Eagle Bancorp Montana Profile
Eagle Bancorp Montana, Inc. operates as the bank holding company for Opportunity Bank of Montana that provides various banking products and services.
The company has full-service branches and automated teller machines located in its market areas and it participates in the Money Pass ATM network. The company also operated certain branches under the brand names Dutton State Bank, Farmers State Bank of Denton and The State Bank of Townsend. Effective January 3, 2022, these branches were rebranded and are only operating as Opportunity Bank of Montana.
The company provides loan and deposit services to customers who are predominantly small businesses and individuals throughout Montana. The company is a diversified lender with a focus on residential mortgage loans, commercial real estate mortgage loans, commercial business loans, agricultural loans and second mortgage/home equity loan products.
In April 2022, the company acquired First Community Bancorp, Inc. (FCB), a Montana corporation, and FCB's wholly-owned subsidiary, First Community Bank, a Montana chartered commercial bank. The company owns Big Muddy Bancorp, Inc. (BMB); and TwinCo, Inc. (TwinCo).
Business Strategy
The company’s principal strategy is to continue its profitability through building a diversified loan portfolio and operating it as a full-service community bank that offers both retail and commercial loan and deposit products in all of its markets. The company offers mortgage loans, the majority of which are sold on the secondary market with loan servicing retained.
The key elements of the company’s business strategy are to continue to diversify its portfolio by emphasizing its growth in commercial real estate and commercial business loans, including agricultural loans, as a complement to its single family residential real estate lending while maintaining disciplined credit underwriting standards; continue to emphasize the attraction and retention of lower cost core deposits; seek opportunities where presented to acquire other institutions or expand its branch network through opening new branches and/or loan production offices; maintain its strong asset quality; and operate as a community-oriented independent financial institution that offers a broad array of financial services with high levels of customer service.
Market Areas
The company conducts business through its headquarters in Helena, Montana, in addition to other full-service branches located in Ashland, Big Timber, Billings, Bozeman, Butte, Choteau, Culbertson, Denton, Dutton, Froid, Glasgow, Great Falls, Hamilton, Helena, Hinsdale, Livingston, Missoula, Sheridan, Three Forks, Townsend, Twin Bridges, Winifred and Wolf Point, Montana.
Lending Activities
The company originates residential 1-4 family loans held for investment and originated for sale in the secondary market. The company also originates commercial real estate, home equity, consumer and commercial loans. Residential 1-4 family loans include residential mortgages and construction of residential properties. Commercial real estate loans include loans on multi-family dwellings, nonresidential property, commercial construction and development and farmland loans. Home equity loans include loans secured by the borrower’s primary residence. Typically, the property securing such loans is subject to a prior lien. Consumer loans consist of loans secured by collateral other than real estate, such as automobiles, recreational vehicles and boats. Personal loans and lines of credit are made on deposits held by the company and on an unsecured basis. Commercial business loans consist of business loans and lines of credit on a secured and unsecured basis and include agriculture production loans.
Fee Income
The company receives lending related fee income from a variety of sources. Its principal source of this income is from the origination and servicing of sold mortgage loans. Fees generated from mortgage loan servicing generally consist of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors and foreclosure processing for loans held by others.
Residential 1-4 Family Loans
The company originates residential 1-4 family mortgage loans secured by property located in its market areas. The comopany generally originates residential 1-4 family mortgage loans in amounts of up to 80.0% of the lesser of the appraised value or the selling price of the mortgaged property without requiring private mortgage insurance. A mortgage loan originated by the company, whether fixed rate or adjustable rate, can have a term of up to 30 years. The company holds substantially all of its adjustable rate and its 8, 10 and 12-year fixed rate loans in portfolio. Adjustable rate loans limit the periodic interest rate adjustment and the minimum and maximum rates that may be charged over the term of the loan. The company’s fixed rate 15-year and 20-year loans are held in portfolio or sold in the secondary market depending on market conditions. Generally, all 30-year fixed rate loans are sold in the secondary market. The volume of loan sales is dependent on the volume, type and term of loan originations, as well as market conditions.
The company derives a significant portion of its noninterest income from servicing of loans that it has sold. The company offers many of the fixed rate loans it originates for sale in the secondary market on a servicing retained basis. This means that the company processes the borrower’s payments and send them to the purchaser of the loan. This retention of servicing enables the company to increase fee income and maintain a relationship with the borrower.
Property appraisals on real estate securing the company’s single-family residential loans are made by state certified and licensed independent appraisers who are approved annually by the Board. Appraisals are performed in accordance with applicable regulations and policies. The comopany generally obtains title insurance policies on all first mortgage real estate loans originated. On occasion, refinancing of mortgage loans are approved using title reports instead of title insurance. Title reports are also allowed on home equity loans. Borrowers generally remit funds with each monthly payment of principal and interest, to a loan escrow account from which the company makes disbursements for such items as real estate taxes and hazard and mortgage insurance premiums as they become due.
The company also lends funds for the residential 1-4 family construction. Residential 1-4 family construction loans are made both to individual homeowners for the construction of their primary residence and, to a lesser extent, to local builders for the construction of pre-sold houses or houses that are being built for sale in the future.
Commercial Real Estate Loans
The company originates commercial real estate loans, including loans on multi-family dwellings. The company’s commercial real estate loans are primarily permanent loans secured by improved property, such as office buildings, retail stores, commercial warehouses and apartment buildings. The terms and conditions of each loan are tailored to the needs of the borrower and based on the financial strength of the project and any guarantors. Generally, all commercial real estate loans that the company originates are secured by property located in the state of Montana and within the market areas of it. The company also lends funds for commercial construction and development.
Home Equity Loans
The company also originates home equity loans. These loans are secured by the borrowers’ primary residence, but are typically subject to a prior lien, which may or may not be held by the company. Borrowers may use the proceeds from the company’s home equity loans for many purposes, including home improvement, debt consolidation or other purchasing needs. The company offers fixed rate, fixed payment home equity loans, as well as variable and fixed rate home equity lines of credit. Fixed rate home equity loans typically have terms of no longer than 15 years.
Home equity loans are secured by real estate but they have historically carried a greater risk than first lien residential mortgages because of the existence of a prior lien on the property securing the loan, as well as the flexibility the borrower has with respect to the loan proceeds. The company attempts to minimize this risk by maintaining conservative underwriting policies on such loans. The company generally makes home equity loans for not more than 85.0% of appraised value of the underlying real estate collateral, less the amount of any existing prior liens on the property securing the loan.
Consumer Loans
As part of its strategy to invest in higher yielding shorter term loans, the company emphasized growth of its consumer lending portfolio in recent years. This portfolio includes personal loans secured by collateral other than real estate, unsecured personal loans and lines of credit and loans secured by deposits held by the company. These loans consist primarily of auto loans, RV loans, boat loans, personal loans and credit lines and deposit account loans. Consumer loans are originated in the company’s market areas and generally have maturities of up to 7 years. For loans secured by savings accounts, the company will lend up to 90.0% of the account balance on single payment loans and up to 100.0% for monthly payment loans.
Consumer loans have a shorter term and generally provide higher interest rates than residential loans. Consumer loans can be helpful in improving the spread between average loan yield and cost of funds and at the same time improve the matching of the maturities of rate sensitive assets and liabilities.
The underwriting standards employed by the company for consumer loans include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan.
Commercial Loans
The company’s commercial business loans are traditional business loans and are not secured by real estate. Such loans may be structured as unsecured lines of credit or may be secured by inventory, accounts receivable or other business assets. Agricultural operating loans are generally secured with equipment, cattle, crops or other non-real property and at times the underlying real property.
Commercial business loans of this nature usually involve greater credit risk than residential 1-4 family loans. The collateral the company receives is typically related directly to the performance of the borrower’s business which means that repayment of commercial business loans is dependent on the successful operations and income stream of the borrower’s business.
Loans to One Borrower
Under Montana law, commercial banks such as the company, are subject to certain exemptions and are allowed to select the Office of the Comptroller of the Currency (OCC) formula used to determine limits on credit concentrations to single borrowers to an amount equal to 15.0% of the institution’s total capital. This consisted of seven loans: six commercial real estate loans each secured by a single property and one construction loan secured by a single property.
Investment Activities
State-chartered commercial banks such as the company have the authority to invest in various types of investment securities, including United States Treasury obligations, securities of various Federal agencies (including securities collateralized by mortgages), certificates of deposits of insured banks and savings institutions, municipal securities, corporate debt securities and loans to other banking institutions.
The company’s investment securities generally include U.S. government and agency obligations, U.S. treasury obligations, Small Business Administration pools, municipal securities, corporate obligations, mortgage-backed securities (MBSs), collateralized mortgage obligations (CMOs) and asset-backed securities (ABSs), all with varying characteristics as to rate, maturity and call provisions
Deposits
Deposits are the major source of the company’s funds for lending and other investment purposes. Borrowings are also used to compensate for reductions in the availability of funds from other sources. In addition to deposits and borrowings, the comopany derives funds from loans and investment securities principal payments. Funds are also derived from proceeds for the maturity, call and sale of investment securities and from the sale of loans. Loan and investment securities principal payments are a relatively stable source of funds, while loan prepayments and deposit inflows are significantly influenced by general interest rates and financial market conditions.
The company offers a variety of deposit accounts. Deposit account terms vary, primarily as to the required minimum balance amount, the amount of time that the funds must remain on deposit and the applicable interest rate.
The company’s deposit products include certificates of deposit accounts ranging in terms from 90 days to five years, as well as, checking, savings and money market accounts. Individual retirement account (IRA) certificates are included in certificates of deposit. The company may also enter into fixed rate brokered certificates when rates are competitive with other funding sources.
Deposits are obtained primarily from residents of Montana. The company is able to attract deposit accounts by offering outstanding service, competitive interest rates, convenient locations and service hours. The company uses traditional methods of advertising to attract new customers and deposits, including radio, television, print media advertising, and sales training.
Subsidiary Activity
The company is permitted to invest in the capital stock of, or originate secured or unsecured loans to, subsidiary corporations. The following are subsidiaries of the company: Opportunity Bank of Montana, Eagle Bancorp Statutory Trust I, Western Financial Services, Inc. and Opportunity Housing Fund, LLC, which is a subsidiary of the bank.
Regulation
As a state-chartered commercial bank, the bank is subject to extensive regulation, examination and supervision by the Federal Reserve Bank of Minneapolis (FRB) and Montana Division of Banking and Financial Institutions. The bank is a member of the FRB System and its deposit accounts are insured up to applicable limits by the Deposit Insurance Fund, which is administered by the Federal Deposit Insurance Corporation (FDIC). There are periodic examinations to evaluate the bank’s safety and soundness and compliance with various regulatory requirements. Under certain circumstances, the FDIC may also examine the bank. This regulatory structure is intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate allowance for loan losses for regulatory purposes. Eagle, as a bank holding company, is required to file certain reports with, and is subject to examination by, and must otherwise comply with the rules and regulations of the FRB. Eagle is also subject to the rules and regulations of the Securities and Exchange Commission (SEC) under the federal securities laws.
Deposits in the bank, a Montana state-chartered commercial bank, are insured by the FDIC. The bank has no branches in any other state. The bank is subject to regulation and supervision by the Montana Department of Administration’s Banking and Financial Institutions Division and the FRB. The federal laws that apply to the bank regulate, among other things, the scope of its business, its investments, its reserves against deposits, the timing of the availability of deposited funds, and the nature, amount of, and collateral for loans. Federal laws also regulate community reinvestment and insider credit transactions and impose safety and soundness standards.
The bank is a member of the FHLB of Des Moines. FHLB of Des Moines is one of 11 regional FHLBs that administer the home financing credit function of banks, credit unions and savings institutions. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It makes loans or advances to members in accordance with policies and procedures, established by the Board of Directors of the FHLB, which are subject to the oversight of the Federal Housing Finance Board. All advances from the FHLB are required to be fully secured by sufficient collateral as determined by the FHLB. In addition, all long-term advances are required to provide funds for residential home financing. As a member, the bank is required to purchase and maintain a specified amount of shares of capital stock in the FHLB of Des Moines.
As a member of the Federal Reserve System, the bank is required to maintain a minimum level of investment in FRB stock based on a specific percentage of its capital and surplus. A reduction in value of the bank’s FRB stock may result in a corresponding reduction in the bank’s capital.
Deposit accounts at the bank are insured by the FDIC, generally up to a maximum of $250,000 per separately insured depositor and up to a maximum of $250,000 for self-directed retirement accounts. The bank’s deposits, therefore, are subject to FDIC deposit insurance assessments. Assessments paid to the FDIC by the bank and other banking institutions are used to fund the FDIC’s Federal Deposit Insurance Fund.
The bank’s authority to engage in transactions with affiliates is limited by regulations and by Sections 23A and 23B of the Federal Reserve Act as implemented by the FRB’s Regulation W. The term affiliates for these purposes generally means any company that controls or is under common control with an institution. Eagle and the Bank are separate and distinct legal entities. Eagle is an affiliate of the bank.
The company’s authority to extend credit to executive officers, directors and 10.0% or greater shareholders (insiders), as well as entities controlled by these persons, is governed by Sections 22(g) and 22(h) of the Federal Reserve Act and its implementing regulation, FRB Regulation O. Among other things, loans to insiders must be made on terms substantially the same as those offered to unaffiliated individuals and not involve more than the normal risk of repayment. There is an exception for bank-wide lending programs that do not discriminate in favor of insiders.
Eagle is a bank holding company subject to regulatory oversight of the FRB. Eagle is required to register and file reports with the FRB and is subject to regulation and examination by the FRB. In addition, the FRB has enforcement authority over Eagle and its nonbank institution subsidiaries which also permits the FRB to restrict or prohibit activities that are determined to present a serious risk to the bank.
The company’s common stock is registered with the Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934, as amended (Exchange Act). The company is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Exchange Act.
History
Eagle Bancorp Montana, Inc. was founded in 1922.
