and the supporting professions as well as the
Amount
medical insurance industry. The local economy is also dependent to a lesser extent upon ranching and agriculture. These
have been more cyclical in nature and remain vulnerable to severe weather conditions, increased competition, both
domestic and international, as well as commodity prices.
Real estate loans:
Residential mortgage (one- to four-family) (1)
Commercial real estate
Real estate construction
Total real estate loans
61,671
64,672
Bozeman is approximately 95 miles southeast of Helena. It is located in Gallatin County, which has a population of
approximately 89,513. Bozeman is home to Montana State University and experienced fairly significant growth from 1990
1,455
to 2007, in part due to the growth of the University as well as the increased tourism for resort areas in and near Bozeman.
127,798
Agriculture, however, remains an important part of Bozeman’s economy. Bozeman has also become an attractive location
for retirees, primarily from the West Coast, owing to its many winter and summer recreational opportunities and the
presence of the University. Of the four communities that we serve, Bozeman has experienced the largest impact of the
national and global economic downturn.
35.11% $
36.82%
0.83%
72.76%
70,003
64,701
5,020
139,724
37.34%
34.52%
2.68%
74.54%
Percent of
Total
Percent of
Total
(Dollars in thousands)
Amount
2011
$
Butte, Montana is approximately 64 miles southwest of Helena. Butte and the surrounding Silver-Bow County have a
population of approximately 34,200. Butte’s economy is somewhat reliant on the mining industry. Butte’s economy has
been volatile from the fluctuations in metal and mineral commodity prices.
13.50%
5.00%
8.74%
27.24%
27,816
9,343
10,564
47,723
14.84%
4.98%
5.64%
25.46%
Other loans:
Home equity
Consumer
Commercial
Total other loans
Total loans
Townsend is the smallest community in which we operate. It has a population of about 1,878. Townsend is located in
175,628
Broadwater County which has a population of approximately 5,612. Many of its residents commute to other Montana
locations for work. Other employment in Townsend is primarily in agriculture and services. Townsend is approximately
32 miles southeast of Helena.
100.00%
100.00%
187,447
On July 2, 2012, we announced the execution of a definitive agreement with Sterling Savings Bank of Spokane,
Washington, to acquire certain liabilities and assets of Sterling’s seven branch operations in Montana. This transaction is
subject to approval of federal bank regulators and is expected to close in late 2012.
176
1,800
Less:
Deferred loan fees (expenses)
Allowance for loan losses
23,709
8,778
15,343
47,830
164
1,625
Loan Portfolio Composition.
The following table analyzes the composition of the Bank’s loan portfolio by loan category at the dates indicated:
Real estate loans:
Residential mortgage (one- to four-family) (1)
Commercial real estate
Real estate construction
Total real estate loans
$
Amount
61,671
64,672
1,455
127,798
35.11% $
36.82%
0.83%
72.76%
70,003
64,701
5,020
139,724
At June 30,
2012
2011
(Dollars in thousands)
Percent of
Total
Amount
Percent of
Total
37.34%
34.52%
2.68%
74.54%
14.84%
4.98%
5.64%
25.46%
23,709
8,778
15,343
47,830
13.50%
5.00%
8.74%
27.24%
27,816
9,343
10,564
47,723
175,628
100.00%
187,447
100.00%
164
1,625
176
1,800
Other loans:
Home equity
Consumer
Commercial
Total other loans
Total loans
Less:
Deferred loan fees (expenses)
Allowance for loan losses
Total loans, net
Competition
$
173,839
$
185,471
Total loans, net
$
173,839
$
185,471
(1) Excludes loans held for sale.
Fee Income.
American Federal Savings Bank receives lending related fee income from a variety of sources. Its principal source of this
income is from the origination and servicing of sold mortgage loans. Fees generated from mortgage loan servicing, which
generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors and
foreclosure processing for loans held by others, were $891,000 and $830,000 for the years ended June 30, 2012 and 2011,
respectively. Other loan related fee income for contract collections, late charges, credit life commissions and credit card
fees were $86,000 and $78,000 for the years ended June 30, 2012 and 2011, respectively.
We face strong competition in our primary market area for the attraction of retail deposits and the origination of loans.
Historically, Montana was a unit banking state. This means that the ability of Montana state banks to create branches was
either prohibited or significantly restricted. As a result of unit banking, Montana has a significant number of independent
financial institutions serving a single community in a single location. While the state’s population is approximately
989,000 people, there are 57 credit unions in Montana as well as two federally chartered thrift institutions, and 74
commercial banks as of June 30, 2012. Our most direct competition for depositors has historically come from locally
owned and out-of-state commercial banks, thrift institutions and credit unions operating in our primary market area. The
number of such competitor locations has increased significantly in recent years. Our competition for loans also comes
from banks, thrifts and credit unions in addition to mortgage bankers and brokers. Our principal market areas can be
characterized as markets with moderately increasing incomes, relatively low unemployment, increasing wealth (particularly
in the growing resort areas such as Bozeman), and moderate population growth.
Loan Maturity Schedule.
The following table sets forth the estimated maturity of the loan portfolio of the Bank at June 30, 2012. Balances exclude
deferred loan fees and allowance for loan losses. Scheduled principal repayments of loans do not necessarily reflect the
actual life of such assets. The average life of a loan is typically substantially less than its contractual terms because of
prepayments. In addition, due on sale clauses on loans generally give American Federal Savings Bank the right to declare
loans immediately due and payable in the event, among other things, that the borrower sells the real property, subject to the
mortgage, and the loan is not paid off. All mortgage loans are shown to be maturing based on the date of the last payment
required by the loan agreement, except as noted.
General.
American Federal Savings Bank primarily originates one- to four-family residential real estate loans and, to a lesser extent,
commercial real estate loans, real estate construction loans, home equity loans, consumer loans and commercial business
loans. Commercial real estate loans include loans on multi-family dwellings, loans on nonresidential property and loans on
developed and undeveloped land. Home equity loans include loans secured by the borrower’s primary residence.
Typically, the property securing such loans is subject to a prior lien. Consumer loans consist of loans secured by collateral
other than real estate, such as automobiles, recreational vehicles and boats. Personal loans and lines of credit are made on
deposits held by the Bank and on an unsecured basis. Commercial business loans consist of business loans and lines of
credit on a secured and unsecured basis.
Lending Activities
(1) Excludes loans held for sale.
Fee Income.
American Federal Savings Bank receives lending related fee income from a variety of sources. Its principal source of this
income is from the origination and servicing of sold mortgage loans. Fees generated from mortgage loan servicing, which
generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors and
foreclosure processing for loans held by others, were $891,000 and $830,000 for the years ended June 30, 2012 and 2011,
respectively. Other loan related fee income for contract collections, late charges, credit life commissions and credit card
fees were $86,000 and $78,000 for the years ended June 30, 2012 and 2011, respectively.
Loan Maturity Schedule.
The following table sets forth the estimated maturity of the loan portfolio of the Bank at June 30, 2012. Balances exclude
deferred loan fees and allowance for loan losses. Scheduled principal repayments of loans do not necessarily reflect the
actual life of such assets. The average life of a loan is typically substantially less than its contractual terms because of
prepayments. In addition, due on sale clauses on loans generally give American Federal Savings Bank the right to declare
loans immediately due and payable in the event, among other things, that the borrower sells the real property, subject to the
mortgage, and the loan is not paid off. All mortgage loans are shown to be maturing based on the date of the last payment
required by the loan agreement, except as noted.
3
4
3
4
Loans having no stated maturity, those without a scheduled payment, demand loans and matured loans, are shown as due
within six months.
The following table sets forth information with respect to our loan originations, purchases and sales activity for the periods
indicated:
Loans having no stated maturity, those without a scheduled payment, demand loans and matured loans, are shown as due
within six months.
indicated:
The following table sets forth information with respect to our loan originations, purchases and sales activity for the periods
Within 6
Months
6 to 12
Months
More than
1 year to 2
years
More than
2 years to
5 years
(In thousands)
Over 5
years
Residential mortgage (one- to four-family) (1)
Commercial real estate and land
Real estate construction
Home equity
Consumer
Commercial
$
-
$
369
-
242
281
184
$
30
3,286
1,455
3,318
1,058
4,865
$
1,014
2,263
-
3,519
978
1,872
$
2,208
6,703
-
9,844
4,826
3,231
$
69,032
52,051
-
6,786
1,635
5,191
Total
72,284
64,672
1,455
23,709
8,778
15,343
Total loans (1)
(1) Includes loans held for sale.
$
1,076
$
14,012
$
9,646
$
26,812
$
134,695
$
186,241
The following table sets forth the dollar amount of all loans, at June 30, 2012, due after June 30, 2013, which have fixed
interest rates and which have floating or adjustable interest rates:
Year Ended June 30,
More than
2012
2011
1 year to 2
years
6 to 12
Months
(In thousands)
More than
2 years to
5 years
Over 5
years
(In thousands)
Net loans receivable at beginning of period (1)
$
Residential mortgage (one- to four-family) (1)
Commercial real estate and land
Loans originated:
Real estate construction
Home equity
Consumer
Commercial
Residential mortgage (one- to four-family)
Commercial real estate and land
Real estate construction
Home equity
Consumer
Commercial
Total loans (1)
$
Within 6
Months
$
-
$
369
-
242
281
184
1,076
$
187,255
30
3,286
1,455
3,318
1,058
4,865
117,248
9,609
3,355
5,611
4,483
14,012
11,272
$
$
$
177,197
1,014
2,263
-
115,030
3,519
38,131
978
13,180
1,872
16,550
6,068
9,646
15,311
$
$
2,208
6,703
-
9,844
4,826
3,231
$
69,032
52,051
-
6,786
1,635
5,191
Total
72,284
64,672
1,455
23,709
8,778
15,343
$
26,812
$
134,695
$
186,241
(1) Includes loans held for sale.
Total loans originated
151,578
204,270
Total loans originated
151,578
204,270
Loans sold:
The following table sets forth the dollar amount of all loans, at June 30, 2012, due after June 30, 2013, which have fixed
interest rates and which have floating or adjustable interest rates:
Whole loans
112,444
99,507
Fixed
Adjustable
Total
(Dollars in thousands)
Principal repayments and loan refinancings
Fixed
Adjustable
55,061
Total
80,853
(Dollars in thousands)
Principal repayments and loan refinancings
55,061
80,853
Residential mortgage (one- to four-family) $
Commercial real estate and land
Home equity
Consumer
Commercial
$
61,053
55,495
14,290
6,684
6,362
$
11,094
5,522
5,859
755
3,933
72,147
61,017
20,149
7,439
10,295
Total loans (1)
Percent of total
(1) Due after June 30, 2013.
$
143,884
$
27,163
$
171,047
84.12%
15.88%
100.00%
Allowance for losses decrease (increase)
Deferred loan fees decrease (increase)
Residential mortgage (one- to four-family) $
Commercial real estate and land
Home equity
Consumer
Commercial
Net loan increase (decrease)
$
61,053
55,495
14,290
6,684
6,362
175
12
11,094
5,522
5,859
755
3,933
(2,803)
$
(215)
Deferred loan fees decrease (increase)
(700)
72,147
61,017
20,149
7,439
10,295
10,058
Net loans receivable at end of period (1)
Total loans (1)
$
143,884
$
184,452
$
27,163
187,255
$
171,047
$
(1) Includes loans held for sale.
Percent of total
(1) Due after June 30, 2013.
84.12%
15.88%
100.00%
Residential Lending.
The Bank’s primary lending activity consists of the origination of one- to four-family residential mortgage loans secured by
property located in the Bank’s market area. Approximately 35.1% of the Bank’s loans as of June 30, 2012 were comprised
of such loans. American Federal generally originates one- to four-family residential mortgage loans in amounts of up to
80% of the lesser of the appraised value or the selling price of the mortgaged property without requiring private mortgage
insurance. A mortgage loan originated by the Bank, whether fixed rate or adjustable rate, can have a term of up to 30
years. The Bank holds substantially all of its adjustable rate and its 8, 10 and 12-year fixed rate loans in portfolio.
Adjustable rate loans limit the periodic interest rate adjustment and the minimum and maximum rates that may be charged
over the term of the loan. The Bank’s fixed rate 15-year and 20-year loans are held in portfolio or sold in the secondary
market depending on market conditions. Generally, all 30-year fixed rate loans are sold in the secondary market. The
volume of loan sales is dependent on the volume, type and term of loan originations.
Residential Lending.
The Bank’s primary lending activity consists of the origination of one- to four-family residential mortgage loans secured by
property located in the Bank’s market area. Approximately 35.1% of the Bank’s loans as of June 30, 2012 were comprised
of such loans. American Federal generally originates one- to four-family residential mortgage loans in amounts of up to
80% of the lesser of the appraised value or the selling price of the mortgaged property without requiring private mortgage
insurance. A mortgage loan originated by the Bank, whether fixed rate or adjustable rate, can have a term of up to 30
years. The Bank holds substantially all of its adjustable rate and its 8, 10 and 12-year fixed rate loans in portfolio.
Adjustable rate loans limit the periodic interest rate adjustment and the minimum and maximum rates that may be charged
over the term of the loan. The Bank’s fixed rate 15-year and 20-year loans are held in portfolio or sold in the secondary
market depending on market conditions. Generally, all 30-year fixed rate loans are sold in the secondary market. The
volume of loan sales is dependent on the volume, type and term of loan originations.
5
6
5
6
Net loans receivable at beginning of period (1)
$
187,255
$
177,197
Residential mortgage (one- to four-family)
117,248
115,030
Loans originated:
Commercial real estate and land
Real estate construction
Home equity
Consumer
Commercial
Loans sold:
Whole loans
Year Ended June 30,
2012
2011
(In thousands)
9,609
3,355
5,611
4,483
11,272
38,131
13,180
16,550
6,068
15,311
99,507
112,444
12
175
(215)
(700)
Allowance for losses decrease (increase)
Net loan increase (decrease)
(2,803)
10,058
Net loans receivable at end of period (1)
$
184,452
$
187,255
(1) Includes loans held for sale.
Loans having no stated maturity, those without a scheduled payment, demand loans and matured loans, are shown as due
within six months.
The following table sets forth information with respect to our loan originations, purchases and sales activity for the periods
indicated:
Loans having no stated maturity, those without a scheduled payment, demand loans and matured loans, are shown as due
within six months.
The following table sets forth information with respect to our loan originations, purchases and sales activity for the periods
indicated:
Residential mortgage (one- to four-family) (1)
$
$
-
30
$
1,014
$
2,208
$
69,032
$
Within 6
Months
6 to 12
Months
More than
More than
1 year to 2
2 years to
years
5 years
(In thousands)
369
-
242
281
184
3,286
1,455
3,318
1,058
4,865
2,263
-
3,519
978
1,872
6,703
-
9,844
4,826
3,231
Over 5
years
52,051
-
6,786
1,635
5,191
Total
72,284
64,672
1,455
23,709
8,778
15,343
$
1,076
$
14,012
$
9,646
$
26,812
$
134,695
$
186,241
Commercial real estate and land
Real estate construction
Home equity
Consumer
Commercial
Total loans (1)
(1) Includes loans held for sale.
The following table sets forth the dollar amount of all loans, at June 30, 2012, due after June 30, 2013, which have fixed
interest rates and which have floating or adjustable interest rates:
Residential mortgage (one- to four-family) $
61,053
$
11,094
$
Commercial real estate and land
Fixed
Adjustable
Total
(Dollars in thousands)
55,495
14,290
6,684
6,362
5,522
5,859
755
3,933
72,147
61,017
20,149
7,439
10,295
$
143,884
$
27,163
$
171,047
Percent of total
84.12%
15.88%
100.00%
Home equity
Consumer
Commercial
Total loans (1)
(1) Due after June 30, 2013.
Year Ended June 30,
More than
2011
2012
1 year to 2
years
6 to 12
Months
(In thousands)
More than
2 years to
5 years
Over 5
years
(In thousands)
Net loans receivable at beginning of period (1)
$
Residential mortgage (one- to four-family) (1)
Commercial real estate and land
Loans originated:
Real estate construction
Home equity
Consumer
Commercial
Residential mortgage (one- to four-family)
Commercial real estate and land
Real estate construction
Home equity
Consumer
Commercial
Total loans (1)
$
Within 6
Months
$
$
-
369
-
242
281
184
1,076
$
187,255
30
3,286
1,455
3,318
1,058
4,865
117,248
9,609
3,355
5,611
4,483
14,012
11,272
$
$
$
177,197
1,014
2,263
-
115,030
3,519
38,131
978
13,180
1,872
16,550
6,068
9,646
15,311
$
$
2,208
6,703
-
9,844
4,826
3,231
$
69,032
52,051
-
6,786
1,635
5,191
Total
72,284
64,672
1,455
23,709
8,778
15,343
$
26,812
$
134,695
$
186,241
(1) Includes loans held for sale.
Total loans originated
151,578
204,270
Loans sold:
The following table sets forth the dollar amount of all loans, at June 30, 2012, due after June 30, 2013, which have fixed
interest rates and which have floating or adjustable interest rates:
Whole loans
112,444
99,507
Principal repayments and loan refinancings
Fixed
Adjustable
55,061
Total
80,853
(Dollars in thousands)
Year Ended June 30,
2012
2011
(In thousands)
Net loans receivable at beginning of period (1)
$
187,255
$
177,197
Loans originated:
Residential mortgage (one- to four-family)
Commercial real estate and land
Real estate construction
Home equity
Consumer
Commercial
117,248
9,609
3,355
5,611
4,483
11,272
115,030
38,131
13,180
16,550
6,068
15,311
Total loans originated
151,578
204,270
Loans sold:
Whole loans
99,507
112,444
Principal repayments and loan refinancings
55,061
80,853
(215)
Deferred loan fees decrease (increase)
Allowance for losses decrease (increase)
Deferred loan fees decrease (increase)
Residential mortgage (one- to four-family) $
Commercial real estate and land
Home equity
Consumer
Commercial
Net loan increase (decrease)
$
61,053
55,495
14,290
6,684
6,362
175
12
11,094
5,522
5,859
755
3,933
(2,803)
$
(700)
72,147
61,017
20,149
7,439
10,295
10,058
Net loans receivable at end of period (1)
Total loans (1)
$
143,884
$
184,452
$
27,163
187,255
$
171,047
$
(1) Includes loans held for sale.
Percent of total
(1) Due after June 30, 2013.
84.12%
15.88%
100.00%
12
175
(215)
(700)
Allowance for losses decrease (increase)
Net loan increase (decrease)
(2,803)
10,058
Net loans receivable at end of period (1)
$
184,452
$
187,255
(1) Includes loans held for sale.
Residential Lending.
The Bank’s primary lending activity consists of the origination of one- to four-family residential mortgage loans secured by
property located in the Bank’s market area. Approximately 35.1% of the Bank’s loans as of June 30, 2012 were comprised
of such loans. American Federal generally originates one- to four-family residential mortgage loans in amounts of up to
80% of the lesser of the appraised value or the selling price of the mortgaged property without requiring private mortgage
insurance. A mortgage loan originated by the Bank, whether fixed rate or adjustable rate, can have a term of up to 30
years. The Bank holds substantially all of its adjustable rate and its 8, 10 and 12-year fixed rate loans in portfolio.
Adjustable rate loans limit the periodic interest rate adjustment and the minimum and maximum rates that may be charged
over the term of the loan. The Bank’s fixed rate 15-year and 20-year loans are held in portfolio or sold in the secondary
market depending on market conditions. Generally, all 30-year fixed rate loans are sold in the secondary market. The
volume of loan sales is dependent on the volume, type and term of loan originations.
Residential Lending.
The Bank’s primary lending activity consists of the origination of one- to four-family residential mortgage loans secured by
property located in the Bank’s market area. Approximately 35.1% of the Bank’s loans as of June 30, 2012 were comprised
of such loans. American Federal generally originates one- to four-family residential mortgage loans in amounts of up to
80% of the lesser of the appraised value or the selling price of the mortgaged property without requiring private mortgage
insurance. A mortgage loan originated by the Bank, whether fixed rate or adjustable rate, can have a term of up to 30
years. The Bank holds substantially all of its adjustable rate and its 8, 10 and 12-year fixed rate loans in portfolio.
Adjustable rate loans limit the periodic interest rate adjustment and the minimum and maximum rates that may be charged
over the term of the loan. The Bank’s fixed rate 15-year and 20-year loans are held in portfolio or sold in the secondary
market depending on market conditions. Generally, all 30-year fixed rate loans are sold in the secondary market. The
volume of loan sales is dependent on the volume, type and term of loan originations.
5
6
5
6
The Bank obtains a significant portion of its noninterest income from servicing of loans that it has sold. The Bank offers
many of the fixed rate loans it originates for sale in the secondary market on a servicing retained basis. This means that we
process the borrower’s payments and send them to the purchaser of the loan. This retention of servicing enables the Bank
to increase fee income and maintain a relationship with the borrower. Servicing income was $891,000 for the year ended
June 30, 2012. At June 30, 2012, American Federal Savings Bank had $338.9 million in residential mortgage loans and
$16.1 million in commercial real estate loans sold with servicing retained. American Federal Savings Bank does not
ordinarily purchase home mortgage loans from other financial institutions.
Property appraisals on real estate securing the Bank’s single-family residential loans are made by state certified and
licensed independent appraisers who are approved annually by the board of directors. Appraisals are performed in
accordance with applicable regulations and policies. American Federal Savings Bank generally obtains title insurance
policies on all first mortgage real estate loans originated. On occasion, refinancings of mortgage loans are approved using
title reports instead of title insurance. Title reports are also allowed on home equity loans. Borrowers generally remit
funds with each monthly payment of principal and interest, to a loan escrow account from which American Federal Savings
Bank makes disbursements for such items as real estate taxes and hazard and mortgage insurance premiums as they become
due.
Home Equity Loans.
American Federal Savings Bank also originates home equity loans. These loans are secured by the borrowers’ primary
residence, but are typically subject to a prior lien, which may or may not be held by the Bank. At June 30, 2012, $23.7
million or 13.5% of our total loans were home equity loans. Borrowers may use the proceeds from the Bank’s home equity
loans for many purposes, including home improvement, debt consolidation, or other purchasing needs. The Bank offers
fixed rate, fixed payment home equity loans as well as variable and fixed rate home equity lines of credit. Fixed rate home
equity loans typically have terms of not longer than 15 years.
Although home equity loans are secured by real estate, they carry a greater risk than first lien residential mortgages because
of the existence of a prior lien on the property securing the loan, as well as the flexibility the borrower has with respect to
the loan proceeds. American Federal Savings Bank attempts to minimize this risk by maintaining conservative
underwriting policies on such loans. We generally make home equity loans for up to only 85% of appraised value of the
underlying real estate collateral, less the amount of any existing prior liens on the property securing the loan.
Commercial Real Estate and Land Loans.
American Federal Savings Bank originates commercial real estate mortgage and land loans, including both developed and
undeveloped land loans, and loans on multi-family dwellings. Commercial real estate and land loans made up 36.8% of the
Bank’s total loan portfolio, or $64.7 million at June 30, 2012. The majority of these loans are non-residential commercial
real estate loans. American Federal Savings Bank’s commercial real estate mortgage loans are primarily permanent loans
secured by improved property such as office buildings, retail stores, commercial warehouses and apartment buildings. The
terms and conditions of each loan are tailored to the needs of the borrower and based on the financial strength of the project
and any guarantors. Generally, commercial real estate loans originated by the Bank will not exceed 75% of the appraised
value or the selling price of the property, whichever is less. The average loan size is approximately $311,000 and is
typically made with fixed rates of interest and 5- to 15-year maturities. Upon maturity, the loan is repaid or the terms and
conditions are renegotiated. Generally, all originated commercial real estate loans are secured by property located in the
state of Montana and within the market area of the Bank. American Federal Savings Bank’s largest single commercial real
estate loan had a balance of approximately $11.5 million ($10.4 million is guaranteed by Rural Development of the U.S.
Department of Agriculture, leaving approximately $1.1 million unguaranteed) on June 30, 2012, and is secured by a
detention facility.
Real Estate Construction Lending.
American Federal Savings Bank also lends funds for the construction of one-to-four-family homes and commercial real
estate. Real estate construction loans are made both to individual homeowners for the construction of their primary
residence and, to a lesser extent, to local builders for the construction of pre-sold houses or houses that are being built for
sale in the future. Real estate construction loans accounted for $1.5 million or 0.8% of the Bank’s loan portfolio at
June 30, 2012.
Consumer Loans.
As part of its strategy to invest in higher yielding shorter term loans, American Federal Savings Bank emphasized growth
of its consumer lending portfolio in recent years. This portfolio includes personal loans secured by collateral other than
real estate, unsecured personal loans and lines of credit, and loans secured by deposits held by the Bank. As of June 30,
2012, consumer loans totaled $8.8 million or 5.0% of the Bank’s total loan portfolio. These loans consist primarily of auto
loans, RV loans, boat loans, personal loans and credit lines and deposit account loans. Consumer loans are originated in
the Bank’s market area and generally have maturities of up to 7 years. For loans secured by savings accounts, American
Federal Savings Bank will lend up to 90% of the account balance on single payment loans and up to 100% for monthly
payment loans.
The Bank obtains a significant portion of its noninterest income from servicing of loans that it has sold. The Bank offers
many of the fixed rate loans it originates for sale in the secondary market on a servicing retained basis. This means that we
process the borrower’s payments and send them to the purchaser of the loan. This retention of servicing enables the Bank
to increase fee income and maintain a relationship with the borrower. Servicing income was $891,000 for the year ended
June 30, 2012. At June 30, 2012, American Federal Savings Bank had $338.9 million in residential mortgage loans and
$16.1 million in commercial real estate loans sold with servicing retained. American Federal Savings Bank does not
ordinarily purchase home mortgage loans from other financial institutions.
Consumer loans have a shorter term and generally provide higher interest rates than residential loans. Consumer loans can
be helpful in improving the spread between average loan yield and cost of funds and at the same time improve the
matching of the maturities of rate sensitive assets and liabilities. Although the amount of such loans declined slightly over
2011 levels, increasing consumer loans continues to be a major part of the Bank’s strategy of operating more like a
commercial bank than a traditional savings bank.
Property appraisals on real estate securing the Bank’s single-family residential loans are made by state certified and
licensed independent appraisers who are approved annually by the board of directors. Appraisals are performed in
accordance with applicable regulations and policies. American Federal Savings Bank generally obtains title insurance
policies on all first mortgage real estate loans originated. On occasion, refinancings of mortgage loans are approved using
title reports instead of title insurance. Title reports are also allowed on home equity loans. Borrowers generally remit
funds with each monthly payment of principal and interest, to a loan escrow account from which American Federal Savings
Bank makes disbursements for such items as real estate taxes and hazard and mortgage insurance premiums as they become
due.
The underwriting standards employed by American Federal Savings Bank for consumer loans include a determination of
the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the
proposed loan. The stability of the applicant’s monthly income may be determined by verification of gross monthly
income from primary employment, and additionally from any verifiable secondary income. Creditworthiness of the
applicant is of primary consideration; however, the underwriting process also includes a comparison of the value of the
collateral in relation to the proposed loan amount.
Home Equity Loans.
Commercial Business Loans.
American Federal Savings Bank also originates home equity loans. These loans are secured by the borrowers’ primary
Commercial business loans amounted to $15.3 million, or 8.7% of the Bank’s total loan portfolio at June 30, 2012.
residence, but are typically subject to a prior lien, which may or may not be held by the Bank. At June 30, 2012, $23.7
American Federal Savings Bank’s commercial business loans are traditional business loans and are not secured by real
million or 13.5% of our total loans were home equity loans. Borrowers may use the proceeds from the Bank’s home equity
estate. Such loans may be structured as unsecured lines of credit or may be secured by inventory, accounts receivable or
loans for many purposes, including home improvement, debt consolidation, or other purchasing needs. The Bank offers
other business assets. While the commercial business loan portfolio amounted to only 8.7% of the total portfolio at
fixed rate, fixed payment home equity loans as well as variable and fixed rate home equity lines of credit. Fixed rate home
June 30, 2012, American Federal intends to increase such lending by focusing on market segments which it has not
equity loans typically have terms of not longer than 15 years.
previously emphasized, such as business loans to doctors, lawyers, architects and other professionals as well as to small
businesses within its market area. Our management believes that this strategy provides opportunities for growth, without
significant additional cost outlays for staff and infrastructure.
Although home equity loans are secured by real estate, they carry a greater risk than first lien residential mortgages because
of the existence of a prior lien on the property securing the loan, as well as the flexibility the borrower has with respect to
the loan proceeds. American Federal Savings Bank attempts to minimize this risk by maintaining conservative
underwriting policies on such loans. We generally make home equity loans for up to only 85% of appraised value of the
underlying real estate collateral, less the amount of any existing prior liens on the property securing the loan.
Commercial business loans of this nature usually involve greater credit risk than one- to four-family residential mortgage
loans. The collateral we receive is typically related directly to the performance of the borrower’s business which means
that repayment of commercial business loans is dependent on the successful operations and income stream of the
borrower’s business. Such risks can be significantly affected by economic conditions. In addition, commercial lending
generally requires substantially greater oversight efforts compared to residential real estate lending.
Commercial Real Estate and Land Loans.
American Federal Savings Bank originates commercial real estate mortgage and land loans, including both developed and
undeveloped land loans, and loans on multi-family dwellings. Commercial real estate and land loans made up 36.8% of the
Bank’s total loan portfolio, or $64.7 million at June 30, 2012. The majority of these loans are non-residential commercial
real estate loans. American Federal Savings Bank’s commercial real estate mortgage loans are primarily permanent loans
secured by improved property such as office buildings, retail stores, commercial warehouses and apartment buildings. The
terms and conditions of each loan are tailored to the needs of the borrower and based on the financial strength of the project
and any guarantors. Generally, commercial real estate loans originated by the Bank will not exceed 75% of the appraised
value or the selling price of the property, whichever is less. The average loan size is approximately $311,000 and is
typically made with fixed rates of interest and 5- to 15-year maturities. Upon maturity, the loan is repaid or the terms and
conditions are renegotiated. Generally, all originated commercial real estate loans are secured by property located in the
state of Montana and within the market area of the Bank. American Federal Savings Bank’s largest single commercial real
estate loan had a balance of approximately $11.5 million ($10.4 million is guaranteed by Rural Development of the U.S.
Department of Agriculture, leaving approximately $1.1 million unguaranteed) on June 30, 2012, and is secured by a
detention facility.
Loans to One Borrower.
Under federal law, savings institutions have, subject to certain exemptions, lending limits to one borrower in an amount
equal to the greater of $500,000 or 15% of the institution’s unimpaired capital and surplus. As of June 30, 2012, our
largest aggregation of loans to one borrower was approximately $17.7 million. This consisted of two commercial real
estate loans secured by two separate detention facilities. The first commercial real estate loan had a principal balance of
$6.1 million, but 90.0%, or $5.5 million of the principal balance was sold to the Montana Board of Investments, leaving a
net principal balance to the Bank of $600,000. The second commercial real estate loan is to the same borrower for another
detention facility. As of June 30, 2012, the principal balance on this loan was $11.5 million with 90.0% of the loan
guaranteed by the USDA Rural Development. Due to the USDA Rural Development guarantee, 90.0% of this loan, or
$10.4 million, is not required to be included in the Bank’s limitations to a single borrower, thus leaving approximately $1.1
million subject to the lending limit described above, thereby making a combined amount of $1.7 million subject to the
lending limit. The Bank entered into an interest rate swap with a third party to change the underlying cash flows of the
second loan to be a variable market rate tied to one-month LIBOR. At June 30, 2012, these loans were performing in
accordance with their terms. The Bank maintains the servicing for both these loans.
Real Estate Construction Lending.
American Federal Savings Bank also lends funds for the construction of one-to-four-family homes and commercial real
estate. Real estate construction loans are made both to individual homeowners for the construction of their primary
residence and, to a lesser extent, to local builders for the construction of pre-sold houses or houses that are being built for
sale in the future. Real estate construction loans accounted for $1.5 million or 0.8% of the Bank’s loan portfolio at
June 30, 2012.
Loan Solicitation and Processing.
Our customary sources of mortgage loan applications include repeat customers, walk-ins, and referrals from home builders
and real estate brokers. We also advertise in local newspapers and on local radio and television. We currently have the
ability to accept online mortgage loan applications and provide pre-approvals through our website. Our branch managers
and loan officers located at our headquarters and in branches, have authority to approve certain types of loans when
presented with a completed application. Other loans must be approved at our main offices as disclosed below. No loan
consultants or loan brokers are currently utilized for either residential or commercial lending activities.
Consumer Loans.
As part of its strategy to invest in higher yielding shorter term loans, American Federal Savings Bank emphasized growth
of its consumer lending portfolio in recent years. This portfolio includes personal loans secured by collateral other than
real estate, unsecured personal loans and lines of credit, and loans secured by deposits held by the Bank. As of June 30,
2012, consumer loans totaled $8.8 million or 5.0% of the Bank’s total loan portfolio. These loans consist primarily of auto
loans, RV loans, boat loans, personal loans and credit lines and deposit account loans. Consumer loans are originated in
After receiving a loan application from a prospective borrower, a credit report and verifications are obtained to confirm
specific information relating to the loan applicant’s employment, income and credit standing. When required by our
policies, an appraisal of the real estate intended to secure the proposed loan is undertaken by an independent fee appraiser.
In connection with the loan approval process, our staff analyze the loan applications and the property involved. Officers
the Bank’s market area and generally have maturities of up to 7 years. For loans secured by savings accounts, American
Federal Savings Bank will lend up to 90% of the account balance on single payment loans and up to 100% for monthly
payment loans.
Consumer loans have a shorter term and generally provide higher interest rates than residential loans. Consumer loans can
be helpful in improving the spread between average loan yield and cost of funds and at the same time improve the
matching of the maturities of rate sensitive assets and liabilities. Although the amount of such loans declined slightly over
2011 levels, increasing consumer loans continues to be a major part of the Bank’s strategy of operating more like a
commercial bank than a traditional savings bank.
The underwriting standards employed by American Federal Savings Bank for consumer loans include a determination of
the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the
proposed loan. The stability of the applicant’s monthly income may be determined by verification of gross monthly
income from primary employment, and additionally from any verifiable secondary income. Creditworthiness of the
applicant is of primary consideration; however, the underwriting process also includes a comparison of the value of the
collateral in relation to the proposed loan amount.
Commercial Business Loans.
Commercial business loans amounted to $15.3 million, or 8.7% of the Bank’s total loan portfolio at June 30, 2012.
American Federal Savings Bank’s commercial business loans are traditional business loans and are not secured by real
estate. Such loans may be structured as unsecured lines of credit or may be secured by inventory, accounts receivable or
other business assets. While the commercial business loan portfolio amounted to only 8.7% of the total portfolio at
June 30, 2012, American Federal intends to increase such lending by focusing on market segments which it has not
previously emphasized, such as business loans to doctors, lawyers, architects and other professionals as well as to small
businesses within its market area. Our management believes that this strategy provides opportunities for growth, without
significant additional cost outlays for staff and infrastructure.
Commercial business loans of this nature usually involve greater credit risk than one- to four-family residential mortgage
loans. The collateral we receive is typically related directly to the performance of the borrower’s business which means
that repayment of commercial business loans is dependent on the successful operations and income stream of the
borrower’s business. Such risks can be significantly affected by economic conditions. In addition, commercial lending
generally requires substantially greater oversight efforts compared to residential real estate lending.
Loans to One Borrower.
Under federal law, savings institutions have, subject to certain exemptions, lending limits to one borrower in an amount
equal to the greater of $500,000 or 15% of the institution’s unimpaired capital and surplus. As of June 30, 2012, our
largest aggregation of loans to one borrower was approximately $17.7 million. This consisted of two commercial real
estate loans secured by two separate detention facilities. The first commercial real estate loan had a principal balance of
$6.1 million, but 90.0%, or $5.5 million of the principal balance was sold to the Montana Board of Investments, leaving a
net principal balance to the Bank of $600,000. The second commercial real estate loan is to the same borrower for another
detention facility. As of June 30, 2012, the principal balance on this loan was $11.5 million with 90.0% of the loan
guaranteed by the USDA Rural Development. Due to the USDA Rural Development guarantee, 90.0% of this loan, or
$10.4 million, is not required to be included in the Bank’s limitations to a single borrower, thus leaving approximately $1.1
million subject to the lending limit described above, thereby making a combined amount of $1.7 million subject to the
lending limit. The Bank entered into an interest rate swap with a third party to change the underlying cash flows of the
second loan to be a variable market rate tied to one-month LIBOR. At June 30, 2012, these loans were performing in
accordance with their terms. The Bank maintains the servicing for both these loans.
Loan Solicitation and Processing.
Our customary sources of mortgage loan applications include repeat customers, walk-ins, and referrals from home builders
and real estate brokers. We also advertise in local newspapers and on local radio and television. We currently have the
ability to accept online mortgage loan applications and provide pre-approvals through our website. Our branch managers
and loan officers located at our headquarters and in branches, have authority to approve certain types of loans when
presented with a completed application. Other loans must be approved at our main offices as disclosed below. No loan
consultants or loan brokers are currently utilized for either residential or commercial lending activities.
After receiving a loan application from a prospective borrower, a credit report and verifications are obtained to confirm
specific information relating to the loan applicant’s employment, income and credit standing. When required by our
policies, an appraisal of the real estate intended to secure the proposed loan is undertaken by an independent fee appraiser.
In connection with the loan approval process, our staff analyze the loan applications and the property involved. Officers
7
8
7
8
The Bank obtains a significant portion of its noninterest income from servicing of loans that it has sold. The Bank offers
many of the fixed rate loans it originates for sale in the secondary market on a servicing retained basis. This means that we
process the borrower’s payments and send them to the purchaser of the loan. This retention of servicing enables the Bank
to increase fee income and maintain a relationship with the borrower. Servicing income was $891,000 for the year ended
June 30, 2012. At June 30, 2012, American Federal Savings Bank had $338.9 million in residential mortgage loans and
$16.1 million in commercial real estate loans sold with servicing retained. American Federal Savings Bank does not
ordinarily purchase home mortgage loans from other financial institutions.
Property appraisals on real estate securing the Bank’s single-family residential loans are made by state certified and
licensed independent appraisers who are approved annually by the board of directors. Appraisals are performed in
accordance with applicable regulations and policies. American Federal Savings Bank generally obtains title insurance
policies on all first mortgage real estate loans originated. On occasion, refinancings of mortgage loans are approved using
title reports instead of title insurance. Title reports are also allowed on home equity loans. Borrowers generally remit
funds with each monthly payment of principal and interest, to a loan escrow account from which American Federal Savings
Bank makes disbursements for such items as real estate taxes and hazard and mortgage insurance premiums as they become
due.
Home Equity Loans.
American Federal Savings Bank also originates home equity loans. These loans are secured by the borrowers’ primary
residence, but are typically subject to a prior lien, which may or may not be held by the Bank. At June 30, 2012, $23.7
million or 13.5% of our total loans were home equity loans. Borrowers may use the proceeds from the Bank’s home equity
loans for many purposes, including home improvement, debt consolidation, or other purchasing needs. The Bank offers
fixed rate, fixed payment home equity loans as well as variable and fixed rate home equity lines of credit. Fixed rate home
equity loans typically have terms of not longer than 15 years.
Although home equity loans are secured by real estate, they carry a greater risk than first lien residential mortgages because
of the existence of a prior lien on the property securing the loan, as well as the flexibility the borrower has with respect to
the loan proceeds. American Federal Savings Bank attempts to minimize this risk by maintaining conservative
underwriting policies on such loans. We generally make home equity loans for up to only 85% of appraised value of the
underlying real estate collateral, less the amount of any existing prior liens on the property securing the loan.
Commercial Real Estate and Land Loans.
American Federal Savings Bank originates commercial real estate mortgage and land loans, including both developed and
undeveloped land loans, and loans on multi-family dwellings. Commercial real estate and land loans made up 36.8% of the
Bank’s total loan portfolio, or $64.7 million at June 30, 2012. The majority of these loans are non-residential commercial
real estate loans. American Federal Savings Bank’s commercial real estate mortgage loans are primarily permanent loans
secured by improved property such as office buildings, retail stores, commercial warehouses and apartment buildings. The
terms and conditions of each loan are tailored to the needs of the borrower and based on the financial strength of the project
and any guarantors. Generally, commercial real estate loans originated by the Bank will not exceed 75% of the appraised
value or the selling price of the property, whichever is less. The average loan size is approximately $311,000 and is
typically made with fixed rates of interest and 5- to 15-year maturities. Upon maturity, the loan is repaid or the terms and
conditions are renegotiated. Generally, all originated commercial real estate loans are secured by property located in the
state of Montana and within the market area of the Bank. American Federal Savings Bank’s largest single commercial real
estate loan had a balance of approximately $11.5 million ($10.4 million is guaranteed by Rural Development of the U.S.
Department of Agriculture, leaving approximately $1.1 million unguaranteed) on June 30, 2012, and is secured by a
detention facility.
Real Estate Construction Lending.
June 30, 2012.
Consumer Loans.
American Federal Savings Bank also lends funds for the construction of one-to-four-family homes and commercial real
estate. Real estate construction loans are made both to individual homeowners for the construction of their primary
residence and, to a lesser extent, to local builders for the construction of pre-sold houses or houses that are being built for
sale in the future. Real estate construction loans accounted for $1.5 million or 0.8% of the Bank’s loan portfolio at
As part of its strategy to invest in higher yielding shorter term loans, American Federal Savings Bank emphasized growth
of its consumer lending portfolio in recent years. This portfolio includes personal loans secured by collateral other than
real estate, unsecured personal loans and lines of credit, and loans secured by deposits held by the Bank. As of June 30,
2012, consumer loans totaled $8.8 million or 5.0% of the Bank’s total loan portfolio. These loans consist primarily of auto
loans, RV loans, boat loans, personal loans and credit lines and deposit account loans. Consumer loans are originated in
the Bank’s market area and generally have maturities of up to 7 years. For loans secured by savings accounts, American
Federal Savings Bank will lend up to 90% of the account balance on single payment loans and up to 100% for monthly
payment loans.
The Bank obtains a significant portion of its noninterest income from servicing of loans that it has sold. The Bank offers
many of the fixed rate loans it originates for sale in the secondary market on a servicing retained basis. This means that we
process the borrower’s payments and send them to the purchaser of the loan. This retention of servicing enables the Bank
to increase fee income and maintain a relationship with the borrower. Servicing income was $891,000 for the year ended
June 30, 2012. At June 30, 2012, American Federal Savings Bank had $338.9 million in residential mortgage loans and
$16.1 million in commercial real estate loans sold with servicing retained. American Federal Savings Bank does not
ordinarily purchase home mortgage loans from other financial institutions.
Consumer loans have a shorter term and generally provide higher interest rates than residential loans. Consumer loans can
be helpful in improving the spread between average loan yield and cost of funds and at the same time improve the
matching of the maturities of rate sensitive assets and liabilities. Although the amount of such loans declined slightly over
2011 levels, increasing consumer loans continues to be a major part of the Bank’s strategy of operating more like a
commercial bank than a traditional savings bank.
Property appraisals on real estate securing the Bank’s single-family residential loans are made by state certified and
licensed independent appraisers who are approved annually by the board of directors. Appraisals are performed in
accordance with applicable regulations and policies. American Federal Savings Bank generally obtains title insurance
policies on all first mortgage real estate loans originated. On occasion, refinancings of mortgage loans are approved using
title reports instead of title insurance. Title reports are also allowed on home equity loans. Borrowers generally remit
funds with each monthly payment of principal and interest, to a loan escrow account from which American Federal Savings
Bank makes disbursements for such items as real estate taxes and hazard and mortgage insurance premiums as they become
due.
The underwriting standards employed by American Federal Savings Bank for consumer loans include a determination of
the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the
proposed loan. The stability of the applicant’s monthly income may be determined by verification of gross monthly
income from primary employment, and additionally from any verifiable secondary income. Creditworthiness of the
applicant is of primary consideration; however, the underwriting process also includes a comparison of the value of the
collateral in relation to the proposed loan amount.
Home Equity Loans.
Commercial Business Loans.
American Federal Savings Bank also originates home equity loans. These loans are secured by the borrowers’ primary
Commercial business loans amounted to $15.3 million, or 8.7% of the Bank’s total loan portfolio at June 30, 2012.
residence, but are typically subject to a prior lien, which may or may not be held by the Bank. At June 30, 2012, $23.7
American Federal Savings Bank’s commercial business loans are traditional business loans and are not secured by real
million or 13.5% of our total loans were home equity loans. Borrowers may use the proceeds from the Bank’s home equity
estate. Such loans may be structured as unsecured lines of credit or may be secured by inventory, accounts receivable or
loans for many purposes, including home improvement, debt consolidation, or other purchasing needs. The Bank offers
other business assets. While the commercial business loan portfolio amounted to only 8.7% of the total portfolio at
fixed rate, fixed payment home equity loans as well as variable and fixed rate home equity lines of credit. Fixed rate home
June 30, 2012, American Federal intends to increase such lending by focusing on market segments which it has not
equity loans typically have terms of not longer than 15 years.
previously emphasized, such as business loans to doctors, lawyers, architects and other professionals as well as to small
businesses within its market area. Our management believes that this strategy provides opportunities for growth, without
significant additional cost outlays for staff and infrastructure.
Although home equity loans are secured by real estate, they carry a greater risk than first lien residential mortgages because
of the existence of a prior lien on the property securing the loan, as well as the flexibility the borrower has with respect to
the loan proceeds. American Federal Savings Bank attempts to minimize this risk by maintaining conservative
underwriting policies on such loans. We generally make home equity loans for up to only 85% of appraised value of the
underlying real estate collateral, less the amount of any existing prior liens on the property securing the loan.
Commercial business loans of this nature usually involve greater credit risk than one- to four-family residential mortgage
loans. The collateral we receive is typically related directly to the performance of the borrower’s business which means
that repayment of commercial business loans is dependent on the successful operations and income stream of the
borrower’s business. Such risks can be significantly affected by economic conditions. In addition, commercial lending
generally requires substantially greater oversight efforts compared to residential real estate lending.
Commercial Real Estate and Land Loans.
American Federal Savings Bank originates commercial real estate mortgage and land loans, including both developed and
undeveloped land loans, and loans on multi-family dwellings. Commercial real estate and land loans made up 36.8% of the
Bank’s total loan portfolio, or $64.7 million at June 30, 2012. The majority of these loans are non-residential commercial
real estate loans. American Federal Savings Bank’s commercial real estate mortgage loans are primarily permanent loans
secured by improved property such as office buildings, retail stores, commercial warehouses and apartment buildings. The
terms and conditions of each loan are tailored to the needs of the borrower and based on the financial strength of the project
and any guarantors. Generally, commercial real estate loans originated by the Bank will not exceed 75% of the appraised
value or the selling price of the property, whichever is less. The average loan size is approximately $311,000 and is
typically made with fixed rates of interest and 5- to 15-year maturities. Upon maturity, the loan is repaid or the terms and
conditions are renegotiated. Generally, all originated commercial real estate loans are secured by property located in the
state of Montana and within the market area of the Bank. American Federal Savings Bank’s largest single commercial real
estate loan had a balance of approximately $11.5 million ($10.4 million is guaranteed by Rural Development of the U.S.
Department of Agriculture, leaving approximately $1.1 million unguaranteed) on June 30, 2012, and is secured by a
detention facility.
Loans to One Borrower.
Under federal law, savings institutions have, subject to certain exemptions, lending limits to one borrower in an amount
equal to the greater of $500,000 or 15% of the institution’s unimpaired capital and surplus. As of June 30, 2012, our
largest aggregation of loans to one borrower was approximately $17.7 million. This consisted of two commercial real
estate loans secured by two separate detention facilities. The first commercial real estate loan had a principal balance of
$6.1 million, but 90.0%, or $5.5 million of the principal balance was sold to the Montana Board of Investments, leaving a
net principal balance to the Bank of $600,000. The second commercial real estate loan is to the same borrower for another
detention facility. As of June 30, 2012, the principal balance on this loan was $11.5 million with 90.0% of the loan
guaranteed by the USDA Rural Development. Due to the USDA Rural Development guarantee, 90.0% of this loan, or
$10.4 million, is not required to be included in the Bank’s limitations to a single borrower, thus leaving approximately $1.1
million subject to the lending limit described above, thereby making a combined amount of $1.7 million subject to the
lending limit. The Bank entered into an interest rate swap with a third party to change the underlying cash flows of the
second loan to be a variable market rate tied to one-month LIBOR. At June 30, 2012, these loans were performing in
accordance with their terms. The Bank maintains the servicing for both these loans.
Real Estate Construction Lending.
American Federal Savings Bank also lends funds for the construction of one-to-four-family homes and commercial real
estate. Real estate construction loans are made both to individual homeowners for the construction of their primary
residence and, to a lesser extent, to local builders for the construction of pre-sold houses or houses that are being built for
sale in the future. Real estate construction loans accounted for $1.5 million or 0.8% of the Bank’s loan portfolio at
June 30, 2012.
Loan Solicitation and Processing.
Our customary sources of mortgage loan applications include repeat customers, walk-ins, and referrals from home builders
and real estate brokers. We also advertise in local newspapers and on local radio and television. We currently have the
ability to accept online mortgage loan applications and provide pre-approvals through our website. Our branch managers
and loan officers located at our headquarters and in branches, have authority to approve certain types of loans when
presented with a completed application. Other loans must be approved at our main offices as disclosed below. No loan
consultants or loan brokers are currently utilized for either residential or commercial lending activities.
Consumer Loans.
As part of its strategy to invest in higher yielding shorter term loans, American Federal Savings Bank emphasized growth
of its consumer lending portfolio in recent years. This portfolio includes personal loans secured by collateral other than
real estate, unsecured personal loans and lines of credit, and loans secured by deposits held by the Bank. As of June 30,
2012, consumer loans totaled $8.8 million or 5.0% of the Bank’s total loan portfolio. These loans consist primarily of auto
loans, RV loans, boat loans, personal loans and credit lines and deposit account loans. Consumer loans are originated in
After receiving a loan application from a prospective borrower, a credit report and verifications are obtained to confirm
specific information relating to the loan applicant’s employment, income and credit standing. When required by our
policies, an appraisal of the real estate intended to secure the proposed loan is undertaken by an independent fee appraiser.
In connection with the loan approval process, our staff analyze the loan applications and the property involved. Officers
the Bank’s market area and generally have maturities of up to 7 years. For loans secured by savings accounts, American
Federal Savings Bank will lend up to 90% of the account balance on single payment loans and up to 100% for monthly
payment loans.
Consumer loans have a shorter term and generally provide higher interest rates than residential loans. Consumer loans can
be helpful in improving the spread between average loan yield and cost of funds and at the same time improve the
matching of the maturities of rate sensitive assets and liabilities. Although the amount of such loans declined slightly over
2011 levels, increasing consumer loans continues to be a major part of the Bank’s strategy of operating more like a
commercial bank than a traditional savings bank.
The underwriting standards employed by American Federal Savings Bank for consumer loans include a determination of
the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the
proposed loan. The stability of the applicant’s monthly income may be determined by verification of gross monthly
income from primary employment, and additionally from any verifiable secondary income. Creditworthiness of the
applicant is of primary consideration; however, the underwriting process also includes a comparison of the value of the
collateral in relation to the proposed loan amount.
Commercial Business Loans.
Commercial business loans amounted to $15.3 million, or 8.7% of the Bank’s total loan portfolio at June 30, 2012.
American Federal Savings Bank’s commercial business loans are traditional business loans and are not secured by real
estate. Such loans may be structured as unsecured lines of credit or may be secured by inventory, accounts receivable or
other business assets. While the commercial business loan portfolio amounted to only 8.7% of the total portfolio at
June 30, 2012, American Federal intends to increase such lending by focusing on market segments which it has not
previously emphasized, such as business loans to doctors, lawyers, architects and other professionals as well as to small
businesses within its market area. Our management believes that this strategy provides opportunities for growth, without
significant additional cost outlays for staff and infrastructure.
Commercial business loans of this nature usually involve greater credit risk than one- to four-family residential mortgage
loans. The collateral we receive is typically related directly to the performance of the borrower’s business which means
that repayment of commercial business loans is dependent on the successful operations and income stream of the
borrower’s business. Such risks can be significantly affected by economic conditions. In addition, commercial lending
generally requires substantially greater oversight efforts compared to residential real estate lending.
Loans to One Borrower.
Under federal law, savings institutions have, subject to certain exemptions, lending limits to one borrower in an amount
equal to the greater of $500,000 or 15% of the institution’s unimpaired capital and surplus. As of June 30, 2012, our
largest aggregation of loans to one borrower was approximately $17.7 million. This consisted of two commercial real
estate loans secured by two separate detention facilities. The first commercial real estate loan had a principal balance of
$6.1 million, but 90.0%, or $5.5 million of the principal balance was sold to the Montana Board of Investments, leaving a
net principal balance to the Bank of $600,000. The second commercial real estate loan is to the same borrower for another
detention facility. As of June 30, 2012, the principal balance on this loan was $11.5 million with 90.0% of the loan
guaranteed by the USDA Rural Development. Due to the USDA Rural Development guarantee, 90.0% of this loan, or
$10.4 million, is not required to be included in the Bank’s limitations to a single borrower, thus leaving approximately $1.1
million subject to the lending limit described above, thereby making a combined amount of $1.7 million subject to the
lending limit. The Bank entered into an interest rate swap with a third party to change the underlying cash flows of the
second loan to be a variable market rate tied to one-month LIBOR. At June 30, 2012, these loans were performing in
accordance with their terms. The Bank maintains the servicing for both these loans.
Loan Solicitation and Processing.
Our customary sources of mortgage loan applications include repeat customers, walk-ins, and referrals from home builders
and real estate brokers. We also advertise in local newspapers and on local radio and television. We currently have the
ability to accept online mortgage loan applications and provide pre-approvals through our website. Our branch managers
and loan officers located at our headquarters and in branches, have authority to approve certain types of loans when
presented with a completed application. Other loans must be approved at our main offices as disclosed below. No loan
consultants or loan brokers are currently utilized for either residential or commercial lending activities.
After receiving a loan application from a prospective borrower, a credit report and verifications are obtained to confirm
specific information relating to the loan applicant’s employment, income and credit standing. When required by our
policies, an appraisal of the real estate intended to secure the proposed loan is undertaken by an independent fee appraiser.
In connection with the loan approval process, our staff analyze the loan applications and the property involved. Officers
7
8
7
8
and branch managers are granted lending authority based on the nature of the loan and the managers’ level of experience.
We have established a series of loan committees to approve any loans which may exceed the lending authority of particular
officers or branch managers. A quorum (five directors) of the board of directors is required for approval of any loan, or
aggregation of loans to a single borrower, that exceeds $1,250,000.
Loan applicants are promptly notified of the decision by a letter setting forth the terms and conditions of the decision. If
approved, these terms and conditions include the amount of the loan, interest rate basis, amortization term, a brief
description of real estate to be mortgaged, tax escrow and the notice of requirement of insurance coverage to be
maintained. We generally require title insurance on first mortgage loans and fire and casualty insurance on all properties
securing loans, which insurance must be maintained during the entire term of the loan.
Loan Commitments.
We generally provide commitments to fund fixed and adjustable-rate single-family mortgage loans for periods up to 60
days at a specified term and interest rate, and other loan categories for shorter time periods. The total amount of our
commitments to extend credit as of June 30, 2012, was approximately $6.48 million, all of which was for residential
mortgage loans.
Nonperforming Loans and Problem Assets
Collection Procedures.
Generally, our collection procedures provide that when a loan is 15 or more days delinquent, the borrower is sent a past due
notice. If the loan becomes 30 days delinquent, the borrower is sent a written delinquency notice requiring payment. If the
delinquency continues, subsequent efforts are made to contact the delinquent borrower, including face to face meetings and
counseling to resolve the delinquency. All collection actions are undertaken with the objective of compliance with the Fair
Debt Collection Act.
For mortgage loans and home equity loans, if the borrower is unable to cure the delinquency or reach a payment agreement,
we will institute foreclosure actions. If a foreclosure action is taken and the loan is not reinstated, paid in full or
refinanced, the property is sold at judicial sale at which we may be the buyer if there are no adequate offers to satisfy the
debt. Any property acquired as the result of foreclosure, or by deed in lieu of foreclosure, is classified as real estate owned
until such time as it is sold or otherwise disposed of. When real estate owned is acquired, it is recorded at its fair market
value less estimated selling costs. The initial recording of any loss is charged to the allowance for loan losses. As of
June 30, 2012, American Federal Savings Bank had $2.7 million of real estate owned ($2.4 million net of valuation loss
allowance).
Loans are reviewed on a quarterly basis and are placed on non-accrual status when they are 90 days or more delinquent.
Loans may be placed on non-accrual status at any time if, in the opinion of management, the collection of additional
interest is doubtful. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest
income. Subsequent payments are either applied to the outstanding principal balance or recorded as interest income,
depending on the assessment of the ultimate collectibility of the loan. At June 30, 2012, we had $1.8 million ($1.8 million
net of specific reserves for loan losses) of loans that were nonperforming and held on non-accrual status.
Delinquent Loans.
The following table provides information regarding the Bank’s loans that are delinquent 30 to 89 days as of the date
indicated:
and branch managers are granted lending authority based on the nature of the loan and the managers’ level of experience.
We have established a series of loan committees to approve any loans which may exceed the lending authority of particular
officers or branch managers. A quorum (five directors) of the board of directors is required for approval of any loan, or
aggregation of loans to a single borrower, that exceeds $1,250,000.
At June 30, 2012
Loan applicants are promptly notified of the decision by a letter setting forth the terms and conditions of the decision. If
approved, these terms and conditions include the amount of the loan, interest rate basis, amortization term, a brief
description of real estate to be mortgaged, tax escrow and the notice of requirement of insurance coverage to be
maintained. We generally require title insurance on first mortgage loans and fire and casualty insurance on all properties
securing loans, which insurance must be maintained during the entire term of the loan.
(Dollars in thousands)
Number
Amount
Percentage of
Total
Delinquent
Loans
5
-
-
13
29
6
44.84%
0.00%
0.00%
26.48%
16.17%
12.51%
Loan Commitments.
Loan type:
We generally provide commitments to fund fixed and adjustable-rate single-family mortgage loans for periods up to 60
days at a specified term and interest rate, and other loan categories for shorter time periods. The total amount of our
commitments to extend credit as of June 30, 2012, was approximately $6.48 million, all of which was for residential
mortgage loans.
$
Residential mortgage (one- to four-family)
Real estate construction
Commercial real estate and land
Home equity
Consumer
Commercial business
Nonperforming Loans and Problem Assets
Collection Procedures.
Generally, our collection procedures provide that when a loan is 15 or more days delinquent, the borrower is sent a past due
notice. If the loan becomes 30 days delinquent, the borrower is sent a written delinquency notice requiring payment. If the
delinquency continues, subsequent efforts are made to contact the delinquent borrower, including face to face meetings and
counseling to resolve the delinquency. All collection actions are undertaken with the objective of compliance with the Fair
Debt Collection Act.
100.00%
1,367
Total
53
$
Nonperforming Assets.
The following table sets forth information regarding American Federal Savings Bank’s nonperforming assets as of the
dates indicated.
For mortgage loans and home equity loans, if the borrower is unable to cure the delinquency or reach a payment agreement,
we will institute foreclosure actions. If a foreclosure action is taken and the loan is not reinstated, paid in full or
refinanced, the property is sold at judicial sale at which we may be the buyer if there are no adequate offers to satisfy the
debt. Any property acquired as the result of foreclosure, or by deed in lieu of foreclosure, is classified as real estate owned
until such time as it is sold or otherwise disposed of. When real estate owned is acquired, it is recorded at its fair market
value less estimated selling costs. The initial recording of any loss is charged to the allowance for loan losses. As of
June 30, 2012, American Federal Savings Bank had $2.7 million of real estate owned ($2.4 million net of valuation loss
allowance).
(Dollars in thousands)
At June 30,
2011
2012
Non-accrual loans
Real estate loans:
Loans are reviewed on a quarterly basis and are placed on non-accrual status when they are 90 days or more delinquent.
Loans may be placed on non-accrual status at any time if, in the opinion of management, the collection of additional
interest is doubtful. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest
income. Subsequent payments are either applied to the outstanding principal balance or recorded as interest income,
depending on the assessment of the ultimate collectibility of the loan. At June 30, 2012, we had $1.8 million ($1.8 million
net of specific reserves for loan losses) of loans that were nonperforming and held on non-accrual status.
Residential mortgage (one- to four-family)
Real estate construction
Commercial real estate and land
$
$
613
-
-
362
221
171
660
-
833
265
36
20
-
Home equity
Consumer
Commercial business
Accruing loans delinquent 90 days or more
Restructured loans:
Commercial business
Commercial real estate and land
Total nonperforming loans
Real estate owned and other repossed property, net
Total nonperforming assets
$
Total nonperforming loans to total loans
Total nonperforming loans to total assets
Total allowance for loan loss to non-performing loans
Total nonperforming assets to total assets
1,424
650
186
376
56
247
-
90
1,314
3,218
2,361
5,579
$
1.85%
0.98%
50.50%
1.70%
-
-
2,939
1,181
4,120
1.57%
0.89%
61.25%
1.24%
Delinquent Loans.
indicated:
The following table provides information regarding the Bank’s loans that are delinquent 30 to 89 days as of the date
At June 30, 2012
Percentage of
Total
Delinquent
Loans
Number
Amount
(Dollars in thousands)
$
5
-
-
13
29
6
613
-
-
362
221
171
44.84%
0.00%
0.00%
26.48%
16.17%
12.51%
Loan type:
Residential mortgage (one- to four-family)
Real estate construction
Commercial real estate and land
Home equity
Consumer
Commercial business
Total
53
$
1,367
100.00%
Nonperforming Assets.
dates indicated.
The following table sets forth information regarding American Federal Savings Bank’s nonperforming assets as of the
Residential mortgage (one- to four-family)
$
660
$
1,424
Non-accrual loans
Real estate loans:
Real estate construction
Commercial real estate and land
Home equity
Consumer
Commercial business
Accruing loans delinquent 90 days or more
Restructured loans:
Commercial business
Commercial real estate and land
Total nonperforming loans
Real estate owned and other repossed property, net
Total nonperforming assets
$
5,579
$
Total nonperforming loans to total loans
Total nonperforming loans to total assets
Total allowance for loan loss to non-performing loans
Total nonperforming assets to total assets
At June 30,
2012
2011
(Dollars in thousands)
-
833
265
36
20
-
90
1,314
3,218
2,361
1.85%
0.98%
50.50%
1.70%
650
186
376
56
247
-
-
-
2,939
1,181
4,120
1.57%
0.89%
61.25%
1.24%
9
10
9
10
and branch managers are granted lending authority based on the nature of the loan and the managers’ level of experience.
We have established a series of loan committees to approve any loans which may exceed the lending authority of particular
officers or branch managers. A quorum (five directors) of the board of directors is required for approval of any loan, or
aggregation of loans to a single borrower, that exceeds $1,250,000.
Loan applicants are promptly notified of the decision by a letter setting forth the terms and conditions of the decision. If
approved, these terms and conditions include the amount of the loan, interest rate basis, amortization term, a brief
description of real estate to be mortgaged, tax escrow and the notice of requirement of insurance coverage to be
maintained. We generally require title insurance on first mortgage loans and fire and casualty insurance on all properties
securing loans, which insurance must be maintained during the entire term of the loan.
We generally provide commitments to fund fixed and adjustable-rate single-family mortgage loans for periods up to 60
days at a specified term and interest rate, and other loan categories for shorter time periods. The total amount of our
commitments to extend credit as of June 30, 2012, was approximately $6.48 million, all of which was for residential
Loan Commitments.
mortgage loans.
Nonperforming Loans and Problem Assets
Collection Procedures.
Generally, our collection procedures provide that when a loan is 15 or more days delinquent, the borrower is sent a past due
notice. If the loan becomes 30 days delinquent, the borrower is sent a written delinquency notice requiring payment. If the
delinquency continues, subsequent efforts are made to contact the delinquent borrower, including face to face meetings and
counseling to resolve the delinquency. All collection actions are undertaken with the objective of compliance with the Fair
Debt Collection Act.
For mortgage loans and home equity loans, if the borrower is unable to cure the delinquency or reach a payment agreement,
we will institute foreclosure actions. If a foreclosure action is taken and the loan is not reinstated, paid in full or
refinanced, the property is sold at judicial sale at which we may be the buyer if there are no adequate offers to satisfy the
debt. Any property acquired as the result of foreclosure, or by deed in lieu of foreclosure, is classified as real estate owned
until such time as it is sold or otherwise disposed of. When real estate owned is acquired, it is recorded at its fair market
value less estimated selling costs. The initial recording of any loss is charged to the allowance for loan losses. As of
June 30, 2012, American Federal Savings Bank had $2.7 million of real estate owned ($2.4 million net of valuation loss
allowance).
Loans are reviewed on a quarterly basis and are placed on non-accrual status when they are 90 days or more delinquent.
Loans may be placed on non-accrual status at any time if, in the opinion of management, the collection of additional
interest is doubtful. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest
income. Subsequent payments are either applied to the outstanding principal balance or recorded as interest income,
depending on the assessment of the ultimate collectibility of the loan. At June 30, 2012, we had $1.8 million ($1.8 million
net of specific reserves for loan losses) of loans that were nonperforming and held on non-accrual status.
Delinquent Loans.
The following table provides information regarding the Bank’s loans that are delinquent 30 to 89 days as of the date
indicated:
and branch managers are granted lending authority based on the nature of the loan and the managers’ level of experience.
We have established a series of loan committees to approve any loans which may exceed the lending authority of particular
officers or branch managers. A quorum (five directors) of the board of directors is required for approval of any loan, or
aggregation of loans to a single borrower, that exceeds $1,250,000.
At June 30, 2012
Loan applicants are promptly notified of the decision by a letter setting forth the terms and conditions of the decision. If
approved, these terms and conditions include the amount of the loan, interest rate basis, amortization term, a brief
description of real estate to be mortgaged, tax escrow and the notice of requirement of insurance coverage to be
maintained. We generally require title insurance on first mortgage loans and fire and casualty insurance on all properties
securing loans, which insurance must be maintained during the entire term of the loan.
(Dollars in thousands)
Number
Amount
Percentage of
Total
Delinquent
Loans
5
-
-
13
29
6
44.84%
0.00%
0.00%
26.48%
16.17%
12.51%
Loan Commitments.
Loan type:
We generally provide commitments to fund fixed and adjustable-rate single-family mortgage loans for periods up to 60
days at a specified term and interest rate, and other loan categories for shorter time periods. The total amount of our
commitments to extend credit as of June 30, 2012, was approximately $6.48 million, all of which was for residential
mortgage loans.
$
Residential mortgage (one- to four-family)
Real estate construction
Commercial real estate and land
Home equity
Consumer
Commercial business
Nonperforming Loans and Problem Assets
Collection Procedures.
Generally, our collection procedures provide that when a loan is 15 or more days delinquent, the borrower is sent a past due
notice. If the loan becomes 30 days delinquent, the borrower is sent a written delinquency notice requiring payment. If the
delinquency continues, subsequent efforts are made to contact the delinquent borrower, including face to face meetings and
counseling to resolve the delinquency. All collection actions are undertaken with the objective of compliance with the Fair
Debt Collection Act.
100.00%
1,367
Total
53
$
Nonperforming Assets.
The following table sets forth information regarding American Federal Savings Bank’s nonperforming assets as of the
dates indicated.
For mortgage loans and home equity loans, if the borrower is unable to cure the delinquency or reach a payment agreement,
we will institute foreclosure actions. If a foreclosure action is taken and the loan is not reinstated, paid in full or
refinanced, the property is sold at judicial sale at which we may be the buyer if there are no adequate offers to satisfy the
debt. Any property acquired as the result of foreclosure, or by deed in lieu of foreclosure, is classified as real estate owned
until such time as it is sold or otherwise disposed of. When real estate owned is acquired, it is recorded at its fair market
value less estimated selling costs. The initial recording of any loss is charged to the allowance for loan losses. As of
June 30, 2012, American Federal Savings Bank had $2.7 million of real estate owned ($2.4 million net of valuation loss
allowance).
(Dollars in thousands)
At June 30,
2011
2012
Non-accrual loans
Real estate loans:
Loans are reviewed on a quarterly basis and are placed on non-accrual status when they are 90 days or more delinquent.
Loans may be placed on non-accrual status at any time if, in the opinion of management, the collection of additional
interest is doubtful. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest
income. Subsequent payments are either applied to the outstanding principal balance or recorded as interest income,
depending on the assessment of the ultimate collectibility of the loan. At June 30, 2012, we had $1.8 million ($1.8 million
net of specific reserves for loan losses) of loans that were nonperforming and held on non-accrual status.
Residential mortgage (one- to four-family)
Real estate construction
Commercial real estate and land
$
$
613
-
-
362
221
171
660
-
833
265
36
20
-
Home equity
Consumer
Commercial business
Accruing loans delinquent 90 days or more
Restructured loans:
Commercial business
Commercial real estate and land
Total nonperforming loans
Real estate owned and other repossed property, net
Total nonperforming assets
$
Total nonperforming loans to total loans
Total nonperforming loans to total assets
Total allowance for loan loss to non-performing loans
Total nonperforming assets to total assets
1,424
650
186
376
56
247
-
90
1,314
3,218
2,361
5,579
$
1.85%
0.98%
50.50%
1.70%
-
-
2,939
1,181
4,120
1.57%
0.89%
61.25%
1.24%
Delinquent Loans.
The following table provides information regarding the Bank’s loans that are delinquent 30 to 89 days as of the date
indicated:
At June 30, 2012
Number
Amount
Percentage of
Total
Delinquent
Loans
(Dollars in thousands)
$
5
-
-
13
29
6
613
-
-
362
221
171
44.84%
0.00%
0.00%
26.48%
16.17%
12.51%
Loan type:
Residential mortgage (one- to four-family)
Real estate construction
Commercial real estate and land
Home equity
Consumer
Commercial business
Total
53
$
1,367
100.00%
Nonperforming Assets.
The following table sets forth information regarding American Federal Savings Bank’s nonperforming assets as of the
dates indicated.
Non-accrual loans
Real estate loans:
Residential mortgage (one- to four-family)
Real estate construction
Commercial real estate and land
Home equity
Consumer
Commercial business
Accruing loans delinquent 90 days or more
Restructured loans:
Commercial business
Commercial real estate and land
Total nonperforming loans
Real estate owned and other repossed property, net
Total nonperforming assets
At June 30,
2012
2011
(Dollars in thousands)
$
$
$
660
-
833
265
36
20
-
90
1,314
3,218
2,361
5,579
$
1,424
650
186
376
56
247
-
-
-
2,939
1,181
4,120
Total nonperforming loans to total loans
Total nonperforming loans to total assets
Total allowance for loan loss to non-performing loans
Total nonperforming assets to total assets
1.85%
0.98%
50.50%
1.70%
1.57%
0.89%
61.25%
1.24%
9
10
9
10
During the year ended June 30, 2012, the Bank had one foreclosed real estate property resulting in a loss of $11,000 upon
sale and one resulting in a gain of $2,000 after incurring valuation losses of $58,000, and 5 other foreclosed real estate
properties that incurred a provision for valuation losses of $111,000. During the year ended June 30, 2012, a minimal
amount of interest was recorded on loans previously accounted for on a non-accrual basis.
Classified Assets.
Management, in compliance with regulatory guidelines, conducts an internal loan review program, whereby loans are
placed or classified in categories depending upon the level of risk of nonpayment or loss. These categories are special
mention, substandard, doubtful or loss. When a loan is classified as substandard or doubtful, management is required to
establish an allowance for loan losses in an amount that is deemed prudent. When management classifies a loan as a loss
asset, an allowance equal up to 100% of the loan balance is required to be established or the loan is required to be charged-
off. The allowance for loan losses is composed of an allowance for both inherent risk associated with lending activities and
specific problem assets.
Management’s evaluation of the classification of assets and the adequacy of the allowance for loan losses is reviewed by
the Board on a regular basis and by the regulatory agencies as part of their examination process. In addition, each loan that
exceeds $500,000 and each group of loans that exceeds $500,000 is monitored more closely. The following table reflects
our classified assets as of the dates indicated:
During the year ended June 30, 2012, the Bank had one foreclosed real estate property resulting in a loss of $11,000 upon
sale and one resulting in a gain of $2,000 after incurring valuation losses of $58,000, and 5 other foreclosed real estate
properties that incurred a provision for valuation losses of $111,000. During the year ended June 30, 2012, a minimal
amount of interest was recorded on loans previously accounted for on a non-accrual basis.
2012
2011
(Dollars in thousands)
At June 30,
Residential mortgage (one- to four-family):
Special Mention
Substandard
Doubtful
Loss
Classified Assets.
Management, in compliance with regulatory guidelines, conducts an internal loan review program, whereby loans are
placed or classified in categories depending upon the level of risk of nonpayment or loss. These categories are special
mention, substandard, doubtful or loss. When a loan is classified as substandard or doubtful, management is required to
Commercial Real Estate and Land:
establish an allowance for loan losses in an amount that is deemed prudent. When management classifies a loan as a loss
Special Mention
asset, an allowance equal up to 100% of the loan balance is required to be established or the loan is required to be charged-
Substandard
off. The allowance for loan losses is composed of an allowance for both inherent risk associated with lending activities and
Doubtful
specific problem assets.
Loss
-
738
-
260
51
782
-
-
$
$
-
923
-
-
-
1,300
-
111
Management’s evaluation of the classification of assets and the adequacy of the allowance for loan losses is reviewed by
the Board on a regular basis and by the regulatory agencies as part of their examination process. In addition, each loan that
exceeds $500,000 and each group of loans that exceeds $500,000 is monitored more closely. The following table reflects
our classified assets as of the dates indicated:
Real Estate construction:
Special Mention
Substandard
Doubtful
Loss
-
721
-
-
-
-
-
-
Home equity loans:
Special Mention
Substandard
Doubtful
Loss
Consumer loans:
Special Mention
Substandard
Doubtful
Loss
Commercial loans:
Special Mention
Substandard
Doubtful
Loss
Securities available for sale:
Special Mention
Substandard
Doubtful
Loss
Real estate owned/repossessed property:
Special Mention
Substandard
Doubtful
Loss
-
242
148
-
-
76
15
2
5
1,492
-
-
-
209
-
-
-
2,361
-
300
Total classified loans and real estate owned
$
6,606
$
-
233
-
378
-
121
-
14
1,454
446
-
125
-
436
-
-
-
1,181
-
189
7,707
11
12
11
12
Residential mortgage (one- to four-family):
At June 30,
2012
2011
(Dollars in thousands)
$
$
-
Commercial Real Estate and Land:
Real Estate construction:
Special Mention
Special Mention
Substandard
Doubtful
Loss
Special Mention
Substandard
Doubtful
Loss
Substandard
Doubtful
Loss
Home equity loans:
Special Mention
Substandard
Doubtful
Loss
Consumer loans:
Special Mention
Substandard
Doubtful
Loss
Commercial loans:
Special Mention
Substandard
Doubtful
Loss
Special Mention
Substandard
Doubtful
Loss
Special Mention
Substandard
Doubtful
Loss
Securities available for sale:
Real estate owned/repossessed property:
923
51
782
242
148
76
15
2
5
1,492
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,300
111
738
260
721
233
378
121
14
1,454
446
125
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
209
436
2,361
300
1,181
189
Total classified loans and real estate owned
$
6,606
$
7,707
During the year ended June 30, 2012, the Bank had one foreclosed real estate property resulting in a loss of $11,000 upon
sale and one resulting in a gain of $2,000 after incurring valuation losses of $58,000, and 5 other foreclosed real estate
properties that incurred a provision for valuation losses of $111,000. During the year ended June 30, 2012, a minimal
amount of interest was recorded on loans previously accounted for on a non-accrual basis.
Classified Assets.
Management, in compliance with regulatory guidelines, conducts an internal loan review program, whereby loans are
placed or classified in categories depending upon the level of risk of nonpayment or loss. These categories are special
mention, substandard, doubtful or loss. When a loan is classified as substandard or doubtful, management is required to
establish an allowance for loan losses in an amount that is deemed prudent. When management classifies a loan as a loss
asset, an allowance equal up to 100% of the loan balance is required to be established or the loan is required to be charged-
off. The allowance for loan losses is composed of an allowance for both inherent risk associated with lending activities and
specific problem assets.
Management’s evaluation of the classification of assets and the adequacy of the allowance for loan losses is reviewed by
the Board on a regular basis and by the regulatory agencies as part of their examination process. In addition, each loan that
exceeds $500,000 and each group of loans that exceeds $500,000 is monitored more closely. The following table reflects
our classified assets as of the dates indicated:
During the year ended June 30, 2012, the Bank had one foreclosed real estate property resulting in a loss of $11,000 upon
sale and one resulting in a gain of $2,000 after incurring valuation losses of $58,000, and 5 other foreclosed real estate
properties that incurred a provision for valuation losses of $111,000. During the year ended June 30, 2012, a minimal
amount of interest was recorded on loans previously accounted for on a non-accrual basis.
2012
2011
(Dollars in thousands)
At June 30,
Residential mortgage (one- to four-family):
Special Mention
Substandard
Doubtful
Loss
Classified Assets.
Management, in compliance with regulatory guidelines, conducts an internal loan review program, whereby loans are
placed or classified in categories depending upon the level of risk of nonpayment or loss. These categories are special
mention, substandard, doubtful or loss. When a loan is classified as substandard or doubtful, management is required to
Commercial Real Estate and Land:
establish an allowance for loan losses in an amount that is deemed prudent. When management classifies a loan as a loss
Special Mention
asset, an allowance equal up to 100% of the loan balance is required to be established or the loan is required to be charged-
Substandard
off. The allowance for loan losses is composed of an allowance for both inherent risk associated with lending activities and
Doubtful
specific problem assets.
Loss
-
738
-
260
51
782
-
-
$
$
-
923
-
-
-
1,300
-
111
Management’s evaluation of the classification of assets and the adequacy of the allowance for loan losses is reviewed by
the Board on a regular basis and by the regulatory agencies as part of their examination process. In addition, each loan that
exceeds $500,000 and each group of loans that exceeds $500,000 is monitored more closely. The following table reflects
our classified assets as of the dates indicated:
Real Estate construction:
Special Mention
Substandard
Doubtful
Loss
-
721
-
-
-
-
-
-
Home equity loans:
Special Mention
Substandard
Doubtful
Loss
Consumer loans:
Special Mention
Substandard
Doubtful
Loss
Commercial loans:
Special Mention
Substandard
Doubtful
Loss
Securities available for sale:
Special Mention
Substandard
Doubtful
Loss
Real estate owned/repossessed property:
Special Mention
Substandard
Doubtful
Loss
-
242
148
-
-
76
15
2
5
1,492
-
-
-
209
-
-
-
2,361
-
300
Total classified loans and real estate owned
$
6,606
$
-
233
-
378
-
121
-
14
1,454
446
-
125
-
436
-
-
-
1,181
-
189
7,707
Residential mortgage (one- to four-family):
Special Mention
Substandard
Doubtful
Loss
Commercial Real Estate and Land:
Special Mention
Substandard
Doubtful
Loss
Real Estate construction:
Special Mention
Substandard
Doubtful
Loss
Home equity loans:
Special Mention
Substandard
Doubtful
Loss
Consumer loans:
Special Mention
Substandard
Doubtful
Loss
Commercial loans:
Special Mention
Substandard
Doubtful
Loss
Securities available for sale:
Special Mention
Substandard
Doubtful
Loss
Real estate owned/repossessed property:
Special Mention
Substandard
Doubtful
Loss
At June 30,
2012
2011
(Dollars in thousands)
$
$
-
923
-
-
-
1,300
-
111
51
782
-
-
-
-
-
-
-
242
148
-
-
76
15
2
5
1,492
-
-
-
209
-
-
-
2,361
-
300
-
738
-
260
-
721
-
-
-
233
-
378
-
121
-
14
1,454
446
-
125
-
436
-
-
-
1,181
-
189
7,707
Total classified loans and real estate owned
$
6,606
$
11
12
11
12
Allowance for Loan Losses and Real Estate Owned.
The Bank segregates its loan portfolio for loan losses into the following broad categories: real estate loans (residential
mortgages [one- to four-family], real estate construction, commercial real estate and land) home equity loans, consumer
loans, and commercial business loans. The Bank provides for a general allowance for losses inherent in the portfolio in the
categories referenced above, which consists of two components: General loss percentages which are calculated based on
historical analyses and other factors such as volume and severity of delinquencies, local and national economy,
underwriting standards, and other factors. This portion of the allowance is calculated for inherent losses which probably
exist as of the evaluation date even though they might not have been identified by the more objective processes used. This
is due to the risk of error and/or inherent imprecision in the process. This portion of the allowance is subjective in nature
and requires judgments based on qualitative factors which do not lend themselves to exact mathematical calculations such
as: trends in delinquencies and non-accruals; trends in volume; terms and portfolio mix; new credit products; changes in
lending policies and procedures; and changes in the outlook for the local, regional and national economy.
At least quarterly, the management of the Bank evaluates the need to establish an allowance against losses on loans and
other assets based on estimated losses on specific loans and on any real estate owned when a finding is made that a loss is
estimable and probable. Such evaluation includes a review of all loans for which full collectibility may not be reasonably
assured and considers, among other matters: the estimated market value of the underlying collateral of problem loans;
prior loss experience; economic conditions; and overall portfolio quality.
Provisions for, or adjustments to, estimated losses are included in earnings in the period they are established. We had
$1,625,000 in allowances for loan losses and $300,000 in allowance for valuation losses for other real estate owned at
June 30, 2012.
While we believe we have established our existing allowance for loan losses in accordance with generally accepted
accounting principles, there can be no assurance that bank regulators, in reviewing our loan portfolio, will not request that
we significantly increase our allowance for loan losses, or that general economic conditions, a deteriorating real estate
market, or other factors will not cause us to significantly increase our allowance for loan losses, therefore negatively
affecting our financial condition and earnings.
In making loans, we recognize that credit losses will be experienced and that the risk of loss will vary with, among other
things, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a
secured loan, the quality of the security for the loan.
It is our policy to review our loan portfolio, in accordance with regulatory classification procedures, on at least a quarterly
basis.
2011
2012
(Dollars in thousands)
Balance at beginning of period
For the Years Ended
June 30,
The following table sets forth information with respect to our allowance for loan losses at the dates and for the periods
indicated:
Allowance for Loan Losses and Real Estate Owned.
The Bank segregates its loan portfolio for loan losses into the following broad categories: real estate loans (residential
mortgages [one- to four-family], real estate construction, commercial real estate and land) home equity loans, consumer
loans, and commercial business loans. The Bank provides for a general allowance for losses inherent in the portfolio in the
categories referenced above, which consists of two components: General loss percentages which are calculated based on
historical analyses and other factors such as volume and severity of delinquencies, local and national economy,
underwriting standards, and other factors. This portion of the allowance is calculated for inherent losses which probably
exist as of the evaluation date even though they might not have been identified by the more objective processes used. This
is due to the risk of error and/or inherent imprecision in the process. This portion of the allowance is subjective in nature
and requires judgments based on qualitative factors which do not lend themselves to exact mathematical calculations such
as: trends in delinquencies and non-accruals; trends in volume; terms and portfolio mix; new credit products; changes in
lending policies and procedures; and changes in the outlook for the local, regional and national economy.
Provision for loan losses
Loans charged-off
Real estate loans
Commercial real estate and land
Real estate construction
Home equity
Consumer
Commercial business loans
At least quarterly, the management of the Bank evaluates the need to establish an allowance against losses on loans and
(125)
other assets based on estimated losses on specific loans and on any real estate owned when a finding is made that a loss is
(309)
estimable and probable. Such evaluation includes a review of all loans for which full collectibility may not be reasonably
(239)
assured and considers, among other matters: the estimated market value of the underlying collateral of problem loans;
prior loss experience; economic conditions; and overall portfolio quality.
(351)
(33)
(239)
Provisions for, or adjustments to, estimated losses are included in earnings in the period they are established. We had
$1,625,000 in allowances for loan losses and $300,000 in allowance for valuation losses for other real estate owned at
June 30, 2012.
(75)
(130)
-
(30)
(17)
-
Recoveries
1,800
1,100
1,101
948
$
$
While we believe we have established our existing allowance for loan losses in accordance with generally accepted
accounting principles, there can be no assurance that bank regulators, in reviewing our loan portfolio, will not request that
we significantly increase our allowance for loan losses, or that general economic conditions, a deteriorating real estate
market, or other factors will not cause us to significantly increase our allowance for loan losses, therefore negatively
affecting our financial condition and earnings.
Real estate loans
Commercial real estate and land
Real estate construction
Home equity
Consumer
Commercial business loans
In making loans, we recognize that credit losses will be experienced and that the risk of loss will vary with, among other
things, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a
secured loan, the quality of the security for the loan.
Net loans charged-off
(1,276)
Balance at end of period
$
1,625
$
1,800
It is our policy to review our loan portfolio, in accordance with regulatory classification procedures, on at least a quarterly
basis.
-
-
-
-
4
-
(248)
-
8
-
-
12
Allowance for loan losses to total loans
Allowance for loan losses to total non-performing
loans
Net recoveries (charge-offs) to average loans
outstanding during the period
0.93%
0.96%
50.50%
61.25%
-0.68%
-0.13%
13
14
13
14
The following table sets forth information with respect to our allowance for loan losses at the dates and for the periods
indicated:
Balance at beginning of period
$
1,800
$
1,100
For the Years Ended
June 30,
2012
2011
(Dollars in thousands)
1,101
(125)
(309)
(239)
(351)
(33)
(239)
-
8
-
-
12
948
(75)
(130)
(30)
(17)
-
-
-
-
-
-
4
-
Provision for loan losses
Loans charged-off
Real estate loans
Commercial real estate and land
Real estate construction
Home equity
Consumer
Commercial business loans
Recoveries
Real estate loans
Commercial real estate and land
Real estate construction
Home equity
Consumer
Commercial business loans
Net loans charged-off
(1,276)
(248)
Balance at end of period
$
1,625
$
1,800
Allowance for loan losses to total loans
0.93%
0.96%
Allowance for loan losses to total non-performing
loans
50.50%
61.25%
Net recoveries (charge-offs) to average loans
outstanding during the period
-0.68%
-0.13%
Allowance for Loan Losses and Real Estate Owned.
The Bank segregates its loan portfolio for loan losses into the following broad categories: real estate loans (residential
mortgages [one- to four-family], real estate construction, commercial real estate and land) home equity loans, consumer
loans, and commercial business loans. The Bank provides for a general allowance for losses inherent in the portfolio in the
categories referenced above, which consists of two components: General loss percentages which are calculated based on
historical analyses and other factors such as volume and severity of delinquencies, local and national economy,
underwriting standards, and other factors. This portion of the allowance is calculated for inherent losses which probably
exist as of the evaluation date even though they might not have been identified by the more objective processes used. This
is due to the risk of error and/or inherent imprecision in the process. This portion of the allowance is subjective in nature
and requires judgments based on qualitative factors which do not lend themselves to exact mathematical calculations such
as: trends in delinquencies and non-accruals; trends in volume; terms and portfolio mix; new credit products; changes in
lending policies and procedures; and changes in the outlook for the local, regional and national economy.
At least quarterly, the management of the Bank evaluates the need to establish an allowance against losses on loans and
other assets based on estimated losses on specific loans and on any real estate owned when a finding is made that a loss is
estimable and probable. Such evaluation includes a review of all loans for which full collectibility may not be reasonably
assured and considers, among other matters: the estimated market value of the underlying collateral of problem loans;
prior loss experience; economic conditions; and overall portfolio quality.
Provisions for, or adjustments to, estimated losses are included in earnings in the period they are established. We had
$1,625,000 in allowances for loan losses and $300,000 in allowance for valuation losses for other real estate owned at
June 30, 2012.
While we believe we have established our existing allowance for loan losses in accordance with generally accepted
accounting principles, there can be no assurance that bank regulators, in reviewing our loan portfolio, will not request that
we significantly increase our allowance for loan losses, or that general economic conditions, a deteriorating real estate
market, or other factors will not cause us to significantly increase our allowance for loan losses, therefore negatively
affecting our financial condition and earnings.
In making loans, we recognize that credit losses will be experienced and that the risk of loss will vary with, among other
things, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a
secured loan, the quality of the security for the loan.
It is our policy to review our loan portfolio, in accordance with regulatory classification procedures, on at least a quarterly
basis.
2011
2012
(Dollars in thousands)
Balance at beginning of period
For the Years Ended
June 30,
The following table sets forth information with respect to our allowance for loan losses at the dates and for the periods
indicated:
Allowance for Loan Losses and Real Estate Owned.
The Bank segregates its loan portfolio for loan losses into the following broad categories: real estate loans (residential
mortgages [one- to four-family], real estate construction, commercial real estate and land) home equity loans, consumer
loans, and commercial business loans. The Bank provides for a general allowance for losses inherent in the portfolio in the
categories referenced above, which consists of two components: General loss percentages which are calculated based on
historical analyses and other factors such as volume and severity of delinquencies, local and national economy,
underwriting standards, and other factors. This portion of the allowance is calculated for inherent losses which probably
exist as of the evaluation date even though they might not have been identified by the more objective processes used. This
is due to the risk of error and/or inherent imprecision in the process. This portion of the allowance is subjective in nature
and requires judgments based on qualitative factors which do not lend themselves to exact mathematical calculations such
as: trends in delinquencies and non-accruals; trends in volume; terms and portfolio mix; new credit products; changes in
lending policies and procedures; and changes in the outlook for the local, regional and national economy.
Provision for loan losses
Loans charged-off
Real estate loans
Commercial real estate and land
Real estate construction
Home equity
Consumer
Commercial business loans
At least quarterly, the management of the Bank evaluates the need to establish an allowance against losses on loans and
(125)
other assets based on estimated losses on specific loans and on any real estate owned when a finding is made that a loss is
(309)
estimable and probable. Such evaluation includes a review of all loans for which full collectibility may not be reasonably
(239)
assured and considers, among other matters: the estimated market value of the underlying collateral of problem loans;
prior loss experience; economic conditions; and overall portfolio quality.
(351)
(33)
(239)
Provisions for, or adjustments to, estimated losses are included in earnings in the period they are established. We had
$1,625,000 in allowances for loan losses and $300,000 in allowance for valuation losses for other real estate owned at
June 30, 2012.
(75)
(130)
-
(30)
(17)
-
Recoveries
1,101
1,800
1,100
948
$
$
-
8
-
-
12
-
-
-
-
4
-
(248)
While we believe we have established our existing allowance for loan losses in accordance with generally accepted
accounting principles, there can be no assurance that bank regulators, in reviewing our loan portfolio, will not request that
we significantly increase our allowance for loan losses, or that general economic conditions, a deteriorating real estate
market, or other factors will not cause us to significantly increase our allowance for loan losses, therefore negatively
affecting our financial condition and earnings.
Real estate loans
Commercial real estate and land
Real estate construction
Home equity
Consumer
Commercial business loans
In making loans, we recognize that credit losses will be experienced and that the risk of loss will vary with, among other
things, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a
secured loan, the quality of the security for the loan.
Net loans charged-off
(1,276)
Balance at end of period
$
1,625
$
1,800
It is our policy to review our loan portfolio, in accordance with regulatory classification procedures, on at least a quarterly
basis.
Allowance for loan losses to total loans
Allowance for loan losses to total non-performing
loans
Net recoveries (charge-offs) to average loans
outstanding during the period
0.93%
0.96%
50.50%
61.25%
-0.68%
-0.13%
The following table sets forth information with respect to our allowance for loan losses at the dates and for the periods
indicated:
For the Years Ended
June 30,
2012
2011
(Dollars in thousands)
Balance at beginning of period
$
1,800
$
1,100
Provision for loan losses
Loans charged-off
Real estate loans
Commercial real estate and land
Real estate construction
Home equity
Consumer
Commercial business loans
Recoveries
Real estate loans
Commercial real estate and land
Real estate construction
Home equity
Consumer
Commercial business loans
1,101
(125)
(309)
(239)
(351)
(33)
(239)
-
8
-
-
12
Net loans charged-off
(1,276)
948
(75)
(130)
-
(30)
(17)
-
-
-
-
-
4
-
(248)
Balance at end of period
$
1,625
$
1,800
Allowance for loan losses to total loans
Allowance for loan losses to total non-performing
loans
Net recoveries (charge-offs) to average loans
outstanding during the period
0.93%
0.96%
50.50%
61.25%
-0.68%
-0.13%
13
14
13
14
The following table presents our allocation of the allowance for loan losses by loan category and the percentage of loans in
each category to total loans at the periods indicated:
INVESTMENT ACTIVITIES
The following table presents our allocation of the allowance for loan losses by loan category and the percentage of loans in
each category to total loans at the periods indicated:
2012
Percentage
of
Allowance
to Total
Allowance
24.80%
47.51%
0.62%
72.92%
9.60%
4.80%
12.68%
27.08%
(Dollars in thousands)
Loan
Category
to Total
Loans
Amount
35.11% $
36.82%
0.83%
72.76%
369
652
18
1,039
13.50%
5.00%
8.74%
27.24%
481
57
223
761
2011
Percentage
of
Allowance
to Total
Allowance
20.56%
36.22%
0.94%
57.72%
26.72%
3.17%
12.39%
42.28%
Loan
Category
to Total
Loans
37.34%
34.52%
2.68%
74.54%
14.84%
4.98%
5.64%
25.46%
Amount
403
772
10
1,185
156
78
206
440
Real estate loans:
Residential mortgage (one- to four-family) $
Commercial real estate and land
Real estate construction
Total real estate loans
Other loans:
Home equity
Consumer
Commercial business
Total other loans
Total
$
1,625
100.00%
100.00% $
1,800
100.00%
100.00%
General.
Federally chartered savings banks such as American Federal Savings Bank have the authority to invest in various types of
investment securities, including United States Treasury obligations, securities of various Federal agencies (including
securities collateralized by mortgages), certificates of deposits of insured banks and savings institutions, municipal
securities, corporate debt securities and loans to other banking institutions.
(Dollars in thousands)
2011
2012
Percentage
of
Allowance
to Total
Allowance
Loan
Category
to Total
Loans
Percentage
of
Allowance
to Total
Allowance
403
772
10
1,185
Eagle maintains liquid assets that may be invested in specified short-term securities and other investments. Liquidity levels
may be increased or decreased depending on the yields on investment alternatives. They may also be increased based on
management’s judgment as to the attractiveness of the yields then available in relation to other opportunities. Liquidity
levels can also change based on management’s expectation of future yield levels, as well as management’s projections as to
the short-term demand for funds to be used in the Bank’s loan origination and other activities. Eagle maintains an
investment securities portfolio and a mortgage-backed securities portfolio as part of its investment portfolio.
Amount
Amount
Real estate loans:
Residential mortgage (one- to four-family) $
Commercial real estate and land
Real estate construction
Total real estate loans
Investment Policies.
The investment policy of Eagle, which is established by the board of directors, is designed to foster earnings and liquidity
within prudent interest rate risk guidelines, while complementing American Federal’s lending activities. The policy
provides for available-for-sale (including those accounted for under FASB ASC 825), held-to-maturity, and trading
classifications. However, Eagle currently does not hold any securities for purposes of trading or held-to-maturity. The
policy permits investments in high credit quality instruments with diversified cash flows while permitting us to maximize
total return within the guidelines set forth in our interest rate risk and liquidity management policies. Permitted investments
include but are not limited to U.S. government obligations, government agency or government-sponsored agency
obligations, state, county and municipal obligations, and mortgage-backed securities. Collateralized mortgage obligations,
investment grade corporate debt securities, and commercial paper are also included. We also invest in Federal Home Loan
Bank (FHLB) overnight deposits and federal funds, but these instruments are not considered part of the investment
Total
portfolio.
Other loans:
Home equity
Consumer
Commercial business
Total other loans
26.72%
3.17%
12.39%
42.28%
13.50%
5.00%
8.74%
27.24%
9.60%
4.80%
12.68%
27.08%
481
57
223
761
156
78
206
440
100.00% $
100.00%
100.00%
1,625
1,800
$
35.11% $
36.82%
0.83%
72.76%
24.80%
47.51%
0.62%
72.92%
20.56%
36.22%
0.94%
57.72%
369
652
18
1,039
Loan
Category
to Total
Loans
37.34%
34.52%
2.68%
74.54%
14.84%
4.98%
5.64%
25.46%
100.00%
INVESTMENT ACTIVITIES
General.
Federally chartered savings banks such as American Federal Savings Bank have the authority to invest in various types of
investment securities, including United States Treasury obligations, securities of various Federal agencies (including
securities collateralized by mortgages), certificates of deposits of insured banks and savings institutions, municipal
securities, corporate debt securities and loans to other banking institutions.
Eagle maintains liquid assets that may be invested in specified short-term securities and other investments. Liquidity levels
may be increased or decreased depending on the yields on investment alternatives. They may also be increased based on
management’s judgment as to the attractiveness of the yields then available in relation to other opportunities. Liquidity
levels can also change based on management’s expectation of future yield levels, as well as management’s projections as to
the short-term demand for funds to be used in the Bank’s loan origination and other activities. Eagle maintains an
investment securities portfolio and a mortgage-backed securities portfolio as part of its investment portfolio.
Investment Policies.
The investment policy of Eagle, which is established by the board of directors, is designed to foster earnings and liquidity
within prudent interest rate risk guidelines, while complementing American Federal’s lending activities. The policy
provides for available-for-sale (including those accounted for under FASB ASC 825), held-to-maturity, and trading
classifications. However, Eagle currently does not hold any securities for purposes of trading or held-to-maturity. The
policy permits investments in high credit quality instruments with diversified cash flows while permitting us to maximize
total return within the guidelines set forth in our interest rate risk and liquidity management policies. Permitted investments
include but are not limited to U.S. government obligations, government agency or government-sponsored agency
obligations, state, county and municipal obligations, and mortgage-backed securities. Collateralized mortgage obligations,
investment grade corporate debt securities, and commercial paper are also included. We also invest in Federal Home Loan
Bank (FHLB) overnight deposits and federal funds, but these instruments are not considered part of the investment
portfolio.
Our investment policy also includes several specific guidelines and restrictions to ensure adherence with safe and sound
activities. The policy prohibits investments in high-risk mortgage derivative products (as defined within the policy)
without prior approval from the board of directors. To secure such approval, management must demonstrate the business
advantage of such investments.
Our investment policy also includes several specific guidelines and restrictions to ensure adherence with safe and sound
activities. The policy prohibits investments in high-risk mortgage derivative products (as defined within the policy)
without prior approval from the board of directors. To secure such approval, management must demonstrate the business
advantage of such investments.
We do not participate in the use of off-balance sheet derivative financial instruments, except interest rate caps and certain
financial instruments designated as cash flow hedges related to loans committed to be sold in the secondary market and
interest rate swaps designated as fair-value hedges. Further, Eagle does not invest in securities which are not rated
investment grade at time of purchase.
We do not participate in the use of off-balance sheet derivative financial instruments, except interest rate caps and certain
financial instruments designated as cash flow hedges related to loans committed to be sold in the secondary market and
interest rate swaps designated as fair-value hedges. Further, Eagle does not invest in securities which are not rated
investment grade at time of purchase.
The Board, through its asset liability committee, has charged the President and CEO with implementation of the investment
policy. All transactions are reported to the board of directors monthly, as well as the current composition of the portfolio,
including market values and unrealized gains and losses.
The Board, through its asset liability committee, has charged the President and CEO with implementation of the investment
policy. All transactions are reported to the board of directors monthly, as well as the current composition of the portfolio,
including market values and unrealized gains and losses.
Investment Securities.
We maintain a portfolio of investment securities, classified as either available-for-sale (including those accounted for under
FASB ASC 825) or held-to-maturity to enhance total return on investments. At June 30, 2012, our investment securities
included U.S. government and agency obligations, Small Business Administration pools, municipal securities, mortgage-
backed securities, collateralized mortgage obligations and corporate obligations, all with varying characteristics as to rate,
maturity and call provisions. Investment securities held-to-maturity represented none of Eagle’s total investment portfolio.
Securities available-for-sale totaled 83% of Eagle’s total investment portfolio. The remaining percentage is comprised of
interest-bearing deposits in banks and stock in the FHLB of Seattle. The Bank does not expect to alter the mix of U.S.
Treasury obligations it will hold and purchase, notwithstanding the downgrade of U.S. Treasury debt obligations to AA+
by Standard & Poors. It will, however, continue to monitor developments.
Investment Securities.
We maintain a portfolio of investment securities, classified as either available-for-sale (including those accounted for under
FASB ASC 825) or held-to-maturity to enhance total return on investments. At June 30, 2012, our investment securities
included U.S. government and agency obligations, Small Business Administration pools, municipal securities, mortgage-
backed securities, collateralized mortgage obligations and corporate obligations, all with varying characteristics as to rate,
maturity and call provisions. Investment securities held-to-maturity represented none of Eagle’s total investment portfolio.
Securities available-for-sale totaled 83% of Eagle’s total investment portfolio. The remaining percentage is comprised of
interest-bearing deposits in banks and stock in the FHLB of Seattle. The Bank does not expect to alter the mix of U.S.
Treasury obligations it will hold and purchase, notwithstanding the downgrade of U.S. Treasury debt obligations to AA+
by Standard & Poors. It will, however, continue to monitor developments.
15
16
15
16
The following table presents our allocation of the allowance for loan losses by loan category and the percentage of loans in
each category to total loans at the periods indicated:
INVESTMENT ACTIVITIES
The following table presents our allocation of the allowance for loan losses by loan category and the percentage of loans in
each category to total loans at the periods indicated:
INVESTMENT ACTIVITIES
(Dollars in thousands)
2012
Percentage
of
Allowance
to Total
Allowance
Loan
Category
to Total
Loans
Amount
Amount
403
772
10
1,185
156
78
206
440
24.80%
47.51%
0.62%
72.92%
9.60%
4.80%
12.68%
27.08%
35.11% $
36.82%
0.83%
72.76%
369
652
18
1,039
13.50%
5.00%
8.74%
27.24%
481
57
223
761
2011
Percentage
of
Allowance
to Total
Allowance
20.56%
36.22%
0.94%
57.72%
26.72%
3.17%
12.39%
42.28%
Loan
Category
to Total
Loans
37.34%
34.52%
2.68%
74.54%
14.84%
4.98%
5.64%
25.46%
Real estate loans:
Residential mortgage (one- to four-family) $
Commercial real estate and land
Real estate construction
Total real estate loans
Other loans:
Home equity
Consumer
Commercial business
Total other loans
Total
$
1,625
100.00%
100.00% $
1,800
100.00%
100.00%
General.
Federally chartered savings banks such as American Federal Savings Bank have the authority to invest in various types of
investment securities, including United States Treasury obligations, securities of various Federal agencies (including
securities collateralized by mortgages), certificates of deposits of insured banks and savings institutions, municipal
securities, corporate debt securities and loans to other banking institutions.
(Dollars in thousands)
2012
2011
Percentage
of
Allowance
to Total
Allowance
Loan
Category
to Total
Loans
Percentage
of
Allowance
to Total
Allowance
403
772
10
1,185
Eagle maintains liquid assets that may be invested in specified short-term securities and other investments. Liquidity levels
may be increased or decreased depending on the yields on investment alternatives. They may also be increased based on
management’s judgment as to the attractiveness of the yields then available in relation to other opportunities. Liquidity
levels can also change based on management’s expectation of future yield levels, as well as management’s projections as to
the short-term demand for funds to be used in the Bank’s loan origination and other activities. Eagle maintains an
investment securities portfolio and a mortgage-backed securities portfolio as part of its investment portfolio.
Amount
Amount
Real estate loans:
Residential mortgage (one- to four-family) $
Commercial real estate and land
Real estate construction
Total real estate loans
Investment Policies.
The investment policy of Eagle, which is established by the board of directors, is designed to foster earnings and liquidity
within prudent interest rate risk guidelines, while complementing American Federal’s lending activities. The policy
provides for available-for-sale (including those accounted for under FASB ASC 825), held-to-maturity, and trading
classifications. However, Eagle currently does not hold any securities for purposes of trading or held-to-maturity. The
policy permits investments in high credit quality instruments with diversified cash flows while permitting us to maximize
total return within the guidelines set forth in our interest rate risk and liquidity management policies. Permitted investments
include but are not limited to U.S. government obligations, government agency or government-sponsored agency
obligations, state, county and municipal obligations, and mortgage-backed securities. Collateralized mortgage obligations,
investment grade corporate debt securities, and commercial paper are also included. We also invest in Federal Home Loan
Bank (FHLB) overnight deposits and federal funds, but these instruments are not considered part of the investment
Total
portfolio.
Other loans:
Home equity
Consumer
Commercial business
Total other loans
13.50%
5.00%
8.74%
27.24%
26.72%
3.17%
12.39%
42.28%
9.60%
4.80%
12.68%
27.08%
481
57
223
761
156
78
206
440
100.00% $
100.00%
100.00%
1,625
1,800
$
35.11% $
36.82%
0.83%
72.76%
24.80%
47.51%
0.62%
72.92%
20.56%
36.22%
0.94%
57.72%
369
652
18
1,039
Loan
Category
to Total
Loans
37.34%
34.52%
2.68%
74.54%
14.84%
4.98%
5.64%
25.46%
100.00%
General.
Federally chartered savings banks such as American Federal Savings Bank have the authority to invest in various types of
investment securities, including United States Treasury obligations, securities of various Federal agencies (including
securities collateralized by mortgages), certificates of deposits of insured banks and savings institutions, municipal
securities, corporate debt securities and loans to other banking institutions.
Eagle maintains liquid assets that may be invested in specified short-term securities and other investments. Liquidity levels
may be increased or decreased depending on the yields on investment alternatives. They may also be increased based on
management’s judgment as to the attractiveness of the yields then available in relation to other opportunities. Liquidity
levels can also change based on management’s expectation of future yield levels, as well as management’s projections as to
the short-term demand for funds to be used in the Bank’s loan origination and other activities. Eagle maintains an
investment securities portfolio and a mortgage-backed securities portfolio as part of its investment portfolio.
Investment Policies.
The investment policy of Eagle, which is established by the board of directors, is designed to foster earnings and liquidity
within prudent interest rate risk guidelines, while complementing American Federal’s lending activities. The policy
provides for available-for-sale (including those accounted for under FASB ASC 825), held-to-maturity, and trading
classifications. However, Eagle currently does not hold any securities for purposes of trading or held-to-maturity. The
policy permits investments in high credit quality instruments with diversified cash flows while permitting us to maximize
total return within the guidelines set forth in our interest rate risk and liquidity management policies. Permitted investments
include but are not limited to U.S. government obligations, government agency or government-sponsored agency
obligations, state, county and municipal obligations, and mortgage-backed securities. Collateralized mortgage obligations,
investment grade corporate debt securities, and commercial paper are also included. We also invest in Federal Home Loan
Bank (FHLB) overnight deposits and federal funds, but these instruments are not considered part of the investment
portfolio.
Our investment policy also includes several specific guidelines and restrictions to ensure adherence with safe and sound
activities. The policy prohibits investments in high-risk mortgage derivative products (as defined within the policy)
without prior approval from the board of directors. To secure such approval, management must demonstrate the business
advantage of such investments.
Our investment policy also includes several specific guidelines and restrictions to ensure adherence with safe and sound
activities. The policy prohibits investments in high-risk mortgage derivative products (as defined within the policy)
without prior approval from the board of directors. To secure such approval, management must demonstrate the business
advantage of such investments.
We do not participate in the use of off-balance sheet derivative financial instruments, except interest rate caps and certain
financial instruments designated as cash flow hedges related to loans committed to be sold in the secondary market and
interest rate swaps designated as fair-value hedges. Further, Eagle does not invest in securities which are not rated
investment grade at time of purchase.
We do not participate in the use of off-balance sheet derivative financial instruments, except interest rate caps and certain
financial instruments designated as cash flow hedges related to loans committed to be sold in the secondary market and
interest rate swaps designated as fair-value hedges. Further, Eagle does not invest in securities which are not rated
investment grade at time of purchase.
The Board, through its asset liability committee, has charged the President and CEO with implementation of the investment
policy. All transactions are reported to the board of directors monthly, as well as the current composition of the portfolio,
including market values and unrealized gains and losses.
The Board, through its asset liability committee, has charged the President and CEO with implementation of the investment
policy. All transactions are reported to the board of directors monthly, as well as the current composition of the portfolio,
including market values and unrealized gains and losses.
Investment Securities.
We maintain a portfolio of investment securities, classified as either available-for-sale (including those accounted for under
FASB ASC 825) or held-to-maturity to enhance total return on investments. At June 30, 2012, our investment securities
included U.S. government and agency obligations, Small Business Administration pools, municipal securities, mortgage-
backed securities, collateralized mortgage obligations and corporate obligations, all with varying characteristics as to rate,
maturity and call provisions. Investment securities held-to-maturity represented none of Eagle’s total investment portfolio.
Securities available-for-sale totaled 83% of Eagle’s total investment portfolio. The remaining percentage is comprised of
interest-bearing deposits in banks and stock in the FHLB of Seattle. The Bank does not expect to alter the mix of U.S.
Treasury obligations it will hold and purchase, notwithstanding the downgrade of U.S. Treasury debt obligations to AA+
by Standard & Poors. It will, however, continue to monitor developments.
Investment Securities.
We maintain a portfolio of investment securities, classified as either available-for-sale (including those accounted for under
FASB ASC 825) or held-to-maturity to enhance total return on investments. At June 30, 2012, our investment securities
included U.S. government and agency obligations, Small Business Administration pools, municipal securities, mortgage-
backed securities, collateralized mortgage obligations and corporate obligations, all with varying characteristics as to rate,
maturity and call provisions. Investment securities held-to-maturity represented none of Eagle’s total investment portfolio.
Securities available-for-sale totaled 83% of Eagle’s total investment portfolio. The remaining percentage is comprised of
interest-bearing deposits in banks and stock in the FHLB of Seattle. The Bank does not expect to alter the mix of U.S.
Treasury obligations it will hold and purchase, notwithstanding the downgrade of U.S. Treasury debt obligations to AA+
by Standard & Poors. It will, however, continue to monitor developments.
15
16
15
16
The following table sets forth the carrying value of our investment securities portfolio at the dates indicated:
The following table sets forth the carrying value of our investment securities portfolio at the dates indicated:
At June 30,
2012
2011
Carrying
Value
(Dollars in Thousands)
Carrying
Value
Percentage
of Total
Percentage
of Total
Securities available-for-sale, at fair value:
U.S. Government and agency obligations
Corporate obligations
Municipal obligations
Collateralized mortgage obligations
Mortgage-backed securities
Total securities available for sale
$
21,055
3,945
42,060
15,370
6,847
89,277
19.58% $
3.67%
39.10%
14.29%
6.37%
26,208
6,216
39,186
24,718
6,372
83.00%
102,700
Interest-bearing deposits
16,280
15.14%
Federal funds sold
-
Federal Home Loan Bank capital stock, at cost
2,003
0.00%
1.86%
1,837
5,000
2,003
23.50%
5.57%
35.13%
22.16%
5.71%
92.07%
1.65%
4.48%
1.80%
At June 30,
2012
2011
Carrying
Value
(Dollars in Thousands)
Carrying
Value
Percentage
of Total
Percentage
of Total
Securities available-for-sale, at fair value:
U.S. Government and agency obligations
Corporate obligations
Municipal obligations
Collateralized mortgage obligations
Mortgage-backed securities
Total securities available for sale
$
21,055
3,945
42,060
15,370
6,847
89,277
19.58% $
3.67%
39.10%
14.29%
6.37%
26,208
6,216
39,186
24,718
6,372
83.00%
102,700
Interest-bearing deposits
16,280
15.14%
Federal funds sold
-
Federal Home Loan Bank capital stock, at cost
2,003
0.00%
1.86%
1,837
5,000
2,003
23.50%
5.57%
35.13%
22.16%
5.71%
92.07%
1.65%
4.48%
1.80%
Total
$
107,560
100.00% $
111,540
100.00%
Total
$
107,560
100.00% $
111,540
100.00%
17
17
The following table sets forth the carrying value of our investment securities portfolio at the dates indicated:
The following table sets forth information regarding the carrying values, weighted average yields and maturities of our
The following table sets forth the carrying value of our investment securities portfolio at the dates indicated:
investment securities portfolio at June 30, 2012:
The following table sets forth information regarding the carrying values, weighted average yields and maturities of our investment securities portfolio at June 30, 2012:
The following table sets forth information regarding the carrying values, weighted average yields and maturities of our
investment securities portfolio at June 30, 2012:
The following table sets forth information regarding the carrying values, weighted average yields and maturities of our investment securities portfolio at June 30, 2012:
One Year or Less
One to Five Years
More than Five to Ten Years
More than Ten Years
At June 30, 2012
2012
2011
Total Investment Securities
One Year or Less
One to Five Years
More than Five to Ten Years
More than Ten Years
Total Investment Securities
At June 30, 2012
At June 30,
Securities available-for-sale, at fair value:
U.S. Government and agency obligations
$
21,055
19.58% $
26,208
Corporate obligations
Municipal obligations
Collateralized mortgage obligations
Mortgage-backed securities
Total securities available for sale
83.00%
102,700
Interest-bearing deposits
16,280
15.14%
Federal funds sold
At June 30,
2012
2011
(Dollars in Thousands)
Carrying
Percentage
Carrying
Percentage
Value
of Total
Value
of Total
3,945
42,060
15,370
6,847
89,277
3.67%
39.10%
14.29%
6.37%
-
0.00%
1.86%
6,216
39,186
24,718
6,372
1,837
5,000
2,003
23.50%
5.57%
35.13%
22.16%
5.71%
92.07%
1.65%
4.48%
1.80%
Annualized
Weighted
Average
Yield
Carrying
Value
Annualized
Weighted
Average
Yield
Carrying
Value
$
Securities available-for-sale:
U.S. Government and agency
obligations
Corporate obligations
Municipal obligations
Private collateralized mortgage
obligations
Collateralized mortgage obligations
Mortgage-backed securities
1.71
-
-
Securities available-for-sale, at fair value:
U.S. Government and agency obligations
%
2,564
-
Corporate obligations
-
Municipal obligations
-
-
-
-
Collateralized mortgage obligations
10
4.34
Mortgage-backed securities
13,152
3,945
5,719
2.36
3.19
3.89
-
3.38
5.32
-
359
33
$
%
Total securities available for sale
23,208
2,574
1.72
2.90
Interest-bearing deposits
Federal funds sold
Federal Home Loan Bank
capital stock
Total
Total securities available for sale
16,280
0.02
-
0
Interest-bearing deposits
-
-
-
Federal funds sold
0.25
18,854
$
-
-
-
-
-
Carrying Value
$
$
2,913
-
15,933
-
2,552
376
21,774
-
-
2,003
%
$
23,208
2.90
%
$
23,777
Federal Home Loan Bank capital stock, at cost
2,003
Federal Home Loan Bank capital stock, at cost
Carrying
Annualized
Weighted
Value
Average
Yield
%
21,055
1.32
-
3,945
4.99
42,060
-
3.75
15,370
3.39
6,847
4.33
89,277
-
-
16,280
-
-
3.96
2,003
%
(Dollars in Thousands)
Carrying
Value
Percentage
of Total
Carrying
Value
Annualized
Weighted
Average Yield
Carrying
Value
Percentage
of Total
Approximate
Market Value
Annualized
Weighted
Average Yield
%
$
19.58% $
2,426
2.42
-
-
3.67%
20,408
6.27
39.10%
169
12,290
14.29%
6,428
6.37%
7.01
3.46
3.60
41,721
4.81
21,055
3,945
42,060
26,208
$
6,216
39,186
24,718
6,372
169
15,201
6,847
89,277
$
23.50%
21,055
3,945
5.57%
42,060
35.13%
169
15,201
22.16%
6,847
5.71%
89,277
%
2.14
3.19
5.46
7.01
3.51
3.60
4.11
83.00%
-
-
15.14%
-
-
-
-
0.00%
$
41,721
4.81
%
1.86%
102,700
16,280
92.07%
16,280
0.02
0
1,837
2,003
107,560
5,000
$
2,003
-
1.65%
2,003
-
-
4.48%
$
107,560
1.80%
Total
$
107,560
100.00% $
111,540
100.00%
Total
$
107,560
100.00% $
111,540
100.00%
18
17
18
17
Securities available-for-sale:
U.S. Government and agency
obligations
Corporate obligations
Municipal obligations
Private collateralized mortgage
obligations
Collateralized mortgage obligations
Mortgage-backed securities
Carrying
Value
$
2,564
-
-
-
-
10
Total securities available for sale
2,574
Interest-bearing deposits
16,280
Federal funds sold
Federal Home Loan Bank
capital stock
0
-
Annualized
Weighted
Average
Yield
Annualized
Weighted
Average
Yield
Carrying
Value
1.71
-
-
-
-
4.34
1.72
0.02
-
-
%
$
13,152
3,945
5,719
-
359
33
23,208
-
-
-
2.36
3.19
3.89
-
3.38
5.32
2.90
-
-
-
Carrying Value
%
$
2,913
-
15,933
-
2,552
376
21,774
-
-
2,003
Annualized
Weighted
Average
Yield
Carrying
Value
Annualized
Weighted
Average Yield
Carrying
Value
Approximate
Market Value
Annualized
Weighted
Average Yield
1.32
-
4.99
-
3.75
3.39
4.33
-
-
-
%
$
2,426
-
20,408
169
12,290
6,428
41,721
-
-
-
2.42
-
6.27
7.01
3.46
3.60
4.81
-
-
-
%
$
21,055
3,945
42,060
$
21,055
3,945
42,060
169
15,201
6,847
169
15,201
6,847
89,277
89,277
16,280
16,280
0
-
2,003
2,003
%
2.14
3.19
5.46
7.01
3.51
3.60
4.11
0.02
-
-
3.41
%
Total
$
18,854
0.25
%
$
23,208
2.90
%
$
23,777
3.96
%
$
41,721
4.81
%
$
107,560
$
107,560
3.41
%
18
18
SOURCES OF FUNDS
General.
Deposits are the major source of our funds for lending and other investment purposes. Borrowings (principally from the
FHLB of Seattle) are also used to compensate for reductions in the availability of funds from other sources. In addition to
deposits and borrowings, we derive funds from loan and mortgage-backed securities principal repayments, and proceeds
from the maturity, call and sale of mortgage-backed securities and investment securities and from the sale of loans. Loan
and mortgage-backed securities payments are a relatively stable source of funds, while loan prepayments and deposit
inflows are significantly influenced by general interest rates and financial market conditions.
Deposits.
We offer a variety of deposit accounts. Deposit account terms vary, primarily as to the required minimum balance amount,
the amount of time that the funds must remain on deposit and the applicable interest rate.
Our current deposit products include certificates of deposit accounts ranging in terms from 90 days to five years as well as
checking, savings and money market accounts. Individual retirement accounts (IRAs) are included in certificates of
deposit.
Deposits are obtained primarily from residents of Helena, Bozeman, Butte and Townsend. We believe we are able to
attract deposit accounts by offering outstanding service, competitive interest rates and convenient locations and service
hours. We use traditional methods of advertising to attract new customers and deposits, including radio, television, print
media advertising and sales training and incentive programs for employees. Management believes that non-residents of
Montana hold an insignificant number and amount of deposit accounts.
We pay interest rates on deposits which are competitive in our market. Interest rates on deposits are set by senior
management, based on a number of factors, including: projected cash flow; a current survey of a selected group of
competitors’ rates for similar products; external data which may influence interest rates; investment opportunities and loan
demand; and scheduled certificate maturities and loan and investment repayments.
Core deposits are deposits that are more stable and somewhat less sensitive to rate changes. They also represent a lower
cost source of funds than rate sensitive, more volatile accounts such as certificates of deposit. We believe that our core
deposits are our checking, as well as NOW accounts, savings accounts, money market accounts and IRA accounts. Based
on our historical experience, we include IRA accounts funded by certificates of deposit as core deposits because they
exhibit the principal features of core deposits in that they are stable and generally are not rate sensitive. Core deposits
amounted to $163.6 million or 74.35% of the Bank’s deposits at June 30, 2012 ($138.6 million or 63.0% if IRA certificates
of deposit are excluded). The presence of a high percentage of core deposits and, in particular, transaction accounts, is part
of our strategy to restructure our liabilities to more closely resemble the lower cost liabilities of a commercial bank.
However, a significant portion of our deposits remains in certificate of deposit form. These certificates of deposit, if they
mature and are renewed at higher rates, would result in an increase in our cost of funds.
SOURCES OF FUNDS
The following table sets forth American Federal’s distribution of deposit accounts at the dates indicated and the weighted
average interest rate on each category of deposit represented:
The following table sets forth American Federal’s distribution of deposit accounts at the dates indicated and the weighted
average interest rate on each category of deposit represented:
General.
Deposits are the major source of our funds for lending and other investment purposes. Borrowings (principally from the
FHLB of Seattle) are also used to compensate for reductions in the availability of funds from other sources. In addition to
deposits and borrowings, we derive funds from loan and mortgage-backed securities principal repayments, and proceeds
from the maturity, call and sale of mortgage-backed securities and investment securities and from the sale of loans. Loan
Weighted
and mortgage-backed securities payments are a relatively stable source of funds, while loan prepayments and deposit
Average
inflows are significantly influenced by general interest rates and financial market conditions.
Amount
Rate
Weighted
Average
Rate
(Dollars in thousands)
Percent
of Total
Percent
of Total
At June 30,
Amount
2011
2012
Deposits.
We offer a variety of deposit accounts. Deposit account terms vary, primarily as to the required minimum balance amount,
Noninterest checking
23,425
the amount of time that the funds must remain on deposit and the applicable interest rate.
Savings
40,591
NOW account/Interest bearing
checking
Money market accounts
Our current deposit products include certificates of deposit accounts ranging in terms from 90 days to five years as well as
checking, savings and money market accounts. Individual retirement accounts (IRAs) are included in certificates of
deposit.
20.97%
12.95%
19.29%
13.51%
10.65%
18.45%
9.11%
17.66%
40,352
28,284
46,125
28,489
19,052
36,945
0.05%
0.14%
0.00%
0.10%
$
$
0.00%
0.10%
0.05%
0.12%
Total
Certificates of deposit accounts:
IRA certificates
Brokered certificates
Other certificates
Total certificates of deposit
Deposits are obtained primarily from residents of Helena, Bozeman, Butte and Townsend. We believe we are able to
attract deposit accounts by offering outstanding service, competitive interest rates and convenient locations and service
hours. We use traditional methods of advertising to attract new customers and deposits, including radio, television, print
media advertising and sales training and incentive programs for employees. Management believes that non-residents of
Montana hold an insignificant number and amount of deposit accounts.
124,633
138,630
59.58%
63.02%
0.08%
0.07%
24,941
-
56,418
81,359
11.34%
0.00%
25.65%
36.98%
0.98%
0.00%
1.18%
1.12%
25,020
-
59,533
84,553
11.96%
0.00%
28.46%
40.42%
1.07%
0.00%
1.38%
1.29%
We pay interest rates on deposits which are competitive in our market. Interest rates on deposits are set by senior
management, based on a number of factors, including: projected cash flow; a current survey of a selected group of
competitors’ rates for similar products; external data which may influence interest rates; investment opportunities and loan
demand; and scheduled certificate maturities and loan and investment repayments.
$
219,989
100.00%
0.46%
$
209,186
100.00%
Total deposits
0.57%
Noninterest checking
Savings
checking
NOW account/Interest bearing
Money market accounts
Certificates of deposit accounts:
IRA certificates
Brokered certificates
Other certificates
Total certificates of deposit
Amount
$
23,425
40,591
46,125
28,489
24,941
-
56,418
81,359
2012
Percent
of Total
10.65%
18.45%
20.97%
12.95%
11.34%
0.00%
25.65%
36.98%
At June 30,
(Dollars in thousands)
2011
Weighted
Average
Rate
Amount
Percent
of Total
Weighted
Average
Rate
0.00%
0.10%
$
19,052
36,945
0.05%
0.14%
40,352
28,284
0.98%
0.00%
1.18%
1.12%
25,020
-
59,533
84,553
9.11%
17.66%
19.29%
13.51%
11.96%
0.00%
28.46%
40.42%
0.00%
0.10%
0.05%
0.12%
1.07%
0.00%
1.38%
1.29%
Total
138,630
63.02%
0.08%
124,633
59.58%
0.07%
Total deposits
$
219,989
100.00%
0.46%
$
209,186
100.00%
0.57%
The following table sets forth the amounts and maturities of our certificates of deposit as of June 30, 2012, for the maturity
dates indicated:
under 0.51%
0.51-0.75%
0.76-1.00%
1.01-1.25%
1.26-1.50%
1.51-2.00%
2.01% and higher
$
21,615
$
-
$
-
$
-
$
21,615
June 30,
2013
June 30,
2014
June 30,
2015
11,655
1,761
14,779
374
52
4,512
1,105
906
8,135
298
343
3,908
12
522
891
348
967
3,237
After
June 30,
2015
-
6
97
908
3,015
1,913
Total
12,772
3,195
23,902
1,928
4,377
13,570
The following table sets forth the amounts and maturities of our certificates of deposit as of June 30, 2012, for the maturity
dates indicated:
Core deposits are deposits that are more stable and somewhat less sensitive to rate changes. They also represent a lower
cost source of funds than rate sensitive, more volatile accounts such as certificates of deposit. We believe that our core
deposits are our checking, as well as NOW accounts, savings accounts, money market accounts and IRA accounts. Based
on our historical experience, we include IRA accounts funded by certificates of deposit as core deposits because they
exhibit the principal features of core deposits in that they are stable and generally are not rate sensitive. Core deposits
amounted to $163.6 million or 74.35% of the Bank’s deposits at June 30, 2012 ($138.6 million or 63.0% if IRA certificates
of deposit are excluded). The presence of a high percentage of core deposits and, in particular, transaction accounts, is part
of our strategy to restructure our liabilities to more closely resemble the lower cost liabilities of a commercial bank.
However, a significant portion of our deposits remains in certificate of deposit form. These certificates of deposit, if they
mature and are renewed at higher rates, would result in an increase in our cost of funds.
After
June 30,
2015
June 30,
2013
June 30,
2014
June 30,
2015
Total
$
$
-
$
-
under 0.51%
0.51-0.75%
0.76-1.00%
1.01-1.25%
1.26-1.50%
1.51-2.00%
2.01% and higher
$
-
1,105
906
8,135
298
343
3,908
-
$
12
522
891
348
967
3,237
21,615
11,655
1,761
14,779
374
52
4,512
21,615
12,772
3,195
23,902
1,928
4,377
13,570
6
97
908
3,015
1,913
Total
$
54,748
$
14,695
$
5,977
$
5,939
$
81,359
Total
$
54,748
$
14,695
$
5,977
$
5,939
$
81,359
19
20
19
20
SOURCES OF FUNDS
General.
Deposits are the major source of our funds for lending and other investment purposes. Borrowings (principally from the
FHLB of Seattle) are also used to compensate for reductions in the availability of funds from other sources. In addition to
deposits and borrowings, we derive funds from loan and mortgage-backed securities principal repayments, and proceeds
from the maturity, call and sale of mortgage-backed securities and investment securities and from the sale of loans. Loan
and mortgage-backed securities payments are a relatively stable source of funds, while loan prepayments and deposit
inflows are significantly influenced by general interest rates and financial market conditions.
We offer a variety of deposit accounts. Deposit account terms vary, primarily as to the required minimum balance amount,
the amount of time that the funds must remain on deposit and the applicable interest rate.
Our current deposit products include certificates of deposit accounts ranging in terms from 90 days to five years as well as
checking, savings and money market accounts. Individual retirement accounts (IRAs) are included in certificates of
Deposits.
deposit.
Deposits are obtained primarily from residents of Helena, Bozeman, Butte and Townsend. We believe we are able to
attract deposit accounts by offering outstanding service, competitive interest rates and convenient locations and service
hours. We use traditional methods of advertising to attract new customers and deposits, including radio, television, print
media advertising and sales training and incentive programs for employees. Management believes that non-residents of
Montana hold an insignificant number and amount of deposit accounts.
We pay interest rates on deposits which are competitive in our market. Interest rates on deposits are set by senior
management, based on a number of factors, including: projected cash flow; a current survey of a selected group of
competitors’ rates for similar products; external data which may influence interest rates; investment opportunities and loan
demand; and scheduled certificate maturities and loan and investment repayments.
Core deposits are deposits that are more stable and somewhat less sensitive to rate changes. They also represent a lower
cost source of funds than rate sensitive, more volatile accounts such as certificates of deposit. We believe that our core
deposits are our checking, as well as NOW accounts, savings accounts, money market accounts and IRA accounts. Based
on our historical experience, we include IRA accounts funded by certificates of deposit as core deposits because they
exhibit the principal features of core deposits in that they are stable and generally are not rate sensitive. Core deposits
amounted to $163.6 million or 74.35% of the Bank’s deposits at June 30, 2012 ($138.6 million or 63.0% if IRA certificates
of deposit are excluded). The presence of a high percentage of core deposits and, in particular, transaction accounts, is part
of our strategy to restructure our liabilities to more closely resemble the lower cost liabilities of a commercial bank.
However, a significant portion of our deposits remains in certificate of deposit form. These certificates of deposit, if they
mature and are renewed at higher rates, would result in an increase in our cost of funds.
SOURCES OF FUNDS
The following table sets forth American Federal’s distribution of deposit accounts at the dates indicated and the weighted
average interest rate on each category of deposit represented:
The following table sets forth American Federal’s distribution of deposit accounts at the dates indicated and the weighted
average interest rate on each category of deposit represented:
General.
Deposits are the major source of our funds for lending and other investment purposes. Borrowings (principally from the
FHLB of Seattle) are also used to compensate for reductions in the availability of funds from other sources. In addition to
deposits and borrowings, we derive funds from loan and mortgage-backed securities principal repayments, and proceeds
from the maturity, call and sale of mortgage-backed securities and investment securities and from the sale of loans. Loan
Weighted
and mortgage-backed securities payments are a relatively stable source of funds, while loan prepayments and deposit
Average
inflows are significantly influenced by general interest rates and financial market conditions.
Amount
Rate
Weighted
Average
Rate
(Dollars in thousands)
Percent
of Total
Percent
of Total
At June 30,
Amount
2012
2011
Deposits.
We offer a variety of deposit accounts. Deposit account terms vary, primarily as to the required minimum balance amount,
Noninterest checking
23,425
the amount of time that the funds must remain on deposit and the applicable interest rate.
Savings
40,591
NOW account/Interest bearing
checking
Money market accounts
Our current deposit products include certificates of deposit accounts ranging in terms from 90 days to five years as well as
checking, savings and money market accounts. Individual retirement accounts (IRAs) are included in certificates of
deposit.
20.97%
12.95%
19.29%
13.51%
10.65%
18.45%
9.11%
17.66%
40,352
28,284
46,125
28,489
19,052
36,945
0.05%
0.14%
0.00%
0.10%
$
$
0.00%
0.10%
0.05%
0.12%
Total
Certificates of deposit accounts:
IRA certificates
Brokered certificates
Other certificates
Total certificates of deposit
Deposits are obtained primarily from residents of Helena, Bozeman, Butte and Townsend. We believe we are able to
attract deposit accounts by offering outstanding service, competitive interest rates and convenient locations and service
hours. We use traditional methods of advertising to attract new customers and deposits, including radio, television, print
media advertising and sales training and incentive programs for employees. Management believes that non-residents of
Montana hold an insignificant number and amount of deposit accounts.
138,630
124,633
63.02%
59.58%
0.08%
0.07%
24,941
-
56,418
81,359
11.34%
0.00%
25.65%
36.98%
0.98%
0.00%
1.18%
1.12%
25,020
-
59,533
84,553
11.96%
0.00%
28.46%
40.42%
1.07%
0.00%
1.38%
1.29%
We pay interest rates on deposits which are competitive in our market. Interest rates on deposits are set by senior
management, based on a number of factors, including: projected cash flow; a current survey of a selected group of
competitors’ rates for similar products; external data which may influence interest rates; investment opportunities and loan
demand; and scheduled certificate maturities and loan and investment repayments.
$
219,989
100.00%
0.46%
$
209,186
100.00%
0.57%
Total deposits
The following table sets forth the amounts and maturities of our certificates of deposit as of June 30, 2012, for the maturity
dates indicated:
Core deposits are deposits that are more stable and somewhat less sensitive to rate changes. They also represent a lower
cost source of funds than rate sensitive, more volatile accounts such as certificates of deposit. We believe that our core
deposits are our checking, as well as NOW accounts, savings accounts, money market accounts and IRA accounts. Based
on our historical experience, we include IRA accounts funded by certificates of deposit as core deposits because they
exhibit the principal features of core deposits in that they are stable and generally are not rate sensitive. Core deposits
amounted to $163.6 million or 74.35% of the Bank’s deposits at June 30, 2012 ($138.6 million or 63.0% if IRA certificates
of deposit are excluded). The presence of a high percentage of core deposits and, in particular, transaction accounts, is part
of our strategy to restructure our liabilities to more closely resemble the lower cost liabilities of a commercial bank.
However, a significant portion of our deposits remains in certificate of deposit form. These certificates of deposit, if they
mature and are renewed at higher rates, would result in an increase in our cost of funds.
After
June 30,
2015
June 30,
2013
June 30,
2015
June 30,
2014
Total
$
$
-
$
-
under 0.51%
0.51-0.75%
0.76-1.00%
1.01-1.25%
1.26-1.50%
1.51-2.00%
2.01% and higher
21,615
11,655
1,761
14,779
374
52
4,512
-
$
1,105
906
8,135
298
343
3,908
-
$
12
522
891
348
967
3,237
21,615
12,772
3,195
23,902
1,928
4,377
13,570
6
97
908
3,015
1,913
2012
Percent
of Total
10.65%
18.45%
20.97%
12.95%
At June 30,
(Dollars in thousands)
2011
Weighted
Average
Rate
Amount
Percent
of Total
Weighted
Average
Rate
0.00%
0.10%
$
19,052
36,945
0.05%
0.14%
40,352
28,284
9.11%
17.66%
19.29%
13.51%
0.00%
0.10%
0.05%
0.12%
Amount
$
23,425
40,591
46,125
28,489
138,630
63.02%
0.08%
124,633
59.58%
0.07%
24,941
-
56,418
81,359
11.34%
0.00%
25.65%
36.98%
0.98%
0.00%
1.18%
1.12%
25,020
-
59,533
84,553
11.96%
0.00%
28.46%
40.42%
1.07%
0.00%
1.38%
1.29%
Noninterest checking
Savings
NOW account/Interest bearing
checking
Money market accounts
Total
Certificates of deposit accounts:
IRA certificates
Brokered certificates
Other certificates
Total certificates of deposit
Total deposits
$
219,989
100.00%
0.46%
$
209,186
100.00%
0.57%
The following table sets forth the amounts and maturities of our certificates of deposit as of June 30, 2012, for the maturity
dates indicated:
under 0.51%
0.51-0.75%
0.76-1.00%
1.01-1.25%
1.26-1.50%
1.51-2.00%
2.01% and higher
June 30,
2013
June 30,
2014
June 30,
2015
$
21,615
11,655
1,761
14,779
374
52
4,512
-
$
1,105
906
8,135
298
343
3,908
-
$
12
522
891
348
967
3,237
After
June 30,
2015
-
$
-
6
97
908
3,015
1,913
Total
$
21,615
12,772
3,195
23,902
1,928
4,377
13,570
Total
$
54,748
$
14,695
$
5,977
$
5,939
$
81,359
Total
$
54,748
$
14,695
$
5,977
$
5,939
$
81,359
19
20
19
20
The following table shows the amount of certificates of deposit with balances of $100,000 to $250,000 and of more than
$250,000 by time remaining until maturity as of June 30, 2012:
The following table sets forth information concerning our borrowing from the FHLB of Seattle and PNC at the end of, and
during, the periods indicated:
The following table shows the amount of certificates of deposit with balances of $100,000 to $250,000 and of more than
$250,000 by time remaining until maturity as of June 30, 2012:
during, the periods indicated:
The following table sets forth information concerning our borrowing from the FHLB of Seattle and PNC at the end of, and
(In thousands)
3 months or less
Over 3 to 6 months
Over 6 to 12 months
Over 12 months
Balance
Greater
than $250
$
1,011
512
2,666
1,608
$100 - $250
3,910
$
3,446
5,123
8,080
Total
$
4,921
3,958
7,789
9,688
Total
$
20,559
$
5,797
$
26,356
The following table sets forth the net changes in deposit accounts for the periods indicated:
Opening balance
Deposits, net
Interest credited
Ending balance
Net increase
Percent increase
Weighted average cost of
deposits during the period
Weighted average cost of
deposits at end of period
Year Ended June 30,
2012
2011
(Dollars in thousands)
$
209,186
9,748
1,055
$
197,939
9,867
1,380
$
219,989
$
209,186
$
10,803
$
11,247
5.16%
5.68%
0.56%
0.75%
0.46%
0.57%
Our depositors are primarily residents of the state of Montana.
Borrowings.
Deposits are the primary source of funds for our lending and investment activities and for general business purposes.
However, as the need arises, or in order to take advantage of funding opportunities, we also borrow funds in the form of
advances from the FHLB of Seattle and other borrowings from PNC Financial Services, Inc. (PNC) to supplement our
supply of lendable funds and to meet deposit withdrawal requirements.
During the fiscal year ended June 30, 2006, our predecessor entity formed a special purpose subsidiary, Eagle Bancorp
Statutory Trust I (the “Trust”), for the purpose of issuing trust preferred securities in the amount of $5.0 million. Our
predecessor entity has issued subordinated debentures to the Trust, and the coupon on the debentures matches the dividend
payment on the trust preferred securities. Upon the closing of the second-step conversion and reorganization, we assumed
the obligations of our predecessor in connection with the subordinated debentures and trust preferred securities. For
regulatory purposes, the securities qualify as Tier 1 Capital, while for accounting purposes they are recorded as long term
debt. The securities have a 30 year maturity and carried a fixed coupon of 6.02% for the first five years, at which time the
coupon became variable, at a spread of 142 basis points over 3 month LIBOR. At June 30, 2012 the rate was 1.881%.
(In thousands)
The following table sets forth the net changes in deposit accounts for the periods indicated:
$
$
23,000
23,000
Year Ended June 30,
23,000
2012
2011
4.66%
(Dollars in thousands)
4.66%
17,678
23,000
9,000
4.66%
4.61%
Repurchase Agreements:
Average balance
Maximum balance at any month-end
Balance at period end
Weighted average interest rate during the period
Weighted average interest rate at period end
3 months or less
FHLB Advances:
Over 3 to 6 months
Average balance
Over 6 to 12 months
Maximum balance at any month-end
Over 12 months
Balance at period end
Weighted average interest rate during the period
Weighted average interest rate at period end
Total
$
Balance
$
Ended June 30,
2011
2012
Greater
than $250
(Dollars in thousands)
1,011
512
2,666
1,608
$
$
Total
$
4,921
3,958
7,789
9,688
$100 - $250
3,910
$
3,446
5,123
8,080
35,973
37,879
33,696
3.25%
3.19%
41,008
45,346
37,896
3.47%
$
3.26%
20,559
$
5,797
26,356
FHLB Advances:
Average balance
Maximum balance at any month-end
Balance at period end
Weighted average interest rate during the period
Weighted average interest rate at period end
Repurchase Agreements:
Average balance
Maximum balance at any month-end
Balance at period end
Weighted average interest rate during the period
Weighted average interest rate at period end
Other:
Average balance
Maximum balance at any month-end
Balance at period end
Weighted average interest rate during the period
Weighted average interest rate at period end
Total borrowings:
Average balance
Maximum balance at any month-end
Balance at period end
Weighted average interest rate during the period
Weighted average interest rate at period end
Ended June 30,
2012
2011
(Dollars in thousands)
$
35,973
$
41,008
$
17,678
$
23,000
37,879
33,696
3.25%
3.19%
23,000
9,000
4.66%
4.61%
-
-
n/a
n/a
45,346
37,896
3.47%
3.26%
23,000
23,000
4.66%
4.66%
-
-
n/a
n/a
$
-
$
-
$
53,651
$
64,008
60,879
42,696
3.49%
3.49%
68,346
60,896
3.90%
3.79%
Personnel
As of June 30, 2012, we had 83 full-time employees and 7 part-time employees. The employees are not represented by a
collective bargaining unit. We believe our relationship with our employees to be good.
Opening balance
Other:
Deposits, net
Average balance
Interest credited
Maximum balance at any month-end
Balance at period end
Ending balance
Weighted average interest rate during the period
Weighted average interest rate at period end
$
209,186
9,748
-
$
1,055
-
-
$
219,989
n/a
n/a
Net increase
$
10,803
Percent increase
Total borrowings:
Average balance
Maximum balance at any month-end
Balance at period end
Weighted average interest rate during the period
Weighted average interest rate at period end
Weighted average cost of
deposits during the period
$
5.16%
53,651
60,879
42,696
0.56%
3.49%
3.49%
$
197,939
9,867
-
$
1,380
-
-
209,186
n/a
n/a
11,247
$
$
$
5.68%
64,008
68,346
60,896
0.75%
3.90%
3.79%
SUBSIDIARY ACTIVITY
Weighted average cost of
deposits at end of period
0.46%
0.57%
SUBSIDIARY ACTIVITY
We are permitted to invest in the capital stock of, or originate secured or unsecured loans to, subsidiary corporations. We
do not have any subsidiaries, except for American Federal Savings Bank and Eagle Bancorp Statutory Trust I.
Our depositors are primarily residents of the state of Montana.
We are permitted to invest in the capital stock of, or originate secured or unsecured loans to, subsidiary corporations. We
do not have any subsidiaries, except for American Federal Savings Bank and Eagle Bancorp Statutory Trust I.
Personnel
Borrowings.
Deposits are the primary source of funds for our lending and investment activities and for general business purposes.
However, as the need arises, or in order to take advantage of funding opportunities, we also borrow funds in the form of
advances from the FHLB of Seattle and other borrowings from PNC Financial Services, Inc. (PNC) to supplement our
supply of lendable funds and to meet deposit withdrawal requirements.
As of June 30, 2012, we had 83 full-time employees and 7 part-time employees. The employees are not represented by a
collective bargaining unit. We believe our relationship with our employees to be good.
During the fiscal year ended June 30, 2006, our predecessor entity formed a special purpose subsidiary, Eagle Bancorp
Statutory Trust I (the “Trust”), for the purpose of issuing trust preferred securities in the amount of $5.0 million. Our
predecessor entity has issued subordinated debentures to the Trust, and the coupon on the debentures matches the dividend
payment on the trust preferred securities. Upon the closing of the second-step conversion and reorganization, we assumed
the obligations of our predecessor in connection with the subordinated debentures and trust preferred securities. For
regulatory purposes, the securities qualify as Tier 1 Capital, while for accounting purposes they are recorded as long term
debt. The securities have a 30 year maturity and carried a fixed coupon of 6.02% for the first five years, at which time the
coupon became variable, at a spread of 142 basis points over 3 month LIBOR. At June 30, 2012 the rate was 1.881%.
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22
21
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The following table shows the amount of certificates of deposit with balances of $100,000 to $250,000 and of more than
$250,000 by time remaining until maturity as of June 30, 2012:
The following table sets forth information concerning our borrowing from the FHLB of Seattle and PNC at the end of, and
during, the periods indicated:
The following table shows the amount of certificates of deposit with balances of $100,000 to $250,000 and of more than
$250,000 by time remaining until maturity as of June 30, 2012:
The following table sets forth information concerning our borrowing from the FHLB of Seattle and PNC at the end of, and
during, the periods indicated:
(In thousands)
Balance
$100 - $250
Greater
than $250
3 months or less
Over 3 to 6 months
Over 6 to 12 months
Over 12 months
$
3,910
$
1,011
$
4,921
3,446
5,123
8,080
512
2,666
1,608
Total
3,958
7,789
9,688
Total
$
20,559
$
5,797
$
26,356
The following table sets forth the net changes in deposit accounts for the periods indicated:
Opening balance
Deposits, net
Interest credited
Ending balance
Net increase
Percent increase
Weighted average cost of
deposits during the period
Weighted average cost of
deposits at end of period
Year Ended June 30,
2012
2011
(Dollars in thousands)
$
209,186
$
197,939
9,748
1,055
9,867
1,380
$
219,989
$
209,186
$
10,803
$
11,247
5.16%
5.68%
0.56%
0.75%
0.46%
0.57%
Our depositors are primarily residents of the state of Montana.
Borrowings.
Deposits are the primary source of funds for our lending and investment activities and for general business purposes.
However, as the need arises, or in order to take advantage of funding opportunities, we also borrow funds in the form of
advances from the FHLB of Seattle and other borrowings from PNC Financial Services, Inc. (PNC) to supplement our
supply of lendable funds and to meet deposit withdrawal requirements.
During the fiscal year ended June 30, 2006, our predecessor entity formed a special purpose subsidiary, Eagle Bancorp
Statutory Trust I (the “Trust”), for the purpose of issuing trust preferred securities in the amount of $5.0 million. Our
predecessor entity has issued subordinated debentures to the Trust, and the coupon on the debentures matches the dividend
payment on the trust preferred securities. Upon the closing of the second-step conversion and reorganization, we assumed
the obligations of our predecessor in connection with the subordinated debentures and trust preferred securities. For
regulatory purposes, the securities qualify as Tier 1 Capital, while for accounting purposes they are recorded as long term
debt. The securities have a 30 year maturity and carried a fixed coupon of 6.02% for the first five years, at which time the
coupon became variable, at a spread of 142 basis points over 3 month LIBOR. At June 30, 2012 the rate was 1.881%.
(In thousands)
3 months or less
FHLB Advances:
Over 3 to 6 months
Average balance
Over 6 to 12 months
Maximum balance at any month-end
Over 12 months
Balance at period end
Weighted average interest rate during the period
Weighted average interest rate at period end
Total
$
Repurchase Agreements:
Average balance
Maximum balance at any month-end
Balance at period end
Weighted average interest rate during the period
Weighted average interest rate at period end
Balance
$
Ended June 30,
2011
2012
Greater
than $250
(Dollars in thousands)
1,011
512
2,666
1,608
$
$
Total
$
4,921
3,958
7,789
9,688
$100 - $250
3,910
$
3,446
5,123
8,080
35,973
37,879
33,696
3.25%
3.19%
41,008
45,346
37,896
3.47%
$
3.26%
20,559
$
5,797
26,356
$
$
23,000
23,000
Year Ended June 30,
23,000
2012
2011
4.66%
(Dollars in thousands)
4.66%
17,678
23,000
9,000
4.66%
4.61%
The following table sets forth the net changes in deposit accounts for the periods indicated:
Opening balance
Other:
Deposits, net
Average balance
Interest credited
Maximum balance at any month-end
Balance at period end
Ending balance
Weighted average interest rate during the period
Weighted average interest rate at period end
$
209,186
9,748
$
-
1,055
-
-
$
219,989
n/a
n/a
Net increase
$
10,803
Percent increase
Total borrowings:
Average balance
Maximum balance at any month-end
Balance at period end
Weighted average interest rate during the period
Weighted average interest rate at period end
Weighted average cost of
deposits during the period
$
5.16%
53,651
60,879
42,696
0.56%
3.49%
3.49%
$
197,939
9,867
-
$
1,380
-
-
209,186
n/a
n/a
11,247
$
$
$
5.68%
64,008
68,346
60,896
0.75%
3.90%
3.79%
FHLB Advances:
Average balance
Maximum balance at any month-end
Balance at period end
Weighted average interest rate during the period
Weighted average interest rate at period end
Repurchase Agreements:
Average balance
Maximum balance at any month-end
Balance at period end
Weighted average interest rate during the period
Weighted average interest rate at period end
Other:
Average balance
Maximum balance at any month-end
Balance at period end
Weighted average interest rate during the period
Weighted average interest rate at period end
Total borrowings:
Average balance
Maximum balance at any month-end
Balance at period end
Weighted average interest rate during the period
Weighted average interest rate at period end
Ended June 30,
2011
2012
(Dollars in thousands)
$
35,973
37,879
33,696
3.25%
3.19%
$
41,008
45,346
37,896
3.47%
3.26%
$
17,678
23,000
9,000
4.66%
4.61%
$
23,000
23,000
23,000
4.66%
4.66%
$
-
-
-
$
-
-
-
n/a
n/a
n/a
n/a
$
53,651
60,879
42,696
3.49%
3.49%
$
64,008
68,346
60,896
3.90%
3.79%
SUBSIDIARY ACTIVITY
Weighted average cost of
deposits at end of period
0.46%
0.57%
SUBSIDIARY ACTIVITY
We are permitted to invest in the capital stock of, or originate secured or unsecured loans to, subsidiary corporations. We
do not have any subsidiaries, except for American Federal Savings Bank and Eagle Bancorp Statutory Trust I.
Our depositors are primarily residents of the state of Montana.
We are permitted to invest in the capital stock of, or originate secured or unsecured loans to, subsidiary corporations. We
do not have any subsidiaries, except for American Federal Savings Bank and Eagle Bancorp Statutory Trust I.
Personnel
Borrowings.
Deposits are the primary source of funds for our lending and investment activities and for general business purposes.
However, as the need arises, or in order to take advantage of funding opportunities, we also borrow funds in the form of
advances from the FHLB of Seattle and other borrowings from PNC Financial Services, Inc. (PNC) to supplement our
supply of lendable funds and to meet deposit withdrawal requirements.
As of June 30, 2012, we had 83 full-time employees and 7 part-time employees. The employees are not represented by a
collective bargaining unit. We believe our relationship with our employees to be good.
Personnel
As of June 30, 2012, we had 83 full-time employees and 7 part-time employees. The employees are not represented by a
collective bargaining unit. We believe our relationship with our employees to be good.
During the fiscal year ended June 30, 2006, our predecessor entity formed a special purpose subsidiary, Eagle Bancorp
Statutory Trust I (the “Trust”), for the purpose of issuing trust preferred securities in the amount of $5.0 million. Our
predecessor entity has issued subordinated debentures to the Trust, and the coupon on the debentures matches the dividend
payment on the trust preferred securities. Upon the closing of the second-step conversion and reorganization, we assumed
the obligations of our predecessor in connection with the subordinated debentures and trust preferred securities. For
regulatory purposes, the securities qualify as Tier 1 Capital, while for accounting purposes they are recorded as long term
debt. The securities have a 30 year maturity and carried a fixed coupon of 6.02% for the first five years, at which time the
coupon became variable, at a spread of 142 basis points over 3 month LIBOR. At June 30, 2012 the rate was 1.881%.
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22
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REGULATION
Set forth below is a brief description of certain laws and regulations applicable to Eagle and American Federal. These
descriptions of laws and regulations as well as those contained elsewhere do not purport to be complete and are qualified in
their entirety by reference to applicable laws and regulations. Legislative or regulatory changes in the future could
adversely affect our operations or financial condition.
General
As a federally-chartered savings institution, American Federal is subject to extensive regulation, examination and
supervision by the Office of the Comptroller of the Currency (“OCC”) which assumed jurisdiction over Eagle and
American Federal after the close of Eagle’s June 30, 2011 fiscal year as its primary federal regulator, and the FDIC, as the
insurer of its deposits. American Federal is a member of the Federal Home Loan Bank, or FHLB System, and its deposit
accounts are insured up to applicable limits by the Deposit Insurance Fund, which is administered by the FDIC. There are
periodic examinations to evaluate American Federal’s safety and soundness and compliance with various regulatory
requirements. Under certain circumstances, the FDIC may also examine American Federal. This regulatory structure is
intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and the establishment of adequate allowance for loan
losses for regulatory purposes. Eagle, as a savings and loan holding company, was required to file certain reports with, is
subject to examination by, and otherwise comply with the rules and regulations of the Office of Thrift Supervision which
have been adopted by the OCC. The Federal Reserve Board assumed regulatory responsibility for Eagle during this year.
Eagle is also subject to the rules and regulations of the SEC under the federal securities laws. See “—Holding Company
Regulation.”
Dodd-Frank Act
On July 21, 2010, the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the
“Dodd-Frank Act”). The Dodd-Frank Act will significantly change the current bank regulatory structure and affect the
lending, investment, trading and operating activities of financial institutions and their holding companies. Regulations
implementing the changes described below have not been promulgated by the federal banking agencies, so we cannot
determine the full impact on our business and operations at this time. However, one important change is the transfer of
regulatory jurisdiction over federal savings association regulation from the Office of Thrift Supervision to the OCC. The
FDIC will regulate state-chartered savings associations.
On July 21, 2011, under the requirements of the Dodd-Frank Act, our primary federal regulator, the Office of Thrift
Supervision, was merged with and into the Office of the Comptroller of the Currency (the primary federal regulator for
national banks). As a result, shortly after the conclusion of Eagle’s fiscal year of June 30, 2011, all federal savings
associations (including American Federal) came under the principal jurisdiction of a different, federal bank regulatory
agency, the OCC, which has historically regulated the national banks. The OCC has extensive experience in the regulation
of community banks such as American Federal but it is unclear without more experience how the change in federal
regulatory agencies will impact American Federal. American Federal will retain its federal thrift charter under the OCC,
but may evaluate other charter options in the future. The Dodd-Frank Act also authorizes the Board of Governors of the
Federal Reserve System to supervise and regulate all savings and loan holding companies like Eagle, in addition to bank
holding companies which it currently regulates. As a result, the Federal Reserve Board’s current regulations applicable to
bank holding companies, including, in the future, holding company capital requirements, will apply to savings and loan
holding companies like Eagle. The capital requirements are expected to take effect in five years. The Dodd-Frank Act will
require the Federal Reserve Board to set minimum capital levels for depository institution holding companies that are as
stringent as those required for the insured depository subsidiaries, and the components of Tier 1 capital would be restricted
to capital instruments that are currently considered to be Tier 1 capital for insured depository institutions. Under the Dodd-
Frank Act, the proceeds of trust preferred securities are excluded from Tier 1 capital unless such securities were issued
prior to May 19, 2010 by bank or savings and loan holding companies with less than $15 billion of assets.
The Dodd-Frank Act also created a new Consumer Financial Protection Bureau with broad powers to supervise and enforce
consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of
consumer protection laws that apply to all banks and savings institutions such as American Federal Savings Bank,
including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection
Bureau has examination and enforcement authority over all banks and savings institutions with more than $10 billion in
assets. Banks and savings institutions with $10 billion or less in assets will continue to be examined by their applicable
bank regulators. The new legislation also weakens the federal preemption available for national banks and federal savings
associations, and gives state attorneys general the ability to enforce applicable federal consumer protection laws.
REGULATION
The legislation also broadens the base for Federal Deposit Insurance Corporation insurance assessments. Assessments will
now be based on the average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank
Act also permanently increases the maximum amount of deposit insurance for banks, savings institutions and credit unions
to $250,000 per depositor, retroactive to January 1, 2009, and non-interest bearing transaction accounts have unlimited
deposit insurance through December 31, 2012. Lastly, the Dodd-Frank Act directs the Federal Reserve Board to
promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the
company is publicly traded or not.
Set forth below is a brief description of certain laws and regulations applicable to Eagle and American Federal. These
descriptions of laws and regulations as well as those contained elsewhere do not purport to be complete and are qualified in
their entirety by reference to applicable laws and regulations. Legislative or regulatory changes in the future could
adversely affect our operations or financial condition.
General
Federal Regulation of Savings Institutions
The following description relates to both Eagle and American Federal’s regulation through the completion of the fiscal year
ending June 30, 2012, and a description of certain historical regulatory aspects. The information related to the Office of
Thrift Supervision is expected to a significant degree to be descriptive of regulations and policies of the OCC which has
adopted virtually all of the Office of Thrift Supervision rules. However, because neither Eagle nor American Federal has
had any experience with federal bank regulators other than the Office of Thrift Supervision, and the FDIC with respect to
insurance of accounts, the descriptions that follow refer to Eagle and American Federal’s past experience through the end
of its fiscal year of June 30, 2012.
As a federally-chartered savings institution, American Federal is subject to extensive regulation, examination and
supervision by the Office of the Comptroller of the Currency (“OCC”) which assumed jurisdiction over Eagle and
American Federal after the close of Eagle’s June 30, 2011 fiscal year as its primary federal regulator, and the FDIC, as the
insurer of its deposits. American Federal is a member of the Federal Home Loan Bank, or FHLB System, and its deposit
accounts are insured up to applicable limits by the Deposit Insurance Fund, which is administered by the FDIC. There are
periodic examinations to evaluate American Federal’s safety and soundness and compliance with various regulatory
requirements. Under certain circumstances, the FDIC may also examine American Federal. This regulatory structure is
intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and the establishment of adequate allowance for loan
losses for regulatory purposes. Eagle, as a savings and loan holding company, was required to file certain reports with, is
subject to examination by, and otherwise comply with the rules and regulations of the Office of Thrift Supervision which
have been adopted by the OCC. The Federal Reserve Board assumed regulatory responsibility for Eagle during this year.
Eagle is also subject to the rules and regulations of the SEC under the federal securities laws. See “—Holding Company
Regulation.”
Office of Thrift Supervision. The Office of Thrift Supervision had extensive authority over the operations of savings
institutions. As part of this authority, American Federal was required to file periodic reports with the Office of Thrift
Supervision and is subject to periodic examinations. The Office of Thrift Supervision also had extensive enforcement
authority over all savings institutions and their holding companies, including American Federal and Eagle. Authority over
Eagle has been transferred to the Federal Reserve Board as a result of enactment of the Dodd-Frank Act. Enforcement
authority over Eagle includes, among other things, the ability to assess civil money penalties, issue cease-and-desist or
removal orders and initiate prompt corrective action orders. In general, these enforcement actions may be initiated for
violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for
enforcement action, including misleading or untimely reports filed with federal bank regulatory agencies. Except under
certain circumstances, public disclosure of final enforcement actions is required.
On July 21, 2010, the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the
“Dodd-Frank Act”). The Dodd-Frank Act will significantly change the current bank regulatory structure and affect the
lending, investment, trading and operating activities of financial institutions and their holding companies. Regulations
implementing the changes described below have not been promulgated by the federal banking agencies, so we cannot
determine the full impact on our business and operations at this time. However, one important change is the transfer of
regulatory jurisdiction over federal savings association regulation from the Office of Thrift Supervision to the OCC. The
FDIC will regulate state-chartered savings associations.
In addition, the investment, lending and branching authority of American Federal also are prescribed by federal laws,
which prohibit American Federal from engaging in any activities not permitted by these laws. For example, no savings
institution may invest in non-investment grade corporate debt securities. In addition, the permissible level of investment by
federal institutions in loans secured by non-residential real property may not exceed 400% of total capital, except with
approval of the Office of Thrift Supervision. Federal savings institutions are generally authorized to branch nationwide.
American Federal is in compliance with the noted restrictions.
Dodd-Frank Act
American Federal paid assessments to the Office of the Comptroller of the Currency to fund its operations. The general
assessments, paid on a semi-annual basis, are determined based on total assets, including consolidated subsidiaries.
American Federal’s general permissible lending limit for loans-to-one-borrower is equal to the greater of $500,000 or 15%
of unimpaired capital and surplus (except for loans fully secured by certain readily marketable collateral, in which case this
limit is increased to 25% of unimpaired capital and surplus).
The federal banking agencies, have adopted guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, asset quality, earnings standards, internal controls and audit systems, interest rate risk
exposure and compensation and other employee benefits. Any institution that fails to comply with these standards must
submit a compliance plan.
On July 21, 2011, under the requirements of the Dodd-Frank Act, our primary federal regulator, the Office of Thrift
Supervision, was merged with and into the Office of the Comptroller of the Currency (the primary federal regulator for
national banks). As a result, shortly after the conclusion of Eagle’s fiscal year of June 30, 2011, all federal savings
associations (including American Federal) came under the principal jurisdiction of a different, federal bank regulatory
agency, the OCC, which has historically regulated the national banks. The OCC has extensive experience in the regulation
of community banks such as American Federal but it is unclear without more experience how the change in federal
regulatory agencies will impact American Federal. American Federal will retain its federal thrift charter under the OCC,
but may evaluate other charter options in the future. The Dodd-Frank Act also authorizes the Board of Governors of the
Federal Reserve System to supervise and regulate all savings and loan holding companies like Eagle, in addition to bank
holding companies which it currently regulates. As a result, the Federal Reserve Board’s current regulations applicable to
bank holding companies, including, in the future, holding company capital requirements, will apply to savings and loan
holding companies like Eagle. The capital requirements are expected to take effect in five years. The Dodd-Frank Act will
require the Federal Reserve Board to set minimum capital levels for depository institution holding companies that are as
stringent as those required for the insured depository subsidiaries, and the components of Tier 1 capital would be restricted
to capital instruments that are currently considered to be Tier 1 capital for insured depository institutions. Under the Dodd-
Frank Act, the proceeds of trust preferred securities are excluded from Tier 1 capital unless such securities were issued
prior to May 19, 2010 by bank or savings and loan holding companies with less than $15 billion of assets.
Federal Home Loan Bank System. American Federal is a member of the FHLB of Seattle, which is one of 12 regional
FHLBs that administer the home financing credit function of savings institutions. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of
consolidated obligations of the FHLB System. It makes loans or advances to members in accordance with policies and
procedures, established by the Board of Directors of the FHLB, which are subject to the oversight of the Federal Housing
Finance Board. All advances from the FHLB are required to be fully secured by sufficient collateral as determined by the
FHLB. In addition, all long-term advances are required to provide funds for residential home financing. As a member,
American Federal is required to purchase and maintain stock in the FHLB of Seattle.
The Dodd-Frank Act also created a new Consumer Financial Protection Bureau with broad powers to supervise and enforce
consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of
consumer protection laws that apply to all banks and savings institutions such as American Federal Savings Bank,
including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection
The FHLBs have continued and continue to contribute to low- and moderately-priced housing programs through direct
Bureau has examination and enforcement authority over all banks and savings institutions with more than $10 billion in
loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing
assets. Banks and savings institutions with $10 billion or less in assets will continue to be examined by their applicable
projects. These contributions have affected adversely the level of FHLB dividends paid and could continue to do so in the
bank regulators. The new legislation also weakens the federal preemption available for national banks and federal savings
associations, and gives state attorneys general the ability to enforce applicable federal consumer protection laws.
The legislation also broadens the base for Federal Deposit Insurance Corporation insurance assessments. Assessments will
now be based on the average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank
Act also permanently increases the maximum amount of deposit insurance for banks, savings institutions and credit unions
to $250,000 per depositor, retroactive to January 1, 2009, and non-interest bearing transaction accounts have unlimited
deposit insurance through December 31, 2012. Lastly, the Dodd-Frank Act directs the Federal Reserve Board to
promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the
company is publicly traded or not.
Federal Regulation of Savings Institutions
The following description relates to both Eagle and American Federal’s regulation through the completion of the fiscal year
ending June 30, 2012, and a description of certain historical regulatory aspects. The information related to the Office of
Thrift Supervision is expected to a significant degree to be descriptive of regulations and policies of the OCC which has
adopted virtually all of the Office of Thrift Supervision rules. However, because neither Eagle nor American Federal has
had any experience with federal bank regulators other than the Office of Thrift Supervision, and the FDIC with respect to
insurance of accounts, the descriptions that follow refer to Eagle and American Federal’s past experience through the end
of its fiscal year of June 30, 2012.
Office of Thrift Supervision. The Office of Thrift Supervision had extensive authority over the operations of savings
institutions. As part of this authority, American Federal was required to file periodic reports with the Office of Thrift
Supervision and is subject to periodic examinations. The Office of Thrift Supervision also had extensive enforcement
authority over all savings institutions and their holding companies, including American Federal and Eagle. Authority over
Eagle has been transferred to the Federal Reserve Board as a result of enactment of the Dodd-Frank Act. Enforcement
authority over Eagle includes, among other things, the ability to assess civil money penalties, issue cease-and-desist or
removal orders and initiate prompt corrective action orders. In general, these enforcement actions may be initiated for
violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for
enforcement action, including misleading or untimely reports filed with federal bank regulatory agencies. Except under
certain circumstances, public disclosure of final enforcement actions is required.
In addition, the investment, lending and branching authority of American Federal also are prescribed by federal laws,
which prohibit American Federal from engaging in any activities not permitted by these laws. For example, no savings
institution may invest in non-investment grade corporate debt securities. In addition, the permissible level of investment by
federal institutions in loans secured by non-residential real property may not exceed 400% of total capital, except with
approval of the Office of Thrift Supervision. Federal savings institutions are generally authorized to branch nationwide.
American Federal is in compliance with the noted restrictions.
American Federal paid assessments to the Office of the Comptroller of the Currency to fund its operations. The general
assessments, paid on a semi-annual basis, are determined based on total assets, including consolidated subsidiaries.
American Federal’s general permissible lending limit for loans-to-one-borrower is equal to the greater of $500,000 or 15%
of unimpaired capital and surplus (except for loans fully secured by certain readily marketable collateral, in which case this
limit is increased to 25% of unimpaired capital and surplus).
The federal banking agencies, have adopted guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, asset quality, earnings standards, internal controls and audit systems, interest rate risk
exposure and compensation and other employee benefits. Any institution that fails to comply with these standards must
submit a compliance plan.
Federal Home Loan Bank System. American Federal is a member of the FHLB of Seattle, which is one of 12 regional
FHLBs that administer the home financing credit function of savings institutions. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of
consolidated obligations of the FHLB System. It makes loans or advances to members in accordance with policies and
procedures, established by the Board of Directors of the FHLB, which are subject to the oversight of the Federal Housing
Finance Board. All advances from the FHLB are required to be fully secured by sufficient collateral as determined by the
FHLB. In addition, all long-term advances are required to provide funds for residential home financing. As a member,
American Federal is required to purchase and maintain stock in the FHLB of Seattle.
The FHLBs have continued and continue to contribute to low- and moderately-priced housing programs through direct
loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB dividends paid and could continue to do so in the
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Set forth below is a brief description of certain laws and regulations applicable to Eagle and American Federal. These
descriptions of laws and regulations as well as those contained elsewhere do not purport to be complete and are qualified in
their entirety by reference to applicable laws and regulations. Legislative or regulatory changes in the future could
adversely affect our operations or financial condition.
As a federally-chartered savings institution, American Federal is subject to extensive regulation, examination and
supervision by the Office of the Comptroller of the Currency (“OCC”) which assumed jurisdiction over Eagle and
American Federal after the close of Eagle’s June 30, 2011 fiscal year as its primary federal regulator, and the FDIC, as the
insurer of its deposits. American Federal is a member of the Federal Home Loan Bank, or FHLB System, and its deposit
accounts are insured up to applicable limits by the Deposit Insurance Fund, which is administered by the FDIC. There are
periodic examinations to evaluate American Federal’s safety and soundness and compliance with various regulatory
requirements. Under certain circumstances, the FDIC may also examine American Federal. This regulatory structure is
intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and the establishment of adequate allowance for loan
losses for regulatory purposes. Eagle, as a savings and loan holding company, was required to file certain reports with, is
subject to examination by, and otherwise comply with the rules and regulations of the Office of Thrift Supervision which
have been adopted by the OCC. The Federal Reserve Board assumed regulatory responsibility for Eagle during this year.
Eagle is also subject to the rules and regulations of the SEC under the federal securities laws. See “—Holding Company
REGULATION
General
Regulation.”
Dodd-Frank Act
On July 21, 2010, the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the
“Dodd-Frank Act”). The Dodd-Frank Act will significantly change the current bank regulatory structure and affect the
lending, investment, trading and operating activities of financial institutions and their holding companies. Regulations
implementing the changes described below have not been promulgated by the federal banking agencies, so we cannot
determine the full impact on our business and operations at this time. However, one important change is the transfer of
regulatory jurisdiction over federal savings association regulation from the Office of Thrift Supervision to the OCC. The
FDIC will regulate state-chartered savings associations.
On July 21, 2011, under the requirements of the Dodd-Frank Act, our primary federal regulator, the Office of Thrift
Supervision, was merged with and into the Office of the Comptroller of the Currency (the primary federal regulator for
national banks). As a result, shortly after the conclusion of Eagle’s fiscal year of June 30, 2011, all federal savings
associations (including American Federal) came under the principal jurisdiction of a different, federal bank regulatory
agency, the OCC, which has historically regulated the national banks. The OCC has extensive experience in the regulation
of community banks such as American Federal but it is unclear without more experience how the change in federal
regulatory agencies will impact American Federal. American Federal will retain its federal thrift charter under the OCC,
but may evaluate other charter options in the future. The Dodd-Frank Act also authorizes the Board of Governors of the
Federal Reserve System to supervise and regulate all savings and loan holding companies like Eagle, in addition to bank
holding companies which it currently regulates. As a result, the Federal Reserve Board’s current regulations applicable to
bank holding companies, including, in the future, holding company capital requirements, will apply to savings and loan
holding companies like Eagle. The capital requirements are expected to take effect in five years. The Dodd-Frank Act will
require the Federal Reserve Board to set minimum capital levels for depository institution holding companies that are as
stringent as those required for the insured depository subsidiaries, and the components of Tier 1 capital would be restricted
to capital instruments that are currently considered to be Tier 1 capital for insured depository institutions. Under the Dodd-
Frank Act, the proceeds of trust preferred securities are excluded from Tier 1 capital unless such securities were issued
prior to May 19, 2010 by bank or savings and loan holding companies with less than $15 billion of assets.
The Dodd-Frank Act also created a new Consumer Financial Protection Bureau with broad powers to supervise and enforce
consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of
consumer protection laws that apply to all banks and savings institutions such as American Federal Savings Bank,
including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection
Bureau has examination and enforcement authority over all banks and savings institutions with more than $10 billion in
assets. Banks and savings institutions with $10 billion or less in assets will continue to be examined by their applicable
bank regulators. The new legislation also weakens the federal preemption available for national banks and federal savings
associations, and gives state attorneys general the ability to enforce applicable federal consumer protection laws.
REGULATION
The legislation also broadens the base for Federal Deposit Insurance Corporation insurance assessments. Assessments will
now be based on the average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank
Act also permanently increases the maximum amount of deposit insurance for banks, savings institutions and credit unions
to $250,000 per depositor, retroactive to January 1, 2009, and non-interest bearing transaction accounts have unlimited
deposit insurance through December 31, 2012. Lastly, the Dodd-Frank Act directs the Federal Reserve Board to
promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the
company is publicly traded or not.
Set forth below is a brief description of certain laws and regulations applicable to Eagle and American Federal. These
descriptions of laws and regulations as well as those contained elsewhere do not purport to be complete and are qualified in
their entirety by reference to applicable laws and regulations. Legislative or regulatory changes in the future could
adversely affect our operations or financial condition.
General
Federal Regulation of Savings Institutions
The following description relates to both Eagle and American Federal’s regulation through the completion of the fiscal year
ending June 30, 2012, and a description of certain historical regulatory aspects. The information related to the Office of
Thrift Supervision is expected to a significant degree to be descriptive of regulations and policies of the OCC which has
adopted virtually all of the Office of Thrift Supervision rules. However, because neither Eagle nor American Federal has
had any experience with federal bank regulators other than the Office of Thrift Supervision, and the FDIC with respect to
insurance of accounts, the descriptions that follow refer to Eagle and American Federal’s past experience through the end
of its fiscal year of June 30, 2012.
As a federally-chartered savings institution, American Federal is subject to extensive regulation, examination and
supervision by the Office of the Comptroller of the Currency (“OCC”) which assumed jurisdiction over Eagle and
American Federal after the close of Eagle’s June 30, 2011 fiscal year as its primary federal regulator, and the FDIC, as the
insurer of its deposits. American Federal is a member of the Federal Home Loan Bank, or FHLB System, and its deposit
accounts are insured up to applicable limits by the Deposit Insurance Fund, which is administered by the FDIC. There are
periodic examinations to evaluate American Federal’s safety and soundness and compliance with various regulatory
requirements. Under certain circumstances, the FDIC may also examine American Federal. This regulatory structure is
intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and the establishment of adequate allowance for loan
losses for regulatory purposes. Eagle, as a savings and loan holding company, was required to file certain reports with, is
subject to examination by, and otherwise comply with the rules and regulations of the Office of Thrift Supervision which
have been adopted by the OCC. The Federal Reserve Board assumed regulatory responsibility for Eagle during this year.
Eagle is also subject to the rules and regulations of the SEC under the federal securities laws. See “—Holding Company
Regulation.”
Office of Thrift Supervision. The Office of Thrift Supervision had extensive authority over the operations of savings
institutions. As part of this authority, American Federal was required to file periodic reports with the Office of Thrift
Supervision and is subject to periodic examinations. The Office of Thrift Supervision also had extensive enforcement
authority over all savings institutions and their holding companies, including American Federal and Eagle. Authority over
Eagle has been transferred to the Federal Reserve Board as a result of enactment of the Dodd-Frank Act. Enforcement
authority over Eagle includes, among other things, the ability to assess civil money penalties, issue cease-and-desist or
removal orders and initiate prompt corrective action orders. In general, these enforcement actions may be initiated for
violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for
enforcement action, including misleading or untimely reports filed with federal bank regulatory agencies. Except under
certain circumstances, public disclosure of final enforcement actions is required.
On July 21, 2010, the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the
“Dodd-Frank Act”). The Dodd-Frank Act will significantly change the current bank regulatory structure and affect the
lending, investment, trading and operating activities of financial institutions and their holding companies. Regulations
implementing the changes described below have not been promulgated by the federal banking agencies, so we cannot
determine the full impact on our business and operations at this time. However, one important change is the transfer of
regulatory jurisdiction over federal savings association regulation from the Office of Thrift Supervision to the OCC. The
FDIC will regulate state-chartered savings associations.
In addition, the investment, lending and branching authority of American Federal also are prescribed by federal laws,
which prohibit American Federal from engaging in any activities not permitted by these laws. For example, no savings
institution may invest in non-investment grade corporate debt securities. In addition, the permissible level of investment by
federal institutions in loans secured by non-residential real property may not exceed 400% of total capital, except with
approval of the Office of Thrift Supervision. Federal savings institutions are generally authorized to branch nationwide.
American Federal is in compliance with the noted restrictions.
Dodd-Frank Act
American Federal paid assessments to the Office of the Comptroller of the Currency to fund its operations. The general
assessments, paid on a semi-annual basis, are determined based on total assets, including consolidated subsidiaries.
American Federal’s general permissible lending limit for loans-to-one-borrower is equal to the greater of $500,000 or 15%
of unimpaired capital and surplus (except for loans fully secured by certain readily marketable collateral, in which case this
limit is increased to 25% of unimpaired capital and surplus).
The federal banking agencies, have adopted guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, asset quality, earnings standards, internal controls and audit systems, interest rate risk
exposure and compensation and other employee benefits. Any institution that fails to comply with these standards must
submit a compliance plan.
On July 21, 2011, under the requirements of the Dodd-Frank Act, our primary federal regulator, the Office of Thrift
Supervision, was merged with and into the Office of the Comptroller of the Currency (the primary federal regulator for
national banks). As a result, shortly after the conclusion of Eagle’s fiscal year of June 30, 2011, all federal savings
associations (including American Federal) came under the principal jurisdiction of a different, federal bank regulatory
agency, the OCC, which has historically regulated the national banks. The OCC has extensive experience in the regulation
of community banks such as American Federal but it is unclear without more experience how the change in federal
regulatory agencies will impact American Federal. American Federal will retain its federal thrift charter under the OCC,
but may evaluate other charter options in the future. The Dodd-Frank Act also authorizes the Board of Governors of the
Federal Reserve System to supervise and regulate all savings and loan holding companies like Eagle, in addition to bank
holding companies which it currently regulates. As a result, the Federal Reserve Board’s current regulations applicable to
bank holding companies, including, in the future, holding company capital requirements, will apply to savings and loan
holding companies like Eagle. The capital requirements are expected to take effect in five years. The Dodd-Frank Act will
require the Federal Reserve Board to set minimum capital levels for depository institution holding companies that are as
stringent as those required for the insured depository subsidiaries, and the components of Tier 1 capital would be restricted
to capital instruments that are currently considered to be Tier 1 capital for insured depository institutions. Under the Dodd-
Frank Act, the proceeds of trust preferred securities are excluded from Tier 1 capital unless such securities were issued
prior to May 19, 2010 by bank or savings and loan holding companies with less than $15 billion of assets.
Federal Home Loan Bank System. American Federal is a member of the FHLB of Seattle, which is one of 12 regional
FHLBs that administer the home financing credit function of savings institutions. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of
consolidated obligations of the FHLB System. It makes loans or advances to members in accordance with policies and
procedures, established by the Board of Directors of the FHLB, which are subject to the oversight of the Federal Housing
Finance Board. All advances from the FHLB are required to be fully secured by sufficient collateral as determined by the
FHLB. In addition, all long-term advances are required to provide funds for residential home financing. As a member,
American Federal is required to purchase and maintain stock in the FHLB of Seattle.
The Dodd-Frank Act also created a new Consumer Financial Protection Bureau with broad powers to supervise and enforce
consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of
consumer protection laws that apply to all banks and savings institutions such as American Federal Savings Bank,
including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection
The FHLBs have continued and continue to contribute to low- and moderately-priced housing programs through direct
Bureau has examination and enforcement authority over all banks and savings institutions with more than $10 billion in
loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing
assets. Banks and savings institutions with $10 billion or less in assets will continue to be examined by their applicable
projects. These contributions have affected adversely the level of FHLB dividends paid and could continue to do so in the
bank regulators. The new legislation also weakens the federal preemption available for national banks and federal savings
associations, and gives state attorneys general the ability to enforce applicable federal consumer protection laws.
The legislation also broadens the base for Federal Deposit Insurance Corporation insurance assessments. Assessments will
now be based on the average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank
Act also permanently increases the maximum amount of deposit insurance for banks, savings institutions and credit unions
to $250,000 per depositor, retroactive to January 1, 2009, and non-interest bearing transaction accounts have unlimited
deposit insurance through December 31, 2012. Lastly, the Dodd-Frank Act directs the Federal Reserve Board to
promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the
company is publicly traded or not.
Federal Regulation of Savings Institutions
The following description relates to both Eagle and American Federal’s regulation through the completion of the fiscal year
ending June 30, 2012, and a description of certain historical regulatory aspects. The information related to the Office of
Thrift Supervision is expected to a significant degree to be descriptive of regulations and policies of the OCC which has
adopted virtually all of the Office of Thrift Supervision rules. However, because neither Eagle nor American Federal has
had any experience with federal bank regulators other than the Office of Thrift Supervision, and the FDIC with respect to
insurance of accounts, the descriptions that follow refer to Eagle and American Federal’s past experience through the end
of its fiscal year of June 30, 2012.
Office of Thrift Supervision. The Office of Thrift Supervision had extensive authority over the operations of savings
institutions. As part of this authority, American Federal was required to file periodic reports with the Office of Thrift
Supervision and is subject to periodic examinations. The Office of Thrift Supervision also had extensive enforcement
authority over all savings institutions and their holding companies, including American Federal and Eagle. Authority over
Eagle has been transferred to the Federal Reserve Board as a result of enactment of the Dodd-Frank Act. Enforcement
authority over Eagle includes, among other things, the ability to assess civil money penalties, issue cease-and-desist or
removal orders and initiate prompt corrective action orders. In general, these enforcement actions may be initiated for
violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for
enforcement action, including misleading or untimely reports filed with federal bank regulatory agencies. Except under
certain circumstances, public disclosure of final enforcement actions is required.
In addition, the investment, lending and branching authority of American Federal also are prescribed by federal laws,
which prohibit American Federal from engaging in any activities not permitted by these laws. For example, no savings
institution may invest in non-investment grade corporate debt securities. In addition, the permissible level of investment by
federal institutions in loans secured by non-residential real property may not exceed 400% of total capital, except with
approval of the Office of Thrift Supervision. Federal savings institutions are generally authorized to branch nationwide.
American Federal is in compliance with the noted restrictions.
American Federal paid assessments to the Office of the Comptroller of the Currency to fund its operations. The general
assessments, paid on a semi-annual basis, are determined based on total assets, including consolidated subsidiaries.
American Federal’s general permissible lending limit for loans-to-one-borrower is equal to the greater of $500,000 or 15%
of unimpaired capital and surplus (except for loans fully secured by certain readily marketable collateral, in which case this
limit is increased to 25% of unimpaired capital and surplus).
The federal banking agencies, have adopted guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, asset quality, earnings standards, internal controls and audit systems, interest rate risk
exposure and compensation and other employee benefits. Any institution that fails to comply with these standards must
submit a compliance plan.
Federal Home Loan Bank System. American Federal is a member of the FHLB of Seattle, which is one of 12 regional
FHLBs that administer the home financing credit function of savings institutions. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of
consolidated obligations of the FHLB System. It makes loans or advances to members in accordance with policies and
procedures, established by the Board of Directors of the FHLB, which are subject to the oversight of the Federal Housing
Finance Board. All advances from the FHLB are required to be fully secured by sufficient collateral as determined by the
FHLB. In addition, all long-term advances are required to provide funds for residential home financing. As a member,
American Federal is required to purchase and maintain stock in the FHLB of Seattle.
The FHLBs have continued and continue to contribute to low- and moderately-priced housing programs through direct
loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB dividends paid and could continue to do so in the
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future. These contributions could also have an adverse effect on the value of FHLB stock in the future. A reduction in
value of American Federal’s FHLB stock may result in a corresponding reduction in American Federal’s capital.
adverse effect on the operating expenses and results of operations of the Bank. There can be no prediction as to what insurance
future. These contributions could also have an adverse effect on the value of FHLB stock in the future. A reduction in
assessment rates will be in the future.
value of American Federal’s FHLB stock may result in a corresponding reduction in American Federal’s capital.
assessment rates will be in the future.
adverse effect on the operating expenses and results of operations of the Bank. There can be no prediction as to what insurance
Federal Reserve System. The Federal Reserve System requires all depository institutions to maintain noninterest-bearing
reserves at specified levels against their checking, NOW, and non-personal time deposits. The balances maintained to meet
the reserve requirements imposed by the Federal Reserve System may be used to satisfy liquidity requirements.
In addition to the assessment for deposit insurance, through 2019, institutions are required to make payments on bonds
issued in the late 1980s by the Financing Corporation to recapitalize a predecessor deposit insurance fund. This payment
is established quarterly and as of the quarter ended March 31, 2012 was 0.66 basis points of assessable deposits.
Federal Reserve System. The Federal Reserve System requires all depository institutions to maintain noninterest-bearing
reserves at specified levels against their checking, NOW, and non-personal time deposits. The balances maintained to meet
the reserve requirements imposed by the Federal Reserve System may be used to satisfy liquidity requirements.
In addition to the assessment for deposit insurance, through 2019, institutions are required to make payments on bonds
issued in the late 1980s by the Financing Corporation to recapitalize a predecessor deposit insurance fund. This payment
is established quarterly and as of the quarter ended March 31, 2012 was 0.66 basis points of assessable deposits.
Savings institutions have authority to borrow from the Federal Reserve System “discount window”. American Federal
maintains a “primary credit” facility at the Federal Reserve’s discount window.
Insurance of Deposit Accounts. Deposit accounts at American Federal are insured by the Federal Deposit Insurance
Corporation, generally up to a maximum of $250,000 per separately insured depositor and up to a maximum of $250,000
for self-directed retirement accounts. American Federal’s deposits, therefore, are subject to Federal Deposit Insurance
Corporation deposit insurance assessments. Assessments paid to the FDIC by American Federal and other banking
institutions are used to fund the FDIC’s Federal Deposit Insurance Fund (“DIF”).
Insurance of Accounts and Regulation by the FDIC. As insurer of deposits in banks, the FDIC imposes deposit insurance
premiums and is authorized to conduct examinations of and to require reporting by FDIC-insured institutions. It also may
prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a
serious risk to the fund. The FDIC also has the authority to initiate enforcement actions against savings institutions, after
giving the Office of the Comptroller of the Currency an opportunity to take such action. Insurance of deposits may be
terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by
the FDIC or written agreement with the FDIC. We are not aware of any practice, condition or violation that might lead to the
termination of American Federal’s deposit insurance.
New Assessments Under Dodd-Frank. The FDIC assesses deposit insurance premiums on each insured institution quarterly
based on annualized rates for one of four risk categories. As required by the Dodd-Frank Act, the FDIC adopted rules effective
April 1, 2011, under which insurance premium assessments are based on an institution's total assets minus its tangible equity
(defined as Tier I capital) instead of its deposits. Under these rules, an institution with total assets of less than $10 billion is
assigned to a Risk Category and a range of initial base assessment rates applies to each category, subject to adjustment
downward based on unsecured debt issued by the institution and, except for an institution in Risk Category I, adjustment
upward if the institution's brokered deposits exceed 10% of its domestic deposits, to produce total base assessment rates.
Effective April 1, 2011, total base assessment rates will range from 2.5 to 9 basis points for Risk Category I, 9 to 24 basis
points for Risk Category II, 18 to 33 basis points for Risk Category III, and 30 to 45 basis points for Risk Category IV, all
subject to further adjustment upward if the institution holds more than a de minimis amount of unsecured debt issued by
another FD1C-insured institution. The FDIC may increase or decrease its rates for each quarter by 2.0 basis points without
further rulemaking. In an emergency, the FDIC may also impose a special assessment.
Prepaid FDIC Premiums. As a result of a decline in the reserve ratio (the ratio of the DIF to estimated insured deposits)
and concerns about expected failure costs and available liquid assets in the DIF, the FDIC adopted a rule requiring each
insured institution to prepay on December 30, 2009 the estimated amount of its quarterly assessments for the fourth quarter of
2009 and all quarters through the end of 2012 (in addition to the regular quarterly assessment for the third quarter which was
due on December 30, 2009). The prepaid amount is recorded as an asset with a zero risk weight and the institution will
continue to record quarterly expenses for deposit insurance. For purposes of calculating the prepaid amount, assessments
were measured at the institution's assessment rate as of September 30, 2009, with a uniform increase of 3 basis points
effective January 1, 2011, and were based on the institution's assessment base for the third quarter of 2009, with growth
assumed quarterly at annual rate of 5%. Collection of the prepayment does not preclude the FDIC from changing
assessment rates or revising the risk-based assessment system in the future. The balance of American Federal’s prepaid
assessment at June 30, 2012 was $394,000. The FDIC will continue to offset prepared assessments through the earlier of
June 30, 2013, or exhaustion of the prepaid assessment of the DIF.
Minimum Reserve Ratios. The Dodd-Frank Act establishes 1.35% as the minimum reserve ratio. The FDIC has adopted a
plan under which it will meet this ratio by September 30, 2020, the deadline imposed by the Dodd-Frank Act, The Dodd-
Frank Act requires the FDIC to offset the effect on institutions with assets less than $10 billion of the increase in the
statutory minimum reserve ratio to 1.35% from the former statutory minimum of 1.15%. The FDIC has not yet announced
how it will implement this offset. In addition to the statutory minimum ratio, the FDIC must designate a reserve ratio,
known as the designated reserve ratio, or DRR, which may exceed the statutory minimum. The FDIC has established 2.0%
as the DRR.
Savings institutions have authority to borrow from the Federal Reserve System “discount window”. American Federal
maintains a “primary credit” facility at the Federal Reserve’s discount window.
Capital Requirements. Federally insured savings institutions, such as American Federal, are required by the Office of the
Comptroller of the Currency to maintain minimum levels of regulatory capital. These minimum capital standards include:
a 1.5% tangible capital to total assets ratio, a 4% leverage ratio (3% for institutions receiving the highest rating on the
CAMELS examination rating system) and an 8% risk-based capital ratio. In addition, the prompt corrective action
standards, discussed below, also establish, in effect, a minimum 2% tangible capital standard, a 4% leverage ratio (3% for
institutions receiving the highest rating on the CAMELS system) and, together with the risk-based capital standard itself, a
4% Tier 1 risk-based capital standard. The regulations also require that, in meeting the tangible, leverage and risk-based
capital standards, institutions must generally deduct investments in and loans to subsidiaries engaged in activities as
principal that are not permissible for a national bank.
Insurance of Deposit Accounts. Deposit accounts at American Federal are insured by the Federal Deposit Insurance
Corporation, generally up to a maximum of $250,000 per separately insured depositor and up to a maximum of $250,000
for self-directed retirement accounts. American Federal’s deposits, therefore, are subject to Federal Deposit Insurance
Corporation deposit insurance assessments. Assessments paid to the FDIC by American Federal and other banking
institutions are used to fund the FDIC’s Federal Deposit Insurance Fund (“DIF”).
Insurance of Accounts and Regulation by the FDIC. As insurer of deposits in banks, the FDIC imposes deposit insurance
premiums and is authorized to conduct examinations of and to require reporting by FDIC-insured institutions. It also may
prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a
serious risk to the fund. The FDIC also has the authority to initiate enforcement actions against savings institutions, after
giving the Office of the Comptroller of the Currency an opportunity to take such action. Insurance of deposits may be
terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by
the FDIC or written agreement with the FDIC. We are not aware of any practice, condition or violation that might lead to the
termination of American Federal’s deposit insurance.
The risk-based capital standard requires federal savings institutions to maintain Tier 1 (core) and total capital (which is
defined as core capital and supplementary capital) to risk-weighted assets of at least 4% and 8%, respectively. In
determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, recourse obligations,
residual interests and direct credit substitutes, are multiplied by a risk-weight factor of 0% to 100%, assigned by the
Comptroller of the Currency capital regulation based on the risks believed inherent in the type of asset. Tier 1 (core) capital
is defined as common stockholders’ equity (including retained earnings), certain noncumulative perpetual preferred stock
and related surplus and minority interests in equity accounts of consolidated subsidiaries, less intangibles other than certain
mortgage servicing rights and credit card relationships. The components of supplementary capital currently include
cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and
intermediate preferred stock, the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted
assets. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital.
The Comptroller of the Currency also has authority to establish individual minimum capital requirements for financial
institutions.
New Assessments Under Dodd-Frank. The FDIC assesses deposit insurance premiums on each insured institution quarterly
based on annualized rates for one of four risk categories. As required by the Dodd-Frank Act, the FDIC adopted rules effective
April 1, 2011, under which insurance premium assessments are based on an institution's total assets minus its tangible equity
(defined as Tier I capital) instead of its deposits. Under these rules, an institution with total assets of less than $10 billion is
assigned to a Risk Category and a range of initial base assessment rates applies to each category, subject to adjustment
downward based on unsecured debt issued by the institution and, except for an institution in Risk Category I, adjustment
upward if the institution's brokered deposits exceed 10% of its domestic deposits, to produce total base assessment rates.
Effective April 1, 2011, total base assessment rates will range from 2.5 to 9 basis points for Risk Category I, 9 to 24 basis
points for Risk Category II, 18 to 33 basis points for Risk Category III, and 30 to 45 basis points for Risk Category IV, all
subject to further adjustment upward if the institution holds more than a de minimis amount of unsecured debt issued by
another FD1C-insured institution. The FDIC may increase or decrease its rates for each quarter by 2.0 basis points without
further rulemaking. In an emergency, the FDIC may also impose a special assessment.
Prompt Corrective Action. Federal bank regulatory agencies are required to take certain supervisory actions against
undercapitalized institutions, the severity of which depends upon the institution’s degree of undercapitalization. Generally,
an institution that has a ratio of total capital to risk-weighted assets of less than 8%, a ratio of Tier 1 (core) capital to risk-
weighted assets of less than 4%, or a ratio of core capital to total assets of less than 4% (3% or less for institutions with the
highest examination rating) is considered to be “undercapitalized.” An institution that has a total risk-based capital ratio
less than 6%, a Tier 1 capital ratio of less than 3% or a leverage ratio that is less than 3% is considered to be “significantly
undercapitalized” and an institution that has a tangible capital to assets ratio equal to or less than 2% is deemed to be
“critically undercapitalized.” Subject to a narrow exception, the Comptroller of the Currency is required to appoint a
receiver or conservator for a savings institution that is “critically undercapitalized.” Regulations also require that a capital
restoration plan be filed with the Comptroller of the Currency within 45 days of the date a savings institution receives
notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” In addition, numerous
mandatory supervisory actions become immediately applicable to an undercapitalized institution, including, but not limited
to, increased monitoring by regulators and restrictions on growth, capital distributions and expansion. ”Significantly
undercapitalized” and “critically undercapitalized” institutions are subject to more extensive mandatory regulatory
actions. The Comptroller of the Currency also could take any one of a number of discretionary supervisory actions,
including the issuance of a capital directive and the replacement of senior executive officers and directors. At June 30,
2012, American Federal’s capital ratios met the “well capitalized” standards.
Prepaid FDIC Premiums. As a result of a decline in the reserve ratio (the ratio of the DIF to estimated insured deposits)
and concerns about expected failure costs and available liquid assets in the DIF, the FDIC adopted a rule requiring each
insured institution to prepay on December 30, 2009 the estimated amount of its quarterly assessments for the fourth quarter of
2009 and all quarters through the end of 2012 (in addition to the regular quarterly assessment for the third quarter which was
due on December 30, 2009). The prepaid amount is recorded as an asset with a zero risk weight and the institution will
continue to record quarterly expenses for deposit insurance. For purposes of calculating the prepaid amount, assessments
were measured at the institution's assessment rate as of September 30, 2009, with a uniform increase of 3 basis points
effective January 1, 2011, and were based on the institution's assessment base for the third quarter of 2009, with growth
assumed quarterly at annual rate of 5%. Collection of the prepayment does not preclude the FDIC from changing
assessment rates or revising the risk-based assessment system in the future. The balance of American Federal’s prepaid
assessment at June 30, 2012 was $394,000. The FDIC will continue to offset prepared assessments through the earlier of
June 30, 2013, or exhaustion of the prepaid assessment of the DIF.
Limitations on Capital Distributions. Federal banking regulations impose various restrictions on institutions with respect
to their ability to make distributions of capital, which include dividends, stock redemptions or repurchases, cash-out
mergers and other transactions charged to the capital account. Generally, savings institutions, such as American Federal,
that before and after the proposed distribution are well-capitalized, may make capital distributions during any calendar year
equal to up to 100% of net income for the year-to-date plus retained net income for the two preceding years. However, an
institution deemed to be in need of more than normal supervision may have its dividend authority restricted.
Minimum Reserve Ratios. The Dodd-Frank Act establishes 1.35% as the minimum reserve ratio. The FDIC has adopted a
plan under which it will meet this ratio by September 30, 2020, the deadline imposed by the Dodd-Frank Act, The Dodd-
Frank Act requires the FDIC to offset the effect on institutions with assets less than $10 billion of the increase in the
statutory minimum reserve ratio to 1.35% from the former statutory minimum of 1.15%. The FDIC has not yet announced
how it will implement this offset. In addition to the statutory minimum ratio, the FDIC must designate a reserve ratio,
known as the designated reserve ratio, or DRR, which may exceed the statutory minimum. The FDIC has established 2.0%
as the DRR.
Generally, savings institutions proposing to make any capital distribution need not submit written notice to the Comptroller
of the Currency prior to such distribution unless they are a subsidiary of a holding company or would not remain well
capitalized following the distribution. Savings institutions that do not, or would not meet their current minimum capital
requirements following a proposed capital distribution or propose to exceed these net income limitations, must obtain of
Capital Requirements. Federally insured savings institutions, such as American Federal, are required by the Office of the
Comptroller of the Currency to maintain minimum levels of regulatory capital. These minimum capital standards include:
a 1.5% tangible capital to total assets ratio, a 4% leverage ratio (3% for institutions receiving the highest rating on the
CAMELS examination rating system) and an 8% risk-based capital ratio. In addition, the prompt corrective action
standards, discussed below, also establish, in effect, a minimum 2% tangible capital standard, a 4% leverage ratio (3% for
institutions receiving the highest rating on the CAMELS system) and, together with the risk-based capital standard itself, a
4% Tier 1 risk-based capital standard. The regulations also require that, in meeting the tangible, leverage and risk-based
capital standards, institutions must generally deduct investments in and loans to subsidiaries engaged in activities as
principal that are not permissible for a national bank.
The risk-based capital standard requires federal savings institutions to maintain Tier 1 (core) and total capital (which is
defined as core capital and supplementary capital) to risk-weighted assets of at least 4% and 8%, respectively. In
determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, recourse obligations,
residual interests and direct credit substitutes, are multiplied by a risk-weight factor of 0% to 100%, assigned by the
Comptroller of the Currency capital regulation based on the risks believed inherent in the type of asset. Tier 1 (core) capital
is defined as common stockholders’ equity (including retained earnings), certain noncumulative perpetual preferred stock
and related surplus and minority interests in equity accounts of consolidated subsidiaries, less intangibles other than certain
mortgage servicing rights and credit card relationships. The components of supplementary capital currently include
cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and
intermediate preferred stock, the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted
assets. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital.
The Comptroller of the Currency also has authority to establish individual minimum capital requirements for financial
institutions.
Prompt Corrective Action. Federal bank regulatory agencies are required to take certain supervisory actions against
undercapitalized institutions, the severity of which depends upon the institution’s degree of undercapitalization. Generally,
an institution that has a ratio of total capital to risk-weighted assets of less than 8%, a ratio of Tier 1 (core) capital to risk-
weighted assets of less than 4%, or a ratio of core capital to total assets of less than 4% (3% or less for institutions with the
highest examination rating) is considered to be “undercapitalized.” An institution that has a total risk-based capital ratio
less than 6%, a Tier 1 capital ratio of less than 3% or a leverage ratio that is less than 3% is considered to be “significantly
undercapitalized” and an institution that has a tangible capital to assets ratio equal to or less than 2% is deemed to be
“critically undercapitalized.” Subject to a narrow exception, the Comptroller of the Currency is required to appoint a
receiver or conservator for a savings institution that is “critically undercapitalized.” Regulations also require that a capital
restoration plan be filed with the Comptroller of the Currency within 45 days of the date a savings institution receives
notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” In addition, numerous
mandatory supervisory actions become immediately applicable to an undercapitalized institution, including, but not limited
to, increased monitoring by regulators and restrictions on growth, capital distributions and expansion. ”Significantly
undercapitalized” and “critically undercapitalized” institutions are subject to more extensive mandatory regulatory
actions. The Comptroller of the Currency also could take any one of a number of discretionary supervisory actions,
including the issuance of a capital directive and the replacement of senior executive officers and directors. At June 30,
2012, American Federal’s capital ratios met the “well capitalized” standards.
Limitations on Capital Distributions. Federal banking regulations impose various restrictions on institutions with respect
to their ability to make distributions of capital, which include dividends, stock redemptions or repurchases, cash-out
mergers and other transactions charged to the capital account. Generally, savings institutions, such as American Federal,
that before and after the proposed distribution are well-capitalized, may make capital distributions during any calendar year
equal to up to 100% of net income for the year-to-date plus retained net income for the two preceding years. However, an
institution deemed to be in need of more than normal supervision may have its dividend authority restricted.
Generally, savings institutions proposing to make any capital distribution need not submit written notice to the Comptroller
of the Currency prior to such distribution unless they are a subsidiary of a holding company or would not remain well
capitalized following the distribution. Savings institutions that do not, or would not meet their current minimum capital
requirements following a proposed capital distribution or propose to exceed these net income limitations, must obtain of
The FDIC has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an
The FDIC has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an
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future. These contributions could also have an adverse effect on the value of FHLB stock in the future. A reduction in
value of American Federal’s FHLB stock may result in a corresponding reduction in American Federal’s capital.
adverse effect on the operating expenses and results of operations of the Bank. There can be no prediction as to what insurance
future. These contributions could also have an adverse effect on the value of FHLB stock in the future. A reduction in
assessment rates will be in the future.
value of American Federal’s FHLB stock may result in a corresponding reduction in American Federal’s capital.
adverse effect on the operating expenses and results of operations of the Bank. There can be no prediction as to what insurance
assessment rates will be in the future.
Federal Reserve System. The Federal Reserve System requires all depository institutions to maintain noninterest-bearing
reserves at specified levels against their checking, NOW, and non-personal time deposits. The balances maintained to meet
the reserve requirements imposed by the Federal Reserve System may be used to satisfy liquidity requirements.
In addition to the assessment for deposit insurance, through 2019, institutions are required to make payments on bonds
issued in the late 1980s by the Financing Corporation to recapitalize a predecessor deposit insurance fund. This payment
is established quarterly and as of the quarter ended March 31, 2012 was 0.66 basis points of assessable deposits.
Federal Reserve System. The Federal Reserve System requires all depository institutions to maintain noninterest-bearing
reserves at specified levels against their checking, NOW, and non-personal time deposits. The balances maintained to meet
the reserve requirements imposed by the Federal Reserve System may be used to satisfy liquidity requirements.
In addition to the assessment for deposit insurance, through 2019, institutions are required to make payments on bonds
issued in the late 1980s by the Financing Corporation to recapitalize a predecessor deposit insurance fund. This payment
is established quarterly and as of the quarter ended March 31, 2012 was 0.66 basis points of assessable deposits.
Savings institutions have authority to borrow from the Federal Reserve System “discount window”. American Federal
maintains a “primary credit” facility at the Federal Reserve’s discount window.
Insurance of Deposit Accounts. Deposit accounts at American Federal are insured by the Federal Deposit Insurance
Corporation, generally up to a maximum of $250,000 per separately insured depositor and up to a maximum of $250,000
for self-directed retirement accounts. American Federal’s deposits, therefore, are subject to Federal Deposit Insurance
Corporation deposit insurance assessments. Assessments paid to the FDIC by American Federal and other banking
institutions are used to fund the FDIC’s Federal Deposit Insurance Fund (“DIF”).
Insurance of Accounts and Regulation by the FDIC. As insurer of deposits in banks, the FDIC imposes deposit insurance
premiums and is authorized to conduct examinations of and to require reporting by FDIC-insured institutions. It also may
prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a
serious risk to the fund. The FDIC also has the authority to initiate enforcement actions against savings institutions, after
giving the Office of the Comptroller of the Currency an opportunity to take such action. Insurance of deposits may be
terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by
the FDIC or written agreement with the FDIC. We are not aware of any practice, condition or violation that might lead to the
termination of American Federal’s deposit insurance.
New Assessments Under Dodd-Frank. The FDIC assesses deposit insurance premiums on each insured institution quarterly
based on annualized rates for one of four risk categories. As required by the Dodd-Frank Act, the FDIC adopted rules effective
April 1, 2011, under which insurance premium assessments are based on an institution's total assets minus its tangible equity
(defined as Tier I capital) instead of its deposits. Under these rules, an institution with total assets of less than $10 billion is
assigned to a Risk Category and a range of initial base assessment rates applies to each category, subject to adjustment
downward based on unsecured debt issued by the institution and, except for an institution in Risk Category I, adjustment
upward if the institution's brokered deposits exceed 10% of its domestic deposits, to produce total base assessment rates.
Effective April 1, 2011, total base assessment rates will range from 2.5 to 9 basis points for Risk Category I, 9 to 24 basis
points for Risk Category II, 18 to 33 basis points for Risk Category III, and 30 to 45 basis points for Risk Category IV, all
subject to further adjustment upward if the institution holds more than a de minimis amount of unsecured debt issued by
another FD1C-insured institution. The FDIC may increase or decrease its rates for each quarter by 2.0 basis points without
further rulemaking. In an emergency, the FDIC may also impose a special assessment.
Prepaid FDIC Premiums. As a result of a decline in the reserve ratio (the ratio of the DIF to estimated insured deposits)
and concerns about expected failure costs and available liquid assets in the DIF, the FDIC adopted a rule requiring each
insured institution to prepay on December 30, 2009 the estimated amount of its quarterly assessments for the fourth quarter of
2009 and all quarters through the end of 2012 (in addition to the regular quarterly assessment for the third quarter which was
due on December 30, 2009). The prepaid amount is recorded as an asset with a zero risk weight and the institution will
continue to record quarterly expenses for deposit insurance. For purposes of calculating the prepaid amount, assessments
were measured at the institution's assessment rate as of September 30, 2009, with a uniform increase of 3 basis points
effective January 1, 2011, and were based on the institution's assessment base for the third quarter of 2009, with growth
assumed quarterly at annual rate of 5%. Collection of the prepayment does not preclude the FDIC from changing
assessment rates or revising the risk-based assessment system in the future. The balance of American Federal’s prepaid
assessment at June 30, 2012 was $394,000. The FDIC will continue to offset prepared assessments through the earlier of
June 30, 2013, or exhaustion of the prepaid assessment of the DIF.
Minimum Reserve Ratios. The Dodd-Frank Act establishes 1.35% as the minimum reserve ratio. The FDIC has adopted a
plan under which it will meet this ratio by September 30, 2020, the deadline imposed by the Dodd-Frank Act, The Dodd-
Frank Act requires the FDIC to offset the effect on institutions with assets less than $10 billion of the increase in the
statutory minimum reserve ratio to 1.35% from the former statutory minimum of 1.15%. The FDIC has not yet announced
how it will implement this offset. In addition to the statutory minimum ratio, the FDIC must designate a reserve ratio,
known as the designated reserve ratio, or DRR, which may exceed the statutory minimum. The FDIC has established 2.0%
as the DRR.
Savings institutions have authority to borrow from the Federal Reserve System “discount window”. American Federal
maintains a “primary credit” facility at the Federal Reserve’s discount window.
Capital Requirements. Federally insured savings institutions, such as American Federal, are required by the Office of the
Comptroller of the Currency to maintain minimum levels of regulatory capital. These minimum capital standards include:
a 1.5% tangible capital to total assets ratio, a 4% leverage ratio (3% for institutions receiving the highest rating on the
CAMELS examination rating system) and an 8% risk-based capital ratio. In addition, the prompt corrective action
standards, discussed below, also establish, in effect, a minimum 2% tangible capital standard, a 4% leverage ratio (3% for
institutions receiving the highest rating on the CAMELS system) and, together with the risk-based capital standard itself, a
4% Tier 1 risk-based capital standard. The regulations also require that, in meeting the tangible, leverage and risk-based
capital standards, institutions must generally deduct investments in and loans to subsidiaries engaged in activities as
principal that are not permissible for a national bank.
Insurance of Deposit Accounts. Deposit accounts at American Federal are insured by the Federal Deposit Insurance
Corporation, generally up to a maximum of $250,000 per separately insured depositor and up to a maximum of $250,000
for self-directed retirement accounts. American Federal’s deposits, therefore, are subject to Federal Deposit Insurance
Corporation deposit insurance assessments. Assessments paid to the FDIC by American Federal and other banking
institutions are used to fund the FDIC’s Federal Deposit Insurance Fund (“DIF”).
Insurance of Accounts and Regulation by the FDIC. As insurer of deposits in banks, the FDIC imposes deposit insurance
premiums and is authorized to conduct examinations of and to require reporting by FDIC-insured institutions. It also may
prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a
serious risk to the fund. The FDIC also has the authority to initiate enforcement actions against savings institutions, after
giving the Office of the Comptroller of the Currency an opportunity to take such action. Insurance of deposits may be
terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by
the FDIC or written agreement with the FDIC. We are not aware of any practice, condition or violation that might lead to the
termination of American Federal’s deposit insurance.
The risk-based capital standard requires federal savings institutions to maintain Tier 1 (core) and total capital (which is
defined as core capital and supplementary capital) to risk-weighted assets of at least 4% and 8%, respectively. In
determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, recourse obligations,
residual interests and direct credit substitutes, are multiplied by a risk-weight factor of 0% to 100%, assigned by the
Comptroller of the Currency capital regulation based on the risks believed inherent in the type of asset. Tier 1 (core) capital
is defined as common stockholders’ equity (including retained earnings), certain noncumulative perpetual preferred stock
and related surplus and minority interests in equity accounts of consolidated subsidiaries, less intangibles other than certain
mortgage servicing rights and credit card relationships. The components of supplementary capital currently include
cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and
intermediate preferred stock, the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted
assets. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital.
The Comptroller of the Currency also has authority to establish individual minimum capital requirements for financial
institutions.
New Assessments Under Dodd-Frank. The FDIC assesses deposit insurance premiums on each insured institution quarterly
based on annualized rates for one of four risk categories. As required by the Dodd-Frank Act, the FDIC adopted rules effective
April 1, 2011, under which insurance premium assessments are based on an institution's total assets minus its tangible equity
(defined as Tier I capital) instead of its deposits. Under these rules, an institution with total assets of less than $10 billion is
assigned to a Risk Category and a range of initial base assessment rates applies to each category, subject to adjustment
downward based on unsecured debt issued by the institution and, except for an institution in Risk Category I, adjustment
upward if the institution's brokered deposits exceed 10% of its domestic deposits, to produce total base assessment rates.
Effective April 1, 2011, total base assessment rates will range from 2.5 to 9 basis points for Risk Category I, 9 to 24 basis
points for Risk Category II, 18 to 33 basis points for Risk Category III, and 30 to 45 basis points for Risk Category IV, all
subject to further adjustment upward if the institution holds more than a de minimis amount of unsecured debt issued by
another FD1C-insured institution. The FDIC may increase or decrease its rates for each quarter by 2.0 basis points without
further rulemaking. In an emergency, the FDIC may also impose a special assessment.
Prompt Corrective Action. Federal bank regulatory agencies are required to take certain supervisory actions against
undercapitalized institutions, the severity of which depends upon the institution’s degree of undercapitalization. Generally,
an institution that has a ratio of total capital to risk-weighted assets of less than 8%, a ratio of Tier 1 (core) capital to risk-
weighted assets of less than 4%, or a ratio of core capital to total assets of less than 4% (3% or less for institutions with the
highest examination rating) is considered to be “undercapitalized.” An institution that has a total risk-based capital ratio
less than 6%, a Tier 1 capital ratio of less than 3% or a leverage ratio that is less than 3% is considered to be “significantly
undercapitalized” and an institution that has a tangible capital to assets ratio equal to or less than 2% is deemed to be
“critically undercapitalized.” Subject to a narrow exception, the Comptroller of the Currency is required to appoint a
receiver or conservator for a savings institution that is “critically undercapitalized.” Regulations also require that a capital
restoration plan be filed with the Comptroller of the Currency within 45 days of the date a savings institution receives
notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” In addition, numerous
mandatory supervisory actions become immediately applicable to an undercapitalized institution, including, but not limited
to, increased monitoring by regulators and restrictions on growth, capital distributions and expansion. ”Significantly
undercapitalized” and “critically undercapitalized” institutions are subject to more extensive mandatory regulatory
actions. The Comptroller of the Currency also could take any one of a number of discretionary supervisory actions,
including the issuance of a capital directive and the replacement of senior executive officers and directors. At June 30,
2012, American Federal’s capital ratios met the “well capitalized” standards.
Prepaid FDIC Premiums. As a result of a decline in the reserve ratio (the ratio of the DIF to estimated insured deposits)
and concerns about expected failure costs and available liquid assets in the DIF, the FDIC adopted a rule requiring each
insured institution to prepay on December 30, 2009 the estimated amount of its quarterly assessments for the fourth quarter of
2009 and all quarters through the end of 2012 (in addition to the regular quarterly assessment for the third quarter which was
due on December 30, 2009). The prepaid amount is recorded as an asset with a zero risk weight and the institution will
continue to record quarterly expenses for deposit insurance. For purposes of calculating the prepaid amount, assessments
were measured at the institution's assessment rate as of September 30, 2009, with a uniform increase of 3 basis points
effective January 1, 2011, and were based on the institution's assessment base for the third quarter of 2009, with growth
assumed quarterly at annual rate of 5%. Collection of the prepayment does not preclude the FDIC from changing
assessment rates or revising the risk-based assessment system in the future. The balance of American Federal’s prepaid
assessment at June 30, 2012 was $394,000. The FDIC will continue to offset prepared assessments through the earlier of
June 30, 2013, or exhaustion of the prepaid assessment of the DIF.
Limitations on Capital Distributions. Federal banking regulations impose various restrictions on institutions with respect
to their ability to make distributions of capital, which include dividends, stock redemptions or repurchases, cash-out
mergers and other transactions charged to the capital account. Generally, savings institutions, such as American Federal,
that before and after the proposed distribution are well-capitalized, may make capital distributions during any calendar year
equal to up to 100% of net income for the year-to-date plus retained net income for the two preceding years. However, an
institution deemed to be in need of more than normal supervision may have its dividend authority restricted.
Minimum Reserve Ratios. The Dodd-Frank Act establishes 1.35% as the minimum reserve ratio. The FDIC has adopted a
plan under which it will meet this ratio by September 30, 2020, the deadline imposed by the Dodd-Frank Act, The Dodd-
Frank Act requires the FDIC to offset the effect on institutions with assets less than $10 billion of the increase in the
statutory minimum reserve ratio to 1.35% from the former statutory minimum of 1.15%. The FDIC has not yet announced
how it will implement this offset. In addition to the statutory minimum ratio, the FDIC must designate a reserve ratio,
known as the designated reserve ratio, or DRR, which may exceed the statutory minimum. The FDIC has established 2.0%
as the DRR.
Generally, savings institutions proposing to make any capital distribution need not submit written notice to the Comptroller
of the Currency prior to such distribution unless they are a subsidiary of a holding company or would not remain well
capitalized following the distribution. Savings institutions that do not, or would not meet their current minimum capital
requirements following a proposed capital distribution or propose to exceed these net income limitations, must obtain of
Capital Requirements. Federally insured savings institutions, such as American Federal, are required by the Office of the
Comptroller of the Currency to maintain minimum levels of regulatory capital. These minimum capital standards include:
a 1.5% tangible capital to total assets ratio, a 4% leverage ratio (3% for institutions receiving the highest rating on the
CAMELS examination rating system) and an 8% risk-based capital ratio. In addition, the prompt corrective action
standards, discussed below, also establish, in effect, a minimum 2% tangible capital standard, a 4% leverage ratio (3% for
institutions receiving the highest rating on the CAMELS system) and, together with the risk-based capital standard itself, a
4% Tier 1 risk-based capital standard. The regulations also require that, in meeting the tangible, leverage and risk-based
capital standards, institutions must generally deduct investments in and loans to subsidiaries engaged in activities as
principal that are not permissible for a national bank.
The risk-based capital standard requires federal savings institutions to maintain Tier 1 (core) and total capital (which is
defined as core capital and supplementary capital) to risk-weighted assets of at least 4% and 8%, respectively. In
determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, recourse obligations,
residual interests and direct credit substitutes, are multiplied by a risk-weight factor of 0% to 100%, assigned by the
Comptroller of the Currency capital regulation based on the risks believed inherent in the type of asset. Tier 1 (core) capital
is defined as common stockholders’ equity (including retained earnings), certain noncumulative perpetual preferred stock
and related surplus and minority interests in equity accounts of consolidated subsidiaries, less intangibles other than certain
mortgage servicing rights and credit card relationships. The components of supplementary capital currently include
cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and
intermediate preferred stock, the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted
assets. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital.
The Comptroller of the Currency also has authority to establish individual minimum capital requirements for financial
institutions.
Prompt Corrective Action. Federal bank regulatory agencies are required to take certain supervisory actions against
undercapitalized institutions, the severity of which depends upon the institution’s degree of undercapitalization. Generally,
an institution that has a ratio of total capital to risk-weighted assets of less than 8%, a ratio of Tier 1 (core) capital to risk-
weighted assets of less than 4%, or a ratio of core capital to total assets of less than 4% (3% or less for institutions with the
highest examination rating) is considered to be “undercapitalized.” An institution that has a total risk-based capital ratio
less than 6%, a Tier 1 capital ratio of less than 3% or a leverage ratio that is less than 3% is considered to be “significantly
undercapitalized” and an institution that has a tangible capital to assets ratio equal to or less than 2% is deemed to be
“critically undercapitalized.” Subject to a narrow exception, the Comptroller of the Currency is required to appoint a
receiver or conservator for a savings institution that is “critically undercapitalized.” Regulations also require that a capital
restoration plan be filed with the Comptroller of the Currency within 45 days of the date a savings institution receives
notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” In addition, numerous
mandatory supervisory actions become immediately applicable to an undercapitalized institution, including, but not limited
to, increased monitoring by regulators and restrictions on growth, capital distributions and expansion. ”Significantly
undercapitalized” and “critically undercapitalized” institutions are subject to more extensive mandatory regulatory
actions. The Comptroller of the Currency also could take any one of a number of discretionary supervisory actions,
including the issuance of a capital directive and the replacement of senior executive officers and directors. At June 30,
2012, American Federal’s capital ratios met the “well capitalized” standards.
Limitations on Capital Distributions. Federal banking regulations impose various restrictions on institutions with respect
to their ability to make distributions of capital, which include dividends, stock redemptions or repurchases, cash-out
mergers and other transactions charged to the capital account. Generally, savings institutions, such as American Federal,
that before and after the proposed distribution are well-capitalized, may make capital distributions during any calendar year
equal to up to 100% of net income for the year-to-date plus retained net income for the two preceding years. However, an
institution deemed to be in need of more than normal supervision may have its dividend authority restricted.
Generally, savings institutions proposing to make any capital distribution need not submit written notice to the Comptroller
of the Currency prior to such distribution unless they are a subsidiary of a holding company or would not remain well
capitalized following the distribution. Savings institutions that do not, or would not meet their current minimum capital
requirements following a proposed capital distribution or propose to exceed these net income limitations, must obtain of
The FDIC has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an
The FDIC has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an
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the Comptroller of the Currency approval prior to making such distribution. The Comptroller of the Currency may object
to the distribution during that 30-day period based on safety and soundness concerns.
Qualified Thrift Lender Test. All savings institutions, including American Federal, are required to meet a qualified thrift
lender (“QTL”) test to avoid certain restrictions on their operations. This test requires a savings institution to have at least
65% of its total assets, as defined by regulation, in qualified thrift investments on a monthly average for nine out of every
12 months on a rolling basis. As an alternative, the savings institution may maintain 60% of its assets in those assets
specified in Section 7701(a)(19) of the Internal Revenue Code (“Code”). Under either test, such assets primarily consist of
residential housing related loans and investments.
A savings institution that fails to meet the QTL is subject to certain operating restrictions and may be required to convert to
a national bank charter. As of June 30, 2012, American Federal met the qualified thrift lender test.
Activities of Associations and their Subsidiaries. When a savings institution establishes or acquires a subsidiary or elects to
conduct any new activity through a subsidiary that the association controls, the savings institution must file a notice or
application with the FDIC and of the Comptroller of the Currency at least 30 days in advance and receive regulatory
approval or non-objection. Savings institutions also must conduct the activities of subsidiaries in accordance with existing
regulations and orders.
The Comptroller of the Currency may determine that the continuation by a savings institution of its ownership control of,
or its relationship to, the subsidiary constitutes a serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices or with the purposes of the FDIC. Based upon that determination, the FDIC or
the Comptroller of the Currency has the authority to order the savings institution to divest itself of control of the
subsidiary. The FDIC also may determine by regulation or order that any specific activity poses a serious threat to the
Deposit Insurance Fund. If so, it may require that no FDIC insured institution engage in that activity directly.
Transactions with Affiliates. American Federal’s authority to engage in transactions with “affiliates” is limited by
regulations and by Sections 23A and 23B of the Federal Reserve Act as implemented by the Federal Reserve Board’s
Regulation W. The term “affiliates” for these purposes generally means any company that controls or is under common
control with an institution. Eagle is an affiliate of American Federal. In general, transactions with affiliates must be on
terms that are as favorable to the institution as comparable transactions with non-affiliates. In addition, certain types of
transactions, i.e. “covered transactions”¸ are restricted to an aggregate percentage of the institution’s capital. Collateral in
specified amounts must be provided by affiliates in order to receive loans from an institution. In addition, savings
institutions are prohibited from lending to any affiliate that is engaged in activities that are not permissible for bank holding
companies and no savings institution may purchase the securities of any affiliate other than a subsidiary.
Holding Company Regulation
General. Eagle is a unitary savings and loan holding company subject historically to regulatory oversight of the Office of
Thrift Supervision. The Federal Reserve Board became the principal federal bank regulatory agency for Eagle during the
fiscal year. Accordingly, Eagle is required to register and file reports with Federal Reserve Board and is subject to
regulation and examination by the Federal Reserve Board. In addition, the Federal Reserve Board has enforcement
authority over Eagle and its non-savings institution subsidiaries which also permits the Federal Reserve Board to restrict or
prohibit activities that are determined to present a serious risk to the subsidiary savings institution.
Activities Restrictions. The Gramm-Leach-Bliley Financial Services Modernization Act of 1999, or GLBA, provides that
no company may acquire control of a savings association after May 4, 1999 unless it engages only in the financial activities
permitted for financial holding companies under the law or for multiple savings and loan holding companies as described
below. Upon any non-supervisory acquisition by Eagle of another savings association as a separate subsidiary, Eagle would
become a multiple savings and loan holding company and would be limited to activities permitted multiple holding
companies by the Comptroller of the Currency regulation. The Comptroller of the Currency has issued an interpretation
concluding that multiple savings and loan holding companies may also engage in activities permitted for financial holding
companies, including lending, trust services, insurance activities and underwriting, investment banking and real estate
investments.
Mergers and Acquisitions. Eagle must obtain approval from the Federal Reserve Board before acquiring more than 5% of
the voting stock of another savings institution or savings and loan holding company or acquiring such an institution or
holding company by merger, consolidation or purchase of its assets. In evaluating an application for Eagle to acquire
control of a savings institution, the Federal Reserve Board would consider the financial and managerial resources and
future prospects of Eagle and the target institution, the effect of the acquisition on the risk to the Deposit Insurance Fund,
the convenience and the needs of the community and competitive factors.
the Comptroller of the Currency approval prior to making such distribution. The Comptroller of the Currency may object
to the distribution during that 30-day period based on safety and soundness concerns.
Acquisition of Eagle. Under the Savings and Loan Holding Company Act and the Change in Bank Control Act, a notice or
application must be submitted to the Comptroller of the Currency if any person (including a company), or a group acting in
concert, seeks to acquire 10% or more of Eagle’s outstanding voting stock, unless the Comptroller of the Currency has
found that the acquisition will not result in a change in control of Eagle. In acting on such a notice or application, the
Comptroller of the Currency must take into consideration certain factors, including the financial and managerial resources
of the acquirer and the anti-trust effect of the acquisition. Any company that acquires control will be subject to regulation
as a savings and loan holding company.
Qualified Thrift Lender Test. All savings institutions, including American Federal, are required to meet a qualified thrift
lender (“QTL”) test to avoid certain restrictions on their operations. This test requires a savings institution to have at least
65% of its total assets, as defined by regulation, in qualified thrift investments on a monthly average for nine out of every
12 months on a rolling basis. As an alternative, the savings institution may maintain 60% of its assets in those assets
specified in Section 7701(a)(19) of the Internal Revenue Code (“Code”). Under either test, such assets primarily consist of
residential housing related loans and investments.
Federal Securities Laws
A savings institution that fails to meet the QTL is subject to certain operating restrictions and may be required to convert to
a national bank charter. As of June 30, 2012, American Federal met the qualified thrift lender test.
Eagle’s common stock is registered with the Securities and Exchange Commission under the Exchange Act. We are subject
to the information, proxy solicitation, insider trading restrictions and other requirements under the Exchange Act. Our
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to
those reports, filed with or furnished to the U.S. Securities and Exchange Commission (“SEC”), are available free of
charge through our Internet website, www.americanfederalsavingsbank.com, as soon as reasonably practical after we have
electronically filed such material with, or furnished it to, the SEC. The public may read and copy any materials filed by us
with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. The public
may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers
that file electronically with the SEC at www.sec.gov. The contents on or accessible through, these websites are not
incorporated into this filing. Further, our references to the URLs for these websites are intended to be inactive textual
references only.
Activities of Associations and their Subsidiaries. When a savings institution establishes or acquires a subsidiary or elects to
conduct any new activity through a subsidiary that the association controls, the savings institution must file a notice or
application with the FDIC and of the Comptroller of the Currency at least 30 days in advance and receive regulatory
approval or non-objection. Savings institutions also must conduct the activities of subsidiaries in accordance with existing
regulations and orders.
The Comptroller of the Currency may determine that the continuation by a savings institution of its ownership control of,
or its relationship to, the subsidiary constitutes a serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices or with the purposes of the FDIC. Based upon that determination, the FDIC or
the Comptroller of the Currency has the authority to order the savings institution to divest itself of control of the
subsidiary. The FDIC also may determine by regulation or order that any specific activity poses a serious threat to the
Deposit Insurance Fund. If so, it may require that no FDIC insured institution engage in that activity directly.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act addresses, among other issues, corporate governance, auditing and accounting, executive
compensation, and enhanced and timely disclosure of corporate information. As directed by the Sarbanes-Oxley Act, our
Chief Executive Officer and Chief Financial Officer are required to certify that our quarterly and annual reports do not
contain any untrue statement of a material fact. The rules adopted by the Securities and Exchange Commission under the
Sarbanes-Oxley Act have several requirements, including having these officers certify that: they are responsible for
establishing, maintaining and regularly evaluating the effectiveness of our internal control over financial reporting; they
have made certain disclosures to our auditors and the audit committee of the board of directors about our internal control
over financial reporting; and they have included information in our quarterly and annual reports about their evaluation and
whether there have been changes in our internal control over financial reporting or in other factors that could materially
affect internal control over financial reporting.
Transactions with Affiliates. American Federal’s authority to engage in transactions with “affiliates” is limited by
regulations and by Sections 23A and 23B of the Federal Reserve Act as implemented by the Federal Reserve Board’s
Regulation W. The term “affiliates” for these purposes generally means any company that controls or is under common
control with an institution. Eagle is an affiliate of American Federal. In general, transactions with affiliates must be on
terms that are as favorable to the institution as comparable transactions with non-affiliates. In addition, certain types of
transactions, i.e. “covered transactions”¸ are restricted to an aggregate percentage of the institution’s capital. Collateral in
specified amounts must be provided by affiliates in order to receive loans from an institution. In addition, savings
institutions are prohibited from lending to any affiliate that is engaged in activities that are not permissible for bank holding
companies and no savings institution may purchase the securities of any affiliate other than a subsidiary.
ITEM 1A.
Holding Company Regulation
RISK FACTORS.
If the allowance for credit losses is not sufficient to cover actual loan losses, our earnings could decrease.
We cannot accurately predict the effect of the current economic downturn on our future results of operations or
market price of our stock.
General. Eagle is a unitary savings and loan holding company subject historically to regulatory oversight of the Office of
Thrift Supervision. The Federal Reserve Board became the principal federal bank regulatory agency for Eagle during the
fiscal year. Accordingly, Eagle is required to register and file reports with Federal Reserve Board and is subject to
regulation and examination by the Federal Reserve Board. In addition, the Federal Reserve Board has enforcement
authority over Eagle and its non-savings institution subsidiaries which also permits the Federal Reserve Board to restrict or
prohibit activities that are determined to present a serious risk to the subsidiary savings institution.
The national economy and the financial services sector in particular, are currently facing challenges of a scope
unprecedented in recent history. We cannot accurately predict the severity or duration of the current economic downturn,
which has adversely impacted the markets we serve. Any further deterioration in the economies of the nation as a whole or
in our markets would have an adverse effect, which could be material, on our business, financial condition, results of
operations and prospects, and could also cause the market price of our stock to decline. While it is impossible to predict
how long adverse economic conditions may exist, a slow or fragile recovery or subsequent recession could continue to
present risks for some time for the industry and our company.
Activities Restrictions. The Gramm-Leach-Bliley Financial Services Modernization Act of 1999, or GLBA, provides that
no company may acquire control of a savings association after May 4, 1999 unless it engages only in the financial activities
permitted for financial holding companies under the law or for multiple savings and loan holding companies as described
below. Upon any non-supervisory acquisition by Eagle of another savings association as a separate subsidiary, Eagle would
become a multiple savings and loan holding company and would be limited to activities permitted multiple holding
companies by the Comptroller of the Currency regulation. The Comptroller of the Currency has issued an interpretation
concluding that multiple savings and loan holding companies may also engage in activities permitted for financial holding
companies, including lending, trust services, insurance activities and underwriting, investment banking and real estate
investments.
Our customers may not repay their loans according to the original terms, and the collateral, if any, securing the payment of
these loans may be insufficient to pay any remaining loan balance. We may experience significant loan losses, which may
have a material adverse effect on operating results. We make various assumptions and judgments about the collectability of
the loan portfolio, including the creditworthiness of borrowers and the value of the real estate and other assets serving as
collateral for the repayment of loans. If the assumptions prove to be incorrect, the allowance for credit losses may not be
sufficient to cover losses inherent in our loan portfolio, resulting in additions to the allowance. Material additions to the
allowance would materially decrease net income.
Mergers and Acquisitions. Eagle must obtain approval from the Federal Reserve Board before acquiring more than 5% of
the voting stock of another savings institution or savings and loan holding company or acquiring such an institution or
holding company by merger, consolidation or purchase of its assets. In evaluating an application for Eagle to acquire
control of a savings institution, the Federal Reserve Board would consider the financial and managerial resources and
future prospects of Eagle and the target institution, the effect of the acquisition on the risk to the Deposit Insurance Fund,
the convenience and the needs of the community and competitive factors.
Our emphasis on the origination of consumer, commercial real estate and commercial business loans is one of the more
significant factors in evaluating the allowance for loan losses. As we continue to increase the amount of such loans,
additional or increased provisions for loan losses may be necessary and would decrease earnings.
Acquisition of Eagle. Under the Savings and Loan Holding Company Act and the Change in Bank Control Act, a notice or
application must be submitted to the Comptroller of the Currency if any person (including a company), or a group acting in
concert, seeks to acquire 10% or more of Eagle’s outstanding voting stock, unless the Comptroller of the Currency has
found that the acquisition will not result in a change in control of Eagle. In acting on such a notice or application, the
Comptroller of the Currency must take into consideration certain factors, including the financial and managerial resources
of the acquirer and the anti-trust effect of the acquisition. Any company that acquires control will be subject to regulation
as a savings and loan holding company.
Federal Securities Laws
Eagle’s common stock is registered with the Securities and Exchange Commission under the Exchange Act. We are subject
to the information, proxy solicitation, insider trading restrictions and other requirements under the Exchange Act. Our
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to
those reports, filed with or furnished to the U.S. Securities and Exchange Commission (“SEC”), are available free of
charge through our Internet website, www.americanfederalsavingsbank.com, as soon as reasonably practical after we have
electronically filed such material with, or furnished it to, the SEC. The public may read and copy any materials filed by us
with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. The public
may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers
that file electronically with the SEC at www.sec.gov. The contents on or accessible through, these websites are not
incorporated into this filing. Further, our references to the URLs for these websites are intended to be inactive textual
references only.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act addresses, among other issues, corporate governance, auditing and accounting, executive
compensation, and enhanced and timely disclosure of corporate information. As directed by the Sarbanes-Oxley Act, our
Chief Executive Officer and Chief Financial Officer are required to certify that our quarterly and annual reports do not
contain any untrue statement of a material fact. The rules adopted by the Securities and Exchange Commission under the
Sarbanes-Oxley Act have several requirements, including having these officers certify that: they are responsible for
establishing, maintaining and regularly evaluating the effectiveness of our internal control over financial reporting; they
have made certain disclosures to our auditors and the audit committee of the board of directors about our internal control
over financial reporting; and they have included information in our quarterly and annual reports about their evaluation and
whether there have been changes in our internal control over financial reporting or in other factors that could materially
affect internal control over financial reporting.
ITEM 1A.
RISK FACTORS.
market price of our stock.
We cannot accurately predict the effect of the current economic downturn on our future results of operations or
The national economy and the financial services sector in particular, are currently facing challenges of a scope
unprecedented in recent history. We cannot accurately predict the severity or duration of the current economic downturn,
which has adversely impacted the markets we serve. Any further deterioration in the economies of the nation as a whole or
in our markets would have an adverse effect, which could be material, on our business, financial condition, results of
operations and prospects, and could also cause the market price of our stock to decline. While it is impossible to predict
how long adverse economic conditions may exist, a slow or fragile recovery or subsequent recession could continue to
present risks for some time for the industry and our company.
If the allowance for credit losses is not sufficient to cover actual loan losses, our earnings could decrease.
Our customers may not repay their loans according to the original terms, and the collateral, if any, securing the payment of
these loans may be insufficient to pay any remaining loan balance. We may experience significant loan losses, which may
have a material adverse effect on operating results. We make various assumptions and judgments about the collectability of
the loan portfolio, including the creditworthiness of borrowers and the value of the real estate and other assets serving as
collateral for the repayment of loans. If the assumptions prove to be incorrect, the allowance for credit losses may not be
sufficient to cover losses inherent in our loan portfolio, resulting in additions to the allowance. Material additions to the
allowance would materially decrease net income.
Our emphasis on the origination of consumer, commercial real estate and commercial business loans is one of the more
significant factors in evaluating the allowance for loan losses. As we continue to increase the amount of such loans,
additional or increased provisions for loan losses may be necessary and would decrease earnings.
27
28
27
28
the Comptroller of the Currency approval prior to making such distribution. The Comptroller of the Currency may object
to the distribution during that 30-day period based on safety and soundness concerns.
Qualified Thrift Lender Test. All savings institutions, including American Federal, are required to meet a qualified thrift
lender (“QTL”) test to avoid certain restrictions on their operations. This test requires a savings institution to have at least
65% of its total assets, as defined by regulation, in qualified thrift investments on a monthly average for nine out of every
12 months on a rolling basis. As an alternative, the savings institution may maintain 60% of its assets in those assets
specified in Section 7701(a)(19) of the Internal Revenue Code (“Code”). Under either test, such assets primarily consist of
residential housing related loans and investments.
A savings institution that fails to meet the QTL is subject to certain operating restrictions and may be required to convert to
a national bank charter. As of June 30, 2012, American Federal met the qualified thrift lender test.
Activities of Associations and their Subsidiaries. When a savings institution establishes or acquires a subsidiary or elects to
conduct any new activity through a subsidiary that the association controls, the savings institution must file a notice or
application with the FDIC and of the Comptroller of the Currency at least 30 days in advance and receive regulatory
approval or non-objection. Savings institutions also must conduct the activities of subsidiaries in accordance with existing
regulations and orders.
The Comptroller of the Currency may determine that the continuation by a savings institution of its ownership control of,
or its relationship to, the subsidiary constitutes a serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices or with the purposes of the FDIC. Based upon that determination, the FDIC or
the Comptroller of the Currency has the authority to order the savings institution to divest itself of control of the
subsidiary. The FDIC also may determine by regulation or order that any specific activity poses a serious threat to the
Deposit Insurance Fund. If so, it may require that no FDIC insured institution engage in that activity directly.
Transactions with Affiliates. American Federal’s authority to engage in transactions with “affiliates” is limited by
regulations and by Sections 23A and 23B of the Federal Reserve Act as implemented by the Federal Reserve Board’s
Regulation W. The term “affiliates” for these purposes generally means any company that controls or is under common
control with an institution. Eagle is an affiliate of American Federal. In general, transactions with affiliates must be on
terms that are as favorable to the institution as comparable transactions with non-affiliates. In addition, certain types of
transactions, i.e. “covered transactions”¸ are restricted to an aggregate percentage of the institution’s capital. Collateral in
specified amounts must be provided by affiliates in order to receive loans from an institution. In addition, savings
institutions are prohibited from lending to any affiliate that is engaged in activities that are not permissible for bank holding
companies and no savings institution may purchase the securities of any affiliate other than a subsidiary.
Holding Company Regulation
General. Eagle is a unitary savings and loan holding company subject historically to regulatory oversight of the Office of
Thrift Supervision. The Federal Reserve Board became the principal federal bank regulatory agency for Eagle during the
fiscal year. Accordingly, Eagle is required to register and file reports with Federal Reserve Board and is subject to
regulation and examination by the Federal Reserve Board. In addition, the Federal Reserve Board has enforcement
authority over Eagle and its non-savings institution subsidiaries which also permits the Federal Reserve Board to restrict or
prohibit activities that are determined to present a serious risk to the subsidiary savings institution.
Activities Restrictions. The Gramm-Leach-Bliley Financial Services Modernization Act of 1999, or GLBA, provides that
no company may acquire control of a savings association after May 4, 1999 unless it engages only in the financial activities
permitted for financial holding companies under the law or for multiple savings and loan holding companies as described
below. Upon any non-supervisory acquisition by Eagle of another savings association as a separate subsidiary, Eagle would
become a multiple savings and loan holding company and would be limited to activities permitted multiple holding
companies by the Comptroller of the Currency regulation. The Comptroller of the Currency has issued an interpretation
concluding that multiple savings and loan holding companies may also engage in activities permitted for financial holding
companies, including lending, trust services, insurance activities and underwriting, investment banking and real estate
investments.
Mergers and Acquisitions. Eagle must obtain approval from the Federal Reserve Board before acquiring more than 5% of
the voting stock of another savings institution or savings and loan holding company or acquiring such an institution or
holding company by merger, consolidation or purchase of its assets. In evaluating an application for Eagle to acquire
control of a savings institution, the Federal Reserve Board would consider the financial and managerial resources and
future prospects of Eagle and the target institution, the effect of the acquisition on the risk to the Deposit Insurance Fund,
the convenience and the needs of the community and competitive factors.
the Comptroller of the Currency approval prior to making such distribution. The Comptroller of the Currency may object
to the distribution during that 30-day period based on safety and soundness concerns.
Acquisition of Eagle. Under the Savings and Loan Holding Company Act and the Change in Bank Control Act, a notice or
application must be submitted to the Comptroller of the Currency if any person (including a company), or a group acting in
concert, seeks to acquire 10% or more of Eagle’s outstanding voting stock, unless the Comptroller of the Currency has
found that the acquisition will not result in a change in control of Eagle. In acting on such a notice or application, the
Comptroller of the Currency must take into consideration certain factors, including the financial and managerial resources
of the acquirer and the anti-trust effect of the acquisition. Any company that acquires control will be subject to regulation
as a savings and loan holding company.
Qualified Thrift Lender Test. All savings institutions, including American Federal, are required to meet a qualified thrift
lender (“QTL”) test to avoid certain restrictions on their operations. This test requires a savings institution to have at least
65% of its total assets, as defined by regulation, in qualified thrift investments on a monthly average for nine out of every
12 months on a rolling basis. As an alternative, the savings institution may maintain 60% of its assets in those assets
specified in Section 7701(a)(19) of the Internal Revenue Code (“Code”). Under either test, such assets primarily consist of
residential housing related loans and investments.
Federal Securities Laws
A savings institution that fails to meet the QTL is subject to certain operating restrictions and may be required to convert to
a national bank charter. As of June 30, 2012, American Federal met the qualified thrift lender test.
Eagle’s common stock is registered with the Securities and Exchange Commission under the Exchange Act. We are subject
to the information, proxy solicitation, insider trading restrictions and other requirements under the Exchange Act. Our
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to
those reports, filed with or furnished to the U.S. Securities and Exchange Commission (“SEC”), are available free of
charge through our Internet website, www.americanfederalsavingsbank.com, as soon as reasonably practical after we have
electronically filed such material with, or furnished it to, the SEC. The public may read and copy any materials filed by us
with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. The public
may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers
that file electronically with the SEC at www.sec.gov. The contents on or accessible through, these websites are not
incorporated into this filing. Further, our references to the URLs for these websites are intended to be inactive textual
references only.
Activities of Associations and their Subsidiaries. When a savings institution establishes or acquires a subsidiary or elects to
conduct any new activity through a subsidiary that the association controls, the savings institution must file a notice or
application with the FDIC and of the Comptroller of the Currency at least 30 days in advance and receive regulatory
approval or non-objection. Savings institutions also must conduct the activities of subsidiaries in accordance with existing
regulations and orders.
The Comptroller of the Currency may determine that the continuation by a savings institution of its ownership control of,
or its relationship to, the subsidiary constitutes a serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices or with the purposes of the FDIC. Based upon that determination, the FDIC or
the Comptroller of the Currency has the authority to order the savings institution to divest itself of control of the
subsidiary. The FDIC also may determine by regulation or order that any specific activity poses a serious threat to the
Deposit Insurance Fund. If so, it may require that no FDIC insured institution engage in that activity directly.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act addresses, among other issues, corporate governance, auditing and accounting, executive
compensation, and enhanced and timely disclosure of corporate information. As directed by the Sarbanes-Oxley Act, our
Chief Executive Officer and Chief Financial Officer are required to certify that our quarterly and annual reports do not
contain any untrue statement of a material fact. The rules adopted by the Securities and Exchange Commission under the
Sarbanes-Oxley Act have several requirements, including having these officers certify that: they are responsible for
establishing, maintaining and regularly evaluating the effectiveness of our internal control over financial reporting; they
have made certain disclosures to our auditors and the audit committee of the board of directors about our internal control
over financial reporting; and they have included information in our quarterly and annual reports about their evaluation and
whether there have been changes in our internal control over financial reporting or in other factors that could materially
affect internal control over financial reporting.
Transactions with Affiliates. American Federal’s authority to engage in transactions with “affiliates” is limited by
regulations and by Sections 23A and 23B of the Federal Reserve Act as implemented by the Federal Reserve Board’s
Regulation W. The term “affiliates” for these purposes generally means any company that controls or is under common
control with an institution. Eagle is an affiliate of American Federal. In general, transactions with affiliates must be on
terms that are as favorable to the institution as comparable transactions with non-affiliates. In addition, certain types of
transactions, i.e. “covered transactions”¸ are restricted to an aggregate percentage of the institution’s capital. Collateral in
specified amounts must be provided by affiliates in order to receive loans from an institution. In addition, savings
institutions are prohibited from lending to any affiliate that is engaged in activities that are not permissible for bank holding
companies and no savings institution may purchase the securities of any affiliate other than a subsidiary.
ITEM 1A.
Holding Company Regulation
RISK FACTORS.
If the allowance for credit losses is not sufficient to cover actual loan losses, our earnings could decrease.
We cannot accurately predict the effect of the current economic downturn on our future results of operations or
market price of our stock.
General. Eagle is a unitary savings and loan holding company subject historically to regulatory oversight of the Office of
Thrift Supervision. The Federal Reserve Board became the principal federal bank regulatory agency for Eagle during the
fiscal year. Accordingly, Eagle is required to register and file reports with Federal Reserve Board and is subject to
regulation and examination by the Federal Reserve Board. In addition, the Federal Reserve Board has enforcement
authority over Eagle and its non-savings institution subsidiaries which also permits the Federal Reserve Board to restrict or
prohibit activities that are determined to present a serious risk to the subsidiary savings institution.
The national economy and the financial services sector in particular, are currently facing challenges of a scope
unprecedented in recent history. We cannot accurately predict the severity or duration of the current economic downturn,
which has adversely impacted the markets we serve. Any further deterioration in the economies of the nation as a whole or
in our markets would have an adverse effect, which could be material, on our business, financial condition, results of
operations and prospects, and could also cause the market price of our stock to decline. While it is impossible to predict
how long adverse economic conditions may exist, a slow or fragile recovery or subsequent recession could continue to
present risks for some time for the industry and our company.
Activities Restrictions. The Gramm-Leach-Bliley Financial Services Modernization Act of 1999, or GLBA, provides that
no company may acquire control of a savings association after May 4, 1999 unless it engages only in the financial activities
permitted for financial holding companies under the law or for multiple savings and loan holding companies as described
below. Upon any non-supervisory acquisition by Eagle of another savings association as a separate subsidiary, Eagle would
become a multiple savings and loan holding company and would be limited to activities permitted multiple holding
companies by the Comptroller of the Currency regulation. The Comptroller of the Currency has issued an interpretation
concluding that multiple savings and loan holding companies may also engage in activities permitted for financial holding
companies, including lending, trust services, insurance activities and underwriting, investment banking and real estate
investments.
Our customers may not repay their loans according to the original terms, and the collateral, if any, securing the payment of
these loans may be insufficient to pay any remaining loan balance. We may experience significant loan losses, which may
have a material adverse effect on operating results. We make various assumptions and judgments about the collectability of
the loan portfolio, including the creditworthiness of borrowers and the value of the real estate and other assets serving as
collateral for the repayment of loans. If the assumptions prove to be incorrect, the allowance for credit losses may not be
sufficient to cover losses inherent in our loan portfolio, resulting in additions to the allowance. Material additions to the
allowance would materially decrease net income.
Mergers and Acquisitions. Eagle must obtain approval from the Federal Reserve Board before acquiring more than 5% of
the voting stock of another savings institution or savings and loan holding company or acquiring such an institution or
holding company by merger, consolidation or purchase of its assets. In evaluating an application for Eagle to acquire
control of a savings institution, the Federal Reserve Board would consider the financial and managerial resources and
future prospects of Eagle and the target institution, the effect of the acquisition on the risk to the Deposit Insurance Fund,
the convenience and the needs of the community and competitive factors.
Our emphasis on the origination of consumer, commercial real estate and commercial business loans is one of the more
significant factors in evaluating the allowance for loan losses. As we continue to increase the amount of such loans,
additional or increased provisions for loan losses may be necessary and would decrease earnings.
Acquisition of Eagle. Under the Savings and Loan Holding Company Act and the Change in Bank Control Act, a notice or
application must be submitted to the Comptroller of the Currency if any person (including a company), or a group acting in
concert, seeks to acquire 10% or more of Eagle’s outstanding voting stock, unless the Comptroller of the Currency has
found that the acquisition will not result in a change in control of Eagle. In acting on such a notice or application, the
Comptroller of the Currency must take into consideration certain factors, including the financial and managerial resources
of the acquirer and the anti-trust effect of the acquisition. Any company that acquires control will be subject to regulation
as a savings and loan holding company.
Federal Securities Laws
Eagle’s common stock is registered with the Securities and Exchange Commission under the Exchange Act. We are subject
to the information, proxy solicitation, insider trading restrictions and other requirements under the Exchange Act. Our
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to
those reports, filed with or furnished to the U.S. Securities and Exchange Commission (“SEC”), are available free of
charge through our Internet website, www.americanfederalsavingsbank.com, as soon as reasonably practical after we have
electronically filed such material with, or furnished it to, the SEC. The public may read and copy any materials filed by us
with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. The public
may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers
that file electronically with the SEC at www.sec.gov. The contents on or accessible through, these websites are not
incorporated into this filing. Further, our references to the URLs for these websites are intended to be inactive textual
references only.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act addresses, among other issues, corporate governance, auditing and accounting, executive
compensation, and enhanced and timely disclosure of corporate information. As directed by the Sarbanes-Oxley Act, our
Chief Executive Officer and Chief Financial Officer are required to certify that our quarterly and annual reports do not
contain any untrue statement of a material fact. The rules adopted by the Securities and Exchange Commission under the
Sarbanes-Oxley Act have several requirements, including having these officers certify that: they are responsible for
establishing, maintaining and regularly evaluating the effectiveness of our internal control over financial reporting; they
have made certain disclosures to our auditors and the audit committee of the board of directors about our internal control
over financial reporting; and they have included information in our quarterly and annual reports about their evaluation and
whether there have been changes in our internal control over financial reporting or in other factors that could materially
affect internal control over financial reporting.
ITEM 1A.
RISK FACTORS.
We cannot accurately predict the effect of the current economic downturn on our future results of operations or
market price of our stock.
The national economy and the financial services sector in particular, are currently facing challenges of a scope
unprecedented in recent history. We cannot accurately predict the severity or duration of the current economic downturn,
which has adversely impacted the markets we serve. Any further deterioration in the economies of the nation as a whole or
in our markets would have an adverse effect, which could be material, on our business, financial condition, results of
operations and prospects, and could also cause the market price of our stock to decline. While it is impossible to predict
how long adverse economic conditions may exist, a slow or fragile recovery or subsequent recession could continue to
present risks for some time for the industry and our company.
If the allowance for credit losses is not sufficient to cover actual loan losses, our earnings could decrease.
Our customers may not repay their loans according to the original terms, and the collateral, if any, securing the payment of
these loans may be insufficient to pay any remaining loan balance. We may experience significant loan losses, which may
have a material adverse effect on operating results. We make various assumptions and judgments about the collectability of
the loan portfolio, including the creditworthiness of borrowers and the value of the real estate and other assets serving as
collateral for the repayment of loans. If the assumptions prove to be incorrect, the allowance for credit losses may not be
sufficient to cover losses inherent in our loan portfolio, resulting in additions to the allowance. Material additions to the
allowance would materially decrease net income.
Our emphasis on the origination of consumer, commercial real estate and commercial business loans is one of the more
significant factors in evaluating the allowance for loan losses. As we continue to increase the amount of such loans,
additional or increased provisions for loan losses may be necessary and would decrease earnings.
27
28
27
28
Bank regulators periodically review our allowance for loan losses and may require an increase to the provision for loan
losses or further loan charge-offs. Any increase in our allowance for loan losses or loan charge-offs as required by these
regulatory authorities may have a material adverse effect on our results of operations or financial condition.
We could record future losses on our securities portfolio.
A number of factors or combinations of factors could require us to conclude in one or more future reporting periods that an
unrealized loss exists with respect to our investment securities portfolio that constitutes an impairment that is other than
temporary, which could result in material losses to us. These factors include, but are not limited to, continued failure by the
issuer to make scheduled interest payments, an increase in the severity of the unrealized loss on a particular security, an
increase in the continuous duration of the unrealized loss without an improvement in value or changes in market conditions
and/or industry or issuer specific factors that would render us unable to forecast a full recovery in value. In addition, the
fair values of securities could decline if the overall economy and the financial condition of some of the issuers continues to
deteriorate and there remains limited liquidity for these securities.
A prolonged economic downturn, especially one affecting our geographic market area, will adversely affect our
business and financial results.
The United States and many industrial nations are experiencing adverse economic conditions and slow recovery which are
expected to continue in 2013. Loan portfolio quality has improved at many institutions, reflecting in part, the improving
U.S. economy and rising employment. In addition, the values of real estate collateral supporting many commercial loans
and home mortgages appear to have stabilized but may continue to decline. The continuing stagnation in the real estate
market also has resulted in reduced demand for the construction of new housing and increased delinquencies in
construction, residential and commercial mortgage loans. Financial institution stock prices have declined substantially, and
it is significantly more difficult for financial institutions to raise capital or borrow in the debt markets.
Continued negative developments in the financial services industry and the domestic and international credit markets may
significantly affect the markets in which we do business, the market for and value of our loans and investments, and our
ongoing operations, costs and profitability. Moreover, continued volatility or declines in the stock market in general, or
stock values of financial institutions and their holding companies, could adversely affect our stock performance.
As a federal savings bank, American Federal Savings Bank is required to maintain a certain percentage of its total
assets in qualifying loans and investments, which limits our asset mix and could significantly restrict our ability to
diversify our loan portfolio.
A savings bank or thrift differs from a commercial bank in that it is required to maintain at least 65% of its total assets in
housing-related loans and investments, such as loans for the purchase, refinance, construction, improvement, or repair of
residential real estate, home equity loans, educational loans and small business loans. To maintain our thrift charter we
have to pass the Qualified Thrift Lender test, or QTL test, in nine out of 12 of the immediately preceding months. The QTL
test limits the extent to which we can grow our commercial loan portfolio. However, a loan that does not exceed $2 million
(including a group of loans to one borrower) and is for commercial, corporate, business, or agricultural purposes is not so
limited. We may be limited in our ability to change our asset mix and increase the yield on our earning assets by growing
our commercial loan portfolio.
In addition, if we continue to grow our commercial loan portfolio and our single-family loan portfolio declines, it is
possible that in order to maintain our QTL status, we could be forced to buy mortgage-backed securities or other qualifying
assets at times when the terms might not be attractive. Alternatively, we could find it necessary to pursue different
structures, including converting American Federal Savings Bank’s current thrift charter to a commercial bank charter.
Because we intend to increase our commercial real estate and commercial business loan originations, our credit risk
will increase and continued downturns in the local real estate market or economy could adversely affect our
earnings.
We intend to continue our recent emphasis on originating commercial real estate and commercial business loans.
Commercial real estate and commercial business loans generally have more risk than the one- to four-family residential
real estate loans we originate. Because the repayment of commercial real estate and commercial business loans depends on
the successful management and operation of the borrower’s properties or related businesses, repayment of such loans can
be affected by adverse conditions in the local real estate market or economy. Commercial real estate and commercial
business loans may also involve relatively large loan balances to individual borrowers or groups of related borrowers. A
downturn in the real estate market or the local economy could adversely affect the value of properties securing the loan or
the revenues from the borrower’s business, thereby increasing the risk of nonperforming loans. As our commercial real
estate and commercial business loan portfolios increase, the corresponding risks and potential for losses from these loans
may also increase.
29
We could record future losses on our securities portfolio.
Declines in home values could decrease our loan originations and increase delinquencies and defaults.
Bank regulators periodically review our allowance for loan losses and may require an increase to the provision for loan
losses or further loan charge-offs. Any increase in our allowance for loan losses or loan charge-offs as required by these
regulatory authorities may have a material adverse effect on our results of operations or financial condition.
Declines in home values in our markets could adversely impact results from operations. Like all financial institutions, we
are subject to the effects of any economic downturn, and in particular, a significant decline in home values would likely
lead to a decrease in new home equity loan originations and increased delinquencies and defaults in both the consumer
home equity loan and residential real estate loan portfolios and result in increased losses in these portfolios. Declines in the
average sale prices of homes in our primary markets could lead to higher loan losses.
A number of factors or combinations of factors could require us to conclude in one or more future reporting periods that an
unrealized loss exists with respect to our investment securities portfolio that constitutes an impairment that is other than
temporary, which could result in material losses to us. These factors include, but are not limited to, continued failure by the
issuer to make scheduled interest payments, an increase in the severity of the unrealized loss on a particular security, an
increase in the continuous duration of the unrealized loss without an improvement in value or changes in market conditions
and/or industry or issuer specific factors that would render us unable to forecast a full recovery in value. In addition, the
fair values of securities could decline if the overall economy and the financial condition of some of the issuers continues to
deteriorate and there remains limited liquidity for these securities.
Our success depends upon the continued employment of certain members of our senior management team. We also depend
upon the continued employment of the individuals that manage several of our key functional areas. The departure of any
member of our senior management team may adversely affect our operations.
We depend on the services of our executive officers and other key employees.
Changes in interest rates could adversely affect our results of operations and financial condition.
A prolonged economic downturn, especially one affecting our geographic market area, will adversely affect our
business and financial results.
Our results of operations and financial condition are significantly affected by changes in interest rates. Our results of
operations depend substantially on our net interest income, which is the difference between the interest income we earn on
our interest-earning assets, such as loans and securities, and the interest expense we pay on our interest-bearing liabilities,
such as deposits, borrowings and trust preferred securities. Because our interest-bearing liabilities generally reprice or
mature more quickly than our interest-earning assets, an increase in interest rates generally would tend to result in a
decrease in net interest income.
The United States and many industrial nations are experiencing adverse economic conditions and slow recovery which are
expected to continue in 2013. Loan portfolio quality has improved at many institutions, reflecting in part, the improving
U.S. economy and rising employment. In addition, the values of real estate collateral supporting many commercial loans
and home mortgages appear to have stabilized but may continue to decline. The continuing stagnation in the real estate
market also has resulted in reduced demand for the construction of new housing and increased delinquencies in
construction, residential and commercial mortgage loans. Financial institution stock prices have declined substantially, and
it is significantly more difficult for financial institutions to raise capital or borrow in the debt markets.
Changes in interest rates may also affect the average life of loans and mortgage-related securities. Decreases in interest
rates can result in increased prepayments of loans and mortgage-related securities, as borrowers refinance to reduce their
borrowing costs. Under these circumstances, we are subject to reinvestment risk to the extent that we are unable to reinvest
the cash received from such prepayments at rates that are comparable to the rates on existing loans and securities.
Continued negative developments in the financial services industry and the domestic and international credit markets may
Additionally, increases in interest rates may decrease loan demand and make it more difficult for borrowers to repay
significantly affect the markets in which we do business, the market for and value of our loans and investments, and our
adjustable rate loans. Also, increases in interest rates may extend the life of fixed rate assets, which would restrict our
ongoing operations, costs and profitability. Moreover, continued volatility or declines in the stock market in general, or
ability to reinvest in higher yielding alternatives, and may result in customers withdrawing certificates of deposit early so
stock values of financial institutions and their holding companies, could adversely affect our stock performance.
long as the early withdrawal penalty is less than the interest they could receive as a result of the higher interest rates.
Changes in interest rates also affect the current fair value of our interest-earning securities portfolio. Generally, the value of
securities moves inversely with changes in interest rates.
As a federal savings bank, American Federal Savings Bank is required to maintain a certain percentage of its total
assets in qualifying loans and investments, which limits our asset mix and could significantly restrict our ability to
diversify our loan portfolio.
Strong competition may limit growth and profitability.
Competition in the banking and financial services industry is intense. We compete with commercial banks, savings
institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and
brokerage and investment banking firms operating locally and elsewhere. Many of these competitors (whether regional or
national institutions) have substantially greater resources and lending limits than we have and may offer certain services
that we do not or cannot provide. Our profitability depends upon our ability to successfully compete in our market areas.
A savings bank or thrift differs from a commercial bank in that it is required to maintain at least 65% of its total assets in
housing-related loans and investments, such as loans for the purchase, refinance, construction, improvement, or repair of
residential real estate, home equity loans, educational loans and small business loans. To maintain our thrift charter we
have to pass the Qualified Thrift Lender test, or QTL test, in nine out of 12 of the immediately preceding months. The QTL
test limits the extent to which we can grow our commercial loan portfolio. However, a loan that does not exceed $2 million
(including a group of loans to one borrower) and is for commercial, corporate, business, or agricultural purposes is not so
limited. We may be limited in our ability to change our asset mix and increase the yield on our earning assets by growing
our commercial loan portfolio.
We operate in a highly regulated environment and may be adversely affected by changes in laws and regulations.
In addition, if we continue to grow our commercial loan portfolio and our single-family loan portfolio declines, it is
We are subject to extensive regulation, supervision and examination by the Board of Governors of the Federal Reserve
possible that in order to maintain our QTL status, we could be forced to buy mortgage-backed securities or other qualifying
System and the Office of the Comptroller of the Currency. The federal banking laws and regulations govern the activities
assets at times when the terms might not be attractive. Alternatively, we could find it necessary to pursue different
in which we may engage, and are primarily for the protection of depositors and the Deposit Insurance Fund at the Federal
structures, including converting American Federal Savings Bank’s current thrift charter to a commercial bank charter.
Deposit Insurance Corporation. These regulatory authorities have extensive discretion in connection with their supervisory
and enforcement activities, including the ability to impose restrictions on a bank’s operations, reclassify assets, determine
the adequacy of a bank’s allowance for loan losses and determine the level of deposit insurance premiums assessed. Any
change in such regulation and oversight, whether in the form of regulatory policy, new regulations or legislation or
additional deposit insurance premiums could have a material impact on our operations. Because our business is highly
regulated, the laws and applicable regulations are subject to frequent change. Any new laws, rules and regulations could
make compliance more difficult or expensive or otherwise adversely affect our business, financial condition or prospects.
Because we intend to increase our commercial real estate and commercial business loan originations, our credit risk
will increase and continued downturns in the local real estate market or economy could adversely affect our
earnings.
Financial reform legislation enacted by Congress will, among other things, tighten capital standards, create a new
Consumer Financial Protection Bureau and result in new laws and regulations that are expected to increase our
costs of operations.
We intend to continue our recent emphasis on originating commercial real estate and commercial business loans.
Commercial real estate and commercial business loans generally have more risk than the one- to four-family residential
real estate loans we originate. Because the repayment of commercial real estate and commercial business loans depends on
the successful management and operation of the borrower’s properties or related businesses, repayment of such loans can
be affected by adverse conditions in the local real estate market or economy. Commercial real estate and commercial
business loans may also involve relatively large loan balances to individual borrowers or groups of related borrowers. A
downturn in the real estate market or the local economy could adversely affect the value of properties securing the loan or
the revenues from the borrower’s business, thereby increasing the risk of nonperforming loans. As our commercial real
estate and commercial business loan portfolios increase, the corresponding risks and potential for losses from these loans
may also increase.
Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in July 2010.
This new law will significantly change the current bank regulatory structure and affect the lending, deposit, investment,
trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various
federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and
30
29
Declines in home values could decrease our loan originations and increase delinquencies and defaults.
Declines in home values in our markets could adversely impact results from operations. Like all financial institutions, we
are subject to the effects of any economic downturn, and in particular, a significant decline in home values would likely
lead to a decrease in new home equity loan originations and increased delinquencies and defaults in both the consumer
home equity loan and residential real estate loan portfolios and result in increased losses in these portfolios. Declines in the
average sale prices of homes in our primary markets could lead to higher loan losses.
We depend on the services of our executive officers and other key employees.
Our success depends upon the continued employment of certain members of our senior management team. We also depend
upon the continued employment of the individuals that manage several of our key functional areas. The departure of any
member of our senior management team may adversely affect our operations.
Changes in interest rates could adversely affect our results of operations and financial condition.
Our results of operations and financial condition are significantly affected by changes in interest rates. Our results of
operations depend substantially on our net interest income, which is the difference between the interest income we earn on
our interest-earning assets, such as loans and securities, and the interest expense we pay on our interest-bearing liabilities,
such as deposits, borrowings and trust preferred securities. Because our interest-bearing liabilities generally reprice or
mature more quickly than our interest-earning assets, an increase in interest rates generally would tend to result in a
decrease in net interest income.
Changes in interest rates may also affect the average life of loans and mortgage-related securities. Decreases in interest
rates can result in increased prepayments of loans and mortgage-related securities, as borrowers refinance to reduce their
borrowing costs. Under these circumstances, we are subject to reinvestment risk to the extent that we are unable to reinvest
the cash received from such prepayments at rates that are comparable to the rates on existing loans and securities.
Additionally, increases in interest rates may decrease loan demand and make it more difficult for borrowers to repay
adjustable rate loans. Also, increases in interest rates may extend the life of fixed rate assets, which would restrict our
ability to reinvest in higher yielding alternatives, and may result in customers withdrawing certificates of deposit early so
long as the early withdrawal penalty is less than the interest they could receive as a result of the higher interest rates.
Changes in interest rates also affect the current fair value of our interest-earning securities portfolio. Generally, the value of
securities moves inversely with changes in interest rates.
Strong competition may limit growth and profitability.
Competition in the banking and financial services industry is intense. We compete with commercial banks, savings
institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and
brokerage and investment banking firms operating locally and elsewhere. Many of these competitors (whether regional or
national institutions) have substantially greater resources and lending limits than we have and may offer certain services
that we do not or cannot provide. Our profitability depends upon our ability to successfully compete in our market areas.
We operate in a highly regulated environment and may be adversely affected by changes in laws and regulations.
We are subject to extensive regulation, supervision and examination by the Board of Governors of the Federal Reserve
System and the Office of the Comptroller of the Currency. The federal banking laws and regulations govern the activities
in which we may engage, and are primarily for the protection of depositors and the Deposit Insurance Fund at the Federal
Deposit Insurance Corporation. These regulatory authorities have extensive discretion in connection with their supervisory
and enforcement activities, including the ability to impose restrictions on a bank’s operations, reclassify assets, determine
the adequacy of a bank’s allowance for loan losses and determine the level of deposit insurance premiums assessed. Any
change in such regulation and oversight, whether in the form of regulatory policy, new regulations or legislation or
additional deposit insurance premiums could have a material impact on our operations. Because our business is highly
regulated, the laws and applicable regulations are subject to frequent change. Any new laws, rules and regulations could
make compliance more difficult or expensive or otherwise adversely affect our business, financial condition or prospects.
Financial reform legislation enacted by Congress will, among other things, tighten capital standards, create a new
Consumer Financial Protection Bureau and result in new laws and regulations that are expected to increase our
costs of operations.
Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in July 2010.
This new law will significantly change the current bank regulatory structure and affect the lending, deposit, investment,
trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various
federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and
30
Bank regulators periodically review our allowance for loan losses and may require an increase to the provision for loan
losses or further loan charge-offs. Any increase in our allowance for loan losses or loan charge-offs as required by these
regulatory authorities may have a material adverse effect on our results of operations or financial condition.
We could record future losses on our securities portfolio.
A number of factors or combinations of factors could require us to conclude in one or more future reporting periods that an
unrealized loss exists with respect to our investment securities portfolio that constitutes an impairment that is other than
temporary, which could result in material losses to us. These factors include, but are not limited to, continued failure by the
issuer to make scheduled interest payments, an increase in the severity of the unrealized loss on a particular security, an
increase in the continuous duration of the unrealized loss without an improvement in value or changes in market conditions
and/or industry or issuer specific factors that would render us unable to forecast a full recovery in value. In addition, the
fair values of securities could decline if the overall economy and the financial condition of some of the issuers continues to
deteriorate and there remains limited liquidity for these securities.
A prolonged economic downturn, especially one affecting our geographic market area, will adversely affect our
business and financial results.
The United States and many industrial nations are experiencing adverse economic conditions and slow recovery which are
expected to continue in 2013. Loan portfolio quality has improved at many institutions, reflecting in part, the improving
U.S. economy and rising employment. In addition, the values of real estate collateral supporting many commercial loans
and home mortgages appear to have stabilized but may continue to decline. The continuing stagnation in the real estate
market also has resulted in reduced demand for the construction of new housing and increased delinquencies in
construction, residential and commercial mortgage loans. Financial institution stock prices have declined substantially, and
it is significantly more difficult for financial institutions to raise capital or borrow in the debt markets.
Continued negative developments in the financial services industry and the domestic and international credit markets may
significantly affect the markets in which we do business, the market for and value of our loans and investments, and our
ongoing operations, costs and profitability. Moreover, continued volatility or declines in the stock market in general, or
stock values of financial institutions and their holding companies, could adversely affect our stock performance.
As a federal savings bank, American Federal Savings Bank is required to maintain a certain percentage of its total
assets in qualifying loans and investments, which limits our asset mix and could significantly restrict our ability to
diversify our loan portfolio.
A savings bank or thrift differs from a commercial bank in that it is required to maintain at least 65% of its total assets in
housing-related loans and investments, such as loans for the purchase, refinance, construction, improvement, or repair of
residential real estate, home equity loans, educational loans and small business loans. To maintain our thrift charter we
have to pass the Qualified Thrift Lender test, or QTL test, in nine out of 12 of the immediately preceding months. The QTL
test limits the extent to which we can grow our commercial loan portfolio. However, a loan that does not exceed $2 million
(including a group of loans to one borrower) and is for commercial, corporate, business, or agricultural purposes is not so
limited. We may be limited in our ability to change our asset mix and increase the yield on our earning assets by growing
our commercial loan portfolio.
In addition, if we continue to grow our commercial loan portfolio and our single-family loan portfolio declines, it is
possible that in order to maintain our QTL status, we could be forced to buy mortgage-backed securities or other qualifying
assets at times when the terms might not be attractive. Alternatively, we could find it necessary to pursue different
structures, including converting American Federal Savings Bank’s current thrift charter to a commercial bank charter.
Because we intend to increase our commercial real estate and commercial business loan originations, our credit risk
will increase and continued downturns in the local real estate market or economy could adversely affect our
earnings.
We intend to continue our recent emphasis on originating commercial real estate and commercial business loans.
Commercial real estate and commercial business loans generally have more risk than the one- to four-family residential
real estate loans we originate. Because the repayment of commercial real estate and commercial business loans depends on
the successful management and operation of the borrower’s properties or related businesses, repayment of such loans can
be affected by adverse conditions in the local real estate market or economy. Commercial real estate and commercial
business loans may also involve relatively large loan balances to individual borrowers or groups of related borrowers. A
downturn in the real estate market or the local economy could adversely affect the value of properties securing the loan or
the revenues from the borrower’s business, thereby increasing the risk of nonperforming loans. As our commercial real
estate and commercial business loan portfolios increase, the corresponding risks and potential for losses from these loans
may also increase.
29
We could record future losses on our securities portfolio.
Declines in home values could decrease our loan originations and increase delinquencies and defaults.
Bank regulators periodically review our allowance for loan losses and may require an increase to the provision for loan
losses or further loan charge-offs. Any increase in our allowance for loan losses or loan charge-offs as required by these
regulatory authorities may have a material adverse effect on our results of operations or financial condition.
Declines in home values in our markets could adversely impact results from operations. Like all financial institutions, we
are subject to the effects of any economic downturn, and in particular, a significant decline in home values would likely
lead to a decrease in new home equity loan originations and increased delinquencies and defaults in both the consumer
home equity loan and residential real estate loan portfolios and result in increased losses in these portfolios. Declines in the
average sale prices of homes in our primary markets could lead to higher loan losses.
A number of factors or combinations of factors could require us to conclude in one or more future reporting periods that an
unrealized loss exists with respect to our investment securities portfolio that constitutes an impairment that is other than
temporary, which could result in material losses to us. These factors include, but are not limited to, continued failure by the
issuer to make scheduled interest payments, an increase in the severity of the unrealized loss on a particular security, an
increase in the continuous duration of the unrealized loss without an improvement in value or changes in market conditions
and/or industry or issuer specific factors that would render us unable to forecast a full recovery in value. In addition, the
fair values of securities could decline if the overall economy and the financial condition of some of the issuers continues to
deteriorate and there remains limited liquidity for these securities.
Our success depends upon the continued employment of certain members of our senior management team. We also depend
upon the continued employment of the individuals that manage several of our key functional areas. The departure of any
member of our senior management team may adversely affect our operations.
We depend on the services of our executive officers and other key employees.
Changes in interest rates could adversely affect our results of operations and financial condition.
A prolonged economic downturn, especially one affecting our geographic market area, will adversely affect our
business and financial results.
Our results of operations and financial condition are significantly affected by changes in interest rates. Our results of
operations depend substantially on our net interest income, which is the difference between the interest income we earn on
our interest-earning assets, such as loans and securities, and the interest expense we pay on our interest-bearing liabilities,
such as deposits, borrowings and trust preferred securities. Because our interest-bearing liabilities generally reprice or
mature more quickly than our interest-earning assets, an increase in interest rates generally would tend to result in a
decrease in net interest income.
The United States and many industrial nations are experiencing adverse economic conditions and slow recovery which are
expected to continue in 2013. Loan portfolio quality has improved at many institutions, reflecting in part, the improving
U.S. economy and rising employment. In addition, the values of real estate collateral supporting many commercial loans
and home mortgages appear to have stabilized but may continue to decline. The continuing stagnation in the real estate
market also has resulted in reduced demand for the construction of new housing and increased delinquencies in
construction, residential and commercial mortgage loans. Financial institution stock prices have declined substantially, and
it is significantly more difficult for financial institutions to raise capital or borrow in the debt markets.
Changes in interest rates may also affect the average life of loans and mortgage-related securities. Decreases in interest
rates can result in increased prepayments of loans and mortgage-related securities, as borrowers refinance to reduce their
borrowing costs. Under these circumstances, we are subject to reinvestment risk to the extent that we are unable to reinvest
the cash received from such prepayments at rates that are comparable to the rates on existing loans and securities.
Continued negative developments in the financial services industry and the domestic and international credit markets may
Additionally, increases in interest rates may decrease loan demand and make it more difficult for borrowers to repay
significantly affect the markets in which we do business, the market for and value of our loans and investments, and our
adjustable rate loans. Also, increases in interest rates may extend the life of fixed rate assets, which would restrict our
ongoing operations, costs and profitability. Moreover, continued volatility or declines in the stock market in general, or
ability to reinvest in higher yielding alternatives, and may result in customers withdrawing certificates of deposit early so
stock values of financial institutions and their holding companies, could adversely affect our stock performance.
long as the early withdrawal penalty is less than the interest they could receive as a result of the higher interest rates.
Changes in interest rates also affect the current fair value of our interest-earning securities portfolio. Generally, the value of
securities moves inversely with changes in interest rates.
As a federal savings bank, American Federal Savings Bank is required to maintain a certain percentage of its total
assets in qualifying loans and investments, which limits our asset mix and could significantly restrict our ability to
diversify our loan portfolio.
Strong competition may limit growth and profitability.
Competition in the banking and financial services industry is intense. We compete with commercial banks, savings
institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and
brokerage and investment banking firms operating locally and elsewhere. Many of these competitors (whether regional or
national institutions) have substantially greater resources and lending limits than we have and may offer certain services
that we do not or cannot provide. Our profitability depends upon our ability to successfully compete in our market areas.
A savings bank or thrift differs from a commercial bank in that it is required to maintain at least 65% of its total assets in
housing-related loans and investments, such as loans for the purchase, refinance, construction, improvement, or repair of
residential real estate, home equity loans, educational loans and small business loans. To maintain our thrift charter we
have to pass the Qualified Thrift Lender test, or QTL test, in nine out of 12 of the immediately preceding months. The QTL
test limits the extent to which we can grow our commercial loan portfolio. However, a loan that does not exceed $2 million
(including a group of loans to one borrower) and is for commercial, corporate, business, or agricultural purposes is not so
limited. We may be limited in our ability to change our asset mix and increase the yield on our earning assets by growing
our commercial loan portfolio.
We operate in a highly regulated environment and may be adversely affected by changes in laws and regulations.
In addition, if we continue to grow our commercial loan portfolio and our single-family loan portfolio declines, it is
We are subject to extensive regulation, supervision and examination by the Board of Governors of the Federal Reserve
possible that in order to maintain our QTL status, we could be forced to buy mortgage-backed securities or other qualifying
System and the Office of the Comptroller of the Currency. The federal banking laws and regulations govern the activities
assets at times when the terms might not be attractive. Alternatively, we could find it necessary to pursue different
in which we may engage, and are primarily for the protection of depositors and the Deposit Insurance Fund at the Federal
structures, including converting American Federal Savings Bank’s current thrift charter to a commercial bank charter.
Deposit Insurance Corporation. These regulatory authorities have extensive discretion in connection with their supervisory
and enforcement activities, including the ability to impose restrictions on a bank’s operations, reclassify assets, determine
the adequacy of a bank’s allowance for loan losses and determine the level of deposit insurance premiums assessed. Any
change in such regulation and oversight, whether in the form of regulatory policy, new regulations or legislation or
additional deposit insurance premiums could have a material impact on our operations. Because our business is highly
regulated, the laws and applicable regulations are subject to frequent change. Any new laws, rules and regulations could
make compliance more difficult or expensive or otherwise adversely affect our business, financial condition or prospects.
Because we intend to increase our commercial real estate and commercial business loan originations, our credit risk
will increase and continued downturns in the local real estate market or economy could adversely affect our
earnings.
Financial reform legislation enacted by Congress will, among other things, tighten capital standards, create a new
Consumer Financial Protection Bureau and result in new laws and regulations that are expected to increase our
costs of operations.
We intend to continue our recent emphasis on originating commercial real estate and commercial business loans.
Commercial real estate and commercial business loans generally have more risk than the one- to four-family residential
real estate loans we originate. Because the repayment of commercial real estate and commercial business loans depends on
the successful management and operation of the borrower’s properties or related businesses, repayment of such loans can
be affected by adverse conditions in the local real estate market or economy. Commercial real estate and commercial
business loans may also involve relatively large loan balances to individual borrowers or groups of related borrowers. A
downturn in the real estate market or the local economy could adversely affect the value of properties securing the loan or
the revenues from the borrower’s business, thereby increasing the risk of nonperforming loans. As our commercial real
estate and commercial business loan portfolios increase, the corresponding risks and potential for losses from these loans
may also increase.
Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in July 2010.
This new law will significantly change the current bank regulatory structure and affect the lending, deposit, investment,
trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various
federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and
30
29
Declines in home values could decrease our loan originations and increase delinquencies and defaults.
Declines in home values in our markets could adversely impact results from operations. Like all financial institutions, we
are subject to the effects of any economic downturn, and in particular, a significant decline in home values would likely
lead to a decrease in new home equity loan originations and increased delinquencies and defaults in both the consumer
home equity loan and residential real estate loan portfolios and result in increased losses in these portfolios. Declines in the
average sale prices of homes in our primary markets could lead to higher loan losses.
We depend on the services of our executive officers and other key employees.
Our success depends upon the continued employment of certain members of our senior management team. We also depend
upon the continued employment of the individuals that manage several of our key functional areas. The departure of any
member of our senior management team may adversely affect our operations.
Changes in interest rates could adversely affect our results of operations and financial condition.
Our results of operations and financial condition are significantly affected by changes in interest rates. Our results of
operations depend substantially on our net interest income, which is the difference between the interest income we earn on
our interest-earning assets, such as loans and securities, and the interest expense we pay on our interest-bearing liabilities,
such as deposits, borrowings and trust preferred securities. Because our interest-bearing liabilities generally reprice or
mature more quickly than our interest-earning assets, an increase in interest rates generally would tend to result in a
decrease in net interest income.
Changes in interest rates may also affect the average life of loans and mortgage-related securities. Decreases in interest
rates can result in increased prepayments of loans and mortgage-related securities, as borrowers refinance to reduce their
borrowing costs. Under these circumstances, we are subject to reinvestment risk to the extent that we are unable to reinvest
the cash received from such prepayments at rates that are comparable to the rates on existing loans and securities.
Additionally, increases in interest rates may decrease loan demand and make it more difficult for borrowers to repay
adjustable rate loans. Also, increases in interest rates may extend the life of fixed rate assets, which would restrict our
ability to reinvest in higher yielding alternatives, and may result in customers withdrawing certificates of deposit early so
long as the early withdrawal penalty is less than the interest they could receive as a result of the higher interest rates.
Changes in interest rates also affect the current fair value of our interest-earning securities portfolio. Generally, the value of
securities moves inversely with changes in interest rates.
Strong competition may limit growth and profitability.
Competition in the banking and financial services industry is intense. We compete with commercial banks, savings
institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and
brokerage and investment banking firms operating locally and elsewhere. Many of these competitors (whether regional or
national institutions) have substantially greater resources and lending limits than we have and may offer certain services
that we do not or cannot provide. Our profitability depends upon our ability to successfully compete in our market areas.
We operate in a highly regulated environment and may be adversely affected by changes in laws and regulations.
We are subject to extensive regulation, supervision and examination by the Board of Governors of the Federal Reserve
System and the Office of the Comptroller of the Currency. The federal banking laws and regulations govern the activities
in which we may engage, and are primarily for the protection of depositors and the Deposit Insurance Fund at the Federal
Deposit Insurance Corporation. These regulatory authorities have extensive discretion in connection with their supervisory
and enforcement activities, including the ability to impose restrictions on a bank’s operations, reclassify assets, determine
the adequacy of a bank’s allowance for loan losses and determine the level of deposit insurance premiums assessed. Any
change in such regulation and oversight, whether in the form of regulatory policy, new regulations or legislation or
additional deposit insurance premiums could have a material impact on our operations. Because our business is highly
regulated, the laws and applicable regulations are subject to frequent change. Any new laws, rules and regulations could
make compliance more difficult or expensive or otherwise adversely affect our business, financial condition or prospects.
Financial reform legislation enacted by Congress will, among other things, tighten capital standards, create a new
Consumer Financial Protection Bureau and result in new laws and regulations that are expected to increase our
costs of operations.
Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in July 2010.
This new law will significantly change the current bank regulatory structure and affect the lending, deposit, investment,
trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various
federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and
30
reports for Congress. The federal agencies are given significant discretion in drafting the implementing rules and
regulations, and consequently, many of the details and much of the impact of the Dodd-Frank Act may not be known for
many months or years.
Certain provisions of the Dodd-Frank Act are expected to have a near term impact on us. Effective July 21, 2011, the
Dodd-Frank Act eliminated the federal prohibitions against paying interest on demand deposits, thus allowing businesses to
have interest bearing checking accounts. Depending on competitive responses, this significant change to existing law could
have an adverse impact on our interest expense. So far this impact has been minimal, however, we suspect it will change
once the current low interest rate environment changes.
The Dodd-Frank Act created a new Consumer Financial Protection Bureau with broad powers to supervise and enforce
consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of
consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair,
deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement
authority over all banks and savings institutions with more than $10 billion in assets. Savings institutions such as American
Federal Savings Bank with $10 billion or less in assets will continued to be examined for compliance with the consumer
laws by their primary bank regulators.
It is difficult to predict at this time what impact the Dodd-Frank Act and its implementing rules will have on community
banks like American Federal. However, it is expected that at a minimum they will increase our operating and compliance
costs and could increase our interest expense.
If our investment in the Federal Home Loan Bank of Seattle becomes impaired, our earnings and stockholders’
equity could decrease.
We are required to own common stock of the Federal Home Loan Bank of Seattle to qualify for membership in the Federal
Home Loan Bank System and to be eligible to borrow funds under the Federal Home Loan Bank’s advance program. The
aggregate cost of our Federal Home Loan Bank common stock as of June 30, 2012 was $2.00 million. Federal Home Loan
Bank common stock is not a marketable security and can only be redeemed by the Federal Home Loan Bank.
Federal Home Loan Banks may be subject to accounting rules and asset quality risks that could materially lower their
regulatory capital. In an extreme situation, it is possible that the capitalization of a Federal Home Loan Bank, including the
Federal Home Loan Bank of Seattle, could be substantially diminished or reduced to zero. Consequently, we believe that
there is a risk that our investment in Federal Home Loan Bank of Seattle common stock could be deemed impaired at some
time in the future, and if this occurs, it would cause our earnings and stockholders’ equity to decrease by the amount of the
impairment charge.
Future legislative or regulatory actions responding to perceived financial and market problems could impair our
ability to foreclose on collateral.
There have been proposals made by members of Congress and others that would reduce the amount distressed borrowers
are otherwise contractually obligated to pay under their mortgage loans and limit an institution’s ability to foreclose on
mortgage collateral. Were proposals such as these, or other proposals limiting our rights as a creditor, to be implemented,
we could experience increased credit losses or increased expense in pursuing our remedies as a creditor.
reports for Congress. The federal agencies are given significant discretion in drafting the implementing rules and
regulations, and consequently, many of the details and much of the impact of the Dodd-Frank Act may not be known for
many months or years.
Location
Value At
June 30, 2012
(In thousands)
Square
Footage
Address
Opened
Helena Main Office
Certain provisions of the Dodd-Frank Act are expected to have a near term impact on us. Effective July 21, 2011, the
Dodd-Frank Act eliminated the federal prohibitions against paying interest on demand deposits, thus allowing businesses to
have interest bearing checking accounts. Depending on competitive responses, this significant change to existing law could
have an adverse impact on our interest expense. So far this impact has been minimal, however, we suspect it will change
once the current low interest rate environment changes.
1400 Prospect Ave.
Helena, MT 59601
$
32,304
3,664
1997
Helena Neill Avenue Branch
$
1,017
1,391
1987
28 Neill Ave.
Helena, MT 59601
Helena Skyway Branch
The Dodd-Frank Act created a new Consumer Financial Protection Bureau with broad powers to supervise and enforce
consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of
consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair,
deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement
authority over all banks and savings institutions with more than $10 billion in assets. Savings institutions such as American
Federal Savings Bank with $10 billion or less in assets will continued to be examined for compliance with the consumer
laws by their primary bank regulators.
2090 Cromwell Dixon
Helena, MT 59602
3401 Harrison Ave.
Butte, MT 59701
$
$
4,643
3,890
2,208
1979
2009
500
Butte Office
Bozeman Office
It is difficult to predict at this time what impact the Dodd-Frank Act and its implementing rules will have on community
banks like American Federal. However, it is expected that at a minimum they will increase our operating and compliance
costs and could increase our interest expense.
1980
(closed August 1, 2010)
606 North Seventh
Bozeman, MT 59715
$
5,886
374
Bozeman Branch
If our investment in the Federal Home Loan Bank of Seattle becomes impaired, our earnings and stockholders’
equity could decrease.
1455 Oak St
Bozeman, MT 59715
2009
$
7,616
19,818
Townsend Office
We are required to own common stock of the Federal Home Loan Bank of Seattle to qualify for membership in the Federal
Home Loan Bank System and to be eligible to borrow funds under the Federal Home Loan Bank’s advance program. The
aggregate cost of our Federal Home Loan Bank common stock as of June 30, 2012 was $2.00 million. Federal Home Loan
Bank common stock is not a marketable security and can only be redeemed by the Federal Home Loan Bank.
416 Broadway
Townsend, MT 59644
$
1,973
1979
182
ITEM 3.
LEGAL PROCEEDINGS.
As of June 30, 2012, the net book value of land, buildings, furniture, and equipment owned by American Federal, less
accumulated depreciation, totaled $15.56 million.
Federal Home Loan Banks may be subject to accounting rules and asset quality risks that could materially lower their
regulatory capital. In an extreme situation, it is possible that the capitalization of a Federal Home Loan Bank, including the
Federal Home Loan Bank of Seattle, could be substantially diminished or reduced to zero. Consequently, we believe that
there is a risk that our investment in Federal Home Loan Bank of Seattle common stock could be deemed impaired at some
time in the future, and if this occurs, it would cause our earnings and stockholders’ equity to decrease by the amount of the
impairment charge.
American Federal, from time to time, is a party to routine litigation, which arises in the normal course of business, such as
claims to enforce liens, condemnation proceedings on properties in which American Federal Savings Bank holds security
interests, claims involving the making and servicing of real property loans, and other issues incident to the business of
American Federal. There were no lawsuits pending or known to be contemplated against Eagle or American Federal as of
June 30, 2012.
Future legislative or regulatory actions responding to perceived financial and market problems could impair our
ability to foreclose on collateral.
There have been proposals made by members of Congress and others that would reduce the amount distressed borrowers
are otherwise contractually obligated to pay under their mortgage loans and limit an institution’s ability to foreclose on
mortgage collateral. Were proposals such as these, or other proposals limiting our rights as a creditor, to be implemented,
we could experience increased credit losses or increased expense in pursuing our remedies as a creditor.
MINE SAFETY DISCLOSURES.
ITEM 4.
Not applicable.
Location
Address
Opened
Value At
June 30, 2012
(In thousands)
Square
Footage
Helena Main Office
1997
$
3,664
32,304
Helena Neill Avenue Branch
28 Neill Ave.
1987
$
1,017
1,391
Helena Skyway Branch
2090 Cromwell Dixon
2009
$
2,208
4,643
Butte Office
1979
$
500
3,890
Bozeman Office
606 North Seventh
1980
$
374
5,886
Bozeman, MT 59715
(closed August 1, 2010)
Bozeman Branch
1455 Oak St
2009
$
7,616
19,818
Townsend Office
416 Broadway
1979
$
182
1,973
1400 Prospect Ave.
Helena, MT 59601
Helena, MT 59601
Helena, MT 59602
3401 Harrison Ave.
Butte, MT 59701
Bozeman, MT 59715
Townsend, MT 59644
As of June 30, 2012, the net book value of land, buildings, furniture, and equipment owned by American Federal, less
accumulated depreciation, totaled $15.56 million.
ITEM 3.
LEGAL PROCEEDINGS.
American Federal, from time to time, is a party to routine litigation, which arises in the normal course of business, such as
claims to enforce liens, condemnation proceedings on properties in which American Federal Savings Bank holds security
interests, claims involving the making and servicing of real property loans, and other issues incident to the business of
American Federal. There were no lawsuits pending or known to be contemplated against Eagle or American Federal as of
June 30, 2012.
Not applicable.
ITEM 4.
MINE SAFETY DISCLOSURES.
ITEM 1B.
UNRESOLVED STAFF COMMENTS.
ITEM 1B.
UNRESOLVED STAFF COMMENTS.
None.
ITEM 2.
PROPERTIES.
None.
ITEM 2.
PROPERTIES.
The Company’s business activities consist of its ownership of 100% of the common stock of the Bank. Eagle’s and the
Bank’s executive office is located at 1400 Prospect Avenue in Helena, Montana. American Federal conducts its business
through six offices, which are located in Helena, Bozeman, Butte, and Townsend, Montana. All of its offices are owned.
Its principal banking office in Helena also serves as its executive headquarters and operations center. This office houses
over 50% of American Federal’s full-time employees. The following table sets forth the location of each of American
Federal’s offices, the year the office was opened, and the net book value including land, buildings, computer software and
its related equipment and furniture. The square footage at each location is also shown.
The Company’s business activities consist of its ownership of 100% of the common stock of the Bank. Eagle’s and the
Bank’s executive office is located at 1400 Prospect Avenue in Helena, Montana. American Federal conducts its business
through six offices, which are located in Helena, Bozeman, Butte, and Townsend, Montana. All of its offices are owned.
Its principal banking office in Helena also serves as its executive headquarters and operations center. This office houses
over 50% of American Federal’s full-time employees. The following table sets forth the location of each of American
Federal’s offices, the year the office was opened, and the net book value including land, buildings, computer software and
its related equipment and furniture. The square footage at each location is also shown.
31
32
31
32
reports for Congress. The federal agencies are given significant discretion in drafting the implementing rules and
regulations, and consequently, many of the details and much of the impact of the Dodd-Frank Act may not be known for
many months or years.
Certain provisions of the Dodd-Frank Act are expected to have a near term impact on us. Effective July 21, 2011, the
Dodd-Frank Act eliminated the federal prohibitions against paying interest on demand deposits, thus allowing businesses to
have interest bearing checking accounts. Depending on competitive responses, this significant change to existing law could
have an adverse impact on our interest expense. So far this impact has been minimal, however, we suspect it will change
once the current low interest rate environment changes.
The Dodd-Frank Act created a new Consumer Financial Protection Bureau with broad powers to supervise and enforce
consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of
consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair,
deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement
authority over all banks and savings institutions with more than $10 billion in assets. Savings institutions such as American
Federal Savings Bank with $10 billion or less in assets will continued to be examined for compliance with the consumer
laws by their primary bank regulators.
It is difficult to predict at this time what impact the Dodd-Frank Act and its implementing rules will have on community
banks like American Federal. However, it is expected that at a minimum they will increase our operating and compliance
costs and could increase our interest expense.
If our investment in the Federal Home Loan Bank of Seattle becomes impaired, our earnings and stockholders’
equity could decrease.
We are required to own common stock of the Federal Home Loan Bank of Seattle to qualify for membership in the Federal
Home Loan Bank System and to be eligible to borrow funds under the Federal Home Loan Bank’s advance program. The
aggregate cost of our Federal Home Loan Bank common stock as of June 30, 2012 was $2.00 million. Federal Home Loan
Bank common stock is not a marketable security and can only be redeemed by the Federal Home Loan Bank.
Federal Home Loan Banks may be subject to accounting rules and asset quality risks that could materially lower their
regulatory capital. In an extreme situation, it is possible that the capitalization of a Federal Home Loan Bank, including the
Federal Home Loan Bank of Seattle, could be substantially diminished or reduced to zero. Consequently, we believe that
there is a risk that our investment in Federal Home Loan Bank of Seattle common stock could be deemed impaired at some
time in the future, and if this occurs, it would cause our earnings and stockholders’ equity to decrease by the amount of the
impairment charge.
ability to foreclose on collateral.
Future legislative or regulatory actions responding to perceived financial and market problems could impair our
There have been proposals made by members of Congress and others that would reduce the amount distressed borrowers
are otherwise contractually obligated to pay under their mortgage loans and limit an institution’s ability to foreclose on
mortgage collateral. Were proposals such as these, or other proposals limiting our rights as a creditor, to be implemented,
we could experience increased credit losses or increased expense in pursuing our remedies as a creditor.
reports for Congress. The federal agencies are given significant discretion in drafting the implementing rules and
regulations, and consequently, many of the details and much of the impact of the Dodd-Frank Act may not be known for
many months or years.
Location
Value At
June 30, 2012
(In thousands)
Square
Footage
Address
Opened
Helena Main Office
Certain provisions of the Dodd-Frank Act are expected to have a near term impact on us. Effective July 21, 2011, the
Dodd-Frank Act eliminated the federal prohibitions against paying interest on demand deposits, thus allowing businesses to
have interest bearing checking accounts. Depending on competitive responses, this significant change to existing law could
have an adverse impact on our interest expense. So far this impact has been minimal, however, we suspect it will change
once the current low interest rate environment changes.
1400 Prospect Ave.
Helena, MT 59601
$
32,304
3,664
1997
Helena Neill Avenue Branch
$
1,017
1,391
1987
28 Neill Ave.
Helena, MT 59601
Helena Skyway Branch
The Dodd-Frank Act created a new Consumer Financial Protection Bureau with broad powers to supervise and enforce
consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of
consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair,
deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement
authority over all banks and savings institutions with more than $10 billion in assets. Savings institutions such as American
Federal Savings Bank with $10 billion or less in assets will continued to be examined for compliance with the consumer
laws by their primary bank regulators.
2090 Cromwell Dixon
Helena, MT 59602
3401 Harrison Ave.
Butte, MT 59701
$
$
2,208
4,643
3,890
2009
1979
500
Butte Office
Bozeman Office
It is difficult to predict at this time what impact the Dodd-Frank Act and its implementing rules will have on community
banks like American Federal. However, it is expected that at a minimum they will increase our operating and compliance
costs and could increase our interest expense.
1980
(closed August 1, 2010)
606 North Seventh
Bozeman, MT 59715
$
5,886
374
Bozeman Branch
If our investment in the Federal Home Loan Bank of Seattle becomes impaired, our earnings and stockholders’
equity could decrease.
1455 Oak St
Bozeman, MT 59715
2009
$
7,616
19,818
Townsend Office
We are required to own common stock of the Federal Home Loan Bank of Seattle to qualify for membership in the Federal
Home Loan Bank System and to be eligible to borrow funds under the Federal Home Loan Bank’s advance program. The
aggregate cost of our Federal Home Loan Bank common stock as of June 30, 2012 was $2.00 million. Federal Home Loan
Bank common stock is not a marketable security and can only be redeemed by the Federal Home Loan Bank.
416 Broadway
Townsend, MT 59644
$
1,973
1979
182
ITEM 3.
LEGAL PROCEEDINGS.
As of June 30, 2012, the net book value of land, buildings, furniture, and equipment owned by American Federal, less
accumulated depreciation, totaled $15.56 million.
Federal Home Loan Banks may be subject to accounting rules and asset quality risks that could materially lower their
regulatory capital. In an extreme situation, it is possible that the capitalization of a Federal Home Loan Bank, including the
Federal Home Loan Bank of Seattle, could be substantially diminished or reduced to zero. Consequently, we believe that
there is a risk that our investment in Federal Home Loan Bank of Seattle common stock could be deemed impaired at some
time in the future, and if this occurs, it would cause our earnings and stockholders’ equity to decrease by the amount of the
impairment charge.
American Federal, from time to time, is a party to routine litigation, which arises in the normal course of business, such as
claims to enforce liens, condemnation proceedings on properties in which American Federal Savings Bank holds security
interests, claims involving the making and servicing of real property loans, and other issues incident to the business of
American Federal. There were no lawsuits pending or known to be contemplated against Eagle or American Federal as of
June 30, 2012.
Future legislative or regulatory actions responding to perceived financial and market problems could impair our
ability to foreclose on collateral.
There have been proposals made by members of Congress and others that would reduce the amount distressed borrowers
are otherwise contractually obligated to pay under their mortgage loans and limit an institution’s ability to foreclose on
mortgage collateral. Were proposals such as these, or other proposals limiting our rights as a creditor, to be implemented,
we could experience increased credit losses or increased expense in pursuing our remedies as a creditor.
MINE SAFETY DISCLOSURES.
ITEM 4.
Not applicable.
Location
Address
Opened
Value At
June 30, 2012
(In thousands)
Square
Footage
Helena Main Office
Helena Neill Avenue Branch
Helena Skyway Branch
Butte Office
Bozeman Office
Bozeman Branch
Townsend Office
1400 Prospect Ave.
Helena, MT 59601
28 Neill Ave.
Helena, MT 59601
2090 Cromwell Dixon
Helena, MT 59602
3401 Harrison Ave.
Butte, MT 59701
1997
$
3,664
32,304
1987
$
1,017
1,391
2009
$
2,208
4,643
1979
$
500
3,890
606 North Seventh
Bozeman, MT 59715
1980
(closed August 1, 2010)
$
374
5,886
1455 Oak St
Bozeman, MT 59715
416 Broadway
Townsend, MT 59644
2009
$
7,616
19,818
1979
$
182
1,973
As of June 30, 2012, the net book value of land, buildings, furniture, and equipment owned by American Federal, less
accumulated depreciation, totaled $15.56 million.
ITEM 3.
LEGAL PROCEEDINGS.
American Federal, from time to time, is a party to routine litigation, which arises in the normal course of business, such as
claims to enforce liens, condemnation proceedings on properties in which American Federal Savings Bank holds security
interests, claims involving the making and servicing of real property loans, and other issues incident to the business of
American Federal. There were no lawsuits pending or known to be contemplated against Eagle or American Federal as of
June 30, 2012.
ITEM 4.
Not applicable.
MINE SAFETY DISCLOSURES.
ITEM 1B.
UNRESOLVED STAFF COMMENTS.
ITEM 1B.
UNRESOLVED STAFF COMMENTS.
None.
ITEM 2.
PROPERTIES.
None.
ITEM 2.
PROPERTIES.
The Company’s business activities consist of its ownership of 100% of the common stock of the Bank. Eagle’s and the
Bank’s executive office is located at 1400 Prospect Avenue in Helena, Montana. American Federal conducts its business
through six offices, which are located in Helena, Bozeman, Butte, and Townsend, Montana. All of its offices are owned.
Its principal banking office in Helena also serves as its executive headquarters and operations center. This office houses
over 50% of American Federal’s full-time employees. The following table sets forth the location of each of American
Federal’s offices, the year the office was opened, and the net book value including land, buildings, computer software and
its related equipment and furniture. The square footage at each location is also shown.
The Company’s business activities consist of its ownership of 100% of the common stock of the Bank. Eagle’s and the
Bank’s executive office is located at 1400 Prospect Avenue in Helena, Montana. American Federal conducts its business
through six offices, which are located in Helena, Bozeman, Butte, and Townsend, Montana. All of its offices are owned.
Its principal banking office in Helena also serves as its executive headquarters and operations center. This office houses
over 50% of American Federal’s full-time employees. The following table sets forth the location of each of American
Federal’s offices, the year the office was opened, and the net book value including land, buildings, computer software and
its related equipment and furniture. The square footage at each location is also shown.
31
32
31
32
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is traded on the NASDAQ Global Market under the symbol “EBMT.” At the close of business on June
30, 2012, there were 3,878,971 shares of common stock outstanding, held by approximately 1,000 shareholders of record.
The closing price of the common stock on June 30, 2012, was $10.00 per share.
Quarter Ended
Fiscal Year 2012
Fiscal Year 2011
June 30, 2012
March 31, 2012
December 31, 2011
September 30, 2011
June 30, 2011
March 31, 2011
December 31, 2010
September 30, 2010
High Bid
Low Bid
$
$
$
$
10.25
10.18
10.49
10.82
$
$
$
$
11.75
11.81
10.83
9.95
$
$
$
$
9.90
9.75
9.50
10.40
$
$
$
$
10.49
10.58
9.05
9.00
Dividends
Paid
$
$
$
$
0.07125
0.07125
0.07125
0.07125
$
$
$
$
0.070
0.070
0.070
0.070
Payment of dividends on our shares of common stock is subject to determination and declaration by the Board of Directors
and will depend upon a number of factors, including capital requirements, regulatory limitations on the payment of
dividends, our results of operations and financial condition, tax considerations and general economic conditions. No
assurance can be given that dividends will be declared or, if declared, what the amount of dividends will be, or whether
such dividends, once declared, will continue.
The following table provides information regarding our purchases of our common stock during the fourth quarter of our
fiscal year ended June 30, 2012:
Total number
of shares
purchased as
part of
publicly
announced
plans or
programs
Maximum
number of
shares that
may yet be
purchased
under the
plans or
programs
Total number
of shares
purchased
Average price
paid per share
-
-
-
-
$
-
-
-
-
-
-
-
-
Period
April 1, 2012 through April 30, 2012
May 1, 2012 through May 31, 2012
June 1, 2012 through June 30, 2012
Total
On April 26, 2011, the Company announced that its Board of Directors authorized a common stock repurchase program for
204,156 shares of common stock, effective April 27, 2011. The program was intended to be implemented through
purchases made from time to time in the open market or through private transactions. The program terminated on
December 27, 2011 with its final purchase of shares within the program.
ITEM 5.
PART II
On April 21, 2011, the Company entered into a pre-arranged Rule 10b5-1 written trading plan (“the Trading Plan”) with a
broker to facilitate the repurchase of its shares of common stock, in conformity with the provisions of Rule 10b5-1 under
the Securities Exchange Act of 1934, as amended. A broker selected by the Company had the authority under the terms and
limitations specified in the Trading Plan to repurchase shares on the Company’s behalf in accordance with the terms of the
Trading Plan. The Trading Plan facilitated the Company’s share repurchase program, went into effect on April 27, 2011
and was completed on December 27, 2011. The Trading Plan enabled the Company to continue to repurchase shares
without suspension for self-imposed trading blackout periods. The shares repurchased under the Trading Plan were in
accordance with and subject to the limitations of the stock repurchase program.
Our common stock is traded on the NASDAQ Global Market under the symbol “EBMT.” At the close of business on June
30, 2012, there were 3,878,971 shares of common stock outstanding, held by approximately 1,000 shareholders of record.
The closing price of the common stock on June 30, 2012, was $10.00 per share.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
ITEM 6.
SELECTED FINANCIAL DATA.
ITEM 6.
SELECTED FINANCIAL DATA.
Low Bid
Dividends
Paid
This item has been omitted based on Eagle’s status as a smaller reporting company.
This item has been omitted based on Eagle’s status as a smaller reporting company.
Quarter Ended
Fiscal Year 2012
High Bid
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
$
RESULTS OF OPERATIONS.
$
$
$
The following discussion and analysis of the financial condition and results of operations of Eagle is intended to help
investors understand our company and our operations. The financial review is provided as a supplement to, and should be
read in conjunction with the Consolidated Financial Statements and the related Notes included elsewhere in this report.
June 30, 2012
March 31, 2012
December 31, 2011
September 30, 2011
$
$
$
$
0.07125
0.07125
0.07125
0.07125
$
$
$
$
9.90
9.75
9.50
10.40
10.25
10.18
10.49
10.82
Fiscal Year 2011
Overview
June 30, 2011
March 31, 2011
December 31, 2010
September 30, 2010
Historically, our principal business has consisted of attracting deposits from the general public and the business community
and making loans secured by various types of collateral, including real estate and other consumer assets. We are
significantly affected by prevailing economic conditions, particularly interest rates, as well as government policies
concerning, among other things, monetary and fiscal affairs, housing and financial institutions and regulations regarding
lending and other operations, privacy and consumer disclosure. Attracting and maintaining deposits is influenced by a
number of factors, including interest rates paid on competing investments offered by other financial and non-financial
institutions, account maturities, fee structures, and levels of personal income and savings. Lending activities are affected by
the demand for funds and thus are influenced by interest rates, the number and quality of lenders and regional economic
conditions. Sources of funds for lending activities include deposits, borrowings, repayments on loans, cash flows from
maturities of investment securities and income provided from operations.
Payment of dividends on our shares of common stock is subject to determination and declaration by the Board of Directors
and will depend upon a number of factors, including capital requirements, regulatory limitations on the payment of
dividends, our results of operations and financial condition, tax considerations and general economic conditions. No
assurance can be given that dividends will be declared or, if declared, what the amount of dividends will be, or whether
such dividends, once declared, will continue.
$
$
$
$
11.75
11.81
10.83
9.95
$
$
$
$
10.49
10.58
9.05
9.00
$
$
$
$
0.070
0.070
0.070
0.070
The following table provides information regarding our purchases of our common stock during the fourth quarter of our
fiscal year ended June 30, 2012:
Our earnings depend primarily on our level of net interest income, which is the difference between interest earned on our
interest-earning assets, consisting primarily of loans, mortgage-backed securities and other investment securities, and the
interest paid on interest-bearing liabilities, consisting primarily of deposits, borrowed funds, and trust-preferred securities.
Net interest income is a function of our interest rate spread, which is the difference between the average yield earned on our
interest-earning assets and the average rate paid on our interest- bearing liabilities, as well as a function of the average
balance of interest-earning assets compared to interest-bearing liabilities. Also contributing to our earnings is noninterest
income, which consists primarily of service charges and fees on loan and deposit products and services, net gains and
losses on sale of assets, and mortgage loan service fees. Net interest income and noninterest income are offset by
provisions for loan losses, general administrative and other expenses, including salaries and employee benefits and
occupancy and equipment costs, as well as by state and federal income tax expense.
Total number
of shares
purchased
Period
Average price
paid per share
June 1, 2012 through June 30, 2012
May 1, 2012 through May 31, 2012
April 1, 2012 through April 30, 2012
American Federal Savings Bank has a strong mortgage lending focus, with the majority of its loan originations in single-
family residential mortgages, which has enabled it to successfully market home equity loans, as well as a wide range of
shorter term consumer loans for various personal needs (automobiles, recreational vehicles, etc.). In recent years we have
also focused on adding commercial loans to our portfolio, both real estate and non-real estate. We have made significant
progress in this initiative. As of June 30, 2012, commercial real estate and land loans and commercial business loans
represented 36.8% and 8.7% of the total loan portfolio, respectively, which represented increases from the 34.5% and 5.6%
amounts at June 30, 2011, respectively. The purpose of this diversification is to mitigate our dependence on the mortgage
market, as well as to improve our ability to manage our interest rate spread. American Federal Savings Bank’s
management recognizes that fee income will also enable it to be less dependent on specialized lending and it now maintains
a significant loan serviced portfolio, which provides a steady source of fee income. As of June 30, 2012, we had mortgage
servicing rights, net of $2.218 million compared to $2.142 million as of June 30, 2011. The gain on sale of loans also
provides significant fee income in periods of high mortgage loan origination volumes. Fee income is also supplemented
with fees generated from our deposit accounts. American Federal Savings Bank has a high percentage of non-maturity
deposits, such as checking accounts and savings accounts, which allows management flexibility in managing its spread.
Non-maturity deposits do not automatically reprice as interest rates rise, as do certificates of deposit.
On April 26, 2011, the Company announced that its Board of Directors authorized a common stock repurchase program for
204,156 shares of common stock, effective April 27, 2011. The program was intended to be implemented through
purchases made from time to time in the open market or through private transactions. The program terminated on
December 27, 2011 with its final purchase of shares within the program.
$
-
Total
-
-
-
-
-
-
-
-
-
-
-
Total number
of shares
purchased as
part of
publicly
announced
plans or
programs
Maximum
number of
shares that
may yet be
purchased
under the
plans or
programs
On April 21, 2011, the Company entered into a pre-arranged Rule 10b5-1 written trading plan (“the Trading Plan”) with a
broker to facilitate the repurchase of its shares of common stock, in conformity with the provisions of Rule 10b5-1 under
the Securities Exchange Act of 1934, as amended. A broker selected by the Company had the authority under the terms and
limitations specified in the Trading Plan to repurchase shares on the Company’s behalf in accordance with the terms of the
Trading Plan. The Trading Plan facilitated the Company’s share repurchase program, went into effect on April 27, 2011
and was completed on December 27, 2011. The Trading Plan enabled the Company to continue to repurchase shares
without suspension for self-imposed trading blackout periods. The shares repurchased under the Trading Plan were in
accordance with and subject to the limitations of the stock repurchase program.
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis of the financial condition and results of operations of Eagle is intended to help
investors understand our company and our operations. The financial review is provided as a supplement to, and should be
read in conjunction with the Consolidated Financial Statements and the related Notes included elsewhere in this report.
Overview
Historically, our principal business has consisted of attracting deposits from the general public and the business community
and making loans secured by various types of collateral, including real estate and other consumer assets. We are
significantly affected by prevailing economic conditions, particularly interest rates, as well as government policies
concerning, among other things, monetary and fiscal affairs, housing and financial institutions and regulations regarding
lending and other operations, privacy and consumer disclosure. Attracting and maintaining deposits is influenced by a
number of factors, including interest rates paid on competing investments offered by other financial and non-financial
institutions, account maturities, fee structures, and levels of personal income and savings. Lending activities are affected by
the demand for funds and thus are influenced by interest rates, the number and quality of lenders and regional economic
conditions. Sources of funds for lending activities include deposits, borrowings, repayments on loans, cash flows from
maturities of investment securities and income provided from operations.
Our earnings depend primarily on our level of net interest income, which is the difference between interest earned on our
interest-earning assets, consisting primarily of loans, mortgage-backed securities and other investment securities, and the
interest paid on interest-bearing liabilities, consisting primarily of deposits, borrowed funds, and trust-preferred securities.
Net interest income is a function of our interest rate spread, which is the difference between the average yield earned on our
interest-earning assets and the average rate paid on our interest- bearing liabilities, as well as a function of the average
balance of interest-earning assets compared to interest-bearing liabilities. Also contributing to our earnings is noninterest
income, which consists primarily of service charges and fees on loan and deposit products and services, net gains and
losses on sale of assets, and mortgage loan service fees. Net interest income and noninterest income are offset by
provisions for loan losses, general administrative and other expenses, including salaries and employee benefits and
occupancy and equipment costs, as well as by state and federal income tax expense.
American Federal Savings Bank has a strong mortgage lending focus, with the majority of its loan originations in single-
family residential mortgages, which has enabled it to successfully market home equity loans, as well as a wide range of
shorter term consumer loans for various personal needs (automobiles, recreational vehicles, etc.). In recent years we have
also focused on adding commercial loans to our portfolio, both real estate and non-real estate. We have made significant
progress in this initiative. As of June 30, 2012, commercial real estate and land loans and commercial business loans
represented 36.8% and 8.7% of the total loan portfolio, respectively, which represented increases from the 34.5% and 5.6%
amounts at June 30, 2011, respectively. The purpose of this diversification is to mitigate our dependence on the mortgage
market, as well as to improve our ability to manage our interest rate spread. American Federal Savings Bank’s
management recognizes that fee income will also enable it to be less dependent on specialized lending and it now maintains
a significant loan serviced portfolio, which provides a steady source of fee income. As of June 30, 2012, we had mortgage
servicing rights, net of $2.218 million compared to $2.142 million as of June 30, 2011. The gain on sale of loans also
provides significant fee income in periods of high mortgage loan origination volumes. Fee income is also supplemented
with fees generated from our deposit accounts. American Federal Savings Bank has a high percentage of non-maturity
deposits, such as checking accounts and savings accounts, which allows management flexibility in managing its spread.
Non-maturity deposits do not automatically reprice as interest rates rise, as do certificates of deposit.
33
34
33
34
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is traded on the NASDAQ Global Market under the symbol “EBMT.” At the close of business on June
30, 2012, there were 3,878,971 shares of common stock outstanding, held by approximately 1,000 shareholders of record.
The closing price of the common stock on June 30, 2012, was $10.00 per share.
Quarter Ended
Fiscal Year 2012
Fiscal Year 2011
June 30, 2012
March 31, 2012
December 31, 2011
September 30, 2011
June 30, 2011
March 31, 2011
December 31, 2010
September 30, 2010
High Bid
Low Bid
Paid
$
10.25
$
9.90
$
10.18
$
9.75
$
10.49
$
9.50
$
10.82
$
10.40
$
11.75
$
10.49
$
11.81
$
10.58
$
10.83
$
9.05
$
9.95
$
9.00
Dividends
$
0.07125
$
0.07125
$
0.07125
$
0.07125
$
0.070
$
0.070
$
0.070
$
0.070
Payment of dividends on our shares of common stock is subject to determination and declaration by the Board of Directors
and will depend upon a number of factors, including capital requirements, regulatory limitations on the payment of
dividends, our results of operations and financial condition, tax considerations and general economic conditions. No
assurance can be given that dividends will be declared or, if declared, what the amount of dividends will be, or whether
such dividends, once declared, will continue.
The following table provides information regarding our purchases of our common stock during the fourth quarter of our
fiscal year ended June 30, 2012:
Period
April 1, 2012 through April 30, 2012
May 1, 2012 through May 31, 2012
June 1, 2012 through June 30, 2012
Total
On April 26, 2011, the Company announced that its Board of Directors authorized a common stock repurchase program for
204,156 shares of common stock, effective April 27, 2011. The program was intended to be implemented through
purchases made from time to time in the open market or through private transactions. The program terminated on
December 27, 2011 with its final purchase of shares within the program.
Total number
of shares
Maximum
number of
purchased as
shares that
part of
publicly
announced
plans or
programs
may yet be
purchased
under the
plans or
programs
-
-
-
-
-
-
-
Total number
of shares
purchased
Average price
paid per share
$
-
-
-
-
-
33
ITEM 5.
PART II
On April 21, 2011, the Company entered into a pre-arranged Rule 10b5-1 written trading plan (“the Trading Plan”) with a
broker to facilitate the repurchase of its shares of common stock, in conformity with the provisions of Rule 10b5-1 under
the Securities Exchange Act of 1934, as amended. A broker selected by the Company had the authority under the terms and
limitations specified in the Trading Plan to repurchase shares on the Company’s behalf in accordance with the terms of the
Trading Plan. The Trading Plan facilitated the Company’s share repurchase program, went into effect on April 27, 2011
and was completed on December 27, 2011. The Trading Plan enabled the Company to continue to repurchase shares
without suspension for self-imposed trading blackout periods. The shares repurchased under the Trading Plan were in
accordance with and subject to the limitations of the stock repurchase program.
Our common stock is traded on the NASDAQ Global Market under the symbol “EBMT.” At the close of business on June
30, 2012, there were 3,878,971 shares of common stock outstanding, held by approximately 1,000 shareholders of record.
The closing price of the common stock on June 30, 2012, was $10.00 per share.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
On April 21, 2011, the Company entered into a pre-arranged Rule 10b5-1 written trading plan (“the Trading Plan”) with a
broker to facilitate the repurchase of its shares of common stock, in conformity with the provisions of Rule 10b5-1 under
the Securities Exchange Act of 1934, as amended. A broker selected by the Company had the authority under the terms and
limitations specified in the Trading Plan to repurchase shares on the Company’s behalf in accordance with the terms of the
Trading Plan. The Trading Plan facilitated the Company’s share repurchase program, went into effect on April 27, 2011
and was completed on December 27, 2011. The Trading Plan enabled the Company to continue to repurchase shares
without suspension for self-imposed trading blackout periods. The shares repurchased under the Trading Plan were in
accordance with and subject to the limitations of the stock repurchase program.
ITEM 6.
SELECTED FINANCIAL DATA.
ITEM 6.
SELECTED FINANCIAL DATA.
Low Bid
Dividends
Paid
This item has been omitted based on Eagle’s status as a smaller reporting company.
This item has been omitted based on Eagle’s status as a smaller reporting company.
Quarter Ended
Fiscal Year 2012
High Bid
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
$
RESULTS OF OPERATIONS.
$
$
$
The following discussion and analysis of the financial condition and results of operations of Eagle is intended to help
investors understand our company and our operations. The financial review is provided as a supplement to, and should be
read in conjunction with the Consolidated Financial Statements and the related Notes included elsewhere in this report.
June 30, 2012
March 31, 2012
December 31, 2011
September 30, 2011
$
$
$
$
0.07125
0.07125
0.07125
0.07125
$
$
$
$
9.90
9.75
9.50
10.40
10.25
10.18
10.49
10.82
Fiscal Year 2011
Overview
June 30, 2011
March 31, 2011
December 31, 2010
September 30, 2010
Historically, our principal business has consisted of attracting deposits from the general public and the business community
and making loans secured by various types of collateral, including real estate and other consumer assets. We are
significantly affected by prevailing economic conditions, particularly interest rates, as well as government policies
concerning, among other things, monetary and fiscal affairs, housing and financial institutions and regulations regarding
lending and other operations, privacy and consumer disclosure. Attracting and maintaining deposits is influenced by a
number of factors, including interest rates paid on competing investments offered by other financial and non-financial
institutions, account maturities, fee structures, and levels of personal income and savings. Lending activities are affected by
the demand for funds and thus are influenced by interest rates, the number and quality of lenders and regional economic
conditions. Sources of funds for lending activities include deposits, borrowings, repayments on loans, cash flows from
maturities of investment securities and income provided from operations.
Payment of dividends on our shares of common stock is subject to determination and declaration by the Board of Directors
and will depend upon a number of factors, including capital requirements, regulatory limitations on the payment of
dividends, our results of operations and financial condition, tax considerations and general economic conditions. No
assurance can be given that dividends will be declared or, if declared, what the amount of dividends will be, or whether
such dividends, once declared, will continue.
$
$
$
$
11.75
11.81
10.83
9.95
$
$
$
$
10.49
10.58
9.05
9.00
$
$
$
$
0.070
0.070
0.070
0.070
The following table provides information regarding our purchases of our common stock during the fourth quarter of our
fiscal year ended June 30, 2012:
Our earnings depend primarily on our level of net interest income, which is the difference between interest earned on our
interest-earning assets, consisting primarily of loans, mortgage-backed securities and other investment securities, and the
interest paid on interest-bearing liabilities, consisting primarily of deposits, borrowed funds, and trust-preferred securities.
Net interest income is a function of our interest rate spread, which is the difference between the average yield earned on our
interest-earning assets and the average rate paid on our interest- bearing liabilities, as well as a function of the average
balance of interest-earning assets compared to interest-bearing liabilities. Also contributing to our earnings is noninterest
income, which consists primarily of service charges and fees on loan and deposit products and services, net gains and
losses on sale of assets, and mortgage loan service fees. Net interest income and noninterest income are offset by
provisions for loan losses, general administrative and other expenses, including salaries and employee benefits and
occupancy and equipment costs, as well as by state and federal income tax expense.
Total number
of shares
purchased
Period
Average price
paid per share
June 1, 2012 through June 30, 2012
May 1, 2012 through May 31, 2012
April 1, 2012 through April 30, 2012
American Federal Savings Bank has a strong mortgage lending focus, with the majority of its loan originations in single-
family residential mortgages, which has enabled it to successfully market home equity loans, as well as a wide range of
shorter term consumer loans for various personal needs (automobiles, recreational vehicles, etc.). In recent years we have
also focused on adding commercial loans to our portfolio, both real estate and non-real estate. We have made significant
progress in this initiative. As of June 30, 2012, commercial real estate and land loans and commercial business loans
represented 36.8% and 8.7% of the total loan portfolio, respectively, which represented increases from the 34.5% and 5.6%
amounts at June 30, 2011, respectively. The purpose of this diversification is to mitigate our dependence on the mortgage
market, as well as to improve our ability to manage our interest rate spread. American Federal Savings Bank’s
management recognizes that fee income will also enable it to be less dependent on specialized lending and it now maintains
a significant loan serviced portfolio, which provides a steady source of fee income. As of June 30, 2012, we had mortgage
servicing rights, net of $2.218 million compared to $2.142 million as of June 30, 2011. The gain on sale of loans also
provides significant fee income in periods of high mortgage loan origination volumes. Fee income is also supplemented
with fees generated from our deposit accounts. American Federal Savings Bank has a high percentage of non-maturity
deposits, such as checking accounts and savings accounts, which allows management flexibility in managing its spread.
Non-maturity deposits do not automatically reprice as interest rates rise, as do certificates of deposit.
On April 26, 2011, the Company announced that its Board of Directors authorized a common stock repurchase program for
204,156 shares of common stock, effective April 27, 2011. The program was intended to be implemented through
purchases made from time to time in the open market or through private transactions. The program terminated on
December 27, 2011 with its final purchase of shares within the program.
$
-
Total
-
-
-
-
-
-
-
-
-
-
-
Total number
of shares
purchased as
part of
publicly
announced
plans or
programs
Maximum
number of
shares that
may yet be
purchased
under the
plans or
programs
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis of the financial condition and results of operations of Eagle is intended to help
investors understand our company and our operations. The financial review is provided as a supplement to, and should be
read in conjunction with the Consolidated Financial Statements and the related Notes included elsewhere in this report.
Overview
Historically, our principal business has consisted of attracting deposits from the general public and the business community
and making loans secured by various types of collateral, including real estate and other consumer assets. We are
significantly affected by prevailing economic conditions, particularly interest rates, as well as government policies
concerning, among other things, monetary and fiscal affairs, housing and financial institutions and regulations regarding
lending and other operations, privacy and consumer disclosure. Attracting and maintaining deposits is influenced by a
number of factors, including interest rates paid on competing investments offered by other financial and non-financial
institutions, account maturities, fee structures, and levels of personal income and savings. Lending activities are affected by
the demand for funds and thus are influenced by interest rates, the number and quality of lenders and regional economic
conditions. Sources of funds for lending activities include deposits, borrowings, repayments on loans, cash flows from
maturities of investment securities and income provided from operations.
Our earnings depend primarily on our level of net interest income, which is the difference between interest earned on our
interest-earning assets, consisting primarily of loans, mortgage-backed securities and other investment securities, and the
interest paid on interest-bearing liabilities, consisting primarily of deposits, borrowed funds, and trust-preferred securities.
Net interest income is a function of our interest rate spread, which is the difference between the average yield earned on our
interest-earning assets and the average rate paid on our interest- bearing liabilities, as well as a function of the average
balance of interest-earning assets compared to interest-bearing liabilities. Also contributing to our earnings is noninterest
income, which consists primarily of service charges and fees on loan and deposit products and services, net gains and
losses on sale of assets, and mortgage loan service fees. Net interest income and noninterest income are offset by
provisions for loan losses, general administrative and other expenses, including salaries and employee benefits and
occupancy and equipment costs, as well as by state and federal income tax expense.
American Federal Savings Bank has a strong mortgage lending focus, with the majority of its loan originations in single-
family residential mortgages, which has enabled it to successfully market home equity loans, as well as a wide range of
shorter term consumer loans for various personal needs (automobiles, recreational vehicles, etc.). In recent years we have
also focused on adding commercial loans to our portfolio, both real estate and non-real estate. We have made significant
progress in this initiative. As of June 30, 2012, commercial real estate and land loans and commercial business loans
represented 36.8% and 8.7% of the total loan portfolio, respectively, which represented increases from the 34.5% and 5.6%
amounts at June 30, 2011, respectively. The purpose of this diversification is to mitigate our dependence on the mortgage
market, as well as to improve our ability to manage our interest rate spread. American Federal Savings Bank’s
management recognizes that fee income will also enable it to be less dependent on specialized lending and it now maintains
a significant loan serviced portfolio, which provides a steady source of fee income. As of June 30, 2012, we had mortgage
servicing rights, net of $2.218 million compared to $2.142 million as of June 30, 2011. The gain on sale of loans also
provides significant fee income in periods of high mortgage loan origination volumes. Fee income is also supplemented
with fees generated from our deposit accounts. American Federal Savings Bank has a high percentage of non-maturity
deposits, such as checking accounts and savings accounts, which allows management flexibility in managing its spread.
Non-maturity deposits do not automatically reprice as interest rates rise, as do certificates of deposit.
34
33
34
For the past three years, management’s focus has been on improving our core earnings. Core earnings can be described as
income before taxes, with the exclusion of gain on sale of loans and adjustments to the market value of our loans serviced
portfolio. Management believes that we will need to continue to focus on increasing net interest margin, other areas of fee
income, and control operating expenses to achieve earnings growth going forward. Management’s strategy of growing the
loan portfolio and deposit base is expected to help achieve these goals: loans typically earn higher rates of return than
investments; a larger deposit base will yield higher fee income; increasing the asset base will reduce the relative impact of
fixed operating costs. The biggest challenge to management’s strategy is funding the growth of our balance sheet in an
efficient manner. Though deposit growth this last year was robust, it may become more difficult to maintain due to
significant competition and possible reduced customer demand for deposits as customers may shift into other asset classes.
Other than in limited circumstances for certain high-credit-quality customers, we do not offer “interest only” mortgage
loans on one- to four-family residential properties (where the borrower pays interest but no principal for an initial period,
after which the loan converts to a fully amortizing loan). We also do not offer loans that provide for negative amortization
of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on their loan, resulting
in an increased principal balance during the life of the loan. We do not offer “subprime loans” (loans that generally target
borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs,
judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high
debt-burden ratios) or Alt-A loans (traditionally defined as loans having less than full documentation).
The level and movement of interest rates impacts the Bank’s earnings as well. For the 2012 fiscal year the short end of the
yield curve was fairly static as the Federal Open Market Committee maintained the fed funds rate at a target of 0 to 25
basis points while the long end of the curve moved downward.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220) – Presentation of Comprehensive
Income.” The objective of this ASU is to improve the comparability, consistency and transparency of financial reporting
and to increase the prominence of items reported in other comprehensive income by eliminating the option to present
components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments
require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of
comprehensive income or in two separate but consecutive statements. The single statement of comprehensive income
should include the components of net income, a total for net income, the components of other comprehensive income, a
total for other comprehensive income, and a total for comprehensive income. In the two-statement approach, the first
statement should present total net income and its components followed consecutively by a second statement that should
present all the components of other comprehensive income, a total for other comprehensive income, and a total for
comprehensive income. The amendments do not change the items that must be reported in other comprehensive income,
the option for an entity to present components of other comprehensive income either net of related tax effects or before
related tax effects, or the calculation or reporting of earnings per share. The amendments in this ASU should be applied
retrospectively. The amendments are effective for fiscal years and interim periods within those years beginning after
December 15, 2011. Early adoption is permitted because compliance with the amendments is already permitted. The
amendments do not require transition disclosures. The Company has complied with the new standard and has presented a
separate statement of comprehensive income in these consolidated financial statements.
In September 2011, the FASB issued Accounting Standards Update No. 2011-08, Intangibles - Goodwill and Other (Topic
350) - Testing Goodwill for Impairment (ASU 2011-08), to allow entities to use a qualitative approach to test goodwill for
impairment. ASU 2011-08 permits an entity to first perform a qualitative assessment to determine whether it is more likely
than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is
necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill
impairment test is not required. ASU 2011-08 is effective for us in fiscal 2013 and earlier adoption is permitted. The
Company currently has no goodwill. However upon the successful completion of the pending acquisition of Sterling
Bank’s Montana branches, as noted above, management expects goodwill to be recorded and as such the Company’s
financials will likely be effected by this pronouncement.
In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets
and Liabilities (“ASU 2011-11”). The update requires entities to disclose information about offsetting and related
arrangements of financial instruments and derivative instruments. The amendments require enhanced disclosures by
requiring improved information about financial instruments and derivative instruments that are either (i) offset in
accordance with current literature or (2) subject to an enforceable master netting arrangement or similar agreement,
irrespective of whether they are offset in accordance with current literature. ASU 2011-11 is effective for fiscal years, and
interim periods within those years, beginning on or after January 1, 2013. The Company does not anticipate that the
adoption of this guidance will have a material impact on the consolidated financial statements.
In December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective
Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income
in Accounting Standards Update No. 2011-05. The amendments in this update defer those changes in ASU 2011-05 that
relate to the presentation of reclassifications out of accumulated other comprehensive income on the components of net
income and other comprehensive income for all periods presented. All other requirements in ASU 2011-05 are not affected
by this update. The amendments are effective during interim and annual periods beginning after December 15, 2011. The
Company does not anticipate that the adoption of this guidance will have a material impact on the consolidated financial
statements.
For the past three years, management’s focus has been on improving our core earnings. Core earnings can be described as
income before taxes, with the exclusion of gain on sale of loans and adjustments to the market value of our loans serviced
portfolio. Management believes that we will need to continue to focus on increasing net interest margin, other areas of fee
income, and control operating expenses to achieve earnings growth going forward. Management’s strategy of growing the
loan portfolio and deposit base is expected to help achieve these goals: loans typically earn higher rates of return than
investments; a larger deposit base will yield higher fee income; increasing the asset base will reduce the relative impact of
fixed operating costs. The biggest challenge to management’s strategy is funding the growth of our balance sheet in an
efficient manner. Though deposit growth this last year was robust, it may become more difficult to maintain due to
significant competition and possible reduced customer demand for deposits as customers may shift into other asset classes.
Critical Accounting Policies
Certain accounting policies are important to the understanding of our financial condition, since they require management to
make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain.
Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances,
including, but without limitation, changes in interest rates, performance of the economy, financial condition of borrowers and
laws and regulations. The following are the accounting policies we believe are critical.
Other than in limited circumstances for certain high-credit-quality customers, we do not offer “interest only” mortgage
loans on one- to four-family residential properties (where the borrower pays interest but no principal for an initial period,
after which the loan converts to a fully amortizing loan). We also do not offer loans that provide for negative amortization
of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on their loan, resulting
in an increased principal balance during the life of the loan. We do not offer “subprime loans” (loans that generally target
borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs,
judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high
debt-burden ratios) or Alt-A loans (traditionally defined as loans having less than full documentation).
The level and movement of interest rates impacts the Bank’s earnings as well. For the 2012 fiscal year the short end of the
yield curve was fairly static as the Federal Open Market Committee maintained the fed funds rate at a target of 0 to 25
basis points while the long end of the curve moved downward.
Allowance for Loan Losses. We recognize that losses will be experienced on loans and that the risk of loss will vary with,
among other things, the type of loan, the creditworthiness of the borrower, general economic conditions and the quality of the
collateral for the loan. We maintain an allowance for loan losses to absorb losses inherent in the loan portfolio. The
allowance for loan losses represents management’s estimate of probable losses based on all available information. The
allowance for loan losses is based on management’s evaluation of the collectability of the loan portfolio, including past
loan loss experience, known and inherent losses, information about specific borrower situations and estimated collateral
values, and current economic conditions. The loan portfolio and other credit exposures are regularly reviewed by
management in its determination of the allowance for loan losses. The methodology for assessing the appropriateness of the
allowance includes a review of historical losses, internal data including delinquencies among others, industry data, and
economic conditions.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220) – Presentation of Comprehensive
Income.” The objective of this ASU is to improve the comparability, consistency and transparency of financial reporting
and to increase the prominence of items reported in other comprehensive income by eliminating the option to present
components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments
require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of
comprehensive income or in two separate but consecutive statements. The single statement of comprehensive income
should include the components of net income, a total for net income, the components of other comprehensive income, a
total for other comprehensive income, and a total for comprehensive income. In the two-statement approach, the first
statement should present total net income and its components followed consecutively by a second statement that should
present all the components of other comprehensive income, a total for other comprehensive income, and a total for
comprehensive income. The amendments do not change the items that must be reported in other comprehensive income,
the option for an entity to present components of other comprehensive income either net of related tax effects or before
related tax effects, or the calculation or reporting of earnings per share. The amendments in this ASU should be applied
retrospectively. The amendments are effective for fiscal years and interim periods within those years beginning after
December 15, 2011. Early adoption is permitted because compliance with the amendments is already permitted. The
amendments do not require transition disclosures. The Company has complied with the new standard and has presented a
separate statement of comprehensive income in these consolidated financial statements.
As an integral part of their examination process, the Office of the Comptroller of the Currency will periodically review our
allowance for loan losses and may require us to make additional provisions for estimated losses based upon judgments
different from those of management. In establishing the allowance for loan losses, loss factors are applied to various pools of
outstanding loans. Loss factors are derived using our historical loss experience and may be adjusted for factors that affect
the collectability of the portfolio as of the evaluation date. Commercial business loans that are criticized are evaluated
individually to determine the required allowance for loan losses and to evaluate the potential impairment of such loans
under FASB ASC 310 Receivables. Although management believes that it uses the best information available to establish
the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and results of operations
could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations.
Because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that
the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of loans
deteriorate as a result of the factors discussed previously. Any material increase in the allowance for loan losses may
adversely affect our financial condition and results of operations. The allowance is based on information known at the time
of the review. Changes in factors underlying the assessment could have a material impact on the amount of the allowance
that is necessary and the amount of provision to be charged against earnings. Such changes could impact future results.
In September 2011, the FASB issued Accounting Standards Update No. 2011-08, Intangibles - Goodwill and Other (Topic
350) - Testing Goodwill for Impairment (ASU 2011-08), to allow entities to use a qualitative approach to test goodwill for
impairment. ASU 2011-08 permits an entity to first perform a qualitative assessment to determine whether it is more likely
than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is
necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill
impairment test is not required. ASU 2011-08 is effective for us in fiscal 2013 and earlier adoption is permitted. The
Company currently has no goodwill. However upon the successful completion of the pending acquisition of Sterling
Bank’s Montana branches, as noted above, management expects goodwill to be recorded and as such the Company’s
financials will likely be effected by this pronouncement.
Valuation of Investment Securities. Substantially all of our investment securities are classified as available-for-sale and
recorded at current fair value. Unrealized gains or losses, net of deferred taxes, are reported in other comprehensive income
as a separate component of stockholders’ equity. In general, fair value is based upon quoted market prices of identical
assets, when available. If quoted market prices are not available, fair value is based upon valuation models that use cash
flow, security structure and other observable information. Where sufficient data is not available to produce a fair valuation,
fair value is based on broker quotes for similar assets. Broker quotes may be adjusted to ensure that financial instruments
are recorded at fair value. Adjustments may include unobservable parameters, among other things. No adjustments were
made to any broker quotes received by us.
We conduct a quarterly review and evaluation of our investment securities to determine if any declines in fair value are
other than temporary. In making this determination, we consider the period of time the securities were in a loss position, the
percentage decline in comparison to the securities’ amortized cost, the financial condition of the issuer, if applicable, and the
delinquency or default rates of underlying collateral. We consider our intent to sell the investment securities and the likelihood
that we will not have to sell the investment securities before recovery of their cost basis. If impairment exists, credit related
impairment losses are recorded in earnings while noncredit related impairment losses are recorded in accumulated other
comprehensive income.
In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets
and Liabilities (“ASU 2011-11”). The update requires entities to disclose information about offsetting and related
arrangements of financial instruments and derivative instruments. The amendments require enhanced disclosures by
requiring improved information about financial instruments and derivative instruments that are either (i) offset in
accordance with current literature or (2) subject to an enforceable master netting arrangement or similar agreement,
irrespective of whether they are offset in accordance with current literature. ASU 2011-11 is effective for fiscal years, and
interim periods within those years, beginning on or after January 1, 2013. The Company does not anticipate that the
adoption of this guidance will have a material impact on the consolidated financial statements.
In December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective
Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income
in Accounting Standards Update No. 2011-05. The amendments in this update defer those changes in ASU 2011-05 that
relate to the presentation of reclassifications out of accumulated other comprehensive income on the components of net
income and other comprehensive income for all periods presented. All other requirements in ASU 2011-05 are not affected
by this update. The amendments are effective during interim and annual periods beginning after December 15, 2011. The
Company does not anticipate that the adoption of this guidance will have a material impact on the consolidated financial
statements.
Critical Accounting Policies
Certain accounting policies are important to the understanding of our financial condition, since they require management to
make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain.
Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances,
including, but without limitation, changes in interest rates, performance of the economy, financial condition of borrowers and
laws and regulations. The following are the accounting policies we believe are critical.
Allowance for Loan Losses. We recognize that losses will be experienced on loans and that the risk of loss will vary with,
among other things, the type of loan, the creditworthiness of the borrower, general economic conditions and the quality of the
collateral for the loan. We maintain an allowance for loan losses to absorb losses inherent in the loan portfolio. The
allowance for loan losses represents management’s estimate of probable losses based on all available information. The
allowance for loan losses is based on management’s evaluation of the collectability of the loan portfolio, including past
loan loss experience, known and inherent losses, information about specific borrower situations and estimated collateral
values, and current economic conditions. The loan portfolio and other credit exposures are regularly reviewed by
management in its determination of the allowance for loan losses. The methodology for assessing the appropriateness of the
allowance includes a review of historical losses, internal data including delinquencies among others, industry data, and
economic conditions.
As an integral part of their examination process, the Office of the Comptroller of the Currency will periodically review our
allowance for loan losses and may require us to make additional provisions for estimated losses based upon judgments
different from those of management. In establishing the allowance for loan losses, loss factors are applied to various pools of
outstanding loans. Loss factors are derived using our historical loss experience and may be adjusted for factors that affect
the collectability of the portfolio as of the evaluation date. Commercial business loans that are criticized are evaluated
individually to determine the required allowance for loan losses and to evaluate the potential impairment of such loans
under FASB ASC 310 Receivables. Although management believes that it uses the best information available to establish
the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and results of operations
could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations.
Because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that
the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of loans
deteriorate as a result of the factors discussed previously. Any material increase in the allowance for loan losses may
adversely affect our financial condition and results of operations. The allowance is based on information known at the time
of the review. Changes in factors underlying the assessment could have a material impact on the amount of the allowance
that is necessary and the amount of provision to be charged against earnings. Such changes could impact future results.
Valuation of Investment Securities. Substantially all of our investment securities are classified as available-for-sale and
recorded at current fair value. Unrealized gains or losses, net of deferred taxes, are reported in other comprehensive income
as a separate component of stockholders’ equity. In general, fair value is based upon quoted market prices of identical
assets, when available. If quoted market prices are not available, fair value is based upon valuation models that use cash
flow, security structure and other observable information. Where sufficient data is not available to produce a fair valuation,
fair value is based on broker quotes for similar assets. Broker quotes may be adjusted to ensure that financial instruments
are recorded at fair value. Adjustments may include unobservable parameters, among other things. No adjustments were
made to any broker quotes received by us.
We conduct a quarterly review and evaluation of our investment securities to determine if any declines in fair value are
other than temporary. In making this determination, we consider the period of time the securities were in a loss position, the
percentage decline in comparison to the securities’ amortized cost, the financial condition of the issuer, if applicable, and the
delinquency or default rates of underlying collateral. We consider our intent to sell the investment securities and the likelihood
that we will not have to sell the investment securities before recovery of their cost basis. If impairment exists, credit related
impairment losses are recorded in earnings while noncredit related impairment losses are recorded in accumulated other
comprehensive income.
35
36
35
36
For the past three years, management’s focus has been on improving our core earnings. Core earnings can be described as
income before taxes, with the exclusion of gain on sale of loans and adjustments to the market value of our loans serviced
portfolio. Management believes that we will need to continue to focus on increasing net interest margin, other areas of fee
income, and control operating expenses to achieve earnings growth going forward. Management’s strategy of growing the
loan portfolio and deposit base is expected to help achieve these goals: loans typically earn higher rates of return than
investments; a larger deposit base will yield higher fee income; increasing the asset base will reduce the relative impact of
fixed operating costs. The biggest challenge to management’s strategy is funding the growth of our balance sheet in an
efficient manner. Though deposit growth this last year was robust, it may become more difficult to maintain due to
significant competition and possible reduced customer demand for deposits as customers may shift into other asset classes.
Other than in limited circumstances for certain high-credit-quality customers, we do not offer “interest only” mortgage
loans on one- to four-family residential properties (where the borrower pays interest but no principal for an initial period,
after which the loan converts to a fully amortizing loan). We also do not offer loans that provide for negative amortization
of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on their loan, resulting
in an increased principal balance during the life of the loan. We do not offer “subprime loans” (loans that generally target
borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs,
judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high
debt-burden ratios) or Alt-A loans (traditionally defined as loans having less than full documentation).
The level and movement of interest rates impacts the Bank’s earnings as well. For the 2012 fiscal year the short end of the
yield curve was fairly static as the Federal Open Market Committee maintained the fed funds rate at a target of 0 to 25
basis points while the long end of the curve moved downward.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220) – Presentation of Comprehensive
Income.” The objective of this ASU is to improve the comparability, consistency and transparency of financial reporting
and to increase the prominence of items reported in other comprehensive income by eliminating the option to present
components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments
require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of
comprehensive income or in two separate but consecutive statements. The single statement of comprehensive income
should include the components of net income, a total for net income, the components of other comprehensive income, a
total for other comprehensive income, and a total for comprehensive income. In the two-statement approach, the first
statement should present total net income and its components followed consecutively by a second statement that should
present all the components of other comprehensive income, a total for other comprehensive income, and a total for
comprehensive income. The amendments do not change the items that must be reported in other comprehensive income,
the option for an entity to present components of other comprehensive income either net of related tax effects or before
related tax effects, or the calculation or reporting of earnings per share. The amendments in this ASU should be applied
retrospectively. The amendments are effective for fiscal years and interim periods within those years beginning after
December 15, 2011. Early adoption is permitted because compliance with the amendments is already permitted. The
amendments do not require transition disclosures. The Company has complied with the new standard and has presented a
separate statement of comprehensive income in these consolidated financial statements.
In September 2011, the FASB issued Accounting Standards Update No. 2011-08, Intangibles - Goodwill and Other (Topic
350) - Testing Goodwill for Impairment (ASU 2011-08), to allow entities to use a qualitative approach to test goodwill for
impairment. ASU 2011-08 permits an entity to first perform a qualitative assessment to determine whether it is more likely
than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is
necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill
impairment test is not required. ASU 2011-08 is effective for us in fiscal 2013 and earlier adoption is permitted. The
Company currently has no goodwill. However upon the successful completion of the pending acquisition of Sterling
Bank’s Montana branches, as noted above, management expects goodwill to be recorded and as such the Company’s
financials will likely be effected by this pronouncement.
In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets
and Liabilities (“ASU 2011-11”). The update requires entities to disclose information about offsetting and related
arrangements of financial instruments and derivative instruments. The amendments require enhanced disclosures by
requiring improved information about financial instruments and derivative instruments that are either (i) offset in
accordance with current literature or (2) subject to an enforceable master netting arrangement or similar agreement,
irrespective of whether they are offset in accordance with current literature. ASU 2011-11 is effective for fiscal years, and
interim periods within those years, beginning on or after January 1, 2013. The Company does not anticipate that the
adoption of this guidance will have a material impact on the consolidated financial statements.
In December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective
Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income
in Accounting Standards Update No. 2011-05. The amendments in this update defer those changes in ASU 2011-05 that
relate to the presentation of reclassifications out of accumulated other comprehensive income on the components of net
income and other comprehensive income for all periods presented. All other requirements in ASU 2011-05 are not affected
by this update. The amendments are effective during interim and annual periods beginning after December 15, 2011. The
Company does not anticipate that the adoption of this guidance will have a material impact on the consolidated financial
statements.
For the past three years, management’s focus has been on improving our core earnings. Core earnings can be described as
income before taxes, with the exclusion of gain on sale of loans and adjustments to the market value of our loans serviced
portfolio. Management believes that we will need to continue to focus on increasing net interest margin, other areas of fee
income, and control operating expenses to achieve earnings growth going forward. Management’s strategy of growing the
loan portfolio and deposit base is expected to help achieve these goals: loans typically earn higher rates of return than
investments; a larger deposit base will yield higher fee income; increasing the asset base will reduce the relative impact of
fixed operating costs. The biggest challenge to management’s strategy is funding the growth of our balance sheet in an
efficient manner. Though deposit growth this last year was robust, it may become more difficult to maintain due to
significant competition and possible reduced customer demand for deposits as customers may shift into other asset classes.
Critical Accounting Policies
Certain accounting policies are important to the understanding of our financial condition, since they require management to
make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain.
Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances,
including, but without limitation, changes in interest rates, performance of the economy, financial condition of borrowers and
laws and regulations. The following are the accounting policies we believe are critical.
Other than in limited circumstances for certain high-credit-quality customers, we do not offer “interest only” mortgage
loans on one- to four-family residential properties (where the borrower pays interest but no principal for an initial period,
after which the loan converts to a fully amortizing loan). We also do not offer loans that provide for negative amortization
of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on their loan, resulting
in an increased principal balance during the life of the loan. We do not offer “subprime loans” (loans that generally target
borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs,
judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high
debt-burden ratios) or Alt-A loans (traditionally defined as loans having less than full documentation).
The level and movement of interest rates impacts the Bank’s earnings as well. For the 2012 fiscal year the short end of the
yield curve was fairly static as the Federal Open Market Committee maintained the fed funds rate at a target of 0 to 25
basis points while the long end of the curve moved downward.
Allowance for Loan Losses. We recognize that losses will be experienced on loans and that the risk of loss will vary with,
among other things, the type of loan, the creditworthiness of the borrower, general economic conditions and the quality of the
collateral for the loan. We maintain an allowance for loan losses to absorb losses inherent in the loan portfolio. The
allowance for loan losses represents management’s estimate of probable losses based on all available information. The
allowance for loan losses is based on management’s evaluation of the collectability of the loan portfolio, including past
loan loss experience, known and inherent losses, information about specific borrower situations and estimated collateral
values, and current economic conditions. The loan portfolio and other credit exposures are regularly reviewed by
management in its determination of the allowance for loan losses. The methodology for assessing the appropriateness of the
allowance includes a review of historical losses, internal data including delinquencies among others, industry data, and
economic conditions.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220) – Presentation of Comprehensive
Income.” The objective of this ASU is to improve the comparability, consistency and transparency of financial reporting
and to increase the prominence of items reported in other comprehensive income by eliminating the option to present
components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments
require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of
comprehensive income or in two separate but consecutive statements. The single statement of comprehensive income
should include the components of net income, a total for net income, the components of other comprehensive income, a
total for other comprehensive income, and a total for comprehensive income. In the two-statement approach, the first
statement should present total net income and its components followed consecutively by a second statement that should
present all the components of other comprehensive income, a total for other comprehensive income, and a total for
comprehensive income. The amendments do not change the items that must be reported in other comprehensive income,
the option for an entity to present components of other comprehensive income either net of related tax effects or before
related tax effects, or the calculation or reporting of earnings per share. The amendments in this ASU should be applied
retrospectively. The amendments are effective for fiscal years and interim periods within those years beginning after
December 15, 2011. Early adoption is permitted because compliance with the amendments is already permitted. The
amendments do not require transition disclosures. The Company has complied with the new standard and has presented a
separate statement of comprehensive income in these consolidated financial statements.
As an integral part of their examination process, the Office of the Comptroller of the Currency will periodically review our
allowance for loan losses and may require us to make additional provisions for estimated losses based upon judgments
different from those of management. In establishing the allowance for loan losses, loss factors are applied to various pools of
outstanding loans. Loss factors are derived using our historical loss experience and may be adjusted for factors that affect
the collectability of the portfolio as of the evaluation date. Commercial business loans that are criticized are evaluated
individually to determine the required allowance for loan losses and to evaluate the potential impairment of such loans
under FASB ASC 310 Receivables. Although management believes that it uses the best information available to establish
the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and results of operations
could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations.
Because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that
the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of loans
deteriorate as a result of the factors discussed previously. Any material increase in the allowance for loan losses may
adversely affect our financial condition and results of operations. The allowance is based on information known at the time
of the review. Changes in factors underlying the assessment could have a material impact on the amount of the allowance
that is necessary and the amount of provision to be charged against earnings. Such changes could impact future results.
In September 2011, the FASB issued Accounting Standards Update No. 2011-08, Intangibles - Goodwill and Other (Topic
350) - Testing Goodwill for Impairment (ASU 2011-08), to allow entities to use a qualitative approach to test goodwill for
impairment. ASU 2011-08 permits an entity to first perform a qualitative assessment to determine whether it is more likely
than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is
necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill
impairment test is not required. ASU 2011-08 is effective for us in fiscal 2013 and earlier adoption is permitted. The
Company currently has no goodwill. However upon the successful completion of the pending acquisition of Sterling
Bank’s Montana branches, as noted above, management expects goodwill to be recorded and as such the Company’s
financials will likely be effected by this pronouncement.
Valuation of Investment Securities. Substantially all of our investment securities are classified as available-for-sale and
recorded at current fair value. Unrealized gains or losses, net of deferred taxes, are reported in other comprehensive income
as a separate component of stockholders’ equity. In general, fair value is based upon quoted market prices of identical
assets, when available. If quoted market prices are not available, fair value is based upon valuation models that use cash
flow, security structure and other observable information. Where sufficient data is not available to produce a fair valuation,
fair value is based on broker quotes for similar assets. Broker quotes may be adjusted to ensure that financial instruments
are recorded at fair value. Adjustments may include unobservable parameters, among other things. No adjustments were
made to any broker quotes received by us.
We conduct a quarterly review and evaluation of our investment securities to determine if any declines in fair value are
other than temporary. In making this determination, we consider the period of time the securities were in a loss position, the
percentage decline in comparison to the securities’ amortized cost, the financial condition of the issuer, if applicable, and the
delinquency or default rates of underlying collateral. We consider our intent to sell the investment securities and the likelihood
that we will not have to sell the investment securities before recovery of their cost basis. If impairment exists, credit related
impairment losses are recorded in earnings while noncredit related impairment losses are recorded in accumulated other
comprehensive income.
In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets
and Liabilities (“ASU 2011-11”). The update requires entities to disclose information about offsetting and related
arrangements of financial instruments and derivative instruments. The amendments require enhanced disclosures by
requiring improved information about financial instruments and derivative instruments that are either (i) offset in
accordance with current literature or (2) subject to an enforceable master netting arrangement or similar agreement,
irrespective of whether they are offset in accordance with current literature. ASU 2011-11 is effective for fiscal years, and
interim periods within those years, beginning on or after January 1, 2013. The Company does not anticipate that the
adoption of this guidance will have a material impact on the consolidated financial statements.
In December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective
Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income
in Accounting Standards Update No. 2011-05. The amendments in this update defer those changes in ASU 2011-05 that
relate to the presentation of reclassifications out of accumulated other comprehensive income on the components of net
income and other comprehensive income for all periods presented. All other requirements in ASU 2011-05 are not affected
by this update. The amendments are effective during interim and annual periods beginning after December 15, 2011. The
Company does not anticipate that the adoption of this guidance will have a material impact on the consolidated financial
statements.
Critical Accounting Policies
Certain accounting policies are important to the understanding of our financial condition, since they require management to
make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain.
Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances,
including, but without limitation, changes in interest rates, performance of the economy, financial condition of borrowers and
laws and regulations. The following are the accounting policies we believe are critical.
Allowance for Loan Losses. We recognize that losses will be experienced on loans and that the risk of loss will vary with,
among other things, the type of loan, the creditworthiness of the borrower, general economic conditions and the quality of the
collateral for the loan. We maintain an allowance for loan losses to absorb losses inherent in the loan portfolio. The
allowance for loan losses represents management’s estimate of probable losses based on all available information. The
allowance for loan losses is based on management’s evaluation of the collectability of the loan portfolio, including past
loan loss experience, known and inherent losses, information about specific borrower situations and estimated collateral
values, and current economic conditions. The loan portfolio and other credit exposures are regularly reviewed by
management in its determination of the allowance for loan losses. The methodology for assessing the appropriateness of the
allowance includes a review of historical losses, internal data including delinquencies among others, industry data, and
economic conditions.
As an integral part of their examination process, the Office of the Comptroller of the Currency will periodically review our
allowance for loan losses and may require us to make additional provisions for estimated losses based upon judgments
different from those of management. In establishing the allowance for loan losses, loss factors are applied to various pools of
outstanding loans. Loss factors are derived using our historical loss experience and may be adjusted for factors that affect
the collectability of the portfolio as of the evaluation date. Commercial business loans that are criticized are evaluated
individually to determine the required allowance for loan losses and to evaluate the potential impairment of such loans
under FASB ASC 310 Receivables. Although management believes that it uses the best information available to establish
the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and results of operations
could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations.
Because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that
the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of loans
deteriorate as a result of the factors discussed previously. Any material increase in the allowance for loan losses may
adversely affect our financial condition and results of operations. The allowance is based on information known at the time
of the review. Changes in factors underlying the assessment could have a material impact on the amount of the allowance
that is necessary and the amount of provision to be charged against earnings. Such changes could impact future results.
Valuation of Investment Securities. Substantially all of our investment securities are classified as available-for-sale and
recorded at current fair value. Unrealized gains or losses, net of deferred taxes, are reported in other comprehensive income
as a separate component of stockholders’ equity. In general, fair value is based upon quoted market prices of identical
assets, when available. If quoted market prices are not available, fair value is based upon valuation models that use cash
flow, security structure and other observable information. Where sufficient data is not available to produce a fair valuation,
fair value is based on broker quotes for similar assets. Broker quotes may be adjusted to ensure that financial instruments
are recorded at fair value. Adjustments may include unobservable parameters, among other things. No adjustments were
made to any broker quotes received by us.
We conduct a quarterly review and evaluation of our investment securities to determine if any declines in fair value are
other than temporary. In making this determination, we consider the period of time the securities were in a loss position, the
percentage decline in comparison to the securities’ amortized cost, the financial condition of the issuer, if applicable, and the
delinquency or default rates of underlying collateral. We consider our intent to sell the investment securities and the likelihood
that we will not have to sell the investment securities before recovery of their cost basis. If impairment exists, credit related
impairment losses are recorded in earnings while noncredit related impairment losses are recorded in accumulated other
comprehensive income.
35
36
35
36
Deferred Income Taxes. We use the asset and liability method of accounting for income taxes as prescribed in FASB ASC
740 Income Taxes. Using this method, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases. If current available information raises doubt as to the realization of the deferred tax assets, a valuation
allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to
taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise
significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These
judgments require us to make projections of future taxable income. The judgments and estimates we make in determining
our deferred tax assets, which are inherently subjective, are reviewed on an ongoing basis as regulatory and business
factors change. A reduction in estimated future taxable income could require us to record a valuation allowance.
Changes in levels of valuation allowances could result in increased income tax expense, and could negatively affect
earnings.
FINANCIAL CONDITION
Introduction.
Total assets decreased $3.79 million, or 1.15%, to $327.30 million at June 30, 2012, from $331.09 million at June 30,
2011. Total liabilities decreased by $4.96 million, or 1.78%, to $273.65 million at June 30, 2012, from $278.61 million at
June 30, 2011. The loan portfolio decreased $11.63 million during the year. Total deposits increased $10.80 million.
Noninterest checking increased $4.37 million or 22.95%, to $23.43 million at June 30, 2012, and money market accounts
increased $205,000, or 0.72%. Interest bearing checking accounts increased $5.77 million, or 14.31%, to $46.13 million at
June 30, 2012. Certificates of deposits decreased $3.19 million, or 3.78%, to $81.36 million at June 30, 2012.
Balance Sheet Details.
Loans receivable decreased $11.63 million, or 6.27% to $173.84 million from $185.47 million. Though loan originations
were relatively strong, much of the loan origination volume was in 30 and 15 year fixed rate one- to four-family residential
mortgages which were primarily sold in the secondary market. We sold $99.51 million in loans during fiscal year 2012, a
decrease of $12.93 million from $112.44 million sold in fiscal year 2011. The amount of loans sold in fiscal year 2011 was
exceptionally high, particularly in the first half of the previous fiscal year, as the Bank experienced a significant increase in
refinance volume of one- to four-family residential mortgages. Origination activity in most loan categories, with the
exception of one- to four-family residential mortgages, decreased in the current fiscal year. Commercial real estate and
land loan originations decreased $28.52 million during the year, and residential mortgage loan originations increased $2.22
million. The available-for-sale investment portfolio decreased $13.42 million, or 13.07%, to $89.28 million at June 30,
2012 from $102.70 million at June 30, 2011. The investment category with the largest decrease was agency CMOs, which
decreased $9.23 million. Premises and equipment decreased $590,000, which was primarily due to depreciation expense
partially offset by equipment purchases.
Total deposits increased by $10.80 million, notwithstanding lower rates on deposits. The growth was attributable to
consumers seeking additional safety and protection afforded by increased federal deposit insurance. Of that increase,
certificates of deposit decreased $3.19 million, to $81.36 million at June 30, 2012 from $84.55 million at June 30, 2011.
The Bank had no brokered deposits as of June 30, 2012. Interest-earning checking accounts increased $5.77 million and
noninterest checking increased $4.37 million. Money market accounts increased $205,000 and savings accounts increased
$3.65 million. A portion of the deposit growth the Bank has experienced over the last three fiscal years has likely been the
result of a flight to quality by individual investors during the financial crisis and ensuing economic downturn. As such, as
the financial crisis subsides, we believe deposit growth will be more difficult to achieve on a long-term basis due to
significant competition among financial institutions in our markets. Advances from the FHLB and other borrowings
decreased to $42.70 million at year-end 2012 from $60.90 million at year-end 2011, a decrease of $18.20 million and is
largely attributable to the availability of retail funding from deposits.
Total shareholders’ equity was $53.65 million at June 30, 2012, an increase of $1.17 million over the comparable period.
This increase was due to earnings, and increases in net accumulated other comprehensive gain, offset by dividends paid and
treasury stock purchases.
Analysis of Net Interest Income
The Bank’s earnings have historically depended primarily upon net interest income, which is the difference between
interest income earned on loans and investments and interest paid on deposits and any borrowed funds. It is the single
largest component of Eagle’s operating income. Net interest income is affected by (i) the difference between rates of
interest earned on loans and investments and rates paid on interest-bearing deposits and borrowings (the “interest rate
spread”) and (ii) the relative amounts of loans and investments and interest-bearing deposits and borrowings.
Deferred Income Taxes. We use the asset and liability method of accounting for income taxes as prescribed in FASB ASC
740 Income Taxes. Using this method, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases. If current available information raises doubt as to the realization of the deferred tax assets, a valuation
allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to
taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise
significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These
judgments require us to make projections of future taxable income. The judgments and estimates we make in determining
our deferred tax assets, which are inherently subjective, are reviewed on an ongoing basis as regulatory and business
factors change. A reduction in estimated future taxable income could require us to record a valuation allowance.
Changes in levels of valuation allowances could result in increased income tax expense, and could negatively affect
earnings.
The following tables set forth average balance sheets, average yields and costs, and certain other information at and for the
periods indicated. All average balances are daily average balances. Non-accrual loans were included in the computation of
average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the
effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.
FINANCIAL CONDITION
For the twelve months ended June 30,
2012
2011
Introduction.
Interest
Total assets decreased $3.79 million, or 1.15%, to $327.30 million at June 30, 2012, from $331.09 million at June 30,
Yield/
and
2011. Total liabilities decreased by $4.96 million, or 1.78%, to $273.65 million at June 30, 2012, from $278.61 million at
Cost(3)
June 30, 2011. The loan portfolio decreased $11.63 million during the year. Total deposits increased $10.80 million.
Dividends
Noninterest checking increased $4.37 million or 22.95%, to $23.43 million at June 30, 2012, and money market accounts
increased $205,000, or 0.72%. Interest bearing checking accounts increased $5.77 million, or 14.31%, to $46.13 million at
June 30, 2012. Certificates of deposits decreased $3.19 million, or 3.78%, to $81.36 million at June 30, 2012.
(Dollars in thousands)
Average
Daily
Average
Daily
Interest
and
Yield/
Cost(3)
Dividends
Balance
Balance
Interest-earning assets:
Assets:
$
2,003
$
-
0.00%
$
2,003
$
-
0.00%
FHLB stock
Noninterest-earning assets
Total interest-earning assets
Interest-bearing deposits with banks
Loans receivable, net
Investment securities
3,192
8,693
3.26%
5.77%
97,976
10,884
11,279
188,502
185,223
Balance Sheet Details.
6.09%
Loans receivable decreased $11.63 million, or 6.27% to $173.84 million from $185.47 million. Though loan originations
3.42%
were relatively strong, much of the loan origination volume was in 30 and 15 year fixed rate one- to four-family residential
0.36%
mortgages which were primarily sold in the secondary market. We sold $99.51 million in loans during fiscal year 2012, a
4.98%
decrease of $12.93 million from $112.44 million sold in fiscal year 2011. The amount of loans sold in fiscal year 2011 was
exceptionally high, particularly in the first half of the previous fiscal year, as the Bank experienced a significant increase in
refinance volume of one- to four-family residential mortgages. Origination activity in most loan categories, with the
exception of one- to four-family residential mortgages, decreased in the current fiscal year. Commercial real estate and
land loan originations decreased $28.52 million during the year, and residential mortgage loan originations increased $2.22
million. The available-for-sale investment portfolio decreased $13.42 million, or 13.07%, to $89.28 million at June 30,
2012 from $102.70 million at June 30, 2011. The investment category with the largest decrease was agency CMOs, which
decreased $9.23 million. Premises and equipment decreased $590,000, which was primarily due to depreciation expense
partially offset by equipment purchases.
$
0.16%
$
300,110
331,615
297,174
331,161
107,010
14,959
31,505
28,075
14,096
33,987
27,936
0.20%
4.74%
0.13%
5,874
3,659
$
$
$
$
21
46
20
37
Deposit accounts:
Money market
Interest-bearing liabilities:
Liabilities and Equity:
Total assets
Certificates of deposit
Total interest-bearing liabilities
Savings
Checking
Advances from FHLB & subordinated debt
38,344
39
0.10%
33,850
48
0.14%
24
82,317
43,863
Total deposits increased by $10.80 million, notwithstanding lower rates on deposits. The growth was attributable to
0.07%
consumers seeking additional safety and protection afforded by increased federal deposit insurance. Of that increase,
certificates of deposit decreased $3.19 million, to $81.36 million at June 30, 2012 from $84.55 million at June 30, 2011.
1.50%
The Bank had no brokered deposits as of June 30, 2012. Interest-earning checking accounts increased $5.77 million and
3.90%
noninterest checking increased $4.37 million. Money market accounts increased $205,000 and savings accounts increased
1.60%
$3.65 million. A portion of the deposit growth the Bank has experienced over the last three fiscal years has likely been the
result of a flight to quality by individual investors during the financial crisis and ensuing economic downturn. As such, as
the financial crisis subsides, we believe deposit growth will be more difficult to achieve on a long-term basis due to
significant competition among financial institutions in our markets. Advances from the FHLB and other borrowings
decreased to $42.70 million at year-end 2012 from $60.90 million at year-end 2011, a decrease of $18.20 million and is
largely attributable to the availability of retail funding from deposits.
255,536
278,075
251,266
277,486
40,057
84,391
69,163
19,381
58,806
22,030
0.05%
1.18%
3.55%
1.26%
1,270
2,694
4,086
3,158
2,091
3,165
4,190
974
28
Other noninterest-bearing liabilities
Non-interest checking
Total liabilities
53,675
53,540
Total equity
Total liabilities and equity
Total shareholders’ equity was $53.65 million at June 30, 2012, an increase of $1.17 million over the comparable period.
This increase was due to earnings, and increases in net accumulated other comprehensive gain, offset by dividends paid and
3.38%
treasury stock purchases.
Net interest income/interest rate spread(1)
331,615
331,161
10,873
10,931
3.48%
$
$
$
$
Analysis of Net Interest Income
The Bank’s earnings have historically depended primarily upon net interest income, which is the difference between
interest income earned on loans and investments and interest paid on deposits and any borrowed funds. It is the single
largest component of Eagle’s operating income. Net interest income is affected by (i) the difference between rates of
interest earned on loans and investments and rates paid on interest-bearing deposits and borrowings (the “interest rate
spread”) and (ii) the relative amounts of loans and investments and interest-bearing deposits and borrowings.
The following tables set forth average balance sheets, average yields and costs, and certain other information at and for the
periods indicated. All average balances are daily average balances. Non-accrual loans were included in the computation of
average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the
effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.
For the twelve months ended June 30,
2012
Interest
and
Average
Daily
Balance
Dividends
(Dollars in thousands)
Yield/
Cost(3)
Average
Daily
Balance
$
2,003
$
-
$
2,003
$
-
Interest-bearing deposits with banks
Assets:
Interest-earning assets:
FHLB stock
Loans receivable, net
Investment securities
Total interest-earning assets
Noninterest-earning assets
Total assets
Liabilities and Equity:
Interest-bearing liabilities:
Deposit accounts:
Money market
Savings
Checking
Certificates of deposit
Advances from FHLB & subordinated debt
Total interest-bearing liabilities
Non-interest checking
Other noninterest-bearing liabilities
Total liabilities
Total equity
188,502
97,976
8,693
297,174
33,987
$
331,161
38,344
43,863
82,317
58,806
251,266
22,030
4,190
277,486
53,675
10,884
3,192
20
14,096
39
24
974
2,091
3,165
0.00%
5.77%
3.26%
0.20%
4.74%
0.13%
0.10%
0.05%
1.18%
3.55%
1.26%
185,223
107,010
5,874
300,110
31,505
$
331,615
33,850
40,057
84,391
69,163
255,536
19,381
3,158
278,075
53,540
$
27,936
$
37
$
28,075
$
46
2011
Interest
and
Dividends
11,279
3,659
21
14,959
48
28
1,270
2,694
4,086
Yield/
Cost(3)
0.00%
6.09%
3.42%
0.36%
4.98%
0.16%
0.14%
0.07%
1.50%
3.90%
1.60%
Total liabilities and equity
$
331,161
$
331,615
Net interest income/interest rate spread(1)
$
10,931
3.48%
$
10,873
3.38%
Net interest margin(2)
Total interest-earning assets to interest-bearing liabilities
3.68%
118.27%
3.62%
117.44%
Net interest margin(2)
Total interest-earning assets to interest-bearing liabilities
3.68%
118.27%
3.62%
117.44%
(1)
Interest rate spread represents the difference between the average yield on interest-earning assets and the average rate
on interest-bearing liabilities.
(2) Net interest margin represents income before the provision for loan losses divided by average interest-earning assets.
(3) For purposes of this table, tax exempt income is not calculated on a tax equivalent basis.
(1)
Interest rate spread represents the difference between the average yield on interest-earning assets and the average rate
on interest-bearing liabilities.
(2) Net interest margin represents income before the provision for loan losses divided by average interest-earning assets.
(3) For purposes of this table, tax exempt income is not calculated on a tax equivalent basis.
37
38
37
38
Deferred Income Taxes. We use the asset and liability method of accounting for income taxes as prescribed in FASB ASC
740 Income Taxes. Using this method, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases. If current available information raises doubt as to the realization of the deferred tax assets, a valuation
allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to
taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise
significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These
judgments require us to make projections of future taxable income. The judgments and estimates we make in determining
our deferred tax assets, which are inherently subjective, are reviewed on an ongoing basis as regulatory and business
factors change. A reduction in estimated future taxable income could require us to record a valuation allowance.
Changes in levels of valuation allowances could result in increased income tax expense, and could negatively affect
earnings.
Introduction.
FINANCIAL CONDITION
Total assets decreased $3.79 million, or 1.15%, to $327.30 million at June 30, 2012, from $331.09 million at June 30,
2011. Total liabilities decreased by $4.96 million, or 1.78%, to $273.65 million at June 30, 2012, from $278.61 million at
June 30, 2011. The loan portfolio decreased $11.63 million during the year. Total deposits increased $10.80 million.
Noninterest checking increased $4.37 million or 22.95%, to $23.43 million at June 30, 2012, and money market accounts
increased $205,000, or 0.72%. Interest bearing checking accounts increased $5.77 million, or 14.31%, to $46.13 million at
June 30, 2012. Certificates of deposits decreased $3.19 million, or 3.78%, to $81.36 million at June 30, 2012.
Balance Sheet Details.
Loans receivable decreased $11.63 million, or 6.27% to $173.84 million from $185.47 million. Though loan originations
were relatively strong, much of the loan origination volume was in 30 and 15 year fixed rate one- to four-family residential
mortgages which were primarily sold in the secondary market. We sold $99.51 million in loans during fiscal year 2012, a
decrease of $12.93 million from $112.44 million sold in fiscal year 2011. The amount of loans sold in fiscal year 2011 was
exceptionally high, particularly in the first half of the previous fiscal year, as the Bank experienced a significant increase in
refinance volume of one- to four-family residential mortgages. Origination activity in most loan categories, with the
exception of one- to four-family residential mortgages, decreased in the current fiscal year. Commercial real estate and
land loan originations decreased $28.52 million during the year, and residential mortgage loan originations increased $2.22
million. The available-for-sale investment portfolio decreased $13.42 million, or 13.07%, to $89.28 million at June 30,
2012 from $102.70 million at June 30, 2011. The investment category with the largest decrease was agency CMOs, which
decreased $9.23 million. Premises and equipment decreased $590,000, which was primarily due to depreciation expense
partially offset by equipment purchases.
Total deposits increased by $10.80 million, notwithstanding lower rates on deposits. The growth was attributable to
consumers seeking additional safety and protection afforded by increased federal deposit insurance. Of that increase,
certificates of deposit decreased $3.19 million, to $81.36 million at June 30, 2012 from $84.55 million at June 30, 2011.
The Bank had no brokered deposits as of June 30, 2012. Interest-earning checking accounts increased $5.77 million and
noninterest checking increased $4.37 million. Money market accounts increased $205,000 and savings accounts increased
$3.65 million. A portion of the deposit growth the Bank has experienced over the last three fiscal years has likely been the
result of a flight to quality by individual investors during the financial crisis and ensuing economic downturn. As such, as
the financial crisis subsides, we believe deposit growth will be more difficult to achieve on a long-term basis due to
significant competition among financial institutions in our markets. Advances from the FHLB and other borrowings
decreased to $42.70 million at year-end 2012 from $60.90 million at year-end 2011, a decrease of $18.20 million and is
largely attributable to the availability of retail funding from deposits.
Total shareholders’ equity was $53.65 million at June 30, 2012, an increase of $1.17 million over the comparable period.
This increase was due to earnings, and increases in net accumulated other comprehensive gain, offset by dividends paid and
treasury stock purchases.
Analysis of Net Interest Income
The Bank’s earnings have historically depended primarily upon net interest income, which is the difference between
interest income earned on loans and investments and interest paid on deposits and any borrowed funds. It is the single
largest component of Eagle’s operating income. Net interest income is affected by (i) the difference between rates of
interest earned on loans and investments and rates paid on interest-bearing deposits and borrowings (the “interest rate
spread”) and (ii) the relative amounts of loans and investments and interest-bearing deposits and borrowings.
Deferred Income Taxes. We use the asset and liability method of accounting for income taxes as prescribed in FASB ASC
740 Income Taxes. Using this method, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases. If current available information raises doubt as to the realization of the deferred tax assets, a valuation
allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to
taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise
significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These
judgments require us to make projections of future taxable income. The judgments and estimates we make in determining
our deferred tax assets, which are inherently subjective, are reviewed on an ongoing basis as regulatory and business
factors change. A reduction in estimated future taxable income could require us to record a valuation allowance.
Changes in levels of valuation allowances could result in increased income tax expense, and could negatively affect
earnings.
The following tables set forth average balance sheets, average yields and costs, and certain other information at and for the
periods indicated. All average balances are daily average balances. Non-accrual loans were included in the computation of
average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the
effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.
FINANCIAL CONDITION
For the twelve months ended June 30,
2012
2011
Introduction.
Interest
Total assets decreased $3.79 million, or 1.15%, to $327.30 million at June 30, 2012, from $331.09 million at June 30,
Yield/
and
2011. Total liabilities decreased by $4.96 million, or 1.78%, to $273.65 million at June 30, 2012, from $278.61 million at
Cost(3)
June 30, 2011. The loan portfolio decreased $11.63 million during the year. Total deposits increased $10.80 million.
Dividends
Noninterest checking increased $4.37 million or 22.95%, to $23.43 million at June 30, 2012, and money market accounts
increased $205,000, or 0.72%. Interest bearing checking accounts increased $5.77 million, or 14.31%, to $46.13 million at
June 30, 2012. Certificates of deposits decreased $3.19 million, or 3.78%, to $81.36 million at June 30, 2012.
(Dollars in thousands)
Average
Daily
Average
Daily
Interest
and
Yield/
Cost(3)
Dividends
Balance
Balance
Interest-earning assets:
Assets:
$
2,003
$
-
0.00%
$
2,003
$
-
0.00%
FHLB stock
Noninterest-earning assets
Total interest-earning assets
Interest-bearing deposits with banks
Loans receivable, net
Investment securities
3,192
8,693
3.26%
5.77%
11,279
97,976
10,884
185,223
188,502
Balance Sheet Details.
6.09%
Loans receivable decreased $11.63 million, or 6.27% to $173.84 million from $185.47 million. Though loan originations
3.42%
were relatively strong, much of the loan origination volume was in 30 and 15 year fixed rate one- to four-family residential
0.36%
mortgages which were primarily sold in the secondary market. We sold $99.51 million in loans during fiscal year 2012, a
4.98%
decrease of $12.93 million from $112.44 million sold in fiscal year 2011. The amount of loans sold in fiscal year 2011 was
exceptionally high, particularly in the first half of the previous fiscal year, as the Bank experienced a significant increase in
refinance volume of one- to four-family residential mortgages. Origination activity in most loan categories, with the
exception of one- to four-family residential mortgages, decreased in the current fiscal year. Commercial real estate and
land loan originations decreased $28.52 million during the year, and residential mortgage loan originations increased $2.22
million. The available-for-sale investment portfolio decreased $13.42 million, or 13.07%, to $89.28 million at June 30,
2012 from $102.70 million at June 30, 2011. The investment category with the largest decrease was agency CMOs, which
decreased $9.23 million. Premises and equipment decreased $590,000, which was primarily due to depreciation expense
partially offset by equipment purchases.
$
0.16%
$
297,174
300,110
331,161
331,615
107,010
14,096
33,987
31,505
27,936
28,075
14,959
0.20%
4.74%
0.13%
5,874
3,659
$
$
$
$
20
37
21
46
Deposit accounts:
Money market
Interest-bearing liabilities:
Liabilities and Equity:
Total assets
Certificates of deposit
Total interest-bearing liabilities
Savings
Checking
Advances from FHLB & subordinated debt
38,344
39
0.10%
33,850
48
0.14%
24
82,317
43,863
Total deposits increased by $10.80 million, notwithstanding lower rates on deposits. The growth was attributable to
0.07%
consumers seeking additional safety and protection afforded by increased federal deposit insurance. Of that increase,
certificates of deposit decreased $3.19 million, to $81.36 million at June 30, 2012 from $84.55 million at June 30, 2011.
1.50%
The Bank had no brokered deposits as of June 30, 2012. Interest-earning checking accounts increased $5.77 million and
3.90%
noninterest checking increased $4.37 million. Money market accounts increased $205,000 and savings accounts increased
1.60%
$3.65 million. A portion of the deposit growth the Bank has experienced over the last three fiscal years has likely been the
result of a flight to quality by individual investors during the financial crisis and ensuing economic downturn. As such, as
the financial crisis subsides, we believe deposit growth will be more difficult to achieve on a long-term basis due to
significant competition among financial institutions in our markets. Advances from the FHLB and other borrowings
decreased to $42.70 million at year-end 2012 from $60.90 million at year-end 2011, a decrease of $18.20 million and is
largely attributable to the availability of retail funding from deposits.
277,486
278,075
251,266
255,536
40,057
84,391
69,163
58,806
22,030
19,381
0.05%
1.18%
3.55%
1.26%
4,190
3,158
2,091
3,165
1,270
2,694
4,086
974
28
Other noninterest-bearing liabilities
Non-interest checking
Total liabilities
53,675
53,540
Total equity
Analysis of Net Interest Income
The Bank’s earnings have historically depended primarily upon net interest income, which is the difference between
interest income earned on loans and investments and interest paid on deposits and any borrowed funds. It is the single
largest component of Eagle’s operating income. Net interest income is affected by (i) the difference between rates of
interest earned on loans and investments and rates paid on interest-bearing deposits and borrowings (the “interest rate
spread”) and (ii) the relative amounts of loans and investments and interest-bearing deposits and borrowings.
The following tables set forth average balance sheets, average yields and costs, and certain other information at and for the
periods indicated. All average balances are daily average balances. Non-accrual loans were included in the computation of
average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the
effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.
For the twelve months ended June 30,
2012
Interest
and
Average
Daily
Balance
Dividends
$
2,003
$
-
10,884
3,192
20
14,096
188,502
97,976
8,693
297,174
33,987
$
331,161
$
27,936
$
37
39
24
974
2,091
3,165
38,344
43,863
82,317
58,806
251,266
22,030
4,190
277,486
53,675
Assets:
Interest-earning assets:
FHLB stock
Loans receivable, net
Investment securities
Interest-bearing deposits with banks
Total interest-earning assets
Noninterest-earning assets
Total assets
Liabilities and Equity:
Interest-bearing liabilities:
Deposit accounts:
Money market
Savings
Checking
Certificates of deposit
Advances from FHLB & subordinated debt
Total interest-bearing liabilities
Non-interest checking
Other noninterest-bearing liabilities
Total liabilities
Total equity
(Dollars in thousands)
Average
Daily
Yield/
Cost(3)
2011
Interest
and
0.00%
5.77%
3.26%
0.20%
4.74%
0.13%
0.10%
0.05%
1.18%
3.55%
1.26%
Balance
Dividends
$
2,003
$
-
11,279
3,659
21
14,959
185,223
107,010
5,874
300,110
31,505
$
331,615
$
28,075
$
46
48
28
1,270
2,694
4,086
33,850
40,057
84,391
69,163
255,536
19,381
3,158
278,075
53,540
Yield/
Cost(3)
0.00%
6.09%
3.42%
0.36%
4.98%
0.16%
0.14%
0.07%
1.50%
3.90%
1.60%
Total liabilities and equity
Total shareholders’ equity was $53.65 million at June 30, 2012, an increase of $1.17 million over the comparable period.
This increase was due to earnings, and increases in net accumulated other comprehensive gain, offset by dividends paid and
3.38%
treasury stock purchases.
Net interest income/interest rate spread(1)
331,161
331,615
10,931
10,873
3.48%
$
$
$
$
Total liabilities and equity
$
331,161
$
331,615
Net interest income/interest rate spread(1)
$
10,931
3.48%
$
10,873
3.38%
Net interest margin(2)
Total interest-earning assets to interest-bearing liabilities
3.68%
118.27%
3.62%
117.44%
Net interest margin(2)
Total interest-earning assets to interest-bearing liabilities
3.68%
118.27%
3.62%
117.44%
(1)
Interest rate spread represents the difference between the average yield on interest-earning assets and the average rate
on interest-bearing liabilities.
(2) Net interest margin represents income before the provision for loan losses divided by average interest-earning assets.
(3) For purposes of this table, tax exempt income is not calculated on a tax equivalent basis.
(1)
Interest rate spread represents the difference between the average yield on interest-earning assets and the average rate
on interest-bearing liabilities.
(2) Net interest margin represents income before the provision for loan losses divided by average interest-earning assets.
(3) For purposes of this table, tax exempt income is not calculated on a tax equivalent basis.
37
38
37
38
Rate/Volume Analysis
The following table presents the dollar amount of changes in interest income and interest expense for major components of
interest-earning assets and interest-bearing liabilities for the periods indicated. For each category of interest-earning assets
and interest-bearing liabilities, information is provided on changes attributable to: (1) changes in volume multiplied by the
old rate; (2) changes in rate, which are changes in rate multiplied by the old volume; and (3) changes not solely attributable
to rate or volume, which have been allocated proportionately to the change due to volume and the change due to rate.
For the Years Ended June 30,
Increase (Decrease)
(In thousands)
2012 vs 2011
Due to
Rate
Net
Volume
2011 vs 2010
Due to
Rate
$
(595)
(158)
(14)
-
(767)
$
(395)
(467)
(4)
-
(866)
$
(323)
871
18
-
566
$
(231)
(770)
(6)
-
(1,007)
Volume
$
200
(309)
10
-
(99)
Net
$
(554)
101
12
-
(441)
9
(31)
(403)
(425)
(31)
(266)
(202)
(499)
(22)
(297)
(605)
(924)
47
76
(68)
55
(325)
(798)
58
(1,065)
(278)
(722)
(10)
(1,010)
Interest earning assets:
Loans receivable, net
Investment securities
Interest-bearing deposits with banks
Other earning assets
Total interest earning assets
Interest-bearing liabilities:
Savings, money market and
checking accounts
Certificates of deposit
Borrowings & subordinated debentures
Total interest-bearing liabilities
Change in net interest income
$
326
$
(268)
$
58
$
511
$
58
$
569
Comparison of Operating Results for the Years Ended June 30, 2012 and 2011
Net Income.
Eagle’s net income decreased slightly to $2.178 million for the year ended June 30, 2012 from $2.410 million for the year
ended June 30, 2011, a decrease of $232,000. This decrease was the result of decreases in noninterest income of $449,000,
and increases in the provision for loan losses of $153,000 offset by increases in net interest income of $58,000 and
decreases in noninterest expense of $48,000. Eagle’s tax provision was also $264,000 lower in 2012. Basic earnings per
share for the year ended June 30, 2012 were $0.59, compared to $0.62 for the year ended June 30, 2011. Diluted earnings
per share were $0.56 and $0.62 for 2012 and 2011, respectively.
Net Interest Income.
Net interest income increased to $10.93 million for the year ended June 30, 2012, from $10.87 million for the previous
year. This increase of $58,000, or 0.53%, was the result of a decrease in interest expense of $921,000 and a decrease in
interest income of $863,000. As shown in the “Rate/Volume Analysis”, this increase was mainly attributable to a decrease
in average balances in borrowings, larger average balances of deposits and lower rates on deposits largely offset by lower
rates on interest earning assets.
Interest and Dividend Income.
Total interest and dividend income was $14.10 million for the year ended June 30, 2012, compared to $14.96 million for
the year ended June 30, 2011, a decrease of $863,000, or 5.77%. Interest and fees on loans decreased to $10.88 million for
2012 from $11.28 million for 2011. The decrease of $395,000, or 3.50%, was due to a slight increase in the average
balances on loans receivable offset by the decrease in average rates, for the year ended June 30, 2012. Specifically, the
average interest rate earned on loans receivable decreased by 32 basis points, to 5.77%, from 6.09% for the prior year.
Average balances for loans receivable, including loans held for sale, net, for the year ended June 30, 2012 were $188.50
million, compared to $185.22 million for the previous year. This represents an increase of $3.28 million, or 1.77%.
Interest and dividends on investment securities available-for-sale also decreased to $3.19 million for the year ended
Rate/Volume Analysis
For the Years Ended June 30,
Increase (Decrease)
(In thousands)
June 30, 2012 from $3.65 million for the year ended June 30, 2011, a decrease of $461,000, or 12.62%. This decrease was
the result of both lower average interest rates and lower average balances on the AFS portfolio during the year. Interest
earned from deposits at other banks decreased slightly for the year ended June 30, 2012 due to lower yields.
The following table presents the dollar amount of changes in interest income and interest expense for major components of
interest-earning assets and interest-bearing liabilities for the periods indicated. For each category of interest-earning assets
and interest-bearing liabilities, information is provided on changes attributable to: (1) changes in volume multiplied by the
old rate; (2) changes in rate, which are changes in rate multiplied by the old volume; and (3) changes not solely attributable
to rate or volume, which have been allocated proportionately to the change due to volume and the change due to rate.
Interest Expense.
Total interest expense decreased to $3.17 million for the year ended June 30, 2012 from $4.09 million for the year ended
June 30, 2011, a decrease of $921,000, or 22.54%. Interest on deposits decreased to $1.07 million for the year ended
June 30, 2012 from $1.39 million for the year ended June 30, 2011. This decrease of $318,000, or 22.84%, was due
primarily to a decrease in average rates paid. The average cost of deposits decreased 19 basis points, to 0.56% in 2012
from 0.75% in 2011. All deposit categories except certificates of deposits experienced increases in average balances in
2012. The decrease in the average balance of borrowings was augmented by a decrease in the average rate paid and
resulted in a decrease in interest paid on borrowings to $2.09 million for the year ended June 30, 2012 from $2.69 million
for the year ended June 30, 2011. The average balance of borrowings decreased by $10.36 million to $58.81 million for
the year ended June 30, 2012, compared to $69.16 million for the year ended June 30, 2011 and resulted from decreases in
FHLB borrowings and other borrowings stemming from significant inflows of retail deposits as funding sources. The
average rate paid on borrowings decreased to 3.55% in 2012 from 3.90% in 2011.
Interest earning assets:
Loans receivable, net
Provision for Loan Losses.
Investment securities
Provisions for loan losses are charged to earnings to maintain the total allowance for loan losses at a level considered
Interest-bearing deposits with banks
adequate by the Bank to provide for probable loan losses based on prior loss experience, volume and type of lending we
Other earning assets
conduct and past due loans in portfolio. The Bank’s policies require the review of assets on a quarterly basis. The Bank
Total interest earning assets
classifies loans as well as other assets if warranted. While management believes it uses the best information available to
make a determination with respect to the allowance for loan losses, it recognizes that future adjustments may be necessary.
Interest-bearing liabilities:
Using this methodology, a provision to increase the allowance for loan loss by $1.10 million was made for the year ended
June 30, 2012 while a provision of $948,000 was made for the year ended June 30, 2011. This, management believes,
Savings, money market and
adequately reflected a level of total allowances considered adequate. Total classified assets decreased to $6.61 million at
checking accounts
June 30, 2012 from $7.71 million at June 30, 2011. Total nonperforming loans as a percentage of the total loan portfolio
Certificates of deposit
increased to 1.83% at June 30, 2012, from 1.57% at June 30, 2011. As of June 30, 2012, American Federal Savings Bank
had $2.66 million ($2.36 million net of allowance for valuation losses of $300,000) in other real estate owned, an increase
Borrowings & subordinated debentures
over the $1.18 million held at June 30, 2011.
Total interest-bearing liabilities
2012 vs 2011
Due to
Rate
2011 vs 2010
Due to
Rate
(325)
(798)
58
(1,065)
(595)
(158)
(14)
-
(767)
200
(309)
10
-
(99)
(323)
871
18
-
566
(22)
(297)
(605)
(924)
(31)
(266)
(202)
(499)
9
(31)
(403)
(425)
47
76
(68)
55
(231)
(770)
(6)
(395)
(467)
(4)
-
(1,007)
-
(866)
Volume
Volume
$
$
$
$
$
$
Net
Net
(554)
101
12
-
(441)
(278)
(722)
(10)
(1,010)
569
58
58
511
326
(268)
$
$
$
$
$
Change in net interest income
Comparison of Operating Results for the Years Ended June 30, 2012 and 2011
Noninterest Income.
$
Total noninterest income decreased to $4.17 million for the year ended June 30, 2012, from $4.62 million for the year
ended June 30, 2011, a decrease of $449,000 or 9.71%. This decrease was primarily due to decrease in net gain on sale of
loans of $492,000 and a net decrease of $615,000 in the value of the fair-value-hedge interest rate swap implemented in
August 2010. Service charges on deposit accounts decreased $61,000 to $672,000 for the year ended June 30, 2012 from
$733,000 for the year ended June 30, 2011. This was primarily due to a decrease in overdraft fees. Other noninterest
income increased $191,000 to $849,000, which primarily was from increased balances in bank owned life insurance. The
single largest item in other noninterest income is earnings from bank owned life insurance of $336,000.
Net Income.
Eagle’s net income decreased slightly to $2.178 million for the year ended June 30, 2012 from $2.410 million for the year
ended June 30, 2011, a decrease of $232,000. This decrease was the result of decreases in noninterest income of $449,000,
and increases in the provision for loan losses of $153,000 offset by increases in net interest income of $58,000 and
decreases in noninterest expense of $48,000. Eagle’s tax provision was also $264,000 lower in 2012. Basic earnings per
share for the year ended June 30, 2012 were $0.59, compared to $0.62 for the year ended June 30, 2011. Diluted earnings
per share were $0.56 and $0.62 for 2012 and 2011, respectively.
Noninterest Expense.
Noninterest expense decreased by $48,000 or 0.43% to $11.03 million for the year ended June 30, 2012 from $11.08
million for the year ended June 30, 2011. This decrease was primarily due to the reduction of the amortization of mortgage
servicing rights of $529,000. Both the provision for valuation loss on OREO and Federal insurance premiums decreased as
well, while all other expenses increased. The increase in salaries and benefits was due to normal pay raises and a slightly
larger staff. Most noninterest expense items showed modest changes with the exception of consulting fees which increased
$348,000. This increase is due to costs associated with potential acquisitions including certain expenses associated with
the proposed acquisition of Sterling Bank’s Montana branches.
Net Interest Income.
Net interest income increased to $10.93 million for the year ended June 30, 2012, from $10.87 million for the previous
year. This increase of $58,000, or 0.53%, was the result of a decrease in interest expense of $921,000 and a decrease in
interest income of $863,000. As shown in the “Rate/Volume Analysis”, this increase was mainly attributable to a decrease
in average balances in borrowings, larger average balances of deposits and lower rates on deposits largely offset by lower
rates on interest earning assets.
Income Tax Expense.
Eagle’s income tax expense was $792,000 for the year ended June 30, 2012, compared to $1.06 million for the year ended
June 30, 2011. The effective tax rate was 26.67% for the year ended June 30, 2012 and 30.47% for the year ended June 30,
2011.
Liquidity and Capital Resources
Interest and Dividend Income.
Total interest and dividend income was $14.10 million for the year ended June 30, 2012, compared to $14.96 million for
the year ended June 30, 2011, a decrease of $863,000, or 5.77%. Interest and fees on loans decreased to $10.88 million for
2012 from $11.28 million for 2011. The decrease of $395,000, or 3.50%, was due to a slight increase in the average
Eagle’s subsidiary, American Federal Savings Bank, is required to maintain minimum levels of liquid assets as defined by
balances on loans receivable offset by the decrease in average rates, for the year ended June 30, 2012. Specifically, the
the Office of the Comptroller of the Currency regulations. The liquidity requirement is retained for safety and soundness
average interest rate earned on loans receivable decreased by 32 basis points, to 5.77%, from 6.09% for the prior year.
purposes, and that appropriate levels of liquidity will depend upon the types of activities in which the company engages.
Average balances for loans receivable, including loans held for sale, net, for the year ended June 30, 2012 were $188.50
For internal reporting purposes, the Bank uses policy minimums of 1.0%, and 8.0% for “basic surplus” and “basic surplus
million, compared to $185.22 million for the previous year. This represents an increase of $3.28 million, or 1.77%.
with FHLB” as internally defined. In general, the “basic surplus” is a calculation of the ratio of unencumbered short-term
Interest and dividends on investment securities available-for-sale also decreased to $3.19 million for the year ended
assets reduced by estimated percentages of CD maturities and other deposits that may leave the Bank in the next 90 days
June 30, 2012 from $3.65 million for the year ended June 30, 2011, a decrease of $461,000, or 12.62%. This decrease was
the result of both lower average interest rates and lower average balances on the AFS portfolio during the year. Interest
earned from deposits at other banks decreased slightly for the year ended June 30, 2012 due to lower yields.
Interest Expense.
Total interest expense decreased to $3.17 million for the year ended June 30, 2012 from $4.09 million for the year ended
June 30, 2011, a decrease of $921,000, or 22.54%. Interest on deposits decreased to $1.07 million for the year ended
June 30, 2012 from $1.39 million for the year ended June 30, 2011. This decrease of $318,000, or 22.84%, was due
primarily to a decrease in average rates paid. The average cost of deposits decreased 19 basis points, to 0.56% in 2012
from 0.75% in 2011. All deposit categories except certificates of deposits experienced increases in average balances in
2012. The decrease in the average balance of borrowings was augmented by a decrease in the average rate paid and
resulted in a decrease in interest paid on borrowings to $2.09 million for the year ended June 30, 2012 from $2.69 million
for the year ended June 30, 2011. The average balance of borrowings decreased by $10.36 million to $58.81 million for
the year ended June 30, 2012, compared to $69.16 million for the year ended June 30, 2011 and resulted from decreases in
FHLB borrowings and other borrowings stemming from significant inflows of retail deposits as funding sources. The
average rate paid on borrowings decreased to 3.55% in 2012 from 3.90% in 2011.
Provision for Loan Losses.
Provisions for loan losses are charged to earnings to maintain the total allowance for loan losses at a level considered
adequate by the Bank to provide for probable loan losses based on prior loss experience, volume and type of lending we
conduct and past due loans in portfolio. The Bank’s policies require the review of assets on a quarterly basis. The Bank
classifies loans as well as other assets if warranted. While management believes it uses the best information available to
make a determination with respect to the allowance for loan losses, it recognizes that future adjustments may be necessary.
Using this methodology, a provision to increase the allowance for loan loss by $1.10 million was made for the year ended
June 30, 2012 while a provision of $948,000 was made for the year ended June 30, 2011. This, management believes,
adequately reflected a level of total allowances considered adequate. Total classified assets decreased to $6.61 million at
June 30, 2012 from $7.71 million at June 30, 2011. Total nonperforming loans as a percentage of the total loan portfolio
increased to 1.83% at June 30, 2012, from 1.57% at June 30, 2011. As of June 30, 2012, American Federal Savings Bank
had $2.66 million ($2.36 million net of allowance for valuation losses of $300,000) in other real estate owned, an increase
over the $1.18 million held at June 30, 2011.
Noninterest Income.
Total noninterest income decreased to $4.17 million for the year ended June 30, 2012, from $4.62 million for the year
ended June 30, 2011, a decrease of $449,000 or 9.71%. This decrease was primarily due to decrease in net gain on sale of
loans of $492,000 and a net decrease of $615,000 in the value of the fair-value-hedge interest rate swap implemented in
August 2010. Service charges on deposit accounts decreased $61,000 to $672,000 for the year ended June 30, 2012 from
$733,000 for the year ended June 30, 2011. This was primarily due to a decrease in overdraft fees. Other noninterest
income increased $191,000 to $849,000, which primarily was from increased balances in bank owned life insurance. The
single largest item in other noninterest income is earnings from bank owned life insurance of $336,000.
Noninterest Expense.
Noninterest expense decreased by $48,000 or 0.43% to $11.03 million for the year ended June 30, 2012 from $11.08
million for the year ended June 30, 2011. This decrease was primarily due to the reduction of the amortization of mortgage
servicing rights of $529,000. Both the provision for valuation loss on OREO and Federal insurance premiums decreased as
well, while all other expenses increased. The increase in salaries and benefits was due to normal pay raises and a slightly
larger staff. Most noninterest expense items showed modest changes with the exception of consulting fees which increased
$348,000. This increase is due to costs associated with potential acquisitions including certain expenses associated with
the proposed acquisition of Sterling Bank’s Montana branches.
Eagle’s income tax expense was $792,000 for the year ended June 30, 2012, compared to $1.06 million for the year ended
June 30, 2011. The effective tax rate was 26.67% for the year ended June 30, 2012 and 30.47% for the year ended June 30,
Income Tax Expense.
2011.
Liquidity and Capital Resources
Eagle’s subsidiary, American Federal Savings Bank, is required to maintain minimum levels of liquid assets as defined by
the Office of the Comptroller of the Currency regulations. The liquidity requirement is retained for safety and soundness
purposes, and that appropriate levels of liquidity will depend upon the types of activities in which the company engages.
For internal reporting purposes, the Bank uses policy minimums of 1.0%, and 8.0% for “basic surplus” and “basic surplus
with FHLB” as internally defined. In general, the “basic surplus” is a calculation of the ratio of unencumbered short-term
assets reduced by estimated percentages of CD maturities and other deposits that may leave the Bank in the next 90 days
39
40
39
40
June 30, 2012 from $3.65 million for the year ended June 30, 2011, a decrease of $461,000, or 12.62%. This decrease was
the result of both lower average interest rates and lower average balances on the AFS portfolio during the year. Interest
earned from deposits at other banks decreased slightly for the year ended June 30, 2012 due to lower yields.
June 30, 2012 from $3.65 million for the year ended June 30, 2011, a decrease of $461,000, or 12.62%. This decrease was
the result of both lower average interest rates and lower average balances on the AFS portfolio during the year. Interest
earned from deposits at other banks decreased slightly for the year ended June 30, 2012 due to lower yields.
Interest Expense.
Total interest expense decreased to $3.17 million for the year ended June 30, 2012 from $4.09 million for the year ended
June 30, 2011, a decrease of $921,000, or 22.54%. Interest on deposits decreased to $1.07 million for the year ended
June 30, 2012 from $1.39 million for the year ended June 30, 2011. This decrease of $318,000, or 22.84%, was due
primarily to a decrease in average rates paid. The average cost of deposits decreased 19 basis points, to 0.56% in 2012
from 0.75% in 2011. All deposit categories except certificates of deposits experienced increases in average balances in
2012. The decrease in the average balance of borrowings was augmented by a decrease in the average rate paid and
resulted in a decrease in interest paid on borrowings to $2.09 million for the year ended June 30, 2012 from $2.69 million
for the year ended June 30, 2011. The average balance of borrowings decreased by $10.36 million to $58.81 million for
the year ended June 30, 2012, compared to $69.16 million for the year ended June 30, 2011 and resulted from decreases in
FHLB borrowings and other borrowings stemming from significant inflows of retail deposits as funding sources. The
average rate paid on borrowings decreased to 3.55% in 2012 from 3.90% in 2011.
Provision for Loan Losses.
Provisions for loan losses are charged to earnings to maintain the total allowance for loan losses at a level considered
adequate by the Bank to provide for probable loan losses based on prior loss experience, volume and type of lending we
conduct and past due loans in portfolio. The Bank’s policies require the review of assets on a quarterly basis. The Bank
classifies loans as well as other assets if warranted. While management believes it uses the best information available to
make a determination with respect to the allowance for loan losses, it recognizes that future adjustments may be necessary.
Using this methodology, a provision to increase the allowance for loan loss by $1.10 million was made for the year ended
June 30, 2012 while a provision of $948,000 was made for the year ended June 30, 2011. This, management believes,
adequately reflected a level of total allowances considered adequate. Total classified assets decreased to $6.61 million at
June 30, 2012 from $7.71 million at June 30, 2011. Total nonperforming loans as a percentage of the total loan portfolio
increased to 1.83% at June 30, 2012, from 1.57% at June 30, 2011. As of June 30, 2012, American Federal Savings Bank
had $2.66 million ($2.36 million net of allowance for valuation losses of $300,000) in other real estate owned, an increase
over the $1.18 million held at June 30, 2011.
Noninterest Income.
Total noninterest income decreased to $4.17 million for the year ended June 30, 2012, from $4.62 million for the year
ended June 30, 2011, a decrease of $449,000 or 9.71%. This decrease was primarily due to decrease in net gain on sale of
loans of $492,000 and a net decrease of $615,000 in the value of the fair-value-hedge interest rate swap implemented in
August 2010. Service charges on deposit accounts decreased $61,000 to $672,000 for the year ended June 30, 2012 from
$733,000 for the year ended June 30, 2011. This was primarily due to a decrease in overdraft fees. Other noninterest
income increased $191,000 to $849,000, which primarily was from increased balances in bank owned life insurance. The
single largest item in other noninterest income is earnings from bank owned life insurance of $336,000.
Noninterest Expense.
Noninterest expense decreased by $48,000 or 0.43% to $11.03 million for the year ended June 30, 2012 from $11.08
million for the year ended June 30, 2011. This decrease was primarily due to the reduction of the amortization of mortgage
servicing rights of $529,000. Both the provision for valuation loss on OREO and Federal insurance premiums decreased as
well, while all other expenses increased. The increase in salaries and benefits was due to normal pay raises and a slightly
larger staff. Most noninterest expense items showed modest changes with the exception of consulting fees which increased
$348,000. This increase is due to costs associated with potential acquisitions including certain expenses associated with
the proposed acquisition of Sterling Bank’s Montana branches.
Interest Expense.
Total interest expense decreased to $3.17 million for the year ended June 30, 2012 from $4.09 million for the year ended
June 30, 2011, a decrease of $921,000, or 22.54%. Interest on deposits decreased to $1.07 million for the year ended
June 30, 2012 from $1.39 million for the year ended June 30, 2011. This decrease of $318,000, or 22.84%, was due
primarily to a decrease in average rates paid. The average cost of deposits decreased 19 basis points, to 0.56% in 2012
from 0.75% in 2011. All deposit categories except certificates of deposits experienced increases in average balances in
2012. The decrease in the average balance of borrowings was augmented by a decrease in the average rate paid and
resulted in a decrease in interest paid on borrowings to $2.09 million for the year ended June 30, 2012 from $2.69 million
for the year ended June 30, 2011. The average balance of borrowings decreased by $10.36 million to $58.81 million for
the year ended June 30, 2012, compared to $69.16 million for the year ended June 30, 2011 and resulted from decreases in
FHLB borrowings and other borrowings stemming from significant inflows of retail deposits as funding sources. The
average rate paid on borrowings decreased to 3.55% in 2012 from 3.90% in 2011.
Provision for Loan Losses.
Provisions for loan losses are charged to earnings to maintain the total allowance for loan losses at a level considered
adequate by the Bank to provide for probable loan losses based on prior loss experience, volume and type of lending we
conduct and past due loans in portfolio. The Bank’s policies require the review of assets on a quarterly basis. The Bank
classifies loans as well as other assets if warranted. While management believes it uses the best information available to
make a determination with respect to the allowance for loan losses, it recognizes that future adjustments may be necessary.
Using this methodology, a provision to increase the allowance for loan loss by $1.10 million was made for the year ended
June 30, 2012 while a provision of $948,000 was made for the year ended June 30, 2011. This, management believes,
adequately reflected a level of total allowances considered adequate. Total classified assets decreased to $6.61 million at
June 30, 2012 from $7.71 million at June 30, 2011. Total nonperforming loans as a percentage of the total loan portfolio
increased to 1.83% at June 30, 2012, from 1.57% at June 30, 2011. As of June 30, 2012, American Federal Savings Bank
had $2.66 million ($2.36 million net of allowance for valuation losses of $300,000) in other real estate owned, an increase
over the $1.18 million held at June 30, 2011.
Noninterest Income.
Total noninterest income decreased to $4.17 million for the year ended June 30, 2012, from $4.62 million for the year
ended June 30, 2011, a decrease of $449,000 or 9.71%. This decrease was primarily due to decrease in net gain on sale of
loans of $492,000 and a net decrease of $615,000 in the value of the fair-value-hedge interest rate swap implemented in
August 2010. Service charges on deposit accounts decreased $61,000 to $672,000 for the year ended June 30, 2012 from
$733,000 for the year ended June 30, 2011. This was primarily due to a decrease in overdraft fees. Other noninterest
income increased $191,000 to $849,000, which primarily was from increased balances in bank owned life insurance. The
single largest item in other noninterest income is earnings from bank owned life insurance of $336,000.
Noninterest Expense.
Noninterest expense decreased by $48,000 or 0.43% to $11.03 million for the year ended June 30, 2012 from $11.08
million for the year ended June 30, 2011. This decrease was primarily due to the reduction of the amortization of mortgage
servicing rights of $529,000. Both the provision for valuation loss on OREO and Federal insurance premiums decreased as
well, while all other expenses increased. The increase in salaries and benefits was due to normal pay raises and a slightly
larger staff. Most noninterest expense items showed modest changes with the exception of consulting fees which increased
$348,000. This increase is due to costs associated with potential acquisitions including certain expenses associated with
the proposed acquisition of Sterling Bank’s Montana branches.
Income Tax Expense.
Eagle’s income tax expense was $792,000 for the year ended June 30, 2012, compared to $1.06 million for the year ended
June 30, 2011. The effective tax rate was 26.67% for the year ended June 30, 2012 and 30.47% for the year ended June 30,
2011.
Income Tax Expense.
Eagle’s income tax expense was $792,000 for the year ended June 30, 2012, compared to $1.06 million for the year ended
June 30, 2011. The effective tax rate was 26.67% for the year ended June 30, 2012 and 30.47% for the year ended June 30,
2011.
Liquidity and Capital Resources
Liquidity and Capital Resources
Eagle’s subsidiary, American Federal Savings Bank, is required to maintain minimum levels of liquid assets as defined by
the Office of the Comptroller of the Currency regulations. The liquidity requirement is retained for safety and soundness
purposes, and that appropriate levels of liquidity will depend upon the types of activities in which the company engages.
For internal reporting purposes, the Bank uses policy minimums of 1.0%, and 8.0% for “basic surplus” and “basic surplus
with FHLB” as internally defined. In general, the “basic surplus” is a calculation of the ratio of unencumbered short-term
assets reduced by estimated percentages of CD maturities and other deposits that may leave the Bank in the next 90 days
Eagle’s subsidiary, American Federal Savings Bank, is required to maintain minimum levels of liquid assets as defined by
the Office of the Comptroller of the Currency regulations. The liquidity requirement is retained for safety and soundness
purposes, and that appropriate levels of liquidity will depend upon the types of activities in which the company engages.
For internal reporting purposes, the Bank uses policy minimums of 1.0%, and 8.0% for “basic surplus” and “basic surplus
with FHLB” as internally defined. In general, the “basic surplus” is a calculation of the ratio of unencumbered short-term
assets reduced by estimated percentages of CD maturities and other deposits that may leave the Bank in the next 90 days
40
40
divided by total assets. “Basic surplus with FHLB” adds to “basic surplus” the additional borrowing capacity the Bank has
with the FHLB of Seattle. The Bank exceeded those minimum ratios as of both June 30, 2012 and June 30, 2011.
The Bank’s primary sources of funds are deposits, repayment of loans and mortgage-backed securities, maturities of
investments, funds provided from operations, advances from the FHLB of Seattle and other borrowings. Scheduled
repayments of loans and mortgage-backed securities and maturities of investment securities are generally predictable.
However, other sources of funds, such as deposit flows and loan prepayments, can be greatly influenced by the general
level of interest rates, economic conditions and competition. The Bank uses liquidity resources principally to fund existing
and future loan commitments. It also uses them to fund maturing certificates of deposit, demand deposit withdrawals and
to invest in other loans and investments, maintain liquidity, and meet operating expenses.
Net cash provided (used) by the Company’s operating activities, which is primarily comprised of cash transactions
affecting net income, was ($1.55 million) for the year ended June 30, 2012 and $11.50 million for the year ended June 30,
2011. The change was primarily a result of an increase in the amount of loans held for sale in 2012.
Net cash provided (used) in the Company’s investing activities, which is primarily comprised of cash transactions from the
investment securities and mortgage-backed securities portfolios and the loan portfolio, was $20.74 million for the year
ended June 30, 2012, and ($7.44 million) for the year ended June 30, 2011. The increase in cash provided was primarily
due to loan originations being less than loan pay-off and principal payments in 2012 compared to 2011.
Net cash provided (used) by the Company’s financing activities was ($8.92 million) for the year ended June 30, 2012, and
$1.98 million for the year ended June 30, 2011. The decrease in cash was primarily a result of net decreases in FHLB
advances and other borrowings, partially offset by net increases in deposits.
Liquidity may be adversely affected by unexpected deposit outflows, higher interest rates paid by competitors, and similar
matters. Management monitors projected liquidity needs and determines the level desirable based in part on Eagle’s
commitments to make loans and management’s assessment of Eagle’s ability to generate funds.
Changes in Market
Interest Rates
(Basis Points)
divided by total assets. “Basic surplus with FHLB” adds to “basic surplus” the additional borrowing capacity the Bank has
with the FHLB of Seattle. The Bank exceeded those minimum ratios as of both June 30, 2012 and June 30, 2011.
Economic Value of Equity as % of PV of Assets
Board Policy Limit
(if applicable)
Must be no greater than:
At June 30, 2012
Projected EVE
The Bank’s primary sources of funds are deposits, repayment of loans and mortgage-backed securities, maturities of
investments, funds provided from operations, advances from the FHLB of Seattle and other borrowings. Scheduled
repayments of loans and mortgage-backed securities and maturities of investment securities are generally predictable.
However, other sources of funds, such as deposit flows and loan prepayments, can be greatly influenced by the general
level of interest rates, economic conditions and competition. The Bank uses liquidity resources principally to fund existing
and future loan commitments. It also uses them to fund maturing certificates of deposit, demand deposit withdrawals and
to invest in other loans and investments, maintain liquidity, and meet operating expenses.
-30.0%
-20.0%
-10.0%
-
-2.7%
-0.4%
0.8%
0.0%
-3.7%
+300
+200
+100
0
-100
-10.0%
Net cash provided (used) by the Company’s operating activities, which is primarily comprised of cash transactions
affecting net income, was ($1.55 million) for the year ended June 30, 2012 and $11.50 million for the year ended June 30,
2011. The change was primarily a result of an increase in the amount of loans held for sale in 2012.
Off-Balance Sheet Arrangements
Net cash provided (used) in the Company’s investing activities, which is primarily comprised of cash transactions from the
investment securities and mortgage-backed securities portfolios and the loan portfolio, was $20.74 million for the year
ended June 30, 2012, and ($7.44 million) for the year ended June 30, 2011. The increase in cash provided was primarily
due to loan originations being less than loan pay-off and principal payments in 2012 compared to 2011.
As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such
as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash
requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments
are subject to the same credit policies and approval process accorded to loans we make. In addition, we use mandatory sell
forward delivery commitments to sell whole loans to the secondary markets. These commitments are also used as a hedge
against exposure to interest rate risks relating from rate locked loan origination commitments on certain mortgage loans
held-for-sale.
Net cash provided (used) by the Company’s financing activities was ($8.92 million) for the year ended June 30, 2012, and
$1.98 million for the year ended June 30, 2011. The decrease in cash was primarily a result of net decreases in FHLB
advances and other borrowings, partially offset by net increases in deposits.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
ITEM 7A.
This item has been omitted based on Eagle’s status as a smaller reporting company.
Liquidity may be adversely affected by unexpected deposit outflows, higher interest rates paid by competitors, and similar
matters. Management monitors projected liquidity needs and determines the level desirable based in part on Eagle’s
commitments to make loans and management’s assessment of Eagle’s ability to generate funds.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
ITEM 8.
At May 31, 2012 (the most recent report available), the Bank’s measure of sensitivity to interest rate movements, as
measured internally, decreased slightly from the previous quarter. The market value of the Bank’s capital position has
increased modestly from the previous year due to net income offset by the payment of dividends and the repurchase of
Company stock. The Bank is well within the guidelines set forth by the Board of Directors for interest rate sensitivity.
Eagle’s audited consolidated financial statements, notes thereto, and auditor’s reports are found immediately following Part
III of this report.
At May 31, 2012 (the most recent report available), the Bank’s measure of sensitivity to interest rate movements, as
measured internally, decreased slightly from the previous quarter. The market value of the Bank’s capital position has
increased modestly from the previous year due to net income offset by the payment of dividends and the repurchase of
Company stock. The Bank is well within the guidelines set forth by the Board of Directors for interest rate sensitivity.
As of June 30, 2012, the Bank’s regulatory capital was in excess of all applicable regulatory requirements and the Bank is
deemed “well capitalized” pursuant to OCC rules. At June 30, 2012, the Bank’s tangible, core, and risk-based capital
ratios amounted to 13.4%, 13.4%, and 21.91%, respectively, compared to regulatory requirements of 1.5%, 3.0%, and
8.0%, respectively.
Impact of Inflation and Changing Prices
Our consolidated financial statements and the accompanying notes, which are found in Item 8, have been prepared in
accordance with generally accepted accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering the change in the relative purchasing power of money
over time and due to inflation. The impact of inflation is reflected in the increased cost of our operations. Interest rates
have a greater impact on our performance than do the general levels of inflation. Interest rates do not necessarily move in
the same direction or to the same extent as the prices of goods and services.
Interest Rate Risk Analysis
In addition to the asset/liability committee, the board of directors reviews our asset and liability policies. The board of
directors reviews interest rate risk and interest rate trends quarterly, as well as liquidity and capital ratio requirements.
Management administers the policies and determinations of the board of directors with respect to our asset and liability
goals and strategies. Our asset and liability policy and strategies are expected to continue as described so long as
competitive and regulatory conditions in the financial institution industry and market interest rates continue as they have in
recent years.
The following table discloses how the Bank’s economic value of equity (“EVE”) would react to interest rate changes.
Given the current relatively low level of market interest rates, an EVE calculation for an interest rate decrease of greater
than 100 basis points has not been prepared.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
As of June 30, 2012, the Bank’s regulatory capital was in excess of all applicable regulatory requirements and the Bank is
deemed “well capitalized” pursuant to OCC rules. At June 30, 2012, the Bank’s tangible, core, and risk-based capital
ratios amounted to 13.4%, 13.4%, and 21.91%, respectively, compared to regulatory requirements of 1.5%, 3.0%, and
8.0%, respectively.
None.
ITEM 9A.
Impact of Inflation and Changing Prices
CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
Our consolidated financial statements and the accompanying notes, which are found in Item 8, have been prepared in
accordance with generally accepted accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering the change in the relative purchasing power of money
over time and due to inflation. The impact of inflation is reflected in the increased cost of our operations. Interest rates
have a greater impact on our performance than do the general levels of inflation. Interest rates do not necessarily move in
the same direction or to the same extent as the prices of goods and services.
We conducted an evaluation under the supervision and with the participation of our management including our Chief
Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”) of the effectiveness of the design and operation of our
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as amended, as of
June 30, 2012, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the
Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and
Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports
filed or submitted by us under the Exchange Act is accumulated and communicated to management to allow timely
decisions regarding required disclosure. Based on that evaluation, our CEO and CFO concluded that as of June 30, 2012,
our disclosure controls and procedures were effective.
In addition to the asset/liability committee, the board of directors reviews our asset and liability policies. The board of
directors reviews interest rate risk and interest rate trends quarterly, as well as liquidity and capital ratio requirements.
Management administers the policies and determinations of the board of directors with respect to our asset and liability
goals and strategies. Our asset and liability policy and strategies are expected to continue as described so long as
competitive and regulatory conditions in the financial institution industry and market interest rates continue as they have in
recent years.
Management Annual Report on Internal Control over Financial Reporting
Interest Rate Risk Analysis
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our management conducted an assessment of the
effectiveness of our internal control over financial reporting. This assessment was based upon the criteria for effective
internal control over financial reporting established in Internal Control - Integrated Framework, issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
The following table discloses how the Bank’s economic value of equity (“EVE”) would react to interest rate changes.
Given the current relatively low level of market interest rates, an EVE calculation for an interest rate decrease of greater
than 100 basis points has not been prepared.
41
42
41
42
The Company’s internal control over financial reporting involves a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
The Company’s internal control over financial reporting involves a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
Changes in Market
Interest Rates
(Basis Points)
Economic Value of Equity as % of PV of Assets
At June 30, 2012
Projected EVE
Board Policy Limit
(if applicable)
Must be no greater than:
+300
+200
+100
0
-100
-2.7%
-0.4%
0.8%
0.0%
-3.7%
-30.0%
-20.0%
-10.0%
-10.0%
-
Off-Balance Sheet Arrangements
As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such
as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash
requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments
are subject to the same credit policies and approval process accorded to loans we make. In addition, we use mandatory sell
forward delivery commitments to sell whole loans to the secondary markets. These commitments are also used as a hedge
against exposure to interest rate risks relating from rate locked loan origination commitments on certain mortgage loans
held-for-sale.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
This item has been omitted based on Eagle’s status as a smaller reporting company.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Eagle’s audited consolidated financial statements, notes thereto, and auditor’s reports are found immediately following Part
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
III of this report.
None.
ITEM 9A.
CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
We conducted an evaluation under the supervision and with the participation of our management including our Chief
Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”) of the effectiveness of the design and operation of our
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as amended, as of
June 30, 2012, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the
Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and
Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports
filed or submitted by us under the Exchange Act is accumulated and communicated to management to allow timely
decisions regarding required disclosure. Based on that evaluation, our CEO and CFO concluded that as of June 30, 2012,
our disclosure controls and procedures were effective.
Management Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our management conducted an assessment of the
effectiveness of our internal control over financial reporting. This assessment was based upon the criteria for effective
internal control over financial reporting established in Internal Control - Integrated Framework, issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
-10.0%
+300
+200
+100
0
-100
-2.7%
-0.4%
0.8%
0.0%
-3.7%
Changes in Market
Interest Rates
(Basis Points)
Economic Value of Equity as % of PV of Assets
Board Policy Limit
(if applicable)
Must be no greater than:
At June 30, 2012
Projected EVE
divided by total assets. “Basic surplus with FHLB” adds to “basic surplus” the additional borrowing capacity the Bank has
with the FHLB of Seattle. The Bank exceeded those minimum ratios as of both June 30, 2012 and June 30, 2011.
The Bank’s primary sources of funds are deposits, repayment of loans and mortgage-backed securities, maturities of
investments, funds provided from operations, advances from the FHLB of Seattle and other borrowings. Scheduled
repayments of loans and mortgage-backed securities and maturities of investment securities are generally predictable.
However, other sources of funds, such as deposit flows and loan prepayments, can be greatly influenced by the general
level of interest rates, economic conditions and competition. The Bank uses liquidity resources principally to fund existing
and future loan commitments. It also uses them to fund maturing certificates of deposit, demand deposit withdrawals and
to invest in other loans and investments, maintain liquidity, and meet operating expenses.
-30.0%
-20.0%
-10.0%
-
divided by total assets. “Basic surplus with FHLB” adds to “basic surplus” the additional borrowing capacity the Bank has
with the FHLB of Seattle. The Bank exceeded those minimum ratios as of both June 30, 2012 and June 30, 2011.
The Bank’s primary sources of funds are deposits, repayment of loans and mortgage-backed securities, maturities of
investments, funds provided from operations, advances from the FHLB of Seattle and other borrowings. Scheduled
repayments of loans and mortgage-backed securities and maturities of investment securities are generally predictable.
However, other sources of funds, such as deposit flows and loan prepayments, can be greatly influenced by the general
level of interest rates, economic conditions and competition. The Bank uses liquidity resources principally to fund existing
and future loan commitments. It also uses them to fund maturing certificates of deposit, demand deposit withdrawals and
to invest in other loans and investments, maintain liquidity, and meet operating expenses.
Net cash provided (used) by the Company’s operating activities, which is primarily comprised of cash transactions
affecting net income, was ($1.55 million) for the year ended June 30, 2012 and $11.50 million for the year ended June 30,
2011. The change was primarily a result of an increase in the amount of loans held for sale in 2012.
Net cash provided (used) in the Company’s investing activities, which is primarily comprised of cash transactions from the
investment securities and mortgage-backed securities portfolios and the loan portfolio, was $20.74 million for the year
ended June 30, 2012, and ($7.44 million) for the year ended June 30, 2011. The increase in cash provided was primarily
due to loan originations being less than loan pay-off and principal payments in 2012 compared to 2011.
Net cash provided (used) by the Company’s financing activities was ($8.92 million) for the year ended June 30, 2012, and
$1.98 million for the year ended June 30, 2011. The decrease in cash was primarily a result of net decreases in FHLB
advances and other borrowings, partially offset by net increases in deposits.
Liquidity may be adversely affected by unexpected deposit outflows, higher interest rates paid by competitors, and similar
matters. Management monitors projected liquidity needs and determines the level desirable based in part on Eagle’s
commitments to make loans and management’s assessment of Eagle’s ability to generate funds.
As of June 30, 2012, the Bank’s regulatory capital was in excess of all applicable regulatory requirements and the Bank is
deemed “well capitalized” pursuant to OCC rules. At June 30, 2012, the Bank’s tangible, core, and risk-based capital
ratios amounted to 13.4%, 13.4%, and 21.91%, respectively, compared to regulatory requirements of 1.5%, 3.0%, and
8.0%, respectively.
Impact of Inflation and Changing Prices
Our consolidated financial statements and the accompanying notes, which are found in Item 8, have been prepared in
accordance with generally accepted accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering the change in the relative purchasing power of money
over time and due to inflation. The impact of inflation is reflected in the increased cost of our operations. Interest rates
have a greater impact on our performance than do the general levels of inflation. Interest rates do not necessarily move in
the same direction or to the same extent as the prices of goods and services.
Interest Rate Risk Analysis
In addition to the asset/liability committee, the board of directors reviews our asset and liability policies. The board of
directors reviews interest rate risk and interest rate trends quarterly, as well as liquidity and capital ratio requirements.
Management administers the policies and determinations of the board of directors with respect to our asset and liability
goals and strategies. Our asset and liability policy and strategies are expected to continue as described so long as
competitive and regulatory conditions in the financial institution industry and market interest rates continue as they have in
recent years.
The following table discloses how the Bank’s economic value of equity (“EVE”) would react to interest rate changes.
Given the current relatively low level of market interest rates, an EVE calculation for an interest rate decrease of greater
than 100 basis points has not been prepared.
Net cash provided (used) by the Company’s operating activities, which is primarily comprised of cash transactions
affecting net income, was ($1.55 million) for the year ended June 30, 2012 and $11.50 million for the year ended June 30,
2011. The change was primarily a result of an increase in the amount of loans held for sale in 2012.
Off-Balance Sheet Arrangements
Net cash provided (used) in the Company’s investing activities, which is primarily comprised of cash transactions from the
investment securities and mortgage-backed securities portfolios and the loan portfolio, was $20.74 million for the year
ended June 30, 2012, and ($7.44 million) for the year ended June 30, 2011. The increase in cash provided was primarily
due to loan originations being less than loan pay-off and principal payments in 2012 compared to 2011.
As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such
as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash
requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments
are subject to the same credit policies and approval process accorded to loans we make. In addition, we use mandatory sell
forward delivery commitments to sell whole loans to the secondary markets. These commitments are also used as a hedge
against exposure to interest rate risks relating from rate locked loan origination commitments on certain mortgage loans
held-for-sale.
Net cash provided (used) by the Company’s financing activities was ($8.92 million) for the year ended June 30, 2012, and
$1.98 million for the year ended June 30, 2011. The decrease in cash was primarily a result of net decreases in FHLB
advances and other borrowings, partially offset by net increases in deposits.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
ITEM 7A.
At May 31, 2012 (the most recent report available), the Bank’s measure of sensitivity to interest rate movements, as
measured internally, decreased slightly from the previous quarter. The market value of the Bank’s capital position has
increased modestly from the previous year due to net income offset by the payment of dividends and the repurchase of
Company stock. The Bank is well within the guidelines set forth by the Board of Directors for interest rate sensitivity.
Eagle’s audited consolidated financial statements, notes thereto, and auditor’s reports are found immediately following Part
III of this report.
At May 31, 2012 (the most recent report available), the Bank’s measure of sensitivity to interest rate movements, as
measured internally, decreased slightly from the previous quarter. The market value of the Bank’s capital position has
increased modestly from the previous year due to net income offset by the payment of dividends and the repurchase of
Company stock. The Bank is well within the guidelines set forth by the Board of Directors for interest rate sensitivity.
This item has been omitted based on Eagle’s status as a smaller reporting company.
Liquidity may be adversely affected by unexpected deposit outflows, higher interest rates paid by competitors, and similar
matters. Management monitors projected liquidity needs and determines the level desirable based in part on Eagle’s
commitments to make loans and management’s assessment of Eagle’s ability to generate funds.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
ITEM 8.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
As of June 30, 2012, the Bank’s regulatory capital was in excess of all applicable regulatory requirements and the Bank is
deemed “well capitalized” pursuant to OCC rules. At June 30, 2012, the Bank’s tangible, core, and risk-based capital
ratios amounted to 13.4%, 13.4%, and 21.91%, respectively, compared to regulatory requirements of 1.5%, 3.0%, and
8.0%, respectively.
None.
ITEM 9A.
Impact of Inflation and Changing Prices
CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
Our consolidated financial statements and the accompanying notes, which are found in Item 8, have been prepared in
accordance with generally accepted accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering the change in the relative purchasing power of money
over time and due to inflation. The impact of inflation is reflected in the increased cost of our operations. Interest rates
have a greater impact on our performance than do the general levels of inflation. Interest rates do not necessarily move in
the same direction or to the same extent as the prices of goods and services.
We conducted an evaluation under the supervision and with the participation of our management including our Chief
Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”) of the effectiveness of the design and operation of our
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as amended, as of
June 30, 2012, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the
Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and
Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports
filed or submitted by us under the Exchange Act is accumulated and communicated to management to allow timely
decisions regarding required disclosure. Based on that evaluation, our CEO and CFO concluded that as of June 30, 2012,
our disclosure controls and procedures were effective.
In addition to the asset/liability committee, the board of directors reviews our asset and liability policies. The board of
directors reviews interest rate risk and interest rate trends quarterly, as well as liquidity and capital ratio requirements.
Management administers the policies and determinations of the board of directors with respect to our asset and liability
goals and strategies. Our asset and liability policy and strategies are expected to continue as described so long as
competitive and regulatory conditions in the financial institution industry and market interest rates continue as they have in
recent years.
Management Annual Report on Internal Control over Financial Reporting
Interest Rate Risk Analysis
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our management conducted an assessment of the
effectiveness of our internal control over financial reporting. This assessment was based upon the criteria for effective
internal control over financial reporting established in Internal Control - Integrated Framework, issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
The following table discloses how the Bank’s economic value of equity (“EVE”) would react to interest rate changes.
Given the current relatively low level of market interest rates, an EVE calculation for an interest rate decrease of greater
than 100 basis points has not been prepared.
Changes in Market
Interest Rates
(Basis Points)
Economic Value of Equity as % of PV of Assets
Board Policy Limit
(if applicable)
Must be no greater than:
At June 30, 2012
Projected EVE
+300
+200
+100
0
-100
-2.7%
-0.4%
0.8%
0.0%
-3.7%
-30.0%
-20.0%
-10.0%
-
-10.0%
Off-Balance Sheet Arrangements
As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such
as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash
requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments
are subject to the same credit policies and approval process accorded to loans we make. In addition, we use mandatory sell
forward delivery commitments to sell whole loans to the secondary markets. These commitments are also used as a hedge
against exposure to interest rate risks relating from rate locked loan origination commitments on certain mortgage loans
held-for-sale.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
This item has been omitted based on Eagle’s status as a smaller reporting company.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Eagle’s audited consolidated financial statements, notes thereto, and auditor’s reports are found immediately following Part
III of this report.
ITEM 9.
None.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
ITEM 9A.
CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
We conducted an evaluation under the supervision and with the participation of our management including our Chief
Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”) of the effectiveness of the design and operation of our
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as amended, as of
June 30, 2012, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the
Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and
Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports
filed or submitted by us under the Exchange Act is accumulated and communicated to management to allow timely
decisions regarding required disclosure. Based on that evaluation, our CEO and CFO concluded that as of June 30, 2012,
our disclosure controls and procedures were effective.
Management Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our management conducted an assessment of the
effectiveness of our internal control over financial reporting. This assessment was based upon the criteria for effective
internal control over financial reporting established in Internal Control - Integrated Framework, issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
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42
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42
The Company’s internal control over financial reporting involves a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
The Company’s internal control over financial reporting involves a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Internal control over financial reporting includes the controls
themselves, as well as monitoring of the controls and internal auditing practices and actions to correct deficiencies
identified. Because of its inherent limitations, internal control over financial reporting may not prevent or detect all
misstatements.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2012.
Based on this assessment, management concluded that, as of June 30, 2012, the Company’s internal control over financial
reporting was effective.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting identified in connection with the
evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the quarter ended
June 30, 2012 that have materially affected, or were reasonably likely to materially affect, the Company’s internal control
over financial reporting.
ITEM 9B.
OTHER INFORMATION.
None.
accordance with generally accepted accounting principles. Internal control over financial reporting includes the controls
themselves, as well as monitoring of the controls and internal auditing practices and actions to correct deficiencies
identified. Because of its inherent limitations, internal control over financial reporting may not prevent or detect all
Except as provided below, the information required by Items 10, 11, 12, 13 and 14 is hereby incorporated by reference
misstatements.
from our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the
close of our fiscal year.
PART III
ITEM 10.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2012.
Based on this assessment, management concluded that, as of June 30, 2012, the Company’s internal control over financial
reporting was effective.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Changes in Internal Control over Financial Reporting
Information about our directors may be found under the caption “Proposal I – Election of Directors” in our Proxy
Statement for the 2012 Annual Meeting of Shareholders (the “Proxy Statement”). The information in the Proxy Statement
set forth under the captions of “Section 16 (a) Beneficial Ownership Reporting Compliance”, “Board Meetings and
Committees”, “Structure of the Board of Directors”, “The Board’s Role in Risk Oversight”, and “Code of Ethics” is
incorporated herein by reference.
There were no changes in the Company’s internal control over financial reporting identified in connection with the
evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the quarter ended
June 30, 2012 that have materially affected, or were reasonably likely to materially affect, the Company’s internal control
over financial reporting.
Executive Officers of the Registrant
The following is a list of the names and ages of our executive officers, all positions and offices held by each person and
each person’s principal occupations or employment during the past five years. There are no family relationships between
any executive officers and directors.
OTHER INFORMATION.
ITEM 9B.
None.
Peter J. Johnson, President & Chief Executive Officer
Age 55
Mr. Johnson has served as President of the Bank and Eagle since July 2007 and CEO since November 2007. Prior to being
named President, he had served as the Company’s Executive Vice President and Chief Financial Officer. He joined the
Bank in 1981. He currently serves on the Montana Independent Bankers Association board of directors and the Federal
Reserve Board’s Community Depository Institution Advisory Council. He is a past chairman of both the Helena Area
Chamber of Commerce and the Diocese of Helena Finance Council. He is also a member of the Rotary Club of Helena.
Clinton J. Morrison, Senior Vice President & Chief Financial Officer
Age 42
Mr. Morrison has served as the Chief Financial Officer of the Bank and Eagle since July 2007. Prior to being named the
Chief Financial Officer, he had served as the Company’s treasurer and compliance officer. He joined the Bank in 2001.
Mr. Morrison maintains a certified public accountants license in the State of Montana. He currently is a member of the
Montana Society of CPAs and the American Institute of CPAs. Mr. Morrison currently is a member of the Helena
Downtown Kiwanis Club and previously served terms as President and Treasurer of that organization.
Michael C. Mundt, Senior Vice President & Chief Lending Officer
Age 58
Mr. Mundt has served as the Chief Lending Officer of the Bank since April 1994. Prior to being named the Chief Lending
Officer, he served as Vice President of Consumer and Commercial Lending. He joined the bank in 1988. He currently
serves on the Montana Bankers Association’s board of directors, and also currently serves as the immediate Past-President
of the Montana Business Assistance Connection, a local economic development non-profit organization.
PART III
Except as provided below, the information required by Items 10, 11, 12, 13 and 14 is hereby incorporated by reference
from our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the
close of our fiscal year.
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Information about our directors may be found under the caption “Proposal I – Election of Directors” in our Proxy
Statement for the 2012 Annual Meeting of Shareholders (the “Proxy Statement”). The information in the Proxy Statement
set forth under the captions of “Section 16 (a) Beneficial Ownership Reporting Compliance”, “Board Meetings and
Committees”, “Structure of the Board of Directors”, “The Board’s Role in Risk Oversight”, and “Code of Ethics” is
incorporated herein by reference.
Executive Officers of the Registrant
any executive officers and directors.
The following is a list of the names and ages of our executive officers, all positions and offices held by each person and
each person’s principal occupations or employment during the past five years. There are no family relationships between
Peter J. Johnson, President & Chief Executive Officer
Age 55
Mr. Johnson has served as President of the Bank and Eagle since July 2007 and CEO since November 2007. Prior to being
named President, he had served as the Company’s Executive Vice President and Chief Financial Officer. He joined the
Bank in 1981. He currently serves on the Montana Independent Bankers Association board of directors and the Federal
Reserve Board’s Community Depository Institution Advisory Council. He is a past chairman of both the Helena Area
Chamber of Commerce and the Diocese of Helena Finance Council. He is also a member of the Rotary Club of Helena.
Clinton J. Morrison, Senior Vice President & Chief Financial Officer
Age 42
Mr. Morrison has served as the Chief Financial Officer of the Bank and Eagle since July 2007. Prior to being named the
Chief Financial Officer, he had served as the Company’s treasurer and compliance officer. He joined the Bank in 2001.
Mr. Morrison maintains a certified public accountants license in the State of Montana. He currently is a member of the
Montana Society of CPAs and the American Institute of CPAs. Mr. Morrison currently is a member of the Helena
Downtown Kiwanis Club and previously served terms as President and Treasurer of that organization.
Michael C. Mundt, Senior Vice President & Chief Lending Officer
Age 58
Mr. Mundt has served as the Chief Lending Officer of the Bank since April 1994. Prior to being named the Chief Lending
Officer, he served as Vice President of Consumer and Commercial Lending. He joined the bank in 1988. He currently
serves on the Montana Bankers Association’s board of directors, and also currently serves as the immediate Past-President
of the Montana Business Assistance Connection, a local economic development non-profit organization.
Robert M. Evans, Senior Vice President & Chief Information Officer
Age 64
Mr. Evans has served as the Chief Information Officer of the Bank since January 2008. Prior to being named Chief
Information Officer, he served as the Bank’s Vice President of Information Services. Mr. Evans also serves as the Bank’s
Security Officer. He joined the Bank in 1986.
Robert M. Evans, Senior Vice President & Chief Information Officer
Age 64
Mr. Evans has served as the Chief Information Officer of the Bank since January 2008. Prior to being named Chief
Information Officer, he served as the Bank’s Vice President of Information Services. Mr. Evans also serves as the Bank’s
Security Officer. He joined the Bank in 1986.
Rachel R. Amdahl, Senior Vice President/Operations
Age 43
Mrs. Amdahl has served as Senior Vice President/Operations of the Bank since February 2006. Prior to being named the
Senior Vice President/Operations, she served as Vice President/Operations since 2000. She joined the Bank in 1987. She
currently serves on the Lewis and Clark County United Way board of directors. She also is a member of the Women’s
Leadership Network.
Code of Ethics
Rachel R. Amdahl, Senior Vice President/Operations
Age 43
Mrs. Amdahl has served as Senior Vice President/Operations of the Bank since February 2006. Prior to being named the
Senior Vice President/Operations, she served as Vice President/Operations since 2000. She joined the Bank in 1987. She
currently serves on the Lewis and Clark County United Way board of directors. She also is a member of the Women’s
Leadership Network.
Code of Ethics
We have a code of ethics that applies to all of our employees, including our principal executive officer, principal financial
officer, principal accounting officer and our Board. Our Code of Ethics and Conflict of Interest Policy is available on our
website at www.americanfederalsavingsbank.com. We will disclose on our website any amendments to or waivers from
any provision of our Code of Ethics and Conflict of Interest Policy that applies to any of the directors or officers.
We have a code of ethics that applies to all of our employees, including our principal executive officer, principal financial
officer, principal accounting officer and our Board. Our Code of Ethics and Conflict of Interest Policy is available on our
website at www.americanfederalsavingsbank.com. We will disclose on our website any amendments to or waivers from
any provision of our Code of Ethics and Conflict of Interest Policy that applies to any of the directors or officers.
ITEM 11.
EXECUTIVE COMPENSATION.
ITEM 11.
EXECUTIVE COMPENSATION.
The information in the Proxy Statement set forth under the captions of “Directors’ Compensation” and “Executive
Compensation” is incorporated herein by reference.
The information in the Proxy Statement set forth under the captions of “Directors’ Compensation” and “Executive
Compensation” is incorporated herein by reference.
43
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accordance with generally accepted accounting principles. Internal control over financial reporting includes the controls
themselves, as well as monitoring of the controls and internal auditing practices and actions to correct deficiencies
identified. Because of its inherent limitations, internal control over financial reporting may not prevent or detect all
misstatements.
reporting was effective.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2012.
Based on this assessment, management concluded that, as of June 30, 2012, the Company’s internal control over financial
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting identified in connection with the
evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the quarter ended
June 30, 2012 that have materially affected, or were reasonably likely to materially affect, the Company’s internal control
over financial reporting.
ITEM 9B.
OTHER INFORMATION.
None.
accordance with generally accepted accounting principles. Internal control over financial reporting includes the controls
themselves, as well as monitoring of the controls and internal auditing practices and actions to correct deficiencies
identified. Because of its inherent limitations, internal control over financial reporting may not prevent or detect all
Except as provided below, the information required by Items 10, 11, 12, 13 and 14 is hereby incorporated by reference
misstatements.
from our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the
close of our fiscal year.
PART III
ITEM 10.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2012.
Based on this assessment, management concluded that, as of June 30, 2012, the Company’s internal control over financial
reporting was effective.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Changes in Internal Control over Financial Reporting
Information about our directors may be found under the caption “Proposal I – Election of Directors” in our Proxy
Statement for the 2012 Annual Meeting of Shareholders (the “Proxy Statement”). The information in the Proxy Statement
set forth under the captions of “Section 16 (a) Beneficial Ownership Reporting Compliance”, “Board Meetings and
Committees”, “Structure of the Board of Directors”, “The Board’s Role in Risk Oversight”, and “Code of Ethics” is
incorporated herein by reference.
There were no changes in the Company’s internal control over financial reporting identified in connection with the
evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the quarter ended
June 30, 2012 that have materially affected, or were reasonably likely to materially affect, the Company’s internal control
over financial reporting.
Executive Officers of the Registrant
The following is a list of the names and ages of our executive officers, all positions and offices held by each person and
each person’s principal occupations or employment during the past five years. There are no family relationships between
any executive officers and directors.
OTHER INFORMATION.
ITEM 9B.
None.
Peter J. Johnson, President & Chief Executive Officer
Age 55
Mr. Johnson has served as President of the Bank and Eagle since July 2007 and CEO since November 2007. Prior to being
named President, he had served as the Company’s Executive Vice President and Chief Financial Officer. He joined the
Bank in 1981. He currently serves on the Montana Independent Bankers Association board of directors and the Federal
Reserve Board’s Community Depository Institution Advisory Council. He is a past chairman of both the Helena Area
Chamber of Commerce and the Diocese of Helena Finance Council. He is also a member of the Rotary Club of Helena.
Clinton J. Morrison, Senior Vice President & Chief Financial Officer
Age 42
Mr. Morrison has served as the Chief Financial Officer of the Bank and Eagle since July 2007. Prior to being named the
Chief Financial Officer, he had served as the Company’s treasurer and compliance officer. He joined the Bank in 2001.
Mr. Morrison maintains a certified public accountants license in the State of Montana. He currently is a member of the
Montana Society of CPAs and the American Institute of CPAs. Mr. Morrison currently is a member of the Helena
Downtown Kiwanis Club and previously served terms as President and Treasurer of that organization.
Michael C. Mundt, Senior Vice President & Chief Lending Officer
Age 58
Mr. Mundt has served as the Chief Lending Officer of the Bank since April 1994. Prior to being named the Chief Lending
Officer, he served as Vice President of Consumer and Commercial Lending. He joined the bank in 1988. He currently
serves on the Montana Bankers Association’s board of directors, and also currently serves as the immediate Past-President
of the Montana Business Assistance Connection, a local economic development non-profit organization.
PART III
Except as provided below, the information required by Items 10, 11, 12, 13 and 14 is hereby incorporated by reference
from our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the
close of our fiscal year.
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Information about our directors may be found under the caption “Proposal I – Election of Directors” in our Proxy
Statement for the 2012 Annual Meeting of Shareholders (the “Proxy Statement”). The information in the Proxy Statement
set forth under the captions of “Section 16 (a) Beneficial Ownership Reporting Compliance”, “Board Meetings and
Committees”, “Structure of the Board of Directors”, “The Board’s Role in Risk Oversight”, and “Code of Ethics” is
incorporated herein by reference.
Executive Officers of the Registrant
The following is a list of the names and ages of our executive officers, all positions and offices held by each person and
each person’s principal occupations or employment during the past five years. There are no family relationships between
any executive officers and directors.
Peter J. Johnson, President & Chief Executive Officer
Age 55
Mr. Johnson has served as President of the Bank and Eagle since July 2007 and CEO since November 2007. Prior to being
named President, he had served as the Company’s Executive Vice President and Chief Financial Officer. He joined the
Bank in 1981. He currently serves on the Montana Independent Bankers Association board of directors and the Federal
Reserve Board’s Community Depository Institution Advisory Council. He is a past chairman of both the Helena Area
Chamber of Commerce and the Diocese of Helena Finance Council. He is also a member of the Rotary Club of Helena.
Clinton J. Morrison, Senior Vice President & Chief Financial Officer
Age 42
Mr. Morrison has served as the Chief Financial Officer of the Bank and Eagle since July 2007. Prior to being named the
Chief Financial Officer, he had served as the Company’s treasurer and compliance officer. He joined the Bank in 2001.
Mr. Morrison maintains a certified public accountants license in the State of Montana. He currently is a member of the
Montana Society of CPAs and the American Institute of CPAs. Mr. Morrison currently is a member of the Helena
Downtown Kiwanis Club and previously served terms as President and Treasurer of that organization.
Michael C. Mundt, Senior Vice President & Chief Lending Officer
Age 58
Mr. Mundt has served as the Chief Lending Officer of the Bank since April 1994. Prior to being named the Chief Lending
Officer, he served as Vice President of Consumer and Commercial Lending. He joined the bank in 1988. He currently
serves on the Montana Bankers Association’s board of directors, and also currently serves as the immediate Past-President
of the Montana Business Assistance Connection, a local economic development non-profit organization.
Robert M. Evans, Senior Vice President & Chief Information Officer
Age 64
Mr. Evans has served as the Chief Information Officer of the Bank since January 2008. Prior to being named Chief
Information Officer, he served as the Bank’s Vice President of Information Services. Mr. Evans also serves as the Bank’s
Security Officer. He joined the Bank in 1986.
Robert M. Evans, Senior Vice President & Chief Information Officer
Age 64
Mr. Evans has served as the Chief Information Officer of the Bank since January 2008. Prior to being named Chief
Information Officer, he served as the Bank’s Vice President of Information Services. Mr. Evans also serves as the Bank’s
Security Officer. He joined the Bank in 1986.
Rachel R. Amdahl, Senior Vice President/Operations
Age 43
Mrs. Amdahl has served as Senior Vice President/Operations of the Bank since February 2006. Prior to being named the
Senior Vice President/Operations, she served as Vice President/Operations since 2000. She joined the Bank in 1987. She
currently serves on the Lewis and Clark County United Way board of directors. She also is a member of the Women’s
Leadership Network.
Rachel R. Amdahl, Senior Vice President/Operations
Age 43
Mrs. Amdahl has served as Senior Vice President/Operations of the Bank since February 2006. Prior to being named the
Senior Vice President/Operations, she served as Vice President/Operations since 2000. She joined the Bank in 1987. She
currently serves on the Lewis and Clark County United Way board of directors. She also is a member of the Women’s
Leadership Network.
Code of Ethics
Code of Ethics
We have a code of ethics that applies to all of our employees, including our principal executive officer, principal financial
officer, principal accounting officer and our Board. Our Code of Ethics and Conflict of Interest Policy is available on our
website at www.americanfederalsavingsbank.com. We will disclose on our website any amendments to or waivers from
any provision of our Code of Ethics and Conflict of Interest Policy that applies to any of the directors or officers.
We have a code of ethics that applies to all of our employees, including our principal executive officer, principal financial
officer, principal accounting officer and our Board. Our Code of Ethics and Conflict of Interest Policy is available on our
website at www.americanfederalsavingsbank.com. We will disclose on our website any amendments to or waivers from
any provision of our Code of Ethics and Conflict of Interest Policy that applies to any of the directors or officers.
ITEM 11.
EXECUTIVE COMPENSATION.
ITEM 11.
EXECUTIVE COMPENSATION.
The information in the Proxy Statement set forth under the captions of “Directors’ Compensation” and “Executive
Compensation” is incorporated herein by reference.
The information in the Proxy Statement set forth under the captions of “Directors’ Compensation” and “Executive
Compensation” is incorporated herein by reference.
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ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information in the Proxy Statement set forth under the captions of “Proposal III – Ratification of Appointment of
Independent Auditors” is incorporated herein by reference.
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a)
(1)
The following documents are filed as part of this report: The audited Consolidated Statements of
Financial Condition of Eagle Bancorp Montana, Inc. and subsidiary as of June 30, 2012 and June 30,
2011 and the related Consolidated Statements of Income, Consolidated Statements of Comprehensive
Income, Consolidated Statements of Changes in Stockholder Equity and Consolidated Statements of
Cash Flows for the years then ended, together with the related notes and independent auditor’s reports.
(2)
(3)
Schedules omitted as they are not applicable.
Exhibits.
Exhibits 10.1 through 10.21 are management contracts or compensatory plans or arrangements.
**
*
*
3.1
3.2
4
Amended and Restated Certificate of Incorporation of Eagle Bancorp Montana, Inc.
Bylaws of Eagle Bancorp Montana, Inc.
Form of Common Stock Certificate of Eagle Bancorp Montana, Inc.
***
10.1
Employee Stock Ownership Plan.
****
10.2
Eagle Bancorp 2000 Stock Incentive Plan.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
*
ITEM 12.
10.11
Salary Continuation Agreement, dated April 18, 2002, between Peter J. Johnson and American Federal
Savings Bank.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
10.11
Salary Continuation Agreement, dated April 18, 2002, between Peter J. Johnson and American Federal
Savings Bank.
The information in the Proxy Statement set forth under the captions of “Beneficial Ownership of Common Stock” is
incorporated herein by reference.
*
10.12
The information in the Proxy Statement set forth under the captions of “Beneficial Ownership of Common Stock” is
incorporated herein by reference.
First Amendment to Salary Continuation Agreement, dated December 31, 2006, between Peter J.
Johnson and American Federal Savings Bank.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
*
10.13
ITEM 13.
Salary Continuation Agreement, dated November 15, 2007, between Clinton J. Morrison and American
Federal Savings Bank.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
The information in the Proxy Statement set forth under the captions of “Transactions with Certain Related Persons” and
“Board Independence” is incorporated herein by reference.
*
10.14
The information in the Proxy Statement set forth under the captions of “Transactions with Certain Related Persons” and
“Board Independence” is incorporated herein by reference.
Salary Continuation Agreement, dated April 18, 2002, between Michael C. Mundt and American Federal
Savings Bank.
*
10.15
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES.
First Amendment to Salary Continuation Agreement, dated December 31, 2006, between Michael C.
Mundt and American Federal Savings Bank.
10.15
First Amendment to Salary Continuation Agreement, dated December 31, 2006, between Michael C.
Mundt and American Federal Savings Bank.
*
*
*
*
*
The information in the Proxy Statement set forth under the captions of “Proposal III – Ratification of Appointment of
Independent Auditors” is incorporated herein by reference.
Salary Continuation Agreement, dated April 18, 2002, between Robert M. Evans and American Federal
Savings Bank.
10.16
ITEM 15.
10.17
(a)
(1)
10.18
10.19
EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
First Amendment to Salary Continuation Agreement, dated December 31, 2006, between Robert M.
Evans and American Federal Savings Bank.
The following documents are filed as part of this report: The audited Consolidated Statements of
Financial Condition of Eagle Bancorp Montana, Inc. and subsidiary as of June 30, 2012 and June 30,
2011 and the related Consolidated Statements of Income, Consolidated Statements of Comprehensive
Income, Consolidated Statements of Changes in Stockholder Equity and Consolidated Statements of
Cash Flows for the years then ended, together with the related notes and independent auditor’s reports.
Salary Continuation Agreement, dated November 16, 2006, between Rachel R. Amdahl and American
Federal Savings Bank.
American Federal Savings Bank Split-Dollar Plan, effective October 21, 2004.
(2)
10.20
Schedules omitted as they are not applicable.
Summary of American Federal Savings Bank Bonus Plan.
(3)
Exhibits.
10.21
Exhibits 10.1 through 10.21 are management contracts or compensatory plans or arrangements.
2011 Stock Incentive Plan for Directors, Officers and Employees (incorporated by reference to Exhibit
10.1 of the Registration Statement on Form S-8 (File No. 333-182360) filed with the SEC on June 27,
2012)
Purchase and Assumption Agreement, dated June 29, 2012, by and among Sterling Savings Bank, Eagle
Bancorp Montana, Inc. and American Federal Savings Bank (incorporated by reference to Exhibit 10.1 of
our Current Report on Form 8-K filed on July 2, 2012)
Amended and Restated Certificate of Incorporation of Eagle Bancorp Montana, Inc.
Bylaws of Eagle Bancorp Montana, Inc.
**
3.1
10.22
*
*
*
3.2
4
21.1
23.1
10.1
***
****
31.1
10.2
Form of Common Stock Certificate of Eagle Bancorp Montana, Inc.
Subsidiaries of Registrant.
Consent of Davis Kinard & Co., PC
Employee Stock Ownership Plan.
*
21.1
23.1
Subsidiaries of Registrant.
Consent of Davis Kinard & Co., PC
Eagle Bancorp 2000 Stock Incentive Plan.
Certification by Peter J. Johnson, Chief Executive Officer, pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Employment Contract, effective as of October 1, 2009, between Peter J. Johnson and American Federal
Savings Bank.
Certification by Clinton J. Morrison, Chief Financial Officer, pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Form of Change in Control Agreement between Clinton J. Morrison and American Federal Savings
Bank.
Certification by Peter J. Johnson, Chief Executive Officer and Clinton J. Morrison, Chief Financial
Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
Form of Change in Control Agreement between Michael C. Mundt and American Federal Savings Bank.
*
*
*
*
*
*
*
*
*
*
10.12
First Amendment to Salary Continuation Agreement, dated December 31, 2006, between Peter J.
Johnson and American Federal Savings Bank.
10.13
Salary Continuation Agreement, dated November 15, 2007, between Clinton J. Morrison and American
10.14
Salary Continuation Agreement, dated April 18, 2002, between Michael C. Mundt and American Federal
Federal Savings Bank.
Savings Bank.
10.16
Salary Continuation Agreement, dated April 18, 2002, between Robert M. Evans and American Federal
Savings Bank.
10.17
First Amendment to Salary Continuation Agreement, dated December 31, 2006, between Robert M.
Evans and American Federal Savings Bank.
10.18
Salary Continuation Agreement, dated November 16, 2006, between Rachel R. Amdahl and American
Federal Savings Bank.
10.19
American Federal Savings Bank Split-Dollar Plan, effective October 21, 2004.
10.20
Summary of American Federal Savings Bank Bonus Plan.
10.21
2011 Stock Incentive Plan for Directors, Officers and Employees (incorporated by reference to Exhibit
10.1 of the Registration Statement on Form S-8 (File No. 333-182360) filed with the SEC on June 27,
2012)
10.22
Purchase and Assumption Agreement, dated June 29, 2012, by and among Sterling Savings Bank, Eagle
Bancorp Montana, Inc. and American Federal Savings Bank (incorporated by reference to Exhibit 10.1 of
our Current Report on Form 8-K filed on July 2, 2012)
31.1
Certification by Peter J. Johnson, Chief Executive Officer, pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification by Clinton J. Morrison, Chief Financial Officer, pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification by Peter J. Johnson, Chief Executive Officer and Clinton J. Morrison, Chief Financial
Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
*
**
Incorporated by reference to the identically numbered exhibit of the Registration Statement on Form S-1
(File No. 333-163790) filed with the SEC on December 17, 2009.
Incorporated by reference to the identically numbered exhibit of the Current Report on Form 8-K filed
with the SEC on February 23, 2010.
***
Incorporated by reference to the Registration Statement on Form SB-2 filed with the SEC on
****
Incorporated by reference to the proxy statement for the 2000 Annual Meeting filed with the SEC on
December 20, 1999.
September 19, 2000.
___________________
(b)
See item 15(a)(3) above.
(c)
See Item 15(a)(1) and 15(a)(2) above.
*
*
*
*
*
*
*
*
10.3
10.4
Employment Contract, effective as of October 1, 2009, between Peter J. Johnson and American Federal
Savings Bank.
Form of Change in Control Agreement between Clinton J. Morrison and American Federal Savings
Bank.
10.5
Form of Change in Control Agreement between Michael C. Mundt and American Federal Savings Bank.
10.6
Form of Change in Control Agreement between Robert M. Evans and American Federal Savings Bank.
10.7
Form of Change in Control Agreement between Rachel R. Amdahl and American Federal Savings Bank.
10.8
10.9
Amendment No. 1 to Employment Contract, effective as of January 22, 2010, between Peter J. Johnson
and American Federal Savings Bank.
Salary Continuation Agreement, dated April 18, 2002, between Larry A. Dreyer and American Federal
Savings Bank.
*
*
*
*
*
*
*
10.10
First Amendment to Salary Continuation Agreement, dated December 31, 2006, between Larry A.
Dreyer and American Federal Savings Bank.
(b)
*
10.3
31.2
10.4
32.1
10.5
*
10.6
**
10.7
***
10.8
****
10.9
Form of Change in Control Agreement between Robert M. Evans and American Federal Savings Bank.
Form of Change in Control Agreement between Rachel R. Amdahl and American Federal Savings Bank.
Incorporated by reference to the identically numbered exhibit of the Registration Statement on Form S-1
(File No. 333-163790) filed with the SEC on December 17, 2009.
Incorporated by reference to the identically numbered exhibit of the Current Report on Form 8-K filed
with the SEC on February 23, 2010.
Incorporated by reference to the Registration Statement on Form SB-2 filed with the SEC on
December 20, 1999.
Incorporated by reference to the proxy statement for the 2000 Annual Meeting filed with the SEC on
Salary Continuation Agreement, dated April 18, 2002, between Larry A. Dreyer and American Federal
September 19, 2000.
Savings Bank.
Amendment No. 1 to Employment Contract, effective as of January 22, 2010, between Peter J. Johnson
and American Federal Savings Bank.
___________________
See item 15(a)(3) above.
10.10
First Amendment to Salary Continuation Agreement, dated December 31, 2006, between Larry A.
Dreyer and American Federal Savings Bank.
45
46
45
46
(c)
See Item 15(a)(1) and 15(a)(2) above.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
*
ITEM 12.
10.11
Salary Continuation Agreement, dated April 18, 2002, between Peter J. Johnson and American Federal
Savings Bank.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The information in the Proxy Statement set forth under the captions of “Beneficial Ownership of Common Stock” is
*
incorporated herein by reference.
10.12
The information in the Proxy Statement set forth under the captions of “Beneficial Ownership of Common Stock” is
incorporated herein by reference.
First Amendment to Salary Continuation Agreement, dated December 31, 2006, between Peter J.
Johnson and American Federal Savings Bank.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
*
10.13
ITEM 13.
Salary Continuation Agreement, dated November 15, 2007, between Clinton J. Morrison and American
Federal Savings Bank.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
The information in the Proxy Statement set forth under the captions of “Transactions with Certain Related Persons” and
*
“Board Independence” is incorporated herein by reference.
10.14
The information in the Proxy Statement set forth under the captions of “Transactions with Certain Related Persons” and
“Board Independence” is incorporated herein by reference.
Salary Continuation Agreement, dated April 18, 2002, between Michael C. Mundt and American Federal
Savings Bank.
*
*
*
*
*
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information in the Proxy Statement set forth under the captions of “Proposal III – Ratification of Appointment of
Independent Auditors” is incorporated herein by reference.
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a)
(1)
The following documents are filed as part of this report: The audited Consolidated Statements of
Financial Condition of Eagle Bancorp Montana, Inc. and subsidiary as of June 30, 2012 and June 30,
2011 and the related Consolidated Statements of Income, Consolidated Statements of Comprehensive
Income, Consolidated Statements of Changes in Stockholder Equity and Consolidated Statements of
Cash Flows for the years then ended, together with the related notes and independent auditor’s reports.
(2)
(3)
3.1
3.2
4
Schedules omitted as they are not applicable.
Exhibits.
Exhibits 10.1 through 10.21 are management contracts or compensatory plans or arrangements.
Amended and Restated Certificate of Incorporation of Eagle Bancorp Montana, Inc.
Bylaws of Eagle Bancorp Montana, Inc.
Form of Common Stock Certificate of Eagle Bancorp Montana, Inc.
***
10.1
Employee Stock Ownership Plan.
****
10.2
Eagle Bancorp 2000 Stock Incentive Plan.
10.3
Employment Contract, effective as of October 1, 2009, between Peter J. Johnson and American Federal
10.4
Form of Change in Control Agreement between Clinton J. Morrison and American Federal Savings
Savings Bank.
Bank.
10.5
Form of Change in Control Agreement between Michael C. Mundt and American Federal Savings Bank.
10.6
Form of Change in Control Agreement between Robert M. Evans and American Federal Savings Bank.
10.7
Form of Change in Control Agreement between Rachel R. Amdahl and American Federal Savings Bank.
10.8
Amendment No. 1 to Employment Contract, effective as of January 22, 2010, between Peter J. Johnson
and American Federal Savings Bank.
10.9
Salary Continuation Agreement, dated April 18, 2002, between Larry A. Dreyer and American Federal
Savings Bank.
**
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
10.10
First Amendment to Salary Continuation Agreement, dated December 31, 2006, between Larry A.
(b)
*
Dreyer and American Federal Savings Bank.
*
*
*
*
10.15
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES.
First Amendment to Salary Continuation Agreement, dated December 31, 2006, between Michael C.
Mundt and American Federal Savings Bank.
The information in the Proxy Statement set forth under the captions of “Proposal III – Ratification of Appointment of
Independent Auditors” is incorporated herein by reference.
Salary Continuation Agreement, dated April 18, 2002, between Robert M. Evans and American Federal
Savings Bank.
10.16
ITEM 15.
10.17
(a)
(1)
10.18
10.19
EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
First Amendment to Salary Continuation Agreement, dated December 31, 2006, between Robert M.
Evans and American Federal Savings Bank.
The following documents are filed as part of this report: The audited Consolidated Statements of
Financial Condition of Eagle Bancorp Montana, Inc. and subsidiary as of June 30, 2012 and June 30,
2011 and the related Consolidated Statements of Income, Consolidated Statements of Comprehensive
Income, Consolidated Statements of Changes in Stockholder Equity and Consolidated Statements of
Cash Flows for the years then ended, together with the related notes and independent auditor’s reports.
Salary Continuation Agreement, dated November 16, 2006, between Rachel R. Amdahl and American
Federal Savings Bank.
American Federal Savings Bank Split-Dollar Plan, effective October 21, 2004.
(2)
10.20
Schedules omitted as they are not applicable.
Summary of American Federal Savings Bank Bonus Plan.
(3)
Exhibits.
10.21
Exhibits 10.1 through 10.21 are management contracts or compensatory plans or arrangements.
2011 Stock Incentive Plan for Directors, Officers and Employees (incorporated by reference to Exhibit
10.1 of the Registration Statement on Form S-8 (File No. 333-182360) filed with the SEC on June 27,
2012)
Purchase and Assumption Agreement, dated June 29, 2012, by and among Sterling Savings Bank, Eagle
Bancorp Montana, Inc. and American Federal Savings Bank (incorporated by reference to Exhibit 10.1 of
our Current Report on Form 8-K filed on July 2, 2012)
Amended and Restated Certificate of Incorporation of Eagle Bancorp Montana, Inc.
Bylaws of Eagle Bancorp Montana, Inc.
**
3.1
10.22
3.2
4
21.1
23.1
10.1
***
****
31.1
10.2
10.3
31.2
10.4
32.1
10.5
*
10.6
**
10.7
***
10.8
****
10.9
Form of Common Stock Certificate of Eagle Bancorp Montana, Inc.
Subsidiaries of Registrant.
Consent of Davis Kinard & Co., PC
Employee Stock Ownership Plan.
Eagle Bancorp 2000 Stock Incentive Plan.
Certification by Peter J. Johnson, Chief Executive Officer, pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Employment Contract, effective as of October 1, 2009, between Peter J. Johnson and American Federal
Savings Bank.
Certification by Clinton J. Morrison, Chief Financial Officer, pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Form of Change in Control Agreement between Clinton J. Morrison and American Federal Savings
Bank.
Certification by Peter J. Johnson, Chief Executive Officer and Clinton J. Morrison, Chief Financial
Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
Form of Change in Control Agreement between Michael C. Mundt and American Federal Savings Bank.
Form of Change in Control Agreement between Robert M. Evans and American Federal Savings Bank.
Form of Change in Control Agreement between Rachel R. Amdahl and American Federal Savings Bank.
Incorporated by reference to the identically numbered exhibit of the Registration Statement on Form S-1
(File No. 333-163790) filed with the SEC on December 17, 2009.
Incorporated by reference to the identically numbered exhibit of the Current Report on Form 8-K filed
with the SEC on February 23, 2010.
Incorporated by reference to the Registration Statement on Form SB-2 filed with the SEC on
December 20, 1999.
Incorporated by reference to the proxy statement for the 2000 Annual Meeting filed with the SEC on
Salary Continuation Agreement, dated April 18, 2002, between Larry A. Dreyer and American Federal
September 19, 2000.
Savings Bank.
Amendment No. 1 to Employment Contract, effective as of January 22, 2010, between Peter J. Johnson
and American Federal Savings Bank.
___________________
See item 15(a)(3) above.
10.10
First Amendment to Salary Continuation Agreement, dated December 31, 2006, between Larry A.
Dreyer and American Federal Savings Bank.
(c)
See Item 15(a)(1) and 15(a)(2) above.
*
*
*
*
*
*
*
*
*
*
*
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
Salary Continuation Agreement, dated April 18, 2002, between Peter J. Johnson and American Federal
Savings Bank.
First Amendment to Salary Continuation Agreement, dated December 31, 2006, between Peter J.
Johnson and American Federal Savings Bank.
Salary Continuation Agreement, dated November 15, 2007, between Clinton J. Morrison and American
Federal Savings Bank.
Salary Continuation Agreement, dated April 18, 2002, between Michael C. Mundt and American Federal
Savings Bank.
First Amendment to Salary Continuation Agreement, dated December 31, 2006, between Michael C.
Mundt and American Federal Savings Bank.
Salary Continuation Agreement, dated April 18, 2002, between Robert M. Evans and American Federal
Savings Bank.
First Amendment to Salary Continuation Agreement, dated December 31, 2006, between Robert M.
Evans and American Federal Savings Bank.
Salary Continuation Agreement, dated November 16, 2006, between Rachel R. Amdahl and American
Federal Savings Bank.
10.19
American Federal Savings Bank Split-Dollar Plan, effective October 21, 2004.
10.20
Summary of American Federal Savings Bank Bonus Plan.
10.21
10.22
21.1
23.1
31.1
31.2
32.1
2011 Stock Incentive Plan for Directors, Officers and Employees (incorporated by reference to Exhibit
10.1 of the Registration Statement on Form S-8 (File No. 333-182360) filed with the SEC on June 27,
2012)
Purchase and Assumption Agreement, dated June 29, 2012, by and among Sterling Savings Bank, Eagle
Bancorp Montana, Inc. and American Federal Savings Bank (incorporated by reference to Exhibit 10.1 of
our Current Report on Form 8-K filed on July 2, 2012)
Subsidiaries of Registrant.
Consent of Davis Kinard & Co., PC
Certification by Peter J. Johnson, Chief Executive Officer, pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification by Clinton J. Morrison, Chief Financial Officer, pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification by Peter J. Johnson, Chief Executive Officer and Clinton J. Morrison, Chief Financial
Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
*
**
***
****
Incorporated by reference to the identically numbered exhibit of the Registration Statement on Form S-1
(File No. 333-163790) filed with the SEC on December 17, 2009.
Incorporated by reference to the identically numbered exhibit of the Current Report on Form 8-K filed
with the SEC on February 23, 2010.
Incorporated by reference to the Registration Statement on Form SB-2 filed with the SEC on
December 20, 1999.
Incorporated by reference to the proxy statement for the 2000 Annual Meeting filed with the SEC on
September 19, 2000.
___________________
(b)
See item 15(a)(3) above.
(c)
See Item 15(a)(1) and 15(a)(2) above.
45
46
45
46
SIGNATURES
SIGNATURES
Exhibit 31.1
Exhibit 31.1
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
EAGLE BANCORP MONTANA, INC.
/s/ Peter J. Johnson
Peter J. Johnson
President & Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signatures
Title
Date
/s/ Peter J. Johnson
Peter J. Johnson
/s/ Clinton J. Morrison
Clinton J. Morrison
President & Chief Executive
Officer
Director (Principal Executive
Officer)
Senior Vice President and Chief
Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
/s/ Larry A. Dreyer
Chairman
Larry A. Dreyer
/s/ James A. Maierle
Vice Chairman
James A. Maierle
/s/ Rick F. Hays
Director
Rick F. Hays
/s/ Lynn E. Dickey
Director
Lynn E. Dickey
/s/ Maureen J. Rude
Director
Maureen J. Rude
/s/ Thomas J. McCarvel
Director
Thomas J. McCarvel
9/19/2012
9/19/2012
9/19/2012
9/19/2012
9/19/2012
9/19/2012
9/19/2012
9/19/2012
1.
2.
3.
4.
5.
I, Peter J. Johnson, Chief Executive Officer of Eagle Bancorp Montana, Inc., certify that:
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
ADOPTED PURSUANT TO SECTION 302 (a) OF THE SARBANES-OXLEY ACT OF 2002
EAGLE BANCORP MONTANA, INC.
I have reviewed this annual report on Form 10-K of Eagle Bancorp Montana, Inc.;
/s/ Peter J. Johnson
Peter J. Johnson
President & Chief Executive Officer
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
material fact necessary to make the statements made, in light of the circumstances under which such statements
persons on behalf of the registrant and in the capacities and on the dates indicated.
were made, not misleading with respect to the period covered by this report;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
Title
Signatures
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
/s/ Peter J. Johnson
Peter J. Johnson
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
9/19/2012
President & Chief Executive
Officer
Director (Principal Executive
Officer)
Date
Clinton J. Morrison
/s/ Clinton J. Morrison
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Senior Vice President and Chief
Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
Designed such internal control over financial reporting, or caused such internal control over financial
(b)
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
/s/ Larry A. Dreyer
Larry A. Dreyer
9/19/2012
9/19/2012
Chairman
James A. Maierle
/s/ James A. Maierle
Vice Chairman
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
Director
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
/s/ Lynn E. Dickey
/s/ Rick F. Hays
Rick F. Hays
9/19/2012
9/19/2012
9/19/2012
Director
Lynn E. Dickey
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
Director
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
/s/ Maureen J. Rude
Maureen J. Rude
9/19/2012
all significant deficiencies and material weaknesses in the design or operation of internal control over
(a)
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
/s/ Thomas J. McCarvel
Thomas J. McCarvel
9/19/2012
Director
CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
ADOPTED PURSUANT TO SECTION 302 (a) OF THE SARBANES-OXLEY ACT OF 2002
I, Peter J. Johnson, Chief Executive Officer of Eagle Bancorp Montana, Inc., certify that:
I have reviewed this annual report on Form 10-K of Eagle Bancorp Montana, Inc.;
1.
2.
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b)
any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
(b)
role in the registrant’s internal control over financial reporting.
any fraud, whether or not material, that involves management or other employees who have a significant
Date: September 19, 2012
Date: September 19, 2012
/s/Peter J. Johnson
Peter J. Johnson
Chief Executive Officer
/s/Peter J. Johnson
Peter J. Johnson
Chief Executive Officer
47
47
SIGNATURES
SIGNATURES
Exhibit 31.1
Exhibit 31.1
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
EAGLE BANCORP MONTANA, INC.
/s/ Peter J. Johnson
Peter J. Johnson
President & Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signatures
Title
Date
/s/ Peter J. Johnson
Peter J. Johnson
/s/ Clinton J. Morrison
Clinton J. Morrison
President & Chief Executive
Director (Principal Executive
Officer
Officer)
Senior Vice President and Chief
Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
/s/ Larry A. Dreyer
Chairman
/s/ James A. Maierle
Vice Chairman
/s/ Rick F. Hays
Director
/s/ Lynn E. Dickey
Director
/s/ Maureen J. Rude
Director
Larry A. Dreyer
James A. Maierle
Rick F. Hays
Lynn E. Dickey
Maureen J. Rude
/s/ Thomas J. McCarvel
Director
Thomas J. McCarvel
9/19/2012
9/19/2012
9/19/2012
9/19/2012
9/19/2012
9/19/2012
9/19/2012
9/19/2012
1.
2.
3.
4.
5.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
ADOPTED PURSUANT TO SECTION 302 (a) OF THE SARBANES-OXLEY ACT OF 2002
EAGLE BANCORP MONTANA, INC.
I, Peter J. Johnson, Chief Executive Officer of Eagle Bancorp Montana, Inc., certify that:
I have reviewed this annual report on Form 10-K of Eagle Bancorp Montana, Inc.;
/s/ Peter J. Johnson
Peter J. Johnson
President & Chief Executive Officer
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
material fact necessary to make the statements made, in light of the circumstances under which such statements
persons on behalf of the registrant and in the capacities and on the dates indicated.
were made, not misleading with respect to the period covered by this report;
Title
Signatures
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
/s/ Peter J. Johnson
Peter J. Johnson
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
9/19/2012
President & Chief Executive
Officer
Director (Principal Executive
Officer)
Date
Clinton J. Morrison
/s/ Clinton J. Morrison
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Senior Vice President and Chief
Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
Designed such internal control over financial reporting, or caused such internal control over financial
(b)
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
/s/ Larry A. Dreyer
Larry A. Dreyer
9/19/2012
9/19/2012
Chairman
James A. Maierle
/s/ James A. Maierle
Vice Chairman
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
Director
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
/s/ Lynn E. Dickey
/s/ Rick F. Hays
Rick F. Hays
9/19/2012
9/19/2012
9/19/2012
Director
Lynn E. Dickey
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
Director
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
/s/ Maureen J. Rude
Maureen J. Rude
9/19/2012
all significant deficiencies and material weaknesses in the design or operation of internal control over
(a)
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
/s/ Thomas J. McCarvel
Thomas J. McCarvel
9/19/2012
Director
(b)
role in the registrant’s internal control over financial reporting.
any fraud, whether or not material, that involves management or other employees who have a significant
CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
ADOPTED PURSUANT TO SECTION 302 (a) OF THE SARBANES-OXLEY ACT OF 2002
I, Peter J. Johnson, Chief Executive Officer of Eagle Bancorp Montana, Inc., certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Eagle Bancorp Montana, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
all significant deficiencies and material weaknesses in the design or operation of internal control over
(a)
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b)
role in the registrant’s internal control over financial reporting.
any fraud, whether or not material, that involves management or other employees who have a significant
Date: September 19, 2012
Date: September 19, 2012
/s/Peter J. Johnson
Peter J. Johnson
Chief Executive Officer
/s/Peter J. Johnson
Peter J. Johnson
Chief Executive Officer
47
47
Exhibit 31.2
Exhibit 32.1
Exhibit 31.2
Exhibit 32.1
CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
ADOPTED PURSUANT TO SECTION 302 (a) OF THE SARBANES-OXLEY ACT OF 2002
I, Clinton J. Morrison, Chief Financial Officer of Eagle Bancorp Montana, Inc., certify that:
CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
ADOPTED PURSUANT TO SECTION 302 (a) OF THE SARBANES-OXLEY ACT OF 2002
I, Clinton J. Morrison, Chief Financial Officer of Eagle Bancorp Montana, Inc., certify that:
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Eagle Bancorp Montana, Inc.;
1.
I have reviewed this annual report on Form 10-K of Eagle Bancorp Montana, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
2.
3.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
In connection with the Annual Report of Eagle Bancorp Montana, Inc. (the “Company”) on Form 10-K for the fiscal year
ended June 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Peter J.
Johnson, Chief Executive Officer of the Company, and Clinton J. Morrison, Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the
undersigned’s knowledge:
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
A signed original of this written statement required by Section 906 will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.
4.
/s/ Peter J. Johnson
Peter J. Johnson
Chief Executive Officer
(Principal Executive Officer)
September 19, 2012
(b)
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
/s/ Clinton J. Morrison
Clinton J. Morrison
Senior VP and Chief Financial Officer and Principal Accounting Officer
(Principal Financial Officer)
September 19, 2012
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
all significant deficiencies and material weaknesses in the design or operation of internal control over
(a)
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b)
role in the registrant’s internal control over financial reporting.
any fraud, whether or not material, that involves management or other employees who have a significant
all significant deficiencies and material weaknesses in the design or operation of internal control over
(a)
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b)
role in the registrant’s internal control over financial reporting.
any fraud, whether or not material, that involves management or other employees who have a significant
Date: September 19, 2012
Date: September 19, 2012
/s/ Clinton J. Morrison
Clinton J. Morrison
Chief Financial Officer
Principal Accounting Officer
/s/ Clinton J. Morrison
Clinton J. Morrison
Chief Financial Officer
Principal Accounting Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Eagle Bancorp Montana, Inc. (the “Company”) on Form 10-K for the fiscal year
ended June 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Peter J.
Johnson, Chief Executive Officer of the Company, and Clinton J. Morrison, Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the
undersigned’s knowledge:
amended; and
operations of the Company.
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
A signed original of this written statement required by Section 906 will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.
/s/ Peter J. Johnson
Peter J. Johnson
Chief Executive Officer
(Principal Executive Officer)
September 19, 2012
/s/ Clinton J. Morrison
Clinton J. Morrison
(Principal Financial Officer)
September 19, 2012
Senior VP and Chief Financial Officer and Principal Accounting Officer
Exhibit 31.2
Exhibit 32.1
Exhibit 31.2
Exhibit 32.1
I, Clinton J. Morrison, Chief Financial Officer of Eagle Bancorp Montana, Inc., certify that:
CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
ADOPTED PURSUANT TO SECTION 302 (a) OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
ADOPTED PURSUANT TO SECTION 302 (a) OF THE SARBANES-OXLEY ACT OF 2002
I, Clinton J. Morrison, Chief Financial Officer of Eagle Bancorp Montana, Inc., certify that:
1.
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
I have reviewed this annual report on Form 10-K of Eagle Bancorp Montana, Inc.;
1.
I have reviewed this annual report on Form 10-K of Eagle Bancorp Montana, Inc.;
2.
3.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
In connection with the Annual Report of Eagle Bancorp Montana, Inc. (the “Company”) on Form 10-K for the fiscal year
ended June 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Peter J.
Johnson, Chief Executive Officer of the Company, and Clinton J. Morrison, Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the
undersigned’s knowledge:
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
A signed original of this written statement required by Section 906 will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.
4.
/s/ Peter J. Johnson
Peter J. Johnson
Chief Executive Officer
(Principal Executive Officer)
September 19, 2012
(b)
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
/s/ Clinton J. Morrison
Clinton J. Morrison
Senior VP and Chief Financial Officer and Principal Accounting Officer
(Principal Financial Officer)
September 19, 2012
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b)
any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
all significant deficiencies and material weaknesses in the design or operation of internal control over
(a)
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b)
role in the registrant’s internal control over financial reporting.
any fraud, whether or not material, that involves management or other employees who have a significant
Date: September 19, 2012
Date: September 19, 2012
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
/s/ Clinton J. Morrison
Clinton J. Morrison
Chief Financial Officer
Principal Accounting Officer
/s/ Clinton J. Morrison
Clinton J. Morrison
Chief Financial Officer
Principal Accounting Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Eagle Bancorp Montana, Inc. (the “Company”) on Form 10-K for the fiscal year
ended June 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Peter J.
Johnson, Chief Executive Officer of the Company, and Clinton J. Morrison, Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the
undersigned’s knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
A signed original of this written statement required by Section 906 will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.
/s/ Peter J. Johnson
Peter J. Johnson
Chief Executive Officer
(Principal Executive Officer)
September 19, 2012
/s/ Clinton J. Morrison
Clinton J. Morrison
Senior VP and Chief Financial Officer and Principal Accounting Officer
(Principal Financial Officer)
September 19, 2012
[ This Page Intentionally Left Blank ]
[ This Page Intentionally Left Blank ]
and subsidiary
and subsidiary
Consolidated FinanCial statements
and
report oF independent registered publiC a CCounting Firm
Consolidated FinanCial statements
and
report oF independent registered publiC a CCounting Firm
june 30, 2012 and 2011
june 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Contents
Contents
Page
Page
Report of Independent Registered Public Accounting Firm ........................................................................... 1
Report of Independent Registered Public Accounting Firm ........................................................................... 1
Financial Statements
Financial Statements
Consolidated Statements of Financial Condition .................................................................................... 2
Consolidated Statements of Financial Condition .................................................................................... 2
Consolidated Statements of Income ....................................................................................................... 3
Consolidated Statements of Income ....................................................................................................... 3
Consolidated Statements of Comprehensive Income ............................................................................. 4
Consolidated Statements of Comprehensive Income ............................................................................. 4
Consolidated Statements of Changes in Stockholders’ Equity ............................................................... 5
Consolidated Statements of Changes in Stockholders’ Equity ............................................................... 5
Consolidated Statements of Cash Flows ................................................................................................. 6
Consolidated Statements of Cash Flows ................................................................................................. 6
Notes to Consolidated Financial Statements .......................................................................................... 7
Notes to Consolidated Financial Statements .......................................................................................... 7
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Contents
Contents
Page
Page
Report of Independent Registered Public Accounting Firm ........................................................................... 1
Report of Independent Registered Public Accounting Firm ........................................................................... 1
Financial Statements
Financial Statements
Consolidated Statements of Financial Condition .................................................................................... 2
Consolidated Statements of Financial Condition .................................................................................... 2
Consolidated Statements of Income ....................................................................................................... 3
Consolidated Statements of Income ....................................................................................................... 3
Consolidated Statements of Comprehensive Income ............................................................................. 4
Consolidated Statements of Comprehensive Income ............................................................................. 4
Consolidated Statements of Changes in Stockholders’ Equity ............................................................... 5
Consolidated Statements of Changes in Stockholders’ Equity ............................................................... 5
Consolidated Statements of Cash Flows ................................................................................................. 6
Consolidated Statements of Cash Flows ................................................................................................. 6
Notes to Consolidated Financial Statements .......................................................................................... 7
Notes to Consolidated Financial Statements .......................................................................................... 7
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
June 30, 2012 and 2011
(Dollars in Thousands, Except for Per Share Data)
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Consolidated Statements of Income
Consolidated Statements of Financial Condition
June 30, 2012 and 2011
Years Ended June 30, 2012 and 2011
(Dollars in Thousands, Except for Per Share Data)
(Dollars in Thousands, Except for Per Share Data)
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Consolidated Statements of Income
Years Ended June 30, 2012 and 2011
(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
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 $1,625 in 2012 and $1,800 in 2011
Accrued interest and dividend receivable
Mortgage servicing rights, net
Premises and equipment, net
Cash surrender value of life insurance
Real estate and other assets aquired in settlement of loans, net
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; 4,083,127 shares issued;
3,878,971 and 3,918,687 shares outstanding at
June 30, 2012 and 2011, respectively
Capital surplus
Unallocated common stock held by ESOP
Treasury stock, at cost
Retained earnings
Net accumulated other comprehensive gain
Total shareholders' equity
$
$
$
2012
2011
3,534 $
16,280
-
19,814
89,277
2,003
155
10,613
173,839
1,371
2,218
15,561
9,172
2,361
915
2,703
1,837
5,000
9,540
102,700
2,003
155
1,784
185,471
1,558
2,142
16,151
6,900
1,181
1,508
327,299
$
331,093
$
23,425
196,564
219,989
5,809
42,696
5,155
273,649
19,052
190,134
209,186
3,371
60,896
5,155
278,608
-
-
41
22,112
(1,556)
(2,210)
32,990
2,273
53,650
41
22,110
(1,722)
(1,796)
31,918
1,934
52,485
The accompanying notes are an integral part of these consolidated financial statements.
$
327,299
$
331,093
Interest and dividend income
Assets
Loans, including fees
Securities available-for-sale
Cash and due from banks
Trust preferred securities
Interest bearing deposits in banks
Deposits with banks
Federal funds sold
Total interest income
Cash and cash equivalents
$
2012
2011
$
2012
$
10,884
3,192
3,534 $
3
16,280
17
-
14,096
19,814
2011
11,279
3,653
2,703
6
1,837
21
5,000
14,959
9,540
Interest expense
Securities available-for-sale
Deposits
FHLB stock restricted, at cost
FHLB advances and other borrowings
Investment in Eagle Bancorp Statutory Trust I
Mortgage loans held for sale
Subordinated debentures
Loans receivable, net of deferred loan fees and
Total interest expense
allowance for loan losses of $1,625 in 2012 and $1,800 in 2011
Net interest income
Provision for loan losses
Accrued interest and dividend receivable
Mortgage servicing rights, net
Premises and equipment, net
Cash surrender value of life insurance
Net interest income after provision for loan losses
Real estate and other assets aquired in settlement of loans, net
Other assets
Noninterest income
Service charges on deposit accounts
Net gain on sale of loans
Mortgage loan service fees
Liabilities and Shareholders' Equity
Net realized gain on sales of available for sale securities
Noninterest bearing
Net (loss) gain on fair value hedge FASB ASC 815
Interest bearing
Net loss on sale of OREO
Other income
Total deposits
$
$
Noninterest expenses
Total noninterest income
Accrued expenses and other liabilities
FHLB advances and other borrowings
Subordinated debentures
Salaries and employee benefits
Total liabilities
Occupancy and equipment expense
Data processing
Shareholders' equity
Advertising
Preferred stock, no par value; 1,000,000
Amortization of mortgage servicing rights
Federal insurance premiums
Postage
authorized; 4,083,127 shares issued;
Legal, accounting, and examination fees
3,878,971 and 3,918,687 shares outstanding at
Consulting fees
June 30, 2012 and 2011, respectively
Provision for valuation loss on OREO
Other expense
Common stock, $0.01 par value; 8,000,000 shares
shares authorized, no shares issued or outstanding
Capital surplus
Unallocated common stock held by ESOP
Total noninterest expenses
Treasury stock, at cost
Retained earnings
Income before income taxes
Net accumulated other comprehensive gain
Income tax expense
Total shareholders' equity
Net income
1,074
1,994
97
3,165
10,931
1,101
9,830
89,277
2,003
155
10,613
173,839
1,371
2,218
15,561
9,172
2,361
915
327,299
672
1,695
891
490
(417)
(6)
849
4,174
23,425
196,564
219,989
5,809
42,696
5,155
273,649
5,072
1,380
611
568
629
187
123
342
528
169
1,425
11,034
2,970
792
-
41
22,112
(1,556)
(2,210)
32,990
2,273
53,650
$
$
102,700
2,003
155
1,784
1,392
2,502
192
4,086
948
185,471
1,558
2,142
16,151
6,900
1,181
1,508
9,925
10,873
331,093
733
2,187
830
19
19,052
198
190,134
(2)
209,186
658
4,623
3,371
60,896
5,155
278,608
4,948
1,346
568
524
1,158
257
123
363
180
201
1,414
11,082
3,466
1,056
-
41
22,110
(1,722)
(1,796)
31,918
1,934
52,485
The accompanying notes are an integral part of these consolidated financial statements.
Basic earnings per share
$
0.59 $
Diluted earnings per share
$
0.56 $
0.62
0.62
$
$
327,299
2,178 $
$
331,093
2,410
Interest and dividend income
Loans, including fees
Securities available-for-sale
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 (loss) gain on fair value hedge FASB ASC 815
Net loss on sale of OREO
Other income
Total noninterest income
Noninterest expenses
Salaries and employee benefits
Occupancy and equipment expense
Data processing
Advertising
Postage
Consulting fees
Other expense
Amortization of mortgage servicing rights
Federal insurance premiums
Legal, accounting, and examination fees
Provision for valuation loss on OREO
Total noninterest expenses
Income before income taxes
Income tax expense
Net income
Basic earnings per share
Diluted earnings per share
2012
2011
$
10,884
$
3,192
3
17
14,096
1,074
1,994
97
3,165
10,931
1,101
9,830
672
1,695
891
490
(417)
(6)
849
4,174
5,072
1,380
611
568
629
187
123
342
528
169
1,425
11,034
2,970
792
$
$
$
2,178 $
0.59 $
0.56 $
11,279
3,653
6
21
14,959
1,392
2,502
192
4,086
10,873
948
9,925
733
2,187
830
19
198
(2)
658
4,623
4,948
1,346
568
524
1,158
257
123
363
180
201
1,414
11,082
3,466
1,056
2,410
0.62
0.62
-2-
-3-
-2-
-3-
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
June 30, 2012 and 2011
(Dollars in Thousands, Except for Per Share Data)
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Consolidated Statements of Income
Consolidated Statements of Financial Condition
June 30, 2012 and 2011
Years Ended June 30, 2012 and 2011
(Dollars in Thousands, Except for Per Share Data)
(Dollars in Thousands, Except for Per Share Data)
Interest and dividend income
Assets
Loans, including fees
Securities available-for-sale
Cash and due from banks
Trust preferred securities
Interest bearing deposits in banks
Deposits with banks
Federal funds sold
Total interest income
Cash and cash equivalents
$
2012
2011
$
2012
$
10,884
3,192
3,534 $
3
16,280
17
-
14,096
19,814
2011
11,279
3,653
2,703
6
1,837
21
5,000
14,959
9,540
Interest expense
Securities available-for-sale
Deposits
FHLB stock restricted, at cost
FHLB advances and other borrowings
Investment in Eagle Bancorp Statutory Trust I
Mortgage loans held for sale
Subordinated debentures
Loans receivable, net of deferred loan fees and
Total interest expense
allowance for loan losses of $1,625 in 2012 and $1,800 in 2011
Net interest income
Provision for loan losses
Accrued interest and dividend receivable
Mortgage servicing rights, net
Premises and equipment, net
Cash surrender value of life insurance
Net interest income after provision for loan losses
Real estate and other assets aquired in settlement of loans, net
Other assets
Noninterest income
Service charges on deposit accounts
Net gain on sale of loans
Mortgage loan service fees
Liabilities and Shareholders' Equity
Net realized gain on sales of available for sale securities
Noninterest bearing
Net (loss) gain on fair value hedge FASB ASC 815
Interest bearing
Net loss on sale of OREO
Other income
Total deposits
$
$
Noninterest expenses
Total noninterest income
Accrued expenses and other liabilities
FHLB advances and other borrowings
Subordinated debentures
Salaries and employee benefits
Total liabilities
Occupancy and equipment expense
Data processing
Shareholders' equity
Advertising
Preferred stock, no par value; 1,000,000
Amortization of mortgage servicing rights
Federal insurance premiums
Postage
authorized; 4,083,127 shares issued;
Legal, accounting, and examination fees
3,878,971 and 3,918,687 shares outstanding at
Consulting fees
June 30, 2012 and 2011, respectively
Provision for valuation loss on OREO
Other expense
Common stock, $0.01 par value; 8,000,000 shares
shares authorized, no shares issued or outstanding
Capital surplus
Unallocated common stock held by ESOP
Total noninterest expenses
Treasury stock, at cost
Retained earnings
Income before income taxes
Net accumulated other comprehensive gain
Income tax expense
Total shareholders' equity
Net income
1,074
1,994
97
3,165
10,931
1,101
9,830
89,277
2,003
155
10,613
173,839
1,371
2,218
15,561
9,172
2,361
915
327,299
672
1,695
891
490
(417)
(6)
849
4,174
23,425
196,564
219,989
5,809
42,696
5,155
273,649
5,072
1,380
611
568
629
187
123
342
528
169
1,425
11,034
2,970
792
-
41
22,112
(1,556)
(2,210)
32,990
2,273
53,650
$
$
102,700
2,003
155
1,784
1,392
2,502
192
4,086
948
185,471
1,558
2,142
16,151
6,900
1,181
1,508
9,925
10,873
331,093
733
2,187
830
19
19,052
198
190,134
(2)
209,186
658
4,623
3,371
60,896
5,155
278,608
4,948
1,346
568
524
1,158
257
123
363
180
201
1,414
11,082
3,466
1,056
-
41
22,110
(1,722)
(1,796)
31,918
1,934
52,485
The accompanying notes are an integral part of these consolidated financial statements.
Basic earnings per share
$
0.59 $
Diluted earnings per share
$
0.56 $
0.62
0.62
$
$
327,299
2,178 $
$
331,093
2,410
Assets
Cash and due from banks
Interest bearing deposits in banks
Federal funds sold
Cash and cash equivalents
Securities available-for-sale
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 $1,625 in 2012 and $1,800 in 2011
Accrued interest and dividend receivable
Mortgage servicing rights, net
Premises and equipment, net
Cash surrender value of life insurance
Real estate and other assets aquired in settlement of loans, net
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; 4,083,127 shares issued;
3,878,971 and 3,918,687 shares outstanding at
June 30, 2012 and 2011, respectively
Capital surplus
Unallocated common stock held by ESOP
Treasury stock, at cost
Retained earnings
Net accumulated other comprehensive gain
Total shareholders' equity
2012
2011
$
3,534 $
16,280
-
19,814
89,277
2,003
155
10,613
173,839
1,371
2,218
15,561
9,172
2,361
915
23,425
$
196,564
219,989
5,809
42,696
5,155
273,649
2,703
1,837
5,000
9,540
102,700
2,003
155
1,784
185,471
1,558
2,142
16,151
6,900
1,181
1,508
19,052
190,134
209,186
3,371
60,896
5,155
278,608
327,299
$
331,093
$
$
-
-
41
22,112
(1,556)
(2,210)
32,990
2,273
53,650
41
22,110
(1,722)
(1,796)
31,918
1,934
52,485
$
327,299
$
331,093
The accompanying notes are an integral part of these consolidated financial statements.
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Consolidated Statements of Income
Years Ended June 30, 2012 and 2011
(Dollars in Thousands, Except for Per Share Data)
2012
2011
$
Interest and dividend income
Loans, including fees
Securities available-for-sale
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 (loss) gain on fair value hedge FASB ASC 815
Net loss on sale of OREO
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
Provision for valuation loss on OREO
Other expense
Total noninterest expenses
Income before income taxes
Income tax expense
Net income
Basic earnings per share
Diluted earnings per share
$
10,884
3,192
3
17
14,096
1,074
1,994
97
3,165
10,931
1,101
9,830
672
1,695
891
490
(417)
(6)
849
4,174
5,072
1,380
611
568
629
187
123
342
528
169
1,425
11,034
2,970
792
$
$
$
2,178 $
0.59 $
0.56 $
11,279
3,653
6
21
14,959
1,392
2,502
192
4,086
10,873
948
9,925
733
2,187
830
19
198
(2)
658
4,623
4,948
1,346
568
524
1,158
257
123
363
180
201
1,414
11,082
3,466
1,056
2,410
0.62
0.62
-2-
-3-
-2-
-3-
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
Years Ended June 30, 2012 and 2011
(Dollars in Thousands, Except for Per Share Data)
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
Years Ended June 30, 2012 and 2011
(Dollars in Thousands, Except for Per Share Data)
NET INCOME
$
2,178
$
2,410
NET INCOME
$
2,178
$
2,410
2012
2011
2012
2011
OTHER ITEMS OF COMPREHENSIVE INCOME:
Change in unrealized gain(loss) on investment securities
available for sale, before income taxes
Reclassification adjustment for realized gains on investment
securities included in net earnings, before income tax
Change in fair value of derivatives designated as cash flow hedges,
before income taxes
Reclassification adjustment for realized gains on derivatives
designated as cashflow hedges, before income tax
Total other items of comprehensive income
Income tax expense related to
other items of comprehensive income
1,201
1,008
(303)
193
(18)
1,073
(101)
18
(341)
584
(734)
(174)
OTHER ITEMS OF COMPREHENSIVE INCOME:
Change in unrealized gain(loss) on investment securities
available for sale, before income taxes
Reclassification adjustment for realized gains on investment
securities included in net earnings, before income tax
Change in fair value of derivatives designated as cash flow hedges,
before income taxes
Reclassification adjustment for realized gains on derivatives
designated as cashflow hedges, before income tax
Total other items of comprehensive income
Income tax expense related to
other items of comprehensive income
1,201
1,008
(303)
193
(18)
1,073
(101)
18
(341)
584
(734)
(174)
COMPREHENSIVE INCOME
$
2,517
$
2,820
COMPREHENSIVE INCOME
$
2,517
$
2,820
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
-4-
-4-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
Years Ended June 30, 2012 and 2011
(Dollars in Thousands, Except for Per Share Data)
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
Years Ended June 30, 2012 and 2011
(Dollars in Thousands, Except for Per Share Data)
NET INCOME
$
2,178
$
2,410
NET INCOME
$
2,178
$
2,410
2012
2011
2012
2011
OTHER ITEMS OF COMPREHENSIVE INCOME:
Change in unrealized gain(loss) on investment securities
available for sale, before income taxes
Reclassification adjustment for realized gains on investment
securities included in net earnings, before income tax
Change in fair value of derivatives designated as cash flow hedges,
before income taxes
Reclassification adjustment for realized gains on derivatives
designated as cashflow hedges, before income tax
Total other items of comprehensive income
Income tax expense related to
other items of comprehensive income
1,201
1,008
(303)
193
(18)
1,073
(101)
18
(341)
584
(734)
(174)
OTHER ITEMS OF COMPREHENSIVE INCOME:
Change in unrealized gain(loss) on investment securities
available for sale, before income taxes
Reclassification adjustment for realized gains on investment
securities included in net earnings, before income tax
Change in fair value of derivatives designated as cash flow hedges,
before income taxes
Reclassification adjustment for realized gains on derivatives
designated as cashflow hedges, before income tax
Total other items of comprehensive income
Income tax expense related to
[ This Page Intentionally Left Blank ]
other items of comprehensive income
1,201
1,008
(303)
193
(18)
1,073
(101)
18
(341)
584
(734)
(174)
[ This Page Intentionally Left Blank ]
COMPREHENSIVE INCOME
$
2,517
$
2,820
COMPREHENSIVE INCOME
$
2,517
$
2,820
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
-4-
-4-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Years Ended June 30, 2012 and 2011
(Dollars in Thousands, Except for Per Share Data)
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Years Ended June 30, 2012 and 2011
(Dollars in Thousands, Except for Per Share Data)
Preferred
Stock
Common
Stock
$
-
$
41
Balance at July 1, 2010
Net income
Change in net unrealized appreciation on
available for sale securities and cash flow hedges, net
Total comprehensive income
Dividends paid
Treasury stock purchased
(164,440 shares @ $10.92 average cost per share )
ESOP shares allocated or committed
to be released for allocation (16,616) shares
Balance at June 30, 2011
$
-
$
41
Net income
Change in net unrealized appreciation on
available for sale securities and cash flow hedges, net
Total comprehensive income
Dividends paid
Treasury stock purchased
(39,716 shares @ $10.43 average cost per share )
ESOP shares allocated or committed
to be released for allocation (16,616) shares
Balance at June 30, 2012
$
-
$
41
$
$
$
Capital
Surplus
Unallocated
ESOP
Shares
Treasury
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Preferred
Gain/(Loss)
Stock
Common
Stock
Total
Capital
Surplus
Unallocated
ESOP
Shares
Treasury
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Gain/(Loss)
Total
Balance at July 1, 2010
22,104
$
(1,889)
$
-
$
30,652
$
$
1,524
-
$
$
52,432
41
$
22,104
$
(1,889)
$
-
$
30,652
$
1,524
$
52,432
Net income
2,410
Change in net unrealized appreciation on
available for sale securities and cash flow hedges, net
410
Total comprehensive income
Dividends paid
(1,144)
Treasury stock purchased
(164,440 shares @ $10.92 average cost per share )
(1,796)
ESOP shares allocated or committed
to be released for allocation (16,616) shares
167
6
2,410
410
2,820
(1,144)
(1,796)
173
Balance at June 30, 2011
22,110 $
(1,722) $
(1,796) $
31,918 $
$
1,934 $
-
$
52,485
41
$
22,110 $
(1,722) $
(1,796) $
31,918 $
1,934 $
52,485
Net income
2,178
Change in net unrealized appreciation on
available for sale securities and cash flow hedges, net
339
Total comprehensive income
Dividends paid
(1,106)
Treasury stock purchased
(39,716 shares @ $10.43 average cost per share )
(414)
ESOP shares allocated or committed
to be released for allocation (16,616) shares
166
2
2,178
339
2,517
(1,106)
(414)
168
Balance at June 30, 2012
22,112 $
(1,556) $
(2,210) $
32,990 $
$
2,273 $
-
$
53,650
41
$
22,112 $
(1,556) $
(2,210) $
32,990 $
2,273 $
53,650
2,410
(1,144)
2,178
(1,106)
410
339
2,410
410
2,820
(1,144)
(1,796)
173
2,178
339
2,517
(1,106)
(414)
168
(1,796)
(414)
6
167
2
166
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
-5-
-5-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Years Ended June 30, 2012 and 2011
(Dollars in Thousands, Except for Per Share Data)
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Years Ended June 30, 2012 and 2011
(Dollars in Thousands, Except for Per Share Data)
Preferred
Stock
Common
Stock
$
-
$
41
Balance at July 1, 2010
Net income
Change in net unrealized appreciation on
available for sale securities and cash flow hedges, net
Total comprehensive income
Dividends paid
Treasury stock purchased
(164,440 shares @ $10.92 average cost per share )
ESOP shares allocated or committed
to be released for allocation (16,616) shares
Net income
Change in net unrealized appreciation on
available for sale securities and cash flow hedges, net
Total comprehensive income
Dividends paid
Treasury stock purchased
(39,716 shares @ $10.43 average cost per share )
ESOP shares allocated or committed
to be released for allocation (16,616) shares
Balance at June 30, 2011
$
-
$
41
Balance at June 30, 2012
$
-
$
41
$
$
$
Capital
Surplus
Unallocated
ESOP
Shares
Treasury
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Preferred
Gain/(Loss)
Stock
Common
Stock
Total
Capital
Surplus
Unallocated
ESOP
Shares
Treasury
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Gain/(Loss)
Total
Balance at July 1, 2010
22,104
$
(1,889)
$
-
$
30,652
$
$
1,524
-
$
$
52,432
41
$
22,104
$
(1,889)
$
-
$
30,652
$
1,524
$
52,432
Net income
2,410
Change in net unrealized appreciation on
available for sale securities and cash flow hedges, net
410
Total comprehensive income
Dividends paid
(1,144)
Treasury stock purchased
(164,440 shares @ $10.92 average cost per share )
(1,796)
ESOP shares allocated or committed
to be released for allocation (16,616) shares
167
6
2,410
410
2,820
(1,144)
(1,796)
173
2,410
(1,144)
410
2,410
410
2,820
(1,144)
(1,796)
173
(1,796)
6
167
Balance at June 30, 2011
22,110 $
(1,722) $
(1,796) $
31,918 $
$
1,934 $
-
$
52,485
41
$
22,110 $
(1,722) $
(1,796) $
31,918 $
1,934 $
52,485
Net income
2,178
Change in net unrealized appreciation on
available for sale securities and cash flow hedges, net
339
Total comprehensive income
Dividends paid
(1,106)
Treasury stock purchased
(39,716 shares @ $10.43 average cost per share )
(414)
ESOP shares allocated or committed
to be released for allocation (16,616) shares
166
2
2,178
339
2,517
(1,106)
(414)
168
2,178
(1,106)
339
2,178
339
2,517
(1,106)
(414)
168
(414)
2
166
Balance at June 30, 2012
22,112 $
(1,556) $
(2,210) $
32,990 $
$
2,273 $
-
$
53,650
41
$
22,112 $
(1,556) $
(2,210) $
32,990 $
2,273 $
53,650
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
-5-
-5-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended June 30, 2012 and 2011
(Dollars in Thousands, Except for Per Share Data)
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Years Ended June 30, 2012 and 2011
June 30, 2012 and 2011
(Dollars in Thousands, Except for Per Share Data)
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 1: Summary of Significant Accounting Policies
NOTE 1: Summary of Significant Accounting Policies
Cash flows from operating activities
Net income
Adjustments to reconcile net income to
net cash provided by operating activities
Provision for other real estate owned valuation losses
Provision for loan losses
Depreciation
Net amortization of securities premium & discounts
Amortization of capitalized mortgage servicing rights
Net gain on sale of loans held for sale
Net realized gain on sales of available-for-sale securities
Net loss on sale of foreclosed real estate
Net loss/(gain) on fair value hedge, FASB ASC 815
Net loss on sale/disposal of fixed assets
Appreciation in cash surrender value of life insurance, net
Net change in
Loans held for sale
Accrued interest receivable
Other assets
Accrued expenses and other liabilities
Net cash (used in) 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
Loan originations and principal collections, net
Purchase of bank owned life insurance
Proceeds from sale of foreclosed real estate
Additions to premises and equipment
Net cash provided by (used in) investing activities
Cash flows from financing activities
Net increase in deposits
Net change in advances from the FHLB and other borrowings
Purchase of treasury stock, at cost
Dividends paid
Net cash (used in) provided by financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
2012
2011
$
2,178
$
2,410
169
1,101
760
374
629
(1,695)
(490)
6
417
-
(272)
(6,958)
187
593
1,454
(1,547)
9,000
20,961
(15,526)
-
8,087
(2,000)
386
(170)
20,738
10,803
(18,200)
(414)
(1,106)
(8,917)
10,274
9,540
201
948
739
553
1,158
(2,187)
(19)
2
(198)
84
(209)
7,775
52
(342)
529
11,496
5,544
25,093
(18,434)
125
(18,810)
-
166
(1,128)
(7,444)
11,247
(6,328)
(1,796)
(1,144)
1,979
6,031
3,509
9,540
Cash and cash equivalents at end of year
$
19,814
$
The accompanying notes are an integral part of these consolidated financial statements.
-6-
2012
2011
$
2,178
$
2,410
Nature of Operations
Cash flows from operating activities
Nature of Operations
Net income
Adjustments to reconcile net income to
net cash provided by operating activities
On April 5, 2010, Eagle Bancorp completed its second-step conversion from the partially-public
mutual holding company structure to the fully publicly-owned stock holding company structure.
Provision for other real estate owned valuation losses
As part of that transaction it also completed a related stock offering. As a result of the
Provision for loan losses
conversion and offering, Eagle Bancorp Montana, Inc. (“the Company”, or “Eagle”) became the
Depreciation
stock holding company for American Federal Savings Bank (“the Bank”), and Eagle Financial
Net amortization of securities premium & discounts
MHC and Eagle Bancorp ceased to exist. The Company sold a total of 2,464,274 shares of
Amortization of capitalized mortgage servicing rights
common stock at a purchase price of $10.00 per share in the offering for gross proceeds of $24.6
Net gain on sale of loans held for sale
million. Concurrent with the completion of the offering, shares of Eagle Bancorp common stock
Net realized gain on sales of available-for-sale securities
owned by the public were exchanged. Stockholders of Eagle Bancorp received 3.800 shares of
Net loss on sale of foreclosed real estate
the Company's common stock for each share of Eagle Bancorp common stock that they owned
Net loss/(gain) on fair value hedge, FASB ASC 815
immediately prior to completion of the transaction.
Net loss on sale/disposal of fixed assets
Appreciation in cash surrender value of life insurance, net
Net change in
The Company’s Employee Stock Ownership Plan (“ESOP”), which purchased shares in the
Offering, was authorized to purchase up to 8% of the shares sold in the Offering, or 197,142
Loans held for sale
shares. The ESOP completed its purchase of all such authorized shares in the Offering, at a total
Accrued interest receivable
cost of $1,971,420.
Other assets
Accrued expenses and other liabilities
Net cash (used in) provided by operating activities
The Bank is a federally chartered savings bank subject to the regulations of the Office of Thrift
Supervision (“OTS”). These regulations have been transferred to the Office of the Comptroller
of the Currency (“OCC”) effective July 21, 2011. 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”).
169
1,101
760
374
629
(1,695)
(490)
6
417
-
(272)
(6,958)
187
593
1,454
(1,547)
201
948
739
553
1,158
(2,187)
(19)
2
(198)
84
(209)
7,775
52
(342)
529
11,496
Cash flows from investing activities
Activity in available-for-sale securities
Sales
Maturities, prepayments and calls
Purchases
9,000
20,961
(15,526)
-
8,087
(2,000)
386
(170)
20,738
10,803
(18,200)
(414)
(1,106)
(8,917)
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
Activity in held to maturity securities
Montana, to which it primarily offers commercial, residential, and consumer loans. The Bank’s
Maturities, prepayments and calls
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.”
Loan originations and principal collections, net
Purchase of bank owned life insurance
Proceeds from sale of foreclosed real estate
Additions to premises and equipment
Net cash provided by (used in) investing activities
Principles of Consolidation
Cash flows from financing activities
The consolidated financial statements include the accounts of Eagle Bancorp Montana Inc. and
the Bank. All significant intercompany transactions and balances have been eliminated in
consolidation.
Net increase in deposits
Net change in advances from the FHLB and other borrowings
Purchase of treasury stock, at cost
Dividends paid
Use of Estimates
Net cash (used in) provided by financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
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, the
valuation of financial instruments, deferred tax assets and liabilities, 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.
The accompanying notes are an integral part of these consolidated financial statements.
Cash and cash equivalents at end of year
10,274
19,814
9,540
$
$
5,544
25,093
(18,434)
125
(18,810)
-
166
(1,128)
(7,444)
11,247
(6,328)
(1,796)
(1,144)
1,979
6,031
3,509
9,540
-6-
-7-
On April 5, 2010, Eagle Bancorp completed its second-step conversion 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, 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 of the 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 of the transaction.
The Company’s Employee Stock Ownership Plan (“ESOP”), which purchased shares in the
Offering, was authorized to purchase up to 8% of the 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”). These regulations have been transferred to the Office of the Comptroller
of the Currency (“OCC”) effective July 21, 2011. 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.”
The consolidated financial statements include the accounts of Eagle Bancorp Montana Inc. and
the Bank. All significant intercompany transactions and balances have been eliminated in
Principles of Consolidation
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, the
valuation of financial instruments, deferred tax assets and liabilities, 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.
-7-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended June 30, 2012 and 2011
(Dollars in Thousands, Except for Per Share Data)
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Years Ended June 30, 2012 and 2011
June 30, 2012 and 2011
(Dollars in Thousands, Except for Per Share Data)
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 1: Summary of Significant Accounting Policies
NOTE 1: Summary of Significant Accounting Policies
2012
2011
$
2,178
$
2,410
Nature of Operations
Cash flows from operating activities
Net income
Adjustments to reconcile net income to
net cash provided by operating activities
Provision for other real estate owned valuation losses
Provision for loan losses
Depreciation
Net amortization of securities premium & discounts
Amortization of capitalized mortgage servicing rights
Net gain on sale of loans held for sale
Net realized gain on sales of available-for-sale securities
Net loss on sale of foreclosed real estate
Net loss/(gain) on fair value hedge, FASB ASC 815
Net loss on sale/disposal of fixed assets
Appreciation in cash surrender value of life insurance, net
Net change in
Loans held for sale
Accrued interest receivable
Other assets
Accrued expenses and other liabilities
Net cash (used in) provided by operating activities
Cash flows from investing activities
Activity in available-for-sale securities
Sales
Purchases
Maturities, prepayments and calls
Activity in held to maturity securities
Maturities, prepayments and calls
Loan originations and principal collections, net
Purchase of bank owned life insurance
Proceeds from sale of foreclosed real estate
Additions to premises and equipment
Net cash provided by (used in) investing activities
Cash flows from financing activities
Net increase in deposits
Net change in advances from the FHLB and other borrowings
Purchase of treasury stock, at cost
Dividends paid
Net cash (used in) provided by financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
2012
2011
$
2,178
$
2,410
169
1,101
760
374
629
(1,695)
(490)
6
417
-
(272)
(6,958)
187
593
1,454
(1,547)
9,000
20,961
(15,526)
-
8,087
(2,000)
386
(170)
20,738
10,803
(18,200)
(414)
(1,106)
(8,917)
10,274
9,540
201
948
739
553
1,158
(2,187)
(19)
2
(198)
84
(209)
7,775
52
(342)
529
11,496
5,544
25,093
(18,434)
(18,810)
125
-
166
(1,128)
(7,444)
11,247
(6,328)
(1,796)
(1,144)
1,979
6,031
3,509
9,540
Cash and cash equivalents at end of year
$
19,814
$
The accompanying notes are an integral part of these consolidated financial statements.
-6-
Cash flows from operating activities
Nature of Operations
Net income
Adjustments to reconcile net income to
net cash provided by operating activities
On April 5, 2010, Eagle Bancorp completed its second-step conversion from the partially-public
mutual holding company structure to the fully publicly-owned stock holding company structure.
Provision for other real estate owned valuation losses
As part of that transaction it also completed a related stock offering. As a result of the
Provision for loan losses
conversion and offering, Eagle Bancorp Montana, Inc. (“the Company”, or “Eagle”) became the
Depreciation
stock holding company for American Federal Savings Bank (“the Bank”), and Eagle Financial
Net amortization of securities premium & discounts
MHC and Eagle Bancorp ceased to exist. The Company sold a total of 2,464,274 shares of
Amortization of capitalized mortgage servicing rights
common stock at a purchase price of $10.00 per share in the offering for gross proceeds of $24.6
Net gain on sale of loans held for sale
million. Concurrent with the completion of the offering, shares of Eagle Bancorp common stock
Net realized gain on sales of available-for-sale securities
owned by the public were exchanged. Stockholders of Eagle Bancorp received 3.800 shares of
Net loss on sale of foreclosed real estate
the Company's common stock for each share of Eagle Bancorp common stock that they owned
Net loss/(gain) on fair value hedge, FASB ASC 815
immediately prior to completion of the transaction.
Net loss on sale/disposal of fixed assets
Appreciation in cash surrender value of life insurance, net
Net change in
The Company’s Employee Stock Ownership Plan (“ESOP”), which purchased shares in the
Offering, was authorized to purchase up to 8% of the shares sold in the Offering, or 197,142
Loans held for sale
shares. The ESOP completed its purchase of all such authorized shares in the Offering, at a total
Accrued interest receivable
cost of $1,971,420.
Other assets
Accrued expenses and other liabilities
Net cash (used in) provided by operating activities
The Bank is a federally chartered savings bank subject to the regulations of the Office of Thrift
Supervision (“OTS”). These regulations have been transferred to the Office of the Comptroller
of the Currency (“OCC”) effective July 21, 2011. 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”).
169
1,101
760
374
629
(1,695)
(490)
6
417
-
(272)
(6,958)
187
593
1,454
(1,547)
201
948
739
553
1,158
(2,187)
(19)
2
(198)
84
(209)
7,775
52
(342)
529
11,496
Cash flows from investing activities
Activity in available-for-sale securities
Sales
Maturities, prepayments and calls
Purchases
9,000
20,961
(15,526)
-
8,087
(2,000)
386
(170)
20,738
10,803
(18,200)
(414)
(1,106)
(8,917)
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
Activity in held to maturity securities
Montana, to which it primarily offers commercial, residential, and consumer loans. The Bank’s
Maturities, prepayments and calls
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.”
Loan originations and principal collections, net
Purchase of bank owned life insurance
Proceeds from sale of foreclosed real estate
Additions to premises and equipment
Net cash provided by (used in) investing activities
Principles of Consolidation
Cash flows from financing activities
The consolidated financial statements include the accounts of Eagle Bancorp Montana Inc. and
the Bank. All significant intercompany transactions and balances have been eliminated in
consolidation.
Net increase in deposits
Net change in advances from the FHLB and other borrowings
Purchase of treasury stock, at cost
Dividends paid
Use of Estimates
Net cash (used in) provided by financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
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, the
valuation of financial instruments, deferred tax assets and liabilities, 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.
The accompanying notes are an integral part of these consolidated financial statements.
Cash and cash equivalents at end of year
10,274
19,814
9,540
$
$
5,544
25,093
(18,434)
125
(18,810)
-
166
(1,128)
(7,444)
11,247
(6,328)
(1,796)
(1,144)
1,979
6,031
3,509
9,540
-6-
-7-
On April 5, 2010, Eagle Bancorp completed its second-step conversion 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, 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 of the 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 of the transaction.
The Company’s Employee Stock Ownership Plan (“ESOP”), which purchased shares in the
Offering, was authorized to purchase up to 8% of the 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”). These regulations have been transferred to the Office of the Comptroller
of the Currency (“OCC”) effective July 21, 2011. 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 financial 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, the
valuation of financial instruments, deferred tax assets and liabilities, 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.
-7-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
Significant Group Concentrations of Credit Risk
Trading – No investment securities were designated as trading at June 30, 2012 and 2011.
Significant Group Concentrations of Credit Risk
Trading – No investment securities were designated as trading at June 30, 2012 and 2011.
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, 2012 and
June 30, 2011, no account balances were held with correspondent banks that were in excess of
FDIC insured levels, except for federal funds sold. 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 funds 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, 2012 and
2011.
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 indefinite 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 alternative
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 earnings as realized losses.
Federal Home Loan Bank Stock
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’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 of the 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, 2012 and 2011.
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, 2012 and
June 30, 2011, no account balances were held with correspondent banks that were in excess of
FDIC insured levels, except for federal funds sold. 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.
Mortgage Loans Held-for-Sale
Cash and Cash Equivalents
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 instruments. Net unrealized losses, if any, are recognized in a valuation
allowance by a charge to income.
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 funds sold” all of which mature
within ninety days.
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.
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, 2012 and
2011.
Investment Securities
Loans receivable that management has the intent and ability to hold for the foreseeable future or
until maturity or payoff are reported at their outstanding unpaid principal balances net of any
unearned income, allowance for loan losses, and unamortized 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, and recorded as an adjustment to the yield, using the interest method.
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 indefinite 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 alternative
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 earnings as realized losses.
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 of the 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, 2012 and 2011.
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 instruments. Net unrealized losses, if any, are recognized in a valuation
Mortgage Loans Held-for-Sale
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 for the foreseeable future or
until maturity or payoff are reported at their outstanding unpaid principal balances net of any
unearned income, allowance for loan losses, and unamortized 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, and recorded as an adjustment to the yield, using the interest method.
-8-
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-8-
-9-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
Significant Group Concentrations of Credit Risk
Trading – No investment securities were designated as trading at June 30, 2012 and 2011.
Significant Group Concentrations of Credit Risk
Trading – No investment securities were designated as trading at June 30, 2012 and 2011.
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, 2012 and
June 30, 2011, no account balances were held with correspondent banks that were in excess of
FDIC insured levels, except for federal funds sold. 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 funds 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, 2012 and
Investment Securities
2011.
trading.
maturity.
The Company designates debt and equity securities as held-to-maturity, available-for-sale, or
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
Available-for-sale – Investment securities that will be held for indefinite 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 alternative
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 earnings as realized losses.
Federal Home Loan Bank Stock
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’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 of the 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, 2012 and 2011.
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, 2012 and
June 30, 2011, no account balances were held with correspondent banks that were in excess of
FDIC insured levels, except for federal funds sold. 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.
Mortgage Loans Held-for-Sale
Cash and Cash Equivalents
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 instruments. Net unrealized losses, if any, are recognized in a valuation
allowance by a charge to income.
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 funds sold” all of which mature
within ninety days.
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.
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, 2012 and
2011.
Investment Securities
Loans receivable that management has the intent and ability to hold for the foreseeable future or
until maturity or payoff are reported at their outstanding unpaid principal balances net of any
unearned income, allowance for loan losses, and unamortized 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, and recorded as an adjustment to the yield, using the interest method.
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.
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 of the 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, 2012 and 2011.
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 instruments. 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 for the foreseeable future or
until maturity or payoff are reported at their outstanding unpaid principal balances net of any
unearned income, allowance for loan losses, and unamortized 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, and recorded as an adjustment to the yield, using the interest method.
Available-for-sale – Investment securities that will be held for indefinite 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 alternative
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 earnings as realized losses.
-8-
-9-
-8-
-9-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
Loans – continued
Loans – continued
Loans – continued
Loans – continued
Loan Origination/Risk Management. The Company selectively extends credit for the purpose of
establishing long-term relationships with its customers. The Company mitigates the risks
inherent in lending by focusing on businesses and individuals with demonstrated payment
history, historically favorable profitability trends and stable cash flows. In addition to these
primary sources of repayment, the Company looks to tangible collateral and personal guarantees
as secondary sources of repayment. Lending officers are provided with detailed underwriting
policies covering all lending activities in which the Company is engaged and that require all
lenders to obtain appropriate approvals for the extension of credit. The Company also maintains
documentation requirements and extensive credit quality assurance practices in order to identify
credit portfolio weaknesses as early as possible so any exposures that are discovered may be
reduced.
A reporting system supplements the loan review process by providing management with frequent
reports related to loan production, loan quality, concentrations of credit, loan delinquencies and
non-performing and potential problem loans. Diversification in the loan portfolio is a means of
managing risk associated with fluctuations in economic conditions.
The company regularly contracts for independent loan reviews that validate the credit risk
program. Results of these reviews are presented to management. The loan review process
compliments and reinforces the risk identification and assessment decisions made by lenders and
credit personnel, as well as the Company’s policies and procedures.
1-4 Family Residential Mortgages. The Company’s primary lending activity consists of the
origination of 1-4 family residential mortgage loans collateralized by owner-occupied and non-
owner-occupied real estate. Repayment of these loans may be subject to adverse conditions in
the real estate market or the economy to a greater extent than other types of loans. Loans
collateralized by 1-4 family residential real estate generally have been originated in amounts up
to 80% of appraised values before requiring private mortgage insurance. The underwriting
analysis includes credit verification, appraisals and a review of the financial condition of the
borrower. The Company will either hold these loans in its portfolio or sell them on the
secondary market, depending upon market conditions and the type and term of the loan
originations. Generally, all 30-year fixed rate loans are sold in the secondary market.
Commercial Real Estate Mortgages and Land Loans. The Company makes commercial real
estate loans and land loans collateralized by owner-occupied and non-owner-occupied real
estate. Payments on loans secured by such properties are often dependent on the successful
operation or management of the properties. Accordingly, repayment of these loans may be
subject to adverse conditions in the real estate market or the economy to a greater extent than
other types of loans. When underwriting these loans, the Company seeks to minimize these risks
in a variety of ways, including giving careful consideration to the property’s operating history,
future operating projections, current and projected occupancy, location and physical condition.
The underwriting analysis also includes credit verification, analysis of global cash flow,
appraisals and a review of the financial condition of the borrower.
Loan Origination/Risk Management. The Company selectively extends credit for the purpose of
establishing long-term relationships with its customers. The Company mitigates the risks
inherent in lending by focusing on businesses and individuals with demonstrated payment
history, historically favorable profitability trends and stable cash flows. In addition to these
primary sources of repayment, the Company looks to tangible collateral and personal guarantees
as secondary sources of repayment. Lending officers are provided with detailed underwriting
policies covering all lending activities in which the Company is engaged and that require all
lenders to obtain appropriate approvals for the extension of credit. The Company also maintains
documentation requirements and extensive credit quality assurance practices in order to identify
credit portfolio weaknesses as early as possible so any exposures that are discovered may be
reduced.
Construction. The Company makes loans to finance the construction of residential and non-
residential properties. The majority of the Company’s residential construction loans are made to
both individual homeowners for the construction of their primary residence and, to a lesser
extent, to local builders for the construction of pre-sold houses or houses that are being built for
sale in the future. The Company also originates loans to finance the construction of commercial
properties such as multi-family, office, industrial, warehouse and retail centers. Construction
loans involve additional risks attributable to the fact that loan funds are advanced upon the
security of a project under construction, and the project is of uncertain value prior to its
completion. Because of uncertainties inherent in estimating construction costs, the market value
of the completed project and the effects of governmental regulation on real property, it can be
difficult to accurately evaluate the total funds required to complete a project and the related loan
to value ratio. As a result of these uncertainties, construction lending often involves the
disbursement of substantial funds with repayment dependent, in part, on the success of the
ultimate project rather than the ability of a borrower or guarantor to repay the loan. If the
Company is forced to foreclose on a project prior to completion, there is no assurance that the
Company will be able to recover the entire unpaid portion of the loan. In addition, the Company
may be required to fund additional amounts to complete a project and may have to hold the
property for an indeterminable period of time. While the Company has underwriting procedures
designed to identify what it believes to be acceptable levels of risks in construction lending, no
assurance can be given that these procedures will prevent losses from the risks described above.
A reporting system supplements the loan review process by providing management with frequent
reports related to loan production, loan quality, concentrations of credit, loan delinquencies and
non-performing and potential problem loans. Diversification in the loan portfolio is a means of
managing risk associated with fluctuations in economic conditions.
The company regularly contracts for independent loan reviews that validate the credit risk
program. Results of these reviews are presented to management. The loan review process
compliments and reinforces the risk identification and assessment decisions made by lenders and
credit personnel, as well as the Company’s policies and procedures.
Home Equity Loans. The Company originates home equity loans that are secured by the
borrowers’ primary residence. These loans are typically subject to a prior lien, which may or
may not be held by the Company. Although these loans are secured by real estate, they carry a
greater risk than first lien 1-4 family residential mortgages because of the existence of a prior
lien on the property as well as the flexibility the borrower has with respect to the proceeds. The
Company attempts to minimize this risk by maintaining conservative underwriting policies on
these types of loans. Generally, home equity loans are made for up to 85% of the appraised
value of the underlying real estate collateral, less the amount of any existing prior liens on the
property securing the loan.
1-4 Family Residential Mortgages. The Company’s primary lending activity consists of the
origination of 1-4 family residential mortgage loans collateralized by owner-occupied and non-
owner-occupied real estate. Repayment of these loans may be subject to adverse conditions in
the real estate market or the economy to a greater extent than other types of loans. Loans
collateralized by 1-4 family residential real estate generally have been originated in amounts up
to 80% of appraised values before requiring private mortgage insurance. The underwriting
analysis includes credit verification, appraisals and a review of the financial condition of the
borrower. The Company will either hold these loans in its portfolio or sell them on the
secondary market, depending upon market conditions and the type and term of the loan
originations. Generally, all 30-year fixed rate loans are sold in the secondary market.
Consumer Loans. Consumer loans made by the Company include automobile loans, recreational
vehicle loans, boat loans, personal loans, credit lines, loans secured by deposit accounts and
other personal loans. Risk is minimized due to relatively small loan amounts that are spread
across many individual borrowers.
Commercial Real Estate Mortgages and Land Loans. The Company makes commercial real
estate loans and land loans collateralized by owner-occupied and non-owner-occupied real
estate. Payments on loans secured by such properties are often dependent on the successful
operation or management of the properties. Accordingly, repayment of these loans may be
subject to adverse conditions in the real estate market or the economy to a greater extent than
other types of loans. When underwriting these loans, the Company seeks to minimize these risks
in a variety of ways, including giving careful consideration to the property’s operating history,
future operating projections, current and projected occupancy, location and physical condition.
The underwriting analysis also includes credit verification, analysis of global cash flow,
appraisals and a review of the financial condition of the borrower.
Commercial and Industrial Loans. A broad array of commercial lending products are made
available to businesses for working capital (including inventory and accounts receivable),
purchases of equipment and machinery and business. Generally, the Company’s commercial
loans are underwritten on the basis of the borrower’s ability to service such debt as reflected by
cash flow projections. Commercial loans are generally collateralized by business assets,
accounts receivable and inventory, certificates of deposit, securities, guarantees or other
collateral. The Company also generally obtains personal guarantees from the principals of the
business. Working capital loans are primarily collateralized by short-term assets, whereas term
loans are primarily collateralized by long-term assets. As a result, commercial loans involve
additional complexities, variables and risks and require more thorough underwriting and
servicing than other types of loans.
Construction. The Company makes loans to finance the construction of residential and non-
residential properties. The majority of the Company’s residential construction loans are made to
both individual homeowners for the construction of their primary residence and, to a lesser
extent, to local builders for the construction of pre-sold houses or houses that are being built for
sale in the future. The Company also originates loans to finance the construction of commercial
properties such as multi-family, office, industrial, warehouse and retail centers. Construction
loans involve additional risks attributable to the fact that loan funds are advanced upon the
security of a project under construction, and the project is of uncertain value prior to its
completion. Because of uncertainties inherent in estimating construction costs, the market value
of the completed project and the effects of governmental regulation on real property, it can be
difficult to accurately evaluate the total funds required to complete a project and the related loan
to value ratio. As a result of these uncertainties, construction lending often involves the
disbursement of substantial funds with repayment dependent, in part, on the success of the
ultimate project rather than the ability of a borrower or guarantor to repay the loan. If the
Company is forced to foreclose on a project prior to completion, there is no assurance that the
Company will be able to recover the entire unpaid portion of the loan. In addition, the Company
may be required to fund additional amounts to complete a project and may have to hold the
property for an indeterminable period of time. While the Company has underwriting procedures
designed to identify what it believes to be acceptable levels of risks in construction lending, no
assurance can be given that these procedures will prevent losses from the risks described above.
Home Equity Loans. The Company originates home equity loans that are secured by the
borrowers’ primary residence. These loans are typically subject to a prior lien, which may or
may not be held by the Company. Although these loans are secured by real estate, they carry a
greater risk than first lien 1-4 family residential mortgages because of the existence of a prior
lien on the property as well as the flexibility the borrower has with respect to the proceeds. The
Company attempts to minimize this risk by maintaining conservative underwriting policies on
these types of loans. Generally, home equity loans are made for up to 85% of the appraised
value of the underlying real estate collateral, less the amount of any existing prior liens on the
property securing the loan.
Consumer Loans. Consumer loans made by the Company include automobile loans, recreational
vehicle loans, boat loans, personal loans, credit lines, loans secured by deposit accounts and
other personal loans. Risk is minimized due to relatively small loan amounts that are spread
across many individual borrowers.
Commercial and Industrial Loans. A broad array of commercial lending products are made
available to businesses for working capital (including inventory and accounts receivable),
purchases of equipment and machinery and business. Generally, the Company’s commercial
loans are underwritten on the basis of the borrower’s ability to service such debt as reflected by
cash flow projections. Commercial loans are generally collateralized by business assets,
accounts receivable and inventory, certificates of deposit, securities, guarantees or other
collateral. The Company also generally obtains personal guarantees from the principals of the
business. Working capital loans are primarily collateralized by short-term assets, whereas term
loans are primarily collateralized by long-term assets. As a result, commercial loans involve
additional complexities, variables and risks and require more thorough underwriting and
servicing than other types of loans.
-10-
-11-
-10-
-11-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
Loans – continued
Loans – continued
Loans – continued
Loans – continued
Loan Origination/Risk Management. The Company selectively extends credit for the purpose of
establishing long-term relationships with its customers. The Company mitigates the risks
inherent in lending by focusing on businesses and individuals with demonstrated payment
history, historically favorable profitability trends and stable cash flows. In addition to these
primary sources of repayment, the Company looks to tangible collateral and personal guarantees
as secondary sources of repayment. Lending officers are provided with detailed underwriting
policies covering all lending activities in which the Company is engaged and that require all
lenders to obtain appropriate approvals for the extension of credit. The Company also maintains
documentation requirements and extensive credit quality assurance practices in order to identify
credit portfolio weaknesses as early as possible so any exposures that are discovered may be
reduced.
A reporting system supplements the loan review process by providing management with frequent
reports related to loan production, loan quality, concentrations of credit, loan delinquencies and
non-performing and potential problem loans. Diversification in the loan portfolio is a means of
managing risk associated with fluctuations in economic conditions.
The company regularly contracts for independent loan reviews that validate the credit risk
program. Results of these reviews are presented to management. The loan review process
compliments and reinforces the risk identification and assessment decisions made by lenders and
credit personnel, as well as the Company’s policies and procedures.
1-4 Family Residential Mortgages. The Company’s primary lending activity consists of the
origination of 1-4 family residential mortgage loans collateralized by owner-occupied and non-
owner-occupied real estate. Repayment of these loans may be subject to adverse conditions in
the real estate market or the economy to a greater extent than other types of loans. Loans
collateralized by 1-4 family residential real estate generally have been originated in amounts up
to 80% of appraised values before requiring private mortgage insurance. The underwriting
analysis includes credit verification, appraisals and a review of the financial condition of the
borrower. The Company will either hold these loans in its portfolio or sell them on the
secondary market, depending upon market conditions and the type and term of the loan
originations. Generally, all 30-year fixed rate loans are sold in the secondary market.
Commercial Real Estate Mortgages and Land Loans. The Company makes commercial real
estate loans and land loans collateralized by owner-occupied and non-owner-occupied real
estate. Payments on loans secured by such properties are often dependent on the successful
operation or management of the properties. Accordingly, repayment of these loans may be
subject to adverse conditions in the real estate market or the economy to a greater extent than
other types of loans. When underwriting these loans, the Company seeks to minimize these risks
in a variety of ways, including giving careful consideration to the property’s operating history,
future operating projections, current and projected occupancy, location and physical condition.
The underwriting analysis also includes credit verification, analysis of global cash flow,
appraisals and a review of the financial condition of the borrower.
Loan Origination/Risk Management. The Company selectively extends credit for the purpose of
establishing long-term relationships with its customers. The Company mitigates the risks
inherent in lending by focusing on businesses and individuals with demonstrated payment
history, historically favorable profitability trends and stable cash flows. In addition to these
primary sources of repayment, the Company looks to tangible collateral and personal guarantees
as secondary sources of repayment. Lending officers are provided with detailed underwriting
policies covering all lending activities in which the Company is engaged and that require all
lenders to obtain appropriate approvals for the extension of credit. The Company also maintains
documentation requirements and extensive credit quality assurance practices in order to identify
credit portfolio weaknesses as early as possible so any exposures that are discovered may be
reduced.
Construction. The Company makes loans to finance the construction of residential and non-
residential properties. The majority of the Company’s residential construction loans are made to
both individual homeowners for the construction of their primary residence and, to a lesser
extent, to local builders for the construction of pre-sold houses or houses that are being built for
sale in the future. The Company also originates loans to finance the construction of commercial
properties such as multi-family, office, industrial, warehouse and retail centers. Construction
loans involve additional risks attributable to the fact that loan funds are advanced upon the
security of a project under construction, and the project is of uncertain value prior to its
completion. Because of uncertainties inherent in estimating construction costs, the market value
of the completed project and the effects of governmental regulation on real property, it can be
difficult to accurately evaluate the total funds required to complete a project and the related loan
to value ratio. As a result of these uncertainties, construction lending often involves the
disbursement of substantial funds with repayment dependent, in part, on the success of the
ultimate project rather than the ability of a borrower or guarantor to repay the loan. If the
Company is forced to foreclose on a project prior to completion, there is no assurance that the
Company will be able to recover the entire unpaid portion of the loan. In addition, the Company
may be required to fund additional amounts to complete a project and may have to hold the
property for an indeterminable period of time. While the Company has underwriting procedures
designed to identify what it believes to be acceptable levels of risks in construction lending, no
assurance can be given that these procedures will prevent losses from the risks described above.
A reporting system supplements the loan review process by providing management with frequent
reports related to loan production, loan quality, concentrations of credit, loan delinquencies and
non-performing and potential problem loans. Diversification in the loan portfolio is a means of
managing risk associated with fluctuations in economic conditions.
The company regularly contracts for independent loan reviews that validate the credit risk
program. Results of these reviews are presented to management. The loan review process
compliments and reinforces the risk identification and assessment decisions made by lenders and
credit personnel, as well as the Company’s policies and procedures.
Home Equity Loans. The Company originates home equity loans that are secured by the
borrowers’ primary residence. These loans are typically subject to a prior lien, which may or
may not be held by the Company. Although these loans are secured by real estate, they carry a
greater risk than first lien 1-4 family residential mortgages because of the existence of a prior
lien on the property as well as the flexibility the borrower has with respect to the proceeds. The
Company attempts to minimize this risk by maintaining conservative underwriting policies on
these types of loans. Generally, home equity loans are made for up to 85% of the appraised
value of the underlying real estate collateral, less the amount of any existing prior liens on the
property securing the loan.
1-4 Family Residential Mortgages. The Company’s primary lending activity consists of the
origination of 1-4 family residential mortgage loans collateralized by owner-occupied and non-
owner-occupied real estate. Repayment of these loans may be subject to adverse conditions in
the real estate market or the economy to a greater extent than other types of loans. Loans
collateralized by 1-4 family residential real estate generally have been originated in amounts up
to 80% of appraised values before requiring private mortgage insurance. The underwriting
analysis includes credit verification, appraisals and a review of the financial condition of the
borrower. The Company will either hold these loans in its portfolio or sell them on the
secondary market, depending upon market conditions and the type and term of the loan
originations. Generally, all 30-year fixed rate loans are sold in the secondary market.
Consumer Loans. Consumer loans made by the Company include automobile loans, recreational
vehicle loans, boat loans, personal loans, credit lines, loans secured by deposit accounts and
other personal loans. Risk is minimized due to relatively small loan amounts that are spread
across many individual borrowers.
Commercial Real Estate Mortgages and Land Loans. The Company makes commercial real
estate loans and land loans collateralized by owner-occupied and non-owner-occupied real
estate. Payments on loans secured by such properties are often dependent on the successful
operation or management of the properties. Accordingly, repayment of these loans may be
subject to adverse conditions in the real estate market or the economy to a greater extent than
other types of loans. When underwriting these loans, the Company seeks to minimize these risks
in a variety of ways, including giving careful consideration to the property’s operating history,
future operating projections, current and projected occupancy, location and physical condition.
The underwriting analysis also includes credit verification, analysis of global cash flow,
appraisals and a review of the financial condition of the borrower.
Commercial and Industrial Loans. A broad array of commercial lending products are made
available to businesses for working capital (including inventory and accounts receivable),
purchases of equipment and machinery and business. Generally, the Company’s commercial
loans are underwritten on the basis of the borrower’s ability to service such debt as reflected by
cash flow projections. Commercial loans are generally collateralized by business assets,
accounts receivable and inventory, certificates of deposit, securities, guarantees or other
collateral. The Company also generally obtains personal guarantees from the principals of the
business. Working capital loans are primarily collateralized by short-term assets, whereas term
loans are primarily collateralized by long-term assets. As a result, commercial loans involve
additional complexities, variables and risks and require more thorough underwriting and
servicing than other types of loans.
Construction. The Company makes loans to finance the construction of residential and non-
residential properties. The majority of the Company’s residential construction loans are made to
both individual homeowners for the construction of their primary residence and, to a lesser
extent, to local builders for the construction of pre-sold houses or houses that are being built for
sale in the future. The Company also originates loans to finance the construction of commercial
properties such as multi-family, office, industrial, warehouse and retail centers. Construction
loans involve additional risks attributable to the fact that loan funds are advanced upon the
security of a project under construction, and the project is of uncertain value prior to its
completion. Because of uncertainties inherent in estimating construction costs, the market value
of the completed project and the effects of governmental regulation on real property, it can be
difficult to accurately evaluate the total funds required to complete a project and the related loan
to value ratio. As a result of these uncertainties, construction lending often involves the
disbursement of substantial funds with repayment dependent, in part, on the success of the
ultimate project rather than the ability of a borrower or guarantor to repay the loan. If the
Company is forced to foreclose on a project prior to completion, there is no assurance that the
Company will be able to recover the entire unpaid portion of the loan. In addition, the Company
may be required to fund additional amounts to complete a project and may have to hold the
property for an indeterminable period of time. While the Company has underwriting procedures
designed to identify what it believes to be acceptable levels of risks in construction lending, no
assurance can be given that these procedures will prevent losses from the risks described above.
Home Equity Loans. The Company originates home equity loans that are secured by the
borrowers’ primary residence. These loans are typically subject to a prior lien, which may or
may not be held by the Company. Although these loans are secured by real estate, they carry a
greater risk than first lien 1-4 family residential mortgages because of the existence of a prior
lien on the property as well as the flexibility the borrower has with respect to the proceeds. The
Company attempts to minimize this risk by maintaining conservative underwriting policies on
these types of loans. Generally, home equity loans are made for up to 85% of the appraised
value of the underlying real estate collateral, less the amount of any existing prior liens on the
property securing the loan.
Consumer Loans. Consumer loans made by the Company include automobile loans, recreational
vehicle loans, boat loans, personal loans, credit lines, loans secured by deposit accounts and
other personal loans. Risk is minimized due to relatively small loan amounts that are spread
across many individual borrowers.
Commercial and Industrial Loans. A broad array of commercial lending products are made
available to businesses for working capital (including inventory and accounts receivable),
purchases of equipment and machinery and business. Generally, the Company’s commercial
loans are underwritten on the basis of the borrower’s ability to service such debt as reflected by
cash flow projections. Commercial loans are generally collateralized by business assets,
accounts receivable and inventory, certificates of deposit, securities, guarantees or other
collateral. The Company also generally obtains personal guarantees from the principals of the
business. Working capital loans are primarily collateralized by short-term assets, whereas term
loans are primarily collateralized by long-term assets. As a result, commercial loans involve
additional complexities, variables and risks and require more thorough underwriting and
servicing than other types of loans.
-10-
-11-
-10-
-11-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
Loans – continued
Loans – continued
Loans – continued
Loans – continued
Non-Accrual and Past Due Loans: Loans are considered past due if the required principal and
interest payments have not been received as of the date such payments were due. Loans are
placed on non-accrual status when, in management's opinion, the borrower may be unable to
meet payment obligations as they become due, as well as when required by regulatory
provisions. In determining whether or not a borrower may be unable to meet payment
obligations for each class of loans, the Company considers the borrower's debt service capacity
through the analysis of current financial information, if available, and/or current information
with regards to the Company's collateral position. Regulatory provisions would typically require
the placement of a loan on non-accrual status if (i) principal or interest has been in default for a
period of 90 days or more unless the loan is both well secured and in the process of collection or
(ii) full payment of principal and interest is not expected. Loans may be placed on non-accrual
status regardless of whether or not such loans are considered past due. When interest accrual is
discontinued, all unpaid accrued interest is reversed. The interest on these loans is accounted for
on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are
returned to accrual 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 earnings. 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 unable 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
the amount of the shortfall in relation to the principal and interest owed. Impairment is
measured on a loan by loan basis for commercial and construction 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.
Non-Accrual and Past Due Loans: Loans are considered past due if the required principal and
interest payments have not been received as of the date such payments were due. Loans are
placed on non-accrual status when, in management's opinion, the borrower may be unable to
meet payment obligations as they become due, as well as when required by regulatory
provisions. In determining whether or not a borrower may be unable to meet payment
obligations for each class of loans, the Company considers the borrower's debt service capacity
through the analysis of current financial information, if available, and/or current information
with regards to the Company's collateral position. Regulatory provisions would typically require
the placement of a loan on non-accrual status if (i) principal or interest has been in default for a
period of 90 days or more unless the loan is both well secured and in the process of collection or
(ii) full payment of principal and interest is not expected. Loans may be placed on non-accrual
status regardless of whether or not such loans are considered past due. When interest accrual is
discontinued, all unpaid accrued interest is reversed. The interest on these loans is accounted for
on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are
returned to accrual status when all the principal and interest amounts contractually due are
brought current and future payments are reasonably assured.
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 restructuring agreement.
Allowance for Loan Losses
Troubled Debt Restructured Loans
The allowance for loan losses is established as losses are estimated to have occurred through a
provision for loan losses charged to earnings. 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.
A troubled debt restructured loan is a loan in which the Company grants a concession to the
borrower that it would not otherwise consider, for reasons related to a borrower's financial
difficulties. The loan terms which have been modified or restructured due to a borrower's
financial difficulty, include but are not limited to a reduction in the stated interest rate; an
extension of the maturity at an interest rate below current market rates; a reduction in the face
amount of the debt; a reduction in the accrued interest; or re-aging, extensions, deferrals,
renewals and rewrites or a combination of these modification methods. A troubled debt
restructured loan would generally be considered impaired in the year of modification and will be
assessed periodically for continued impairment.
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.
Mortgage Servicing Rights
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.
Servicing assets are recognized as separate assets when rights are acquired through purchase or
through sale of financial assets. Generally, purchased servicing rights are capitalized at the cost
to acquire the rights. For sales of mortgage loans, a portion of the 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
future net servicing income, such as the cost to service, the discount rate, the custodial earnings
rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses.
A loan is considered impaired when, based on current information and events, it is probable that
the Company will be unable 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
the amount of the shortfall in relation to the principal and interest owed. Impairment is
measured on a loan by loan basis for commercial and construction 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 restructuring agreement.
Troubled Debt Restructured Loans
A troubled debt restructured loan is a loan in which the Company grants a concession to the
borrower that it would not otherwise consider, for reasons related to a borrower's financial
difficulties. The loan terms which have been modified or restructured due to a borrower's
financial difficulty, include but are not limited to a reduction in the stated interest rate; an
extension of the maturity at an interest rate below current market rates; a reduction in the face
amount of the debt; a reduction in the accrued interest; or re-aging, extensions, deferrals,
renewals and rewrites or a combination of these modification methods. A troubled debt
restructured loan would generally be considered impaired in the year of modification and will be
assessed periodically for continued impairment.
Mortgage Servicing Rights
Servicing assets are recognized as separate assets when rights are acquired through purchase or
through sale of financial assets. Generally, purchased servicing rights are capitalized at the cost
to acquire the rights. For sales of mortgage loans, a portion of the 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
future net servicing income, such as the cost to service, the discount rate, the custodial earnings
rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses.
-12-
-13-
-12-
-13-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
Loans – continued
Loans – continued
Loans – continued
Loans – continued
Non-Accrual and Past Due Loans: Loans are considered past due if the required principal and
interest payments have not been received as of the date such payments were due. Loans are
placed on non-accrual status when, in management's opinion, the borrower may be unable to
meet payment obligations as they become due, as well as when required by regulatory
provisions. In determining whether or not a borrower may be unable to meet payment
obligations for each class of loans, the Company considers the borrower's debt service capacity
through the analysis of current financial information, if available, and/or current information
with regards to the Company's collateral position. Regulatory provisions would typically require
the placement of a loan on non-accrual status if (i) principal or interest has been in default for a
period of 90 days or more unless the loan is both well secured and in the process of collection or
(ii) full payment of principal and interest is not expected. Loans may be placed on non-accrual
status regardless of whether or not such loans are considered past due. When interest accrual is
discontinued, all unpaid accrued interest is reversed. The interest on these loans is accounted for
on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are
returned to accrual 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 earnings. 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 unable 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
the amount of the shortfall in relation to the principal and interest owed. Impairment is
measured on a loan by loan basis for commercial and construction 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.
Non-Accrual and Past Due Loans: Loans are considered past due if the required principal and
interest payments have not been received as of the date such payments were due. Loans are
placed on non-accrual status when, in management's opinion, the borrower may be unable to
meet payment obligations as they become due, as well as when required by regulatory
provisions. In determining whether or not a borrower may be unable to meet payment
obligations for each class of loans, the Company considers the borrower's debt service capacity
through the analysis of current financial information, if available, and/or current information
with regards to the Company's collateral position. Regulatory provisions would typically require
the placement of a loan on non-accrual status if (i) principal or interest has been in default for a
period of 90 days or more unless the loan is both well secured and in the process of collection or
(ii) full payment of principal and interest is not expected. Loans may be placed on non-accrual
status regardless of whether or not such loans are considered past due. When interest accrual is
discontinued, all unpaid accrued interest is reversed. The interest on these loans is accounted for
on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are
returned to accrual status when all the principal and interest amounts contractually due are
brought current and future payments are reasonably assured.
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 restructuring agreement.
Allowance for Loan Losses
Troubled Debt Restructured Loans
The allowance for loan losses is established as losses are estimated to have occurred through a
provision for loan losses charged to earnings. 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.
A troubled debt restructured loan is a loan in which the Company grants a concession to the
borrower that it would not otherwise consider, for reasons related to a borrower's financial
difficulties. The loan terms which have been modified or restructured due to a borrower's
financial difficulty, include but are not limited to a reduction in the stated interest rate; an
extension of the maturity at an interest rate below current market rates; a reduction in the face
amount of the debt; a reduction in the accrued interest; or re-aging, extensions, deferrals,
renewals and rewrites or a combination of these modification methods. A troubled debt
restructured loan would generally be considered impaired in the year of modification and will be
assessed periodically for continued impairment.
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.
Mortgage Servicing Rights
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.
Servicing assets are recognized as separate assets when rights are acquired through purchase or
through sale of financial assets. Generally, purchased servicing rights are capitalized at the cost
to acquire the rights. For sales of mortgage loans, a portion of the 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
future net servicing income, such as the cost to service, the discount rate, the custodial earnings
rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses.
A loan is considered impaired when, based on current information and events, it is probable that
the Company will be unable 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
the amount of the shortfall in relation to the principal and interest owed. Impairment is
measured on a loan by loan basis for commercial and construction 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 restructuring agreement.
Troubled Debt Restructured Loans
A troubled debt restructured loan is a loan in which the Company grants a concession to the
borrower that it would not otherwise consider, for reasons related to a borrower's financial
difficulties. The loan terms which have been modified or restructured due to a borrower's
financial difficulty, include but are not limited to a reduction in the stated interest rate; an
extension of the maturity at an interest rate below current market rates; a reduction in the face
amount of the debt; a reduction in the accrued interest; or re-aging, extensions, deferrals,
renewals and rewrites or a combination of these modification methods. A troubled debt
restructured loan would generally be considered impaired in the year of modification and will be
assessed periodically for continued impairment.
Mortgage Servicing Rights
Servicing assets are recognized as separate assets when rights are acquired through purchase or
through sale of financial assets. Generally, purchased servicing rights are capitalized at the cost
to acquire the rights. For sales of mortgage loans, a portion of the 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
future net servicing income, such as the cost to service, the discount rate, the custodial earnings
rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses.
-12-
-13-
-12-
-13-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
Mortgage Servicing Rights – continued
Income Taxes – continued
Mortgage Servicing Rights – continued
Income Taxes – continued
Servicing assets are evaluated for impairment based upon the fair value of the 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. If the Bank later determines that all or
a portion of the impairment no longer exists for a particular tranche, a reduction of the allowance
may be recorded as an increase to income. Capitalized servicing rights are reported as assets and
are amortized into noninterest expense in proportion to, and over the period of, the estimated
future net servicing income of the underlying financial assets.
Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a
contractual percentage of the outstanding principal and are recorded as income when earned.
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 of the policies and is recorded as an income or expense
on the consolidated statement of income. For the years ended June 30, 2012 and 2011 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 at fair value less
estimated selling cost at the date of foreclosure. All write-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. Impairment 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.
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 useful
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.
The Company’s income tax expense consists of the following components: current and deferred.
Current income tax expense reflects taxes to be paid or refunded for the current period by
applying the provisions of the enacted tax law to the taxable income or excess of deductions over
revenues. The Company determines deferred income taxes using the liability (or balance sheet)
method. Under this method, the net deferred tax asset or liability is based on the tax effects of
the differences between the book and tax bases of assets and liabilities, and enacted changes in
tax rates and laws are recognized in the period in which they occur.
Servicing assets are evaluated for impairment based upon the fair value of the 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. If the Bank later determines that all or
a portion of the impairment no longer exists for a particular tranche, a reduction of the allowance
may be recorded as an increase to income. Capitalized servicing rights are reported as assets and
are amortized into noninterest expense in proportion to, and over the period of, the estimated
future net servicing income of the underlying financial assets.
Deferred income tax expense results from changes in deferred tax assets and liabilities between
periods. Deferred tax assets are recognized if it is more likely than not, based on the technical
merits, that the tax position will be realized or sustained upon examination. The term more
Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a
likely than not means a likelihood of more than 50 percent; the terms examined and upon
contractual percentage of the outstanding principal and are recorded as income when earned.
examination also include resolution of the related appeals or litigation processes, if any. A tax
The amortization of mortgage servicing rights is netted against loan servicing fee income.
position that meets the more-likely-than-not recognition threshold is initially and subsequently
measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of
being realized upon settlement with a taxing authority that has full knowledge of all relevant
information. The determination of whether or not a tax position has met the more-likely-than-
not recognition threshold considers the facts, circumstances, and information available at the
reporting date and is subject to management’s judgment. Deferred tax assets are reduced by a
valuation allowance if, based on the weight of evidence available, it is more likely than not that
some portion or all of a deferred tax asset will not be realized.
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 of the policies and is recorded as an income or expense
on the consolidated statement of income. For the years ended June 30, 2012 and 2011 there
were no adjustments to fair value that were outside the normal appreciation in cash surrender
value.
Cash Surrender Value of Life Insurance
The Company recognizes interest and penalties on income taxes as a component of income tax
expense.
Foreclosed Assets
Treasury Stock
Treasury stock is accounted for on the cost method and consists of 204,156 shares in 2012 and
164,440 shares in 2011.
Assets acquired through, or in lieu of, loan foreclosure are initially recorded at fair value less
estimated selling cost at the date of foreclosure. All write-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. Impairment 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.
The Company expenses advertising costs as they are incurred. Advertising costs were
approximately $568,000 and $524,000 for the years ended June 30, 2012 and 2011, respectively.
Advertising Costs
Employee Stock Ownership Plan
Premises and Equipment
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
Land is carried at cost. Property and equipment is recorded at cost less accumulated
between the fair value of the shares at the time and the ESOP’s original acquisition cost is
depreciation. Depreciation is computed using the straight-line method over the expected useful
charged or credited to stockholders’ equity (capital surplus). The cost of ESOP shares that have
lives of the assets, ranging from 3 to 35 years. The costs of maintenance and repairs are
not yet been allocated or committed to be released is deducted from stockholders’ equity.
expensed as incurred, while major expenditures for renewals and betterments are capitalized.
The Company’s income tax expense consists of the following components: current and deferred.
Current income tax expense reflects taxes to be paid or refunded for the current period by
applying the provisions of the enacted tax law to the taxable income or excess of deductions over
revenues. The Company determines deferred income taxes using the liability (or balance sheet)
method. Under this method, the net deferred tax asset or liability is based on the tax effects of
the differences between the book and tax bases of assets and liabilities, and enacted changes in
tax rates and laws are recognized in the period in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between
periods. Deferred tax assets are recognized if it is more likely than not, based on the technical
merits, that the tax position will be realized or sustained upon examination. The term more
likely than not means a likelihood of more than 50 percent; the terms examined and upon
examination also include resolution of the related appeals or litigation processes, if any. A tax
position that meets the more-likely-than-not recognition threshold is initially and subsequently
measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of
being realized upon settlement with a taxing authority that has full knowledge of all relevant
information. The determination of whether or not a tax position has met the more-likely-than-
not recognition threshold considers the facts, circumstances, and information available at the
reporting date and is subject to management’s judgment. Deferred tax assets are reduced by a
valuation allowance if, based on the weight of evidence available, it is more likely than not that
some portion or all of a deferred tax asset will not be realized.
The Company recognizes interest and penalties on income taxes as a component of income tax
expense.
Treasury Stock
164,440 shares in 2011.
Advertising Costs
Treasury stock is accounted for on the cost method and consists of 204,156 shares in 2012 and
The Company expenses advertising costs as they are incurred. Advertising costs were
approximately $568,000 and $524,000 for the years ended June 30, 2012 and 2011, 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.
Income Taxes
Income Taxes
The Company adopted recent accounting guidance related to accounting for uncertainty in
income taxes, which sets out a consistent framework to determine the appropriate level of tax
reserves to maintain for uncertain tax positions.
The Company adopted recent accounting guidance related to accounting for uncertainty in
income taxes, which sets out a consistent framework to determine the appropriate level of tax
reserves to maintain for uncertain tax positions.
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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
Mortgage Servicing Rights – continued
Income Taxes – continued
Mortgage Servicing Rights – continued
Income Taxes – continued
The Company’s income tax expense consists of the following components: current and deferred.
Current income tax expense reflects taxes to be paid or refunded for the current period by
applying the provisions of the enacted tax law to the taxable income or excess of deductions over
revenues. The Company determines deferred income taxes using the liability (or balance sheet)
method. Under this method, the net deferred tax asset or liability is based on the tax effects of
the differences between the book and tax bases of assets and liabilities, and enacted changes in
tax rates and laws are recognized in the period in which they occur.
Servicing assets are evaluated for impairment based upon the fair value of the 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. If the Bank later determines that all or
a portion of the impairment no longer exists for a particular tranche, a reduction of the allowance
may be recorded as an increase to income. Capitalized servicing rights are reported as assets and
are amortized into noninterest expense in proportion to, and over the period of, the estimated
future net servicing income of the underlying financial assets.
Deferred income tax expense results from changes in deferred tax assets and liabilities between
periods. Deferred tax assets are recognized if it is more likely than not, based on the technical
merits, that the tax position will be realized or sustained upon examination. The term more
Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a
likely than not means a likelihood of more than 50 percent; the terms examined and upon
contractual percentage of the outstanding principal and are recorded as income when earned.
examination also include resolution of the related appeals or litigation processes, if any. A tax
The amortization of mortgage servicing rights is netted against loan servicing fee income.
position that meets the more-likely-than-not recognition threshold is initially and subsequently
measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of
being realized upon settlement with a taxing authority that has full knowledge of all relevant
information. The determination of whether or not a tax position has met the more-likely-than-
not recognition threshold considers the facts, circumstances, and information available at the
reporting date and is subject to management’s judgment. Deferred tax assets are reduced by a
valuation allowance if, based on the weight of evidence available, it is more likely than not that
some portion or all of a deferred tax asset will not be realized.
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 of the policies and is recorded as an income or expense
on the consolidated statement of income. For the years ended June 30, 2012 and 2011 there
were no adjustments to fair value that were outside the normal appreciation in cash surrender
value.
Cash Surrender Value of Life Insurance
The Company’s income tax expense consists of the following components: current and deferred.
Current income tax expense reflects taxes to be paid or refunded for the current period by
applying the provisions of the enacted tax law to the taxable income or excess of deductions over
revenues. The Company determines deferred income taxes using the liability (or balance sheet)
method. Under this method, the net deferred tax asset or liability is based on the tax effects of
the differences between the book and tax bases of assets and liabilities, and enacted changes in
tax rates and laws are recognized in the period in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between
periods. Deferred tax assets are recognized if it is more likely than not, based on the technical
merits, that the tax position will be realized or sustained upon examination. The term more
likely than not means a likelihood of more than 50 percent; the terms examined and upon
examination also include resolution of the related appeals or litigation processes, if any. A tax
position that meets the more-likely-than-not recognition threshold is initially and subsequently
measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of
being realized upon settlement with a taxing authority that has full knowledge of all relevant
information. The determination of whether or not a tax position has met the more-likely-than-
not recognition threshold considers the facts, circumstances, and information available at the
reporting date and is subject to management’s judgment. Deferred tax assets are reduced by a
valuation allowance if, based on the weight of evidence available, it is more likely than not that
some portion or all of a deferred tax asset will not be realized.
The Company recognizes interest and penalties on income taxes as a component of income tax
expense.
Foreclosed Assets
The Company recognizes interest and penalties on income taxes as a component of income tax
expense.
Treasury Stock
Treasury stock is accounted for on the cost method and consists of 204,156 shares in 2012 and
164,440 shares in 2011.
Assets acquired through, or in lieu of, loan foreclosure are initially recorded at fair value less
estimated selling cost at the date of foreclosure. All write-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. Impairment 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.
The Company expenses advertising costs as they are incurred. Advertising costs were
approximately $568,000 and $524,000 for the years ended June 30, 2012 and 2011, respectively.
Advertising Costs
Employee Stock Ownership Plan
Premises and Equipment
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
Land is carried at cost. Property and equipment is recorded at cost less accumulated
between the fair value of the shares at the time and the ESOP’s original acquisition cost is
depreciation. Depreciation is computed using the straight-line method over the expected useful
charged or credited to stockholders’ equity (capital surplus). The cost of ESOP shares that have
lives of the assets, ranging from 3 to 35 years. The costs of maintenance and repairs are
not yet been allocated or committed to be released is deducted from stockholders’ equity.
expensed as incurred, while major expenditures for renewals and betterments are capitalized.
Treasury Stock
Treasury stock is accounted for on the cost method and consists of 204,156 shares in 2012 and
164,440 shares in 2011.
Advertising Costs
The Company expenses advertising costs as they are incurred. Advertising costs were
approximately $568,000 and $524,000 for the years ended June 30, 2012 and 2011, 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.
Servicing assets are evaluated for impairment based upon the fair value of the 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. If the Bank later determines that all or
a portion of the impairment no longer exists for a particular tranche, a reduction of the allowance
may be recorded as an increase to income. Capitalized servicing rights are reported as assets and
are amortized into noninterest expense in proportion to, and over the period of, the estimated
future net servicing income of the underlying financial assets.
Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a
contractual percentage of the outstanding principal and are recorded as income when earned.
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 of the policies and is recorded as an income or expense
on the consolidated statement of income. For the years ended June 30, 2012 and 2011 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 at fair value less
estimated selling cost at the date of foreclosure. All write-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. Impairment 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.
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 useful
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
The Company adopted recent accounting guidance related to accounting for uncertainty in
income taxes, which sets out a consistent framework to determine the appropriate level of tax
reserves to maintain for uncertain tax positions.
The Company adopted recent accounting guidance related to accounting for uncertainty in
income taxes, which sets out a consistent framework to determine the appropriate level of tax
reserves to maintain for uncertain tax positions.
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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
Earnings Per Share
Derivatives – continued
Earnings Per Share
Derivatives – continued
Basic earnings 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, the Company excludes ESOP shares that have not been allocated or
committed to be released for allocation to participants.
Derivatives
Derivatives are recognized as assets and liabilities on the consolidated balance sheet and
measured at fair value. For exchange-traded contracts, fair value is based on quoted market
prices. For nonexchange traded contracts, fair value is based on dealer quotes, pricing models,
discounted cash flow methodologies, or similar techniques for which the determination of fair
value may require significant management judgment or estimation.
Interest Rate Swap Agreements
For asset/liability management purposes, the Company uses interest rate swap agreements to
hedge various exposures or to modify interest rate characteristics of various balance sheet
accounts. Interest rate swaps are contracts in which a series of interest rate flows are exchanged
over a prescribed period. The notional amount on which the interest payments are based is not
exchanged. These swap agreements are derivative instruments and generally convert a portion
of the Company’s variable-rate debt to a fixed rate (cash flow hedge), and convert a portion of its
fixed-rate loans to a variable rate (fair value hedge).
The gain or loss on a derivative designated and qualifying as a fair value hedging instrument, as
well as the offsetting gain or loss on the hedged item attributable to the risk being hedged, is
recognized currently in earnings in the same accounting period. The effective portion of the gain
or loss on a derivative designated and qualifying as a cash flow hedging instrument is initially
reported as a component of other comprehensive income and subsequently reclassified into
earnings in the same period or periods during which the hedged transaction affects earnings. The
ineffective portion of the gain or loss on the derivative instrument, if any, is recognized currently
in earnings.
For cash flow hedges, the net settlement (upon close-out or termination) that offsets changes in
the value of the hedged debt is deferred and amortized into net interest income over the life of
the hedged debt. For fair value hedges, the net settlement (upon close-out or termination) that
offsets changes in the value of the loans adjusts the basis of the loans and is deferred and
amortized to loan interest income over the life of the loans.
The portion, if any, of the net settlement amount that did not offset changes in the value of the
hedged asset or liability is recognized immediately in noninterest income.
Basic earnings 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, the Company excludes ESOP shares that have not been allocated or
committed to be released for allocation to participants.
Interest rate derivative financial instruments receive hedge accounting treatment only if they are
designated as a hedge and are expected to be, and are, effective in substantially reducing interest
rate risk arising from the assets and liabilities identified as exposing the Company to risk. Those
derivative financial instruments that do not meet specified hedging criteria would be recorded at
fair value with changes in fair value recorded in income. If periodic assessment indicates
derivatives no longer provide an effective hedge, the derivative contracts would be closed out
and settled, or classified as a trading activity.
Derivatives
Cash flows resulting from the derivative financial instruments that are accounted for as hedges of
assets and liabilities are classified in the cash flow statement in the same category as the cash
flows of the items being hedged.
Derivatives are recognized as assets and liabilities on the consolidated balance sheet and
measured at fair value. For exchange-traded contracts, fair value is based on quoted market
prices. For nonexchange traded contracts, fair value is based on dealer quotes, pricing models,
discounted cash flow methodologies, or similar techniques for which the determination of fair
value may require significant management judgment or estimation.
Derivative Loan Commitments
Interest Rate Swap Agreements
Mortgage loan commitments that relate to the origination of a mortgage that will be held for sale
upon funding are considered derivative instruments. Loan commitments that are derivatives are
recognized at fair value on the consolidated balance sheet in other assets and other liabilities
with changes in their fair values recorded in noninterest income.
For asset/liability management purposes, the Company uses interest rate swap agreements to
hedge various exposures or to modify interest rate characteristics of various balance sheet
accounts. Interest rate swaps are contracts in which a series of interest rate flows are exchanged
over a prescribed period. The notional amount on which the interest payments are based is not
exchanged. These swap agreements are derivative instruments and generally convert a portion
of the Company’s variable-rate debt to a fixed rate (cash flow hedge), and convert a portion of its
fixed-rate loans to a variable rate (fair value hedge).
The Company adopted the SEC’s Staff Accounting Bulletin (SAB) No. 109, “Written Loan
Commitments Recorded at Fair Value Through Earnings” and began including the value
associated with servicing of loans in the measurement of all written loan commitments issued
after that date. SAB No. 109 requires that the expected net future cash flows related to servicing
of a loan be included in the measurement of all written loan commitments that are accounted for
at fair value through earnings. In estimating fair value, the Company assigns a probability to a
loan commitment based on an expectation that it will be exercised and the loan will be funded.
The adoption of SAB No. 109 generally has resulted in higher fair values being recorded upon
initial recognition of derivative loan commitments.
The gain or loss on a derivative designated and qualifying as a fair value hedging instrument, as
well as the offsetting gain or loss on the hedged item attributable to the risk being hedged, is
recognized currently in earnings in the same accounting period. The effective portion of the gain
or loss on a derivative designated and qualifying as a cash flow hedging instrument is initially
reported as a component of other comprehensive income and subsequently reclassified into
earnings in the same period or periods during which the hedged transaction affects earnings. The
ineffective portion of the gain or loss on the derivative instrument, if any, is recognized currently
in earnings.
The Company carefully evaluates all loan sales agreements to determine whether they meet the
definition of a derivative as facts and circumstances may differ significantly. If agreements
qualify, to protect against the price risk inherent in derivative loan commitments, the Company
uses both “mandatory delivery” and “best efforts” forward loan sale commitments to mitigate the
risk of potential decreases in the values of loans that would result from the exercise of the
derivative loan commitments. Mandatory delivery contracts are accounted for as derivative
instruments. Accordingly, forward loan sale commitments are recognized at fair value on the
consolidated balance sheet in other assets and liabilities with changes in their fair values
recorded in other noninterest income.
For cash flow hedges, the net settlement (upon close-out or termination) that offsets changes in
the value of the hedged debt is deferred and amortized into net interest income over the life of
the hedged debt. For fair value hedges, the net settlement (upon close-out or termination) that
offsets changes in the value of the loans adjusts the basis of the loans and is deferred and
amortized to loan interest income over the life of the loans.
Forward Loan Sale Commitments
The portion, if any, of the net settlement amount that did not offset changes in the value of the
hedged asset or liability is recognized immediately in noninterest income.
The Company estimates the fair value of its forward loan sales commitments using a
methodology similar to that used for derivative loan commitments.
Interest rate derivative financial instruments receive hedge accounting treatment only if they are
designated as a hedge and are expected to be, and are, effective in substantially reducing interest
rate risk arising from the assets and liabilities identified as exposing the Company to risk. Those
derivative financial instruments that do not meet specified hedging criteria would be recorded at
fair value with changes in fair value recorded in income. If periodic assessment indicates
derivatives no longer provide an effective hedge, the derivative contracts would be closed out
and settled, or classified as a trading activity.
Cash flows resulting from the derivative financial instruments that are accounted for as hedges of
assets and liabilities are classified in the cash flow statement in the same category as the cash
flows of the items being hedged.
Derivative Loan Commitments
Mortgage loan commitments that relate to the origination of a mortgage that will be held for sale
upon funding are considered derivative instruments. Loan commitments that are derivatives are
recognized at fair value on the consolidated balance sheet in other assets and other liabilities
with changes in their fair values recorded in noninterest income.
The Company adopted the SEC’s Staff Accounting Bulletin (SAB) No. 109, “Written Loan
Commitments Recorded at Fair Value Through Earnings” and began including the value
associated with servicing of loans in the measurement of all written loan commitments issued
after that date. SAB No. 109 requires that the expected net future cash flows related to servicing
of a loan be included in the measurement of all written loan commitments that are accounted for
at fair value through earnings. In estimating fair value, the Company assigns a probability to a
loan commitment based on an expectation that it will be exercised and the loan will be funded.
The adoption of SAB No. 109 generally has resulted in higher fair values being recorded upon
initial recognition of derivative loan commitments.
Forward Loan Sale Commitments
The Company carefully evaluates all loan sales agreements to determine whether they meet the
definition of a derivative as facts and circumstances may differ significantly. If agreements
qualify, to protect against the price risk inherent in derivative loan commitments, the Company
uses both “mandatory delivery” and “best efforts” forward loan sale commitments to mitigate the
risk of potential decreases in the values of loans that would result from the exercise of the
derivative loan commitments. Mandatory delivery contracts are accounted for as derivative
instruments. Accordingly, forward loan sale commitments are recognized at fair value on the
consolidated balance sheet in other assets and liabilities with changes in their fair values
recorded in other noninterest income.
The Company estimates the fair value of its forward loan sales commitments using a
methodology similar to that used for derivative loan commitments.
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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
Earnings Per Share
Derivatives – continued
Earnings Per Share
Derivatives – continued
Basic earnings 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, the Company excludes ESOP shares that have not been allocated or
committed to be released for allocation to participants.
Derivatives
Derivatives are recognized as assets and liabilities on the consolidated balance sheet and
measured at fair value. For exchange-traded contracts, fair value is based on quoted market
prices. For nonexchange traded contracts, fair value is based on dealer quotes, pricing models,
discounted cash flow methodologies, or similar techniques for which the determination of fair
value may require significant management judgment or estimation.
Interest Rate Swap Agreements
For asset/liability management purposes, the Company uses interest rate swap agreements to
hedge various exposures or to modify interest rate characteristics of various balance sheet
accounts. Interest rate swaps are contracts in which a series of interest rate flows are exchanged
over a prescribed period. The notional amount on which the interest payments are based is not
exchanged. These swap agreements are derivative instruments and generally convert a portion
of the Company’s variable-rate debt to a fixed rate (cash flow hedge), and convert a portion of its
fixed-rate loans to a variable rate (fair value hedge).
The gain or loss on a derivative designated and qualifying as a fair value hedging instrument, as
well as the offsetting gain or loss on the hedged item attributable to the risk being hedged, is
recognized currently in earnings in the same accounting period. The effective portion of the gain
or loss on a derivative designated and qualifying as a cash flow hedging instrument is initially
reported as a component of other comprehensive income and subsequently reclassified into
earnings in the same period or periods during which the hedged transaction affects earnings. The
ineffective portion of the gain or loss on the derivative instrument, if any, is recognized currently
in earnings.
For cash flow hedges, the net settlement (upon close-out or termination) that offsets changes in
the value of the hedged debt is deferred and amortized into net interest income over the life of
the hedged debt. For fair value hedges, the net settlement (upon close-out or termination) that
offsets changes in the value of the loans adjusts the basis of the loans and is deferred and
amortized to loan interest income over the life of the loans.
The portion, if any, of the net settlement amount that did not offset changes in the value of the
hedged asset or liability is recognized immediately in noninterest income.
Basic earnings 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, the Company excludes ESOP shares that have not been allocated or
committed to be released for allocation to participants.
Interest rate derivative financial instruments receive hedge accounting treatment only if they are
designated as a hedge and are expected to be, and are, effective in substantially reducing interest
rate risk arising from the assets and liabilities identified as exposing the Company to risk. Those
derivative financial instruments that do not meet specified hedging criteria would be recorded at
fair value with changes in fair value recorded in income. If periodic assessment indicates
derivatives no longer provide an effective hedge, the derivative contracts would be closed out
and settled, or classified as a trading activity.
Derivatives
Cash flows resulting from the derivative financial instruments that are accounted for as hedges of
assets and liabilities are classified in the cash flow statement in the same category as the cash
flows of the items being hedged.
Derivatives are recognized as assets and liabilities on the consolidated balance sheet and
measured at fair value. For exchange-traded contracts, fair value is based on quoted market
prices. For nonexchange traded contracts, fair value is based on dealer quotes, pricing models,
discounted cash flow methodologies, or similar techniques for which the determination of fair
value may require significant management judgment or estimation.
Derivative Loan Commitments
Interest Rate Swap Agreements
Mortgage loan commitments that relate to the origination of a mortgage that will be held for sale
upon funding are considered derivative instruments. Loan commitments that are derivatives are
recognized at fair value on the consolidated balance sheet in other assets and other liabilities
with changes in their fair values recorded in noninterest income.
For asset/liability management purposes, the Company uses interest rate swap agreements to
hedge various exposures or to modify interest rate characteristics of various balance sheet
accounts. Interest rate swaps are contracts in which a series of interest rate flows are exchanged
over a prescribed period. The notional amount on which the interest payments are based is not
exchanged. These swap agreements are derivative instruments and generally convert a portion
of the Company’s variable-rate debt to a fixed rate (cash flow hedge), and convert a portion of its
fixed-rate loans to a variable rate (fair value hedge).
The Company adopted the SEC’s Staff Accounting Bulletin (SAB) No. 109, “Written Loan
Commitments Recorded at Fair Value Through Earnings” and began including the value
associated with servicing of loans in the measurement of all written loan commitments issued
after that date. SAB No. 109 requires that the expected net future cash flows related to servicing
of a loan be included in the measurement of all written loan commitments that are accounted for
at fair value through earnings. In estimating fair value, the Company assigns a probability to a
loan commitment based on an expectation that it will be exercised and the loan will be funded.
The adoption of SAB No. 109 generally has resulted in higher fair values being recorded upon
initial recognition of derivative loan commitments.
The gain or loss on a derivative designated and qualifying as a fair value hedging instrument, as
well as the offsetting gain or loss on the hedged item attributable to the risk being hedged, is
recognized currently in earnings in the same accounting period. The effective portion of the gain
or loss on a derivative designated and qualifying as a cash flow hedging instrument is initially
reported as a component of other comprehensive income and subsequently reclassified into
earnings in the same period or periods during which the hedged transaction affects earnings. The
ineffective portion of the gain or loss on the derivative instrument, if any, is recognized currently
in earnings.
The Company carefully evaluates all loan sales agreements to determine whether they meet the
definition of a derivative as facts and circumstances may differ significantly. If agreements
qualify, to protect against the price risk inherent in derivative loan commitments, the Company
uses both “mandatory delivery” and “best efforts” forward loan sale commitments to mitigate the
risk of potential decreases in the values of loans that would result from the exercise of the
derivative loan commitments. Mandatory delivery contracts are accounted for as derivative
instruments. Accordingly, forward loan sale commitments are recognized at fair value on the
consolidated balance sheet in other assets and liabilities with changes in their fair values
recorded in other noninterest income.
For cash flow hedges, the net settlement (upon close-out or termination) that offsets changes in
the value of the hedged debt is deferred and amortized into net interest income over the life of
the hedged debt. For fair value hedges, the net settlement (upon close-out or termination) that
offsets changes in the value of the loans adjusts the basis of the loans and is deferred and
amortized to loan interest income over the life of the loans.
Forward Loan Sale Commitments
The portion, if any, of the net settlement amount that did not offset changes in the value of the
hedged asset or liability is recognized immediately in noninterest income.
The Company estimates the fair value of its forward loan sales commitments using a
methodology similar to that used for derivative loan commitments.
Interest rate derivative financial instruments receive hedge accounting treatment only if they are
designated as a hedge and are expected to be, and are, effective in substantially reducing interest
rate risk arising from the assets and liabilities identified as exposing the Company to risk. Those
derivative financial instruments that do not meet specified hedging criteria would be recorded at
fair value with changes in fair value recorded in income. If periodic assessment indicates
derivatives no longer provide an effective hedge, the derivative contracts would be closed out
and settled, or classified as a trading activity.
Cash flows resulting from the derivative financial instruments that are accounted for as hedges of
assets and liabilities are classified in the cash flow statement in the same category as the cash
flows of the items being hedged.
Derivative Loan Commitments
Mortgage loan commitments that relate to the origination of a mortgage that will be held for sale
upon funding are considered derivative instruments. Loan commitments that are derivatives are
recognized at fair value on the consolidated balance sheet in other assets and other liabilities
with changes in their fair values recorded in noninterest income.
The Company adopted the SEC’s Staff Accounting Bulletin (SAB) No. 109, “Written Loan
Commitments Recorded at Fair Value Through Earnings” and began including the value
associated with servicing of loans in the measurement of all written loan commitments issued
after that date. SAB No. 109 requires that the expected net future cash flows related to servicing
of a loan be included in the measurement of all written loan commitments that are accounted for
at fair value through earnings. In estimating fair value, the Company assigns a probability to a
loan commitment based on an expectation that it will be exercised and the loan will be funded.
The adoption of SAB No. 109 generally has resulted in higher fair values being recorded upon
initial recognition of derivative loan commitments.
Forward Loan Sale Commitments
The Company carefully evaluates all loan sales agreements to determine whether they meet the
definition of a derivative as facts and circumstances may differ significantly. If agreements
qualify, to protect against the price risk inherent in derivative loan commitments, the Company
uses both “mandatory delivery” and “best efforts” forward loan sale commitments to mitigate the
risk of potential decreases in the values of loans that would result from the exercise of the
derivative loan commitments. Mandatory delivery contracts are accounted for as derivative
instruments. Accordingly, forward loan sale commitments are recognized at fair value on the
consolidated balance sheet in other assets and liabilities with changes in their fair values
recorded in other noninterest income.
The Company estimates the fair value of its forward loan sales commitments using a
methodology similar to that used for derivative loan commitments.
-16-
-17-
-16-
-17-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
Transfers of Financial Assets
Recent Accounting Pronouncements – continued
Transfers of Financial Assets
Recent Accounting Pronouncements – continued
Transfers of financial assets are accounted for as sales, when control over the assets has been
surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets
have been isolated from the Company—put presumptively beyond the reach of the transferor and
its creditors, even in bankruptcy or other receivership (2) the transferee obtains the right (free of
conditions that constrain it from taking advantage of that right) to pledge or exchange the
transferred assets, and (3) the Company does not maintain effective control over the transferred
assets through an agreement to repurchase them before their maturity or the ability to unilaterally
cause the holder to return specific assets.
Recent Accounting Pronouncements
In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220) –
Presentation of Comprehensive Income.” The objective of this ASU is to improve the
comparability, consistency and transparency of financial reporting and to increase the
prominence of items reported in other comprehensive income by eliminating the option to
present components of other comprehensive income as part of the statement of changes in
stockholders’ equity. The amendments require that all non-owner changes in stockholders’
equity be presented either in a single continuous statement of comprehensive income or in two
separate but consecutive statements. The single statement of comprehensive income should
include the components of net income, a total for net income, the components of other
comprehensive income, a total for other comprehensive income, and a total for comprehensive
income. In the two-statement approach, the first statement should present total net income and
its components followed consecutively by a second statement that should present all the
components of other comprehensive income, a total for other comprehensive income, and a total
for comprehensive income. The amendments do not change the items that must be reported in
other comprehensive income, the option for an entity to present components of other
comprehensive income either net of related tax effects or before related tax effects, or the
calculation or reporting of earnings per share. The amendments in this ASU should be applied
retrospectively. The amendments are effective for fiscal years and interim periods within those
years beginning after December 15, 2011. Early adoption is permitted because compliance with
the amendments is already permitted. The amendments do not require transition disclosures. The
Company has complied with the new standard and has presented a separate statement of
comprehensive income in these consolidated financial statements.
In September 2011, the FASB issued Accounting Standards Update No. 2011-08, Intangibles -
Goodwill and Other (Topic 350) - Testing Goodwill for Impairment (ASU 2011-08), to allow
entities to use a qualitative approach to test goodwill for impairment. ASU 2011-08 permits an
entity to first perform a qualitative assessment to determine whether it is more likely than not
that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is
the case, it is necessary to perform the currently prescribed two-step goodwill impairment test.
Otherwise, the two-step goodwill impairment test is not required. ASU 2011-08 is effective for
us in fiscal 2013 and earlier adoption is permitted. The Company currently has no goodwill.
However upon the successful completion of the pending acquisition of Sterling Bank’s Montana
branches, management expects goodwill to be recorded, and as such the Company’s financials
will likely be effected by this pronouncement.
Transfers of financial assets are accounted for as sales, when control over the assets has been
surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets
have been isolated from the Company—put presumptively beyond the reach of the transferor and
its creditors, even in bankruptcy or other receivership (2) the transferee obtains the right (free of
conditions that constrain it from taking advantage of that right) to pledge or exchange the
transferred assets, and (3) the Company does not maintain effective control over the transferred
assets through an agreement to repurchase them before their maturity or the ability to unilaterally
cause the holder to return specific assets.
In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures
about Offsetting Assets and Liabilities (“ASU 2011-11”). The update requires entities to disclose
information about offsetting and related arrangements of financial instruments and derivative
instruments. The amendments require enhanced disclosures by requiring improved information
about financial instruments and derivative instruments that are either (i) offset in accordance
with current literature or (2) subject to an enforceable master netting arrangement or similar
agreement, irrespective of whether they are offset in accordance with current literature. ASU
2011-11 is effective for fiscal years, and interim periods within those years, beginning on or after
January 1, 2013. The Company does not anticipate that the adoption of this guidance will have a
material impact on the consolidated financial statements.
Recent Accounting Pronouncements
Reclassifications
In December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220):
Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items
Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-
05. The amendments in this update defer those changes in ASU 2011-05 that relate to the
presentation of reclassifications out of accumulated other comprehensive income on the
components of net income and other comprehensive income for all periods presented. All other
requirements in ASU 2011-05 are not affected by this update. The amendments are effective
during interim and annual periods beginning after December 15, 2011. The Company does not
anticipate that the adoption of this guidance will have a material impact on the consolidated
financial statements.
In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220) –
Presentation of Comprehensive Income.” The objective of this ASU is to improve the
comparability, consistency and transparency of financial reporting and to increase the
prominence of items reported in other comprehensive income by eliminating the option to
present components of other comprehensive income as part of the statement of changes in
stockholders’ equity. The amendments require that all non-owner changes in stockholders’
equity be presented either in a single continuous statement of comprehensive income or in two
separate but consecutive statements. The single statement of comprehensive income should
include the components of net income, a total for net income, the components of other
comprehensive income, a total for other comprehensive income, and a total for comprehensive
income. In the two-statement approach, the first statement should present total net income and
its components followed consecutively by a second statement that should present all the
components of other comprehensive income, a total for other comprehensive income, and a total
for comprehensive income. The amendments do not change the items that must be reported in
other comprehensive income, the option for an entity to present components of other
comprehensive income either net of related tax effects or before related tax effects, or the
calculation or reporting of earnings per share. The amendments in this ASU should be applied
retrospectively. The amendments are effective for fiscal years and interim periods within those
years beginning after December 15, 2011. Early adoption is permitted because compliance with
the amendments is already permitted. The amendments do not require transition disclosures. The
Company has complied with the new standard and has presented a separate statement of
comprehensive income in these consolidated financial statements.
For the year ended June 30, 2012, the Company determined that some of the line items for fiscal
year 2011 in the consolidated statements of income should be reported differently to provide
more clarity and be more in line with industry standards. The following table depicts the items
affected by these changes (dollars in thousands):
Net gain on fair value hedge FASB ASC 815
Other income
ATM processing
Data processing
As Previously
Reported
$
-
856
64
504
As
Restated
198
658
-
568
Net
Change
$
In September 2011, the FASB issued Accounting Standards Update No. 2011-08, Intangibles -
Goodwill and Other (Topic 350) - Testing Goodwill for Impairment (ASU 2011-08), to allow
entities to use a qualitative approach to test goodwill for impairment. ASU 2011-08 permits an
entity to first perform a qualitative assessment to determine whether it is more likely than not
that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is
the case, it is necessary to perform the currently prescribed two-step goodwill impairment test.
Otherwise, the two-step goodwill impairment test is not required. ASU 2011-08 is effective for
us in fiscal 2013 and earlier adoption is permitted. The Company currently has no goodwill.
However upon the successful completion of the pending acquisition of Sterling Bank’s Montana
branches, management expects goodwill to be recorded, and as such the Company’s financials
will likely be effected by this pronouncement.
$
198
(198)
(64)
64
$
-
In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures
about Offsetting Assets and Liabilities (“ASU 2011-11”). The update requires entities to disclose
information about offsetting and related arrangements of financial instruments and derivative
instruments. The amendments require enhanced disclosures by requiring improved information
about financial instruments and derivative instruments that are either (i) offset in accordance
with current literature or (2) subject to an enforceable master netting arrangement or similar
agreement, irrespective of whether they are offset in accordance with current literature. ASU
2011-11 is effective for fiscal years, and interim periods within those years, beginning on or after
January 1, 2013. The Company does not anticipate that the adoption of this guidance will have a
material impact on the consolidated financial statements.
In December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220):
Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items
Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-
05. The amendments in this update defer those changes in ASU 2011-05 that relate to the
presentation of reclassifications out of accumulated other comprehensive income on the
components of net income and other comprehensive income for all periods presented. All other
requirements in ASU 2011-05 are not affected by this update. The amendments are effective
during interim and annual periods beginning after December 15, 2011. The Company does not
anticipate that the adoption of this guidance will have a material impact on the consolidated
financial statements.
Reclassifications
Other income
ATM processing
Data processing
For the year ended June 30, 2012, the Company determined that some of the line items for fiscal
year 2011 in the consolidated statements of income should be reported differently to provide
more clarity and be more in line with industry standards. The following table depicts the items
affected by these changes (dollars in thousands):
Net gain on fair value hedge FASB ASC 815
$
-
$
198
$
198
As Previously
As
Reported
Restated
Net
Change
856
64
504
658
-
568
(198)
(64)
64
$
-
-18-
-19-
-18-
-19-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 1: Summary of Significant Accounting Policies – continued
Transfers of Financial Assets
Recent Accounting Pronouncements – continued
Transfers of Financial Assets
Recent Accounting Pronouncements – continued
Transfers of financial assets are accounted for as sales, when control over the assets has been
surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets
have been isolated from the Company—put presumptively beyond the reach of the transferor and
its creditors, even in bankruptcy or other receivership (2) the transferee obtains the right (free of
conditions that constrain it from taking advantage of that right) to pledge or exchange the
transferred assets, and (3) the Company does not maintain effective control over the transferred
assets through an agreement to repurchase them before their maturity or the ability to unilaterally
cause the holder to return specific assets.
Recent Accounting Pronouncements
In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220) –
Presentation of Comprehensive Income.” The objective of this ASU is to improve the
comparability, consistency and transparency of financial reporting and to increase the
prominence of items reported in other comprehensive income by eliminating the option to
present components of other comprehensive income as part of the statement of changes in
stockholders’ equity. The amendments require that all non-owner changes in stockholders’
equity be presented either in a single continuous statement of comprehensive income or in two
separate but consecutive statements. The single statement of comprehensive income should
include the components of net income, a total for net income, the components of other
comprehensive income, a total for other comprehensive income, and a total for comprehensive
income. In the two-statement approach, the first statement should present total net income and
its components followed consecutively by a second statement that should present all the
components of other comprehensive income, a total for other comprehensive income, and a total
for comprehensive income. The amendments do not change the items that must be reported in
other comprehensive income, the option for an entity to present components of other
comprehensive income either net of related tax effects or before related tax effects, or the
calculation or reporting of earnings per share. The amendments in this ASU should be applied
retrospectively. The amendments are effective for fiscal years and interim periods within those
years beginning after December 15, 2011. Early adoption is permitted because compliance with
the amendments is already permitted. The amendments do not require transition disclosures. The
Company has complied with the new standard and has presented a separate statement of
comprehensive income in these consolidated financial statements.
In September 2011, the FASB issued Accounting Standards Update No. 2011-08, Intangibles -
Goodwill and Other (Topic 350) - Testing Goodwill for Impairment (ASU 2011-08), to allow
entities to use a qualitative approach to test goodwill for impairment. ASU 2011-08 permits an
entity to first perform a qualitative assessment to determine whether it is more likely than not
that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is
the case, it is necessary to perform the currently prescribed two-step goodwill impairment test.
Otherwise, the two-step goodwill impairment test is not required. ASU 2011-08 is effective for
us in fiscal 2013 and earlier adoption is permitted. The Company currently has no goodwill.
However upon the successful completion of the pending acquisition of Sterling Bank’s Montana
branches, management expects goodwill to be recorded, and as such the Company’s financials
will likely be effected by this pronouncement.
Transfers of financial assets are accounted for as sales, when control over the assets has been
surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets
have been isolated from the Company—put presumptively beyond the reach of the transferor and
its creditors, even in bankruptcy or other receivership (2) the transferee obtains the right (free of
conditions that constrain it from taking advantage of that right) to pledge or exchange the
transferred assets, and (3) the Company does not maintain effective control over the transferred
assets through an agreement to repurchase them before their maturity or the ability to unilaterally
cause the holder to return specific assets.
In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures
about Offsetting Assets and Liabilities (“ASU 2011-11”). The update requires entities to disclose
information about offsetting and related arrangements of financial instruments and derivative
instruments. The amendments require enhanced disclosures by requiring improved information
about financial instruments and derivative instruments that are either (i) offset in accordance
with current literature or (2) subject to an enforceable master netting arrangement or similar
agreement, irrespective of whether they are offset in accordance with current literature. ASU
2011-11 is effective for fiscal years, and interim periods within those years, beginning on or after
January 1, 2013. The Company does not anticipate that the adoption of this guidance will have a
material impact on the consolidated financial statements.
Recent Accounting Pronouncements
Reclassifications
In December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220):
Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items
Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-
05. The amendments in this update defer those changes in ASU 2011-05 that relate to the
presentation of reclassifications out of accumulated other comprehensive income on the
components of net income and other comprehensive income for all periods presented. All other
requirements in ASU 2011-05 are not affected by this update. The amendments are effective
during interim and annual periods beginning after December 15, 2011. The Company does not
anticipate that the adoption of this guidance will have a material impact on the consolidated
financial statements.
In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220) –
Presentation of Comprehensive Income.” The objective of this ASU is to improve the
comparability, consistency and transparency of financial reporting and to increase the
prominence of items reported in other comprehensive income by eliminating the option to
present components of other comprehensive income as part of the statement of changes in
stockholders’ equity. The amendments require that all non-owner changes in stockholders’
equity be presented either in a single continuous statement of comprehensive income or in two
separate but consecutive statements. The single statement of comprehensive income should
include the components of net income, a total for net income, the components of other
comprehensive income, a total for other comprehensive income, and a total for comprehensive
income. In the two-statement approach, the first statement should present total net income and
its components followed consecutively by a second statement that should present all the
components of other comprehensive income, a total for other comprehensive income, and a total
for comprehensive income. The amendments do not change the items that must be reported in
other comprehensive income, the option for an entity to present components of other
comprehensive income either net of related tax effects or before related tax effects, or the
calculation or reporting of earnings per share. The amendments in this ASU should be applied
retrospectively. The amendments are effective for fiscal years and interim periods within those
years beginning after December 15, 2011. Early adoption is permitted because compliance with
the amendments is already permitted. The amendments do not require transition disclosures. The
Company has complied with the new standard and has presented a separate statement of
comprehensive income in these consolidated financial statements.
For the year ended June 30, 2012, the Company determined that some of the line items for fiscal
year 2011 in the consolidated statements of income should be reported differently to provide
more clarity and be more in line with industry standards. The following table depicts the items
affected by these changes (dollars in thousands):
Net gain on fair value hedge FASB ASC 815
Other income
ATM processing
Data processing
As Previously
Reported
$
-
856
64
504
As
Restated
198
658
-
568
Net
Change
$
$
In September 2011, the FASB issued Accounting Standards Update No. 2011-08, Intangibles -
Goodwill and Other (Topic 350) - Testing Goodwill for Impairment (ASU 2011-08), to allow
entities to use a qualitative approach to test goodwill for impairment. ASU 2011-08 permits an
entity to first perform a qualitative assessment to determine whether it is more likely than not
that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is
the case, it is necessary to perform the currently prescribed two-step goodwill impairment test.
Otherwise, the two-step goodwill impairment test is not required. ASU 2011-08 is effective for
us in fiscal 2013 and earlier adoption is permitted. The Company currently has no goodwill.
However upon the successful completion of the pending acquisition of Sterling Bank’s Montana
branches, management expects goodwill to be recorded, and as such the Company’s financials
will likely be effected by this pronouncement.
198
(198)
(64)
64
$
-
In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures
about Offsetting Assets and Liabilities (“ASU 2011-11”). The update requires entities to disclose
information about offsetting and related arrangements of financial instruments and derivative
instruments. The amendments require enhanced disclosures by requiring improved information
about financial instruments and derivative instruments that are either (i) offset in accordance
with current literature or (2) subject to an enforceable master netting arrangement or similar
agreement, irrespective of whether they are offset in accordance with current literature. ASU
2011-11 is effective for fiscal years, and interim periods within those years, beginning on or after
January 1, 2013. The Company does not anticipate that the adoption of this guidance will have a
material impact on the consolidated financial statements.
In December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220):
Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items
Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-
05. The amendments in this update defer those changes in ASU 2011-05 that relate to the
presentation of reclassifications out of accumulated other comprehensive income on the
components of net income and other comprehensive income for all periods presented. All other
requirements in ASU 2011-05 are not affected by this update. The amendments are effective
during interim and annual periods beginning after December 15, 2011. The Company does not
anticipate that the adoption of this guidance will have a material impact on the consolidated
financial statements.
Reclassifications
For the year ended June 30, 2012, the Company determined that some of the line items for fiscal
year 2011 in the consolidated statements of income should be reported differently to provide
more clarity and be more in line with industry standards. The following table depicts the items
affected by these changes (dollars in thousands):
Net gain on fair value hedge FASB ASC 815
Other income
ATM processing
Data processing
As Previously
Reported
$
-
856
64
504
As
Restated
$
198
658
-
568
Net
Change
$
198
(198)
(64)
64
$
-
-18-
-19-
-18-
-19-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 3: Securities
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 3: Securities
Reclassifications – continued
For the year ended June 30, 2012, the Company determined that some of the line items for fiscal
year 2011 in the consolidated statements of cash flows should be reported differently to provide
more clarity and be more in line with industry standards. The following table depicts the items
affected by these changes (dollars in thousands):
Net gain on fair value hedge FASB ASC 815
Accrued expenses and other liabilities
As Previously
Reported
$
-
331
As
Restated
$
(198)
529
Net
Change
$
(198)
198
$
-
NOTE 2: Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share for the
years ended June 30:
(Dollars In Thousands, Except for Per Share Data)
Weighted average shares outstanding during the
year on which basic earnings per share is calculated
Add: weighted average of stock held in treasury
Average outstanding shares on which
diluted earnings per share is calculated
2012
2011
3,725,002
193,564
3,892,141
9,761
3,918,566
3,901,902
Net income applicable to common stockholders
Basic earnings per share
Diluted earnings per share
$
$
$
2,178
0.59
0.56
$
$
$
2,410
0.62
0.62
Reclassifications – continued
For the year ended June 30, 2012, the Company determined that some of the line items for fiscal
year 2011 in the consolidated statements of cash flows should be reported differently to provide
more clarity and be more in line with industry standards. The following table depicts the items
affected by these changes (dollars in thousands):
The Company’s investment policy requires that the Company purchase only high-grade
investment securities. Most municipal obligations are categorized as “A” or better by a
nationally recognized statistical rating organization. These ratings are achieved because the
securities are backed by the full faith and credit of the municipality and also supported by third-
party credit insurance policies. Mortgage backed securities and collateralized mortgage
obligations are issued by government sponsored corporations, including Federal Home Loan
Mortgage Corporation, Fannie Mae, and the Guaranteed National Mortgage Association. The
Net
amortized cost and estimated fair values of securities, together with unrealized gains and losses,
Change
are as follows:
As
Restated
As Previously
Reported
$
-
331
June 30, 2012
$
(198)
529
Net gain on fair value hedge FASB ASC 815
Accrued expenses and other liabilities
$
(198)
198
$
-
Estimated
Market
Value
(10)
(107)
(74)
-
2012
(41)
(22)
21,055
42,060
3,945
6,847
2011
169
15,201
The following table sets forth the computation of basic and diluted earnings per share for the
years ended June 30:
$
$
$
$
(Dollars in Thousands)
Available for Sale
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
NOTE 2: Earnings Per Share
U.S. Government and agency
Municipal obligations
Corporate obligations
Mortgage-backed securites - government-backed
Private lable CMOs
CMOs - government backed
Total securities available for sale
(Dollars In Thousands, Except for Per Share Data)
Weighted average shares outstanding during the
$
year on which basic earnings per share is calculated
Add: weighted average of stock held in treasury
Average outstanding shares on which
diluted earnings per share is calculated
85,634
$
June 30, 2011
Amortized
Cost
Gross
Unrealized
Gains
(Dollars in Thousands)
Available for Sale
Net income applicable to common stockholders
Basic earnings per share
Diluted earnings per share
$
$
U.S. Government and agency
Municipal obligations
Corporate obligations
Mortgage-backed securites - government-backed
Private label CMOs
CMOs - government backed
20,557
39,332
3,937
6,791
210
14,807
25,566
38,450
5,987
6,189
305
23,458
508
2,835
82
56
-
416
3,897
648
1,342
230
183
-
971
3,918,566
Gross
Unrealized
Losses
2,178
0.59
(6)
$
0.56
(606)
(1)
$
$
$
$
-
(14)
(2)
$
$
$
3,901,902
Estimated
Market
Value
2,410
0.62
0.62
26,208
39,186
6,216
6,372
291
24,427
$
(254)
$
3,725,002
193,564
89,277
3,892,141
9,761
Total securities available for sale
$
85,634
$
3,897
$
(254)
$
89,277
The Company’s investment policy requires that the Company purchase only high-grade
investment securities. Most municipal obligations are categorized as “A” or better by a
nationally recognized statistical rating organization. These ratings are achieved because the
securities are backed by the full faith and credit of the municipality and also supported by third-
party credit insurance policies. Mortgage backed securities and collateralized mortgage
obligations are issued by government 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 unrealized gains and losses,
are as follows:
(Dollars in Thousands)
Available for Sale
U.S. Government and agency
Municipal obligations
Corporate obligations
Private lable CMOs
CMOs - government backed
Mortgage-backed securites - government-backed
(Dollars in Thousands)
Available for Sale
U.S. Government and agency
Municipal obligations
Corporate obligations
Private label CMOs
CMOs - government backed
Mortgage-backed securites - government-backed
June 30, 2012
Amortized
Unrealized
Unrealized
Gross
Gains
Gross
Losses
Estimated
Market
Value
508
$
(10)
$
$
$
Cost
$
20,557
39,332
3,937
6,791
210
14,807
Cost
$
25,566
38,450
5,987
6,189
305
23,458
2,835
82
56
-
416
1,342
230
183
-
971
(107)
(74)
-
(41)
(22)
(606)
(1)
-
(14)
(2)
21,055
42,060
3,945
6,847
169
15,201
26,208
39,186
6,216
6,372
291
24,427
June 30, 2011
Amortized
Unrealized
Unrealized
Gross
Gains
Gross
Losses
Estimated
Market
Value
648
$
(6)
$
Total securities available for sale
$
99,955
$
3,374
$
(629)
$
102,700
Total securities available for sale
$
99,955
$
3,374
$
(629)
$
102,700
-20-
-21-
-20-
-21-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 3: Securities
NOTE 1: Summary of Significant Accounting Policies – continued
NOTE 3: Securities
Reclassifications – continued
For the year ended June 30, 2012, the Company determined that some of the line items for fiscal
year 2011 in the consolidated statements of cash flows should be reported differently to provide
more clarity and be more in line with industry standards. The following table depicts the items
affected by these changes (dollars in thousands):
As Previously
As
Reported
Restated
Net
Change
Net gain on fair value hedge FASB ASC 815
$
-
$
(198)
$
(198)
Accrued expenses and other liabilities
331
529
198
$
-
NOTE 2: Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share for the
years ended June 30:
2012
2011
(Dollars In Thousands, Except for Per Share Data)
Weighted average shares outstanding during the
year on which basic earnings per share is calculated
Add: weighted average of stock held in treasury
3,725,002
193,564
3,892,141
9,761
Average outstanding shares on which
diluted earnings per share is calculated
Net income applicable to common stockholders
Basic earnings per share
Diluted earnings per share
3,918,566
3,901,902
$
$
$
2,178
0.58
0.56
$
$
$
2,410
0.62
0.62
Reclassifications – continued
For the year ended June 30, 2012, the Company determined that some of the line items for fiscal
year 2011 in the consolidated statements of cash flows should be reported differently to provide
more clarity and be more in line with industry standards. The following table depicts the items
affected by these changes (dollars in thousands):
The Company’s investment policy requires that the Company purchase only high-grade
investment securities. Most municipal obligations are categorized as “A” or better by a
nationally recognized statistical rating organization. These ratings are achieved because the
securities are backed by the full faith and credit of the municipality and also supported by third-
party credit insurance policies. Mortgage backed securities and collateralized mortgage
obligations are issued by government sponsored corporations, including Federal Home Loan
Mortgage Corporation, Fannie Mae, and the Guaranteed National Mortgage Association. The
Net
amortized cost and estimated fair values of securities, together with unrealized gains and losses,
Change
are as follows:
As
Restated
As Previously
Reported
$
-
331
June 30, 2012
$
(198)
529
Net gain on fair value hedge FASB ASC 815
Accrued expenses and other liabilities
$
(198)
198
$
-
Estimated
Market
Value
(10)
(107)
(74)
-
2012
(41)
(22)
21,055
42,060
3,945
6,847
2011
169
15,201
(Dollars in Thousands)
Available for Sale
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
The following table sets forth the computation of basic and diluted earnings per share for the
years ended June 30:
$
$
$
$
NOTE 2: Earnings Per Share
U.S. Government and agency
Municipal obligations
Corporate obligations
Mortgage-backed securites - government-backed
Private lable CMOs
CMOs - government backed
Total securities available for sale
(Dollars In Thousands, Except for Per Share Data)
Weighted average shares outstanding during the
$
year on which basic earnings per share is calculated
Add: weighted average of stock held in treasury
Average outstanding shares on which
diluted earnings per share is calculated
85,634
$
Amortized
Cost
Gross
Unrealized
Gains
(Dollars in Thousands)
Available for Sale
Net income applicable to common stockholders
Basic earnings per share
Diluted earnings per share
$
$
U.S. Government and agency
Municipal obligations
Corporate obligations
Mortgage-backed securites - government-backed
Private label CMOs
CMOs - government backed
$
$
(254)
3,725,002
193,564
89,277
3,892,141
9,761
June 30, 2011
3,918,566
Gross
Unrealized
Losses
2,178
0.58
(6)
$
0.56
(606)
(1)
$
$
$
$
-
(14)
(2)
$
$
$
3,901,902
Estimated
Market
Value
2,410
0.62
0.62
26,208
39,186
6,216
6,372
291
24,427
20,557
39,332
3,937
6,791
210
14,807
25,566
38,450
5,987
6,189
305
23,458
508
2,835
82
56
-
416
3,897
648
1,342
230
183
-
971
The Company’s investment policy requires that the Company purchase only high-grade
investment securities. Most municipal obligations are categorized as “A” or better by a
nationally recognized statistical rating organization. These ratings are achieved because the
securities are backed by the full faith and credit of the municipality and also supported by third-
party credit insurance policies. Mortgage backed securities and collateralized mortgage
obligations are issued by government 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 unrealized gains and losses,
are as follows:
(Dollars in Thousands)
Available for Sale
June 30, 2012
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Market
Value
U.S. Government and agency
Municipal obligations
Corporate obligations
Mortgage-backed securites - government-backed
Private lable CMOs
CMOs - government backed
$
$
20,557
39,332
3,937
6,791
210
14,807
$
508
2,835
82
56
-
416
$
(10)
(107)
(74)
-
(41)
(22)
21,055
42,060
3,945
6,847
169
15,201
Total securities available for sale
$
85,634
$
3,897
$
(254)
$
89,277
(Dollars in Thousands)
Available for Sale
June 30, 2011
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Market
Value
U.S. Government and agency
Municipal obligations
Corporate obligations
Mortgage-backed securites - government-backed
Private label CMOs
CMOs - government backed
$
$
25,566
38,450
5,987
6,189
305
23,458
$
648
1,342
230
183
-
971
$
(6)
(606)
(1)
-
(14)
(2)
26,208
39,186
6,216
6,372
291
24,427
Total securities available for sale
$
99,955
$
3,374
$
(629)
$
102,700
Total securities available for sale
$
99,955
$
3,374
$
(629)
$
102,700
-20-
-21-
-20-
-21-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 3: Securities – continued
NOTE 3: Securities – continued
NOTE 3: Securities – continued
NOTE 3: Securities – continued
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 $512,000 and $143,000 for the
years ended June 30, 2012 and 2011, respectively. Gross realized losses on securities available-
for-sale were $22,000, and $125,000 for the years ended June 30, 2012 and 2011, respectively.
The amortized cost and estimated fair value of securities at June 30, 2012 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.
The Company has not entered into any interest rate swaps, options, or futures contracts relating
to investment securities.
At June 30, 2012 and 2011, securities with a carrying value of $14,665,000 and $30,461,000,
respectively, were pledged to secure public deposits and for other purposes required or permitted
by law.
Gross recognized gains on securities available-for-sale were $512,000 and $143,000 for the
years ended June 30, 2012 and 2011, respectively. Gross realized losses on securities available-
for-sale were $22,000, and $125,000 for the years ended June 30, 2012 and 2011, respectively.
The following table discloses, as of June 30, 2012 and 2011, 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:
The amortized cost and estimated fair value of securities at June 30, 2012 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.
Less than 12 months
12 months or longer
June 30, 2012
June 30, 2012
(Dollars in Thousands)
Held to Maturity
Available for Sale
Amortized
Cost
Estimated
Market
Value
Amortized
Cost
Estimated
Market
Value
$
$
-
-
-
-
-
-
-
-
-
$
$
-
-
-
-
-
-
-
-
-
$
$
$
2,533
22,098
17,762
21,433
2,564
22,816
18,846
22,834
63,826
67,060
6,791
210
14,807
85,634
$
6,847
169
15,201
89,277
(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 - government backed
Total
Maturities of securities do not reflect repricing opportunities present in adjustable rate securities.
Estimated
Market
Value
Gross
Held to Maturity
Unrealized
Losses
June 30, 2012
Estimated
Market
Value
Gross
Available for Sale
Unrealized
Losses
Amortized
1,751
$
Cost
-
1,760
-
2,514
-
-
-
-
6,025
Estimated
Market
8
$
Value
-
$
-
2
-
-
-
-
22
32
$
$
$
Amortized
341
Cost
884
1,402
2,533
168
22,098
-
17,762
21,433
$
2,795
$
Estimated
Market
2
Value
74
105
2,564
41
22,816
18,846
22,834
222
-
U.S. Government and agency $
(Dollars in Thousands)
Corporate obligations
Municipal obligations
Private label CMOs
Mortgage-backed & CMOs
Due in one year or less
Due from one to five years
Due from five to ten years
Due after ten years
Total
$
$
Mortgage-backed securites -
government-backed
Private lable CMOs
CMOs - government backed
U.S. Government and agency $
Corporate obligations
Municipal obligations
Private label CMOs
Total
Mortgage-backed & CMOs
$
-
916
-
944
-
4,412
-
216
-
1,151
-
June 30, 2011
63,826
67,060
$
2
-
1
-
194
-
14
-
2
1,789
-
1,714
-
-
$
6,791
210
14,807
85,634
$
$
4
6,847
-
169
412
15,201
-
89,277
-
$
Total
Maturities of securities do not reflect repricing opportunities present in adjustable rate securities.
7,639
3,503
213
416
$
$
$
$
$
$
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, 2012 and 2011. 25 and 37 securities were in an
unrealized loss position as of June 30, 2012 and 2011, respectively.
Management evaluates securities for other-than-temporary impairment at least on a quarterly
basis, and more frequently when economic or market concerns 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 of the issuer, and (3) the intent
and ability of the Company to retain its investment in the issuer for a period of time sufficient to
allow for any anticipated recovery in fair value.
-22-
-23-
-22-
-23-
At June 30, 2012 and 2011, securities with a carrying value of $14,665,000 and $30,461,000,
respectively, were pledged to secure public deposits and for other purposes required or permitted
by law.
The following table discloses, as of June 30, 2012 and 2011, 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, 2012
Estimated
Gross
Estimated
Gross
Market
Value
Unrealized
Losses
Market
Value
Unrealized
Losses
U.S. Government and agency $
1,751
$
8
$
Corporate obligations
Municipal obligations
Private label CMOs
Mortgage-backed & CMOs
1,760
-
-
2,514
Total
$
6,025
$
32
$
2,795
$
U.S. Government and agency $
$
1,789
$
Corporate obligations
Municipal obligations
Private label CMOs
Mortgage-backed & CMOs
$
916
944
4,412
216
1,151
Total
$
7,639
$
213
$
3,503
$
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, 2012 and 2011. 25 and 37 securities were in an
unrealized loss position as of June 30, 2012 and 2011, respectively.
Management evaluates securities for other-than-temporary impairment at least on a quarterly
basis, and more frequently when economic or market concerns 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 of the issuer, and (3) the intent
and ability of the Company to retain its investment in the issuer for a period of time sufficient to
allow for any anticipated recovery in fair value.
-
-
2
22
2
1
194
14
2
June 30, 2011
$
341
884
1,402
168
-
1,714
-
-
-
2
74
105
41
-
222
4
412
-
-
-
416
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 3: Securities – continued
NOTE 3: Securities – continued
NOTE 3: Securities – continued
NOTE 3: Securities – continued
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 $512,000 and $143,000 for the
years ended June 30, 2012 and 2011, respectively. Gross realized losses on securities available-
for-sale were $22,000, and $125,000 for the years ended June 30, 2012 and 2011, respectively.
The amortized cost and estimated fair value of securities at June 30, 2012 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.
Due in one year or less
$
$
$
2,533
$
(Dollars in Thousands)
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 - government backed
Held to Maturity
Available for Sale
Amortized
Cost
Estimated
Market
Value
Amortized
Cost
Estimated
Market
Value
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
63,826
67,060
22,098
17,762
21,433
6,791
210
14,807
2,564
22,816
18,846
22,834
6,847
169
15,201
89,277
Total
$
$
$
85,634
$
Maturities of securities do not reflect repricing opportunities present in adjustable rate securities.
June 30, 2012
(Dollars in Thousands)
The Company has not entered into any interest rate swaps, options, or futures contracts relating
to investment securities.
At June 30, 2012 and 2011, securities with a carrying value of $14,665,000 and $30,461,000,
respectively, were pledged to secure public deposits and for other purposes required or permitted
by law.
Gross recognized gains on securities available-for-sale were $512,000 and $143,000 for the
years ended June 30, 2012 and 2011, respectively. Gross realized losses on securities available-
for-sale were $22,000, and $125,000 for the years ended June 30, 2012 and 2011, respectively.
The following table discloses, as of June 30, 2012 and 2011, 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:
The amortized cost and estimated fair value of securities at June 30, 2012 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.
Less than 12 months
12 months or longer
June 30, 2012
Estimated
Market
Value
Gross
Held to Maturity
Unrealized
Losses
June 30, 2012
Estimated
Market
Value
Gross
Available for Sale
Unrealized
Losses
Amortized
1,751
$
Cost
-
1,760
-
2,514
-
-
-
-
6,025
Estimated
Market
8
$
Value
-
$
-
2
-
-
-
-
22
32
$
$
$
Amortized
341
Cost
884
1,402
2,533
168
22,098
-
17,762
21,433
$
2,795
$
Estimated
Market
2
Value
74
105
2,564
41
22,816
18,846
22,834
222
-
U.S. Government and agency $
(Dollars in Thousands)
Corporate obligations
Municipal obligations
Private label CMOs
Mortgage-backed & CMOs
Due in one year or less
Due from one to five years
Due from five to ten years
Due after ten years
Total
$
$
Mortgage-backed securites -
government-backed
Private lable CMOs
CMOs - government backed
U.S. Government and agency $
Corporate obligations
Municipal obligations
Private label CMOs
Total
Mortgage-backed & CMOs
$
-
916
-
944
-
4,412
-
216
-
1,151
-
June 30, 2011
63,826
67,060
$
2
-
1
-
194
-
14
-
2
1,789
-
1,714
-
-
$
6,791
210
14,807
85,634
$
$
4
6,847
-
169
412
15,201
-
89,277
-
$
Total
Maturities of securities do not reflect repricing opportunities present in adjustable rate securities.
7,639
3,503
213
416
$
$
$
$
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, 2012 and 2011. 25 and 37 securities were in an
unrealized loss position as of June 30, 2012 and 2011, respectively.
Management evaluates securities for other-than-temporary impairment at least on a quarterly
basis, and more frequently when economic or market concerns 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 of the issuer, and (3) the intent
and ability of the Company to retain its investment in the issuer for a period of time sufficient to
allow for any anticipated recovery in fair value.
$
$
At June 30, 2012 and 2011, securities with a carrying value of $14,665,000 and $30,461,000,
respectively, were pledged to secure public deposits and for other purposes required or permitted
by law.
The following table discloses, as of June 30, 2012 and 2011, 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, 2012
Estimated
Market
Value
Gross
Unrealized
Losses
Estimated
Market
Value
Gross
Unrealized
Losses
U.S. Government and agency $
Corporate obligations
Municipal obligations
Private label CMOs
Mortgage-backed & CMOs
1,751
-
1,760
-
2,514
$
8
$
-
-
2
22
$
341
884
1,402
168
-
Total
$
6,025
$
32
$
2,795
$
June 30, 2011
U.S. Government and agency $
Corporate obligations
Municipal obligations
Private label CMOs
Mortgage-backed & CMOs
$
916
944
4,412
216
1,151
$
2
1
194
14
2
$
1,789
-
1,714
-
-
Total
$
7,639
$
213
$
3,503
$
2
74
105
41
-
222
4
-
412
-
-
416
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, 2012 and 2011. 25 and 37 securities were in an
unrealized loss position as of June 30, 2012 and 2011, respectively.
Management evaluates securities for other-than-temporary impairment at least on a quarterly
basis, and more frequently when economic or market concerns 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 of the issuer, and (3) the intent
and ability of the Company to retain its investment in the issuer for a period of time sufficient to
allow for any anticipated recovery in fair value.
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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 3: Securities – continued
NOTE 3: Securities – continued
NOTE 3: Securities – continued
NOTE 3: Securities – continued
At June 30, 2012, 17 U.S. Government and agency securities and municipal obligations have
unrealized losses with aggregate depreciation of less than 3.57% 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 government or its agencies, whether downgrades by bond
rating agencies have occurred, and industry analysts' reports. The fair value of these securities
represents less than 3.54% of the total fair value of all securities available for sale and their
unrealized loss is less than $115,000 as of June 30, 2012. 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, 2012, 7 mortgage backed and CMO securities have unrealized losses with aggregate
depreciation of less than 2.33% from the Company’s cost basis. We believe these unrealized
losses are principally due to the credit market’s concerns regarding the stability of the 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 structure, including the Company's position within the structure, 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 disruption of the scheduled cash flows on any of the securities.
Management’s analysis as of June 30, 2012 revealed no expected credit losses on the securities.
One of the CMO securities is non-agency securities (backed by Alt-A collateral) which has a
rating below investment grade from the credit rating agencies. The fair value of this security
represents less than 0.19% of the total fair value of all securities available for sale and its
unrealized loss is $41,000 as of June 30, 2012.
At June 30, 2012, 1 corporate obligation had an unrealized loss with aggregate depreciation of
less than 7.72% from the Company's cost basis. This unrealized loss is principally due to
changes in interest rates. No credit issues have been identified that cause management to believe
the declines in market value are other than temporary. In analyzing the issuer's financial
condition, management considers industry analysts' reports, financial performance and projected
target prices of investment analysts within a one-year time frame. 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, 2011, 31 U.S. Government and agency securities and municipal obligations have
unrealized losses with aggregate depreciation of less than 0.96% 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 government or its agencies, whether downgrades by bond
rating agencies have occurred, and industry analysts' reports. Two municipal obligations have a
rating below investment grade from the credit rating agencies. The fair value of these securities
represents less than 0.22% of the total fair value of all securities available for sale and their
unrealized loss is of less than $1,000 as of June 30, 2011. 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, 2012, 17 U.S. Government and agency securities and municipal obligations have
unrealized losses with aggregate depreciation of less than 3.57% 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 government or its agencies, whether downgrades by bond
rating agencies have occurred, and industry analysts' reports. The fair value of these securities
represents less than 3.54% of the total fair value of all securities available for sale and their
unrealized loss is less than $115,000 as of June 30, 2012. 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, 2011, 5 mortgage backed and CMO securities have unrealized losses with aggregate
depreciation of less than 0.06% from the Company’s cost basis. We believe these unrealized
losses are principally due to the credit market’s concerns regarding the stability of the 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 structure, including the Company's position within the structure, 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 disruption of the scheduled cash flows on any of the securities.
Management’s analysis as of June 30, 2011 revealed no expected credit losses on the securities.
1 of the CMO securities is non-agency securities (backed by Alt-A collateral) which has a rating
below investment grade from the credit rating agencies. The fair value of this security represents
less than 0.21% of the total fair value of all securities available for sale and its unrealized loss is
$14,000 as of June 30, 2011.
At June 30, 2012, 7 mortgage backed and CMO securities have unrealized losses with aggregate
depreciation of less than 2.33% from the Company’s cost basis. We believe these unrealized
losses are principally due to the credit market’s concerns regarding the stability of the 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 structure, including the Company's position within the structure, 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 disruption of the scheduled cash flows on any of the securities.
Management’s analysis as of June 30, 2012 revealed no expected credit losses on the securities.
One of the CMO securities is non-agency securities (backed by Alt-A collateral) which has a
rating below investment grade from the credit rating agencies. The fair value of this security
represents less than 0.19% of the total fair value of all securities available for sale and its
unrealized loss is $41,000 as of June 30, 2012.
At June 30, 2011, 1 corporate obligation had an unrealized loss with aggregate depreciation of
less than 0.02% from the Company's cost basis. This unrealized loss is principally due to
changes in interest rates. No credit issues have been identified that cause management to believe
the declines in market value are other than temporary. In analyzing the issuer's financial
condition, management considers industry analysts' reports, financial performance and projected
target prices of investment analysts within a one-year time frame. 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, 2012, 1 corporate obligation had an unrealized loss with aggregate depreciation of
less than 7.72% from the Company's cost basis. This unrealized loss is principally due to
changes in interest rates. No credit issues have been identified that cause management to believe
the declines in market value are other than temporary. In analyzing the issuer's financial
condition, management considers industry analysts' reports, financial performance and projected
target prices of investment analysts within a one-year time frame. 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, 2011, 31 U.S. Government and agency securities and municipal obligations have
unrealized losses with aggregate depreciation of less than 0.96% 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 government or its agencies, whether downgrades by bond
rating agencies have occurred, and industry analysts' reports. Two municipal obligations have a
rating below investment grade from the credit rating agencies. The fair value of these securities
represents less than 0.22% of the total fair value of all securities available for sale and their
unrealized loss is of less than $1,000 as of June 30, 2011. 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, 2011, 5 mortgage backed and CMO securities have unrealized losses with aggregate
depreciation of less than 0.06% from the Company’s cost basis. We believe these unrealized
losses are principally due to the credit market’s concerns regarding the stability of the 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 structure, including the Company's position within the structure, 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 disruption of the scheduled cash flows on any of the securities.
Management’s analysis as of June 30, 2011 revealed no expected credit losses on the securities.
1 of the CMO securities is non-agency securities (backed by Alt-A collateral) which has a rating
below investment grade from the credit rating agencies. The fair value of this security represents
less than 0.21% of the total fair value of all securities available for sale and its unrealized loss is
$14,000 as of June 30, 2011.
At June 30, 2011, 1 corporate obligation had an unrealized loss with aggregate depreciation of
less than 0.02% from the Company's cost basis. This unrealized loss is principally due to
changes in interest rates. No credit issues have been identified that cause management to believe
the declines in market value are other than temporary. In analyzing the issuer's financial
condition, management considers industry analysts' reports, financial performance and projected
target prices of investment analysts within a one-year time frame. 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.
-24-
-25-
-24-
-25-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 3: Securities – continued
NOTE 3: Securities – continued
NOTE 3: Securities – continued
NOTE 3: Securities – continued
At June 30, 2012, 17 U.S. Government and agency securities and municipal obligations have
unrealized losses with aggregate depreciation of less than 3.57% 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 government or its agencies, whether downgrades by bond
rating agencies have occurred, and industry analysts' reports. The fair value of these securities
represents less than 3.54% of the total fair value of all securities available for sale and their
unrealized loss is less than $115,000 as of June 30, 2012. 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, 2012, 7 mortgage backed and CMO securities have unrealized losses with aggregate
depreciation of less than 2.33% from the Company’s cost basis. We believe these unrealized
losses are principally due to the credit market’s concerns regarding the stability of the 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 structure, including the Company's position within the structure, 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 disruption of the scheduled cash flows on any of the securities.
Management’s analysis as of June 30, 2012 revealed no expected credit losses on the securities.
One of the CMO securities is non-agency securities (backed by Alt-A collateral) which has a
rating below investment grade from the credit rating agencies. The fair value of this security
represents less than 0.19% of the total fair value of all securities available for sale and its
unrealized loss is $41,000 as of June 30, 2012.
At June 30, 2012, 1 corporate obligation had an unrealized loss with aggregate depreciation of
less than 7.72% from the Company's cost basis. This unrealized loss is principally due to
changes in interest rates. No credit issues have been identified that cause management to believe
the declines in market value are other than temporary. In analyzing the issuer's financial
condition, management considers industry analysts' reports, financial performance and projected
target prices of investment analysts within a one-year time frame. 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, 2011, 31 U.S. Government and agency securities and municipal obligations have
unrealized losses with aggregate depreciation of less than 0.96% 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 government or its agencies, whether downgrades by bond
rating agencies have occurred, and industry analysts' reports. Two municipal obligations have a
rating below investment grade from the credit rating agencies. The fair value of these securities
represents less than 0.22% of the total fair value of all securities available for sale and their
unrealized loss is of less than $1,000 as of June 30, 2011. 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, 2012, 17 U.S. Government and agency securities and municipal obligations have
unrealized losses with aggregate depreciation of less than 3.57% 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 government or its agencies, whether downgrades by bond
rating agencies have occurred, and industry analysts' reports. The fair value of these securities
represents less than 3.54% of the total fair value of all securities available for sale and their
unrealized loss is less than $115,000 as of June 30, 2012. 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, 2011, 5 mortgage backed and CMO securities have unrealized losses with aggregate
depreciation of less than 0.06% from the Company’s cost basis. We believe these unrealized
losses are principally due to the credit market’s concerns regarding the stability of the 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 structure, including the Company's position within the structure, 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 disruption of the scheduled cash flows on any of the securities.
Management’s analysis as of June 30, 2011 revealed no expected credit losses on the securities.
1 of the CMO securities is non-agency securities (backed by Alt-A collateral) which has a rating
below investment grade from the credit rating agencies. The fair value of this security represents
less than 0.21% of the total fair value of all securities available for sale and its unrealized loss is
$14,000 as of June 30, 2011.
At June 30, 2012, 7 mortgage backed and CMO securities have unrealized losses with aggregate
depreciation of less than 2.33% from the Company’s cost basis. We believe these unrealized
losses are principally due to the credit market’s concerns regarding the stability of the 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 structure, including the Company's position within the structure, 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 disruption of the scheduled cash flows on any of the securities.
Management’s analysis as of June 30, 2012 revealed no expected credit losses on the securities.
One of the CMO securities is non-agency securities (backed by Alt-A collateral) which has a
rating below investment grade from the credit rating agencies. The fair value of this security
represents less than 0.19% of the total fair value of all securities available for sale and its
unrealized loss is $41,000 as of June 30, 2012.
At June 30, 2011, 1 corporate obligation had an unrealized loss with aggregate depreciation of
less than 0.02% from the Company's cost basis. This unrealized loss is principally due to
changes in interest rates. No credit issues have been identified that cause management to believe
the declines in market value are other than temporary. In analyzing the issuer's financial
condition, management considers industry analysts' reports, financial performance and projected
target prices of investment analysts within a one-year time frame. 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, 2011, 5 mortgage backed and CMO securities have unrealized losses with aggregate
depreciation of less than 0.06% from the Company’s cost basis. We believe these unrealized
losses are principally due to the credit market’s concerns regarding the stability of the 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 structure, including the Company's position within the structure, 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 disruption of the scheduled cash flows on any of the securities.
Management’s analysis as of June 30, 2011 revealed no expected credit losses on the securities.
1 of the CMO securities is non-agency securities (backed by Alt-A collateral) which has a rating
below investment grade from the credit rating agencies. The fair value of this security represents
less than 0.21% of the total fair value of all securities available for sale and its unrealized loss is
$14,000 as of June 30, 2011.
At June 30, 2011, 1 corporate obligation had an unrealized loss with aggregate depreciation of
less than 0.02% from the Company's cost basis. This unrealized loss is principally due to
changes in interest rates. No credit issues have been identified that cause management to believe
the declines in market value are other than temporary. In analyzing the issuer's financial
condition, management considers industry analysts' reports, financial performance and projected
target prices of investment analysts within a one-year time frame. 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, 2012, 1 corporate obligation had an unrealized loss with aggregate depreciation of
less than 7.72% from the Company's cost basis. This unrealized loss is principally due to
changes in interest rates. No credit issues have been identified that cause management to believe
the declines in market value are other than temporary. In analyzing the issuer's financial
condition, management considers industry analysts' reports, financial performance and projected
target prices of investment analysts within a one-year time frame. 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, 2011, 31 U.S. Government and agency securities and municipal obligations have
unrealized losses with aggregate depreciation of less than 0.96% 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 government or its agencies, whether downgrades by bond
rating agencies have occurred, and industry analysts' reports. Two municipal obligations have a
rating below investment grade from the credit rating agencies. The fair value of these securities
represents less than 0.22% of the total fair value of all securities available for sale and their
unrealized loss is of less than $1,000 as of June 30, 2011. 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.
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-25-
-24-
-25-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 4: Loans
NOTE 4: Loans – continued
NOTE 4: Loans
NOTE 4: Loans – continued
Non-Performing Assets – The following table sets forth information regarding non-performing
assets as of the dates indicated.
June 30,
A summary of the balances of loans follows:
Non-Performing Assets – The following table sets forth information regarding non-performing
assets as of the dates indicated.
A summary of the balances of loans follows:
(Dollars in Thousands)
First mortgage loans:
Residential mortgage (1-4 family)
Commercial real estate
Real estate construction
Other loans:
Home equity
Consumer
Commercial
Subtotal
Less: Allowance for loan losses
Deferred loan fees, net
June 30,
2012
2011
$
$
61,671
64,672
1,455
70,003
64,701
5,020
23,709
8,778
15,343
175,628
(1,625)
(164)
27,816
9,343
10,564
187,447
(1,800)
(176)
Non-accrual loans
Accruing loans delinquent 90 days or more
Restructured loans, net
(Dollars in Thousands)
First mortgage loans:
Residential mortgage (1-4 family)
Commercial real estate
Real estate construction
Total nonperforming loans
Other loans:
Home equity
Total non-performing assets
Consumer
Commercial
Subtotal
Allowance for loan losses
Real estate owned and other repossessed assets, net
Total non-performing assets as a percentage of total assets
Less: Allowance for loan losses
Percent of allowance for loan losses to non-performing loans
Deferred loan fees, net
June 30,
2012
2012
June 30,
2011
2011
(Dollars in Thousands)
$
$
$
1,814
$
-
1,404
3,218
2,361
5,579
1.7%
1,625
50.5%
29.1%
$
$
$
61,671
64,672
1,455
$
23,709
8,778
15,343
175,628
$
(1,625)
(164)
2,939
70,003
-
64,701
-
5,020
2,939
1,181
4,120
27,816
9,343
10,564
187,447
(1,800)
(176)
1.2%
1,800
61.2%
43.7%
173,839
$
185,471
Total loans, net
$
173,839
$
185,471
Percent of allowance for loan losses to non-performing assets
Total loans, net
Within the commercial real estate loan category above, $21,610,000 and $18,878,000 was
guaranteed by the United States Department of Agriculture Rural Development, at June 30, 2012
and 2011, respectively.
The following is a summary of changes in the allowance for loan losses:
(Dollars in Thousands)
Balance at beginning of period
Provision for loan losses
Loans charged off
Recoveries of loans previously charged off
June 30,
2012
2011
$
$
1,800
1,101
(1,296)
20
1,100
948
(252)
4
The following table sets forth information regarding loans and non-performing assets by
geographical location as of the dates indicated (dollars in thousands).
The following table sets forth information regarding loans and non-performing assets by
geographical location as of the dates indicated (dollars in thousands).
Within the commercial real estate loan category above, $21,610,000 and $18,878,000 was
guaranteed by the United States Department of Agriculture Rural Development, at June 30, 2012
and 2011, respectively.
June 30, 2012
Townsend
Bozeman
Helena
Butte
Total
Non-accrual loans
$
The following is a summary of changes in the allowance for loan losses:
$
$
1,735
22
56
$
1
$
1,814
$
1,735
$
56
$
22
$
1
$
1,814
Accruing loans delinquent
90 days or more
Restructured loans, net
-
90
Real estate owned and other repossessed assets, net
(Dollars in Thousands)
Balance at beginning of period
Provision for loan losses
Loans charged off
Recoveries of loans previously charged off
Percent of non-performing assets to loans
Total loans, net
90,744
2,514
2.8%
$
$
689
-
1,314
1,610
-
-
-
June 30,
-
-
2012
62
-
1,404
2011
2,361
$
2,980
$
$
22
$
42,417
$
34,942
$
$
63
1,800
5,736
1,101
(1,296)
1.1%
20
$
$
$
173,839
5,579
1,100
948
(252)
3.2%
4
8.5%
0.1%
June 30, 2011
Balance at end of period
$
1,625
$
1,800
Non-accrual loans
Balance at end of period
$
1,773
$
1,138
$
-
$
$
1,625
28
$
$
1,800
2,939
$
1,773
$
1,138
$
-
$
28
$
2,939
Accruing loans delinquent
90 days or more
Restructured loans, net
-
-
Real estate owned and other repossessed assets, net
306
-
-
794
-
-
-
-
-
81
-
-
1,181
$
2,079
$
1,932
$
-
$
109
$
4,120
$
2,079
$
1,932
$
-
$
109
$
4,120
Total loans, net
$
96,816
$
41,916
$
45,811
$
928
$
185,471
Total loans, net
$
96,816
$
41,916
$
45,811
$
928
$
185,471
Percent of non-performing assets to loans
2.2%
4.6%
0.0%
11.8%
2.2%
Percent of non-performing assets to loans
2.2%
4.6%
0.0%
11.8%
2.2%
-26-
-27-
-26-
-27-
Non-accrual loans
Accruing loans delinquent 90 days or more
Restructured loans, net
Total nonperforming loans
Real estate owned and other repossessed assets, net
Total non-performing assets
Total non-performing assets as a percentage of total assets
Allowance for loan losses
Percent of allowance for loan losses to non-performing loans
Percent of allowance for loan losses to non-performing assets
$
$
$
June 30,
2012
June 30,
2011
(Dollars in Thousands)
1,814
$
-
1,404
3,218
2,361
5,579
1.7%
1,625
50.5%
29.1%
$
$
2,939
-
-
2,939
1,181
4,120
1.2%
1,800
61.2%
43.7%
Helena
Bozeman
Butte
Townsend
Total
June 30, 2012
Non-accrual loans
Accruing loans delinquent
90 days or more
Restructured loans, net
Real estate owned and other repossessed assets, net
-
90
689
-
1,314
1,610
$
2,514
$
2,980
$
22
$
63
$
5,579
Total loans, net
$
90,744
$
34,942
$
42,417
$
5,736
$
173,839
Percent of non-performing assets to loans
2.8%
8.5%
0.1%
1.1%
3.2%
June 30, 2011
-
-
-
-
-
-
-
-
62
-
-
81
-
1,404
2,361
-
-
1,181
Non-accrual loans
Accruing loans delinquent
90 days or more
Restructured loans, net
Real estate owned and other repossessed assets, net
306
-
-
-
-
794
Residential mortgage (1-4 family)
$
61,671
$
(Dollars in Thousands)
First mortgage loans:
Commercial real estate
Real estate construction
Other loans:
Home equity
Consumer
Commercial
Subtotal
Less: Allowance for loan losses
Deferred loan fees, net
June 30,
2012
2011
64,672
1,455
23,709
8,778
15,343
70,003
64,701
5,020
27,816
9,343
10,564
175,628
187,447
(1,625)
(164)
(1,800)
(176)
Within the commercial real estate loan category above, $21,610,000 and $18,878,000 was
guaranteed by the United States Department of Agriculture Rural Development, at June 30, 2012
and 2011, respectively.
The following is a summary of changes in the allowance for loan losses:
(Dollars in Thousands)
Balance at beginning of period
Provision for loan losses
Loans charged off
Recoveries of loans previously charged off
June 30,
2012
2011
$
$
1,800
1,101
(1,296)
20
1,100
948
(252)
4
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 4: Loans
NOTE 4: Loans – continued
NOTE 4: Loans
NOTE 4: Loans – continued
A summary of the balances of loans follows:
Non-Performing Assets – The following table sets forth information regarding non-performing
assets as of the dates indicated.
June 30,
A summary of the balances of loans follows:
Non-Performing Assets – The following table sets forth information regarding non-performing
assets as of the dates indicated.
Non-accrual loans
Accruing loans delinquent 90 days or more
Restructured loans, net
(Dollars in Thousands)
First mortgage loans:
Residential mortgage (1-4 family)
Commercial real estate
Real estate construction
Total nonperforming loans
Other loans:
Home equity
Total non-performing assets
Consumer
Commercial
Subtotal
Allowance for loan losses
Real estate owned and other repossessed assets, net
Total non-performing assets as a percentage of total assets
Less: Allowance for loan losses
Percent of allowance for loan losses to non-performing loans
Deferred loan fees, net
Total loans, net
$
173,839
$
185,471
Percent of allowance for loan losses to non-performing assets
Total loans, net
June 30,
2012
2012
June 30,
2011
2011
(Dollars in Thousands)
$
$
$
1,814
$
-
1,404
3,218
2,361
5,579
1.7%
1,625
50.5%
29.1%
$
$
$
61,671
64,672
1,455
$
23,709
8,778
15,343
175,628
$
(1,625)
(164)
2,939
70,003
-
64,701
-
5,020
2,939
1,181
4,120
27,816
9,343
10,564
187,447
(1,800)
(176)
1.2%
1,800
61.2%
43.7%
173,839
$
185,471
June 30,
2012
June 30,
2011
(Dollars in Thousands)
Non-accrual loans
Accruing loans delinquent 90 days or more
Restructured loans, net
Total nonperforming loans
Real estate owned and other repossessed assets, net
Total non-performing assets
Total non-performing assets as a percentage of total assets
Allowance for loan losses
Percent of allowance for loan losses to non-performing loans
Percent of allowance for loan losses to non-performing assets
$
$
$
$
$
$
1,814
-
1,404
3,218
2,361
5,579
1.7%
1,625
50.5%
29.1%
2,939
-
-
2,939
1,181
4,120
1.2%
1,800
61.2%
43.7%
The following table sets forth information regarding loans and non-performing assets by
geographical location as of the dates indicated (dollars in thousands).
The following table sets forth information regarding loans and non-performing assets by
geographical location as of the dates indicated (dollars in thousands).
Within the commercial real estate loan category above, $21,610,000 and $18,878,000 was
guaranteed by the United States Department of Agriculture Rural Development, at June 30, 2012
and 2011, respectively.
June 30, 2012
Townsend
Bozeman
Helena
Butte
Total
Non-accrual loans
$
The following is a summary of changes in the allowance for loan losses:
$
$
1,735
22
56
$
1
$
1,814
Accruing loans delinquent
90 days or more
Restructured loans, net
-
90
Real estate owned and other repossessed assets, net
(Dollars in Thousands)
Balance at beginning of period
Provision for loan losses
Loans charged off
Recoveries of loans previously charged off
Percent of non-performing assets to loans
Total loans, net
90,744
2,514
2.8%
$
$
689
-
1,314
1,610
-
-
-
June 30,
-
-
2012
62
-
1,404
2011
2,361
$
2,980
$
$
22
$
42,417
$
34,942
$
$
63
1,800
5,736
1,101
(1,296)
1.1%
20
$
$
$
173,839
5,579
1,100
948
(252)
3.2%
4
8.5%
0.1%
June 30, 2011
Balance at end of period
$
1,625
$
1,800
Non-accrual loans
Balance at end of period
$
1,773
$
1,138
$
-
$
$
1,625
28
$
$
1,800
2,939
Accruing loans delinquent
90 days or more
Restructured loans, net
-
-
Real estate owned and other repossessed assets, net
306
-
-
794
-
-
-
-
-
81
-
-
1,181
Non-accrual loans
Accruing loans delinquent
90 days or more
Restructured loans, net
Real estate owned and other repossessed assets, net
Helena
Bozeman
Butte
Townsend
Total
June 30, 2012
$
1,735
$
56
$
22
$
1
$
1,814
-
90
689
-
1,314
1,610
-
-
-
-
-
62
-
1,404
2,361
$
2,514
$
2,980
$
22
$
63
$
5,579
Total loans, net
$
90,744
$
34,942
$
42,417
$
5,736
$
173,839
Percent of non-performing assets to loans
2.8%
8.5%
0.1%
1.1%
3.2%
June 30, 2011
$
1,773
$
1,138
$
-
$
28
$
2,939
Non-accrual loans
Accruing loans delinquent
90 days or more
Restructured loans, net
Real estate owned and other repossessed assets, net
306
-
-
-
-
794
-
-
-
-
-
81
-
-
1,181
-26-
-27-
-26-
-27-
$
2,079
$
1,932
$
-
$
109
$
4,120
$
2,079
$
1,932
$
-
$
109
$
4,120
Total loans, net
$
96,816
$
41,916
$
45,811
$
928
$
185,471
Total loans, net
$
96,816
$
41,916
$
45,811
$
928
$
185,471
Percent of non-performing assets to loans
2.2%
4.6%
0.0%
11.8%
2.2%
Percent of non-performing assets to loans
2.2%
4.6%
0.0%
11.8%
2.2%
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 4: Loans – continued
NOTE 4: Loans – continued
NOTE 4: Loans – continued
NOTE 4: Loans – continued
The following table sets forth information regarding the activity in the allowance for loan losses
for the dates as indicated (dollars in thousands):
1-4 Family Commercial
Real Estate Real Estate Construction
Home
Equity
Consumer
Commercial
Total
June 30, 2012
Allowance for credit losses:
Beginning balance, June 30, 2011
Charge-offs
Recoveries
Provision
Ending balance, June 30, 2012
Ending balance allocated to loans
$
$
$
$
$
$
$
369
(125)
-
159
403
652
(309)
8
421
772
18
(239)
-
231
10
481
(351)
-
26
156
57
(33)
12
42
78
223
(239)
-
222
206
1,800
(1,296)
20
1,101
1,625
$
$
$
$
$
$
$
individually evaluated for impairment
$
-
$
-
$
-
$
-
$
2
$
-
$
2
Ending balance allocated to loans
collectively evaluated for impairment
$
403
$
772
$
10
$
156
$
76
$
206
$
1,623
Loans receivable:
Ending balance June 30, 2012
$
61,671
$
64,672
$
1,455
$
23,709
$
8,778
$
15,343
$
175,628
Ending balance of loans individually
evaluated for impairment
June 30, 2012
Ending balance of loans collectively
evaluated for impairment
June 30, 2012
$
923
$
833
$
-
$
390
$
93
$
1,497
$
3,736
$
60,748
$
63,839
$
1,455
$
23,319
$
8,685
$
13,846
$
171,892
The following table sets forth information regarding the activity in the allowance for loan losses
Home
for the dates as indicated (dollars in thousands):
Equity
1-4 Family Commercial
Real Estate Real Estate Construction
Commercial
Consumer
Total
June 30, 2011
Allowance for credit losses:
Beginning balance, June 30, 2010
Charge-offs
Recoveries
Provision
Allowance for credit losses:
Beginning balance, June 30, 2011
Ending balance, June 30, 2011
Charge-offs
Recoveries
Ending balance allocated to loans
Provision
individually evaluated for impairment
Ending balance, June 30, 2012
$
$
1-4 Family Commercial
$
Real Estate Real Estate Construction
391
(75)
-
53
369
447
(130)
-
335
652
110
-
-
(92)
$
18
6
$
(30)
-
505
481
$
Consumer
78
(17)
4
(8)
$
57
$
68
Commercial
-
-
155
223
$
1,100
(252)
4
948
1,800
$
$
$
369
$
(125)
-
159
$
403
260
$
652
$
(309)
8
421
-
$
$
772
18
$
(239)
-
231
$
10
$
$
378
$
481
$
(351)
-
26
$
156
14
57
$
(33)
12
42
78
$
$
111
223
$
(239)
-
222
$
206
$
$
$
$
125
888
1,800
(1,296)
20
1,101
1,625
June 30, 2012
Home
$
Equity
Total
Beginning balance, June 30, 2010
$
391
$
447
$
110
$
6
$
78
$
68
$
1,100
Ending balance allocated to loans
Ending balance allocated to loans
collectively evaluated for impairment
$
individually evaluated for impairment
258
Loans receivable:
Ending balance allocated to loans
Ending balance June 30, 2011
collectively evaluated for impairment
$
70,003
$
392
$
-
$
$
403
64,701
$
$
-
18
$
$
-
103
$
43
$
98
$
912
$
-
$
2
$
-
$
2
$
772
$
5,020
$
$
10
27,816
$
156
$
9,343
$
$
76
10,564
$
$
206
187,447
$
1,623
Ending balance of loans individually
Loans receivable:
evaluated for impairment
June 30, 2011
Ending balance June 30, 2012
$
1,411
$
61,671
$
998
$
64,672
$
$
1,455
$
721
611
$
23,709
$
$
8,778
$
135
2,025
$
15,343
$
5,901
$
175,628
Ending balance of loans collectively
Ending balance of loans individually
evaluated for impairment
evaluated for impairment
June 30, 2012
June 30, 2011
$
68,592
$
$
923
63,703
$
833
$
4,299
$
-
27,205
$
$
390
$
9,208
$
93
$
8,539
$
1,497
$
181,546
$
3,736
Ending balance of loans collectively
The following table sets forth information regarding the internal classification of the loan
portfolio as of the dates indicated (dollars in thousands):
evaluated for impairment
June 30, 2012
$
$
23,319
13,846
63,839
60,748
$
8,685
1,455
$
$
$
$
171,892
1-4 Family
Real Estate
Commercial
Real Estate Construction
June 30, 2012
Home
Equity
Consumer
Commercial
Total
Real Estate
Real Estate Construction
Consumer
Commercial
Total
Grade:
Pass
Special mention
Substandard
Doubtful
Loss
Total
$
$
60,748
-
923
-
-
61,671
$
$
63,839
51
782
-
-
64,672
$
$
1,455
-
-
-
-
1,455
$
$
23,319
-
242
148
-
23,709
Credit Risk Profile Based on Payment Activity
Performing
Restructured loans
Nonperforming
Total
$
$
$
$
$
61,011
-
660
61,671
63,749
90
833
64,672
$
1,455
-
-
1,455
$
23,444
-
265
23,709
$
$
$
$
$
$
$
$
$
8,685
-
76
15
2
8,778
8,742
-
36
8,778
13,846
5
1,492
-
-
15,343
14,009
1,314
20
15,343
$
$
$
$
171,892
56
3,515
163
2
175,628
172,410
1,404
1,814
175,628
1-4 Family Commercial
Real Estate Real Estate Construction
Consumer
Commercial
Total
June 30, 2011
Home
Equity
Ending balance, June 30, 2011
$
369
$
652
$
18
$
481
$
57
$
223
$
1,800
(75)
-
53
(130)
-
335
-
-
(92)
(30)
-
505
(17)
4
(8)
-
-
155
(252)
4
948
individually evaluated for impairment
$
111
$
260
$
-
$
378
$
14
$
125
$
888
collectively evaluated for impairment
$
258
$
392
$
18
$
103
$
43
$
98
$
912
Ending balance June 30, 2011
$
70,003
$
64,701
$
5,020
$
27,816
$
9,343
$
10,564
$
187,447
$
1,411
$
998
$
721
$
611
$
135
$
2,025
$
5,901
Allowance for credit losses:
Charge-offs
Recoveries
Provision
Ending balance allocated to loans
Ending balance allocated to loans
Loans receivable:
Ending balance of loans individually
evaluated for impairment
June 30, 2011
Ending balance of loans collectively
evaluated for impairment
June 30, 2011
$
68,592
$
63,703
$
4,299
$
27,205
$
9,208
$
8,539
$
181,546
The following table sets forth information regarding the internal classification of the loan
portfolio as of the dates indicated (dollars in thousands):
1-4 Family
Commercial
June 30, 2012
Home
Equity
$
60,748
$
63,839
$
1,455
$
23,319
$
8,685
$
13,846
$
171,892
923
-
-
-
51
782
-
-
-
-
-
-
-
76
15
2
1,492
5
-
-
56
3,515
163
2
$
61,671
$
64,672
$
1,455
$
23,709
$
8,778
$
15,343
$
175,628
Grade:
Pass
Special mention
Substandard
Doubtful
Loss
Total
Credit Risk Profile Based on Payment Activity
Performing
Restructured loans
Nonperforming
Total
$
61,011
$
63,749
$
1,455
$
23,444
$
8,742
$
14,009
$
172,410
-
660
90
833
-
-
-
36
1,314
20
1,404
1,814
$
61,671
$
64,672
$
1,455
$
23,709
$
8,778
$
15,343
$
175,628
242
148
-
-
-
265
-28-
-29-
-28-
-29-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 4: Loans – continued
NOTE 4: Loans – continued
NOTE 4: Loans – continued
NOTE 4: Loans – continued
The following table sets forth information regarding the activity in the allowance for loan losses
Home
for the dates as indicated (dollars in thousands):
Equity
1-4 Family Commercial
Real Estate Real Estate Construction
Commercial
Consumer
Total
June 30, 2011
1-4 Family Commercial
Real Estate Real Estate Construction
Home
Equity
Consumer
Commercial
Total
June 30, 2011
The following table sets forth information regarding the activity in the allowance for loan losses
for the dates as indicated (dollars in thousands):
1-4 Family Commercial
Real Estate Real Estate Construction
Consumer
Commercial
Total
June 30, 2012
Home
Equity
Beginning balance, June 30, 2011
$
369
$
652
$
18
$
481
$
57
$
223
$
1,800
(125)
-
159
(309)
8
421
(239)
-
231
(351)
-
26
(33)
12
42
(239)
-
222
(1,296)
20
1,101
Ending balance, June 30, 2012
$
403
$
772
$
10
$
156
$
78
$
206
$
1,625
individually evaluated for impairment
$
-
$
-
$
-
$
-
$
2
$
-
$
2
collectively evaluated for impairment
$
403
$
772
$
10
$
156
$
76
$
206
$
1,623
Allowance for credit losses:
Charge-offs
Recoveries
Provision
Ending balance allocated to loans
Ending balance allocated to loans
Loans receivable:
Ending balance of loans individually
evaluated for impairment
June 30, 2012
Ending balance of loans collectively
evaluated for impairment
June 30, 2012
$
923
$
833
$
-
$
390
$
93
$
1,497
$
3,736
$
60,748
$
63,839
$
1,455
$
23,319
$
8,685
$
13,846
$
171,892
Ending balance June 30, 2012
$
61,671
$
64,672
$
1,455
$
23,709
$
8,778
$
15,343
$
175,628
Ending balance of loans individually
Loans receivable:
evaluated for impairment
June 30, 2011
Ending balance June 30, 2012
$
1,411
$
61,671
$
998
$
64,672
$
$
1,455
$
721
611
$
23,709
$
$
8,778
$
135
2,025
$
15,343
$
5,901
$
175,628
Ending balance allocated to loans
Ending balance allocated to loans
collectively evaluated for impairment
$
individually evaluated for impairment
258
Loans receivable:
Ending balance allocated to loans
Ending balance June 30, 2011
collectively evaluated for impairment
$
70,003
$
392
$
-
$
$
403
64,701
$
$
-
18
$
$
-
103
$
43
$
98
$
912
$
-
$
2
$
-
$
2
$
772
$
5,020
$
$
10
27,816
$
156
$
9,343
$
$
76
10,564
$
$
206
187,447
$
1,623
Ending balance of loans collectively
Ending balance of loans individually
evaluated for impairment
evaluated for impairment
June 30, 2012
June 30, 2011
$
68,592
$
$
923
63,703
$
833
$
4,299
$
-
27,205
$
$
390
$
9,208
$
93
$
8,539
$
1,497
$
181,546
$
3,736
Ending balance of loans collectively
The following table sets forth information regarding the internal classification of the loan
portfolio as of the dates indicated (dollars in thousands):
evaluated for impairment
June 30, 2012
$
$
23,319
63,839
60,748
13,846
$
1,455
8,685
$
$
$
$
171,892
$
$
369
$
(125)
-
159
$
403
260
$
652
$
(309)
8
421
-
$
$
772
18
$
(239)
-
231
$
10
$
$
378
$
481
$
(351)
-
26
$
156
14
57
$
(33)
12
42
78
$
$
111
223
$
(239)
-
222
$
206
$
$
$
$
125
888
1,800
(1,296)
20
1,101
1,625
Allowance for credit losses:
Beginning balance, June 30, 2010
Charge-offs
Recoveries
Provision
Allowance for credit losses:
Beginning balance, June 30, 2011
Ending balance, June 30, 2011
Charge-offs
Recoveries
Ending balance allocated to loans
Provision
individually evaluated for impairment
Ending balance, June 30, 2012
$
$
1-4 Family Commercial
$
Real Estate Real Estate Construction
391
(75)
-
53
369
447
(130)
-
335
652
110
-
-
(92)
$
18
6
$
(30)
-
505
481
$
Consumer
78
(17)
4
(8)
$
57
$
68
Commercial
-
-
155
223
$
1,100
(252)
4
948
1,800
$
Total
June 30, 2012
Home
$
Equity
Allowance for credit losses:
Beginning balance, June 30, 2010
Charge-offs
Recoveries
Provision
Ending balance, June 30, 2011
Ending balance allocated to loans
$
$
$
$
$
$
391
(75)
-
53
369
447
(130)
-
335
652
110
-
-
(92)
18
6
$
(30)
-
505
481
$
78
(17)
4
(8)
57
68
-
-
155
223
1,100
(252)
4
948
1,800
$
$
$
$
$
$
individually evaluated for impairment
$
111
$
260
$
-
$
378
$
14
$
125
$
888
Ending balance allocated to loans
collectively evaluated for impairment
$
258
$
392
$
18
$
103
$
43
$
98
$
912
Loans receivable:
Ending balance June 30, 2011
$
70,003
$
64,701
$
5,020
$
27,816
$
9,343
$
10,564
$
187,447
Ending balance of loans individually
evaluated for impairment
June 30, 2011
Ending balance of loans collectively
evaluated for impairment
June 30, 2011
$
1,411
$
998
$
721
$
611
$
135
$
2,025
$
5,901
$
68,592
$
63,703
$
4,299
$
27,205
$
9,208
$
8,539
$
181,546
The following table sets forth information regarding the internal classification of the loan
portfolio as of the dates indicated (dollars in thousands):
Grade:
Pass
Special mention
Substandard
Doubtful
Loss
Total
1-4 Family
Real Estate
Commercial
Real Estate Construction
$
$
60,748
-
923
-
-
61,671
$
$
63,839
51
782
-
-
64,672
$
$
1,455
-
-
-
-
1,455
June 30, 2012
Home
Equity
$
$
23,319
-
242
148
-
23,709
Credit Risk Profile Based on Payment Activity
Consumer
Commercial
Total
1-4 Family
Real Estate
Commercial
Real Estate Construction
Grade:
Pass
Special mention
Substandard
Doubtful
Loss
Total
$
$
60,748
-
923
-
-
61,671
$
$
63,839
51
782
-
-
64,672
$
$
1,455
-
-
-
-
1,455
Credit Risk Profile Based on Payment Activity
Performing
Restructured loans
Nonperforming
Total
$
$
$
$
$
61,011
-
660
61,671
63,749
90
833
64,672
$
1,455
-
-
1,455
$
23,444
-
265
23,709
$
$
$
$
$
Performing
Restructured loans
Nonperforming
Total
$
$
$
$
$
61,011
-
660
61,671
63,749
90
833
64,672
$
1,455
-
-
1,455
$
23,444
-
265
23,709
$
$
$
$
$
June 30, 2012
Home
Equity
$
$
23,319
-
242
148
-
23,709
$
$
Consumer
Commercial
Total
$
$
8,685
-
76
15
2
8,778
8,742
-
36
8,778
13,846
5
1,492
-
-
15,343
14,009
1,314
20
15,343
$
$
$
$
171,892
56
3,515
163
2
175,628
172,410
1,404
1,814
175,628
$
$
$
$
8,685
-
76
15
2
8,778
8,742
-
36
8,778
13,846
5
1,492
-
-
15,343
14,009
1,314
20
15,343
$
$
$
$
171,892
56
3,515
163
2
175,628
172,410
1,404
1,814
175,628
-28-
-29-
-28-
-29-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 4: Loans – continued
NOTE 4: Loans – continued
NOTE 4: Loans – continued
NOTE 4: Loans – continued
Grade:
Pass
Special mention
Substandard
Doubtful
Loss
Total
Commercial
1-4 Family
Real Estate Real Estate Construction
June 30, 2011
Home
Equity
Consumer
Commercial
Total
$
$
$
$
$
$
$
68,592
-
1,300
-
111
70,003
63,703
-
738
-
260
64,701
4,299
-
721
-
-
5,020
27,205
-
233
-
378
27,816
9,208
-
121
-
14
9,343
8,539
1,454
446
-
125
10,564
181,546
1,454
3,559
-
888
187,447
$
$
$
$
$
$
$
Credit Risk Profile Based on Payment Activity
Performing
Nonperforming
Total
$
68,579
$
64,515
$
4,370
$
27,440
$
9,287
$
10,317
$
184,508
1,424
186
650
376
56
247
2,939
$
70,003
$
64,701
$
5,020
$
27,816
$
9,343
$
10,564
$
187,447
The Company utilizes a 5 point internal loan rating system, largely basis on regulatory classifications, for 1-4
family real estate, commercial real estate, construction, home equity and commercial loans as follows:
Loans rated Pass: these are loans that are considered to be protected by the current net worth and paying
capacity of the obligor, or by the value of the asset or the underlying collateral.
Loans rated Special Mention: these loans have potential weaknesses that deserve management’s close
attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment
prospects for the asset at some future date.
Loans rated Substandard: these loans are inadequately protected by the current net worth and paying capacity
of the obligor of the collateral pledged, if any. Loans so classified have a well-defined weakness or
weaknesses. They are characterized by the distinct possibility that the Company will sustain some loss if the
deficiencies are not corrected.
June 30, 2011
Home
Equity
June 30, 2012
$
$
The following table sets forth information regarding impaired loans as of the dates indicated
(dollars in thousands):
Commercial
1-4 Family
Real Estate Real Estate Construction
Consumer
Commercial
Total
Grade:
Pass
Special mention
Substandard
Doubtful
Loss
Total
$
68,592
-
1,300
-
111
70,003
$
$
63,703
Recorded
-
Investment
738
-
260
$
-
64,701
-
-
-
-
64,515
-
186
$
$
Unpaid
4,299
Principal
-
Balance
721
-
-
$
-
$
5,020
-
-
-
2
-
4,370
$
650
27,205
Related
-
Allowance
233
-
378
$
-
27,816
-
-
-
2
-
27,440
376
$
Interest
9,208
Income
-
Recognized
121
-
14
-
$
$
9,343
-
-
-
-
$
-
Average
181,546
8,539
$
Recorded
1,454
1,454
Investment
3,559
446
-
-
888
125
-
$
$
187,447
10,564
-
-
-
2
$
184,508
-
10,317
9,287
2,939
247
56
$
$
$
$
With no related allowance:
$
1-4 Family
Commercial real estate
Construction
Credit Risk Profile Based on Payment Activity
Home equity
Consumer
Commerical
Performing
Nonperforming
$
68,579
1,424
Total
With a related allowance:
$
70,003
$
64,701
$
5,020
$
27,816
$
9,343
$
10,564
$
187,447
-
-
The Company utilizes a 5 point internal loan rating system, largely basis on regulatory classifications, for 1-4
-
-
family real estate, commercial real estate, construction, home equity and commercial loans as follows:
-
-
-
-
-
-
-
-
Loans rated Pass: these are loans that are considered to be protected by the current net worth and paying
capacity of the obligor, or by the value of the asset or the underlying collateral.
1-4 Family
Commercial real estate
Construction
Home equity
Consumer
Commerical
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total:
Loans rated Special Mention: these loans have potential weaknesses that deserve management’s close
attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment
prospects for the asset at some future date.
1-4 Family
Commercial real estate
Construction
Loans rated Substandard: these loans are inadequately protected by the current net worth and paying capacity
Home equity
of the obligor of the collateral pledged, if any. Loans so classified have a well-defined weakness or
Consumer
weaknesses. They are characterized by the distinct possibility that the Company will sustain some loss if the
Commerical
deficiencies are not corrected.
Total
-
-
-
-
2
-
$
2
-
-
-
-
-
-
$
-
-
-
-
-
2
-
$
2
-
-
-
-
2
-
$
2
-
-
-
-
-
-
$
-
The following table sets forth information regarding impaired loans as of the dates indicated
(dollars in thousands):
June 30, 2012
Recorded
Investment
Unpaid
Principal
Balance
Related
Interest
Income
Average
Recorded
Allowance
Recognized
Investment
$
-
$
-
$
-
$
-
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2
-
-
-
-
-
-
-
-
-
-
-
2
-
-
-
-
2
-
-
-
-
-
-
-
-
-
-
-
2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2
-
-
-
-
-
-
-
-
-
-
-
2
-
$
-
$
2
$
2
$
-
$
2
With no related allowance:
1-4 Family
Commercial real estate
Construction
Home equity
Consumer
Commerical
With a related allowance:
1-4 Family
Commercial real estate
Construction
Home equity
Consumer
Commerical
Total:
1-4 Family
Commercial real estate
Construction
Home equity
Consumer
Commerical
Total
Loans rated Doubtful: these loans have all the weaknesses inherent in those classified Substandard with the
added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently
existing facts, conditions, and values, highly questionable and improbable.
Loans rated Doubtful: these loans have all the weaknesses inherent in those classified Substandard with the
added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently
existing facts, conditions, and values, highly questionable and improbable.
Loans rated Loss: these loans are considered uncollectible and of such little value that their continuance as
assets without establishment of a specific reserve is not warranted. This classification does not mean that an
asset has absolutely no recovery or salvage value, but, rather, that it is not practical or desirable to defer
writing off a basically worthless asset even though practical recovery may be effected in the future.
On an annual basis, or more often if needed, the Company formally reviews the ratings of all commercial
real estate, construction, and commercial business loans that have a principal balance of $500,000 or more.
Quarterly, the Company reviews the rating of any consumer loan, broadly defined, that is delinquent 90 days
or more. Likewise, quarterly, the Company reviews the rating of any commercial loan, broadly defined, that
is delinquent 60 days or more. Annually, the Company engages an independent third-party to review a
significant portion of loans within these segments. Management uses the results of these reviews as part of its
annual review process.
Loans rated Loss: these loans are considered uncollectible and of such little value that their continuance as
assets without establishment of a specific reserve is not warranted. This classification does not mean that an
asset has absolutely no recovery or salvage value, but, rather, that it is not practical or desirable to defer
writing off a basically worthless asset even though practical recovery may be effected in the future.
On an annual basis, or more often if needed, the Company formally reviews the ratings of all commercial
real estate, construction, and commercial business loans that have a principal balance of $500,000 or more.
Quarterly, the Company reviews the rating of any consumer loan, broadly defined, that is delinquent 90 days
or more. Likewise, quarterly, the Company reviews the rating of any commercial loan, broadly defined, that
is delinquent 60 days or more. Annually, the Company engages an independent third-party to review a
significant portion of loans within these segments. Management uses the results of these reviews as part of its
annual review process.
-30-
-31-
-30-
-31-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 4: Loans – continued
NOTE 4: Loans – continued
NOTE 4: Loans – continued
NOTE 4: Loans – continued
1-4 Family
Commercial
Real Estate Real Estate Construction
Consumer
Commercial
Total
June 30, 2011
Home
Equity
$
68,592
$
63,703
$
4,299
$
27,205
$
9,208
$
8,539
$
181,546
-
-
1,300
111
-
-
738
260
721
-
-
-
-
-
233
378
121
-
-
14
1,454
446
-
125
1,454
3,559
-
888
$
70,003
$
64,701
$
5,020
$
27,816
$
9,343
$
10,564
$
187,447
Grade:
Pass
Special mention
Substandard
Doubtful
Loss
Total
Credit Risk Profile Based on Payment Activity
Performing
Nonperforming
Total
$
68,579
$
64,515
$
4,370
$
27,440
$
9,287
$
10,317
$
184,508
1,424
186
650
376
56
247
2,939
$
70,003
$
64,701
$
5,020
$
27,816
$
9,343
$
10,564
$
187,447
The Company utilizes a 5 point internal loan rating system, largely basis on regulatory classifications, for 1-4
family real estate, commercial real estate, construction, home equity and commercial loans as follows:
Loans rated Pass: these are loans that are considered to be protected by the current net worth and paying
capacity of the obligor, or by the value of the asset or the underlying collateral.
Loans rated Special Mention: these loans have potential weaknesses that deserve management’s close
attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment
prospects for the asset at some future date.
Loans rated Substandard: these loans are inadequately protected by the current net worth and paying capacity
of the obligor of the collateral pledged, if any. Loans so classified have a well-defined weakness or
weaknesses. They are characterized by the distinct possibility that the Company will sustain some loss if the
deficiencies are not corrected.
June 30, 2011
Home
Equity
June 30, 2012
$
$
The following table sets forth information regarding impaired loans as of the dates indicated
(dollars in thousands):
Commercial
1-4 Family
Real Estate Real Estate Construction
Consumer
Commercial
Total
Grade:
Pass
Special mention
Substandard
Doubtful
Loss
Total
$
68,592
-
1,300
-
111
70,003
$
$
63,703
Recorded
-
Investment
738
-
260
$
-
64,701
-
-
-
-
64,515
-
186
$
$
Unpaid
4,299
Principal
-
Balance
721
-
-
$
-
$
5,020
-
-
-
2
-
4,370
$
650
27,205
Related
-
Allowance
233
-
378
$
-
27,816
-
-
-
2
-
27,440
376
$
Interest
9,208
Income
-
Recognized
121
-
14
-
$
$
9,343
-
-
-
-
$
-
Average
181,546
8,539
$
Recorded
1,454
1,454
Investment
3,559
446
-
-
125
888
-
$
$
187,447
10,564
-
-
-
2
$
184,508
-
10,317
9,287
2,939
247
56
$
$
$
$
With no related allowance:
$
1-4 Family
Commercial real estate
Construction
Credit Risk Profile Based on Payment Activity
Home equity
Consumer
Commerical
Performing
Nonperforming
$
68,579
1,424
Total
With a related allowance:
$
70,003
$
64,701
$
5,020
$
27,816
$
9,343
$
10,564
$
187,447
-
-
The Company utilizes a 5 point internal loan rating system, largely basis on regulatory classifications, for 1-4
-
-
family real estate, commercial real estate, construction, home equity and commercial loans as follows:
-
-
-
-
-
-
-
-
Loans rated Pass: these are loans that are considered to be protected by the current net worth and paying
capacity of the obligor, or by the value of the asset or the underlying collateral.
1-4 Family
Commercial real estate
Construction
Home equity
Consumer
Commerical
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total:
Loans rated Special Mention: these loans have potential weaknesses that deserve management’s close
attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment
prospects for the asset at some future date.
1-4 Family
Commercial real estate
Construction
Loans rated Substandard: these loans are inadequately protected by the current net worth and paying capacity
Home equity
of the obligor of the collateral pledged, if any. Loans so classified have a well-defined weakness or
Consumer
weaknesses. They are characterized by the distinct possibility that the Company will sustain some loss if the
Commerical
deficiencies are not corrected.
Total
-
-
-
-
2
-
$
2
-
-
-
-
-
-
$
-
-
-
-
-
2
-
$
2
-
-
-
-
2
-
$
2
-
-
-
-
-
-
$
-
The following table sets forth information regarding impaired loans as of the dates indicated
(dollars in thousands):
June 30, 2012
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Interest
Income
Recognized
Average
Recorded
Investment
$
-
-
-
-
-
-
$
-
-
-
-
2
-
$
-
-
-
-
2
-
$
-
-
-
-
-
-
$
-
-
-
-
2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
2
-
$
2
-
-
-
-
2
-
$
2
-
-
-
-
-
-
$
-
-
-
-
-
2
-
$
2
With no related allowance:
1-4 Family
Commercial real estate
Construction
Home equity
Consumer
Commerical
With a related allowance:
1-4 Family
Commercial real estate
Construction
Home equity
Consumer
Commerical
Total:
1-4 Family
Commercial real estate
Construction
Home equity
Consumer
Commerical
Total
Loans rated Doubtful: these loans have all the weaknesses inherent in those classified Substandard with the
added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently
existing facts, conditions, and values, highly questionable and improbable.
Loans rated Doubtful: these loans have all the weaknesses inherent in those classified Substandard with the
added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently
existing facts, conditions, and values, highly questionable and improbable.
Loans rated Loss: these loans are considered uncollectible and of such little value that their continuance as
assets without establishment of a specific reserve is not warranted. This classification does not mean that an
asset has absolutely no recovery or salvage value, but, rather, that it is not practical or desirable to defer
writing off a basically worthless asset even though practical recovery may be effected in the future.
On an annual basis, or more often if needed, the Company formally reviews the ratings of all commercial
real estate, construction, and commercial business loans that have a principal balance of $500,000 or more.
Quarterly, the Company reviews the rating of any consumer loan, broadly defined, that is delinquent 90 days
or more. Likewise, quarterly, the Company reviews the rating of any commercial loan, broadly defined, that
is delinquent 60 days or more. Annually, the Company engages an independent third-party to review a
significant portion of loans within these segments. Management uses the results of these reviews as part of its
annual review process.
Loans rated Loss: these loans are considered uncollectible and of such little value that their continuance as
assets without establishment of a specific reserve is not warranted. This classification does not mean that an
asset has absolutely no recovery or salvage value, but, rather, that it is not practical or desirable to defer
writing off a basically worthless asset even though practical recovery may be effected in the future.
On an annual basis, or more often if needed, the Company formally reviews the ratings of all commercial
real estate, construction, and commercial business loans that have a principal balance of $500,000 or more.
Quarterly, the Company reviews the rating of any consumer loan, broadly defined, that is delinquent 90 days
or more. Likewise, quarterly, the Company reviews the rating of any commercial loan, broadly defined, that
is delinquent 60 days or more. Annually, the Company engages an independent third-party to review a
significant portion of loans within these segments. Management uses the results of these reviews as part of its
annual review process.
-30-
-31-
-30-
-31-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 4: Loans – continued
NOTE 4: Loans – continued
NOTE 4: Loans – continued
NOTE 4: Loans – continued
June 30, 2011
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Interest
Income
Recognized
Average
Recorded
Investment
$
-
$
-
-
-
-
-
-
$
-
-
-
-
-
-
$
-
-
-
-
-
289
179
479
-
-
57
289
179
479
-
-
57
1,004
400
268
650
378
14
182
400
268
650
378
14
182
1,892
$
$
111
89
171
378
14
125
111
89
171
378
14
125
888
$
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
$
-
-
-
-
-
-
145
90
240
-
1
29
145
90
240
-
1
29
505
With no related allowance:
1-4 Family
Commercial real estate
Construction
Home equity
Consumer
Commerical
With a related allowance:
1-4 Family
Commercial real estate
Construction
Home equity
Consumer
Commerical
Total:
1-4 Family
Commercial real estate
Construction
Home equity
Consumer
Commerical
Total
The following table sets forth information regarding the delinquencies within the loan portfolio
as of the dates indicated (dollars in thousands):
30-89 Days
Past Due
With no related allowance:
$
1-4 Family
Commercial real estate
Construction
Home equity
Consumer
Commerical
1-4 Family real estate
Commercial real estate
Construction
Home equity
Consumer
Commerical
Total
$
With a related allowance:
638
1,501
770
132
78
-
3,119
June 30, 2011
June 30, 2011
Unpaid
Principal
Balance
Recorded
Investment
90 Days
and
Greater
Total
Past Due
Related
Allowance
Recorded
Interest
Income
Recognized
Investment
>90 Days and
Still Accruing
Average
Recorded
Investment
Total
Loans
Current
$
$
$
$
-
$
1,424
-
186
-
650
-
376
-
56
-
247
2,939
$
$
-
$
2,062
-
1,687
-
1,420
-
508
-
134
-
247
6,058
67,941
63,014
3,600
27,308
9,209
10,317
181,389
$
-
$
-
-
-
-
-
70,003
64,701
5,020
27,816
9,343
10,564
187,447
$
$
$
-
-
-
-
-
-
-
$
-
-
-
-
-
$
-
289
400
Interest income not accrued on these loans and cash interest income was immaterial for the years
179
268
ended June 30, 2012 and 2011. The allowance for loan losses on nonaccrual loans as of June 30,
479
650
2012 and 2011 was $1,000 and $817,000, respectively. There were $2,000 ($0 net of loss
378
-
reserves of $2,000) and $1,892,000 ($1,004,000 net of loss reserves of $888,000) of loans
-
14
considered impaired at June 30, 2012 and 2011, respectively.
182
57
1-4 Family
Commercial real estate
Construction
Home equity
Consumer
Commerical
111
89
171
378
14
125
-
-
-
-
-
-
Total:
1-4 Family
Commercial real estate
Construction
Home equity
Consumer
Commerical
Total
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 of the Company, except
289
that directors, officers, and employees may be eligible to receive discounts on loan origination
179
costs.
479
-
Loans receivable from directors and senior officers, and their related parties, of the Company at
-
June 30, 2012 and 2011, were $1,787,000 ($7,998,000 including loans serviced for others) and
57
$1,813,000 ($8,558,000 including loans serviced for others), respectively. During the year
1,004
ended June 30, 2012, including loans sold and serviced for others, total principal additions
amounted to $481,000 and total principal payments amounted to $1,041,000. Interest income
from loans owned was $108,000 and $116,000 for the years ended June 30, 2012 and 2011,
respectively. The Bank serviced, for the benefit of others, $6,211,000 and $6,745,000 at June
30, 2012 and 2011, respectively, loans from directors and senior officers.
The following table sets forth information regarding the delinquencies within the loan portfolio
as of the dates indicated (dollars in thousands):
400
268
650
378
14
182
1,892
111
89
171
378
14
125
888
$
-
-
-
-
-
-
-
$
$
$
$
-
-
-
-
-
-
145
90
240
-
1
29
145
90
240
-
1
29
505
June 30, 2011
90 Days
30-89 Days
and
Total
Past Due
Greater
Past Due
Current
Total
Loans
Recorded
Investment
>90 Days and
Still Accruing
1-4 Family real estate
$
638
$
1,424
$
2,062
$
67,941
$
70,003
$
-
Commercial real estate
1,501
770
132
78
-
186
650
376
56
247
1,687
1,420
508
134
247
63,014
3,600
27,308
9,209
10,317
64,701
5,020
27,816
9,343
10,564
-
-
-
-
-
$
3,119
$
2,939
$
6,058
$
181,389
$
187,447
$
-
Construction
Home equity
Consumer
Commerical
Total
Interest income not accrued on these loans and cash interest income was immaterial for the years
ended June 30, 2012 and 2011. The allowance for loan losses on nonaccrual loans as of June 30,
2012 and 2011 was $1,000 and $817,000, respectively. There were $2,000 ($0 net of loss
reserves of $2,000) and $1,892,000 ($1,004,000 net of loss reserves of $888,000) of loans
considered impaired at June 30, 2012 and 2011, respectively.
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 of the 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, 2012 and 2011, were $1,787,000 ($7,998,000 including loans serviced for others) and
$1,813,000 ($8,558,000 including loans serviced for others), respectively. During the year
ended June 30, 2012, including loans sold and serviced for others, total principal additions
amounted to $481,000 and total principal payments amounted to $1,041,000. Interest income
from loans owned was $108,000 and $116,000 for the years ended June 30, 2012 and 2011,
respectively. The Bank serviced, for the benefit of others, $6,211,000 and $6,745,000 at June
30, 2012 and 2011, respectively, loans from directors and senior officers.
June 30, 2012
June 30, 2012
30-89 Days
Past Due
90 Days
and
Greater
Total
Past Due
Current
Total
Loans
1-4 Family real estate
Commercial real estate
Construction
Home equity
Consumer
Commerical
Total
$
$
$
$
613
-
-
362
221
171
1,367
501
91
-
227
37
747
1,603
$
$
1,114
91
-
589
258
918
2,970
60,557
64,581
1,455
23,120
8,520
14,425
172,658
61,671
64,672
1,455
23,709
8,778
15,343
175,628
$
$
$
$
Recorded
Investment
>90 Days and
Still Accruing
$
$
-
-
-
-
-
-
-
1-4 Family real estate
Commercial real estate
Construction
Home equity
Consumer
Commerical
Total
30-89 Days
Past Due
90 Days
and
Greater
Total
Past Due
Current
Total
Loans
$
$
$
$
613
-
-
362
221
171
1,367
501
91
-
227
37
747
1,603
$
$
1,114
91
-
589
258
918
2,970
60,557
64,581
1,455
23,120
8,520
14,425
172,658
61,671
64,672
1,455
23,709
8,778
15,343
175,628
$
$
$
$
Recorded
Investment
>90 Days and
Still Accruing
$
$
-
-
-
-
-
-
-
-32-
-33-
-32-
-33-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 4: Loans – continued
NOTE 4: Loans – continued
NOTE 4: Loans – continued
NOTE 4: Loans – continued
June 30, 2011
June 30, 2011
June 30, 2011
Unpaid
Principal
Balance
Recorded
Investment
90 Days
and
Greater
Total
Past Due
Related
Allowance
Recorded
Interest
Income
Recognized
Investment
>90 Days and
Still Accruing
Average
Recorded
Investment
Total
Loans
Current
30-89 Days
Past Due
90 Days
and
Greater
Total
Past Due
Current
Total
Loans
30-89 Days
Past Due
With no related allowance:
$
1-4 Family
Commercial real estate
Construction
Home equity
Consumer
Commerical
1-4 Family real estate
Commercial real estate
Construction
Home equity
Consumer
Commerical
Total
$
With a related allowance:
638
1,501
770
132
78
-
3,119
$
$
$
$
-
$
1,424
-
186
-
650
-
376
-
56
-
247
2,939
$
$
-
$
2,062
-
1,687
-
1,420
-
508
-
134
-
247
6,058
67,941
63,014
3,600
27,308
9,209
10,317
181,389
$
-
$
-
-
-
-
-
70,003
64,701
5,020
27,816
9,343
10,564
187,447
$
$
$
-
-
-
-
-
-
-
$
-
-
-
-
-
$
-
289
400
Interest income not accrued on these loans and cash interest income was immaterial for the years
179
268
ended June 30, 2012 and 2011. The allowance for loan losses on nonaccrual loans as of June 30,
479
650
2012 and 2011 was $1,000 and $817,000, respectively. There were $2,000 ($0 net of loss
378
-
reserves of $2,000) and $1,892,000 ($1,004,000 net of loss reserves of $888,000) of loans
-
14
considered impaired at June 30, 2012 and 2011, respectively.
182
57
1-4 Family
Commercial real estate
Construction
Home equity
Consumer
Commerical
111
89
171
378
14
125
-
-
-
-
-
-
Total:
1-4 Family
Commercial real estate
Construction
Home equity
Consumer
Commerical
Total
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 of the Company, except
289
that directors, officers, and employees may be eligible to receive discounts on loan origination
179
costs.
479
-
Loans receivable from directors and senior officers, and their related parties, of the Company at
-
June 30, 2012 and 2011, were $1,787,000 ($7,998,000 including loans serviced for others) and
57
$1,813,000 ($8,558,000 including loans serviced for others), respectively. During the year
1,004
ended June 30, 2012, including loans sold and serviced for others, total principal additions
amounted to $481,000 and total principal payments amounted to $1,041,000. Interest income
from loans owned was $108,000 and $116,000 for the years ended June 30, 2012 and 2011,
respectively. The Bank serviced, for the benefit of others, $6,211,000 and $6,745,000 at June
30, 2012 and 2011, respectively, loans from directors and senior officers.
The following table sets forth information regarding the delinquencies within the loan portfolio
as of the dates indicated (dollars in thousands):
400
268
650
378
14
182
1,892
111
89
171
378
14
125
888
$
-
-
-
-
-
-
-
$
$
$
$
-
-
-
-
-
-
145
90
240
-
1
29
145
90
240
-
1
29
505
Recorded
Investment
>90 Days and
Still Accruing
-
$
-
-
-
-
-
$
-
$
$
$
$
$
1-4 Family real estate
Commercial real estate
Construction
Home equity
Consumer
Commerical
Total
638
1,501
770
132
78
-
3,119
1,424
186
650
376
56
247
2,939
2,062
1,687
1,420
508
134
247
6,058
67,941
63,014
3,600
27,308
9,209
10,317
181,389
70,003
64,701
5,020
27,816
9,343
10,564
187,447
$
$
$
$
$
Interest income not accrued on these loans and cash interest income was immaterial for the years
ended June 30, 2012 and 2011. The allowance for loan losses on nonaccrual loans as of June 30,
2012 and 2011 was $1,000 and $817,000, respectively. There were $2,000 ($0 net of loss
reserves of $2,000) and $1,892,000 ($1,004,000 net of loss reserves of $888,000) of loans
considered impaired at June 30, 2012 and 2011, respectively.
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 of the 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, 2012 and 2011, were $1,787,000 ($7,998,000 including loans serviced for others) and
$1,813,000 ($8,558,000 including loans serviced for others), respectively. During the year
ended June 30, 2012, including loans sold and serviced for others, total principal additions
amounted to $481,000 and total principal payments amounted to $1,041,000. Interest income
from loans owned was $108,000 and $116,000 for the years ended June 30, 2012 and 2011,
respectively. The Bank serviced, for the benefit of others, $6,211,000 and $6,745,000 at June
30, 2012 and 2011, respectively, loans from directors and senior officers.
June 30, 2011
Recorded
Investment
Unpaid
Principal
Balance
Related
Interest
Income
Average
Recorded
Allowance
Recognized
Investment
$
-
$
-
$
-
$
$
-
-
-
-
-
289
179
479
-
-
57
289
179
479
-
-
57
-
-
-
-
-
400
268
650
378
14
182
400
268
650
378
14
182
-
-
-
-
-
111
89
171
378
14
125
111
89
171
378
14
125
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
145
90
240
-
1
29
145
90
240
-
1
29
505
With no related allowance:
1-4 Family
Commercial real estate
Construction
Home equity
Consumer
Commerical
With a related allowance:
1-4 Family
Commercial real estate
Construction
Home equity
Consumer
Commerical
Total:
1-4 Family
Commercial real estate
Construction
Home equity
Consumer
Commerical
Total
$
1,004
$
1,892
$
888
$
$
The following table sets forth information regarding the delinquencies within the loan portfolio
as of the dates indicated (dollars in thousands):
June 30, 2012
June 30, 2012
30-89 Days
Past Due
90 Days
and
Greater
Total
Past Due
Current
Total
Loans
1-4 Family real estate
$
613
$
501
$
1,114
$
60,557
$
61,671
$
Commercial real estate
Construction
Home equity
Consumer
Commerical
Total
-
-
362
221
171
91
-
227
37
747
91
-
589
258
918
64,581
1,455
23,120
8,520
14,425
64,672
1,455
23,709
8,778
15,343
$
1,367
$
1,603
$
2,970
$
172,658
$
175,628
$
Recorded
Investment
>90 Days and
Still Accruing
-
-
-
-
-
-
-
1-4 Family real estate
Commercial real estate
Construction
Home equity
Consumer
Commerical
Total
30-89 Days
Past Due
90 Days
and
Greater
Total
Past Due
Current
Total
Loans
$
$
$
$
613
-
-
362
221
171
1,367
501
91
-
227
37
747
1,603
$
$
1,114
91
-
589
258
918
2,970
60,557
64,581
1,455
23,120
8,520
14,425
172,658
61,671
64,672
1,455
23,709
8,778
15,343
175,628
$
$
$
$
Recorded
Investment
>90 Days and
Still Accruing
$
$
-
-
-
-
-
-
-
-32-
-33-
-32-
-33-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 5: Troubled Debt Restructurings
NOTE 5: Troubled Debt Restructurings – continued
NOTE 5: Troubled Debt Restructurings
NOTE 5: Troubled Debt Restructurings – continued
The Company adopted the amendments in Accounting Standards Update No. 2011-02 during the
quarter ended September 30, 2011. As required, the Company reassessed all restructurings that
occurred on or after the beginning of the current fiscal year (July 1, 2011) for identification as
troubled debt restructurings. The Company identified as troubled debt restructurings certain
receivables for which the allowance for credit losses had previously been measured under a
general allowance for credit losses methodology (ASC 450-20). Upon identifying the reassessed
receivables as troubled debt restructurings, the Company also identified them as impaired under
the guidance in ASC 310-10-35. The amendments in Accounting Standards Update No. 2011-02
require prospective application of the impairment measurement guidance in Section 310-10-35
for those receivables newly identified as impaired. As of June 30, 2012, the recorded investment
in receivables for which the allowance for credit losses was previously measured under a general
allowance for credit losses methodology and are now impaired under Section 310-10-35 was
$1,404,000 (310-40-65-1(b)), and the allowance for credit losses associated with those
receivables, on the basis of a current evaluation of loss, was $62,000 (310-40-65-1(b)).
Modification Categories
The Company offers a variety of modifications to borrowers. The modification categories
offered can generally be described in the following categories:
Rate Modification – A modification in which the interest rate is changed.
Term Modification – A modification in which the maturity date, timing of payments, or
frequency of payments is changed.
Interest Only Modification – A modification in which the loan is converted to interest only
payments for a period of time.
Payment Modification – A modification in which the dollar amount of the payment is changed,
other than an interest only modification described above.
Residential Mortgage (1-4 family)
The following tables present troubled debt restructurings as of June 30, 2012 and 2011:
June 30, 2012
Accrual
Status
Non-Accrual
Status
The Company adopted the amendments in Accounting Standards Update No. 2011-02 during the
quarter ended September 30, 2011. As required, the Company reassessed all restructurings that
occurred on or after the beginning of the current fiscal year (July 1, 2011) for identification as
troubled debt restructurings. The Company identified as troubled debt restructurings certain
receivables for which the allowance for credit losses had previously been measured under a
general allowance for credit losses methodology (ASC 450-20). Upon identifying the reassessed
receivables as troubled debt restructurings, the Company also identified them as impaired under
the guidance in ASC 310-10-35. The amendments in Accounting Standards Update No. 2011-02
require prospective application of the impairment measurement guidance in Section 310-10-35
for those receivables newly identified as impaired. As of June 30, 2012, the recorded investment
in receivables for which the allowance for credit losses was previously measured under a general
allowance for credit losses methodology and are now impaired under Section 310-10-35 was
$1,404,000 (310-40-65-1(b)), and the allowance for credit losses associated with those
receivables, on the basis of a current evaluation of loss, was $62,000 (310-40-65-1(b)).
Total
Modification
$
$
$
1,404
1,314
1,314
1,314
90
90
90
Real estate construction
Commercial Real Estate
Home equity
Commercial
Consumer
Total
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Modification Categories
The Company offers a variety of modifications to borrowers. The modification categories
offered can generally be described in the following categories:
Non-Accrual
Status
Total
Modification
Accrual
Status
June 30, 2011
Residential Mortgage (1-4 family)
Rate Modification – A modification in which the interest rate is changed.
-
-
Commercial Real Estate
-
-
-
-
Real estate construction
Term Modification – A modification in which the maturity date, timing of payments, or
frequency of payments is changed.
-
-
-
Home equity
Consumer
-
-
-
-
-
-
Interest Only Modification – A modification in which the loan is converted to interest only
payments for a period of time.
Commercial
-
-
-
Total
$
-
$
-
$
-
Payment Modification – A modification in which the dollar amount of the payment is changed,
other than an interest only modification described above.
$
-
$
-
$
-
The following tables present troubled debt restructurings as of June 30, 2012 and 2011:
Accrual
Status
June 30, 2012
Non-Accrual
Total
Status
Modification
90
90
$
90
$
1,314
$
1,404
1,314
1,314
Accrual
Status
June 30, 2011
Non-Accrual
Total
Status
Modification
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Residential Mortgage (1-4 family)
Commercial Real Estate
Real estate construction
Home equity
Consumer
Commercial
Total
Residential Mortgage (1-4 family)
Commercial Real Estate
Real estate construction
Home equity
Consumer
Commercial
Total
-
-
-
-
-
-
-
-
-
-
-
Combination Modification – Any other type of modification, including the use of multiple
categories above.
Combination Modification – Any other type of modification, including the use of multiple
categories above.
-34-
-35-
-34-
-35-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 5: Troubled Debt Restructurings
NOTE 5: Troubled Debt Restructurings – continued
NOTE 5: Troubled Debt Restructurings
NOTE 5: Troubled Debt Restructurings – continued
The Company adopted the amendments in Accounting Standards Update No. 2011-02 during the
quarter ended September 30, 2011. As required, the Company reassessed all restructurings that
occurred on or after the beginning of the current fiscal year (July 1, 2011) for identification as
troubled debt restructurings. The Company identified as troubled debt restructurings certain
receivables for which the allowance for credit losses had previously been measured under a
general allowance for credit losses methodology (ASC 450-20). Upon identifying the reassessed
receivables as troubled debt restructurings, the Company also identified them as impaired under
the guidance in ASC 310-10-35. The amendments in Accounting Standards Update No. 2011-02
require prospective application of the impairment measurement guidance in Section 310-10-35
for those receivables newly identified as impaired. As of June 30, 2012, the recorded investment
in receivables for which the allowance for credit losses was previously measured under a general
allowance for credit losses methodology and are now impaired under Section 310-10-35 was
$1,404,000 (310-40-65-1(b)), and the allowance for credit losses associated with those
receivables, on the basis of a current evaluation of loss, was $62,000 (310-40-65-1(b)).
Modification Categories
The Company offers a variety of modifications to borrowers. The modification categories
offered can generally be described in the following categories:
Rate Modification – A modification in which the interest rate is changed.
Term Modification – A modification in which the maturity date, timing of payments, or
frequency of payments is changed.
Interest Only Modification – A modification in which the loan is converted to interest only
payments for a period of time.
Payment Modification – A modification in which the dollar amount of the payment is changed,
other than an interest only modification described above.
Residential Mortgage (1-4 family)
The following tables present troubled debt restructurings as of June 30, 2012 and 2011:
June 30, 2012
Accrual
Status
Non-Accrual
Status
The Company adopted the amendments in Accounting Standards Update No. 2011-02 during the
quarter ended September 30, 2011. As required, the Company reassessed all restructurings that
occurred on or after the beginning of the current fiscal year (July 1, 2011) for identification as
troubled debt restructurings. The Company identified as troubled debt restructurings certain
receivables for which the allowance for credit losses had previously been measured under a
general allowance for credit losses methodology (ASC 450-20). Upon identifying the reassessed
receivables as troubled debt restructurings, the Company also identified them as impaired under
the guidance in ASC 310-10-35. The amendments in Accounting Standards Update No. 2011-02
require prospective application of the impairment measurement guidance in Section 310-10-35
for those receivables newly identified as impaired. As of June 30, 2012, the recorded investment
in receivables for which the allowance for credit losses was previously measured under a general
allowance for credit losses methodology and are now impaired under Section 310-10-35 was
$1,404,000 (310-40-65-1(b)), and the allowance for credit losses associated with those
receivables, on the basis of a current evaluation of loss, was $62,000 (310-40-65-1(b)).
Total
Modification
$
$
$
1,404
1,314
1,314
1,314
90
90
90
Real estate construction
Commercial Real Estate
Home equity
Commercial
Consumer
Total
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Modification Categories
The Company offers a variety of modifications to borrowers. The modification categories
offered can generally be described in the following categories:
Non-Accrual
Status
Total
Modification
Accrual
Status
June 30, 2011
Residential Mortgage (1-4 family)
Rate Modification – A modification in which the interest rate is changed.
-
-
Commercial Real Estate
-
-
-
-
Real estate construction
Term Modification – A modification in which the maturity date, timing of payments, or
frequency of payments is changed.
-
-
-
Home equity
Consumer
-
-
-
-
-
-
Interest Only Modification – A modification in which the loan is converted to interest only
payments for a period of time.
Commercial
-
-
-
Combination Modification – Any other type of modification, including the use of multiple
categories above.
Combination Modification – Any other type of modification, including the use of multiple
categories above.
Total
$
-
$
-
$
-
Payment Modification – A modification in which the dollar amount of the payment is changed,
other than an interest only modification described above.
The following tables present troubled debt restructurings as of June 30, 2012 and 2011:
Residential Mortgage (1-4 family)
Commercial Real Estate
Real estate construction
Home equity
Consumer
Commercial
Total
Accrual
Status
June 30, 2012
Non-Accrual
Status
Total
Modification
-
90
-
-
-
-
-
-
-
-
-
-
90
-
-
-
1,314
1,314
$
90
$
1,314
$
1,404
Accrual
Status
June 30, 2011
Non-Accrual
Status
Total
Modification
Residential Mortgage (1-4 family)
Commercial Real Estate
Real estate construction
Home equity
Consumer
Commercial
Total
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
$
-
$
-
-34-
-35-
-34-
-35-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 5: Troubled Debt Restructurings - continued
NOTE 6: Foreclosed Assets
NOTE 5: Troubled Debt Restructurings - continued
NOTE 6: Foreclosed Assets
The following tables present newly restructured loans that occurred as of June 30, 2012:
Foreclosed assets are presented net of an allowance for losses. An analysis of the allowance for
The following tables present newly restructured loans that occurred as of June 30, 2012:
losses on foreclosed assets is as follows:
Foreclosed assets are presented net of an allowance for losses. An analysis of the allowance for
losses on foreclosed assets is as follows:
Rate
Term
Interest Only
Payment
Combination
Total
Modification Modification Modification Modification Modification Modification
June 30, 2012
Pre-modification Outstanding
Recorded Investment:
Residential Mortgage (1-4 family)
Commercial Real Estate
Real estate construction
Home equity
Consumer
Commercial
Total
-
$
-
-
-
-
-
$
-
-
$
-
-
-
-
-
$
-
-
$
97
-
-
-
-
$
97
-
$
-
-
-
-
-
$
-
-
$
-
-
-
-
1,385
1,385
$
$
$
-
97
-
-
-
1,385
1,482
Rate
Term
Interest Only
Payment
Combination
Total
Modification Modification Modification Modification Modification Modification
June 30, 2012
Post-modification Outstanding
Recorded Investment:
Residential Mortgage (1-4 family)
Commercial Real Estate
Real estate construction
Home equity
Consumer
Commercial
Total
$
-
-
-
-
-
-
$
-
$
-
-
-
-
-
-
$
-
$
-
90
-
-
-
-
$
90
$
-
-
-
-
-
-
$
-
$
-
-
-
-
-
1,314
1,314
$
$
$
-
90
-
-
-
1,314
1,404
There were no loans modified as a troubled debt restructured loan within the previous 12 months
and for which there was a payment default at June 30, 2012 and 2011. A default for purposes of
this disclosure is a troubled debt restructured loan in which the borrower is 90 days past due or
results in the foreclosure and repossession of the applicable collateral. As of June 30, 2012 and
2011, the Company had no commitments to lend additional funds to loan customers whose terms
had been modified in trouble debt restructures.
Rate
Term
Interest Only
Payment
2012
Combination
2011
Total
Modification Modification Modification Modification Modification Modification
June 30, 2012
June 30,
Pre-modification Outstanding
Recorded Investment:
(Dollars in Thousands)
Balance at beginning of period
$
$
Balance at end of period
Provision for losses
Residential Mortgage (1-4 family)
Charge-offs
Commercial Real Estate
Real estate construction
Home equity
Consumer
Commercial
Total
-
$
-
-
-
-
-
The Company is servicing loans for the benefit of others totaling approximately $355,020,000
$
-
and $343,750,000 at June 30, 2012 and 2011, respectively. Servicing loans for others generally
consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to
investors, and foreclosure processing.
-
$
97
-
-
-
-
$
97
-
$
-
-
-
-
-
$
-
$
189
$
$
-
201
-
$
(12)
-
-
-
-
1,385
1,385
189
169
$
-
(58)
-
-
-
-
-
$
-
300
NOTE 7: Mortgage Servicing Rights
June 30, 2012
Custodial escrow balances maintained in connection with the foregoing loan servicing, and
Combination
included in demand deposits, were approximately $3,943,000 and $2,569,000 at June 30, 2012
and 2011, respectively.
Modification Modification Modification Modification Modification Modification
Interest Only
Payment
Term
Rate
Post-modification Outstanding
Recorded Investment:
$
(Dollars in Thousands)
Mortgage servicing rights
$
-
90
-
-
-
-
$
$
90
Residential Mortgage (1-4 family)
Commercial Real Estate
Real estate construction
Home equity
Consumer
Commercial
Total
The following is a summary of activity in mortgage servicing rights and the valuation allowance:
$
-
-
-
-
-
-
$
-
$
-
-
-
-
-
-
Balance at beginning of period
$
-
Mortgage servicing rights capitalized
Amortization of mortgage servicing rights
Balance at end of period
There were no loans modified as a troubled debt restructured loan within the previous 12 months
and for which there was a payment default at June 30, 2012 and 2011. A default for purposes of
this disclosure is a troubled debt restructured loan in which the borrower is 90 days past due or
Balance at beginning of period
results in the foreclosure and repossession of the applicable collateral. As of June 30, 2012 and
Provision (credited) to operations
2011, the Company had no commitments to lend additional funds to loan customers whose terms
Balance at end of period
had been modified in trouble debt restructures.
$
-
-
Years Ended June 30,
-
-
-
-
2,142
$
$
-
705
(629)
2,218
$
-
-
-
-
-
1,314
1,314
2,337
$
963
(1,158)
2,142
Valuation allowance
-
-
-
-
-
-
2011
2012
$
$
$
-
97
-
-
-
1,385
1,482
Total
-
90
-
-
-
1,314
1,404
(Dollars in Thousands)
Balance at beginning of period
Provision for losses
Charge-offs
Balance at end of period
NOTE 7: Mortgage Servicing Rights
June 30,
2012
2011
$
$
189
169
(58)
$
-
201
(12)
300
$
189
The Company is servicing loans for the benefit of others totaling approximately $355,020,000
and $343,750,000 at June 30, 2012 and 2011, 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 $3,943,000 and $2,569,000 at June 30, 2012
and 2011, respectively.
The following is a summary of activity in mortgage servicing rights and the valuation allowance:
(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
Years Ended June 30,
2012
2011
$
2,142
$
705
(629)
2,218
-
-
-
2,337
963
(1,158)
2,142
-
-
-
Net mortgage servicing rights
$
2,218
$
2,142
Net mortgage servicing rights
$
2,218
$
2,142
The fair values of these rights were $2,424,000 and $2,871,000 at June 30, 2012 and June 30,
2011, respectively. The fair value of servicing rights was determined using discount rates
ranging from 9.00% to 20.00%, prepayment speeds ranging from 220% to 420% PSA,
depending on stratification of the specific right. The fair value was also adjusted for the affect of
potential past dues and foreclosures.
The fair values of these rights were $2,424,000 and $2,871,000 at June 30, 2012 and June 30,
2011, respectively. The fair value of servicing rights was determined using discount rates
ranging from 9.00% to 20.00%, prepayment speeds ranging from 220% to 420% PSA,
depending on stratification of the specific right. The fair value was also adjusted for the affect of
potential past dues and foreclosures.
-36-
-37-
-36-
-37-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 5: Troubled Debt Restructurings - continued
NOTE 6: Foreclosed Assets
NOTE 5: Troubled Debt Restructurings - continued
NOTE 6: Foreclosed Assets
The following tables present newly restructured loans that occurred as of June 30, 2012:
Foreclosed assets are presented net of an allowance for losses. An analysis of the allowance for
The following tables present newly restructured loans that occurred as of June 30, 2012:
losses on foreclosed assets is as follows:
Foreclosed assets are presented net of an allowance for losses. An analysis of the allowance for
losses on foreclosed assets is as follows:
Rate
Term
Interest Only
Payment
Combination
Total
Modification Modification Modification Modification Modification Modification
June 30, 2012
-
97
-
-
-
1,385
1,482
Rate
Term
Interest Only
Payment
Combination
Total
Modification Modification Modification Modification Modification Modification
June 30, 2012
-
90
-
-
-
1,314
1,404
Residential Mortgage (1-4 family)
$
-
$
-
$
-
$
-
$
-
$
Pre-modification Outstanding
Recorded Investment:
Commercial Real Estate
Real estate construction
Home equity
Consumer
Commercial
Total
Post-modification Outstanding
Recorded Investment:
Commercial Real Estate
Real estate construction
Home equity
Consumer
Commercial
Total
$
-
$
-
$
97
$
-
$
1,385
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
97
90
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,385
1,314
$
-
$
-
$
90
$
-
$
1,314
$
There were no loans modified as a troubled debt restructured loan within the previous 12 months
and for which there was a payment default at June 30, 2012 and 2011. A default for purposes of
this disclosure is a troubled debt restructured loan in which the borrower is 90 days past due or
results in the foreclosure and repossession of the applicable collateral. As of June 30, 2012 and
2011, the Company had no commitments to lend additional funds to loan customers whose terms
had been modified in trouble debt restructures.
Residential Mortgage (1-4 family)
$
-
$
-
$
-
$
-
$
-
$
Rate
Term
Interest Only
Payment
2012
Combination
2011
Total
Modification Modification Modification Modification Modification Modification
June 30, 2012
June 30,
Pre-modification Outstanding
Recorded Investment:
(Dollars in Thousands)
Balance at beginning of period
$
$
Balance at end of period
Provision for losses
Residential Mortgage (1-4 family)
Charge-offs
Commercial Real Estate
Real estate construction
Home equity
Consumer
Commercial
Total
-
$
-
-
-
-
-
The Company is servicing loans for the benefit of others totaling approximately $355,020,000
$
-
and $343,750,000 at June 30, 2012 and 2011, respectively. Servicing loans for others generally
consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to
investors, and foreclosure processing.
-
$
97
-
-
-
-
$
97
-
$
-
-
-
-
-
$
-
$
$
$
-
201
-
$
(12)
-
-
-
-
1,385
1,385
189
189
169
$
-
(58)
-
-
-
-
-
$
-
300
NOTE 7: Mortgage Servicing Rights
June 30, 2012
Custodial escrow balances maintained in connection with the foregoing loan servicing, and
Combination
included in demand deposits, were approximately $3,943,000 and $2,569,000 at June 30, 2012
and 2011, respectively.
Modification Modification Modification Modification Modification Modification
Interest Only
Payment
Term
Rate
Post-modification Outstanding
Recorded Investment:
$
(Dollars in Thousands)
Mortgage servicing rights
$
-
90
-
-
-
-
$
$
90
Residential Mortgage (1-4 family)
Commercial Real Estate
Real estate construction
Home equity
Consumer
Commercial
Total
The following is a summary of activity in mortgage servicing rights and the valuation allowance:
$
-
-
-
-
-
-
$
-
$
-
-
-
-
-
-
Balance at beginning of period
$
-
Mortgage servicing rights capitalized
Amortization of mortgage servicing rights
Balance at end of period
There were no loans modified as a troubled debt restructured loan within the previous 12 months
and for which there was a payment default at June 30, 2012 and 2011. A default for purposes of
this disclosure is a troubled debt restructured loan in which the borrower is 90 days past due or
Balance at beginning of period
results in the foreclosure and repossession of the applicable collateral. As of June 30, 2012 and
Provision (credited) to operations
2011, the Company had no commitments to lend additional funds to loan customers whose terms
Balance at end of period
had been modified in trouble debt restructures.
$
-
-
Years Ended June 30,
-
-
-
-
2,142
$
$
-
705
(629)
2,218
$
-
-
-
-
-
1,314
1,314
2,337
$
963
(1,158)
2,142
Valuation allowance
-
-
-
-
-
-
2011
2012
$
$
$
-
97
-
-
-
1,385
1,482
Total
-
90
-
-
-
1,314
1,404
(Dollars in Thousands)
Balance at beginning of period
Provision for losses
Charge-offs
Balance at end of period
NOTE 7: Mortgage Servicing Rights
June 30,
2012
2011
$
$
$
189
169
(58)
-
201
(12)
300
$
189
The Company is servicing loans for the benefit of others totaling approximately $355,020,000
and $343,750,000 at June 30, 2012 and 2011, 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 $3,943,000 and $2,569,000 at June 30, 2012
and 2011, respectively.
The following is a summary of activity in mortgage servicing rights and the valuation allowance:
(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
Years Ended June 30,
2012
2011
$
$
2,142
705
(629)
2,218
-
-
-
2,337
963
(1,158)
2,142
-
-
-
Net mortgage servicing rights
$
2,218
$
2,142
Net mortgage servicing rights
$
2,218
$
2,142
The fair values of these rights were $2,424,000 and $2,871,000 at June 30, 2012 and June 30,
2011, respectively. The fair value of servicing rights was determined using discount rates
ranging from 9.00% to 20.00%, prepayment speeds ranging from 220% to 420% PSA,
depending on stratification of the specific right. The fair value was also adjusted for the affect of
potential past dues and foreclosures.
The fair values of these rights were $2,424,000 and $2,871,000 at June 30, 2012 and June 30,
2011, respectively. The fair value of servicing rights was determined using discount rates
ranging from 9.00% to 20.00%, prepayment speeds ranging from 220% to 420% PSA,
depending on stratification of the specific right. The fair value was also adjusted for the affect of
potential past dues and foreclosures.
-36-
-37-
-36-
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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 8: Premises and Equipment
NOTE 9: Deposits
NOTE 8: Premises and Equipment
A summary of the cost and accumulated depreciation of premises and equipment follows:
The composition of deposits is summarized as follows:
A summary of the cost and accumulated depreciation of premises and equipment follows:
(Dollars in Thousands)
Land, buildings, and improvements
Furniture and equipment
Accumulated depreciation
June 30,
2012
2011
$
$
19,235
4,052
23,287
(7,726)
19,189
4,246
23,435
(7,284)
$
15,561
$
16,151
Depreciation expense totaled $760,000 and $739,000 for the years ended June 30, 2012 and
2011, respectively.
June 30,
2012
Weighted
Average
Rate
(Dollars in Thousands)
Land, buildings, and improvements
Furniture and equipment
Balance
Accumulated depreciation
(Dollars in Thousands)
Noninterest checking
Interest bearing checking
Passbook savings
Money market accounts
Time certificates of deposits
$
23,425
46,125
40,591
28,489
81,359
0.00% $
0.05%
0.10%
0.14%
1.12%
2011
2012
June 30,
Weighted
Average
$
Rate
19,235
4,052
23,287
(7,726)
15,561
$
Balance
19,052
40,352
36,945
$
28,284
84,553
0.00%
0.05%
0.10%
$
0.12%
1.29%
2011
19,189
4,246
23,435
(7,284)
16,151
Depreciation expense totaled $760,000 and $739,000 for the years ended June 30, 2012 and
2011, respectively.
0.46% $
209,186
219,989
0.57%
$
Time certificates of deposits with balances of $100,000 and great was $26,356 and $25,463 at
June 30, 2012 and 2011, respectively.
Time certificates of deposits with balances of $100,000 and great was $26,356 and $25,463 at
June 30, 2012 and 2011, respectively.
At June 30, 2012, the scheduled maturities of time deposits are as follows:
At June 30, 2012, 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
$
54,748
14,695
5,977
701
5,238
$
81,359
Interest expense on deposits is summarized as follows:
Interest expense on deposits is summarized as follows:
(Dollars in Thousands)
Checking
Passbook savings
Money market accounts
Time certificates of deposits
Years Ended June 30,
2012
2011
$
$
24
39
37
974
28
48
46
1,270
$
1,074
$
1,392
-38-
-39-
-38-
-39-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 9: Deposits
The composition of deposits is summarized as follows:
June 30,
2012
2011
Weighted
Average
Rate
Balance
Balance
23,425
46,125
40,591
28,489
81,359
0.00% $
0.05%
0.10%
0.14%
1.12%
19,052
40,352
36,945
28,284
84,553
Weighted
Average
Rate
0.00%
0.05%
0.10%
0.12%
1.29%
$
219,989
0.46% $
209,186
0.57%
(Dollars in Thousands)
Noninterest checking
Interest bearing checking
Passbook savings
Money market accounts
Time certificates of deposits
$
(Dollars in Thousands)
Within one year
One to two years
Two to three years
Three to four years
Thereafter
Total
(Dollars in Thousands)
Checking
Passbook savings
Money market accounts
Time certificates of deposits
$
54,748
14,695
5,977
701
5,238
$
81,359
Years Ended June 30,
2012
2011
$
$
24
39
37
974
28
48
46
1,270
$
1,074
$
1,392
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 8: Premises and Equipment
NOTE 9: Deposits
NOTE 8: Premises and Equipment
A summary of the cost and accumulated depreciation of premises and equipment follows:
The composition of deposits is summarized as follows:
A summary of the cost and accumulated depreciation of premises and equipment follows:
(Dollars in Thousands)
Land, buildings, and improvements
Furniture and equipment
Accumulated depreciation
June 30,
2012
2011
$
19,235
$
4,052
23,287
(7,726)
19,189
4,246
23,435
(7,284)
$
15,561
$
16,151
Depreciation expense totaled $760,000 and $739,000 for the years ended June 30, 2012 and
2011, respectively.
June 30,
2012
Weighted
Average
Rate
(Dollars in Thousands)
Land, buildings, and improvements
Furniture and equipment
Balance
Accumulated depreciation
(Dollars in Thousands)
Noninterest checking
Interest bearing checking
Passbook savings
Money market accounts
Time certificates of deposits
$
23,425
46,125
40,591
28,489
81,359
0.00% $
0.05%
0.10%
0.14%
1.12%
2011
2012
June 30,
Weighted
Average
$
Rate
19,235
4,052
23,287
(7,726)
15,561
$
Balance
19,052
40,352
36,945
$
28,284
84,553
0.00%
0.05%
0.10%
$
0.12%
1.29%
2011
19,189
4,246
23,435
(7,284)
16,151
Depreciation expense totaled $760,000 and $739,000 for the years ended June 30, 2012 and
2011, respectively.
0.46% $
219,989
209,186
0.57%
$
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 9: Deposits
The composition of deposits is summarized as follows:
June 30,
2012
2011
(Dollars in Thousands)
Noninterest checking
Interest bearing checking
Passbook savings
Money market accounts
Time certificates of deposits
$
Balance
23,425
46,125
40,591
28,489
81,359
Weighted
Average
Rate
0.00% $
0.05%
0.10%
0.14%
1.12%
Balance
19,052
40,352
36,945
28,284
84,553
Weighted
Average
Rate
0.00%
0.05%
0.10%
0.12%
1.29%
$
219,989
0.46% $
209,186
0.57%
Time certificates of deposits with balances of $100,000 and great was $26,356 and $25,463 at
Time certificates of deposits with balances of $100,000 and greater was $26,356 and $25,463 at
June 30, 2012 and 2011, respectively.
June 30, 2012 and 2011, repectively.
Time certificates of deposits with balances of $100,000 and great was $26,356 and $25,463 at
Time certificates of deposits with balances of $100,000 and greater was $26,356 and $25,463 at
June 30, 2012 and 2011, respectively.
June 30, 2012 and 2011, repectively.
At June 30, 2012, the scheduled maturities of time deposits are as follows:
At June 30, 2012, 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
$
54,748
14,695
5,977
701
5,238
$
81,359
(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:
Interest expense on deposits is summarized as follows:
(Dollars in Thousands)
Checking
Passbook savings
Money market accounts
Time certificates of deposits
Years Ended June 30,
2012
2011
$
$
24
39
37
974
28
48
46
1,270
$
1,074
$
1,392
(Dollars in Thousands)
Checking
Passbook savings
Money market accounts
Time certificates of deposits
$
54,748
14,695
5,977
701
5,238
$
81,359
Years Ended June 30,
2012
2011
$
$
24
39
37
974
28
48
46
1,270
$
1,074
$
1,392
-38-
-39-
-38-
-39-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 9: Deposits – continued
NOTE 10: Advances from the Federal Home Loan Bank and Other Borrowings – continued
NOTE 9: Deposits – continued
NOTE 10: Advances from the Federal Home Loan Bank and Other Borrowings – continued
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 of the Dodd-Frank
Wall Street Reform and Consumer Protection Act. At June 30, 2012 the Company held
$12,335,000 in non-interest bearing deposit accounts that included balances of $250,000 or
more. Non-interest bearing transaction accounts have unlimited deposit insurance through
December 31, 2012. At June 30, 2012 the Company held $23,425,000, in noninterest bearing
accounts.
At June 30, 2012 and 2011, the Company reclassified $28,000 and $62,000, respectively, in
overdrawn deposits as loans.
Directors’ and senior officers’ deposit accounts at June 30, 2012 and 2011, were $577,000 and
$266,000, respectively.
NOTE 10: Advances from the Federal Home Loan Bank and Other Borrowings
Advances from the Federal Home Loan Bank of Seattle 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,
2012
2011
$
$
16,200
9,200
9,200
7,200
200
696
18,200
16,200
9,200
9,200
7,200
896
$
42,696
$
60,896
The advances are due at maturity. The advances are subject to prepayment penalties. The
interest rates on these 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 $10,000 as of June 30, 2012. At June 30, 2012 and 2011, the Company exceeded
the collateral requirements of the 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, 2012, was 30% of total Bank assets, or approximately $94.4 million. The balance of
advances was $33,696,000 and $37,896,000 at June 30, 2012 and 2011, respectively.
Other Borrowings
The Bank had $9,000,000 in structured repurchase agreements with PNC Financial Service
Group, Inc. (“PNC”) at June 30, 2012, and $23,000,000 at June 30, 2011. These agreements are
collateralized by investment securities. The carrying value of these securities was $11,143,000
as of June 30, 2012. These agreements include terms, under certain conditions, which allow PNC
to exercise a call option.
-40-
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, 2012 and 2011.
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 of the Dodd-Frank
Wall Street Reform and Consumer Protection Act. At June 30, 2012 the Company held
$12,335,000 in non-interest bearing deposit accounts that included balances of $250,000 or
more. Non-interest bearing transaction accounts have unlimited deposit insurance through
December 31, 2012. At June 30, 2012 the Company held $23,425,000, in noninterest bearing
accounts.
The Bank has a $10,000,000 Federal Funds line of credit with Zions Bank. The balance was $0
as of June 30, 2012 and 2011.
At June 30, 2012 and 2011, the Company reclassified $28,000 and $62,000, respectively, in
The Bank has a $7,000,000 Federal Funds line of credit with Stockman Bank. The balance was
overdrawn deposits as loans.
$0 as of June 30, 2012 and 2011.
Federal Reserve Bank Discount Window
Directors’ and senior officers’ deposit accounts at June 30, 2012 and 2011, were $577,000 and
$266,000, respectively.
NOTE 10: Advances from the Federal Home Loan Bank and Other Borrowings
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 at the Federal Reserve Bank that had
a total carrying value of $2,120,000 as of June 30, 2012. The account had $0 balance as of June
30, 2012 and 2011.
Advances from the Federal Home Loan Bank of Seattle and other borrowings mature as follows:
June 30,
For all borrowings outstanding the weighted average interest rate for advances at June 30, 2012
and 2011 was 3.49% and 3.79%, respectively. The weighted average amount outstanding was
$58,806,000 and $69,163,000 for the years ended June 30, 2012 and 2011, respectively.
$
$
2012
2011
The maximum amount outstanding at any month-end was $60,879,000 and $68,346,000 during
the years ended June 30, 2012 and 2011, respectively.
(Dollars in Thousands)
Within one year
One to two years
Two to three years
Three to four years
Four to five years
Thereafter
16,200
9,200
9,200
7,200
200
696
18,200
16,200
9,200
9,200
7,200
896
NOTE 11: Subordinated Debentures
$
$
Total
42,696
60,896
Federal Home Loan Advances
On September 28, 2005, the Company completed the private placement of $5,155,000 in
subordinated debentures to Eagle Bancorp Statutory Trust I (“the Trust”). The Trust funded the
purchase of the subordinated debentures through the sale of trust 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 Trust 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 was fixed at 6.02%
until December 15, 2010 then became variable at 3-Month LIBOR plus 1.42%, making the rate
1.881% and 1.667% as of June 30, 2012, and 2011, respectively. Dividends on the preferred
securities are cumulative and the Trust 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.
The advances are due at maturity. The advances are subject to prepayment penalties. The
interest rates on these 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 $10,000 as of June 30, 2012. At June 30, 2012 and 2011, the Company exceeded
the collateral requirements of the 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, 2012, was 30% of total Bank assets, or approximately $94.4 million. The balance of
advances was $33,696,000 and $37,896,000 at June 30, 2012 and 2011, respectively.
For the years ended June 30, 2012 and June 30, 2011, interest expense on the subordinated
debentures was $97,000 and $192,000, respectively.
Other Borrowings
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.
The Bank had $9,000,000 in structured repurchase agreements with PNC Financial Service
Group, Inc. (“PNC”) at June 30, 2012, and $23,000,000 at June 30, 2011. These agreements are
collateralized by investment securities. The carrying value of these securities was $11,143,000
as of June 30, 2012. These agreements include terms, under certain conditions, which allow PNC
to exercise a call option.
-41-
-40-
-41-
Federal Funds Purchased
June 30, 2012 and 2011.
The Bank has a $7,000,000 Federal Funds line of credit with PNC. The balance was $0 as of
The Bank has a $10,000,000 Federal Funds line of credit with Zions Bank. The balance was $0
as of June 30, 2012 and 2011.
The Bank has a $7,000,000 Federal Funds line of credit with Stockman Bank. The balance was
$0 as of June 30, 2012 and 2011.
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 at the Federal Reserve Bank that had
a total carrying value of $2,120,000 as of June 30, 2012. The account had $0 balance as of June
30, 2012 and 2011.
For all borrowings outstanding the weighted average interest rate for advances at June 30, 2012
and 2011 was 3.49% and 3.79%, respectively. The weighted average amount outstanding was
$58,806,000 and $69,163,000 for the years ended June 30, 2012 and 2011, respectively.
The maximum amount outstanding at any month-end was $60,879,000 and $68,346,000 during
the years ended June 30, 2012 and 2011, respectively.
On September 28, 2005, the Company completed the private placement of $5,155,000 in
subordinated debentures to Eagle Bancorp Statutory Trust I (“the Trust”). The Trust funded the
purchase of the subordinated debentures through the sale of trust 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 Trust 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 was fixed at 6.02%
until December 15, 2010 then became variable at 3-Month LIBOR plus 1.42%, making the rate
1.881% and 1.667% as of June 30, 2012, and 2011, respectively. Dividends on the preferred
securities are cumulative and the Trust 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, 2012 and June 30, 2011, interest expense on the subordinated
debentures was $97,000 and $192,000, respectively.
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 11: Subordinated Debentures
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 9: Deposits – continued
NOTE 10: Advances from the Federal Home Loan Bank and Other Borrowings – continued
NOTE 9: Deposits – continued
NOTE 10: Advances from the Federal Home Loan Bank and Other Borrowings – continued
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 of the Dodd-Frank
Wall Street Reform and Consumer Protection Act. At June 30, 2012 the Company held
$12,335,000 in non-interest bearing deposit accounts that included balances of $250,000 or
more. Non-interest bearing transaction accounts have unlimited deposit insurance through
December 31, 2012. At June 30, 2012 the Company held $23,425,000, in noninterest bearing
accounts.
overdrawn deposits as loans.
$266,000, respectively.
At June 30, 2012 and 2011, the Company reclassified $28,000 and $62,000, respectively, in
Directors’ and senior officers’ deposit accounts at June 30, 2012 and 2011, were $577,000 and
NOTE 10: Advances from the Federal Home Loan Bank and Other Borrowings
Advances from the Federal Home Loan Bank of Seattle 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,
2012
2011
$
16,200
$
9,200
9,200
7,200
200
696
18,200
16,200
9,200
9,200
7,200
896
$
42,696
$
60,896
The advances are due at maturity. The advances are subject to prepayment penalties. The
interest rates on these 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 $10,000 as of June 30, 2012. At June 30, 2012 and 2011, the Company exceeded
the collateral requirements of the 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, 2012, was 30% of total Bank assets, or approximately $94.4 million. The balance of
advances was $33,696,000 and $37,896,000 at June 30, 2012 and 2011, respectively.
Other Borrowings
The Bank had $9,000,000 in structured repurchase agreements with PNC Financial Service
Group, Inc. (“PNC”) at June 30, 2012, and $23,000,000 at June 30, 2011. These agreements are
collateralized by investment securities. The carrying value of these securities was $11,143,000
as of June 30, 2012. These agreements include terms, under certain conditions, which allow PNC
to exercise a call option.
-40-
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, 2012 and 2011.
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 of the Dodd-Frank
Wall Street Reform and Consumer Protection Act. At June 30, 2012 the Company held
$12,335,000 in non-interest bearing deposit accounts that included balances of $250,000 or
more. Non-interest bearing transaction accounts have unlimited deposit insurance through
December 31, 2012. At June 30, 2012 the Company held $23,425,000, in noninterest bearing
accounts.
The Bank has a $10,000,000 Federal Funds line of credit with Zions Bank. The balance was $0
as of June 30, 2012 and 2011.
At June 30, 2012 and 2011, the Company reclassified $28,000 and $62,000, respectively, in
The Bank has a $7,000,000 Federal Funds line of credit with Stockman Bank. The balance was
overdrawn deposits as loans.
$0 as of June 30, 2012 and 2011.
Federal Reserve Bank Discount Window
Directors’ and senior officers’ deposit accounts at June 30, 2012 and 2011, were $577,000 and
$266,000, respectively.
NOTE 10: Advances from the Federal Home Loan Bank and Other Borrowings
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 at the Federal Reserve Bank that had
a total carrying value of $2,120,000 as of June 30, 2012. The account had $0 balance as of June
30, 2012 and 2011.
Advances from the Federal Home Loan Bank of Seattle and other borrowings mature as follows:
June 30,
For all borrowings outstanding the weighted average interest rate for advances at June 30, 2012
and 2011 was 3.49% and 3.79%, respectively. The weighted average amount outstanding was
$58,806,000 and $69,163,000 for the years ended June 30, 2012 and 2011, respectively.
$
$
2012
2011
The maximum amount outstanding at any month-end was $60,879,000 and $68,346,000 during
the years ended June 30, 2012 and 2011, respectively.
(Dollars in Thousands)
Within one year
One to two years
Two to three years
Three to four years
Four to five years
Thereafter
16,200
9,200
9,200
7,200
200
696
18,200
16,200
9,200
9,200
7,200
896
NOTE 11: Subordinated Debentures
$
$
Total
42,696
60,896
Federal Home Loan Advances
On September 28, 2005, the Company completed the private placement of $5,155,000 in
subordinated debentures to Eagle Bancorp Statutory Trust I (“the Trust”). The Trust funded the
purchase of the subordinated debentures through the sale of trust 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 Trust 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 was fixed at 6.02%
until December 15, 2010 then became variable at 3-Month LIBOR plus 1.42%, making the rate
1.881% and 1.667% as of June 30, 2012, and 2011, respectively. Dividends on the preferred
securities are cumulative and the Trust 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.
The advances are due at maturity. The advances are subject to prepayment penalties. The
interest rates on these 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 $10,000 as of June 30, 2012. At June 30, 2012 and 2011, the Company exceeded
the collateral requirements of the 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, 2012, was 30% of total Bank assets, or approximately $94.4 million. The balance of
advances was $33,696,000 and $37,896,000 at June 30, 2012 and 2011, respectively.
For the years ended June 30, 2012 and June 30, 2011, interest expense on the subordinated
debentures was $97,000 and $192,000, respectively.
Other Borrowings
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.
The Bank had $9,000,000 in structured repurchase agreements with PNC Financial Service
Group, Inc. (“PNC”) at June 30, 2012, and $23,000,000 at June 30, 2011. These agreements are
collateralized by investment securities. The carrying value of these securities was $11,143,000
as of June 30, 2012. 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, 2012 and 2011.
The Bank has a $10,000,000 Federal Funds line of credit with Zions Bank. The balance was $0
as of June 30, 2012 and 2011.
The Bank has a $7,000,000 Federal Funds line of credit with Stockman Bank. The balance was
$0 as of June 30, 2012 and 2011.
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 at the Federal Reserve Bank that had
a total carrying value of $2,120,000 as of June 30, 2012. The account had $0 balance as of June
30, 2012 and 2011.
For all borrowings outstanding the weighted average interest rate for advances at June 30, 2012
and 2011 was 3.49% and 3.79%, respectively. The weighted average amount outstanding was
$58,806,000 and $69,163,000 for the years ended June 30, 2012 and 2011, respectively.
The maximum amount outstanding at any month-end was $60,879,000 and $68,346,000 during
the years ended June 30, 2012 and 2011, respectively.
NOTE 11: Subordinated Debentures
On September 28, 2005, the Company completed the private placement of $5,155,000 in
subordinated debentures to Eagle Bancorp Statutory Trust I (“the Trust”). The Trust funded the
purchase of the subordinated debentures through the sale of trust 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 Trust 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 was fixed at 6.02%
until December 15, 2010 then became variable at 3-Month LIBOR plus 1.42%, making the rate
1.881% and 1.667% as of June 30, 2012, and 2011, respectively. Dividends on the preferred
securities are cumulative and the Trust 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, 2012 and June 30, 2011, interest expense on the subordinated
debentures was $97,000 and $192,000, respectively.
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.
-41-
-40-
-41-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 12: Legal Contingencies
NOTE 13: Income Taxes – continued
NOTE 12: Legal Contingencies
NOTE 13: Income Taxes – continued
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.
NOTE 13: Income Taxes
The components of the Company’s income tax provision are as follows:
Various legal claims also arise from time to time in the normal course of business which, in the
A reconciliation of the Company’s effective income tax provision to the statutory federal income
opinion of management, will have no material effect on the Company’s financial statements.
tax rate is as follows:
NOTE 13: Income Taxes
Years Ended June 30,
The components of the Company’s income tax provision are as follows:
2012
2011
(Dollars in Thousands)
Current
U.S. federal
Montana
Deferred
U.S. federal
Montana
Total
Years Ended June 30,
2012
2011
$
$
579
115
694
102
(4)
98
1,436
389
1,825
(600)
(169)
(769)
$
792
$
1,056
The nature and components of deferred tax assets and liabilities, which are a component of other
liabilities in 2012 and 2011 in the accompanying statement of financial condition, are as follows:
(Dollars in Thousands)
Deferred tax assets:
Deferred compensation
Loans receivable
Deferred loan fees
Other
Total deferred tax assets
Deferred tax liabilities:
Premises and equipment
FHLB stock
Securities available-for-sale
Unrealized gain on hedging
Total deferred tax liabilities
$
June 30,
2012
2011
$
422
373
102
299
1,196
965
529
1,485
78
3,057
345
402
69
311
1,127
852
474
823
5
2,154
Net deferred tax liability
$
(1,861)
$
(1,027)
(Dollars in Thousands)
Current
(Dollars in Thousands)
Federal income taxes at the statutory rate of 34%
State income taxes
Nontaxable income
U.S. federal
Other, net
Montana
$
1,010
200
(646)
$
228
Years Ended June 30,
$
1,178
2012
235
(563)
$
206
2011
579
115
694
1,436
389
1,825
Income tax expense
Deferred
$
792
$
1,056
U.S. federal
Effective tax rate
Montana
(600)
(169)
(769)
Prior to January 1, 1987, the Company was allowed a special bad debt deduction limited
generally in the current year to 32% (net of preference tax) of otherwise taxable income and
1,056
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 earnings include approximately $852,000 at both June 30,
2011 and 2010, for which federal income tax has not been provided.
The nature and components of deferred tax assets and liabilities, which are a component of other
liabilities in 2012 and 2011 in the accompanying statement of financial condition, are as follows:
102
30.5%
(4)
98
26.7%
Total
792
$
$
June 30,
NOTE 14: Supplemental Cash Flow Information
(Dollars in Thousands)
Deferred tax assets:
Deferred compensation
Loans receivable
Deferred loan fees
(Dollars in Thousands)
Other
Supplemental Cash Flow Information
Total deferred tax assets
Cash paid during the year for interest
Deferred tax liabilities:
Cash paid during the year for income taxes
Non-Cash Investing Activities
Premises and equipment
FHLB stock
Increase in market
Securities available-for-sale
value of securities available for sale
Unrealized gain on hedging
Mortgage servicing rights capitalized
Total deferred tax liabilities
Loans transferred to real estate and
other assets acquired in foreclosure
Net deferred tax liability
ESOP shares released
$
$
2012
2011
NOTE 14: Supplemental Cash Flow Information
Years Ended June 30,
$
2012
$
2011
422
373
102
299
1,196
$
3,261
256
965
529
1,485
$
78
3,057
898
705
345
402
69
311
1,127
852
474
823
5
2,154
4,108
881
909
963
1,741
$
168
(1,861)
$
930
173
(1,027)
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.
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.
-42-
-43-
-42-
-43-
A reconciliation of the Company’s effective income tax provision to the statutory federal income
tax rate is as follows:
Federal income taxes at the statutory rate of 34%
$
1,010
$
1,178
Years Ended June 30,
2012
2011
200
(646)
228
235
(563)
206
$
792
$
1,056
26.7%
30.5%
(Dollars in Thousands)
State income taxes
Nontaxable income
Other, net
Income tax expense
Effective tax rate
Prior to January 1, 1987, the Company was allowed a special bad debt deduction limited
generally in the current year to 32% (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 earnings include approximately $852,000 at both June 30,
2011 and 2010, for which federal income tax has not been provided.
(Dollars in Thousands)
Supplemental Cash Flow Information
Cash paid during the year for interest
Cash paid during the year for income taxes
3,261
$
256
4,108
881
Non-Cash Investing Activities
Increase in market
value of securities available for sale
Mortgage servicing rights capitalized
Loans transferred to real estate and
other assets acquired in foreclosure
ESOP shares released
Years Ended June 30,
2012
2011
$
$
$
898
705
1,741
168
909
963
930
173
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 12: Legal Contingencies
NOTE 13: Income Taxes – continued
NOTE 12: Legal Contingencies
NOTE 13: Income Taxes – continued
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.
NOTE 13: Income Taxes
The components of the Company’s income tax provision are as follows:
Various legal claims also arise from time to time in the normal course of business which, in the
A reconciliation of the Company’s effective income tax provision to the statutory federal income
opinion of management, will have no material effect on the Company’s financial statements.
tax rate is as follows:
NOTE 13: Income Taxes
Years Ended June 30,
The components of the Company’s income tax provision are as follows:
2012
2011
(Dollars in Thousands)
Current
(Dollars in Thousands)
Federal income taxes at the statutory rate of 34%
State income taxes
Nontaxable income
U.S. federal
Other, net
Montana
$
1,010
200
(646)
$
228
Years Ended June 30,
$
1,178
2012
235
(563)
$
206
2011
579
115
694
1,436
389
1,825
Income tax expense
Deferred
$
792
$
1,056
U.S. federal
Effective tax rate
Montana
(600)
(169)
(769)
Prior to January 1, 1987, the Company was allowed a special bad debt deduction limited
generally in the current year to 32% (net of preference tax) of otherwise taxable income and
1,056
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 earnings include approximately $852,000 at both June 30,
2011 and 2010, for which federal income tax has not been provided.
The nature and components of deferred tax assets and liabilities, which are a component of other
liabilities in 2012 and 2011 in the accompanying statement of financial condition, are as follows:
102
30.5%
(4)
98
26.7%
Total
792
$
$
June 30,
A reconciliation of the 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,
2012
2011
$
$
1,010
200
(646)
228
1,178
235
(563)
206
$
792
$
1,056
26.7%
30.5%
Prior to January 1, 1987, the Company was allowed a special bad debt deduction limited
generally in the current year to 32% (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 earnings include approximately $852,000 at both June 30,
2011 and 2010, for which federal income tax has not been provided.
NOTE 14: Supplemental Cash Flow Information
(Dollars in Thousands)
Deferred tax assets:
Deferred compensation
Loans receivable
Deferred loan fees
(Dollars in Thousands)
Other
Supplemental Cash Flow Information
Total deferred tax assets
Cash paid during the year for interest
Deferred tax liabilities:
Cash paid during the year for income taxes
Non-Cash Investing Activities
Premises and equipment
FHLB stock
Increase in market
Securities available-for-sale
value of securities available for sale
Unrealized gain on hedging
Mortgage servicing rights capitalized
Total deferred tax liabilities
Loans transferred to real estate and
other assets acquired in foreclosure
Net deferred tax liability
ESOP shares released
$
$
2012
2011
NOTE 14: Supplemental Cash Flow Information
Years Ended June 30,
$
2012
$
2011
422
373
102
299
1,196
$
3,261
256
965
529
1,485
$
78
3,057
898
705
345
402
69
311
1,127
852
474
823
5
2,154
4,108
881
909
963
1,741
$
168
(1,861)
$
930
173
(1,027)
(Dollars in Thousands)
Supplemental Cash Flow Information
Cash paid during the year for interest
Cash paid during the year for income taxes
Non-Cash Investing Activities
Increase in market
value of securities available for sale
Mortgage servicing rights capitalized
Loans transferred to real estate and
other assets acquired in foreclosure
ESOP shares released
Years Ended June 30,
2012
2011
$
$
$
$
3,261
256
898
705
1,741
168
4,108
881
909
963
930
173
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.
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.
-42-
-43-
-42-
-43-
The nature and components of deferred tax assets and liabilities, which are a component of other
liabilities in 2012 and 2011 in the accompanying statement of financial condition, are as follows:
(Dollars in Thousands)
Current
U.S. federal
Montana
Deferred
U.S. federal
Montana
Total
(Dollars in Thousands)
Deferred tax assets:
Deferred compensation
Loans receivable
Deferred loan fees
Other
Total deferred tax assets
Deferred tax liabilities:
Premises and equipment
FHLB stock
Securities available-for-sale
Unrealized gain on hedging
Total deferred tax liabilities
Years Ended June 30,
2012
2011
$
$
579
115
694
102
(4)
98
1,436
389
1,825
(600)
(169)
(769)
$
792
$
1,056
June 30,
2012
2011
$
$
1,196
1,127
422
373
102
299
965
529
1,485
78
3,057
345
402
69
311
852
474
823
5
2,154
Net deferred tax liability
$
(1,861)
$
(1,027)
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 15: Regulatory Capital Requirements
NOTE 15: Regulatory Capital Requirements – continued
NOTE 15: Regulatory Capital Requirements
NOTE 15: Regulatory Capital Requirements – continued
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, 2012 and
2011, that the Bank meets all capital adequacy requirements to which it is subject.
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 and ratios are
presented in the table below:
(Dollars in Thousands)
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.
Minimum
Capital
Requirement
Amount
Amount
Amount
Actual
Ratio
Ratio
Ratio
Minimum
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
June 30, 2012:
$
58,001
43,339
$
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, 2012 and
2011, that the Bank meets all capital adequacy requirements to which it is subject.
8.00 % $
8.00
28.85 %
21.91
N/A
19,779
16,082
15,823
N/A %
10.00
56,376
41,714
28.04
21.09
8,041
7,911
4.00
4.00
N/A
11,867
N/A
6.00
Tier I Capital to
Risk Weighted Assets
Consolidated
Bank
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 and ratios are
presented in the table below:
Total Risk-based 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, 2011:
Total Risk-based Capital
to Risk Weighted Assets
56,376
41,714
17.43
13.40
9,704
9,339
3.00
3.00
N/A
15,565
N/A
5.00
56,376
41,714
17.43
13.40
9,704
9,339
3.00
3.00
N/A
15,565
N/A
5.00
56,376
41,714
17.43
13.40
4,852
4,670
1.50
1.50
N/A
N/A
N/A
N/A
56,376
41,714
17.43
13.40
4,852
4,670
1.50
1.50
N/A
N/A
N/A
N/A
Consolidated
Bank
$
56,462
41,887
26.19 %
19.70
$
17,248
17,007
8.00 % $
8.00
N/A
21,259
N/A %
10.00
Consolidated
Bank
$
56,462
26.19 %
$
17,248
8.00 % $
N/A
N/A %
41,887
19.70
17,007
8.00
21,259
10.00
Tier I Capital to
Risk Weighted Assets
Consolidated
Bank
Tier I Capital to
Adjusted Total Assets
Consolidated
Bank
Tangible Capital to
Adjusted Total Assets
Consolidated
Bank
55,551
40,975
25.77
19.27
8,624
8,504
4.00
4.00
N/A
12,755
N/A
6.00
55,551
40,975
25.77
19.27
8,624
8,504
4.00
4.00
N/A
12,755
N/A
6.00
55,551
40,975
16.92
13.05
9,850
9,421
3.00
3.00
N/A
15,701
N/A
5.00
55,551
40,975
16.92
13.05
9,850
9,421
3.00
3.00
N/A
15,701
N/A
5.00
55,551
40,975
16.92
13.05
4,925
4,710
1.50
1.50
N/A
N/A
N/A
N/A
55,551
40,975
16.92
13.05
4,925
4,710
1.50
1.50
N/A
N/A
N/A
N/A
-44-
-45-
-44-
-45-
(Dollars in Thousands)
Actual
June 30, 2012:
Amount
Ratio
Amount
Ratio
Amount
Ratio
Minimum
Capital
Requirement
Minimum
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
$
58,001
28.85 %
$
16,082
8.00 % $
N/A
N/A %
43,339
21.91
15,823
8.00
19,779
10.00
56,376
41,714
28.04
21.09
8,041
7,911
4.00
4.00
N/A
11,867
N/A
6.00
Total Risk-based Capital
to Risk Weighted Assets
Consolidated
Bank
Tier I 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, 2011:
Total Risk-based Capital
to Risk Weighted Assets
Tier I Capital to
Risk Weighted Assets
Consolidated
Bank
Tier I Capital to
Adjusted Total Assets
Consolidated
Bank
Tangible Capital to
Adjusted Total Assets
Consolidated
Bank
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 15: Regulatory Capital Requirements
NOTE 15: Regulatory Capital Requirements – continued
NOTE 15: Regulatory Capital Requirements
NOTE 15: Regulatory Capital Requirements – continued
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, 2012 and
2011, that the Bank meets all capital adequacy requirements to which it is subject.
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 and ratios are
presented in the table below:
(Dollars in Thousands)
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.
Minimum
Capital
Requirement
Amount
Amount
Amount
Actual
Ratio
Ratio
Ratio
Minimum
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
June 30, 2012:
$
58,001
43,33
7
8.00 % $
Quantitative measuon to ensure capital adequacy require the Bank to
8.00
maintain minimum amounts an 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, 2012 and
2011, that the Bank meets all capital adequacy requirements to which it is subject.
28.85 %
21.91
N/A
19,779
16,082
15,823
N/A %
10.00
$
56,376
41,714
28.04
21.09
8,041
7,911
4.00
4.00
N/A
11,867
N/A
6.00
Tier I Capital to
Risk Weighted Assets
Consolidated
Bank
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 and ratios are
presented in the table below:
Total Risk-based Capital
to Risk Weighted Assets
Consolidated
Bank
56,376
41,714
17.43
13.40
9,704
9,339
3.00
3.00
N/A
15,565
N/A
5.00
56,376
41,714
17.43
13.40
4,852
4,670
1.50
1.50
N/A
N/A
N/A
N/A
Tier I Capital to
Adjusted Total Assets
Consolidated
Bank
Tangible Capital to
Adjusted Total Assets
Consolidated
Bank
June 30, 2011:
Total Risk-based Capital
to Risk Weighted Assets
(Dollars in Thousands)
Actual
Minimum
Capital
Requirement
Minimum
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
June 30, 2012:
Amount
Ratio
Amount
Ratio
Amount
Ratio
Total Risk-based Capital
to Risk Weighted Assets
Consolidated
Bank
Tier I 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, 2011:
Total Risk-based Capital
to Risk Weighted Assets
$
58,001
43,337
28.85 %
21.91
$
16,082
15,823
8.00 % $
8.00
N/A
19,779
N/A %
10.00
56,376
41,714
28.04
21.09
8,041
7,911
4.00
4.00
N/A
11,867
N/A
6.00
56,376
41,714
17.43
13.40
9,704
9,339
3.00
3.00
N/A
15,565
N/A
5.00
56,376
41,714
17.43
13.40
4,852
4,670
1.50
1.50
N/A
N/A
N/A
N/A
Consolidated
Bank
$
56,462
41,887
26.19 %
19.70
$
17,248
17,007
8.00 % $
8.00
N/A
21,259
N/A %
10.00
Consolidated
Bank
$
56,462
41,887
26.19 %
19.70
$
17,248
17,007
8.00 % $
8.00
N/A
21,259
N/A %
10.00
Tier I Capital to
Risk Weighted Assets
Consolidated
Bank
Tier I Capital to
Adjusted Total Assets
Consolidated
Bank
Tangible Capital to
Adjusted Total Assets
Consolidated
Bank
55,551
40,975
25.77
19.27
8,624
8,504
4.00
4.00
N/A
12,755
N/A
6.00
55,551
40,975
16.92
13.05
9,850
9,421
3.00
3.00
N/A
15,701
N/A
5.00
55,551
40,975
16.92
13.05
4,925
4,710
1.50
1.50
N/A
N/A
N/A
N/A
Tier I Capital to
Risk Weighted Assets
Consolidated
Bank
Tier I Capital to
Adjusted Total Assets
Consolidated
Bank
Tangible Capital to
Adjusted Total Assets
Consolidated
Bank
55,551
40,975
25.77
19.27
8,624
8,504
4.00
4.00
N/A
12,755
N/A
6.00
55,551
40,975
16.92
13.05
9,850
9,421
3.00
3.00
N/A
15,701
N/A
5.00
55,551
40,975
16.92
13.05
4,925
4,710
1.50
1.50
N/A
N/A
N/A
N/A
-44-
-45-
-44-
-45-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 15: Regulatory Capital Requirements – continued
NOTE 15: Regulatory Capital Requirements – continued
NOTE 15: Regulatory Capital Requirements – continued
NOTE 15: Regulatory Capital Requirements – continued
A reconciliation of the Bank’s capital determined by generally accepted accounting principles to
capital defined for regulatory purposes, is as follows:
Liquidation Rights – continued
A reconciliation of the Bank’s capital determined by generally accepted accounting principles to
capital defined for regulatory purposes, is as follows:
Liquidation Rights – continued
June 30,
2012
2011
(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
$
$
43,715
(1,887)
(114)
41,714
1,623
42,744
(1,757)
(12)
40,975
912
Total risk based capital
$
43,337
$
41,887
Dividend Limitations
Under OCC 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 OCC approval. The Bank has paid dividends totaling $1,766,000 and
$2,053,000 to the Company during the years ended June 30, 2012, and 2011, respectively. The
Company had paid quarterly dividends of $.07125 per share per quarter for the year ended June
30, 2012. The Company had paid quarterly dividends of $.07 per share to its shareholders for
the year ended June 30, 2011.
NOTE 16: Related Party Transactions
After two years from the date of conversion and upon the written request of the 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 rules 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.
(Dollars in Thousands)
Capital determined by generally
June 30,
2012
2011
$
$
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
43,715
(1,887)
(114)
41,714
1,623
42,744
(1,757)
(12)
40,975
912
The Bank has contracted with a subsidiary of a company which is partially owned by one of the
Company’s directors. The Bank paid $31,000 during the year ended June 30, 2012 for support
services, and an additional $29,000 for computer hardware and software used by the Bank for its
computer network. For the year ended June 30, 2011, expenditures were $75,000 for support
services and $45,000 for computer hardware and software.
Total risk based capital
41,887
43,337
$
$
Dividend Limitations
In 2007, the Bank also made a construction loan, in the normal course of lending, to this same
affiliated entity for the construction of an office building. In fiscal 2008 the construction was
completed and the loan was refinanced into $7,500,000 permanent financing. On July 9, 2008,
80 percent, or $6.0 million was sold to the Montana Board of Investments. As of June 30, 2012
this loan’s principal balance was $6,644,000 ($1,329,000 net of participation sold). The Bank
maintains the servicing for this loan and the loan is current.
Under OCC 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 OCC approval. The Bank has paid dividends totaling $1,766,000 and
$2,053,000 to the Company during the years ended June 30, 2012, and 2011, respectively. The
Company had paid quarterly dividends of $.07125 per share per quarter for the year ended June
30, 2012. The Company had paid quarterly dividends of $.07 per share to its shareholders for
the year ended June 30, 2011.
After two years from the date of conversion and upon the written request of the 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 rules 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 16: 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 $31,000 during the year ended June 30, 2012 for support
services, and an additional $29,000 for computer hardware and software used by the Bank for its
computer network. For the year ended June 30, 2011, expenditures were $75,000 for support
services and $45,000 for computer hardware and software.
In 2007, the Bank also made a construction loan, in the normal course of lending, to this same
affiliated entity for the construction of an office building. In fiscal 2008 the construction was
completed and the loan was refinanced into $7,500,000 permanent financing. On July 9, 2008,
80 percent, or $6.0 million was sold to the Montana Board of Investments. As of June 30, 2012
this loan’s principal balance was $6,644,000 ($1,329,000 net of participation sold). The Bank
maintains the servicing for this loan and the loan is current.
Liquidation Rights
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 account” and these depositors shall have an equivalent interest in the
bank liquidation account and the same rights and terms as the liquidation account.
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 account” and these depositors shall have an equivalent interest in the
bank liquidation account and the same rights and terms as the liquidation account.
-46-
-47-
-46-
-47-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 15: Regulatory Capital Requirements – continued
NOTE 15: Regulatory Capital Requirements – continued
NOTE 15: Regulatory Capital Requirements – continued
NOTE 15: Regulatory Capital Requirements – continued
A reconciliation of the Bank’s capital determined by generally accepted accounting principles to
capital defined for regulatory purposes, is as follows:
Liquidation Rights – continued
A reconciliation of the Bank’s capital determined by generally accepted accounting principles to
capital defined for regulatory purposes, is as follows:
Liquidation Rights – continued
June 30,
2012
2011
(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
$
43,715
$
(1,887)
(114)
41,714
1,623
42,744
(1,757)
(12)
40,975
912
Total risk based capital
$
43,337
$
41,887
Dividend Limitations
Under OCC 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 OCC approval. The Bank has paid dividends totaling $1,766,000 and
$2,053,000 to the Company during the years ended June 30, 2012, and 2011, respectively. The
Company had paid quarterly dividends of $.07125 per share per quarter for the year ended June
30, 2012. The Company had paid quarterly dividends of $.07 per share to its shareholders for
the year ended June 30, 2011.
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 account” and these depositors shall have an equivalent interest in the
bank liquidation account and the same rights and terms as the liquidation account.
NOTE 16: Related Party Transactions
After two years from the date of conversion and upon the written request of the 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 rules 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.
(Dollars in Thousands)
Capital determined by generally
June 30,
2012
2011
$
$
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
43,715
(1,887)
(114)
41,714
1,623
42,744
(1,757)
(12)
40,975
912
The Bank has contracted with a subsidiary of a company which is partially owned by one of the
Company’s directors. The Bank paid $31,000 during the year ended June 30, 2012 for support
services, and an additional $29,000 for computer hardware and software used by the Bank for its
computer network. For the year ended June 30, 2011, expenditures were $75,000 for support
services and $45,000 for computer hardware and software.
Total risk based capital
43,337
41,887
$
$
Dividend Limitations
In 2007, the Bank also made a construction loan, in the normal course of lending, to this same
affiliated entity for the construction of an office building. In fiscal 2008 the construction was
completed and the loan was refinanced into $7,500,000 permanent financing. On July 9, 2008,
80 percent, or $6.0 million was sold to the Montana Board of Investments. As of June 30, 2012
this loan’s principal balance was $6,644,000 ($1,329,000 net of participation sold). The Bank
maintains the servicing for this loan and the loan is current.
Under OCC 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 OCC approval. The Bank has paid dividends totaling $1,766,000 and
$2,053,000 to the Company during the years ended June 30, 2012, and 2011, respectively. The
Company had paid quarterly dividends of $.07125 per share per quarter for the year ended June
30, 2012. The Company had paid quarterly dividends of $.07 per share to its shareholders for
the year ended June 30, 2011.
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 account” and these depositors shall have an equivalent interest in the
bank liquidation account and the same rights and terms as the liquidation account.
After two years from the date of conversion and upon the written request of the 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 rules 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 16: 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 $31,000 during the year ended June 30, 2012 for support
services, and an additional $29,000 for computer hardware and software used by the Bank for its
computer network. For the year ended June 30, 2011, expenditures were $75,000 for support
services and $45,000 for computer hardware and software.
In 2007, the Bank also made a construction loan, in the normal course of lending, to this same
affiliated entity for the construction of an office building. In fiscal 2008 the construction was
completed and the loan was refinanced into $7,500,000 permanent financing. On July 9, 2008,
80 percent, or $6.0 million was sold to the Montana Board of Investments. As of June 30, 2012
this loan’s principal balance was $6,644,000 ($1,329,000 net of participation sold). The Bank
maintains the servicing for this loan and the loan is current.
-46-
-47-
-46-
-47-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 17: Business Combination
NOTE 17: Business Combination – continued
NOTE 17: Business Combination
NOTE 17: Business Combination – continued
On June 29, 2012, the Company and Sterling Savings Bank, a Washington state-chartered bank
(“Sterling”) entered into a Purchase and Assumption Agreement (the “Agreement”) pursuant to
which Eagle agreed to purchase Sterling’s banking operations in the state of Montana, including
seven branch locations, certain deposit liabilities, loans and other assets and liabilities associated
with such branch locations. The actual amount of deposits, loans and value of other assets and
liabilities transferred to Eagle and the actual price paid will be determined at the time of the
closing of the transaction, in accordance with the terms and conditions of the Agreement. The
closing of the transaction is subject to the terms and conditions set forth in the Agreement,
including the receipt of regulatory approval, but is currently expected to be completed by the end
of the second quarter of fiscal 2013. As of June 30, 2012 the purchase price would have
approximated $7.3 million and would have exceeded the estimated fair value of tangible net
assets acquired by approximately $6.6 million, which will be recorded as goodwill.
Cash flow information relative to the asset purchase agreement is as follows (in thousands):
Fair value of net assets acquired
Cash paid for deposit premium
Liabilities assumed
$
195,634
(7,269)
$
188,365
The primary purpose of the acquisition is to expand the Company’s market share in southern
Montana provide existing customers with added convenience and service and to provide our new
customers with the opportunity to enjoy the outstanding personalized service and commitment of
a Montana-based community bank. Factors that contributed to a purchase price resulting in
goodwill include the strategically important locations of Sterling’s branches, a historical record
of earnings, capable employees and the Company’s ability to expand in the southern Montana
market, which will complement with the Company’s existing growth strategy. Fair value
adjustments and related goodwill will be recorded in the statement of financial condition of the
Company.
The following is a pro forma condensed balance sheet disclosing the estimated fair value
amounts of the acquired branches of Sterling to the major consolidated asset and liability
captions at the acquisition date (in thousands):
On June 29, 2012, the Company and Sterling Savings Bank, a Washington state-chartered bank
(“Sterling”) entered into a Purchase and Assumption Agreement (the “Agreement”) pursuant to
which Eagle agreed to purchase Sterling’s banking operations in the state of Montana, including
seven branch locations, certain deposit liabilities, loans and other assets and liabilities associated
with such branch locations. The actual amount of deposits, loans and value of other assets and
liabilities transferred to Eagle and the actual price paid will be determined at the time of the
closing of the transaction, in accordance with the terms and conditions of the Agreement. The
closing of the transaction is subject to the terms and conditions set forth in the Agreement,
including the receipt of regulatory approval, but is currently expected to be completed by the end
of the second quarter of fiscal 2013. As of June 30, 2012 the purchase price would have
approximated $7.3 million and would have exceeded the estimated fair value of tangible net
assets acquired by approximately $6.6 million, which will be recorded as goodwill.
827
44,591
5,000
7,646
127,962
2,339
Cash flow information relative to the asset purchase agreement is as follows (in thousands):
Cash and cash equivalents
Loans receivable
Premises and equipment
Goodwill and intangible assets
Investment securities
Other assets
$
ASSETS
Total assets
Fair value of net assets acquired
Cash paid for deposit premium
$
$
188,365
195,634
(7,269)
Liabilities assumed
$
188,365
LIABILITIES AND EQUITY
LIABILITIES AND EQUITY
Deposits
Equity
$
188,365
-
188,365
$
Total liabilities and equity
The primary purpose of the acquisition is to expand the Company’s market share in southern
Montana provide existing customers with added convenience and service and to provide our new
customers with the opportunity to enjoy the outstanding personalized service and commitment of
a Montana-based community bank. Factors that contributed to a purchase price resulting in
goodwill include the strategically important locations of Sterling’s branches, a historical record
of earnings, capable employees and the Company’s ability to expand in the southern Montana
market, which will complement with the Company’s existing growth strategy. Fair value
adjustments and related goodwill will be recorded in the statement of financial condition of the
Company.
We estimated the fair value for most loans to be acquired from Sterling by utilizing a
methodology wherein loans with comparable characteristics were aggregated by type of
collateral, remaining maturity, and repricing terms. Cash flows for each pool were determined
by estimating future credit losses and the rate of prepayments. Projected monthly cash flows
were then discounted to present value using a risk-adjusted market rate for similar loans. To
estimate the fair value of the remaining loans, we analyzed the value of the underlying collateral
of the loans, assuming the fair values of the loans were derived from the eventual sale of the
collateral. The value of the collateral was based on recently completed appraisals adjusted to the
valuation date based on recognized industry indices. We discounted those values using market
derived rates of return, with consideration given to the period of time and costs associated with
the foreclosure and disposition of the collateral. There will be no carryover of Sterling’s
allowance for loan losses associated with the loans we acquired as the loans will be initially
recorded at fair value.
The following is a pro forma condensed balance sheet disclosing the estimated fair value
amounts of the acquired branches of Sterling to the major consolidated asset and liability
captions at the acquisition date (in thousands):
ASSETS
Cash and cash equivalents
Loans receivable
Premises and equipment
Goodwill and intangible assets
Investment securities
Other assets
Total assets
Deposits
Equity
Total liabilities and equity
$
827
44,591
5,000
7,646
127,962
2,339
$
188,365
$
188,365
-
$
188,365
We estimated the fair value for most loans to be acquired from Sterling by utilizing a
methodology wherein loans with comparable characteristics were aggregated by type of
collateral, remaining maturity, and repricing terms. Cash flows for each pool were determined
by estimating future credit losses and the rate of prepayments. Projected monthly cash flows
were then discounted to present value using a risk-adjusted market rate for similar loans. To
estimate the fair value of the remaining loans, we analyzed the value of the underlying collateral
of the loans, assuming the fair values of the loans were derived from the eventual sale of the
collateral. The value of the collateral was based on recently completed appraisals adjusted to the
valuation date based on recognized industry indices. We discounted those values using market
derived rates of return, with consideration given to the period of time and costs associated with
the foreclosure and disposition of the collateral. There will be no carryover of Sterling’s
allowance for loan losses associated with the loans we acquired as the loans will be initially
recorded at fair value.
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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 17: Business Combination
NOTE 17: Business Combination – continued
NOTE 17: Business Combination
NOTE 17: Business Combination – continued
On June 29, 2012, the Company and Sterling Savings Bank, a Washington state-chartered bank
(“Sterling”) entered into a Purchase and Assumption Agreement (the “Agreement”) pursuant to
which Eagle agreed to purchase Sterling’s banking operations in the state of Montana, including
seven branch locations, certain deposit liabilities, loans and other assets and liabilities associated
with such branch locations. The actual amount of deposits, loans and value of other assets and
liabilities transferred to Eagle and the actual price paid will be determined at the time of the
closing of the transaction, in accordance with the terms and conditions of the Agreement. The
closing of the transaction is subject to the terms and conditions set forth in the Agreement,
including the receipt of regulatory approval, but is currently expected to be completed by the end
of the second quarter of fiscal 2013. As of June 30, 2012 the purchase price would have
approximated $7.3 million and would have exceeded the estimated fair value of tangible net
assets acquired by approximately $6.6 million, which will be recorded as goodwill.
Cash flow information relative to the asset purchase agreement is as follows (in thousands):
Fair value of net assets acquired
Cash paid for deposit premium
Liabilities assumed
$
195,634
(7,269)
$
188,365
The primary purpose of the acquisition is to expand the Company’s market share in southern
Montana provide existing customers with added convenience and service and to provide our new
customers with the opportunity to enjoy the outstanding personalized service and commitment of
a Montana-based community bank. Factors that contributed to a purchase price resulting in
goodwill include the strategically important locations of Sterling’s branches, a historical record
of earnings, capable employees and the Company’s ability to expand in the southern Montana
market, which will complement with the Company’s existing growth strategy. Fair value
adjustments and related goodwill will be recorded in the statement of financial condition of the
Company.
The following is a pro forma condensed balance sheet disclosing the estimated fair value
amounts of the acquired branches of Sterling to the major consolidated asset and liability
captions at the acquisition date (in thousands):
On June 29, 2012, the Company and Sterling Savings Bank, a Washington state-chartered bank
(“Sterling”) entered into a Purchase and Assumption Agreement (the “Agreement”) pursuant to
which Eagle agreed to purchase Sterling’s banking operations in the state of Montana, including
seven branch locations, certain deposit liabilities, loans and other assets and liabilities associated
with such branch locations. The actual amount of deposits, loans and value of other assets and
liabilities transferred to Eagle and the actual price paid will be determined at the time of the
closing of the transaction, in accordance with the terms and conditions of the Agreement. The
closing of the transaction is subject to the terms and conditions set forth in the Agreement,
including the receipt of regulatory approval, but is currently expected to be completed by the end
of the second quarter of fiscal 2013. As of June 30, 2012 the purchase price would have
approximated $7.3 million and would have exceeded the estimated fair value of tangible net
assets acquired by approximately $6.6 million, which will be recorded as goodwill.
827
44,591
5,000
7,646
127,962
2,339
Cash flow information relative to the asset purchase agreement is as follows (in thousands):
Cash and cash equivalents
Loans receivable
Premises and equipment
Goodwill and intangible assets
Investment securities
Other assets
$
ASSETS
Total assets
Fair value of net assets acquired
Cash paid for deposit premium
$
$
188,365
195,634
(7,269)
Liabilities assumed
$
188,365
LIABILITIES AND EQUITY
Deposits
Equity
$
188,365
-
188,365
$
Total liabilities and equity
The primary purpose of the acquisition is to expand the Company’s market share in southern
Montana provide existing customers with added convenience and service and to provide our new
customers with the opportunity to enjoy the outstanding personalized service and commitment of
a Montana-based community bank. Factors that contributed to a purchase price resulting in
goodwill include the strategically important locations of Sterling’s branches, a historical record
of earnings, capable employees and the Company’s ability to expand in the southern Montana
market, which will complement with the Company’s existing growth strategy. Fair value
adjustments and related goodwill will be recorded in the statement of financial condition of the
Company.
We estimated the fair value for most loans to be acquired from Sterling by utilizing a
methodology wherein loans with comparable characteristics were aggregated by type of
collateral, remaining maturity, and repricing terms. Cash flows for each pool were determined
by estimating future credit losses and the rate of prepayments. Projected monthly cash flows
were then discounted to present value using a risk-adjusted market rate for similar loans. To
estimate the fair value of the remaining loans, we analyzed the value of the underlying collateral
of the loans, assuming the fair values of the loans were derived from the eventual sale of the
collateral. The value of the collateral was based on recently completed appraisals adjusted to the
valuation date based on recognized industry indices. We discounted those values using market
derived rates of return, with consideration given to the period of time and costs associated with
the foreclosure and disposition of the collateral. There will be no carryover of Sterling’s
allowance for loan losses associated with the loans we acquired as the loans will be initially
recorded at fair value.
The following is a pro forma condensed balance sheet disclosing the estimated fair value
amounts of the acquired branches of Sterling to the major consolidated asset and liability
captions at the acquisition date (in thousands):
ASSETS
Cash and cash equivalents
Loans receivable
Premises and equipment
Goodwill and intangible assets
Investment securities
Other assets
Total assets
Deposits
Equity
Total liabilities and equity
LIABILITIES AND EQUITY
$
827
44,591
5,000
7,646
127,962
2,339
$
188,365
$
188,365
-
$
188,365
We estimated the fair value for most loans to be acquired from Sterling by utilizing a
methodology wherein loans with comparable characteristics were aggregated by type of
collateral, remaining maturity, and repricing terms. Cash flows for each pool were determined
by estimating future credit losses and the rate of prepayments. Projected monthly cash flows
were then discounted to present value using a risk-adjusted market rate for similar loans. To
estimate the fair value of the remaining loans, we analyzed the value of the underlying collateral
of the loans, assuming the fair values of the loans were derived from the eventual sale of the
collateral. The value of the collateral was based on recently completed appraisals adjusted to the
valuation date based on recognized industry indices. We discounted those values using market
derived rates of return, with consideration given to the period of time and costs associated with
the foreclosure and disposition of the collateral. There will be no carryover of Sterling’s
allowance for loan losses associated with the loans we acquired as the loans will be initially
recorded at fair value.
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-48-
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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 17: Business Combination – continued
NOTE 17: Business Combination – continued
NOTE 17: Business Combination – continued
NOTE 17: Business Combination – continued
Information about the Sterling loan portfolio to be acquired as of June 30, 2012 is as follows (in
thousands):
Contractually required principal and interest at acquisition
Contractual cash flows not expected to be collected (nonaccretable discount)
$
46,404
(561)
Expected cash flows at acquisition
Interest component of expected cash flows (accretable discount)
45,843
(1,252)
Fair value of acquired loans
$
44,591
The core deposit intangible asset that will be recognized as part of the business combination will
amount to approximately $1.1 million and will be amortized over its estimated useful life of
approximately ten years utilizing an accelerated method. The goodwill, which will not be
amortized for financial statement purposes, will be deductible for tax purposes.
The fair value of savings and transaction deposit accounts acquired from Sterling was assumed
to approximate the carrying value as these accounts have no stated maturity and are payable on
demand. Certificates of deposit were valued by comparing the contractual cost of the portfolio
to an identical portfolio bearing current market rates. The projected cash flows from maturing
certificates were calculated based on contractual rates. The fair value of the certificates of
deposit was calculated by discounting their contractual cash flows at a market rate for a
certificate of deposit with a corresponding maturity.
Direct costs related to the Sterling acquisition will be expensed as incurred in the year ended
June 30, 2013. These merger and acquisition integration expenses will include salaries and
benefits, technology and communications, occupancy and equipment, professional services and
other noninterest expenses. The following table presents an unaudited pro forma balance sheet
of the Company as if the acquisition of the Sterling branches had occurred on June 30, 2012 (in
thousands). The pro forma balance sheet does not necessarily reflect the combined balance sheet
that will result as of the closing of the branch acquisition of the Sterling branches.
20,641
229,042
$
20,561
7,646
219,397
18,377
46,404
(561)
45,843
(1,252)
Information about the Sterling loan portfolio to be acquired as of June 30, 2012 is as follows (in
thousands):
ASSETS
$
Contractually required principal and interest at acquisition
Contractual cash flows not expected to be collected (nonaccretable discount)
Cash and cash equivalents
Loans receivable
Premises and equipment
Goodwill and intangible assets
Investment securities
Other assets
Expected cash flows at acquisition
Interest component of expected cash flows (accretable discount)
Total assets
Fair value of acquired loans
LIABILITIES AND SHAREHOLDERS' EQUITY
$
515,664
$
44,591
Deposits
Other liabilities
Equity
The core deposit intangible asset that will be recognized as part of the business combination will
amount to approximately $1.1 million and will be amortized over its estimated useful life of
approximately ten years utilizing an accelerated method. The goodwill, which will not be
amortized for financial statement purposes, will be deductible for tax purposes.
408,354
53,660
53,650
$
Total liabilities and shareholders' equity
$
515,664
The fair value of savings and transaction deposit accounts acquired from Sterling was assumed
to approximate the carrying value as these accounts have no stated maturity and are payable on
demand. Certificates of deposit were valued by comparing the contractual cost of the portfolio
to an identical portfolio bearing current market rates. The projected cash flows from maturing
certificates were calculated based on contractual rates. The fair value of the certificates of
deposit was calculated by discounting their contractual cash flows at a market rate for a
certificate of deposit with a corresponding maturity.
The following table presents unaudited pro forma results of operations as if the acquisition of the
Sterling branches had occurred on July 1, 2010 (in thousands). This pro forma information gives
effect to certain adjustments, including purchase accounting fair value adjustments and
amortization of the core deposit intangible asset. Merger and acquisition integration costs of
$850 thousand that we expect to be incurred during the year ended June 30, 2013 are reflected in
the unaudited pro forma amounts for the year ended June 30, 2011. The pro forma information
does not necessarily reflect the results of operations that would have occurred had the Company
purchased and assumed the assets and liabilities of the Sterling branches at July 1, 2011. Cost
savings are also not reflected in the unaudited pro forma amounts for the years ended June 30,
2012 and 2011.
Direct costs related to the Sterling acquisition will be expensed as incurred in the year ended
June 30, 2013. These merger and acquisition integration expenses will include salaries and
benefits, technology and communications, occupancy and equipment, professional services and
other noninterest expenses. The following table presents an unaudited pro forma balance sheet
of the Company as if the acquisition of the Sterling branches had occurred on June 30, 2012 (in
thousands). The pro forma balance sheet does not necessarily reflect the combined balance sheet
that will result as of the closing of the branch acquisition of the Sterling branches.
Year Ended June 30,
2011
2012
Net interest income
Noninterest income
Noninterest expense
Net income1)
Pro forma earnings per share1)
Basic
Diluted
$
14,234
5,542
14,390
$
14,697
5,991
15,302
3,990
3,850
$
1.07
1.02
$
0.99
0.99
1)
Significant assumptions utilized
the acquisition cost noted above,
amortization/accretion of interest rate fair value adjustments, amortization of the core
deposit intangible asset and a 25% effective tax rate.
include
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-50-
-51-
ASSETS
Cash and cash equivalents
Loans receivable
Premises and equipment
Goodwill and intangible assets
Investment securities
Other assets
Total assets
Deposits
Other liabilities
Equity
LIABILITIES AND SHAREHOLDERS' EQUITY
$
20,641
229,042
20,561
7,646
219,397
18,377
$
515,664
$
408,354
53,660
53,650
Total liabilities and shareholders' equity
$
515,664
The following table presents unaudited pro forma results of operations as if the acquisition of the
Sterling branches had occurred on July 1, 2010 (in thousands). This pro forma information gives
effect to certain adjustments, including purchase accounting fair value adjustments and
amortization of the core deposit intangible asset. Merger and acquisition integration costs of
$850 thousand that we expect to be incurred during the year ended June 30, 2013 are reflected in
the unaudited pro forma amounts for the year ended June 30, 2011. The pro forma information
does not necessarily reflect the results of operations that would have occurred had the Company
purchased and assumed the assets and liabilities of the Sterling branches at July 1, 2011. Cost
savings are also not reflected in the unaudited pro forma amounts for the years ended June 30,
2012 and 2011.
Net interest income
Noninterest income
Noninterest expense
Net income1)
Pro forma earnings per share1)
Basic
Diluted
1)
Year Ended June 30,
2012
2011
$
14,234
$
14,697
5,542
14,390
3,990
5,991
15,302
3,850
$
1.07
$
0.99
1.02
0.99
Significant assumptions utilized
include
the acquisition cost noted above,
amortization/accretion of interest rate fair value adjustments, amortization of the core
deposit intangible asset and a 25% effective tax rate.
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 17: Business Combination – continued
NOTE 17: Business Combination – continued
NOTE 17: Business Combination – continued
NOTE 17: Business Combination – continued
Information about the Sterling loan portfolio to be acquired as of June 30, 2012 is as follows (in
thousands):
Contractually required principal and interest at acquisition
$
46,404
Contractual cash flows not expected to be collected (nonaccretable discount)
Expected cash flows at acquisition
Interest component of expected cash flows (accretable discount)
(561)
45,843
(1,252)
Fair value of acquired loans
$
44,591
The core deposit intangible asset that will be recognized as part of the business combination will
amount to approximately $1.1 million and will be amortized over its estimated useful life of
approximately ten years utilizing an accelerated method. The goodwill, which will not be
amortized for financial statement purposes, will be deductible for tax purposes.
The fair value of savings and transaction deposit accounts acquired from Sterling was assumed
to approximate the carrying value as these accounts have no stated maturity and are payable on
demand. Certificates of deposit were valued by comparing the contractual cost of the portfolio
to an identical portfolio bearing current market rates. The projected cash flows from maturing
certificates were calculated based on contractual rates. The fair value of the certificates of
deposit was calculated by discounting their contractual cash flows at a market rate for a
certificate of deposit with a corresponding maturity.
Direct costs related to the Sterling acquisition will be expensed as incurred in the year ended
June 30, 2013. These merger and acquisition integration expenses will include salaries and
benefits, technology and communications, occupancy and equipment, professional services and
other noninterest expenses. The following table presents an unaudited pro forma balance sheet
of the Company as if the acquisition of the Sterling branches had occurred on June 30, 2012 (in
thousands). The pro forma balance sheet does not necessarily reflect the combined balance sheet
that will result as of the closing of the branch acquisition of the Sterling branches.
20,641
229,042
$
20,561
7,646
219,397
18,377
46,404
(561)
45,843
(1,252)
Information about the Sterling loan portfolio to be acquired as of June 30, 2012 is as follows (in
thousands):
ASSETS
$
Contractually required principal and interest at acquisition
Contractual cash flows not expected to be collected (nonaccretable discount)
Cash and cash equivalents
Loans receivable
Premises and equipment
Goodwill and intangible assets
Investment securities
Other assets
Expected cash flows at acquisition
Interest component of expected cash flows (accretable discount)
Total assets
Fair value of acquired loans
LIABILITIES AND SHAREHOLDERS' EQUITY
$
515,664
$
44,591
Deposits
Other liabilities
Equity
The core deposit intangible asset that will be recognized as part of the business combination will
amount to approximately $1.1 million and will be amortized over its estimated useful life of
approximately ten years utilizing an accelerated method. The goodwill, which will not be
amortized for financial statement purposes, will be deductible for tax purposes.
408,354
53,660
53,650
$
Total liabilities and shareholders' equity
$
515,664
The fair value of savings and transaction deposit accounts acquired from Sterling was assumed
to approximate the carrying value as these accounts have no stated maturity and are payable on
demand. Certificates of deposit were valued by comparing the contractual cost of the portfolio
to an identical portfolio bearing current market rates. The projected cash flows from maturing
certificates were calculated based on contractual rates. The fair value of the certificates of
deposit was calculated by discounting their contractual cash flows at a market rate for a
certificate of deposit with a corresponding maturity.
The following table presents unaudited pro forma results of operations as if the acquisition of the
Sterling branches had occurred on July 1, 2010 (in thousands). This pro forma information gives
effect to certain adjustments, including purchase accounting fair value adjustments and
amortization of the core deposit intangible asset. Merger and acquisition integration costs of
$850 thousand that we expect to be incurred during the year ended June 30, 2013 are reflected in
the unaudited pro forma amounts for the year ended June 30, 2011. The pro forma information
does not necessarily reflect the results of operations that would have occurred had the Company
purchased and assumed the assets and liabilities of the Sterling branches at July 1, 2011. Cost
savings are also not reflected in the unaudited pro forma amounts for the years ended June 30,
2012 and 2011.
Direct costs related to the Sterling acquisition will be expensed as incurred in the year ended
June 30, 2013. These merger and acquisition integration expenses will include salaries and
benefits, technology and communications, occupancy and equipment, professional services and
other noninterest expenses. The following table presents an unaudited pro forma balance sheet
of the Company as if the acquisition of the Sterling branches had occurred on June 30, 2012 (in
thousands). The pro forma balance sheet does not necessarily reflect the combined balance sheet
that will result as of the closing of the branch acquisition of the Sterling branches.
Year Ended June 30,
2012
2011
ASSETS
Cash and cash equivalents
Loans receivable
Premises and equipment
Goodwill and intangible assets
Investment securities
Other assets
Total assets
Deposits
Other liabilities
Equity
LIABILITIES AND SHAREHOLDERS' EQUITY
Total liabilities and shareholders' equity
$
20,641
229,042
20,561
7,646
219,397
18,377
$
515,664
$
408,354
53,660
53,650
$
515,664
The following table presents unaudited pro forma results of operations as if the acquisition of the
Sterling branches had occurred on July 1, 2010 (in thousands). This pro forma information gives
effect to certain adjustments, including purchase accounting fair value adjustments and
amortization of the core deposit intangible asset. Merger and acquisition integration costs of
$850 thousand that we expect to be incurred during the year ended June 30, 2013 are reflected in
the unaudited pro forma amounts for the year ended June 30, 2011. The pro forma information
does not necessarily reflect the results of operations that would have occurred had the Company
purchased and assumed the assets and liabilities of the Sterling branches at July 1, 2011. Cost
savings are also not reflected in the unaudited pro forma amounts for the years ended June 30,
2012 and 2011.
Year Ended June 30,
2012
2011
$
14,234
5,542
14,390
$
14,697
5,991
15,302
3,990
3,850
$
1.07
1.02
$
0.99
0.99
Net interest income
Noninterest income
Noninterest expense
Net income1)
Pro forma earnings per share1)
Basic
Diluted
$
14,234
5,542
14,390
$
14,697
5,991
15,302
3,990
3,850
$
1.07
1.02
$
0.99
0.99
Net interest income
Noninterest income
Noninterest expense
Net income1)
Pro forma earnings per share1)
Basic
Diluted
-50-
-51-
-50-
-51-
1)
Significant assumptions utilized
the acquisition cost noted above,
amortization/accretion of interest rate fair value adjustments, amortization of the core
deposit intangible asset and a 25% effective tax rate.
include
1)
Significant assumptions utilized
the acquisition cost noted above,
amortization/accretion of interest rate fair value adjustments, amortization of the core
deposit intangible asset and a 25% effective tax rate.
include
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 18: Employee Benefits
Profit Sharing Plan
NOTE 18: Employee Benefits – continued
NOTE 18: Employee Benefits
Employee Stock Ownership Plan
Profit Sharing Plan
NOTE 18: Employee Benefits – continued
Employee Stock Ownership Plan
The Company provides a noncontributory profit sharing plan for eligible employees who have
completed one year of service. The amount of the 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 $158,000 and $162,000 for the years ended June 30, 2012 and 2011,
respectively.
The Company’s profit sharing plan includes a 401(k) feature. At the discretion of the 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, 2012 and 2011, the Company’s match
totaled $54,000 and $53,000, respectively.
Deferred Compensation Plans
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, 2012 and 2011, the total expense was $184,000 and $104,000, respectively.
The Company has recorded a liability for the deferred compensation plan of $1,045,000 and
$946,000 at June 30, 2012 and 2011, respectively, which is included in the balance of accrued
expenses and other liabilities.
The Company provides a noncontributory profit sharing plan for eligible employees who have
completed one year of service. The amount of the 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 $158,000 and $162,000 for the years ended June 30, 2012 and 2011,
respectively.
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 of common 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.
The Company’s profit sharing plan includes a 401(k) feature. At the discretion of the 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, 2012 and 2011, the Company’s match
totaled $54,000 and $53,000, respectively.
Deferred Compensation Plans
Shares purchased by the ESOP are held in a suspense account by the plan trustee 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.
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, 2012 and 2011, the total expense was $184,000 and $104,000, respectively.
The Company has recorded a liability for the deferred compensation plan of $1,045,000 and
$946,000 at June 30, 2012 and 2011, respectively, which is included in the balance of accrued
expenses and other liabilities.
Total ESOP expenses of $120,000 and $121,000 were recognized in fiscal 2012 and 2011,
respectively. 16,616 shares were released and allocated to participants during the year ended
June 30, 2012. The cost of the 155,601 ESOP shares ($1,556,000 at June 30, 2012) 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 $1,556,010 at that date.
Stock Incentive Plan
Stock Incentive Plan
The Company adopted the Stock Incentive Plan (“the Plan”) on November 1, 2011. The Plan
provides for different types of awards including stock options, restricted stock and performance
shares. Under the Plan, 98,571 shares of restricted stock were granted to directors and certain
officers during fiscal 2012. The Company expects the total expense over the five year vesting
period to approximate $984,000. $131,000 was recognized as an expense during the fiscal year
2012 and is included in salaries and employee benefits in the consolidated statements of income.
The remaining expense of approximately $853,000 will be fully recognized by November 1,
2016. These shares of restricted stock vest in equal installments over five years beginning one
year from the grant date, November 1, 2011. There were no stock options granted under the Plan
during fiscal 2011.
NOTE 19: Financial Instruments and Off-Balance-Sheet Activities
NOTE 19: Financial Instruments and Off-Balance-Sheet Activities
All financial instruments 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 instruments 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.
All financial instruments 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 instruments 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.
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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 of common 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 trustee 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 $120,000 and $121,000 were recognized in fiscal 2012 and 2011,
respectively. 16,616 shares were released and allocated to participants during the year ended
June 30, 2012. The cost of the 155,601 ESOP shares ($1,556,000 at June 30, 2012) 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 $1,556,010 at that date.
The Company adopted the Stock Incentive Plan (“the Plan”) on November 1, 2011. The Plan
provides for different types of awards including stock options, restricted stock and performance
shares. Under the Plan, 98,571 shares of restricted stock were granted to directors and certain
officers during fiscal 2012. The Company expects the total expense over the five year vesting
period to approximate $984,000. $131,000 was recognized as an expense during the fiscal year
2012 and is included in salaries and employee benefits in the consolidated statements of income.
The remaining expense of approximately $853,000 will be fully recognized by November 1,
2016. These shares of restricted stock vest in equal installments over five years beginning one
year from the grant date, November 1, 2011. There were no stock options granted under the Plan
during fiscal 2011.
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 18: Employee Benefits
Profit Sharing Plan
NOTE 18: Employee Benefits – continued
NOTE 18: Employee Benefits
Employee Stock Ownership Plan
Profit Sharing Plan
NOTE 18: Employee Benefits – continued
Employee Stock Ownership Plan
The Company provides a noncontributory profit sharing plan for eligible employees who have
completed one year of service. The amount of the 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 $158,000 and $162,000 for the years ended June 30, 2012 and 2011,
respectively.
The Company’s profit sharing plan includes a 401(k) feature. At the discretion of the 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, 2012 and 2011, the Company’s match
totaled $54,000 and $53,000, respectively.
Deferred Compensation Plans
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, 2012 and 2011, the total expense was $184,000 and $104,000, respectively.
The Company has recorded a liability for the deferred compensation plan of $1,045,000 and
$946,000 at June 30, 2012 and 2011, respectively, which is included in the balance of accrued
expenses and other liabilities.
The Company provides a noncontributory profit sharing plan for eligible employees who have
completed one year of service. The amount of the 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 $158,000 and $162,000 for the years ended June 30, 2012 and 2011,
respectively.
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 of common 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.
The Company’s profit sharing plan includes a 401(k) feature. At the discretion of the 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, 2012 and 2011, the Company’s match
totaled $54,000 and $53,000, respectively.
Deferred Compensation Plans
Shares purchased by the ESOP are held in a suspense account by the plan trustee 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.
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, 2012 and 2011, the total expense was $184,000 and $104,000, respectively.
The Company has recorded a liability for the deferred compensation plan of $1,045,000 and
$946,000 at June 30, 2012 and 2011, respectively, which is included in the balance of accrued
expenses and other liabilities.
Total ESOP expenses of $120,000 and $121,000 were recognized in fiscal 2012 and 2011,
respectively. 16,616 shares were released and allocated to participants during the year ended
June 30, 2012. The cost of the 155,601 ESOP shares ($1,556,000 at June 30, 2012) 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 $1,556,010 at that date.
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 of common 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 trustee 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 $120,000 and $121,000 were recognized in fiscal 2012 and 2011,
respectively. 16,616 shares were released and allocated to participants during the year ended
June 30, 2012. The cost of the 155,601 ESOP shares ($1,556,000 at June 30, 2012) 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 $1,556,010 at that date.
Stock Incentive Plan
Stock Incentive Plan
The Company adopted the Stock Incentive Plan (“the Plan”) on November 1, 2011. The Plan
provides for different types of awards including stock options, restricted stock and performance
shares. Under the Plan, 98,571 shares of restricted stock were granted to directors and certain
officers during fiscal 2012. The Company expects the total expense over the five year vesting
period to approximate $984,000. $131,000 was recognized as an expense during the fiscal year
2012 and is included in salaries and employee benefits in the consolidated statements of income.
The remaining expense of approximately $853,000 will be fully recognized by November 1,
2016. These shares of restricted stock vest in equal installments over five years beginning one
year from the grant date, November 1, 2011. There were no stock options granted under the Plan
during fiscal 2011.
The Company adopted the Stock Incentive Plan (“the Plan”) on November 1, 2011. The Plan
provides for different types of awards including stock options, restricted stock and performance
shares. Under the Plan, 98,571 shares of restricted stock were granted to directors and certain
officers during fiscal 2012. The Company expects the total expense over the five year vesting
period to approximate $984,000. $131,000 was recognized as an expense during the fiscal year
2012 and is included in salaries and employee benefits in the consolidated statements of income.
The remaining expense of approximately $853,000 will be fully recognized by November 1,
2016. These shares of restricted stock vest in equal installments over five years beginning one
year from the grant date, November 1, 2011. There were no stock options granted under the Plan
during fiscal 2011.
NOTE 19: Financial Instruments and Off-Balance-Sheet Activities
NOTE 19: Financial Instruments and Off-Balance-Sheet Activities
All financial instruments 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 instruments 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.
All financial instruments 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 instruments 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.
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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 19: Financial Instruments and Off-Balance-Sheet Activities – continued
NOTE 20: Derivatives and Hedging Activities
NOTE 19: Financial Instruments and Off-Balance-Sheet Activities – continued
NOTE 20: Derivatives and Hedging Activities
Generally, as interest rates increase, the market value of the loan commitment goes down. The
Interest rate contracts
Generally, as interest rates increase, the market value of the loan commitment goes down. The
Interest rate contracts
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 borrowing
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 instruments. 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 borrower
within 3 to 12 months.
The notional amounts of the Company’s commitments to extend credit at fixed and variable
interest rates were approximately $6,482,000 and $5,016,000 at June 30, 2012 and 2011,
respectively. Fixed rate commitments are extended at rates ranging from 2.50% to 6.63% and
3.75% to 6.75% at June 30, 2012 and 2011, respectively. The Company has lines of credit
representing credit risk of approximately $59,972,000 and $66,460,000 at June 30, 2012 and
2011, respectively, of which approximately $27,052,000 and $34,406,000 had been drawn at
June 30, 2012 and 2011, respectively. The Company has credit cards issued representing credit
risk of approximately $832,000 and $652,000 at June 30, 2012 and 2011, respectively, of which
approximately $41,000 and $43,000 had been drawn at June 30, 2012 and 2011, respectively.
The Company has letters of credits issued representing credit risk of approximately $2,712,000
and $5,365,000 at June 30, 2012 and 2011, respectively.
Derivative loan commitments – Mortgage loan commitments are referred to as derivative loan
commitments if the loan that will result from exercise of the commitment will be held for sale
upon funding. The Company enters into commitments to fund residential mortgage loans at
specified times in the future, with the intention that these loans will subsequently be sold in the
secondary market. A mortgage loan commitment binds the Company to lend funds to a potential
borrower at a specified interest rate and within a specified period of time, generally up to 60 days
after inception of the rate lock.
Outstanding derivative loan commitments expose the Company to the risk that the price of the
loans arising from exercise of the loan commitment might decline from inception of the rate lock
to funding of the loan due to increases in mortgage interest rates. If interest rates increase, the
value of these loan commitments decreases. Conversely, if interest rates decrease, the value of
these loan commitments increases. The notional amount of interest rate lock commitments was
$6,482,000 and $4,076,000 at June 30, 2012 and 2011, respectively. The fair value of such
commitments was insignificant.
The Company has no other off-balance-sheet arrangements or transactions with unconsolidated,
special purpose entities that would expose the Company to liability that is not reflected on the
face of the financial statements.
opposite effect takes place when interest rates decline.
The Company is exposed to certain risks relating to its ongoing business operations. The primary
risk managed by using derivative instruments is interest rate risk. The Company entered into an
interest rate swap agreement on August 27, 2010 with a third party to manage interest rate risk
associated with a fixed-rate loan. The interest rate swap agreement effectively converted the
loan’s fixed rate into a variable rate. The derivatives and hedging accounting guidance (FASB
ASC 815-10) requires that the Company recognize all derivative instruments as either assets or
liabilities at fair value in the statement of financial position. In accordance with this guidance,
the Company designates the interest rate swap on this fixed-rate loan as a fair value hedge.
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 borrowing
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 instruments. 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 borrower
within 3 to 12 months.
The Company is exposed to credit-related losses in the event of nonperformance by the
counterparties to this agreement. The Company controls the credit risk of its financial contracts
through credit approvals, limits and monitoring procedures, and does not expect any
counterparties to fail their obligations. The Company deals only with primary dealers.
The notional amounts of the Company’s commitments to extend credit at fixed and variable
interest rates were approximately $6,482,000 and $5,016,000 at June 30, 2012 and 2011,
respectively. Fixed rate commitments are extended at rates ranging from 2.50% to 6.63% and
3.75% to 6.75% at June 30, 2012 and 2011, respectively. The Company has lines of credit
representing credit risk of approximately $59,972,000 and $66,460,000 at June 30, 2012 and
2011, respectively, of which approximately $27,052,000 and $34,406,000 had been drawn at
June 30, 2012 and 2011, respectively. The Company has credit cards issued representing credit
risk of approximately $832,000 and $652,000 at June 30, 2012 and 2011, respectively, of which
approximately $41,000 and $43,000 had been drawn at June 30, 2012 and 2011, respectively.
The Company has letters of credits issued representing credit risk of approximately $2,712,000
and $5,365,000 at June 30, 2012 and 2011, respectively.
If certain hedging criteria specified in derivatives and hedging accounting guidance are met,
including testing for hedge effectiveness, hedge accounting may be applied. The hedge
effectiveness assessment methodologies for similar hedges are performed in a similar manner
and are used consistently throughout the hedging relationships.
The hedge documentation specifies the terms of the hedged item and the interest rate swap. The
documentation also indicates that the derivative is hedging a fixed-rate item, that the hedge
exposure is to the changes in the fair value of the hedged item, and that the strategy is to
eliminate fair value variability by converting fixed-rate interest payments to variable-rate interest
payments.
Derivative loan commitments – Mortgage loan commitments are referred to as derivative loan
commitments if the loan that will result from exercise of the commitment will be held for sale
upon funding. The Company enters into commitments to fund residential mortgage loans at
specified times in the future, with the intention that these loans will subsequently be sold in the
secondary market. A mortgage loan commitment binds the Company to lend funds to a potential
borrower at a specified interest rate and within a specified period of time, generally up to 60 days
after inception of the rate lock.
For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss
on the derivative as well as the offsetting loss or gain on the hedged item attributable to the
hedged risk are recognized in current earnings. The Company includes the gain or loss on the
hedged items in the same line item—noninterest income—as the offsetting loss or gain on the
related interest rate swap.
The fixed rate loan hedged has an original maturity of 20 years and is not callable. This loan is
hedged with a “pay fixed rate, receive variable rate” swap with a similar notional amount,
maturity, and fixed rate coupons. The swap is not callable. At June 30, 2012, the loan had an
outstanding principal balance of $11,536,000, and the interest rate swap had a notional value of
$11,536,000.
Outstanding derivative loan commitments expose the Company to the risk that the price of the
loans arising from exercise of the loan commitment might decline from inception of the rate lock
to funding of the loan due to increases in mortgage interest rates. If interest rates increase, the
value of these loan commitments decreases. Conversely, if interest rates decrease, the value of
these loan commitments increases. The notional amount of interest rate lock commitments was
$6,482,000 and $4,076,000 at June 30, 2012 and 2011, respectively. The fair value of such
commitments was insignificant.
The Company has no other off-balance-sheet arrangements or transactions with unconsolidated,
special purpose entities that would expose the Company to liability that is not reflected on the
face of the financial statements.
The Company is exposed to certain risks relating to its ongoing business operations. The primary
risk managed by using derivative instruments is interest rate risk. The Company entered into an
interest rate swap agreement on August 27, 2010 with a third party to manage interest rate risk
associated with a fixed-rate loan. The interest rate swap agreement effectively converted the
loan’s fixed rate into a variable rate. The derivatives and hedging accounting guidance (FASB
ASC 815-10) requires that the Company recognize all derivative instruments as either assets or
liabilities at fair value in the statement of financial position. In accordance with this guidance,
the Company designates the interest rate swap on this fixed-rate loan as a fair value hedge.
The Company is exposed to credit-related losses in the event of nonperformance by the
counterparties to this agreement. The Company controls the credit risk of its financial contracts
through credit approvals, limits and monitoring procedures, and does not expect any
counterparties to fail their obligations. The Company deals only with primary dealers.
If certain hedging criteria specified in derivatives and hedging accounting guidance are met,
including testing for hedge effectiveness, hedge accounting may be applied. The hedge
effectiveness assessment methodologies for similar hedges are performed in a similar manner
and are used consistently throughout the hedging relationships.
The hedge documentation specifies the terms of the hedged item and the interest rate swap. The
documentation also indicates that the derivative is hedging a fixed-rate item, that the hedge
exposure is to the changes in the fair value of the hedged item, and that the strategy is to
eliminate fair value variability by converting fixed-rate interest payments to variable-rate interest
payments.
For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss
on the derivative as well as the offsetting loss or gain on the hedged item attributable to the
hedged risk are recognized in current earnings. The Company includes the gain or loss on the
hedged items in the same line item—noninterest income—as the offsetting loss or gain on the
related interest rate swap.
The fixed rate loan hedged has an original maturity of 20 years and is not callable. This loan is
hedged with a “pay fixed rate, receive variable rate” swap with a similar notional amount,
maturity, and fixed rate coupons. The swap is not callable. At June 30, 2012, the loan had an
outstanding principal balance of $11,536,000, and the interest rate swap had a notional value of
$11,536,000.
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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 19: Financial Instruments and Off-Balance-Sheet Activities – continued
NOTE 20: Derivatives and Hedging Activities
NOTE 19: Financial Instruments and Off-Balance-Sheet Activities – continued
NOTE 20: Derivatives and Hedging Activities
Generally, as interest rates increase, the market value of the loan commitment goes down. The
Interest rate contracts
Generally, as interest rates increase, the market value of the loan commitment goes down. The
Interest rate contracts
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 borrowing
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 instruments. 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 borrower
within 3 to 12 months.
The notional amounts of the Company’s commitments to extend credit at fixed and variable
interest rates were approximately $6,482,000 and $5,016,000 at June 30, 2012 and 2011,
respectively. Fixed rate commitments are extended at rates ranging from 2.50% to 6.63% and
3.75% to 6.75% at June 30, 2012 and 2011, respectively. The Company has lines of credit
representing credit risk of approximately $59,972,000 and $66,460,000 at June 30, 2012 and
2011, respectively, of which approximately $27,052,000 and $34,406,000 had been drawn at
June 30, 2012 and 2011, respectively. The Company has credit cards issued representing credit
risk of approximately $832,000 and $652,000 at June 30, 2012 and 2011, respectively, of which
approximately $41,000 and $43,000 had been drawn at June 30, 2012 and 2011, respectively.
The Company has letters of credits issued representing credit risk of approximately $2,712,000
and $5,365,000 at June 30, 2012 and 2011, respectively.
Derivative loan commitments – Mortgage loan commitments are referred to as derivative loan
commitments if the loan that will result from exercise of the commitment will be held for sale
upon funding. The Company enters into commitments to fund residential mortgage loans at
specified times in the future, with the intention that these loans will subsequently be sold in the
secondary market. A mortgage loan commitment binds the Company to lend funds to a potential
borrower at a specified interest rate and within a specified period of time, generally up to 60 days
after inception of the rate lock.
Outstanding derivative loan commitments expose the Company to the risk that the price of the
loans arising from exercise of the loan commitment might decline from inception of the rate lock
to funding of the loan due to increases in mortgage interest rates. If interest rates increase, the
value of these loan commitments decreases. Conversely, if interest rates decrease, the value of
these loan commitments increases. The notional amount of interest rate lock commitments was
$6,482,000 and $4,076,000 at June 30, 2012 and 2011, respectively. The fair value of such
commitments was insignificant.
The Company has no other off-balance-sheet arrangements or transactions with unconsolidated,
special purpose entities that would expose the Company to liability that is not reflected on the
face of the financial statements.
opposite effect takes place when interest rates decline.
The Company is exposed to certain risks relating to its ongoing business operations. The primary
risk managed by using derivative instruments is interest rate risk. The Company entered into an
interest rate swap agreement on August 27, 2010 with a third party to manage interest rate risk
associated with a fixed-rate loan. The interest rate swap agreement effectively converted the
loan’s fixed rate into a variable rate. The derivatives and hedging accounting guidance (FASB
ASC 815-10) requires that the Company recognize all derivative instruments as either assets or
liabilities at fair value in the statement of financial position. In accordance with this guidance,
the Company designates the interest rate swap on this fixed-rate loan as a fair value hedge.
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 borrowing
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 instruments. 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 borrower
within 3 to 12 months.
The Company is exposed to credit-related losses in the event of nonperformance by the
counterparties to this agreement. The Company controls the credit risk of its financial contracts
through credit approvals, limits and monitoring procedures, and does not expect any
counterparties to fail their obligations. The Company deals only with primary dealers.
The notional amounts of the Company’s commitments to extend credit at fixed and variable
interest rates were approximately $6,482,000 and $5,016,000 at June 30, 2012 and 2011,
respectively. Fixed rate commitments are extended at rates ranging from 2.50% to 6.63% and
3.75% to 6.75% at June 30, 2012 and 2011, respectively. The Company has lines of credit
representing credit risk of approximately $59,972,000 and $66,460,000 at June 30, 2012 and
2011, respectively, of which approximately $27,052,000 and $34,406,000 had been drawn at
June 30, 2012 and 2011, respectively. The Company has credit cards issued representing credit
risk of approximately $832,000 and $652,000 at June 30, 2012 and 2011, respectively, of which
approximately $41,000 and $43,000 had been drawn at June 30, 2012 and 2011, respectively.
The Company has letters of credits issued representing credit risk of approximately $2,712,000
and $5,365,000 at June 30, 2012 and 2011, respectively.
If certain hedging criteria specified in derivatives and hedging accounting guidance are met,
including testing for hedge effectiveness, hedge accounting may be applied. The hedge
effectiveness assessment methodologies for similar hedges are performed in a similar manner
and are used consistently throughout the hedging relationships.
The hedge documentation specifies the terms of the hedged item and the interest rate swap. The
documentation also indicates that the derivative is hedging a fixed-rate item, that the hedge
exposure is to the changes in the fair value of the hedged item, and that the strategy is to
eliminate fair value variability by converting fixed-rate interest payments to variable-rate interest
payments.
Derivative loan commitments – Mortgage loan commitments are referred to as derivative loan
commitments if the loan that will result from exercise of the commitment will be held for sale
upon funding. The Company enters into commitments to fund residential mortgage loans at
specified times in the future, with the intention that these loans will subsequently be sold in the
secondary market. A mortgage loan commitment binds the Company to lend funds to a potential
borrower at a specified interest rate and within a specified period of time, generally up to 60 days
after inception of the rate lock.
For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss
on the derivative as well as the offsetting loss or gain on the hedged item attributable to the
hedged risk are recognized in current earnings. The Company includes the gain or loss on the
hedged items in the same line item—noninterest income—as the offsetting loss or gain on the
related interest rate swap.
The fixed rate loan hedged has an original maturity of 20 years and is not callable. This loan is
hedged with a “pay fixed rate, receive variable rate” swap with a similar notional amount,
maturity, and fixed rate coupons. The swap is not callable. At June 30, 2012, the loan had an
outstanding principal balance of $11,536,000, and the interest rate swap had a notional value of
$11,536,000.
Outstanding derivative loan commitments expose the Company to the risk that the price of the
loans arising from exercise of the loan commitment might decline from inception of the rate lock
to funding of the loan due to increases in mortgage interest rates. If interest rates increase, the
value of these loan commitments decreases. Conversely, if interest rates decrease, the value of
these loan commitments increases. The notional amount of interest rate lock commitments was
$6,482,000 and $4,076,000 at June 30, 2012 and 2011, respectively. The fair value of such
commitments was insignificant.
The Company has no other off-balance-sheet arrangements or transactions with unconsolidated,
special purpose entities that would expose the Company to liability that is not reflected on the
face of the financial statements.
The Company is exposed to certain risks relating to its ongoing business operations. The primary
risk managed by using derivative instruments is interest rate risk. The Company entered into an
interest rate swap agreement on August 27, 2010 with a third party to manage interest rate risk
associated with a fixed-rate loan. The interest rate swap agreement effectively converted the
loan’s fixed rate into a variable rate. The derivatives and hedging accounting guidance (FASB
ASC 815-10) requires that the Company recognize all derivative instruments as either assets or
liabilities at fair value in the statement of financial position. In accordance with this guidance,
the Company designates the interest rate swap on this fixed-rate loan as a fair value hedge.
The Company is exposed to credit-related losses in the event of nonperformance by the
counterparties to this agreement. The Company controls the credit risk of its financial contracts
through credit approvals, limits and monitoring procedures, and does not expect any
counterparties to fail their obligations. The Company deals only with primary dealers.
If certain hedging criteria specified in derivatives and hedging accounting guidance are met,
including testing for hedge effectiveness, hedge accounting may be applied. The hedge
effectiveness assessment methodologies for similar hedges are performed in a similar manner
and are used consistently throughout the hedging relationships.
The hedge documentation specifies the terms of the hedged item and the interest rate swap. The
documentation also indicates that the derivative is hedging a fixed-rate item, that the hedge
exposure is to the changes in the fair value of the hedged item, and that the strategy is to
eliminate fair value variability by converting fixed-rate interest payments to variable-rate interest
payments.
For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss
on the derivative as well as the offsetting loss or gain on the hedged item attributable to the
hedged risk are recognized in current earnings. The Company includes the gain or loss on the
hedged items in the same line item—noninterest income—as the offsetting loss or gain on the
related interest rate swap.
The fixed rate loan hedged has an original maturity of 20 years and is not callable. This loan is
hedged with a “pay fixed rate, receive variable rate” swap with a similar notional amount,
maturity, and fixed rate coupons. The swap is not callable. At June 30, 2012, the loan had an
outstanding principal balance of $11,536,000, and the interest rate swap had a notional value of
$11,536,000.
-54-
-55-
-54-
-55-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 20: Derivatives and Hedging Activities – continued
Interest rate contracts – continued
Effect of Derivative Instruments on Statement of Financial Condition
Fair Value of Derivative Instruments
Asset Derivatives
Liability Derivatives
NOTE 20: Derivatives and Hedging Activities – continued
NOTE 20: Derivatives and Hedging Activities – continued
Interest rate contracts – continued
Forward delivery commitments – continued
Refer to Note 19 for additional information regarding the Company’s use of derivative loan
commitments. These derivative instruments are not designated as hedging instruments.
Asset Derivatives
Liability Derivatives
Effect of Derivative Instruments on Statement of Financial Condition
Fair Value of Derivative Instruments
(In Thousands)
June 30, 2012
June 30, 2011
June 30, 2012
June 30, 2011
(In Thousands)
June 30, 2012
June 30, 2011
June 30, 2012
June 30, 2011
Balance
Sheet
Location
Fair
Value
Balance
Sheet
Location
Fair
Value
Balance
Sheet
Location
Fair
Value
Balance
Sheet
Location
Fair
Value
Derivatives designed
as fair value hedging instruments
under ASC 815
Interest rate contracts
$
-
Other
Assets
$
650
Other
Liabilities
$
1,054
n/a
$
-
Change in fair value of
financial instrument being
hedged under ASC 815
Interest rate contracts
(In Thousands)
Loans
$
836
Loans
$
(452)
n/a
$
-
n/a
$
-
Effect of Derivative Instruments on Statement of Income
For the Twelve Months Ended June 30, 2012 and 2011
Derivatives Designated
as Hedging Instruments
Under ASC 815
Location of
Gain or (Loss)
Recognized in
Income on Derivative
Amount of
Gain or (Loss)
Recognized in
Income on Derivative
2012
2011
Interest rate contracts
Noninterest income
$
(417)
$
198
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 deferred 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, 2012 and 2011, the Company had entered into commitments to deliver
approximately $10,505,000 and $1,779,000 respectively, in loans to various investors, all at
fixed interest rates ranging from 2.63% to 3.88 % and 3.50% to 4.75% at June 30, 2012 and
2011, respectively. The Company had approximately $192,000 and $18,000 of gains deferred as
a result of the forward delivery commitments entered into as of June 30, 2012 and 2011,
respectively. The fair value of such commitments is insignificant.
The Company did not have any gains or losses reclassified into earnings 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 earnings 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,
2012.
-56-
NOTE 21: Fair Value Disclosures
Fair
Value
Fair
Value
Fair
Value
Balance
Sheet
Location
Balance
Sheet
Location
Balance
Sheet
Location
Derivatives designed
as fair value hedging instruments
under ASC 815
Interest rate contracts
Balance
Sheet
Location
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
Other
principal market for the asset or liability or, in the absence of a principal market, the most
Assets
advantageous market for the asset or liability. The price in the principal (or most advantageous)
market used to measure the fair value of the 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
Loans
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.
Change in fair value of
financial instrument being
hedged under ASC 815
Interest rate contracts
Effect of Derivative Instruments on Statement of Income
For the Twelve Months Ended June 30, 2012 and 2011
Other
Liabilities
$
-
$
-
$
$
Loans
1,054
$
(452)
$
836
650
n/a
n/a
n/a
Fair
Value
$
-
$
-
198
2011
(417)
$
$
(In Thousands)
Noninterest income
Interest rate contracts
Forward delivery commitments
Derivatives Designated
as Hedging Instruments
Under ASC 815
Location of
Gain or (Loss)
Recognized in
Income on Derivative
Amount of
FASB ASC 820 requires the use of valuation techniques that are consistent with the market
Gain or (Loss)
approach, the income approach and/or the cost approach. The market approach uses prices and
Recognized in
other relevant information generated by market transactions involving identical or comparable
Income on Derivative
assets and liabilities. The income approach uses valuation techniques to convert future amounts,
2012
such as cash flows or earnings, to a single present amount on a discounted basis. The cost
approach is based on the amount that currently 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.
As of June 30, 2012 and 2011, the Company had entered into commitments to deliver
approximately $10,505,000 and $1,779,000 respectively, in loans to various investors, all at
fixed interest rates ranging from 2.63% to 3.88 % and 3.50% to 4.75% at June 30, 2012 and
2011, respectively. The Company had approximately $192,000 and $18,000 of gains deferred as
a result of the forward delivery commitments entered into as of June 30, 2012 and 2011,
that the reporting entity has the ability to access at the measurement date.
respectively. The fair value of such commitments is insignificant.
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 deferred 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.
Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities
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
The Company did not have any gains or losses reclassified into earnings as a result of the
assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities
ineffectiveness of its hedging activities. The Company considers its hedging activities to be
in markets that are not active, inputs other than quoted prices that are observable for the asset
highly effective.
or liability (for example, interest rates, volatilities, prepayment speeds, loss severities, credit
risks and default rates) or inputs that are derived principally from or corroborated by
The Company did not have any gains or losses reclassified into earnings as a result of the
observable market data by correlation or other means.
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,
market participants would use in pricing the assets or liabilities.
2012.
Level 3 Inputs - Significant unobservable inputs that reflect an entity’s own assumptions that
The fair value hierarchy is as follows:
-57-
-56-
-57-
NOTE 20: Derivatives and Hedging Activities – continued
Forward delivery commitments – continued
Refer to Note 19 for additional information regarding the Company’s use of derivative loan
commitments. These derivative instruments are not designated as hedging instruments.
NOTE 21: 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 of the 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 future amounts,
such as cash flows or earnings, to a single present amount on a discounted basis. The cost
approach is based on the amount that currently 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:
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 corroborated by
observable market data by correlation 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.
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 20: Derivatives and Hedging Activities – continued
Interest rate contracts – continued
NOTE 20: Derivatives and Hedging Activities – continued
NOTE 20: Derivatives and Hedging Activities – continued
Interest rate contracts – continued
Forward delivery commitments – continued
(In Thousands)
June 30, 2012
June 30, 2011
June 30, 2012
June 30, 2011
(In Thousands)
June 30, 2012
June 30, 2011
June 30, 2012
June 30, 2011
Refer to Note 19 for additional information regarding the Company’s use of derivative loan
commitments. These derivative instruments are not designated as hedging instruments.
Asset Derivatives
Liability Derivatives
Effect of Derivative Instruments on Statement of Financial Condition
Fair Value of Derivative Instruments
NOTE 21: Fair Value Disclosures
Fair
Value
Fair
Value
Fair
Value
Balance
Sheet
Location
Balance
Sheet
Location
Balance
Sheet
Location
Derivatives designed
as fair value hedging instruments
under ASC 815
Interest rate contracts
Balance
Sheet
Location
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
Other
principal market for the asset or liability or, in the absence of a principal market, the most
Assets
advantageous market for the asset or liability. The price in the principal (or most advantageous)
market used to measure the fair value of the 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
Loans
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.
Change in fair value of
financial instrument being
hedged under ASC 815
Interest rate contracts
Effect of Derivative Instruments on Statement of Income
For the Twelve Months Ended June 30, 2012 and 2011
Other
Liabilities
$
-
$
-
$
$
Loans
1,054
$
(452)
$
836
650
n/a
n/a
n/a
Fair
Value
$
-
$
-
198
2011
(417)
$
$
(In Thousands)
Noninterest income
Interest rate contracts
Forward delivery commitments
Derivatives Designated
as Hedging Instruments
Under ASC 815
Location of
Gain or (Loss)
Recognized in
Income on Derivative
Amount of
FASB ASC 820 requires the use of valuation techniques that are consistent with the market
Gain or (Loss)
approach, the income approach and/or the cost approach. The market approach uses prices and
Recognized in
other relevant information generated by market transactions involving identical or comparable
Income on Derivative
assets and liabilities. The income approach uses valuation techniques to convert future amounts,
2012
such as cash flows or earnings, to a single present amount on a discounted basis. The cost
approach is based on the amount that currently 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.
As of June 30, 2012 and 2011, the Company had entered into commitments to deliver
approximately $10,505,000 and $1,779,000 respectively, in loans to various investors, all at
fixed interest rates ranging from 2.63% to 3.88 % and 3.50% to 4.75% at June 30, 2012 and
2011, respectively. The Company had approximately $192,000 and $18,000 of gains deferred as
a result of the forward delivery commitments entered into as of June 30, 2012 and 2011,
that the reporting entity has the ability to access at the measurement date.
respectively. The fair value of such commitments is insignificant.
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 deferred 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.
Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities
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
The Company did not have any gains or losses reclassified into earnings as a result of the
assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities
ineffectiveness of its hedging activities. The Company considers its hedging activities to be
in markets that are not active, inputs other than quoted prices that are observable for the asset
highly effective.
or liability (for example, interest rates, volatilities, prepayment speeds, loss severities, credit
risks and default rates) or inputs that are derived principally from or corroborated by
The Company did not have any gains or losses reclassified into earnings as a result of the
observable market data by correlation or other means.
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,
market participants would use in pricing the assets or liabilities.
2012.
Level 3 Inputs - Significant unobservable inputs that reflect an entity’s own assumptions that
The fair value hierarchy is as follows:
Effect of Derivative Instruments on Statement of Financial Condition
Fair Value of Derivative Instruments
Asset Derivatives
Liability Derivatives
Balance
Sheet
Location
Fair
Value
Balance
Sheet
Location
Fair
Value
Balance
Sheet
Location
Fair
Value
Balance
Sheet
Location
Fair
Value
$
-
$
650
Liabilities
$
1,054
n/a
$
-
Other
Assets
Other
Derivatives designed
as fair value hedging instruments
under ASC 815
Interest rate contracts
Change in fair value of
financial instrument being
hedged under ASC 815
(In Thousands)
Interest rate contracts
Loans
$
836
Loans
$
(452)
n/a
$
-
n/a
$
-
Effect of Derivative Instruments on Statement of Income
For the Twelve Months Ended June 30, 2012 and 2011
Derivatives Designated
as Hedging Instruments
Under ASC 815
Location of
Gain or (Loss)
Recognized in
Income on Derivative
Amount of
Gain or (Loss)
Recognized in
Income on Derivative
2012
2011
Interest rate contracts
Noninterest income
$
(417)
$
198
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 deferred 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, 2012 and 2011, the Company had entered into commitments to deliver
approximately $10,505,000 and $1,779,000 respectively, in loans to various investors, all at
fixed interest rates ranging from 2.63% to 3.88 % and 3.50% to 4.75% at June 30, 2012 and
2011, respectively. The Company had approximately $192,000 and $18,000 of gains deferred as
a result of the forward delivery commitments entered into as of June 30, 2012 and 2011,
respectively. The fair value of such commitments is insignificant.
The Company did not have any gains or losses reclassified into earnings as a result of the
ineffectiveness of its hedging activities. The Company considers its hedging activities to be
highly effective.
2012.
The Company did not have any gains or losses reclassified into earnings 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,
NOTE 20: Derivatives and Hedging Activities – continued
Forward delivery commitments – continued
Refer to Note 19 for additional information regarding the Company’s use of derivative loan
commitments. These derivative instruments are not designated as hedging instruments.
NOTE 21: 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 of the 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 future amounts,
such as cash flows or earnings, to a single present amount on a discounted basis. The cost
approach is based on the amount that currently 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:
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 corroborated by
observable market data by correlation 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.
-56-
-57-
-56-
-57-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 21: Fair Value Disclosures – continued
A description of the valuation methodologies used for assets and liabilities measured at fair
value, as well as the general classification of such instruments pursuant to the valuation
hierarchy, 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 internally developed models that primarily use,
as inputs, observable market-based parameters. Valuation adjustments may be made to ensure
that financial instruments 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
instruments 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 internally customized discounting criteria.
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.
Repossessed Assets – Fair values are valued at the time the loan is foreclosed upon and the asset
is transferred 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 of the 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.
Loan Subject to Fair Value Hedge – The Company has one loan that is carried at fair value
subject to a fair value hedge. Fair value is determined utilizing valuation models that consider
the scheduled cash flows through anticipated maturity and is considered a Level 3 input.
Derivative financial instruments – Fair values for interest rate swap agreements are based upon
the amounts required to settle the contracts. These instruments are valued using Level 3 inputs
utilizing valuation models that consider: (a) time value, (b) volatility factors and (c) current
market and contractual prices for the underlying instruments, as well as other relevant economic
measures.
the
reasonableness of its prices and valuation techniques, there is not sufficient corroborating market
evidence to support classifying these assets and liabilities as Level 2.
the Company utilizes counterparties’ valuations
Although
to assess
NOTE 21: Fair Value Disclosures – continued
NOTE 21: Fair Value Disclosures – continued
The following table summarizes financial assets and financial liabilities measured at fair value
on a recurring basis as of June 30, 2012 and 2011, segregated by the level of the valuation inputs
within the fair value hierarchy utilized to measure fair value (dollars in thousands):
A description of the valuation methodologies used for assets and liabilities measured at fair
value, as well as the general classification of such instruments pursuant to the valuation
hierarchy, is set forth below.
June 30, 2012
Financial Assets:
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total Fair
Value
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 internally developed models that primarily use,
as inputs, observable market-based parameters. Valuation adjustments may be made to ensure
that financial instruments are recorded at fair value. While management believes the Company’s
Available for sale securities
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
instruments could result in a different estimate of fair value at the reporting date.
U.S. Government and agency $
Municipal obligations
Corporate obligations
Available for Sale Securities – Securities classified as available for sale are reported at fair value
Mortgage-backed securities
utilizing Level 1 and Level 2 inputs. For these securities, the Company obtains fair value
government backed
measurements from an independent pricing service. The fair value measurements consider
Private lable CMOs
observable data that may include dealer quotes, market spreads, cash flows, the U. S. Treasury
CMOs - government backed
yield curve, live trading levels, trade execution data, market consensus prepayments speeds,
credit information and the bond’s terms and conditions, among other things.
Loan subject to fair value hedge
Loans held-for-sale
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
Derivative financial instruments
inputs based on internally customized discounting criteria.
21,055
42,060
3,945
-
6,847
169
15,201
12,372
10,613
6,847
169
15,201
-
10,613
-
-
-
12,372
-
21,055
42,060
3,945
-
-
-
-
-
1,054
1,054
-
-
-
-
-
-
$
$
-
-
Financial Liabilities:
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.
June 30, 2011
Total Fair
Value
Level 3
Inputs
Level 2
Inputs
Level 1
Inputs
Financial Assets:
$
$
Repossessed Assets – Fair values are valued at the time the loan is foreclosed upon and the asset
Available for sale securities
is transferred 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 of the 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.
-
U.S. Government and agency $
-
Municipal obligations
-
Corporate obligations
-
Mortgage-backed securities
-
government backed
-
Private lable CMOs
-
CMOs - government backed
Loan Subject to Fair Value Hedge – The Company has one loan that is carried at fair value
Loan subject to fair value hedge
-
subject to a fair value hedge. Fair value is determined utilizing valuation models that consider
the scheduled cash flows through anticipated maturity and is considered a Level 3 input.
-
Loans held-for-sale
-
Derivative financial instruments
Derivative financial instruments – Fair values for interest rate swap agreements are based upon
the amounts required to settle the contracts. These instruments are valued using Level 3 inputs
utilizing valuation models that consider: (a) time value, (b) volatility factors and (c) current
market and contractual prices for the underlying instruments, as well as other relevant economic
measures.
the
reasonableness of its prices and valuation techniques, there is not sufficient corroborating market
evidence to support classifying these assets and liabilities as Level 2.
26,208
39,186
6,216
-
6,372
291
24,427
-
1,784
-
-
-
-
-
-
-
-
11,405
-
650
26,208
39,186
6,216
-
6,372
291
24,427
11,405
1,784
650
the Company utilizes counterparties’ valuations
Although
to assess
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 21: Fair Value Disclosures – continued
The following table summarizes financial assets and financial liabilities measured at fair value
on a recurring basis as of June 30, 2012 and 2011, segregated by the level of the valuation inputs
within the fair value hierarchy utilized to measure fair value (dollars in thousands):
Financial Assets:
Available for sale securities
U.S. Government and agency $
Municipal obligations
Corporate obligations
Mortgage-backed securities
government backed
Private lable CMOs
CMOs - government backed
Loan subject to fair value hedge
Loans held-for-sale
Financial Liabilities:
Financial Assets:
Available for sale securities
U.S. Government and agency $
Municipal obligations
Corporate obligations
Mortgage-backed securities
government backed
Private lable CMOs
CMOs - government backed
Loan subject to fair value hedge
Loans held-for-sale
Derivative financial instruments
June 30, 2012
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total Fair
Value
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
21,055
$
42,060
3,945
6,847
169
15,201
10,613
26,208
$
39,186
6,216
6,372
291
24,427
1,784
-
-
-
-
-
$
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
12,372
11,405
650
21,055
42,060
3,945
-
6,847
169
15,201
12,372
10,613
26,208
39,186
6,216
-
6,372
291
24,427
11,405
1,784
650
Derivative financial instruments
1,054
1,054
June 30, 2011
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total Fair
Value
-58-
-59-
-58-
-59-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 21: Fair Value Disclosures – continued
NOTE 21: Fair Value Disclosures – continued
The following table summarizes financial assets and financial liabilities measured at fair value
on a recurring basis as of June 30, 2012 and 2011, segregated by the level of the valuation inputs
within the fair value hierarchy utilized to measure fair value (dollars in thousands):
A description of the valuation methodologies used for assets and liabilities measured at fair
value, as well as the general classification of such instruments pursuant to the valuation
hierarchy, is set forth below.
June 30, 2012
Financial Assets:
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total Fair
Value
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 internally developed models that primarily use,
as inputs, observable market-based parameters. Valuation adjustments may be made to ensure
that financial instruments are recorded at fair value. While management believes the Company’s
Available for sale securities
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
instruments could result in a different estimate of fair value at the reporting date.
U.S. Government and agency $
Municipal obligations
Corporate obligations
Available for Sale Securities – Securities classified as available for sale are reported at fair value
Mortgage-backed securities
utilizing Level 1 and Level 2 inputs. For these securities, the Company obtains fair value
government backed
measurements from an independent pricing service. The fair value measurements consider
Private lable CMOs
observable data that may include dealer quotes, market spreads, cash flows, the U. S. Treasury
CMOs - government backed
yield curve, live trading levels, trade execution data, market consensus prepayments speeds,
credit information and the bond’s terms and conditions, among other things.
Loan subject to fair value hedge
Loans held-for-sale
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
Derivative financial instruments
inputs based on internally customized discounting criteria.
21,055
42,060
3,945
-
6,847
169
15,201
12,372
10,613
6,847
169
15,201
-
10,613
-
-
-
12,372
-
21,055
42,060
3,945
-
-
-
-
-
1,054
1,054
-
-
-
-
-
-
$
$
-
-
Financial Liabilities:
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.
June 30, 2011
Total Fair
Value
Level 2
Inputs
Level 3
Inputs
Level 1
Inputs
Financial Assets:
$
$
Repossessed Assets – Fair values are valued at the time the loan is foreclosed upon and the asset
Available for sale securities
is transferred 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 of the 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.
-
U.S. Government and agency $
-
Municipal obligations
-
Corporate obligations
-
Mortgage-backed securities
-
government backed
-
Private lable CMOs
-
CMOs - government backed
Loan Subject to Fair Value Hedge – The Company has one loan that is carried at fair value
Loan subject to fair value hedge
-
subject to a fair value hedge. Fair value is determined utilizing valuation models that consider
the scheduled cash flows through anticipated maturity and is considered a Level 3 input.
-
Loans held-for-sale
-
Derivative financial instruments
Derivative financial instruments – Fair values for interest rate swap agreements are based upon
the amounts required to settle the contracts. These instruments are valued using Level 3 inputs
utilizing valuation models that consider: (a) time value, (b) volatility factors and (c) current
market and contractual prices for the underlying instruments, as well as other relevant economic
measures.
the
reasonableness of its prices and valuation techniques, there is not sufficient corroborating market
evidence to support classifying these assets and liabilities as Level 2.
26,208
39,186
6,216
-
6,372
291
24,427
-
1,784
-
-
-
-
-
-
-
-
11,405
-
650
26,208
39,186
6,216
-
6,372
291
24,427
11,405
1,784
650
the Company utilizes counterparties’ valuations
Although
to assess
NOTE 21: Fair Value Disclosures – continued
A description of the valuation methodologies used for assets and liabilities measured at fair
value, as well as the general classification of such instruments pursuant to the valuation
hierarchy, 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 internally developed models that primarily use,
as inputs, observable market-based parameters. Valuation adjustments may be made to ensure
that financial instruments 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
instruments 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 internally customized discounting criteria.
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.
Repossessed Assets – Fair values are valued at the time the loan is foreclosed upon and the asset
is transferred 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 of the 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.
Loan Subject to Fair Value Hedge – The Company has one loan that is carried at fair value
subject to a fair value hedge. Fair value is determined utilizing valuation models that consider
the scheduled cash flows through anticipated maturity and is considered a Level 3 input.
Derivative financial instruments – Fair values for interest rate swap agreements are based upon
the amounts required to settle the contracts. These instruments are valued using Level 3 inputs
utilizing valuation models that consider: (a) time value, (b) volatility factors and (c) current
market and contractual prices for the underlying instruments, as well as other relevant economic
measures.
Although
the Company utilizes counterparties’ valuations
to assess
the
reasonableness of its prices and valuation techniques, there is not sufficient corroborating market
evidence to support classifying these assets and liabilities as Level 2.
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 21: Fair Value Disclosures – continued
The following table summarizes financial assets and financial liabilities measured at fair value
on a recurring basis as of June 30, 2012 and 2011, segregated by the level of the valuation inputs
within the fair value hierarchy utilized to measure fair value (dollars in thousands):
Financial Assets:
Available for sale securities
U.S. Government and agency $
Municipal obligations
Corporate obligations
Mortgage-backed securities
government backed
Private lable CMOs
CMOs - government backed
Loan subject to fair value hedge
Loans held-for-sale
Financial Liabilities:
Derivative financial instruments
Financial Assets:
Available for sale securities
U.S. Government and agency $
Municipal obligations
Corporate obligations
Mortgage-backed securities
government backed
Private lable CMOs
CMOs - government backed
Loan subject to fair value hedge
Loans held-for-sale
Derivative financial instruments
June 30, 2012
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total Fair
Value
-
-
-
-
-
-
-
-
-
$
21,055
42,060
3,945
$
-
-
-
6,847
169
15,201
-
10,613
-
-
-
12,372
-
21,055
42,060
3,945
-
6,847
169
15,201
12,372
10,613
-
1,054
1,054
June 30, 2011
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total Fair
Value
-
-
-
-
-
-
-
-
-
-
$
26,208
39,186
6,216
-
6,372
291
24,427
-
1,784
-
$
-
-
-
-
-
-
-
11,405
-
650
26,208
39,186
6,216
-
6,372
291
24,427
11,405
1,784
650
-58-
-59-
-58-
-59-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 21: Fair Value Disclosures – continued
NOTE 21: Fair Value Disclosures – continued
NOTE 21: Fair Value Disclosures – continued
NOTE 21: Fair Value Disclosures – continued
The following tables present, for the years ended June 30, 2012 and 2011, the changes in Level 3
assets and liabilities that are measured at fair value on a recurring basis.
Year Ended June 30, 2012
Total Realized/
Unrealized Gains
(Losses) Included
in Noninterest
Income
Purchases,
Sales,
Issuances, and
Settlements, net
(In thousands)
Balance
as of
July 1, 2011
Balance
as of
June 30, 2012
Financial Assets (Liabilities):
Loan subject to fair value hedge
Derivative financial instruments
$
11,405
650
$
1,287
(1,704)
$
(320)
-
$
12,372
(1,054)
Year Ended June 30, 2011
Total Realized/
Unrealized Gains
(Losses) Included
in Noninterest
Income
Purchases,
Sales,
Issuances, and
Settlements, net
(In thousands)
Balance
as of
July 1, 2010
Balance
as of
June 30, 2011
Financial Assets:
Loan subject to fair value hedge $
Derivative financial instruments
-
$
$
(452)
650
11,857
-
$
11,405
650
Certain financial assets and financial liabilities are measured at fair value on a nonrecurring
basis; that is, the instruments 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
impairment).
The following table summarizes financial assets and financial liabilities measured at fair value
on a nonrecurring basis as of June 30, 2012 and 2011, segregated by the level of the valuation
inputs within the fair value hierarchy utilized to measure fair value (dollars in thousands):
Impaired loans
Repossessed assets
Impaired loans
Repossessed assets
June 30, 2012
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total Fair
Value
$
-
-
$
-
2,361
-
2,361
June 30, 2011
Level 2
Inputs
Level 3
Inputs
Total Fair
Value
$
-
-
$
1,004
1,181
1,004
1,181
$
$
$
$
-
-
Level 1
Inputs
-
-
-60-
The following tables present, for the years ended June 30, 2012 and 2011, the changes in Level 3
assets and liabilities that are measured at fair value on a recurring basis.
During the year ended June 30, 2012, 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 $2,000 were reduced by specific valuation allowance allocations totaling $2,000 to a
total reported fair value of $0 based on collateral valuations utilizing Level 3 valuation inputs.
Year Ended June 30, 2012
Total Realized/
Unrealized Gains
(Losses) Included
in Noninterest
Income
Purchases,
Sales,
Issuances, and
Settlements, net
FASB ASC Topic 825 requires disclosure of the fair value of financial instruments, both assets
Balance
and liabilities recognized and not recognized in the statement of financial position, for which it is
as of
practicable to estimate fair value. Below is a table that summarizes the fair market values of all
July 1, 2011
financial instruments of the Company at June 30, 2012 and 2011, followed by methods and
assumptions that were used by the Company in estimating the fair value of the classes of
financial instruments.
11,405
$
650
Financial Assets (Liabilities):
Loan subject to fair value hedge
Derivative financial instruments
1,287
(1,704)
(In thousands)
(320)
-
$
$
$
The estimated fair value amounts of financial instruments 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 current market exchange. The use of different market
Balance
assumptions and/or estimation methodologies may have a material effect on the estimated fair
as of
value amounts.
July 1, 2010
Total Realized/
Unrealized Gains
(Losses) Included
in Noninterest
Income
Purchases,
Sales,
Issuances, and
Settlements, net
Year Ended June 30, 2011
Balance
as of
June 30, 2012
12,372
(1,054)
Balance
as of
June 30, 2011
Financial Assets:
Loan subject to fair value hedge $
Level 1
Derivative financial instruments
Inputs
(Dollars in Thousands)
(In thousands)
-
$
Level 2
Inputs
June 30, 2012
(452)
Level 3
650
Inputs
$
Total
11,857
Estimated
-
Fair Value
$
11,405
Carrying
650
Amount
Certain financial assets and financial liabilities are measured at fair value on a nonrecurring
basis; that is, the instruments 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
$
impairment).
$
$
$
$
-
2,003
183,830
19,814
2,003
183,830
19,814
2,003
173,839
19,814
-
-
-
-
-
The following table summarizes financial assets and financial liabilities measured at fair value
on a nonrecurring basis as of June 30, 2012 and 2011, segregated by the level of the valuation
-
inputs within the fair value hierarchy utilized to measure fair value (dollars in thousands):
-
1,371
-
1,371
2,424
1,371
2,218
-
2,424
Financial Assets:
Cash and cash equivalents
FHLB stock
Loans receivable, net
Accrued interest on dividends
receivable
Mortage servicing rights
Cash surrender value of
life insurance
Financial Liabilities:
Deposits
Time certificates of deposit
Accrued expenses and other
liabilities
Advances from the FHLB & other
borrowings
Subordinated debentures
Off-balance-sheet instruments
Impaired loans
Repossessed assets
Forward loan sales commitments
Commitments to extend credit
Impaired loans
Rate lock commitments
Repossessed assets
-
-
June 30, 2012
9,101
9,101
9,172
Level 2
-
Inputs
82,613
-
$
-
-
Level 3
Inputs
138,630
82,613
$
5,809
-
2,361
44,310
4,196
June 30, 2011
44,310
4,196
Total Fair
Value
138,630
81,359
-
2,361
5,809
42,696
5,155
Level 2
Inputs
-
-
-
-
-
$
Level 3
Inputs
-
-
$
-
1,004
1,181
Total Fair
Value
1,004
1,181
-
-
-
138,630
-
$
5,809
-
-
-
-
$
Level 1
-
Inputs
-
-
-
-
-
Level 1
-
Inputs
-
-
-
-
$
$
-61-
-60-
During the year ended June 30, 2012, 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 $2,000 were reduced by specific valuation allowance allocations totaling $2,000 to a
total reported fair value of $0 based on collateral valuations utilizing Level 3 valuation inputs.
FASB ASC Topic 825 requires disclosure of the fair value of financial instruments, both assets
and liabilities recognized and not recognized in the statement of financial position, for which it is
practicable to estimate fair value. Below is a table that summarizes the fair market values of all
financial instruments of the Company at June 30, 2012 and 2011, followed by methods and
assumptions that were used by the Company in estimating the fair value of the classes of
financial instruments.
The estimated fair value amounts of financial instruments 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 current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the estimated fair
value amounts.
June 30, 2012
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total
Estimated
Fair Value
Carrying
Amount
Cash and cash equivalents
$
19,814
$
$
-
$
19,814
$
(Dollars in Thousands)
Financial Assets:
FHLB stock
Loans receivable, net
Accrued interest on dividends
receivable
Mortage servicing rights
Cash surrender value of
life insurance
Financial Liabilities:
Deposits
Time certificates of deposit
Accrued expenses and other
Advances from the FHLB & other
liabilities
borrowings
Subordinated debentures
Off-balance-sheet instruments
Forward loan sales commitments
Commitments to extend credit
Rate lock commitments
1,371
138,630
5,809
-
-
-
-
-
-
-
-
-
-61-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,003
183,830
2,003
183,830
-
2,424
9,101
82,613
44,310
4,196
-
-
-
-
-
1,371
2,424
9,101
138,630
82,613
5,809
44,310
4,196
-
-
-
19,814
2,003
173,839
1,371
2,218
9,172
138,630
81,359
5,809
42,696
5,155
-
-
-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 21: Fair Value Disclosures – continued
NOTE 21: Fair Value Disclosures – continued
NOTE 21: Fair Value Disclosures – continued
NOTE 21: Fair Value Disclosures – continued
The following tables present, for the years ended June 30, 2012 and 2011, the changes in Level 3
assets and liabilities that are measured at fair value on a recurring basis.
Year Ended June 30, 2012
Total Realized/
Unrealized Gains
Purchases,
Balance
(Losses) Included
Sales,
as of
in Noninterest
July 1, 2011
Income
Issuances, and
Settlements, net
Balance
as of
June 30, 2012
(In thousands)
Financial Assets (Liabilities):
Loan subject to fair value hedge
$
11,405
$
1,287
$
(320)
$
12,372
Derivative financial instruments
650
(1,704)
-
(1,054)
Year Ended June 30, 2011
Total Realized/
Unrealized Gains
Purchases,
Balance
(Losses) Included
Sales,
as of
in Noninterest
Issuances, and
Balance
as of
July 1, 2010
Income
Settlements, net
June 30, 2011
(In thousands)
Financial Assets:
Loan subject to fair value hedge $
-
$
(452)
$
11,857
$
Derivative financial instruments
650
-
11,405
650
Certain financial assets and financial liabilities are measured at fair value on a nonrecurring
basis; that is, the instruments 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
impairment).
The following table summarizes financial assets and financial liabilities measured at fair value
on a nonrecurring basis as of June 30, 2012 and 2011, segregated by the level of the valuation
inputs within the fair value hierarchy utilized to measure fair value (dollars in thousands):
Impaired loans
Repossessed assets
Impaired loans
Repossessed assets
June 30, 2012
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total Fair
Value
$
-
$
2,361
-
2,361
June 30, 2011
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total Fair
Value
$
1,004
$
1,181
1,004
1,181
-
-
-
-
$
$
$
$
-
-
-
-
-60-
The following tables present, for the years ended June 30, 2012 and 2011, the changes in Level 3
assets and liabilities that are measured at fair value on a recurring basis.
During the year ended June 30, 2012, 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 $2,000 were reduced by specific valuation allowance allocations totaling $2,000 to a
total reported fair value of $0 based on collateral valuations utilizing Level 3 valuation inputs.
Year Ended June 30, 2012
Total Realized/
Unrealized Gains
(Losses) Included
in Noninterest
Income
Purchases,
Sales,
Issuances, and
Settlements, net
FASB ASC Topic 825 requires disclosure of the fair value of financial instruments, both assets
Balance
and liabilities recognized and not recognized in the statement of financial position, for which it is
as of
practicable to estimate fair value. Below is a table that summarizes the fair market values of all
July 1, 2011
financial instruments of the Company at June 30, 2012 and 2011, followed by methods and
assumptions that were used by the Company in estimating the fair value of the classes of
financial instruments.
11,405
$
650
Financial Assets (Liabilities):
Loan subject to fair value hedge
Derivative financial instruments
1,287
(1,704)
(In thousands)
(320)
-
$
$
$
The estimated fair value amounts of financial instruments 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 current market exchange. The use of different market
Balance
assumptions and/or estimation methodologies may have a material effect on the estimated fair
as of
value amounts.
July 1, 2010
Total Realized/
Unrealized Gains
(Losses) Included
in Noninterest
Income
Purchases,
Sales,
Issuances, and
Settlements, net
Year Ended June 30, 2011
Balance
as of
June 30, 2012
12,372
(1,054)
Balance
as of
June 30, 2011
Financial Assets:
Loan subject to fair value hedge $
Level 1
Derivative financial instruments
Inputs
(Dollars in Thousands)
(In thousands)
-
$
Level 2
Inputs
June 30, 2012
(452)
Level 3
650
Inputs
$
Total
11,857
Estimated
-
Fair Value
$
11,405
Carrying
650
Amount
Certain financial assets and financial liabilities are measured at fair value on a nonrecurring
basis; that is, the instruments 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
$
impairment).
$
$
$
$
-
2,003
183,830
19,814
2,003
183,830
19,814
2,003
173,839
19,814
-
-
-
-
-
The following table summarizes financial assets and financial liabilities measured at fair value
on a nonrecurring basis as of June 30, 2012 and 2011, segregated by the level of the valuation
-
inputs within the fair value hierarchy utilized to measure fair value (dollars in thousands):
-
1,371
-
1,371
2,424
1,371
2,218
-
2,424
Financial Assets:
Cash and cash equivalents
FHLB stock
Loans receivable, net
Accrued interest on dividends
receivable
Mortage servicing rights
Cash surrender value of
life insurance
Financial Liabilities:
Deposits
Time certificates of deposit
Accrued expenses and other
liabilities
Advances from the FHLB & other
borrowings
Subordinated debentures
Off-balance-sheet instruments
Impaired loans
Repossessed assets
Forward loan sales commitments
Commitments to extend credit
Impaired loans
Rate lock commitments
Repossessed assets
-
-
June 30, 2012
9,101
9,101
9,172
Level 2
-
Inputs
82,613
-
$
-
-
Level 3
Inputs
138,630
82,613
Total Fair
Value
138,630
81,359
-
2,361
$
5,809
-
2,361
44,310
4,196
June 30, 2011
44,310
4,196
Level 2
Inputs
-
-
-
-
-
$
Level 3
Inputs
-
-
$
-
1,004
1,181
Total Fair
Value
1,004
1,181
-
-
-
5,809
42,696
5,155
138,630
-
$
5,809
-
-
-
-
$
Level 1
-
Inputs
-
-
-
-
-
Level 1
-
Inputs
-
-
-
-
$
$
-61-
-60-
During the year ended June 30, 2012, 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 $2,000 were reduced by specific valuation allowance allocations totaling $2,000 to a
total reported fair value of $0 based on collateral valuations utilizing Level 3 valuation inputs.
FASB ASC Topic 825 requires disclosure of the fair value of financial instruments, both assets
and liabilities recognized and not recognized in the statement of financial position, for which it is
practicable to estimate fair value. Below is a table that summarizes the fair market values of all
financial instruments of the Company at June 30, 2012 and 2011, followed by methods and
assumptions that were used by the Company in estimating the fair value of the classes of
financial instruments.
The estimated fair value amounts of financial instruments 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 current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the estimated fair
value amounts.
June 30, 2012
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total
Estimated
Fair Value
Carrying
Amount
(Dollars in Thousands)
Financial Assets:
Cash and cash equivalents
FHLB stock
Loans receivable, net
Accrued interest on dividends
receivable
Mortage servicing rights
Cash surrender value of
life insurance
Financial Liabilities:
Deposits
Time certificates of deposit
Accrued expenses and other
liabilities
Advances from the FHLB & other
borrowings
Subordinated debentures
Off-balance-sheet instruments
Forward loan sales commitments
Commitments to extend credit
Rate lock commitments
$
$
19,814
-
-
1,371
-
-
138,630
-
5,809
-
-
-
-
-61-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
$
-
2,003
183,830
$
19,814
2,003
183,830
19,814
2,003
173,839
-
2,424
9,101
-
82,613
-
44,310
4,196
-
-
-
1,371
2,424
9,101
138,630
82,613
5,809
44,310
4,196
-
-
-
1,371
2,218
9,172
138,630
81,359
5,809
42,696
5,155
-
-
-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 21: Fair Value Disclosures – continued
NOTE 21: Fair Value Disclosures – continued
NOTE 21: Fair Value Disclosures – continued
NOTE 21: Fair Value Disclosures – continued
(Dollars in Thousands)
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total
Estimated
Fair Value
Carrying
Amount
June 30, 2011
Financial Assets:
$
Cash and cash equivalents
FHLB stock
Loans receivable, net
Accrued interest on dividends
receivable
Mortage servicing rights
Cash surrender value of
life insurance
Financial Liabilities:
Deposits
Time certificates of deposit
Accrued expenses and other
liabilities
Advances from the FHLB &
other borrowings
Subordinated debentures
Off-balance-sheet instruments
Forward loan sales commitments
Commitments to extend credit
Rate lock commitments
$
9,540
-
-
1,558
-
-
124,633
-
3,371
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
$
-
2,003
192,361
$
9,540
2,003
192,361
-
2,871
6,900
-
85,719
-
63,612
3,779
-
-
-
1,558
2,871
6,900
124,633
85,719
3,371
63,612
3,779
-
-
-
9,540
2,003
185,471
1,558
2,142
6,900
124,633
84,553
3,371
60,896
5,155
-
-
-
The following methods and assumptions were used by the Company in estimating the fair value
of the following classes of financial instruments.
Cash, interest-bearing accounts, accrued interest and dividend receivable, and accrued expenses
and other liabilities – The carrying amounts approximate fair value due to the relatively short
period of time between the origination of these instruments and their expected realization.
Securities held to maturity – Securities classified as held to maturity are reported at amortized
cost. 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.
June 30, 2011
Level 2
Inputs
Level 1
Inputs
Level 3
Inputs
Financial Assets:
(Dollars in Thousands)
Total
Estimated
Fair 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
Cash and cash equivalents
generally reprice within the short term.
FHLB stock
Loans receivable, net
Fair values are adjusted for credit risk based on assessment of risk identified with specific loans,
Accrued interest on dividends
and risk adjustments on the remaining portfolio based on credit loss experience.
receivable
Mortage servicing rights
Assumptions regarding credit risk are judgmentally determined using specific borrower
Cash surrender value of
information, internal credit quality analysis, and historical information on segmented loan
life insurance
categories for non-specific borrowers.
Financial Liabilities:
9,540
2,003
192,361
-
2,003
192,361
9,540
-
-
1,558
2,871
-
2,871
1,558
-
6,900
6,900
-
-
-
-
-
$
$
$
$
$
-
-
9,540
2,003
185,471
1,558
2,142
6,900
Carrying
Amount
124,633
-
Deposits
Cash surrender value of life insurance – The carrying amount for cash surrender value of life
Time certificates of deposit
insurance approximates fair value as policies are recorded at redemption value.
Accrued expenses and other
liabilities
Mortgage servicing rights – The fair value of servicing rights was determined using discount
Advances from the FHLB &
rates ranging from 9.0% to 20.0%, prepayment speeds ranging from 140% to 324% PSA,
other borrowings
depending on stratification of the specific right. The fair value was also adjusted for the affect of
Subordinated debentures
potential past dues and foreclosures.
Off-balance-sheet instruments
124,633
85,719
63,612
3,779
-
85,719
63,612
3,779
3,371
3,371
-
-
-
-
-
-
124,633
84,553
3,371
60,896
5,155
Forward loan sales commitments
Deposits and time certificates of deposit – The fair value of deposits with no stated maturity,
Commitments to extend credit
such as checking, passbook, and money market, is equal to the amount payable on demand. The
Rate lock commitments
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 currently offered for deposits of similar
maturities.
-
-
-
-
-
-
-
-
-
-
-
-
The following methods and assumptions were used by the Company in estimating the fair value
of the following classes of financial instruments.
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, 2012 and 2011, respectively if the borrowings repriced
according to their stated terms.
Cash, interest-bearing accounts, accrued interest and dividend receivable, and accrued expenses
and other liabilities – The carrying amounts approximate fair value due to the relatively short
period of time between the origination of these instruments and their expected realization.
-
-
-
Off-balance-sheet instruments - Fair values for off-balance-sheet, credit-related financial
instruments are based on fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the counterparties’ credit standing. The fair
values of these financial instruments are considered insignificant. Additionally, those financial
instruments have no carrying value.
Securities held to maturity – Securities classified as held to maturity are reported at amortized
cost. 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 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 borrower
information, internal credit quality analysis, and historical information on segmented loan
categories for non-specific borrowers.
Cash surrender value of life insurance – The carrying amount for cash surrender value of life
insurance approximates fair value as policies are recorded at redemption value.
Mortgage servicing rights – The fair value of servicing rights was determined using discount
rates ranging from 9.0% to 20.0%, prepayment speeds ranging from 140% to 324% PSA,
depending on stratification of the specific right. The fair value was also adjusted for the affect of
potential past dues and foreclosures.
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 currently 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, 2012 and 2011, respectively if the borrowings repriced
according to their stated terms.
Off-balance-sheet instruments - Fair values for off-balance-sheet, credit-related financial
instruments are based on fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the counterparties’ credit standing. The fair
values of these financial instruments are considered insignificant. Additionally, those financial
instruments have no carrying value.
Stock in the FHLB – The fair value of stock in the FHLB approximates redemption value.
Stock in the FHLB – The fair value of stock in the FHLB approximates redemption value.
-62-
-63-
-62-
-63-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 21: Fair Value Disclosures – continued
NOTE 21: Fair Value Disclosures – continued
NOTE 21: Fair Value Disclosures – continued
NOTE 21: Fair Value Disclosures – continued
Carrying
Amount
June 30, 2011
Level 2
Inputs
Level 1
Inputs
Level 3
Inputs
Financial Assets:
(Dollars in Thousands)
Total
Estimated
Fair 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
Cash and cash equivalents
generally reprice within the short term.
FHLB stock
Loans receivable, net
Fair values are adjusted for credit risk based on assessment of risk identified with specific loans,
Accrued interest on dividends
and risk adjustments on the remaining portfolio based on credit loss experience.
receivable
Mortage servicing rights
Assumptions regarding credit risk are judgmentally determined using specific borrower
Cash surrender value of
information, internal credit quality analysis, and historical information on segmented loan
life insurance
categories for non-specific borrowers.
Financial Liabilities:
9,540
2,003
192,361
-
2,003
192,361
9,540
-
-
1,558
2,871
-
2,871
1,558
-
6,900
6,900
-
-
-
-
-
$
$
$
$
$
-
-
June 30, 2011
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total
Estimated
Fair Value
Carrying
Amount
Cash and cash equivalents
$
9,540
$
$
-
$
9,540
$
(Dollars in Thousands)
Financial Assets:
FHLB stock
Loans receivable, net
Accrued interest on dividends
receivable
Mortage servicing rights
Cash surrender value of
life insurance
Financial Liabilities:
Deposits
Time certificates of deposit
Accrued expenses and other
liabilities
Advances from the FHLB &
other borrowings
Subordinated debentures
Off-balance-sheet instruments
Forward loan sales commitments
Commitments to extend credit
Rate lock commitments
1,558
124,633
3,371
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,003
192,361
2,003
192,361
-
2,871
6,900
85,719
63,612
3,779
-
-
-
-
-
1,558
2,871
6,900
124,633
85,719
3,371
63,612
3,779
-
-
-
9,540
2,003
185,471
1,558
2,142
6,900
124,633
84,553
3,371
60,896
5,155
-
-
-
The following methods and assumptions were used by the Company in estimating the fair value
of the following classes of financial instruments.
Cash, interest-bearing accounts, accrued interest and dividend receivable, and accrued expenses
and other liabilities – The carrying amounts approximate fair value due to the relatively short
period of time between the origination of these instruments and their expected realization.
Securities held to maturity – Securities classified as held to maturity are reported at amortized
cost. 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.
124,633
-
Deposits
Cash surrender value of life insurance – The carrying amount for cash surrender value of life
Time certificates of deposit
insurance approximates fair value as policies are recorded at redemption value.
Accrued expenses and other
liabilities
Mortgage servicing rights – The fair value of servicing rights was determined using discount
Advances from the FHLB &
rates ranging from 9.0% to 20.0%, prepayment speeds ranging from 140% to 324% PSA,
other borrowings
depending on stratification of the specific right. The fair value was also adjusted for the affect of
Subordinated debentures
potential past dues and foreclosures.
Off-balance-sheet instruments
124,633
85,719
-
85,719
63,612
3,779
63,612
3,779
3,371
3,371
-
-
-
-
-
-
124,633
84,553
3,371
60,896
5,155
Forward loan sales commitments
Deposits and time certificates of deposit – The fair value of deposits with no stated maturity,
Commitments to extend credit
such as checking, passbook, and money market, is equal to the amount payable on demand. The
Rate lock commitments
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 currently offered for deposits of similar
maturities.
-
-
-
-
-
-
-
-
-
-
-
-
The following methods and assumptions were used by the Company in estimating the fair value
of the following classes of financial instruments.
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, 2012 and 2011, respectively if the borrowings repriced
according to their stated terms.
Cash, interest-bearing accounts, accrued interest and dividend receivable, and accrued expenses
and other liabilities – The carrying amounts approximate fair value due to the relatively short
period of time between the origination of these instruments and their expected realization.
-
-
-
Stock in the FHLB – The fair value of stock in the FHLB approximates redemption value.
Stock in the FHLB – The fair value of stock in the FHLB approximates redemption value.
Off-balance-sheet instruments - Fair values for off-balance-sheet, credit-related financial
instruments are based on fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the counterparties’ credit standing. The fair
values of these financial instruments are considered insignificant. Additionally, those financial
instruments have no carrying value.
Securities held to maturity – Securities classified as held to maturity are reported at amortized
cost. 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.
9,540
2,003
185,471
1,558
2,142
6,900
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 borrower
information, internal credit quality analysis, and historical information on segmented loan
categories for non-specific borrowers.
Cash surrender value of life insurance – The carrying amount for cash surrender value of life
insurance approximates fair value as policies are recorded at redemption value.
Mortgage servicing rights – The fair value of servicing rights was determined using discount
rates ranging from 9.0% to 20.0%, prepayment speeds ranging from 140% to 324% PSA,
depending on stratification of the specific right. The fair value was also adjusted for the affect of
potential past dues and foreclosures.
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 currently 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, 2012 and 2011, respectively if the borrowings repriced
according to their stated terms.
Off-balance-sheet instruments - Fair values for off-balance-sheet, credit-related financial
instruments are based on fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the counterparties’ credit standing. The fair
values of these financial instruments are considered insignificant. Additionally, those financial
instruments have no carrying value.
-62-
-63-
-62-
-63-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 22: Condensed Parent Company Financial Statements
NOTE 22: Condensed Parent Company Financial Statements – continued
NOTE 22: Condensed Parent Company Financial Statements
NOTE 22: Condensed Parent Company Financial Statements – continued
Set forth below is the condensed statements of financial condition as of June 30, 2012 and 2011,
of Eagle Bancorp Montana, Inc. together with the related condensed statements of income and
cash flows for the years ended June 30, 2012 and 2011.
Condensed Statements of Financial Condition
(Dollars in Thousands)
Assets
Cash and cash equivalents
Securities available for sale
Investment in Eagle Bancorp Statutory Trust I
Investment in American Federal Savings Bank
Other assets
Total assets
2012
2011
$
$
2,500
12,290
155
43,714
341
337
14,230
155
42,744
253
$
59,000
$
57,719
Liabilities and stockholders' equity
Accounts payable and accrued expenses
Long-term subordinated debt
Stockholders' Equity
195
5,155
53,650
79
5,155
52,485
Total liabilities and stockholders' equity
$
59,000
$
57,719
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
earnings of American Federal Savings Bank
Equity in undistributed earnings
of American Federal Savings Bank
Net income
$
2012
2011
$
430
(96)
(778)
(444)
(117)
(327)
467
(191)
(389)
(113)
(35)
(78)
2,505
2,488
$
2,178
$
2,410
Set forth below is the condensed statements of financial condition as of June 30, 2012 and 2011,
Condensed Statements of Cash Flow
of Eagle Bancorp Montana, Inc. together with the related condensed statements of income and
(Dollars in Thousands)
cash flows for the years ended June 30, 2012 and 2011.
2012
2011
Condensed Statements of Financial Condition
(Dollars in Thousands)
$
2,178
$
2012
2,410
2011
Cash flows from operating activities
Net income
Adjustments to reconcile net income
to net cash used in operating activities:
Equity in undistributed earnings
of American Federal Savings Bank
Cash and cash equivalents
Other adjustments, net
Securities available for sale
Net cash used in operating activities
Assets
Investment in Eagle Bancorp Statutory Trust I
Cash flows from investing activities
Investment in American Federal Savings Bank
Other assets
Cash contribution from American Federal Savings Bank
Cash contribution to American Federal Savings Bank
Total assets
Activity in available for sale securities
Liabilities and stockholders' equity
Sales
Maturities, prepayments and calls
Accounts payable and accrued expenses
Purchases
Long-term subordinated debt
Net cash provided by investing activities
Stockholders' Equity
Condensed Statements of Income
(Dollars in Thousands)
Total liabilities and stockholders' equity
Cash flows from financing activities
ESOP payments and dividends
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
Cash and cash equivalents at end of period
Interest income
Interest expense
Noninterest expense
Loss before income taxes
Income tax benefit
Loss before equity in undistributed
earnings of American Federal Savings Bank
Equity in undistributed earnings
of American Federal Savings Bank
$
$
$
$
$
$
(2,505)
2,500
(92)
12,290
(419)
155
43,714
341
1,766
-
59,000
351
1,806
195
-
5,155
3,923
53,650
59,000
179
(414)
(1,106)
(1,341)
(2,488)
337
16
14,230
(62)
155
42,744
253
2,053
-
57,719
1,552
3,581
79
(4,311)
5,155
2,875
52,485
57,719
163
(1,796)
(1,144)
(2,777)
$
$
2012
2,163
337
2011
36
301
$
$
430
2,500
(96)
(778)
(444)
(117)
467
337
(191)
(389)
(113)
(35)
(327)
(78)
2,505
2,488
Net income
$
2,178
$
2,410
Condensed Statements of Cash Flow
(Dollars in Thousands)
2012
2011
$
2,178
$
2,410
Cash flows from operating activities
Net income
Adjustments to reconcile net income
to net cash used in operating activities:
Equity in undistributed earnings
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
Purchases
Maturities, prepayments and calls
Net cash provided by investing activities
Cash flows from financing activities
ESOP payments and dividends
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
(2,505)
(92)
(419)
1,766
-
351
1,806
-
3,923
179
(414)
(1,106)
(1,341)
2,163
337
(2,488)
16
(62)
2,053
-
1,552
3,581
(4,311)
2,875
163
(1,796)
(1,144)
(2,777)
36
301
337
Cash and cash equivalents at end of period
$
2,500
$
-64-
-65-
-64-
-65-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 22: Condensed Parent Company Financial Statements
NOTE 22: Condensed Parent Company Financial Statements – continued
NOTE 22: Condensed Parent Company Financial Statements
NOTE 22: Condensed Parent Company Financial Statements – continued
Set forth below is the condensed statements of financial condition as of June 30, 2012 and 2011,
of Eagle Bancorp Montana, Inc. together with the related condensed statements of income and
cash flows for the years ended June 30, 2012 and 2011.
Condensed Statements of Financial Condition
(Dollars in Thousands)
Assets
Cash and cash equivalents
Securities available for sale
Investment in Eagle Bancorp Statutory Trust I
Investment in American Federal Savings Bank
Other assets
Total assets
2012
2011
$
2,500
$
12,290
155
43,714
341
337
14,230
155
42,744
253
$
59,000
$
57,719
Liabilities and stockholders' equity
Accounts payable and accrued expenses
Long-term subordinated debt
Stockholders' Equity
195
5,155
53,650
79
5,155
52,485
Total liabilities and stockholders' equity
$
59,000
$
57,719
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
earnings of American Federal Savings Bank
Equity in undistributed earnings
of American Federal Savings Bank
Net income
2012
2011
$
430
$
(96)
(778)
(444)
(117)
(327)
467
(191)
(389)
(113)
(35)
(78)
2,505
2,488
$
2,178
$
2,410
Set forth below is the condensed statements of financial condition as of June 30, 2012 and 2011,
Condensed Statements of Cash Flow
of Eagle Bancorp Montana, Inc. together with the related condensed statements of income and
(Dollars in Thousands)
cash flows for the years ended June 30, 2012 and 2011.
2012
2011
Condensed Statements of Financial Condition
(Dollars in Thousands)
$
2,178
$
2012
2,410
2011
Cash flows from operating activities
Net income
Adjustments to reconcile net income
to net cash used in operating activities:
Equity in undistributed earnings
of American Federal Savings Bank
Cash and cash equivalents
Other adjustments, net
Securities available for sale
Net cash used in operating activities
Assets
Investment in Eagle Bancorp Statutory Trust I
Cash flows from investing activities
Investment in American Federal Savings Bank
Other assets
Cash contribution from American Federal Savings Bank
Cash contribution to American Federal Savings Bank
Total assets
Activity in available for sale securities
Liabilities and stockholders' equity
Sales
Maturities, prepayments and calls
Accounts payable and accrued expenses
Purchases
Long-term subordinated debt
Net cash provided by investing activities
Stockholders' Equity
Condensed Statements of Income
(Dollars in Thousands)
Total liabilities and stockholders' equity
Cash flows from financing activities
ESOP payments and dividends
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
Cash and cash equivalents at end of period
Interest income
Interest expense
Noninterest expense
Loss before income taxes
Income tax benefit
Loss before equity in undistributed
earnings of American Federal Savings Bank
Equity in undistributed earnings
of American Federal Savings Bank
$
$
$
$
$
$
(2,505)
2,500
(92)
12,290
(419)
155
43,714
341
1,766
-
59,000
351
1,806
195
-
5,155
3,923
53,650
59,000
179
(414)
(1,106)
(1,341)
(2,488)
337
16
14,230
(62)
155
42,744
253
2,053
-
57,719
1,552
3,581
79
(4,311)
5,155
2,875
52,485
57,719
163
(1,796)
(1,144)
(2,777)
$
$
2012
2,163
337
2011
36
301
$
$
430
2,500
(96)
(778)
(444)
(117)
467
337
(191)
(389)
(113)
(35)
(327)
(78)
2,505
2,488
Condensed Statements of Cash Flow
(Dollars in Thousands)
2012
2011
$
2,178
$
2,410
Cash flows from operating activities
Net income
Adjustments to reconcile net income
to net cash used in operating activities:
Equity in undistributed earnings
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
ESOP payments and dividends
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
(2,505)
(92)
(419)
1,766
-
351
1,806
-
3,923
179
(414)
(1,106)
(1,341)
2,163
337
(2,488)
16
(62)
2,053
-
1,552
3,581
(4,311)
2,875
163
(1,796)
(1,144)
(2,777)
36
301
337
Cash and cash equivalents at end of period
$
2,500
$
-64-
-65-
-64-
-65-
Net income
$
2,178
$
2,410
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 23: Quarterly Results of Operations (Unaudited)
NOTE 23: Quarterly Results of Operations (Unaudited)
The following is a condensed summary of quarterly results of operations for the years ended
June 30, 2012 and 2011:
The following is a condensed summary of quarterly results of operations for the years ended
June 30, 2012 and 2011:
Year ended June 30, 2012
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Year ended June 30, 2012
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(Dollars in Thousands, except per share data)
(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 earnings per common share
Diluted earnings per common share
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 earnings per common share
Diluted earnings per common share
$
$
$
$
$
$
$
$
$
$
3,653
894
2,759
258
2,501
569
2,455
615
187
428
$
$
905
$
0.11 $
0.11 $
3,775
1,117
2,658
283
2,375
1,496
2,626
1,245
369
876
$
$
3,660
828
2,832
325
2,507
1,075
2,880
702
215
487
$
$
(230)
$
0.13 $
0.12 $
3,526
766
2,760
258
2,502
1,304
2,906
900
242
658
$
$
(153)
$
0.18 $
0.17 $
Year ended June 30, 2011
3,721
1,078
2,643
234
2,409
1,397
2,880
926
282
644
$
$
3,773
974
2,799
276
2,523
944
2,863
604
196
408
$
$
$
19
0.11 $
0.11 $
1,189
$
0.22 $
0.22 $
(1,884)
$
0.17 $
0.17 $
3,257
677
2,580
260
2,320
1,226
2,793
753
148
605
(183)
0.17
0.16
3,690
917
2,773
155
2,618
786
2,713
691
209
482
1,086
0.12
0.12
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 earnings per common share
Diluted earnings per common share
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 earnings per common share
Diluted earnings per common share
$
$
$
$
$
$
$
$
$
$
3,653
894
2,759
258
2,501
569
2,455
615
187
428
$
$
905
$
0.11 $
0.11 $
3,775
1,117
2,658
283
2,375
1,496
2,626
1,245
369
876
$
$
3,660
828
2,832
325
2,507
1,075
2,880
702
215
487
$
$
(230)
$
0.13 $
0.12 $
3,526
766
2,760
258
2,502
1,304
2,906
900
242
658
$
$
(153)
$
0.18 $
0.17 $
Year ended June 30, 2011
3,721
1,078
2,643
234
2,409
1,397
2,880
926
282
644
$
$
3,773
974
2,799
276
2,523
944
2,863
604
196
408
$
$
19
$
0.11 $
0.11 $
1,189
$
0.22 $
0.22 $
(1,884)
$
0.17 $
0.17 $
3,257
677
2,580
260
2,320
1,226
2,793
753
148
605
(183)
0.17
0.16
3,690
917
2,773
155
2,618
786
2,713
691
209
482
1,086
0.12
0.12
-66-
-66-
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 23: Quarterly Results of Operations (Unaudited)
NOTE 23: Quarterly Results of Operations (Unaudited)
The following is a condensed summary of quarterly results of operations for the years ended
June 30, 2012 and 2011:
The following is a condensed summary of quarterly results of operations for the years ended
June 30, 2012 and 2011:
Year ended June 30, 2012
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
$
$
3,653
894
2,759
258
2,501
569
2,455
615
187
428
$
$
[ This Page Intentionally Left Blank ]
$
$
$
905
$
0.11 $
0.11 $
Comprehensive income (loss)
Basic earnings per common share
Diluted earnings per common share
3,660
828
2,832
325
2,507
1,075
2,880
702
215
487
$
$
(230)
$
0.13 $
0.12 $
3,526
766
2,760
258
2,502
1,304
2,906
900
242
658
$
$
(153)
$
0.18 $
0.17 $
Year ended June 30, 2011
Year ended June 30, 2011
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 earnings per common share
Diluted earnings per common share
$
$
$
$
$
3,775
1,117
2,658
283
2,375
1,496
2,626
1,245
369
876
$
$
3,721
1,078
2,643
234
2,409
1,397
2,880
926
282
644
$
$
1,189
$
0.22 $
0.22 $
(1,884)
$
0.17 $
0.17 $
3,773
974
2,799
276
2,523
944
2,863
604
196
408
$
$
19
$
0.11 $
0.11 $
-66-
-66-
[ This Page Intentionally Left Blank ]
3,257
677
2,580
260
2,320
1,226
2,793
753
148
605
(183)
0.17
0.16
3,690
917
2,773
155
2,618
786
2,713
691
209
482
1,086
0.12
0.12
Year ended June 30, 2012
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(Dollars in Thousands, except per share data)
Interest and dividend income
$
3,653
$
3,660
$
3,526
$
Comprehensive income (loss)
Basic earnings per common share
Diluted earnings per common share
905
$
0.11 $
0.11 $
(230)
$
0.13 $
0.12 $
(153)
$
0.18 $
0.17 $
(183)
0.17
0.16
Net interest income after loan loss
Interest expense
Net interest income
Loan loss provision
provision
Non interest income
Non interest expense
Income tax expense
Net income
Income before income tax expense
Net interest income after loan loss
Interest expense
Net interest income
Loan loss provision
provision
Non interest income
Non interest expense
Income tax expense
Net income
Income before income tax expense
894
2,759
258
2,501
569
2,455
615
187
428
3,775
1,117
2,658
283
2,375
1,496
2,626
1,245
369
876
1,189
$
$
$
$
$
$
$
$
$
$
$
$
$
828
2,832
325
2,507
1,075
2,880
702
215
487
766
2,760
258
2,502
1,304
2,906
900
242
658
$
$
3,721
1,078
2,643
234
2,409
1,397
2,880
926
282
644
$
(1,884)
$
0.17 $
0.17 $
974
2,799
276
2,523
944
2,863
604
196
408
19
$
$
3,257
677
2,580
260
2,320
1,226
2,793
753
148
605
3,690
917
2,773
155
2,618
786
2,713
691
209
482
1,086
Comprehensive income (loss)
Basic earnings per common share
Diluted earnings per common share
0.22 $
0.22 $
0.11 $
0.11 $
0.12
0.12
Interest and dividend income
$
3,773
$
EaglE Bancorp Montana, Inc. is the stock
holding company of american Federal Savings Bank. american Federal was
founded in 1922 in Helena, Montana as a Montana chartered building and loan
association. In 1975, the Bank adopted a federal thrift charter. the Bank still
maintains its headquarters and two other branches in Helena, with additional
branches in Bozeman, Butte and townsend, Montana. the Bank’s market
area is concentrated in south central Montana, to which it 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.
FInancIal HIgHlIgHtS
For the Years Ended June 30 (Dollars in thousands)
2012
2011
2010
2009
2008
SElEctED FInancIal conDItIon Data
total assets
net loans
total Securities
total Deposits
total Shareholders’ Equity
$327,299
173,839
89,277
219,989
53,650
$331,093
185,471
102,700
209,186
52,485
$325,739
169,502
114,653
197,939
52,432
$289,709
167,197
82,663
187,199
27,792
$279,907
168,149
80,435
178,851
25,634
SElEctED opEratIng Data
net Interest Income
provision for loan losses
non-interest Income
non-interest Expense
$10,931
1,101
4,174
11,034
$10,873
948
4,623
11,082
$9,802
715
3,593
9,231
$9,233
257
2,999
8,563
$7,436
(175)
2,224
7,063
nEt IncoME
$2,178
$2,410
$2,414
$ 2,388
$2,110
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
NON-PERFORMING ASSETS TO TOTAL ASSETS
Peer Median
Eagle Bancorp Montana, Inc.
6.03%
5.77%
5.22%
6.41%
5.99%
7.33%
6.91%
6.78%
7.01%
6.81%
1.04%
1.02%
1.16%
1.09%
0.39%
1.94%
1.24%
1.69%
1.62%
1.70%
2010 Q1
2010 Q2
2010 Q3
2010 Q4
2011 Q1
2011 Q2
2011 Q3
2011 Q4
2012 Q1
2012 Q2
Source: SNL Financial
SHareHolDer InForMatIon
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
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
photo: BrIDger range, ©John lambing, 2012
cover photo: gallatIn rIver anD BrIDgerS, ©John lambing, 2012
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1400 proSpect avenue Helena, Mt 59601
2012 annual report