UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 

 

Commission file number 1-34682

Eagle Bancorp Montana, Inc.

---

(Exact name of small business issuer as specified in its charter)

 

 

1400 Prospect Avenue, Helena, MT 59601

---

(Address of principal executive offices)

 

(406) 442-3080

---

(Issuer's telephone number)

Website address: www.opportunitybank.com

 

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 Web site, 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 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.

(Do not check if smaller

 reporting company)

Indicate by check mark whether the registrant is a shell company (defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☒

APPLICABLE ONLY TO CORPORATE ISSUERS

 

Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:

 

As of May 11, 2016

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

 

TABLE OF CONTENTS

 

PART I.	FINANCIAL INFORMATION		PAGE
Item1.	Financial Statements (Unaudited)
		Consolidated Statements of Financial Condition as of March 31, 2016 and December 31, 2015	1
		Consolidated Statements of Income for the three months ended March 31, 2016 and 2015	3
		Consolidated Statements of Comprehensive Income for the three months ended March 31, 2016 and 2015	5
		Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2016 and 2015	6
		Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015	7
	Notes to the Unaudited Consolidated Financial Statements		9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		42
Item 4.	Controls and Procedures		43
PART II.	OTHER INFORMATION
Item 1.        Legal Proceedings			44
Item 1A.    Risk Factors			44
Item 2.       Unregistered Sales of Equity Securities and Use of Proceeds			44
Item 3.       Defaults Upon Senior Securities			45
Item 4.       Mine Safety Disclosures			45
Item 5.       Other Information			45
Item 6.       Exhibits			45

Signatures			46
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
101.INS XBRL	Instance Document
101.SCH XBRL	Taxonomy Extension Schema Document
101.CAL XBRL	Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL	Taxonomy Extension Definition Linkbase Document
101.LAB XBRL	Taxonomy Extension Label Linkbase Document
101.PRE XBRL	Taxonomy Extension Presentation Linkbase Document

 

Note Regarding Forward-Looking Statements

This report 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:

·	statements of our goals, intentions and expectations;

·	statements regarding our business plans, prospects, growth and operating strategies;

·	statements regarding the asset quality of our loan and investment portfolios; and

·	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;

·	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;

·	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 insurance 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 Company’s ability to develop and maintain secure and reliable information technology systems, effectively defend itself against cyberattacks, or recover from breaches to its technology infrastructure;

·	the impact of the 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;

·	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 our Annual Report on Form 10-K for the year ended December 31, 2015, any subsequent Reports on Form 10-Q and Form 8-K, and other filings with the SEC. We do not undertake any obligation to publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently occur, or of which we hereafter become aware.

 

---

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in Thousands, Except for Per Share Data)

(Unaudited)

 

		March 31,				December 31,
		2016				2015
ASSETS:
Cash and due from banks		$	5,620			$	6,468
Interest-bearing deposits in banks			993				970
Total cash and cash equivalents			6,613				7,438
Securities available-for-sale			145,070				145,738
Federal Home Loan Bank stock			3,564				3,397
Federal Reserve Bank stock			871				887
Investment in Eagle Bancorp Statutory Trust I			155				155
Mortgage loans held-for-sale			18,284				18,702
Loans receivable, net of deferred loan fees of $882 at March 31, 2016
and $795 at December 31, 2015 and allowance for loan losses of $3,940 at
March 31, 2016 and $3,550 at December 31, 2015			418,941				403,734
Accrued interest and dividends receivable			2,213				2,278
Mortgage servicing rights, net			4,988				4,968
Premises and equipment, net			18,145				18,217
Cash surrender value of life insurance			12,598				12,514
Real estate and other repossessed assets acquired in settlement of loans, net			606				595
Goodwill			7,034				7,034
Core deposit intangible, net			481				514
Deferred tax asset, net			1,198				1,490
Other assets			2,210				2,686
Total assets		$	642,971			$	630,347

The accompanying notes are an integral part of these unaudited consolidated financial statements.

---

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Continued)

(Dollars in Thousands, Except for Per Share Data)

(Unaudited)

 

		March 31,				December 31,
		2016				2015
LIABILITIES:
Deposit accounts:
Noninterest bearing		$	90,308			$	77,031
Interest bearing			403,877				406,151
Total deposits			494,185				483,182
Accrued expenses and other liabilities			5,933				4,050
Federal Home Loan Bank advances and other borrowings			71,204				72,716
Subordinated debentures
Principal amount			15,155				15,155
Unamortized debt issuance costs			(201	)			(206	)
Total subordinated debentures less unamortized debt issuance costs			14,954				14,949
Total liabilities			586,276				574,897
SHAREHOLDERS' EQUITY:
Preferred stock (no par value; 1,000,000 shares authorized; no shares
issued or outstanding)			-				-
Common stock (par value $0.01 per share; 8,000,000 shares authorized;
4,083,127 shares issued; 3,779,464 shares outstanding at March 31, 2016
and December 31, 2015)			41				41
Additional paid-in capital			22,157				22,152
Unallocated common stock held by Employee Stock Ownership Plan			(933	)			(975	)
Treasury stock, at cost			(3,321	)			(3,321	)
Retained earnings			37,831				37,301
Net accumulated other comprehensive income			920				252
Total shareholders' equity			56,695				55,450
Total liabilities and shareholders' equity		$	642,971			$	630,347

The accompanying notes are an integral part of these unaudited consolidated financial statements.

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

 (Dollars in Thousands, Except for Per Share Data)

(Unaudited)

 

		Three Months Ended
		March 31,
		2016				2015
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans		$	5,063			$	3,962
Securities available-for-sale			747				759
Federal Home Loan Bank dividends			31				-
Interest on deposits in banks			-				-
Other interest income			3				3
Total interest and dividend income			5,844				4,724
INTEREST EXPENSE:
Deposits			355				337
Federal Home Loan Bank advances and other borrowings			201				143
Subordinated debentures			194				21
Total interest expense			750				501
NET INTEREST INCOME			5,094				4,223
Loan loss provision			450				322
NET INTEREST INCOME AFTER LOAN LOSS PROVISION			4,644				3,901
NONINTEREST INCOME:
Service charges on deposit accounts			199				223
Net gain on sale of loans (includes $635 and $496 for the three
months ended March 31, 2016 and 2015, respectively, related
to accumulated other comprehensive earnings reclassification)			1,718				1,631
Mortgage loan servicing fees			346				415
Wealth management income			136				185
Interchange and ATM fees			202				126
Appreciation in cash surrender value of life insurance			112				105
Net gain on sale of available-for-sale securities (includes $0 and $186
for the three months ended March 31, 2016 and 2015, respectively,
related to accumulated other comprehensive earnings reclassification)			-				186
Net loss on sale of real estate owned and other repossessed property			-				(1	)
Net loss on fair value hedge			-				(93	)
Other noninterest income			166				105
Total noninterest income			2,879				2,882

The accompanying notes are an integral part of these unaudited consolidated financial statements.

CONSOLIDATED STATEMENTS OF INCOME (Continued)

 (Dollars in Thousands, Except for Per Share Data)

(Unaudited)

		Three Months Ended
		March 31,
		2016				2015
NONINTEREST EXPENSE:
Salaries and employee benefits			3,690				3,379
Occupancy and equipment expense			789				736
Data processing			548				509
Advertising			188				219
Amortization of mortgage servicing rights			228				217
Amortization of core deposit intangible and tax credits			112				100
Federal insurance premiums			83				95
Postage			54				46
Legal, accounting and examination fees			98				156
Consulting fees			83				240
Other noninterest expense			675				664
Total noninterest expense			6,548				6,361
INCOME BEFORE INCOME TAXES			975				422
Income tax expense (includes $460 and $547 for the three
months ended March 31, 2016 and 2015, respectively,
related to income tax expense from reclassification items)			152				36
NET INCOME		$	823			$	386
BASIC EARNINGS PER SHARE		$	0.22			$	0.10
DILUTED EARNINGS PER SHARE		$	0.21			$	0.10
WEIGHTED AVERAGE SHARES OUTSTANDING (BASIC EPS)			3,779,464				3,844,617
WEIGHTED AVERAGE SHARES OUTSTANDING (DILUTED EPS)			3,873,171				3,881,872

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 (Dollars in Thousands)

(Unaudited)

		Three Months Ended
		March 31,
		2016				2015
NET INCOME		$	823			$	386
OTHER ITEMS OF COMPREHENSIVE INCOME (LOSS):
Change in fair value of investment securities
available-for-sale, before income taxes			1,127				1,495
Reclassification for realized gains and losses on investment
securities included in income, before income tax			-				(186	)
Change in fair value of derivatives designated as cash flow
hedges, before income taxes			636				529
Reclassification for realized gains on derivatives designated
as cash flow hedges, before income taxes			(635	)			(496	)
Total other items of comprehensive income			1,128				1,342
Income tax expense related to:
Investment securities			(460	)			(534	)
Derivatives designated as cash flow hedges			-				(13	)
			(460	)			(547	)
COMPREHENSIVE INCOME		$	1,491			$	1,181

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

For the Three Months Ended March 31, 2016 and 2015

(Dollars in Thousands, Except for Per Share Data)

(Unaudited)

 

																										ACCUMULATED
														UNALLOCATED												OTHER
		PREFERRED				COMMON				PAID-IN				ESOP				TREASURY				RETAINED				COMPREHENSIVE
		STOCK				STOCK				CAPITAL				SHARES				STOCK				EARNINGS				(LOSS) INCOME				TOTAL
Balance at January 1, 2015		$	-			$	41			$	22,122			$	(1,141	)		$	(2,194	)		$	35,885			$	(215	)		$	54,498
Net income																							386								386
Other comprehensive income																											795				795
Dividends paid ($0.075 per share)																							(288	)							(288	)
Treasury stock purchased (55,800 shares purchased at $11.03 average cost per share)																			(616	)											(616	)
Employee Stock Ownership Plan shares allocated or committed to be released for allocation (4,154 shares)											4				42																46
Balance at March 31, 2015		$	-			$	41			$	22,126			$	(1,099	)		$	(2,810	)		$	35,983			$	580			$	54,821

Balance at January 1, 2016		$	-			$	41			$	22,152			$	(975	)		$	(3,321	)		$	37,301			$	252			$	55,450
Net income																							823								823
Other comprehensive income																											668				668
Dividends paid ($0.0775 per share)																							(293	)							(293	)
Employee Stock Ownership Plan shares allocated or committed to be released for allocation (4,154 shares)											5				42																47
Balance at March 31, 2016		$	-			$	41			$	22,157			$	(933	)		$	(3,321	)		$	37,831			$	920			$	56,695

The accompanying notes are an integral part of these unaudited consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands, Except for Per Share Data)

(Unaudited)

		Three Months Ended
		March 31,
		2016				2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	823			$	386
Adjustments to reconcile net income to net cash provided by operating activities:
Loan loss provision			450				322
Depreciation			284				296
Net amortization of investment securities premium and discounts			503				533
Amortization of mortgage servicing rights			228				217
Amortization of core deposit intangible and tax credits			112				100
Deferred income tax (benefit) expense			(168	)			121
Net gain on sale of loans			(1,718	)			(1,631	)
Net gain on sale of available-for-sale securities			-				(186	)
Net loss on sale of real estate owned and other repossessed assets			-				1
Net loss on fair value hedge			-				93
Net gain on sale/disposal of premises and equipment			(6	)			-
Net appreciation in cash surrender value of life insurance			(84	)			(81	)
Net change in:
Accrued interest and dividends receivable			65				172
Loans held-for-sale			2,137				2,230
Other assets			402				(473	)
Accrued expenses and other liabilities			1,930				(575	)
Net cash provided by operating activities			4,958				1,525
CASH FLOWS FROM INVESTING ACTIVITIES:
Activity in available-for-sale securities:
Sales			-				8,947
Maturities, principal payments and calls			2,823				2,612
Purchases			(1,531	)			(1,049	)
Federal Home Loan Bank stock (purchased) redeemed			(167	)			1
Federal Reserve Bank stock redeemed			16				-
Loan origination and principal collection, net			(15,931	)			(18,224	)
Proceeds from sale of real estate and other repossessed
assets acquired in settlement of loans			15				3
Proceeds from sale of premises and equipment			6				-
Additions to premises and equipment			(212	)			(26	)
Net cash used in investing activities			(14,981	)			(7,736	)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

(Dollars in Thousands, Except for Per Share Data)

(Unaudited)

		Three Months Ended
		March 31,
		2016				2015
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits		$	11,003			$	11,716
Net short-term advances (payments) on Federal Home Loan Bank and other borrowings			642				(12,303	)
Long-term advances from Federal Home Loan Bank and other borrowings			-				5,000
Payments on long-term Federal Home Loan Bank and other borrowings			(2,154	)			(5,050	)
Dividends paid			(293	)			(288	)
Purchase of treasury stock, at cost			-				(616	)
Net cash provided by (used in) financing activities			9,198				(1,541	)
NET DECREASE IN CASH AND CASH EQUIVALENTS			(825	)			(7,752	)
CASH AND CASH EQUIVALENTS, beginning of period			7,438				12,502
CASH AND CASH EQUIVALENTS, end of period		$	6,613			$	4,750
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest		$	734			$	490
Cash paid during the period for income taxes		$	-			$	27
NON-CASH INVESTING ACTIVITIES:
Increase in market value of securities available-for-sale		$	1,127			$	1,309
Mortgage servicing rights recognized		$	248			$	373
Loans transferred to real estate and other assets acquired in foreclosure		$	26			$	9
Employee Stock Ownership Plan shares released		$	47			$	46

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for annual reports. However, such information reflects all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations, changes in comprehensive income and cash flows for the unaudited interim periods.

The results of operations for the three month period ended March 31, 2016 are not necessarily indicative of the results to be expected for the year ending December 31, 2016 or any other period. The unaudited consolidated financial statements and notes presented herein should be read in conjunction with the audited consolidated financial statements and related notes thereto included in Eagle’s Form 10-K for the year ended December 31, 2015.

Certain prior period amounts have been reclassified to conform to the presentation for 2016. These reclassifications had no impact on net income or total shareholders’ equity. Certain loan amounts were reclassified for prior periods to be consistent with loan category classification for March 31, 2016. Interchange and ATM fees and appreciation in cash surrender value of life insurance were previously included in other noninterest income on the Consolidated Statements of Income. These amounts were presented on their own lines for the three months ended March 31, 2016 and prior year amounts were reclassed to be consistent with the current year presentation.

The Company evaluated subsequent events for potential recognition and/or disclosure through the date the consolidated financial statements were issued.

Investment securities are summarized as follows:

	March 31, 2016																December 31, 2015
					Gross																Gross
	Amortized				Unrealized								Fair				Amortized				Unrealized								Fair
	Cost				Gains				(Losses)				Value				Cost				Gains				(Losses)				Value
	(In Thousands)
Available-for-Sale:
U.S. government and
agency obligations		$	9,968			$	63			$	(7	)		$	10,024			$	10,684			$	26			$	(95	)		$	10,615
Municipal obligations			65,763				1,252				(312	)			66,703				66,606				1,041				(578	)			67,069
Corporate obligations			9,575				5				(208	)			9,372				9,615				-				(165	)			9,450
MBSs - government-backed			33,221				307				(155	)			33,373				32,810				111				(186	)			32,735
CMOs - government backed			25,626				61				(89	)			25,598				26,233				40				(404	)			25,869
Total		$	144,153			$	1,688			$	(771	)		$	145,070			$	145,948			$	1,218			$	(1,428	)		$	145,738

 

There were no sales of securities available-for-sale during the three months ended March 31, 2016. For the three months ended March 31, 2015, net proceeds from sales of securities available-for-sale were $8,947,000. For the three months ended March 31, 2015, gross realized gains were $242,000 and gross realized losses were $56,000.

 

The amortized cost and fair value of securities at March 31, 2016 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’s investment securities that have been in a continuous unrealized loss position for less than twelve months and those that have been in a continuous unrealized loss position for twelve or more months were as follows:

 

		March 31, 2016
		Less Than 12 Months								12 Months or Longer
						Gross								Gross
		Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses
		(In Thousands)
U.S. government and agency		$	6,636			$	(7	)		$	-			$	-
Municipal obligations			9,924				(54	)			12,344				(258	)
Corporate obligations			2,016				(27	)			6,009				(181	)
MBSs and CMOs - government-backed			24,849				(192	)			5,981				(52	)
Total		$	43,425			$	(280	)		$	24,334			$	(491	)

		December 31, 2015
		Less Than 12 Months								12 Months or Longer
						Gross								Gross
		Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses
		(In Thousands)
U.S. government and agency		$	3,173			$	(24	)		$	5,986			$	(71	)
Municipal obligations			15,913				(132	)			21,163				(446	)
Corporate obligations			5,283				(80	)			3,915				(85	)
MBSs and CMOs - government-backed			23,164				(249	)			13,886				(341	)
Total		$	47,533			$	(485	)		$	44,950			$	(943	)

 

 

Management evaluates securities for other-than-temporary impairment at least quarterly, 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. As of March 31, 2016 and December 31, 2015, there were, respectively, 57 and 85 securities in an unrealized loss position and that were considered to be temporarily impaired and therefore an impairment charge has not been recorded.

At March 31, 2016, 32 U.S. government and agency securities and municipal obligations had unrealized losses with aggregate depreciation of approximately 1.09% from the Company’s amortized cost basis of these securities. At December 31, 2015, 52 U.S. government and agency securities and municipal obligations had unrealized losses with aggregate depreciation of approximately 1.43% from the Company’s amortized cost basis of these securities. 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. As management has the ability to hold debt securities until maturity, or for the foreseeable future, no declines are deemed to be other than temporary.

At March 31, 2016, 11 corporate obligations had an unrealized loss of approximately 2.53% from the Company’s amortized cost basis of this security. At December 31, 2015, 13 corporate obligations had an unrealized loss with aggregate depreciation of approximately 1.76% 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, no declines are deemed to be other than temporary.

At March 31, 2016, 14 mortgage-backed securities (“MBSs”) and collateralized mortgage obligations (“CMOs”) had unrealized losses with aggregate depreciation of approximately 0.79% from the Company’s cost basis of these securities. At December 31, 2015, 20 MBSs and CMOs have unrealized losses with aggregate depreciation of approximately 1.57% 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, changes in interest rates and credit spreads and uncertainty of future prepayment speeds. 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 March 31, 2016 revealed no expected credit losses on the securities and therefore, declines are not deemed to be other than temporary.

Loans receivable consisted of the following:

		March 31,				December 31,
		2016				2015
		(In Thousands)
First mortgage loans:
Residential mortgage (1-4 family)		$	113,364			$	118,133
Commercial real estate			194,479				167,930
Real estate construction			15,673				22,958
Other loans:
Home equity			45,404				45,345
Consumer			14,229				14,641
Commercial			40,614				39,072
Total			423,763				408,079
Allowance for loan losses			(3,940	)			(3,550	)
Deferred loan fees, net			(882	)			(795	)
Total loans, net		$	418,941			$	403,734

 

Within the commercial real estate loan category above, $11,987,000 and $12,117,000 was guaranteed by the United States Department of Agriculture Rural Development, at March 31, 2016 and December 31, 2015, respectively. In addition, within the commercial loan category above, $1,878,000 and $1,917,000 were in loans originated through a syndication program where the business resides outside of Montana, at March 31, 2016, and December 31, 2015, respectively.

The following table includes information regarding nonperforming assets.

		March 31,				December 31,
		2016				2015
		(Dollars in Thousands)
Non-accrual loans		$	1,580			$	2,030
Accruing loans delinquent 90 days or more			710				472
Restructured loans, net			45				46
Total nonperforming loans			2,335				2,548
Real estate owned and other repossessed assets, net			606				595
Total nonperforming assets		$	2,941			$	3,143
Total non-performing assets as a percentage of total assets			0.46	%			0.50	%
Allowance for loan losses		$	3,940			$	3,550
Percent of allowance for loan losses to non-performing loans			168.74	%			139.32	%
Percent of allowance for loan losses to non-performing assets			133.97	%			112.95	%

 

 

Allowance for loan losses activity was as follows:

		Three Months Ended
		March 31, 2016
		Residential
		Mortgage				Commercial				Real Estate				Home
		(1-4 Family)				Real Estate				Construction				Equity				Consumer				Commercial				Total
		(In Thousands)
Allowance for loan losses:
Beginning balance, January 1, 2016		$	911			$	1,593			$	184			$	342			$	66			$	454			$	3,550
Charge-offs			-				-				-				(7	)			(24	)			(32	)			(63	)
Recoveries			-				-				-				-				3				-				3
Provision			70				142				60				30				120				28				450
Ending balance, March 31, 2016		$	981			$	1,735			$	244			$	365			$	165			$	450			$	3,940
Ending balance, March 31, 2016 allocated to
loans individually evaluated for impairment		$	-			$	-			$	-			$	-			$	76			$	5			$	81
Ending balance, March 31, 2016 allocated to
loans collectively evaluated for impairment		$	981			$	1,735			$	244			$	365			$	89			$	445			$	3,859
Loans receivable:
Ending balance, March 31, 2016		$	113,364			$	194,479			$	15,673			$	45,404			$	14,229			$	40,614			$	423,763
Ending balance, March 31, 2016 of loans
individually evaluated for impairment		$	605			$	658			$	-			$	265			$	92			$	5			$	1,625
Ending balance, March 31, 2016 of loans
collectively evaluated for impairment		$	112,759			$	193,821			$	15,673			$	45,139			$	14,137			$	40,609			$	422,138

 

		Three Months Ended
		March 31, 2015
		Residential
		Mortgage				Commercial				Real Estate				Home
		(1-4 Family)				Real Estate				Construction				Equity				Consumer				Commercial				Total
		(In Thousands)
Allowance for loan losses:
Beginning balance, January 1, 2015		$	684			$	1,098			$	35			$	270			$	46			$	317			$	2,450
Charge-offs			(137	)			-				-				-				(11	)			-				(148	)
Recoveries			-				-				-				-				1				-				1
Provision			98				128				5				36				14				41				322
Ending balance, March 31, 2015		$	645			$	1,226			$	40			$	306			$	50			$	358			$	2,625
Ending balance, March 31, 2015 allocated to
loans individually evaluated for impairment		$	-			$	-			$	-			$	-			$	5			$	-			$	5
Ending balance, March 31, 2015 allocated to
loans collectively evaluated for impairment		$	645			$	1,226			$	40			$	306			$	45			$	358			$	2,620
Loans receivable:
Ending balance, March 31, 2015		$	105,428			$	130,374			$	10,313			$	40,312			$	13,664			$	36,877			$	336,968
Ending balance, March 31, 2015 of loans
individually evaluated for impairment		$	648			$	-			$	-			$	224			$	53			$	566			$	1,491
Ending balance, March 31, 2015 of loans
collectively evaluated for impairment		$	104,780			$	130,374			$	10,313			$	40,088			$	13,611			$	36,311			$	335,477

 

The Company utilizes a 5 point internal loan rating system, largely based on regulatory classifications, for 1-4 family real estate, commercial real estate, construction, home equity and commercial loans as follows:

Loans rated Pass – 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 –Loans that 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 – Loans that 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.

Loans rated Doubtful – Loans that 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 – Loans that 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 affected in the future.

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES