Company Quick10K Filing
Eagle Financial Bancorp
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 2 $26
10-Q 2019-11-08 Quarter: 2019-09-30
10-Q 2019-08-12 Quarter: 2019-06-30
10-Q 2019-05-10 Quarter: 2019-03-31
10-K 2019-03-27 Annual: 2018-12-31
10-Q 2018-11-09 Quarter: 2018-09-30
10-Q 2018-08-10 Quarter: 2018-06-30
10-Q 2018-05-11 Quarter: 2018-03-31
10-K 2018-03-23 Annual: 2017-12-31
10-Q 2017-11-09 Quarter: 2017-09-30
10-Q 2017-08-11 Quarter: 2017-06-30
10-Q 2017-06-23 Quarter: 2017-03-31
8-K 2019-12-09 Exhibits
8-K 2019-05-30 Shareholder Vote
8-K 2019-03-01 Other Events
8-K 2018-12-12 Other Events, Exhibits
8-K 2018-09-20 Shareholder Vote
8-K 2018-06-28 Other Events
EFBI 2019-09-30
Part I. Financial Information
Item 1.Financial Statements
Note 1:Nature of Operations and Summary of Significant Accounting Policies
Note 2:Earnings per Common Share
Note 3:Loans and Allowance for Loan Losses
Note 4:Employee Stock Ownership Plan (&Ldquo;Esop&Rdquo;)
Note 5:Equity Incentive Plan
Note 6:Regulatory Matters
Note 7:Disclosure About Fair Values of Assets and Liabilities
Note 8:Commitments and Credit Risk
Note 9:Recent Accounting Pronouncements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3 Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 tm1919579d1_ex31-1.htm
EX-31.2 tm1919579d1_ex31-2.htm
EX-32.1 tm1919579d1_ex32-1.htm
EX-32.2 tm1919579d1_ex32-2.htm

Eagle Financial Bancorp Earnings 2019-09-30

EFBI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
CFBK 53 721 670 0 0 6 19 37 0% 2.0 1%
BCTF 52 381 334 0 0 0 6 27 4.8 0%
MSVB 46 208 157 0 0 1 3 24 8.8 1%
OTTW 43 302 251 0 0 2 6 37 6.3 1%
BYFC 40 430 381 0 0 1 7 20 0% 2.7 0%
FSBC 31 327 295 0 0 -0 4 81 18.2 -0%
EFBI 26 141 113 0 0 0 2 18 0% 11.5 0%
CARV 11 572 520 0 0 -6 0 -21 -360.6 -1%
HMNF 0 723 634 0 0 10 16 -16 -1.0 1%
FSEA

10-Q 1 tm1919579d1_10q.htm FORM 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

 

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended       September 30, 2019        

 

OR

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________ to _______________

 

Commission File No. 001-38162

 

Eagle Financial Bancorp, Inc.

(Exact name of registrant as specified in its charter)

 

Maryland   (82-1340349)
(State or other jurisdiction of   (I.R.S. Employer Identification No.)
incorporation or organization)    

 

6415 Bridgetown Road, Cincinnati, OH 45248

(Address of principal executive office)

 

Registrant’s telephone number, including area code: (513) 574-0700

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class  

Trading

Symbol(s)

  Name of each exchange on which registered
Common Stock, par value $0.01 per share   EFBI   The NASDAQ Stock Market, LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 x         No ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Yes x        No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer ¨ Accelerated filer ¨
  Non-accelerated filer x    
  Smaller reporting company x    
  Emerging growth company x    

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes ¨        No x

 

There were 1,606,058 shares of the Registrant’s common stock issued and outstanding as of November 8, 2019.

 

 

 

 

INDEX

 

  Part I. Financial Information  
     
    Page
     
Item 1. Condensed Consolidated Balance Sheets as of September 30, 2019 (Unaudited) and December 31, 2018 3
     
  Condensed Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30, 2019 and 2018 (Unaudited) 4
     
  Condensed Consolidated Statements of Shareholders’ Equity for the Three and Nine Months ended September 30, 2019 and 2018 (Unaudited) 5
     
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018 (Unaudited) 6
     
  Notes to Consolidated Financial Statements (Unaudited) 7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 33
Item 3. Quantitative and Qualitative Disclosures about Market Risk 44
Item 4. Controls and Procedures 44
     
  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

 

 

 

Part I. Financial Information

 

Item 1.Financial Statements

 

Eagle Financial Bancorp, Inc.

Condensed Consolidated Balance Sheets

September 30, 2019 (Unaudited) and December 31, 2018

(Amounts in thousands, except share and per share data)

 

   September 30,   December 31, 
   2019   2018 
Assets          
Cash and due from banks  $384   $471 
Federal Reserve Bank and Federal Home Loan Bank (FHLB) demand accounts   8,399    6,963 
Cash and cash equivalents   8,783    7,434 
Interest-bearing time deposits in other banks   2,988    3,486 
Loans held for sale   9,948    1,827 
Loans, net of allowance for loan losses of $1,161 and $1,187 at September 30, 2019 and December 31, 2018, respectively   109,249    113,317 
Premises and equipment - at depreciated cost   4,109    4,210 
FHLB stock - at cost   816    754 
Foreclosed assets held for sale, net   -    217 
Bank-owned life insurance (BOLI)   1,993    1,958 
FHLB lender risk account receivable   3,464    3,377 
Accrued interest receivable   343    354 
Prepaid federal income taxes   102    - 
Other assets   513    151 
           
Total assets  $142,308   $137,085 
           
Liabilities and Shareholders' Equity          
Liabilities          
Deposits          
Noninterest-bearing  $6,346   $5,878 
Interest-bearing   105,319    100,491 
Total deposits   111,665    106,369 
           
Advances from borrowers for taxes and insurance   580    950 
Accrued interest payable   2    1 
Accrued supplemental retirement plans   1,464    1,301 
Accrued federal income tax   -    182 
Deferred federal tax liability   15    131 
Other liabilities   712    377 
           
Total liabilities   114,438    109,311 
           
Shareholders' Equity          
Preferred stock, $0.01 par value, 5,000,000 shares authorized; none issued and outstanding   -    - 
Common stock, $0.01 par value, 50,000,000 shares authorized at September 30, 2019 and December 31, 2018; issued 1,654,758 at September 30, 2019 and December 31, 2018; outstanding 1,612,158 at September 30,2019 and 1,649,758 at December 31, 2018   16    16 
Additional paid-in capital   14,374    14,758 
Retained earnings   14,593    14,161 
Unearned Employee Stock Ownership Plan ("ESOP") shares   (1,113)   (1,161)
Total shareholders' equity   27,870    27,774 
           
Total liabilities and shareholders' equity  $142,308   $137,085 

 

See accompanying notes to condensed consolidated financial statements.

 

3

 

 

Eagle Financial Bancorp, Inc.

Condensed Consolidated Statements of Income and Comprehensive Income

Three Months and Nine Months Ended September 30, 2019 and 2018 (Unaudited)

(Amounts in thousands, except share and per share data)

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
Interest and Dividend Income                    
Interest earned on loans  $1,268   $1,228   $3,852   $3,487 
Dividends on FHLB stock   11    12    33    34 
Other interest-earning deposits   81    52    192    171 
                     
Total interest and dividend income   1,360    1,292    4,077    3,692 
                     
Interest Expense                    
Interest on deposits   302    202    805    556 
FHLB advances   -    -    1    - 
Total interest expense   302    202    806    556 
                     
Net Interest Income   1,058    1,090    3,271    3,136 
                     
Provision for Loan Losses   -    99    -    99 
                     
Net Interest Income After Provision for Loan Losses   1,058    991    3,271    3,037 
                     
Noninterest Income                    
Net gains on loan sales   802    430    1,627    1,195 
Other service charges and fees   116    51    200    142 
Gain on sale of foreclosed real estate   -    -    28    - 
Income from BOLI   11    12    35    35 
                     
Total noninterest income   929    493    1,890    1,372 
                     
Noninterest Expense                    
Compensation and benefits   1,117    837    3,138    2,575 
Occupancy and equipment, net   62    62    187    184 
Data processing   78    74    237    227 
Legal and professional services   94    113    261    266 
FDIC premium expense   9    10    17    30 
Foreclosed real estate impairments and expenses, net   -    6    21    6 
Franchise and other taxes   55    60    167    160 
Advertising   41    38    76    78 
ATM processing expense   22    22    68    62 
Other expenses   160    161    428    462 
                     
Total noninterest expense   1,638    1,383    4,600    4,050 
                     
Income Before Income Taxes   349    101    561    359 
                     
Income Taxes                    
Provision for Income taxes   79    22    129    68 
                     
Total income taxes   79    22    129    68 
                     
Net Income and Comprehensive Income  $270   $79   $432   $291 
                     
Earnings per share - basic  $0.18   $0.05   $0.28   $0.19 
Earnings per share - diluted  $0.18   $0.05   $0.28   $0.19 
Weighted-average shares outstanding - basic   1,486,647    1,494,487    1,487,604    1,492,906 
Weighted-average shares outstanding - diluted   1,486,647    1,494,487    1,487,604    1,492,906 

 

See accompanying notes to condensed consolidated financial statements.

 

4

 

 

Eagle Financial Bancorp, Inc.

Condensed Consolidated Statements of Shareholders’ Equity

Three and Nine Months Ended September 30, 2019 and 2018 (Unaudited)

(Amounts in thousands, except share and per share data)

 

       Additional       Unearned     
   Common   Paid-In   Retained   ESOP     
   Stock   Capital   Earnings   Shares   Total 
For the three months ended September 30, 2019                         
Balance at July 1, 2019  $16   $14,757   $14,323   $(1,129)  $27,967 
Net income   -    -    270    -    270 
ESOP shares earned   -    9    -    16    25 
Stock based compensation expense   -    62    -    -    62 
Repurchase of common stock   -    (454)   -    -    (454)
Balance at September 30, 2019  $16   $14,374   $14,593   $(1,113)  $27,870 
                          
For the nine months ended September 30, 2019                         
Balance at January 1, 2019  $16   $14,758   $14,161   $(1,161)  $27,774 
Net income   -    -    432    -    432 
ESOP shares earned   -    27    -    48    75 
Stock based compensation expense   -    185    -    -    185 
Repurchase of common stock   -    (596)   -    -    (596)
Balance at September 30, 2019  $16   $14,374   $14,593   $(1,113)  $27,870 
                          
For the three months ended September 30, 2018                         
Balance at July 1, 2018  $16   $14,749   $14,029   $(1,193)  $27,601 
Net income   -    -    79    -    79 
ESOP shares earned   -    10    -    16    26 
Stock based compensation expense   -    6    -    -    6 
Balance at September 30, 2018  $16   $14,765   $14,108   $(1,177)  $27,712 
                          
For the nine months ended September 30, 2018                         
Balance at January 1, 2018  $16   $14,730   $13,817   $(1,226)  $27,337 
Net income   -    -    291    -    291 
ESOP shares earned   -    29    -    49    78 
Stock based compensation expense   -    6    -    -    6 
Balance at September 30, 2018  $16   $14,765   $14,108   $(1,177)  $27,712 

 

See accompanying notes to condensed consolidated financial statements.

 

5

 

 

Eagle Financial Bancorp, Inc.

Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2019 and 2018 (Unaudited)

(Amounts in thousands, except share and per share data)

 

   Nine Months Ended 
   September 30, 
   2019   2018 
Operating Activities          
Net income  $432   $291 
Items not requiring (providing) cash:          
Depreciation and amortization   150    191 
Proceeds on sale of loans in the secondary market   55,028    42,740 
Loans originated for sale in the secondary market   (61,522)   (40,437)
Gain on sale of loans   (1,627)   (1,195)
ESOP compensation expense   75    78 
Stock based compensation expense   185    6 
Provision for loan losses   -    99 
(Gain) Loss on sale of foreclosed real estate   (28)   - 
Deferred federal tax liability   (116)   - 
Increase in cash surrender value of BOLI   (35)   (35)
Changes in:          
FHLB lender risk account receivable   (87)   (110)
Accrued interest receivable and interest payable   12    (67)
Other assets and prepaid federal income taxes   (646)   3 
Accrued supplemental retirement plans   163    166 
Accrued expenses and other liabilities   335    195 
           
Net cash flows (used in) provided by operating activities   (7,681)   1,925 
           
Investing Activities          
Net decrease in interest-bearing time deposits in other banks   498    846 
Net decrease (increase) in loans   4,067    (14,649)
Purchase of FHLB stock   (62)   (18)
Purchase of premises and equipment   (48)   (53)
Proceeds from sale of foreclosed real estate   245    46 
           
Net cash provided by (used in) investing activities   4,700    (13,828)
           
Financing Activities          
Net increase in deposits   5,296    6,254 
Repayment of FHLB advances   -    (9)
Repurchase of common stock   (596)   - 
Net decrease in advances from borrowers for taxes and insurance   (370)   (244)
           
Net cash provided by financing activities   4,330    6,001 
           
Increase (Decrease) in Cash and Cash Equivalents   1,349    (5,902)
           
Cash and Cash Equivalents, Beginning of Period   7,434    15,350 
           
Cash and Cash Equivalents, End of Period  $8,783   $9,448 
           
Supplemental Cash Flows Information:          
Interest paid  $805   $556 
Income taxes paid   528    45 
Transfers to foreclosed assets held for sale   -    263 

 

See accompanying notes to condensed consolidated financial statements.

  

6

 

 

Eagle Financial Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2019 (Unaudited) and December 31, 2018

Three Months and Nine Months Ended September 30, 2019 and 2018 (Unaudited)

(Amounts in thousands, except share and per share data)

 

Note 1:Nature of Operations and Summary of Significant Accounting Policies

 

General

 

Eagle Financial Bancorp, Inc. (the “Company”), a Maryland corporation and registered savings and loan holding company, was formed on February 21, 2017 to become the savings and loan holding company for Eagle Savings Bank (the “Bank”). The Bank, an Ohio chartered savings and loan association, completed its mutual-to-stock conversion on July 20, 2017. In connection with the Bank’s conversion, the Company acquired 100% ownership of the Bank and the Company offered and sold 1,572,808 shares of its common stock at $10.0 per share, for gross offering proceeds of $15,728. The cost of the conversion and issuance of common stock was approximately $1,423, which was deducted from the gross offering proceeds. The Company also contributed 40,000 shares of its common stock and $100 of cash to Eagle Savings Bank Charitable Foundation (the “Foundation”), a charitable foundation formed in connection with the Bank’s conversion. The Bank’s employee stock ownership plan (“ESOP”) purchased 129,024 shares of the common stock sold by the Company, which was 8% of the 1,612,808 shares of common stock issued by the Company, including the shares contributed to the Foundation. The ESOP purchased the shares using a loan from the Company. The Company contributed $7,153 of the net proceeds from the offering to the Bank, loaned $1,290 of the net proceeds to the ESOP, contributed $100 to the Foundation and retained approximately $5,763 of the net proceeds.

 

Following the Bank’s conversion, voting rights are held and exercised exclusively by the shareholders of the holding company. Deposit account holders continue to be insured by the FDIC. A liquidation account was established in an amount equal to the Bank’s total equity as of the latest balance sheet date in the final offering circular used in the conversion. Each eligible account holder or supplemental account holder are entitled to a proportionate share of this account (a”subaccount”) in the event of a complete liquidation of the Bank, and only in such event. The value of this subaccount is subject to an annual decrease based on decreases in the eligible account holder’s or supplemental account holder’s deposit balance, and will cease to exist if the account is closed. The liquidation account will never be increased despite any increase after conversion in the related deposit balance.

 

The Bank may not pay a dividend on its capital stock, if the effect thereof would cause retained earnings to be reduced below the liquidation account amount or regulatory capital requirements. In addition, the stock holding company is subject to certain laws and regulations that may restrict the payout of dividends by the holding company and the repurchase of its capital stock.

 

The Conversion was accounted for as a change in corporate form with the historic basis of the Bank’s assets, liabilities and equity unchanged as a result.

 

Basis of Presentation and Consolidation

 

The condensed consolidated financial statements as of September 30, 2019 and December 31, 2018 and for the three and nine months ended September 30, 2019 and 2018, include Eagle Financial Bancorp, Inc. and the Bank, its wholly owned subsidiary. Intercompany transactions and balances have been eliminated in consolidation.

 

7

 

 

Eagle Financial Bancorp, Inc. 

Notes to Condensed Consolidated Financial Statements

September 30, 2019 (Unaudited) and December 31, 2018

Three Months and Nine Months Ended September 30, 2019 and 2018 (Unaudited)

(Amounts in thousands, except share and per share data)

 

The accompanying condensed balance sheet of the Company as of December 31, 2018, which has been derived from audited financial statements, and unaudited condensed financial statements of the Company as of September 30, 2019 and for the three and nine months ended September 30, 2019 and 2018, were prepared in accordance with instructions for Form 10-Q and Article 8-03 of Regulation S-X and, therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in accounting principles generally accepted in the United States of America. Accordingly, these condensed financial statements should be read in conjunction with the financial statements and notes thereto of the Company for the year ended December 31, 2018 included in the Registrant’s Form 10-K (the “Form 10-K”). Reference is made to the accounting policies of the Company described in the Notes to Financial Statements contained in the Form 10-K.

 

In the opinion of management, all adjustments (consisting only of normal recurring adjustments) which are necessary for a fair presentation of the unaudited condensed financial statements as of September 30, 2019 and the results of operations and cash flows for the three and nine months ended September 30, 2019 and 2018. All interim amounts have not been audited and the results of operations for the three and nine months ended September 30, 2019 and 2018, herein are not necessarily indicative of the results of operations to be expected for the entire year.

 

Revenue Recognition

 

Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.

 

The majority of our revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as our loans, as well as revenue related to our mortgage banking activities, as these activities are subject to other GAAP discussed elsewhere within our disclosures.

 

Descriptions of our revenue-generating activities that are within the scope of ASC 606, which are presented in our income statements as components of non-interest income are as follows:

 

Service charges on deposit accounts - these represent general service fees for monthly account maintenance and activity- or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer). Payment for such performance obligations are generally received at the time the performance obligations are satisfied.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

8

 

 

Eagle Financial Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2019 (Unaudited) and December 31, 2018

Three Months and Nine Months Ended September 30, 2019 and 2018 (Unaudited)

(Amounts in thousands, except share and per share data)

 

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, FHLB lender risk account receivable, valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, and fair values of financial instruments.

 

Revisions

 

Certain immaterial revisions have been made to the 2018 financial statements related to the presentation of common stock repurchased by the Company. These revisions did not have a significant impact on the financial statement line items impacted.

 

Recently Adopted Accounting Pronouncements

 

ASU No. 2016-01 was issued in January 2016 and applies to all entities that hold financial assets or owe financial liabilities. ASU 2016-01 is intended to improve the recognition and measurement of financial instruments by requiring equity investments to be measured at fair value with changes in fair value recognized in net income; requiring public entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; eliminating the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured and amortized at cost on the balance sheet; and requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instruments specific credit risk when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. ASU 2016-01 is effective for annual periods and interim periods within those periods, beginning after December 15, 2018. The amendments should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The Company has adopted ASU 2016-01 on January 1, 2019 and it did not have a material effect on its fair value disclosures and other disclosure requirements. These amendments did have an impact on certain items that were disclosed at fair value that did not utilize the exit price notion when measuring fair value. For additional information on fair value of assets and liabilities, see Note 7.

 

In May 2014, the FASB issued ASU No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” (ASU 2014-09). This update to the ASC is the culmination of efforts by the FASB and the International Accounting Standards Board (IASB) to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards (IFRS). ASU 2014-09 supersedes Topic 605 – Revenue Recognition and most industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance in ASU 2014-09 describes a 5-step process entities can apply to achieve the core principle of revenue recognition and requires disclosures sufficient to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers and the significant judgments used in determining that information. Originally, the amendments in ASU 2014-09 were effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period and early application is not allowed. In July 2015, the FASB extended the implementation date to annual reporting periods beginning after December 15, 2017 including interim periods within that reporting period. Transitional guidance is included in the update. Earlier adoption is permitted only as of annual reporting periods beginning after December 31, 2016, including interim periods within that reporting period.

 

9

 

 

Eagle Financial Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2019 (Unaudited) and December 31, 2018

Three Months and Nine Months Ended September 30, 2019 and 2018 (Unaudited)

(Amounts in thousands, except share and per share data)

 

The Company’s revenue is comprised of net interest income, which is explicitly excluded from the scope of ASU 2014-09, and non- interest income. The Company has adopted ASU 2014-09 on January 1, 2019 and it did not identify any changes in the timing of revenue recognition when considering the amended accounting guidance. The Company included additional disclosures beginning in the first quarter of 2019 as required by the guidance.

 

Note 2:Earnings Per Common Share

 

Basic earnings per common share (“EPS”) allocated to common shareholders is calculated using the two-class method and is computed by dividing net income allocated to common shareholders by the weighted average number of common shares outstanding during the period. Unallocated common shares held by the Company’s Employee Stock Ownership Plan (“the ESOP”) are shown as a reduction in stockholder’s equity and are excluded from weighted-average common shares outstanding for both basic and diluted EPS calculations until they are committed to be released. Diluted earnings per share is adjusted for the dilutive effects of stock-based compensation and is calculated using the two-class method or the treasury method. There were no dilutive effects at September 30, 2019 or 2018.

 

The following table presents a reconciliation of the number of shares used in the calculation of basic and diluted earnings per common share:

 

   Three months ended   Three months ended   Nine months ended   Nine months ended 
   September 30, 2019   September 30, 2018   September 30, 2019   September 30, 2018 
                 
Net Income  $270   $79   $432   $291 
Less allocation of earnings to participating securities   7    -    12    - 
Net income allocated to common shareholders  $263   $79   $420   $291 
                     
Shares Outstanding for basic earnings per common share:                    
                     
Weighted Average shares outstanding:   1,600,080    1,612,808    1,601,844    1,612,808 
     Less: Average Unearned ESOP shares:   113,433    118,321    114,240    119,902 
Weighted average number of shares outstanding used in the calculation of basic earnings per common share   1,486,647    1,494,487    1,487,604    1,492,906 
                     
Basic earnings per common share:  $0.18   $0.05   $0.28   $0.19 
                     
Effect of dilutive securities:                    
     Stock Options   -    -    -    - 
Weighted average number of shares outstanding used in the calculation of dilutive earnings per common share   1,486,647    1,494,487    1,487,604    1,492,906 
Diluted earnings per common share:  $0.18   $0.05   $0.28   $0.19 

 

10

 

 

Eagle Financial Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2019 (Unaudited) and December 31, 2018

Three Months and Nine Months Ended September 30, 2019 and 2018 (Unaudited)

(Amounts in thousands, except share and per share data)

 

Note 3:Loans and Allowance for Loan Losses

 

The composition of the loan portfolio at September 30, 2019 and December 31, 2018 was as follows:

 

   September 30,   December 31, 
   2019   2018 
     
Residential mortgage loans  $60,253   $67,169 
Commercial real estate and land loans   21,143    17,587 
Home equity and other consumer   10,163    13,773 
Residential construction loans   13,418    11,756 
Residential mortgage loans, non-owner occupied   5,938    6,464 
Multi-family real estate loans   1,122    1,185 
Commercial loans   5,926    6,041 
    117,963    123,975 
           
Net deferred loan costs   6    14 
Loans in process   (7,559)   (9,485)
Allowance for loan losses   (1,161)   (1,187)
           
Net loans  $109,249   $113,317 

 

 

Loans serviced for the benefit of others at September 30, 2019 and December 31, 2018 amounted to $1,678 and $1,816, respectively.

 

Loans in process relates to primarily residential mortgage loans.

 

Risk characteristics applicable to each segment of the loan portfolio are described as follows.

 

Residential Mortgage Loans, including Construction Loans and Land Loans: The residential 1-4 family real estate loans and construction loans are generally secured by owner-occupied 1-4 family residences. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers. Credit risk in these loans can be impacted by economic conditions within the Bank’s market areas that might impact either property values or a borrower’s personal income. Land loans are secured primarily by unimproved land for future residential use. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

 

Residential Mortgage Loans, Non-Owner Occupied: One-to-four family, non-owner occupied loans carry greater inherent risks than one-to-four family, owner occupied loans, since the repayment ability of the borrower is generally reliant on the success of the income generated from the property.

 

11

 

 

Eagle Financial Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2019 (Unaudited) and December 31, 2018

Three Months and Nine Months Ended September 30, 2019 and 2018 (Unaudited)

(Amounts in thousands, except share and per share data)

 

Commercial Real Estate and Multi-Family Real Estate: Commercial real estate loans typically involve larger principal amounts, and repayment of these loans is generally dependent on the successful operations of the property securing the loan or the business conducted on the property securing the loan. Multi-family real estate loans are generally secured by apartment complexes. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Credit risk in these loans may be impacted by the creditworthiness of a borrower, property values and the local economies in the Bank’s market areas.

 

Commercial: The commercial portfolio includes loans to commercial customers for use in financing working capital needs, equipment purchases and expansions. The loans in this category are repaid primarily from the cash flow of a borrower’s principal business operation. Credit risk in these loans is driven by creditworthiness of a borrower and the economic conditions that impact the cash flow stability from business operations.

 

Home equity and Other Consumer: The consumer loan portfolio consists of home equity loans and term and line of credit loans such as automobile loans and loans for other personal purposes. Repayment of the home equity loans is primarily dependent on the personal income and credit rating of the borrowers. Credit risk in these loans can be impacted by economic conditions within the Bank’s market areas that might impact either property values or a borrower’s personal income. Repayment for term and line of credit loans will come from a borrower’s income sources that are typically independent of the loan purpose. Credit risk is driven by consumer economic factors (such as unemployment and general economic conditions in the Bank’s market area) and the creditworthiness of a borrower.

 

12

 

 

Eagle Financial Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2019 (Unaudited) and December 31, 2018

Three Months and Nine Months Ended September 30, 2019 and 2018 (Unaudited)

(Amounts in thousands, except share and per share data)

 

The following tables present the activity in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method for the three and nine months ended September 30, 2019 and 2018 and year ended December 31, 2018:

 

Nine Months Ended September 30, 2019
(Unaudited)
  Residential
Mortgage
Loans
   Commercial
Real Estate
and Land
Loans
   Home
Equity and
Other
Consumer
   Residential
Construction
Loans
   Residential
Mortgage
Loans
Non-Owner
Occupied
   Multi-
Family
Real
Estate
Loans
   Commercial
Loans
   Total 
Allowance for loan losses:                                        
Balance, beginning of year  $409   $260   $313   $128   $42   $14   $21   $1,187 
Provision charged (credited) to expense   (76)   91    (39)   32    (7)   -    (1)   - 
Losses charged off   -    -    (39)   -    -    -    -    (39)
Recoveries   12    -    -    -    1    -    -    13 
                                         
Balance, end of period  $345   $351   $235   $160   $36   $14   $20   $1,161 
                                         
Ending balance:  individually evaluated for impairment  $1   $-   $-   $-   $-   $-   $-   $1 
                                         
Ending balance:  collectively evaluated for impairment  $344   $351   $235   $160   $36   $14   $20   $1,160 
                                         
Loans:                                        
Ending balance  $60,253   $21,143   $10,163   $13,418   $5,938   $1,122   $5,926   $117,963 
                                         
Ending balance:  individually evaluated for impairment  $72   $-   $40   $-   $183   $-   $-   $295 
                                         
Ending balance:  collectively evaluated for impairment  $60,181   $21,143   $10,123   $13,418   $5,755   $1,122   $5,926   $117,668 
                                 
Three Months Ended September 30, 2019
(Unaudited)
  Residential
Mortgage
Loans
   Commercial
Real Estate
and Land
Loans
   Home
Equity and
Other
Consumer
   Residential
Construction
Loans
   Residential
Mortgage
Loans
Non-Owner
Occupied
   Multi-
Family
Real
Estate
Loans
   Commercial
Loans
   Total 
Allowance for loan losses:                                        
Balance, beginning of period  $377   $295   $266   $138   $46   $14   $20   $1,156 
Provision charged (credited) to expense   (37)   56    (31)   22    (10)   -    -    - 
Losses charged off   -    -    -    -    -    -    -    - 
Recoveries   5    -    -    -    -    -    -    5 
                                         
Balance, end of period  $345   $351   $235   $160   $36   $14   $20   $1,161 

 

13

 

 

Eagle Financial Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2019 (Unaudited) and December 31, 2018

Three Months and Nine Months Ended September 30, 2019 and 2018 (Unaudited)

(Amounts in thousands, except share and per share data)

 

Nine Months Ended September 30,
2018 (Unaudited)
  Residential
Mortgage
Loans
   Commercial
Real Estate
and Land
Loans
   Home
Equity and
Other
Consumer
   Residential
Construction
Loans
   Residential
Mortgage
Loans Non-
Owner
Occupied
   Multi-
Family
Real
Estate
Loans
   Commercial
Loans
   Total 
Allowance for loan losses:                                        
Balance, beginning of year  $283   $199   $276   $116   $122   $25   $160   $1,181 
Provision charged (credited) to expense   148    118    30    (6)   (44)   (11)   (136)   99 
Losses charged off   (35)   (68)   -    -    -    -    -    (103)
Recoveries   11    -    -    -    1    -    -    12 
                                         
Balance, end of period  $407   $249   $306   $110   $79   $14   $24   $1,189 
                                         
Three Months Ended September 30,
2018 (Unaudited)
  Residential
Mortgage
Loans
   Commercial
Real Estate
and Land
Loans
   Home
Equity and
Other
Consumer
   Residential
Construction
Loans
   Residential
Mortgage
Loans Non-
Owner
Occupied
   Multi-
Family
Real
Estate
Loans
   Commercial
Loans
   Total 
Allowance for loan losses:                                        
Balance, beginning of period  $422   $205   $304   $117   $85   $14   $20   $1,167 
Provision charged (credited) to expense   (6)   112    2    (7)   (6)   -    4    99 
Losses charged off   (13)   (68)   -    -    -    -    -    (81)
Recoveries   4    -    -    -    -    -    -    4 
                                         
Balance, end of period  $407   $249   $306   $110   $79   $14   $24   $1,189 
                                 
Year Ended December 31,
2018
  Residential
Mortgage
Loans
   Commercial
Real Estate
and Land
Loans
   Home
Equity and
Other
Consumer
   Residential
Construction
Loans
   Residential
Mortgage
Loans Non-
Owner
Occupied
   Multi-
Family
Real
Estate
Loans
   Commercial
Loans
   Total 
Allowance for loan losses:                                        
Balance, beginning of year  $283   $199   $276   $116   $122   $25   $160   $1,181 
Provision charged (credited) to expense   146    129    44    12    (82)   (11)   (139)   99 
Losses charged off   (35)   (68)   (7)   -    -    -    -    (110)
Recoveries   15    -    -    -    2    -    -    17 
                                         
Balance, end of year  $409   $260   $313   $128   $42   $14   $21   $1,187 
                                         
Ending balance:  individually evaluated for impairment  $3   $-   $-   $-   $-   $-   $-   $3 
                                         
Ending balance:  collectively evaluated for impairment  $406   $260   $313   $128   $42   $14   $21   $1,184 
                                         
Loans:                                        
Ending balance  $67,169   $17,587   $13,773   $11,756   $6,464   $1,185   $6,041   $123,975 
                                         
Ending balance:  individually evaluated for impairment  $74   $-   $43   $-   $190   $-   $-   $307 
                                         
Ending balance:  collectively evaluated for impairment  $67,095   $17,587   $13,730   $11,756   $6,274   $1,185   $6,041   $123,668 

 

 

14

 

 

Eagle Financial Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2019 (Unaudited) and December 31, 2018

Three Months and Nine Months Ended September 30, 2019 and 2018 (Unaudited)

(Amounts in thousands, except share and per share data)

Internal Risk Categories

 

Loan grades are numbered 1 through 8. Grades 5 through 8 are considered satisfactory grades. The grade of 1, or Special Mention, represents loans of lower quality and is considered criticized. The grades of 2, or Substandard, 3, or Doubtful, and 4, or Loss refer to assets that are classified. The use and application of these grades by the Bank will be uniform and shall conform to the Bank’s policy.

 

Special Mention (grade 1) assets 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 or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Ordinarily, special mention credits have characteristics which corrective management action would remedy.

 

Substandard (grade 2) loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

 

 

Doubtful (grade 3) loans classified as doubtful 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 current known facts, conditions and values, highly questionable and improbable.

 

Loss (grade 4) loans classified as loss are considered uncollectible and of such little value that their continuance as assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value but rather it is not practical or desirable to defer writing off even though partial recovery may be affected in the future.

 

Satisfactory (grades 5 through 8) represent loans for which quality is considered to be satisfactory.

 

15

 

 

Eagle Financial Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2019 (Unaudited) and December 31, 2018
Three Months and Nine Months Ended September 30, 2019 and 2018 (Unaudited)
(Amounts in thousands, except share and per share data)

 

The following tables present the credit risk profile of the Bank’s loan portfolio based on rating category and payment activity as of September 30, 2019 and December 31, 2018:

 

September 30, 2019 (Unaudited)  Residential
Mortgage
Loans
   Commercial
Real Estate
and Land
Loans
   Home
Equity and
Other
Consumer
   Residential
Construction
Loans
   Residential
Mortgage
Loans
Non-Owner
Occupied
   Multi-
Family
Real
Estate
Loans
   Commercial
Loans
   Total 
Rating                                        
Satisfactory (5-8)  $59,786   $20,952   $10,038   $13,418   $5,449   $1,122   $5,771   $116,536 
Special mention (1)   -    -    -    -    -    -    -    - 
Substandard (2)   467    191    125    -    489    -    155    1,427 
Doubtful (3)   -    -    -    -    -    -    -    - 
Loss (4)   -    -    -    -    -    -    -    - 
                                         
Total  $60,253   $21,143   $10,163   $13,418   $5,938   $1,122   $5,926   $117,963 

 

December 31, 2018  Residential
Mortgage
Loans
   Commercial
Real Estate
and Land
Loans
   Home Equity
and Other
Consumer
   Residential
Construction
Loans
   Residential
Mortgage
Loans
Non-Owner
Occupied
   Multi-
Family
Real
Estate
Loans
   Commercial
Loans
   Total 
Rating                                        
Satisfactory (5-8)  $66,074   $17,390   $13,552   $11,756   $6,442   $1,185   $5,868   $122,267 
Special mention (1)   -    -    -    -    -    -    -    - 
Substandard (2)   1,095    197    221    -    22    -    173    1,708 
Doubtful (3)   -    -    -    -    -    -    -    - 
Loss (4)   -    -    -    -    -    -    -    - 
                                         
Total  $67,169   $17,587   $13,773   $11,756   $6,464   $1,185   $6,041   $123,975 

 

The Company evaluates the loan risk grading system definitions and allowance for loan losses methodology on an ongoing basis. No significant changes were made to either during the three and nine months ended September 30, 2019.

 

16

 

 

Eagle Financial Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2019 (Unaudited) and December 31, 2018
Three Months and Nine Months Ended September 30, 2019 and 2018 (Unaudited)
(Amounts in thousands, except share and per share data)

 

The following tables present the Bank’s loan portfolio aging analysis of the recorded investment in loans as of September 30, 2019 and December 31, 2018:

 

September 30, 2019 (Unaudited)  30-59 Days
Past Due
   60-89 Days
Past Due
   90 Days
Past Due or
More
   Total  
Past
Due
   Current   Total
Loans
Receivable
   Recorded
Investment 90
Days and
Accruing
 
Residential mortgage loans  $193   $-   $249   $442   $59,811   $60,253   $- 
Commercial real estate and land loans   -    -    -    -    21,143    21,143    - 
Home equity and other consumer   -    23    -    23    10,140    10,163    - 
Residential construction loans   -    -    -    -    13,418    13,418    - 
Residential mortgage loans, non-owner occupied   -    -    489    489    5,449    5,938    - 
Multi-family real estate loans   -    -    -    -    1,122    1,122    - 
Commercial loans   -    -    -    -    5,926    5,926    - 
                                    
Total  $193   $23   $738   $954   $117,009   $117,963   $- 

 

December 31, 2018  30-59 Days
Past Due
   60-89 Days
Past Due
   90 Days
Past Due or
More
   Total  
Past
Due
   Current   Total
Loans
Receivable
   Recorded
Investment 90
Days and
Accruing
 
Residential mortgage loans  $86   $-   $362   $448   $66,721   $67,169   $- 
Commercial real estate and land loans   -    -    -    -    17,587    17,587    - 
Home equity and other consumer   37    18    71    126    13,647    13,773    - 
Residential construction loans   -    -    -    -    11,756    11,756    - 
Residential mortgage loans, non-owner occupied   493    -    -    493    5,971    6,464    - 
Multi-family real estate loans   -    -    -    -    1,185    1,185    - 
Commercial loans   125    -    -    125    5,916    6,041    - 
                                    
Total  $741   $18   $433   $1,192   $122,783   $123,975   $- 

 

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable the Bank will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan.

 

17

 

 

Eagle Financial Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2019 (Unaudited) and December 31, 2018
Three Months and Nine Months Ended September 30, 2019 and 2018 (Unaudited)
(Amounts in thousands, except share and per share data)

 

The following tables present impaired loans at September 30, 2019, September 30, 2018 and as of December 31, 2018:

 

               For the Three Months Ended   For the Nine Months Ended 
           September 30, 2019   September 30, 2019 
   As of September 30, 2019       Average       Average     
       Unpaid       Investment   Interest   Investment   Interest 
   Recorded   Principal   Allocated   in Impaired   Income   in Impaired   Income 
   Balance   Balance   Allowance   Loans   Recognized   Loans   Recognized 
Loans without an allocated allowance:                                   
Residential mortgage loans  $-   $-   $-   $-   $-   $-   $- 
Commercial real estate and land loans   -    -    -    -    -    -    - 
Home equity and other consumer   40    40    -    40    -    41    1 
Residential construction loans   -    -    -    -    -    -    - 
Residential mortgage loans, non-owner occupied   183    183    -    184    3    186    9 
Multi-family real estate loans   -    -    -    -    -    -    - 
Commercial loans   -    -    -    -    -    -    - 
Loans with an allocated allowance:                                   
Residential mortgage loans   72    72    1    72    1    73    3 
Commercial real estate and land loans   -    -    -    -    -    -    - 
Home equity and other consumer   -    -    -    -    -    -    - 
Residential construction loans   -    -    -    -    -    -    - 
Residential mortgage loans, non-owner occupied   -    -    -    -    -    -    - 
Multi-family real estate loans   -    -    -    -    -    -    - 
Commercial loans   -    -    -    -    -    -    - 
                                    
Total  $295   $295   $1   $296   $4   $300   $13 

 

               For the Three Months Ended   For the Nine Months Ended 
           September 30, 2018   September 30, 2018 
   As of September 30, 2018       Average       Average     
       Unpaid       Investment   Interest   Investment   Interest 
   Recorded   Principal   Allocated   in Impaired   Income   in Impaired   Income 
   Balance   Balance   Allowance   Loans   Recognized   Loans   Recognized 
Loans without an allocated allowance:                                   
Residential mortgage loans  $-   $-   $-   $-   $-   $-   $- 
Commercial real estate and land loans   -    -    -    113    -    144    - 
Home equity and other consumer   11    11    -    11    -    11    - 
Residential construction loans   -    -    -    -    -    -    - 
Residential mortgage loans, non-owner occupied   191    191    -    192    3    193    8 
Multi-family real estate loans   -    -    -    -    -    -    - 
Commercial loans   -    -    -    -    -    -    - 
Loans with an allocated allowance:                                   
Residential mortgage loans   75    75    4    75    1    112    3 
Commercial real estate and land loans   -    -    -    -    -    -    - 
Home equity and other consumer   -    -    -    -    -    -    - 
Residential construction loans   -    -    -    -    -    -    - 
Residential mortgage loans, non-owner occupied   -    -    -    -    -    -    - 
Multi-family real estate loans   -    -    -    -    -    -    - 
Commercial loans   -    -    -    -    -    166    9 
                                    
Total  $277   $277   $4   $391   $4   $626   $20 

 

18

 

 

Eagle Financial Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2019 (Unaudited) and December 31, 2018
Three Months and Nine Months Ended September 30, 2019 and 2018 (Unaudited)
(Amounts in thousands, except share and per share data)

 

   As of December 31, 2018 
               Average     
       Unpaid       Investment   Interest 
   Recorded   Principal   Allocated   in Impaired   Income 
   Balance   Balance   Allowance   Loans   Recognized 
Loans without an allocated allowance:                         
Residential mortgage loans  $-   $-   $-   $-   $- 
Commercial real estate and land loans   -    -    -    108    - 
Home equity and other consumer   43    43    -    36    1 
Residential construction loans   -    -    -    -    - 
Residential mortgage loans, non-owner occupied   190    190    -    192    10 
Multi-family real estate loans   -    -    -    -    - 
Commercial loans   -    -    -    125    9 
Loans with an allocated allowance:                         
Residential mortgage loans   74    74    3    103    4 
Commercial real estate and land loans   -    -    -    -    - 
Home equity and other consumer   -    -    -    -    - 
Residential construction loans   -    -    -    -    - 
Residential mortgage loans, non-owner occupied   -    -    -    -    - 
Multi-family real estate loans   -    -    -    -    - 
Commercial loans   -    -    -    -    - 
                          
Total  $307   $307   $3   $564   $24 

 

Interest income recognized is not materially different than interest income that would have been recognized on a cash basis.

 

The following table presents the Bank’s nonaccrual loans at September 30, 2019 and December 31, 2018. This table excludes performing troubled debt restructurings.

 

   September 30,   December 31, 
   2019   2018 
Residential mortgage loans  $249   $362 
Commercial real estate and land loans   -    - 
Home equity and other consumer   -    71 
Residential construction loans   -    - 
Residential mortgage loans, non-owner occupied   489    - 
Multi-family real estate loans   -    - 
Commercial loans   -    - 
           
Total  $738   $433 

 

19

 

 

Eagle Financial Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2019 (Unaudited) and December 31, 2018
Three Months and Nine Months Ended September 30, 2019 and 2018 (Unaudited)
(Amounts in thousands, except share and per share data)

 

Following is a summary of troubled debt restructurings at September 30, 2019 and December 31, 2018:

 

   As of September 30, 2019   As of December 31, 2018 
   Number of Contracts   Recorded Investment   Number of Contracts   Recorded Investment 
Residential mortgage loans   1   $72    1   $74 
Commercial real estate and land loans   -    -    -    - 
Home equity and other consumer   2    40    2    43 
Residential construction loans   -    -    -    - 
Residential mortgage loans, non-owner occupied   4    183    4    190 
Multi-family real estate loans   -    -    -    - 
Commercial loans   -    -    -    - 
    7   $295    7   $307 

 

As of September 30, 2019, the Bank had total troubled debt restructurings of $295.  There were five residential mortgage loans and residential non-owner occupied loans totaling $255 in troubled debt restructurings with the largest totaling $72.  The remaining $40 in troubled debt restructurings consisted of two home equity loans.  As of December 31, 2018, the Bank had total troubled debt restructurings of $307.  There were five residential mortgage loans and residential non-owner occupied loans totaling $264 in troubled debt restructurings with the largest totaling $190.  The remaining $43 in troubled debt restructurings consisted of two home equity loans. These loans were modified due to short term concessions. Eagle Savings Bank has no commitments to lend additional funds to these debtors owing receivables whose terms have been modified in troubled debt restructurings. During the three months and nine months ended September, 30, 2019 the Bank added no new troubled debt restructurings.

 

At September 30, 2019, the Bank had no foreclosed real estate. There were two foreclosed real estate properties totaling $217 at December 31, 2018. They consisted of one commercial real estate property totaling $127 and one residential mortgage property totaling $90.

 

Note 4:Employee Stock Ownership Plan (“ESOP”)

 

In connection with the conversion to an entity owned by stockholders, the Company established an Employee Stock Ownership Plan (“ESOP”) for the exclusive benefit of eligible employees. The ESOP borrowed funds from the Company in an amount sufficient to purchase 129,024 shares (approximately 8.0% of the common stock issued in connection with the conversion). The loan is secured by the shares purchased and will be repaid by the ESOP with funds from contributions made by the Company and dividends received by the ESOP. Contributions will be applied to repay interest on the loan first, and then the remainder will be applied to principal. The loan is expected to be repaid over a period of up to 20 years. Shares purchased with the loan proceeds are held in a suspense account for allocation among participants as the loan is repaid. Contributions to the ESOP and shares released from the suspense account are allocated among participants in proportion to their compensation, relative to total compensation of all active participants. Participants will vest in their accrued benefits under the ESOP at the rate of 20 percent per year after two years of service. Vesting is accelerated upon retirement, death or disability of the participant, or a change in control of the Company. Forfeitures will be reallocated to remaining participants. Benefits may be payable upon retirement, death, disability, separation of service, or termination of the ESOP.

 

20

 

 

Eagle Financial Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2019 (Unaudited) and December 31, 2018
Three Months and Nine Months Ended September 30, 2019 and 2018 (Unaudited)
(Amounts in thousands, except share and per share data)

 

The debt of the ESOP is eliminated in consolidation. Contributions to the ESOP shall be sufficient to pay principal and interest currently due under the loan agreement. As shares are committed to be released from collateral, the Company reports the compensation expense equal to the average market price of the shares for the respective period, and the shares become outstanding for earnings per share computations. Dividends on unallocated ESOP shares, if any, are recorded as a reduction of debt and accrued interest. ESOP compensation was $25 and $75 for the three and nine months ended September 30, 2019, and $26 and $78 for the three and nine months ended September 30, 2018.

 

A summary of the ESOP shares as of September 30, 2019 and December 31, 2018 are as follows:

 

   September 30, 2019   December 31, 2018 
Shares allocated to participants   4,838    6,451 
Shares released to participants   12,902    6,451 
Unreleased shares   111,284    116,122 
Total   129,024    129,024 
           
Fair Value of Unreleased Shares  $1,780,544   $1,761,571 

 

In the event the ESOP is unable to satisfy the obligation to repurchase the shares held by each beneficiary upon the beneficiary’s termination or retirement, the Company is obligated to repurchase the shares. In addition, there are no outstanding shares held by former employees that are subject to an ESOP related repurchase option.

 

Note 5:Equity Incentive Plan

 

In September 2018, the Company’s stockholders approved the Eagle Financial Bancorp, Inc. 2018 Equity Incentive Plan (the “2018 Plan”). The 2018 Plan authorizes the issuance or delivery to participants of up to 225,792 shares of the Company’s common stock pursuant to the grants of restricted stock awards, incentive stock options, and non-qualified stock options. Of this number, the maximum number of shares of Company common stock that may be issued under the 2018 Plan pursuant to the exercise of stock options is 161,280 shares and the maximum number of shares of Company common stock that may be issued as restricted stock awards is 64,512 shares. Stock options awarded to employees may be incentive stock options or non-qualified stock options. Shares awarded under the 2018 Plan may be authorized but unissued shares or treasury shares. The 2018 Plan contains annual and lifetime limits on certain types of awards to individual participants.

 

Awards may vest or become exercisable only upon the achievement of performance measures or based solely on the passage of time after award. Stock options and restricted stock awards provide for accelerated vesting if there is a change in control (as defined in the 2018 Plan).

 

In September 2018, the Company granted stock options for 32,255 shares to members of the Board of Directors. Awards under the Plan were granted with a vesting rate not exceeding twenty percent (20%) per year for five years. Options granted in September 2018 have an exercise price $15.89, as determined on the grant date and expire ten years from the grant date.

 

The fair value was calculated using the Black-Scholes model for stock options granted in September 2018 using the following assumptions: expected volatility of 24.56%, a risk free interest rate of 3.01%, and an expected term of 7.5 years. The Company utilized the simplified method to determine the expected term because it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term.

 

The weighted average grant-date fair value of options granted in September 2018 was $5.57 per share.

 

21

 

 

Eagle Financial Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2019 (Unaudited) and December 31, 2018
Three Months and Nine Months Ended September 30, 2019 and 2018 (Unaudited)
(Amounts in thousands, except share and per share data)

 

In October 2018, the Company granted stock options for 69,356 shares to Executive Officers of the Company. Awards under the Plan were granted with a vesting rate not exceeding twenty percent (20%) per year for five years. Options granted in October 2018 have an exercise price $15.75, as determined on the grant date and expire ten years from the grant date.

 

The fair value was calculated using the Black-Scholes model for stock options granted in September 2018 using the following assumptions: expected volatility of 24.63%, a risk free interest rate of 3.14%, and an expected term of 7.5 years. The Company utilized the simplified method to determine the expected term because it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term.

 

The weighted average grant-date fair value of options granted in October 2018 was $5.59 per share.

 

At September 30, 2019, 6,450 of the stock options granted to the Board of Directors were exercisable at an average price of $15.89. At September 30, 2019 no stock options were exercised.

 

In September 2018, the Company awarded 12,900 restricted shares to members of the Board of Directors. The restricted stock awards have a five year vesting period. During the restricted period, the holder is entitled to full voting rights and dividends, thus are considered participating securities. At September 30, 2019, 2,580 restricted shares were vested.

 

In October 2018, the Company awarded 29,050 restricted shares to Executive Officers and other employees of the Company. The restricted stock awards have a five year vesting period. During the restricted period, the holder is entitled to full voting rights and dividends, thus are considered participating securities.

 

Total compensation cost recognized in the income statement for share-based payment arrangements during the three and nine months ended September 30, 2019 was $62 and $185. Total compensation cost recognized during the three and nine months ended September 30, 2018 was $6.

 

As of September 30, 2019, there was approximately $978 of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a remaining weighted-average period of 4.0 years.

 

22

 

 

Eagle Financial Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2019 (Unaudited) and December 31, 2018

Three Months and Nine Months Ended September 30, 2019 and 2018 (Unaudited)

(Amounts in thousands, except share and per share data)

 

Note 6:Regulatory Matters

  

The Bank is subject to various regulatory capital requirements administered by the 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 United States Generally Accepted Accounting Principles, regulatory reporting requirements and regulatory capital standards. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Furthermore, the Bank’s regulators could require adjustments to regulatory capital not reflected in these financial statements.

 

Quantitative measures established by regulatory reporting standards, to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of Total capital (as defined), Tier I capital (as defined) and common equity Tier 1capital (as defined) to risk-weighted assets (as defined) and Tier I capital (as defined) to average assets (as defined). Management believes, as of September 30, 2019 and December 31, 2018 that the Bank meets all capital adequacy requirements to which it is subject.

 

As of September 30, 2019 and December 31, 2018 the most recent notification from the Bank’s regulators categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based capital, Tier I risk-based capital, common equity Tier 1 risk-based capital and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank’s category.

 

In addition to the minimum capital ratios, the Bank must maintain a capital conservation buffer of common equity Tier 1 capital in an amount greater than 2.5% of total risk-weighted assets to avoid being subject to limitations on capital distributions and discretionary bonuses.

 

As a result of the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”), banking regulatory agencies including the Federal Reserve Board must establish for institutions with less than $10 billion of assets a “community bank leverage ratio” of tangible equity capital to total average consolidated assets of between 8 to 10%. Institutions with capital meeting the specified requirement and electing to follow the alternative regulatory capital structure will be considered to comply with the applicable regulatory capital requirements, in1cluding the risk-based requirements. The establishment of the community bank leverage ratio is subject to notice and comment rulemaking by the federal regulators and the agencies issued a proposed rule in February 2019 that would set the “community bank leverage ratio” at 9%.

 

In addition, as a result of the Act, the Federal Reserve Board has amended its small bank holding company and savings and loan holding company policy statement to provide that holding companies with consolidated assets of less than $3 billion that are (i) not engaged in significant nonbanking activities, (ii) do not conduct significant off-balance sheet activities, and (3) do not have a material amount of SEC-registered debt or equity securities, other than trust preferred securities, that contribute to an organization’s complexity, are not subject to consolidated regulatory capital requirements.

 

23

 

 

Eagle Financial Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2019 (Unaudited) and December 31, 2018

Three Months and Nine Months Ended September 30, 2019 and 2018 (Unaudited)

(Amounts in thousands, except share and per share data)

 

The Bank’s actual capital amounts and ratios are presented in the following tables (minimum capital requirements exclude the capital conservation buffer):

 

   Actual   Minimum Capital Requirement   Minimum to Be Well Capitalized
Under Prompt Corrective Action
Provisions
 
   Amount   Ratio   Amount   Ratio   Amount   Ratio 
As of September 30, 2019:                        
Equity  $21,633                          
Allowance for loan losses   1,161                          
                               
Total risk-based capital        16.8%  $10,860    8.0%  $13,576    10.0%
(to risk-weighted assets)  $22,794                          
                               
Tier I capital   21,633    15.9%   8,145    6.0%   10,860    8.0%
(to risk-weighted assets)                              
                               
Common equity Tier I capital   21,633    15.9%   6,109    4.5%   8,824    6.5%
(to risk-weighted assets)                              
                               
Tier I capital   21,633    15.3%   5,658    4.0%   7,072    5.0%
(to adjusted total assets)                              

 

24

 

 

Eagle Financial Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2019 (Unaudited) and December 31, 2018

Three Months and Nine Months Ended September 30, 2019 and 2018 (Unaudited)

(Amounts in thousands, except share and per share data)

 

   Actual   Minimum Capital Requirement   Minimum to Be Well Capitalized
Under Prompt Corrective Action
Provisions
 
   Amount   Ratio   Amount   Ratio   Amount   Ratio 
As of December 31, 2018:                        
                         
Equity  $20,849                          
Allowance for loan losses   1,187                          
                               
Total risk-based capital        16.9%  $10,459    8.0%  $13,074    10.0%
(to risk-weighted assets)  $22,036                          
                               
Tier I capital   20,849    15.9%   7,844    6.0%   10,459    8.0%
(to risk-weighted assets)                              
                               
Common equity Tier I capital   20,849    15.9%   5,883    4.5%   8,498    6.5%
(to risk-weighted assets)                              
                               
Tier I capital   20,849    15.2%   5,495    4.0%   6,868    5.0%
(to adjusted total assets)                              

 

Note 7:Disclosure About Fair Values of Assets and Liabilities

 

ASC Topic 820, Fair Value Measurements, 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 at the measurement date. Topic 820 also specifies a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

 

Level 1        Quoted prices in active markets for identical assets or liabilities

 

Level 2        Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

 

Level 3        Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

 

25

 

 

Eagle Financial Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2019 (Unaudited) and December 31, 2018

Three Months and Nine Months Ended September 30, 2019 and 2018 (Unaudited)

(Amounts in thousands, except share and per share data)

 

Nonrecurring Measurements

 

The following tables present the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2019 and December 31, 2018:

 

       Fair Value Measurements Using 
   Fair    Quoted Prices in
Active Markets for
Identical Assets
   Significant Other
Observable Inputs
   Significant
Unobservable
Inputs
 
September 30, 2019  Value   (Level 1)   (Level 2)   (Level 3) 
Impaired loans (collateral dependent)  $71   $-   $-   $71 

 

       Fair Value Measurements Using 
   Fair    Quoted Prices in
Active Markets for
Identical Assets
   Significant Other
Observable Inputs
   Significant
Unobservable
Inputs
 
December 31, 2018  Value   (Level 1)   (Level 2)   (Level 3) 
Impaired loans (collateral dependent)  $71   $-   $-   $71 

 

Fair value adjustments, consisting of charge-offs or allocated allowances, on impaired loans and foreclosed assets held for sale during the nine months ended September 30, 2019 and the year ended December 31, 2018 amounted to $1 and $3, respectively.

 

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

 

26

 

 

Eagle Financial Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2019 (Unaudited) and December 31, 2018

Three Months and Nine Months Ended September 30, 2019 and 2018 (Unaudited)

(Amounts in thousands, except share and per share data)

 

Collateral-dependent Impaired Loans, Net of ALLL

 

The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy. The Bank considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary. Appraisals are reviewed for accuracy and consistency by the lending department. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts and estimates are developed by comparison to historical results.

 

Unobservable (Level 3) Inputs

 

The following tables present quantitative information about unobservable inputs used in nonrecurring Level 3 fair value measurements.

 

   Fair Value at   Valuation      
   9/30/2019   Technique  Unobservable Inputs  Range
Impaired loans (collateral dependent)  $71   Market comparable properties  Marketability discount  10% - 15%

 

   Fair Value at   Valuation      
   12/31/2018   Technique  Unobservable Inputs  Range
Impaired loans (collateral dependent)  $71   Market comparable properties  Marketability discount  10% - 15%

 

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying balance sheet at amounts other than fair value.

 

Cash and Cash Equivalents and Interest-bearing Time Deposits

 

The carrying amount approximates fair value.

 

Loans Held For Sale

 

The carrying amount approximates fair value due to the insignificant time between origination and date of sale. The carrying amount is the amount funded.

 

27

 

 

Eagle Financial Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2019 (Unaudited) and December 31, 2018

Three Months and Nine Months Ended September 30, 2019 and 2018 (Unaudited)

(Amounts in thousands, except share and per share data)

 

Loans

 

The