EX-99.3 21 t1700634_ex99-3.htm EXHIBIT 99.3

 

Exhibit 99.3

 

 

 

CONVERSION VALUATION APPRAISAL REPORT

 

Prepared for:

 

Eagle Financial Bancorp, Inc.

Cincinnati, Ohio

 

 

 

As Of:

February 21, 2017

 

Prepared By:

 

Keller & Company, Inc.

555 Metro Place North

Suite 524

Dublin, Ohio 43017

(614) 766-1426

 

KELLER & COMPANY

 

   

 

 

KELLER & COMPANY, INC.

 

FINANCIAL INSTITUTION CONSULTANTS

 

555 METRO PLACE NORTH

SUITE 524

DUBLIN, OHIO 43017

 

 

 

(614) 766-1426          (614) 766-1459 FAX

 

March 3, 2017

 

Boards of Directors

Eagle Financial Bancorp, Inc.

Eagle Savings Bank

6415 Bridgetown Road

Cincinnati, Ohio 45248

 

To the Boards:

 

We hereby submit our independent appraisal of the pro forma market value of the to be issued stock of the Eagle Financial Bancorp, Inc. (the “Corporation”) which is the holding company of Eagle Savings Bank (“Eagle” or the “Bank”), Cincinnati, Ohio. Such stock is to be issued in connection with the application by the Corporation to complete a stock offering, with the Corporation to own 100 percent of the stock of the Bank. This appraisal, as of February 21, 2017, was prepared and provided to the Bank in accordance with the regulatory appraisal requirements and regulations.

 

Keller & Company, Inc. is an independent, financial institution consulting firm that serves both thrift institutions and banks throughout the U.S. The firm is a full-service consulting organization, as described in more detail in Exhibit A, specializing in business and strategic plans, stock valuations, conversion and reorganization appraisals, market studies and fairness opinions for thrift institutions and banks. The firm has affirmed its independence in this transaction with the preparation of its Affidavit of Independence, a copy of which is included as Exhibit C.

 

·Our appraisal is based on the assumption that the data provided to us by Eagle and the material provided to us by the independent auditor, BKD, LLP, are both accurate and complete. We did not verify the financial statements provided to us, nor did we conduct independent valuations of the Bank's assets and liabilities. We have also used information from other public sources, but we cannot assure the accuracy of such material.

 

In the preparation of this appraisal, we held discussions with the management of Eagle, with the law firm of Luse Gorman, PC, Washington, D.C., the Bank's conversion counsel, and with BKD, LLP and Michael Trokey & Company, P.C., the Bank’s outside auditors. Further, we viewed the Bank's local economy and primary market area and also reviewed the Bank's most recent Business Plan as part of our review process.

 

   

 

 

The Boards of Directors

Eagle Financial Bancorp, Inc.

Eagle Savings Bank

March 3, 2017

Page 2

 

This valuation must not be considered to be a recommendation as to the purchase of stock in the Corporation, and we can provide no guarantee or assurance that any person who purchases shares of the Corporation's stock will be able to later sell such shares at a price equivalent to the price designated in this appraisal.

 

Our valuation will be further updated as required and will give consideration to any new developments in Eagle’s operations that have an impact on the results of operations or financial condition. Further, we will give consideration to any changes in general market conditions and to specific changes in the market for publicly traded thrift institutions. Based on the material impact of any such changes on the pro forma market value of the Corporation as determined by this firm, we will make necessary adjustments to the Corporation's appraised value in an appraisal update.

 

It is our opinion that as of February 21, 2017, the pro forma market value or appraised value of the Corporation is $17,000,000 at the midpoint, representing 1,700,000 shares at $10 per share. The pro forma valuation range of the Corporation is from a minimum of $14,550,000 to a maximum of $19,550,000, with a maximum, as adjusted, of $22,482,500, representing 1,445,000 shares, 1,955,000 shares and 2,248,250 shares at $10 per share at the minimum, maximum, and maximum, as adjusted, respectively.

 

The pro forma appraised value of Eagle Financial Bancorp, Inc., as of February 21, 2017, is $17,000,000, at the midpoint.

 

Very truly yours,

 

KELLER & COMPANY, INC.

 

 

   

 

 

TABLE OF CONTENTS

 

    PAGE
   
INTRODUCTION 1
     
I. Description of Eagle Savings Bank  
  General 4
  Performance Overview 8
  Income and Expense 10
  Yields and Costs 14
  Interest Rate Sensitivity 15
  Lending Activities 18
  Nonperforming Assets 22
  Investments 25
  Deposit Activities 26
  Borrowings 27
  Subsidiaries 27
  Office Properties 27
  Management 27
     
II. Description of Primary Market Area 29
     
III. Comparable Group Selection  
  Introduction 35
  General Parameters  
  Merger/Acquisition 36
  Trading Exchange 37
  IPO Date 37
  Geographic Location 37
  Asset Size 38
     
  Balance Sheet Parameters  
  Introduction 40
  Cash and Investments to Assets 40
  Mortgage-Backed Securities to Assets 41
  One- to Four-Family Loans to Assets 41
  Total Net Loans to Assets 42
  Total Net Loans and Mortgage-Backed Securities to Assets 42
  Borrowed Funds to Assets 43
  Equity to Assets 43
  Performance Parameters  
  Introduction 44

 

   

 

 

TABLE OF CONTENTS (cont.)

 

    PAGE
     
III. Comparable Group Selection (cont.)  
  Performance Parameters (cont.)  
  Return on Average Assets 44
  Return on Average Equity 45
  Net Interest Margin 45
  Operating Expenses to Assets 46
  Noninterest Income to Assets 46
  Asset Quality Parameters  
  Introduction 47
  Nonperforming Assets to Total Assets 47
  Repossessed Assets to Assets 47
  Loan Loss Reserve to Assets 48
  The Comparable Group 48
     
IV. Analysis of Financial Performance 50
     
V. Market Value Adjustments  
  Earnings Performance 53
  Market Area 58
  Financial Condition 59
  Asset, Loan and Deposit Growth 62
  Dividend Payments 63
  Subscription Interest 64
  Liquidity of Stock 65
  Management 65
  Marketing of the Issue 68
     
VI. Valuation Methods  
  Introduction 69
  Price to Book Value Method 70
  Price to Core Earnings Method 72
  Price to Assets Method 73
  Valuation Conclusion 73

 

   

 

 

LIST OF EXHIBITS

 

NUMERICAL   PAGE
EXHIBITS    
     
1 Balance Sheet at December 31, 2016 75
2 Balance Sheets at December 31, 2012 through 2015 76
3 Statement of Income for the Year Ended December 31, 2016 77
4 Statements of Income for the Years Ended December 31, 2012 through 2015 78
5 Selected Financial Information 79
6 Income and Expense Trends 80
7 Normalized or Core Earnings 81
8 Performance Indicators 82
9 Volume/Rate Analysis 83
10 Yield and Cost Trends 84
11 Net Portfolio Value 85
12 Loan Portfolio Composition 86
13 Loan Maturity Schedule 87
14 Loan Originations, Purchases, Sales and Repayments 88
15 Delinquent Loans 89
16 Nonperforming Assets 90
17 Classified Assets 91
18 Allowance for Loan Losses 92
19 Mix of Deposits 93
20 Certificates of Deposit by Rate and Maturity 94
21 Deposit Activity 95
22 Borrowed Funds Activity 96
23 Offices of Eagle Savings Bank 97
24 Management of the Bank 98
25 Key Demographic Data and Trends 99
26 Key Housing Data 100
27 Major Sources of Employment 101
28 Unemployment Rates 102
29 Market Share of Deposits 103
30 National Interest Rates by Quarter 104

 

   

 

 

LIST OF EXHIBITS (cont.)

 

NUMERICAL   PAGE
EXHIBITS    
     
31 Thrift Share Data and Pricing Ratios 105
32 Key Financial Data and Ratios 112
33 Recently Converted Thrift Institutions 119
34 Acquisitions and Pending Acquisitions 120
35 Balance Sheets Parameters - Comparable Group Selection 121
36 Operating Performance and Asset Quality Parameters - Comparable Group Selection 123
37 Balance Sheet Ratios Final Comparable Group 125
38 Operating Performance and Asset Quality Ratios Final Comparable Group 126
39 Balance Sheet Totals - Final Comparable Group 127
40 Balance Sheet - Asset Composition Most Recent Quarter 128
41 Balance Sheet - Liability and Equity Most Recent Quarter 129
42 Income and Expense Comparison Trailing Four Quarters 130
43 Income and Expense Comparison as a Percent of Average Assets - Trailing Four Quarters 131
44 Yields, Costs and Earnings Ratios Trailing Four Quarters 132
45 Reserves and Supplemental Data 133
46 Valuation Analysis and Conclusions 134
47 Comparable Group Market, Pricings and Financial Ratios - Stock Prices as of February 21, 2017 135
48 Pro Forma Effects of Conversion Proceeds - Minimum 136
49 Pro Forma Effects of Conversion Proceeds - Midpoint 137
50 Pro Forma Effects of Conversion Proceeds - Maximum 138
51 Pro Forma Effects of Conversion Proceeds - Maximum, as Adjusted 139
52 Summary of Valuation Premium or Discount 140

 

   

 

 

ALPHABETICAL EXHIBITS PAGE
   
A Background and Qualifications 141
B RB 20 Certification 145
C Affidavit of Independence 146

 

   

 

 

 

 

CONVERSION VALUATION APPRAISAL REPORT

 

Prepared for:

 

Eagle Financial Bancorp, Inc.

 

Cincinnati, Ohio

 

 

 

As Of:

 

February 21, 2017

 

   

 

 

INTRODUCTION

 

Keller & Company, Inc. is an independent appraisal firm for financial institutions and has prepared this Conversion Valuation Appraisal Report ("Report") to provide the pro forma market value of the to-be-issued common stock of Eagle Financial Bancorp, Inc. (the Corporation), a Maryland corporation, which will be formed as part of the conversion to own all of the to-be-issued shares of common stock of Eagle Savings Bank (Eagle or the Bank), Cincinnati, Ohio. The shares of common stock are to be issued in connection with the Banks Application for Approval of Conversion from a state-chartered mutual savings bank to a state-chartered stock savings bank.

 

The Application is being filed with the Federal Reserve Bank (FRB), the Federal Deposit Insurance Corporation (FDIC), the Ohio Division of Financial Institutions (ODFI), and the Securities and Exchange Commission ("SEC"). Such Application for Conversion has been reviewed by us, including the Prospectus and related documents, and discussed with the Banks management and the Banks conversion counsel, Luse Gorman, PC, Washington, D.C.

 

This conversion appraisal was prepared based on the guidelines used by the OCC entitled Guidelines for Appraisal Reports for the Valuation of Savings Institutions Converting from the Mutual to Stock Form of Organization, in accordance with application requirements and the Revised Guidelines for Appraisal Reports and represents a full appraisal report. The Report provides detailed exhibits based on the Revised Guidelines and a discussion on each of the factors that need to be considered. Our valuation will be updated in accordance with the Revised Guidelines and will consider any changes in market conditions for thrift institutions.

 

The pro forma market value is defined as the price at which the stock of the Corporation after conversion would change hands between a typical willing buyer and a typical willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, and with both parties having reasonable knowledge of relevant facts in an arm's-length

 

 1 

 

 

Introduction (cont.)

 

transaction. The appraisal assumes the Bank is a going concern and that the shares issued by the Corporation in the conversion are sold in noncontrol blocks.

 

As part of our appraisal procedure, we have reviewed the audited financial statements for the five fiscal years ended December 31, 2012 through 2016, and discussed them with Eagle’s management and with Eagle’s current independent auditors, BKD, LLP, Cincinnati, Ohio, and with Michael Trokey & Company, P.C. (“Trokey & Company”) for prior financials. We have also discussed and reviewed with management other financial matters and have reviewed internal projections. We have reviewed the Corporation's preliminary Form AC and discussed it with management and with the Bank’s conversion counsel.

 

To gain insight into the Bank’s local market condition, we have visited Eagle’s main office and two branches and have traveled the surrounding area. We have studied the economic and demographic characteristics of the primary market area, and analyzed the Bank’s primary market area relative to Ohio and the United States. We have also examined the competitive market within which Eagle operates, giving consideration to the area's numerous financial institution offices, mortgage banking offices, and credit union offices and other key market area characteristics, both positive and negative.

 

We have given consideration to the market conditions for securities in general and for publicly traded thrift stocks in particular. We have examined the performance of selected publicly traded thrift institutions and compared the performance of Eagle to those selected institutions.

 

Our valuation is not intended to represent and must not be interpreted to be a recommendation of any kind as to the desirability of purchasing the to-be-outstanding shares of common stock of the Corporation. Giving consideration to the fact that this appraisal is based on numerous factors that can change over time, we can provide no assurance that any person who purchases the stock of the Corporation in this mutual-to-stock conversion will subsequently be

 

 2 

 

 

Introduction (cont.)

 

able to sell such shares at prices similar to the pro forma market value of the Corporation as determined in this conversion appraisal.

 

 3 

 

 

I.DESCRIPTION OF EAGLE SAVINGS BANK

 

GENERAL

 

Eagle was organized in 1882 as a state-chartered mutual savings and loan association with the name The Price Hill Eagle Loan and Building Company No. 1, later changing its name in 1996 to Eagle Savings Bank, and changing to charter to a state-chartered mutual savings bank.

 

Eagle conducts its business from its main office located in the Bridgetown area in Cincinnati, Ohio, and from its branch offices in Delhi and Hyde Park, both areas that are part of greater Cincinnati, Ohio. The Banks primary retail market area is focused on Bridgetown, Delhi and Hyde Park, while the Banks lending market extends into the surrounding Hamilton County in Ohio and its surrounding counties in Ohio of Butler, Clermont and Warren and the adjoining counties of Boone, Kenton and Campbell in Kentucky and Dearborn County in Indiana. The Bank has no loan production offices.

 

Eagles deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation ("FDIC") in the Bank Insurance Fund ("BIF"). The Bank is also subject to certain reserve requirements of the Board of Governors of the Federal Reserve Bank (the "FRB"). Eagle is a member of the Federal Home Loan Bank (the "FHLB") of Cincinnati and is regulated by the FDIC and ODFI. As of December 31, 2016, Eagle had assets of $115,973,000, deposits of $100,044,000 and equity of $13,477,000.

 

Eagle has been principally engaged in the business of serving the financial needs of the public in its local communities and throughout its primary market area as a community-oriented institution. Eagle has been most active in the origination of one- to four-family loans, which represented 81.7 percent of its loan originations during the fiscal year ended December 31, 2016. One- to four-family loan originations represented a smaller 79.1 percent of loan originations during the year ended December 31, 2015. At December 31, 2016, 53.2 percent of the Bank’s gross loans consisted of residential real estate loans on one- to four-family dwellings, compared to a larger 54.8 percent at December 31, 2015, with the primary sources of

 

 4 

 

 

General (cont.)

 

funds being retail deposits from residents in its local communities and to a much lesser extent, FHLB advances. The Bank is also an originator of commercial real estate loans, home equity and consumer loans, construction loans, multi-family loans, and commercial loans. Consumer loans were minimal and include automobile loans, loans on deposit accounts and other secured and unsecured personal loans.

 

The Bank had cash and investments of $19.9 million, or 17.2 percent of its assets, excluding FHLB stock which totaled $728,000 or 0.6 percent of assets at December 31, 2016. Deposits, principal payments, loan sales, FHLB advances and equity have been the primary sources of funds for the Bank’s lending and investment activities.

 

The total amount of stock to be sold in the stock conversion will be $17.0 million or 1,700,000 shares at $10 per share based on the midpoint of the appraised value of $17.0 million. The net conversion proceeds will be $15.35 million, reflecting conversion expenses of $1.25 million, with 40,000 shares to be used to form a charitable foundation, Eagle Savings Bank Charitable Foundation (“Foundation”), along with $100,000 in cash from the proceeds. The actual cash proceeds to the Bank of $7.6 million will represent 50.0 percent of the net conversion proceeds at the midpoint after the Foundation contribution. The ESOP will represent 8.00 percent of the gross shares issued or 136,000 shares at $10 per share, representing $1,360,000. The Bank’s net proceeds will be used to fund new loans and to invest in securities following their initial deployment to short term investments. The Bank may also use the proceeds to expand services, expand operations, diversify into other businesses, or for any other purposes authorized by law. The Corporation will use its proceeds to fund the ESOP or to purchase interest-bearing deposits and short- and intermediate-term government or federal agency securities.

 

The Bank has experienced a moderate deposit increase of $12.5 million over the past four fiscal years, with deposits increasing 14.2 percent from December 31, 2012, to December 31,

 

 5 

 

 

General (cont.)

 

2016, or an average of 3.6 percent per year. From December 31, 2015, to December 31, 2016, deposits increased by $7.6 million or 8.2 percent, compared to an increase of 4.6 percent in fiscal 2015.

 

The Bank experienced an increase in its loan portfolio during the previous four years of 2012 to 2015, while focusing on maintaining its favorable asset quality position, on maintaining its higher level of gains on loans sold, on maintaining its net interest margin and on maintaining a reasonable equity to assets ratio. In 2016, the Bank focused on strengthening its loan growth and experienced higher loan growth than in 2014 or 2015. Equity to assets increased from 9.26 percent of assets at December 31, 2012, to 11.62 percent at December 31, 2016.

 

The primary lending strategy of Eagle has been to focus on the origination of adjustable-rate and fixed-rate one-to four-family mortgage loans, the origination of commercial real estate and multi-family loans, the origination of home equity loans, the origination of construction loans and the origination of commercial business loans.

 

The Bank’s share of one- to four-family mortgage loans has decreased modestly from 54.8 percent of gross loans at December 31, 2015, to 53.2 percent as of December 31, 2016. Commercial real estate and land loans decreased from 15.4 percent of loans to 15.2 percent of loans, and home equity and consumer loans increased from 15.4 percent of loans to 16.3 percent from December 31, 2015, to December 31, 2016. All types of real estate loans as a group decreased slightly from 98.6 percent of gross loans at December 31, 2015, to 98.0 percent at December 31, 2016. The decrease in real estate loans was offset by the Bank’s increase in commercial loans. The Bank’s share of commercial loans witnessed an increase in their share of loans from 1.4 percent at December 31, 2015, to 2.0 percent at December 31, 2016.

 

Management's internal strategy has also included continued emphasis on maintaining an adequate and appropriate level of allowance for loan losses relative to loans and nonperforming assets in recognition of the more stringent requirements within the industry to establish and

 

 6 

 

 

General (cont.)

 

maintain a higher level of general valuation allowances and also in response to the Bank’s changing level of loans and nonperforming assets. At December 31, 2015, Eagle had $1,036,000 in its loan loss allowance or 1.23 percent of gross loans, and 113.4 percent of nonperforming loans with the loan loss allowance increasing slightly to $1,137,000 and representing a higher 1.27 percent of gross loans and a higher 145.2 percent of nonperforming loans at December 31, 2016.

 

The basis of earnings for the Bank has been interest income from loans and investments with the net interest margin being the key determinant of net earnings followed closely by gains on loan sales with a continued emphasis on strengthening noninterest income and controlling noninterest expenses. With a primary dependence on net interest margin and gains on loan sales for earnings, current management will focus on striving to strengthen the Bank’s net interest margin without undertaking excessive credit risk combined with controlling the Bank’s interest risk position and increasing other components of noninterest income, controlling nonperforming assets, and monitoring noninterest expenses.

 

 7 

 

 

PERFORMANCE OVERVIEW

 

The financial position of Eagle at fiscal year end December 31, 2012, through December 31, 2016, is shown in Exhibits 1 and 2, and the earnings performance of Eagle for the fiscal years 2012 through 2016 is shown in Exhibits 3 and 4. Exhibit 5 provides selected financial data at December 31, 2015 and 2016. Eagle has experienced a rise in its loan portfolio, a rise in its asset base, minimal change in cash and investments, and an increase in deposits from 2015 to 2016.

 

With regard to the Bank’s historical financial condition, Eagle has experienced a modest increase in assets from December 31, 2014, to December 31, 2015, with a modest decrease in loans, a moderate increase in deposits and a modest increase in the dollar level of equity over the prior year. Then from December 31, 2015, to December 31, 2016, Eagle experienced modest growth in loans, a modest rise in deposits and assets, a slight rise in cash and investments, and a modest increase in equity, impacted by the Bank one-time receipt of BOLI death benefits.

 

The Bank witnessed an increase in assets of $6.3 million or 5.7 percent and an increase in deposits of $7.6 million or 8.2 percent for the period of December 31, 2015, to December 31, 2016. Over the past four fiscal periods, the Bank experienced its largest dollar increase in assets of $6.3 million in fiscal year 2016, due primarily to a $6.4 million increase in net loans, with a $7.6 million increase in deposits and a $3.0 million decrease in FHLB advances.

 

Eagle’s net loan portfolio, which includes mortgage loans and nonmortgage loans, increased from $76.6 million at December 31, 2015, to $83.0 million at December 31, 2016, and represented a total increase of $6.4 million, or 8.4 percent.

 

Eagle has obtained funds through deposits and FHLB advances with a minimal use of FHLB advances totaling only $28,000 at December 31, 2016. The Bank’s competitive rates for deposits in its local market in conjunction with its focus on service have been the sources for competing for retail deposits. Deposits increased $4.0 million or 4.6 percent from fiscal 2014 to 2015 and a larger $7.6 million or 8.2 percent from fiscal 2015 to 2016.

 

 8 

 

 

Performance Overview (cont.)

 

The Bank witnessed an increase in its dollar equity level from 2015 to 2016, impacted by the one-tie recovery of BOLI death benefits. At December 31, 2015, the Bank had an equity level of $12.0 million, representing a 10.95 percent equity to assets ratio and increased to $13.5 million at December 31, 2016, representing a higher 11.62 percent equity to assets ratio.

 

A major share of the increase in the equity to assets ratio from December 31, 2015, to December 31, 2016, was the result of the Bank’s one-time recovery of BOLI death benefits. The dollar level of equity increased 12.1 percent from December 31, 2015, to December 31, 2016.

 

 9 

 

 

INCOME AND EXPENSE

 

Exhibit 6 presents selected operating data for Eagle. This table provides key income and expense figures in dollars for the fiscal years of 2015 and 2016.

 

Eagle witnessed a minimal increase in its dollar level of interest income from fiscal 2015 to fiscal 2016. Interest income was $3.78 million in 2015 and a higher $3.80 million in 2016. The Bank’s interest expense experienced a modest decrease from fiscal year 2015 to 2016. Interest expense decreased from $766,000 in 2015 to $722,000 in 2016, representing a decrease of $44,000 or 5.7 percent. Interest income increased $19,000 or 0.5 percent. Such increase in interest income from 2015 to 2016, notwithstanding the larger dollar decrease in interest expense, resulted in a dollar increase in annual net interest income but a decrease in net interest margin due to the rise in assets.

 

The Bank had $75,000 in provisions for loan losses in 2015 and had a higher $83,000 in 2016. The impact of those loan loss provisions has been to provide Eagle with a general valuation allowance of $1,137,000 at December 31, 2016, or 1.27 percent of gross loans and 145.21 percent of nonperforming loans.

 

Total other income or noninterest income indicated a significant increase in dollars from 2015 to 2016, due to a one-time recovery of BOLI death benefits. Noninterest income was $1,802,600 or 1.64 percent of assets in 2015, with $1,585,000 in gains on sale of loans and a higher $3,318,000 in fiscal year 2016 or 2.86 percent of assets in 2016, including $2,131,000 in gains on the sale of loans and $940,000 in BOLI death benefits. Noninterest income normally consists primarily of gains on loan sales, service charges and other income.

 

The Bank’s general and administrative expenses or noninterest expenses increased from $3.79 million for the fiscal year of 2015 to $4.59 million for the fiscal year ended December 31, 2016, representing an increase of 21.3 percent and including a $410,000 BOLI death benefit obligation expense.

 

 10 

 

 

Income and Expense (cont.)

 

On a percent of average assets basis, operating expenses increased from 3.51 percent of average assets for the fiscal year ended December 31, 2015, to 4.08 percent for the fiscal year ended December 31, 2016.

 

The net earnings position of Eagle has indicated volatility in 2015 and 2016. The annual net income (loss) figures for the fiscal years of 2015 and 2016 were $624,000 and $1,460,000, respectively, representing returns on average assets of 0.58 percent and 1.30 percent for fiscal years 2015, and 2016, respectively. The increase in ROAA in 2016 was due to the one-time BOLI death benefits and gain on sale of loans.

 

Exhibit 7 provides the Bank’s normalized earnings or core earnings for the twelve months ended December 31, 2016. The Bank’s normalized earnings typically eliminate any nonrecurring or higher or lower than normal income and expense items. There were two expense adjustments and two noninterest income adjustments, resulting in the normalized income being less than actual income for the twelve months ended December 31, 2016, and equal to net income of $693,000. The core expense adjustments were the BOLI death benefit payout obligation of $410,000 and a $121,000 reduction related to the FHLB advance prepayment penalty, and the core noninterest income adjustment was a reduction in the BOLI death benefit of $940,000 and reduction in the higher than normal gains on loans sold of $251,000.

 

The key performance indicators comprised of selected performance ratios, asset quality ratios and capital ratios are shown in Exhibit 8 to reflect the results of performance. The Bank’s return on average assets changed from 0.58 percent in fiscal year 2015, to 1.30 percent in 2016, with the higher earnings in 2016 due to the Bank’s BOLI death benefit.

 

The Bank’s net interest rate spread was 3.00 percent in 2015 and a lower 2.95 percent in 2016. The Bank’s net interest margin also indicated a decreasing trend, declining from 3.06 percent in 2015 to 3.02 percent in 2016. Eagle’s net interest margin decreased 4 basis points from 2015 to 2016.

 

 11 

 

 

Income and Expense (cont.)

 

The Bank’s return on average equity improved from 2015 to 2016. The return on average equity improved from 5.28 percent in 2015, to 11.29 percent in 2016, due to the BOLI death benefits.

 

Eagle’s ratio of average interest-earning assets to interest-bearing liabilities increased modestly from 108.42 percent at December 31, 2015, to 109.68 percent at December 31, 2016. The Bank’s overall increase in its ratio of interest-earning assets to interest-bearing liabilities is the result of the Bank’s decrease in FHLB advances.

 

The Bank’s ratio of noninterest expenses to average assets increased from 3.51 percent in fiscal year 2015 to 4.08 percent in fiscal year 2016, due to the BOLI payout obligation and the FHLB advance prepayment penalty. Another key noninterest expense ratio reflecting efficiency of operation is the ratio of noninterest expenses to noninterest income plus net interest income referred to as the "efficiency ratio." The industry norm is 55.7 percent for all thrifts and 71.1 percent for thrifts with assets of $100.0 million to $1.0 billion, with the lower the ratio indicating higher efficiency. The Bank has been characterized with a modestly lower level of efficiency historically reflected in its higher efficiency ratio, which decreased from 78.55 percent in 2015 to a more normal 71.75 percent in 2016.

 

Earnings performance can be affected by an institution's asset quality position. The ratio of nonperforming loans to total loans is a key indicator of asset quality. Eagle witnessed a modest decrease in its nonperforming loans ratio from 2015 to 2016, and the ratio is currently similar to the industry norm. Nonperforming loans, by definition, consist of loans delinquent 90 days or more, troubled debt restructurings that have not been performing for at least three months, and nonaccruing loans. Eagle’s nonperforming loans consisted entirely of nonaccrual loans. The ratio of nonperforming loans to total loans was 1.27 percent at December 31, 2015, and a lower 0.72 percent at December 31, 2016. The Bank’s ratio of nonperforming assets to total assets was a higher 0.87 percent at December 31, 2016, but decreased from 1.09 percent at December 31, 2015.

 

 12 

 

 

Income and Expense (cont.)

 

Two other indicators of asset quality are the Bank’s ratios of allowance for loan losses to total loans and also to nonperforming loans. The Bank’s allowance for loan losses was 1.23 percent of loans at December 31, 2015, and increased to 1.27 percent at December 31, 2016. As a percentage of nonperforming loans, Eagles allowance for loan losses to nonperforming loans was 113.35 percent at December 31, 2015, and was a higher 145.21 percent at December 31, 2016.

 

Exhibit 9 provides the changes in net interest income due to rate and volume changes for the fiscal year 2016. For the year ended December 31, 2016, net interest income increased $63,000, due to an increase in interest income of $19,000, enhanced by a $44,000 decrease in interest expense. The increase in interest income was due to an increase due to volume of $52,000 reduced by a decrease due to rate of $33,000. The decrease in interest expense was due to a $121,000 decrease due to volume, reduced by a $77,000 increase due to rate.

 

 13 

 

 

YIELDS AND COSTS

 

The overview of yield and cost trends for the years ended December 31, 2015 and 2016, and at December 31, 2016, can be seen in Exhibit 10, which offers a summary of key yields on interest-earning assets and costs of interest-bearing liabilities.

 

Eagles weighted average yield on its loan portfolio decreased 8 basis points from fiscal year 2015 to 2016, from 4.49 percent to 4.41 percent and then decreased 2 basis points to 4.39 percent at December 31, 2016. The yield on other interest-earning assets increased 15 basis points from fiscal year 2015 to 2016, from 0.42 percent to 0.57 percent, and then increased 16 basis points to 0.73 percent at December 31, 2016. The combined weighted average yield on all interest-earning assets decreased 12 basis points from 3.84 percent in fiscal year 2015 to 3.72 percent in fiscal year 2016, and then decreased to 3.68 percent at December 31, 2016.

 

Eagles weighted average cost of interest-bearing liabilities decreased 6 basis points to 0.78 percent from fiscal year 2015 to 2016, which was less than the Banks 12 basis point decrease in yield, resulting in a decrease in the Banks net interest rate spread of 6 basis points from 3.00 percent to 2.94 percent from 2015 to 2016. Then the Banks interest rate spread decreased 49 basis points to 2.46 percent at December 31, 2016. The Banks net interest margin decreased from 3.06 percent in fiscal year 2015 to 3.02 percent in fiscal year 2016, representing a decrease of 4 basis points.

 

The Bank’s ratio of average interest-earning assets to interest-bearing liabilities increased from 108.42 percent for the year ended December 31, 2015, to 109.68 percent for the year ended December 31, 2016.

 

 14 

 

 

INTEREST RATE SENSITIVITY

 

Eagle has monitored its interest rate sensitivity position and focused on maintaining a reasonable level of interest rate risk exposure by maintaining a modest share of adjustable-rate residential mortgage loans, commercial real estate and home equity loans and multi-family loans, and modest shares of shorter term commercial business loans and construction loans to offset its higher share of fixed-rate residential mortgage loans. Eagle recognizes the thrift industry’s historically higher interest rate risk exposure, which caused a negative impact on earnings and economic value of equity in the past as a result of significant fluctuations in interest rates, specifically rising rates in the past. Such exposure was due to the disparate rate of maturity and/or repricing of assets relative to liabilities commonly referred to as an institution’s “gap.” The larger an institution’s gap, the greater the risk (interest rate risk) of earnings loss due to a decrease in net interest margin and a decrease in economic value of equity or portfolio loss. In response to the potential impact of interest rate volatility and negative earnings impact, many institutions have taken steps to reduce their gap position. This frequently results in a decline in the institution’s net interest margin and overall earnings performance. Eagle has responded to the interest rate sensitivity issue by controlling its share of fixed-rate one- to four-family loans.

 

The Bank measures its interest rate risk through the use of its net portfolio value of equity (“NPV”) of the expected cash flows from interest-earning assets and interest-bearing liabilities and any off-balance sheets contracts. The NPV for the Bank is calculated on a quarterly basis by an outside firm, showing the Bank’s NPV to asset ratio, the dollar change in NPV, and the change in the NPV ratio for the Bank under rising and falling interest rates. Such changes in the NPV ratio under changing rates are reflective of one of the Bank’s interest rate risk exposure measures. The second interest rate risk exposure measure used by the Bank is the change in its net interest income based on a one-year horizon and a rise in interest rates of 100, 200 and 300 basis points and a decrease in rates of 100 basis points.

 

There are numerous factors which have a measurable influence on interest rate sensitivity in addition to changing interest rates. Such key factors to consider when analyzing interest rate

 

 15 

 

 

Interest Rate Sensitivity (cont.)

 

sensitivity include the loan payoff schedule, accelerated principal payments, deposit maturities, interest rate caps on adjustable-rate mortgage loans and deposit withdrawals.

 

Exhibit 11 provides the Bank’s NPV levels and ratios as of December 31, 2016, based on the most recent calculations and reflects the changes in the Bank’s NPV levels under rising and declining interest rates.

 

The Bank’s change in its NPV level at December 31, 2016, based on a rise in interest rates of 100 basis points was a 5.35 percent decrease, representing a dollar decrease in equity value of $1,670,000. In contrast, based on a decline in interest rates of 100 basis points, the Bank’s NPV level was estimated to decrease 7.69 percent or $2,401,000 at December 31, 2016. The Bank’s exposure increases to a 10.09 percent decrease under a 200 basis point rise in rates, representing a dollar decrease in equity of $3,152,000. The Bank’s exposure is not reasonably measurable based on a 200 basis point decrease in interest rates, due to the currently low level of interest rates.

 

The Bank’s post shock NPV ratio based on a 200 basis point rise in interest rates is 24.68 percent and indicates a 219 basis point decrease from its 26.87 percent based on no change in interest rates.

 

The Bank’s percentage change in its net interest income based on a 100 basis point rise in rates is a decrease of 2.78 percent and a decrease of 5.89 percent based on a 100 basis point decrease in rates. Based on a 200 basis point rise in rates, the Bank’s change in net interest income is a decrease of 5.65 percent.

 

The Bank is aware of its interest rate risk exposure under rapidly rising rates and falling rates. Due to Eagle’s recognition of the need to control its interest rate exposure, the Bank has pursued the origination of adjustable-rate loans. The Bank plans to increase its lending activity in the future and continue to maintain a modest share of adjustable-rate loans. The Bank will

 

 16 

 

 

Interest Rate Sensitivity (cont.)

 

also continue to focus on strengthening its NPV ratio, recognizing the planned conversion and stock offering will strengthen the Bank’s equity level and NPV ratio, based on any change in interest rates.

 

 17 

 

 

LENDING ACTIVITIES

 

Eagle has focused its lending activity on the origination of conventional mortgage loans secured by one- to four-family dwellings, commercial real estate and multi-family loans and home equity loans, including a small level of consumer loans. Exhibit 12 provides a summary of Eagle’s loan portfolio by loan type at December 31, 2015 and 2016.

 

The primary loan type for Eagle has been residential loans secured by one- to four-family dwellings, representing a moderate 53.2 percent of the Bank’s gross loans as of December 31, 2016. This share of loans has seen a minimal decrease from 54.8 percent at December 31, 2015. The second largest real estate loan type as of December 31, 2016, was home equity loans, including a small level of consumer loans, which comprised a relatively strong 16.3 percent of gross loans at December 31, 2016, compared to 15.4 percent as of December 31, 2015. The third largest real estate loan type was combined commercial real estate loans, including a small amount of land loans, which comprised a moderate 15.2 percent of gross loans at December 31, 2016, compared to a similar 15.4 percent at December 31, 2015. These three real estate loan categories represented a strong 84.7 percent of gross loans at December 31, 2016, compared to a larger 85.6 percent of gross loans at December 31, 2015.

 

The construction loan category was the fourth largest loan category at December 31, 2016, and represented a moderate $9.5 million or 10.6 percent of gross loans compared to 9.4 percent at December 31, 2015. Multi-family loans was the next largest loan category at December 31, 2015. These loans represented a minimal 2.8 percent of loans at December 31, 2016, and a larger 3.6 percent of loans at December 31, 2015. The smallest loan category was commercial business loans with a minimal 2.0 percent of loans at December 31, 2016, and a lesser 1.4 percent at December 31, 2015. The overall mix of loans has witnessed a modest change from December 31, 2015, to December 31, 2016, with the Bank having increased its share of home equity and construction loans to offset its decreases in one- to four-family loans and commercial real estate loans.

 

 18 

 

 

Lending Activities (cont.)

 

The emphasis of Eagle’s lending activity is the origination of conventional mortgage loans secured by one- to four-family residences, with a focus on selling a major share of these loans to the FHLB of Cincinnati through their Mortgage Purchase Program (“MPP”). Such residences are located primarily in Hamilton County, Ohio, and its adjacent counties in Ohio, Kentucky and Indiana. At December 31, 2016, 53.2 percent of Eagle’s gross loans consisted of loans secured by one- to four-family residential properties.

 

The Bank offers three types of adjustable-rate mortgage loans, ("ARMs") with adjustment periods of five years, seven years and ten years. The interest rates on ARMs are generally indexed to the weekly average yield on U.S. Treasury rate securities adjusted to a constant maturity of one year. ARMs have a maximum rate adjustment of 2.0 percent at each adjustment period and 4.0 percent or 6.0 percent for the life of the loan. Rate adjustments are computed by adding a stated margin to the index, the U.S. Treasury securities rate. The Bank retains all ARMs which it originates. The majority of ARMs have terms of up to 30 years, which is the maximum term offered, with some loans having terms of 15 and 20 years.

 

The Bank’s one- to four-family mortgage loans remain outstanding for shorter periods than their contractual terms, because borrowers have the right to refinance or prepay. These mortgage loans contain “due on sale” clauses which permit the Bank to accelerate the indebtedness of the loan upon transfer of ownership of the mortgage property.

 

The Bank’s other key mortgage loan product is a fixed-rate mortgage loan with Eagle’s fixed-rate mortgage loans having terms of 15 years, 20 years and 30 years. Fixed-rate mortgage loans have a maximum term of 30 years. These loans are generally written in accordance with Fannie Mae and Freddie Mac guidelines. The Bank also is approved to offer FHA loans, , with such loans to be originated for sale on a servicing-released, nonrecourse basis in accordance with FHA guidelines. The Bank has not yet originated any FHA loans but plans to initiate a new program in the future. The Bank’s fixed-rate and adjustable rate mortgage loans normally conform to the maximum loan limits.

 

 19 

 

 

Lending Activities (cont.)

 

The normal loan-to-value ratio for conventional mortgage loans to purchase or refinance one-to four-family dwellings generally does not exceed 80.0 percent at Eagle, even though the Bank is permitted to make loans up to a 95.0 percent loan-to-value ratio. While the Bank does make loans up to 95.0 percent of loan-to-value, the Bank requires private mortgage insurance for the amount in excess of the 80.0 percent loan-to-value ratio for fixed-rate loans and adjustable-rate loans. Mortgage loans originated by the Bank include due-on-sale clauses enabling the Bank to adjust rates on fixed-rate loans in the event the borrower transfers ownership. The Bank also requires an escrow account for insurance and taxes on conventional one-to four family mortgage loans.

 

Eagle has also been an originator of adjustable-rate and fixed-rate commercial real estate loans and multi-family loans in the past and will continue to make multi-family and commercial real estate loans. The Bank had a total of $13.6 million in commercial real estate loans, including land loans, and $2.5 million in multi-family loans at December 31, 2016, or a combined 18.0 percent of gross loans, compared to a combined $15.9 million and a larger 19.0 percent, combined, of gross loans at December 31, 2015.

 

The major portion of commercial real estate and multi-family loans are secured by apartment buildings, small retail establishments, office buildings, and other mixed-use properties used for business. Most of the multi-family and commercial real estate loans are fully amortizing with an amortization period of 30 years. The maximum loan-to-value ratio is normally 80.0 percent for commercial real estate loans and multi-family loans.

 

Eagle is also an originator of construction loans. Construction loans have a normal term of 12 months and provide for interest only payments during the construction phase. Upon completion of construction, the construction loans convert to a longer-term permanent mortgage loan. Construction loans have a normal loan-to-value ratio of 80.0 percent.

 

 20 

 

 

Lending Activities (cont.)

 

Eagle is also an originator of home equity loans, including a small level of consumer loans, with these loans totaling $14.6 million at December 31, 2016, and representing 16.2 percent of gross loans and consist primarily of home equity loans. Home equity loans have a variable rate with a maximum term of 10 years. The normal maximum loan-to-value ratio is 90.0 percent.

 

Exhibit 13 provides a loan maturity schedule and breakdown and summary of Eagle’s fixed- and adjustable-rate loans, indicating a majority of fixed-rate loans. At December 31, 2016, 39.0 percent of the Bank’s loans due after December 31, 2017, were adjustable- rate and 61.0 percent were fixed-rate. At December 31, 2016, the Bank had 13.5 percent of its loans due on or before December 31, 2017, or in one year or less, with 27.1 percent due by December 31, 2021, or in one to five years. The Bank had a moderate 41.9 percent of its loans with a maturity of more than 15 years.

 

As indicated in Exhibit 14, Eagle experienced a moderate increase in its one- to four-family loan originations and total loan originations from fiscal year 2015 to 2016. Total loan originations in fiscal year 2015 were $100.0 million compared to a larger $115.6 million in fiscal year 2016, reflective of the higher level of one- to four-family loans originated, increasing from $79.1 million to $94.4 million. The increase in one- to-four-family loan originations from 2015 to 2016 of $15.3 million represented 98.1 percent of the Bank’s $15.6 million increase in total loan originations from 2015 to 2016, with home equity loans increasing $1.0 million. Commercial loans increased $1.1 million from 2015 to 2016, and commercial real estate and land loans decreased $2.0 million.

 

Overall, loan originations and purchases exceeded loan sales, principal payments, charge-offs, loan repayments and other deductions in the year ended December 31, 2016. In fiscal 2015, loan originations fell short of reductions by $27,000, impacted by $69.0 million in loan sales, and then exceeded reductions by $6.0 million in 2016, impacted by $81.8 million in loan sales in the year ended December 31, 2016.

 

 21 

 

 

NONPERFORMING ASSETS

 

Eagle understands asset quality risk and the direct relationship of such risk to delinquent loans and nonperforming assets, including real estate owned. The quality of assets has been a key concern to financial institutions throughout many regions of the country. A number of financial institutions have been dealt with higher levels of nonperforming assets over the past years and were forced to recognize significant losses, setting aside major valuation allowances.

 

A sharp increase in nonperforming assets has often been related to specific regions of the country and has frequently been associated with higher risk loans, including purchased commercial real estate loans and multi-family loans. Eagle has maintained a lower share of nonperforming assets and has experienced a modest decrease in its level of nonperforming assets, with nonperforming assets decreasing in dollars in 2016 and decreasing as a percent of assets.

 

Exhibit 15 provides a summary of Eagle’s delinquent loans at December 31, 2015 and 2016, indicating an overall increase in the dollar amount of delinquent loans from December 31, 2015, to December 31, 2016. The Bank had $780,000 in loans delinquent 30 to 89 days at December 31, 2016. Loans delinquent 90 days or more totaled $50,000 at December 31, 2016, with these two categories representing 0.93 percent of gross loans, with most of them one- to four-family real estate loans. At December 31, 2015, delinquent loans of 30 to 89 days totaled $58,000 or 0.07 percent of gross loans and loans delinquent 90 days or more were zero for a combined total of $58,000 and a share of 0.07 percent of gross loans, compared to a higher $830,000 and a higher 0.93 percent of gross loans at December 31, 2016.

 

It is normal procedure for Eagle’s board to review loans delinquent 90 days or more on a monthly basis, to assess their collectibility and possibly commence foreclosure proceedings. When a loan is delinquent 15 days, the Bank sends a late notice to the borrower and may call the borrower when the loan is 30 days past due. If the loan still remains delinquent after 90 days, the loan is considered in default, and a certified letter is generally sent to the borrower indicating the entire balance is due. The loan is placed on nonaccrual status. If the loan is not made current by no later than 120 days, foreclosure proceedings will begin.

 

 22 

 

 

Nonperforming Assets (cont.)

 

Exhibit 16 provides a summary of Eagle’s nonperforming assets at December 31, 2015 and 2016. Nonperforming assets, by definition, include loans 90 days or more past due, nonaccruing loans, troubled debt restructurings that have not performed, and repossessed assets. The Bank carried a lower dollar level of nonperforming assets at December 31, 2016, relative to December 31, 2015. Eagle’s level of nonperforming assets was $1,392,000 at December 31, 2015, and a lower $838,000 at December 31, 2016, which represented 1.27 percent of assets in 2015 and 0.72 percent in 2016. The Bank’s nonperforming assets included no nonaccrual loans, no loans 90 days or more past due, $914,000 in troubled debt restructurings, and $478,000 in real estate owned for a total of $1,392,000 at December 31, 2015. At December 31, 2016, nonperforming assets were a lesser $838,000 or 0.72 percent of assets and included no loans 90 days or more past due, $50,000 in nonaccrual loans, $733,000 in troubled debt restructurings and $55,000 in real estate owned.

 

Eagle’s levels of nonperforming assets were lower than its levels of classified assets. The Bank’s ratios of classified assets to assets, excluding special mention assets, were 1.51 percent of assets at December 31, 2015, and 1.50 percent at December 31, 2016 (reference Exhibit 17). The Bank’s classified assets consisted of $1,737,000 in substandard assets, with no assets classified as doubtful or loss at December 31, 2016, and totaled $1,658,000 in substandard assets at December 31, 2015.

 

Exhibit 18 shows Eagle’s allowance for loan losses at December 31, 2015 and 2016, indicating the activity and the resultant balances. Eagle has witnessed a minimal increase in its balance of allowance for loan losses from $1,036,000 at December 31, 2015, to $1,137,000 at December 31, 2016. The Bank had provisions for loan losses of $75,000 in fiscal 2015 and $83,000 in fiscal 2016.

 

The Bank had total charge-offs of $289,000 in 2015 and $35,000 in 2016, with recoveries of $31,000 in 2015 and $53,000 in 2016. The Bank’s ratio of allowance for loan losses to gross

 

 23 

 

 

Nonperforming Assets (cont.)

 

loans was 1.23 percent at December 31, 2015, and a higher 1.27 percent at December 31, 2016. Allowance for loan losses to nonperforming loans was 113.35 percent at December 31, 2015 and a higher 145.21 percent at December 31, 2016.

 

 24 

 

 

INVESTMENTS

 

The Bank has not maintained an investment and securities portfolio other than interest-bearing deposits. The Bank had cash and interest-bearing deposits totaling $19.94 million at December 31, 2016, and a similar $19.85 million at December 31, 2015. The Bank had $728,000 in FHLB stock at December 31, 2016. The weighted average yield on interest-bearing deposits was 0.57 percent for the year ended December 31, 2016.

 

 25 

 

 

DEPOSIT ACTIVITIES

 

The mix of average deposits by amount at December 31, 2015 and 2016, is provided in Exhibit 19. There has been a moderate change in total deposits and a minimal change in the deposit mix during this period. Total average deposits have increased from $89.3 million at December 31, 2015, to $97.0 million at December 31, 2016, representing an increase of $7.7 million or 8.6 percent. The balance of certificates of deposit has increased from $39.8 million at December 31, 2015, to $41.9 million at December 31, 2016, representing an increase of $2.1 million or 5.3 percent, while savings, transaction, money market and noninterest and interest-bearing demand accounts have increased $5.5 million from $49.6 million at December 31, 2015, to $55.1 million at December 31, 2016 or 11.1 percent.

 

Exhibit 20 provides a breakdown of certificates of $100,000 or more by maturity as of December 31, 2016, and a breakdown of all certificates by rate and maturity at December 31, 2016. A strong 64.0 percent of the Bank’s certificates of deposit of $100,000 or more mature in one to three years with no certificates maturing in more than three years. The second largest category of certificates based on maturity was certificates maturing in six months to one year, which represented 14.4 percent of these certificates. The largest category based on maturity, for all certificates is one year or less, which represented 39.9 percent of certificates followed by certificates maturing over three years years, which represented 25.8 percent of certificates. Based on rate, the largest category was certificates with rates of 1.00 percent to 1.99 percent, which represented 56.9 percent of certificates followed by certificates with rates of less than 1.00 percent with 35.0 percent of total certificates.

 

Exhibit 21 provides the deposit activity for the Bank for fiscal years 2015 and 2016. The Bank indicated net increases in deposits in both 2015 and 2016. In 2015, deposits indicated a net increase of 3.8 percent or $3.4 million. In 2016, deposits indicated a larger net increase of 8.2 percent or $7.6 million.

 

 26 

 

 

BORROWINGS

 

Eagle has made regular use of FHLB advances (reference Exhibit 22) in each of the years ended December 31, 2015 and 2016. The Bank had total FHLB advances of only $28,000 at December 31, 2016, with a weighted average cost of 3.33 percent during the period and a balance of a higher $3.1 million at December 31, 2015, with a weighted average cost of a higher 4.31 percent during the period.

 

SUBSIDIARIES

 

Eagle has no owned subsidiaries.

 

OFFICE PROPERTIES

 

Eagle has three officesits home location in Cincinnati, Ohio (Bridgetown), and branches in the communities of Delhi and Hyde Park, both in Cincinnati. The Bank owns its home office and Hyde Park branch and leases its Delhi office. At December 31, 2016, the Banks total investment in fixed assets, based on depreciated cost, was $4,340,000 or 3.74 percent of assets.

 

MANAGEMENT

 

Gary J. Koester is the president and chief executive officer and has served in those capacities with Eagle since 1996. He has also served as a director since 1982. Mr. Koester began his career at Eagle in 1977 and has held various other positions during his time with the Bank. His experience at Eagle includes all facets of the Bank, including lending, operations, and information technology.

 

 27 

 

 

Management (cont.)

 

Ms. Patricia L. Walter is the executive vice president of the Bank and was hired on July 6, 2016. For the eleven preceding years, Ms. Walter served as the controller and then the senior vice president of financial for the former Cheviot Savings Bank. Ms. Walter began her career in 1997, working for six years with Grant Thornton LLP as an auditor and for two years for Comair, Inc., as the manager of corporate accounting.

 

Mr. Kevin R. Schramm is a vice president, chief financial officer and treasurer of the Bank. Mr. Schramm has served as chief financial officer and treasurer with Eagle since September 2006, recently being named vice president. Mr. Schramm began his career in 1986 with Cinco Federal Credit Union, where he spent 17 years in various positions, including operations manager and controller. Mr. Schramm’s experience also includes service as the chief financial officer of Cottage Savings Bank.

 

W. Raymond McCleese is the Bank’s vice president of commercial lending and was hired on May 16, 2016. Prior to joining Eagle, he served two years as the vice president of commercial lending for First Financial Bank, and for over four years as a vice president and a part of senior management for the former Merchants Bank and Trust, heading up the commercial and industrial division. Additional experience includes service as a federal SBSE agent for the Internal Revenue Service, chief financial officer of a mid-sized interior design firm, and as a staff accountant for a well-established local CPA firm.

 

 28 

 

 

II.DESCRIPTION OF PRIMARY MARKET AREA

 

Eagle’s market area is focused on Hamilton County, Ohio, as all three of the Bank’s offices are located in Cincinnati. The Bank’s primary retail market area is focused on the Cincinnati areas of Hyde Park (ZIP Code 45208), Delhi (ZIP Code 45238), and Bridgetown (ZIP Code 45248), while the Bank’s lending market extends into the surrounding Hamilton County in Ohio as well as more distantly into the adjacent counties of Butler, Clermont and Warren in Ohio, the counties of Boone, Campbell and Kenton in Kentucky, and Dearborn County in Indiana. Exhibit 25 shows the trends in population, households and income for ZIP Code 45208, ZIP Code 45238, ZIP Code 45248, Cincinnati, Hamilton County, Ohio and the United States. The population trends indicate decreases in Delhi, Cincinnati and Hamilton County for the period from 2000 to 2010, while Hyde Park, Bridgetown, Ohio and the United States increased in population. Delhi, Cincinnati and Hamilton County had population decreases of 3.1 percent, 10.4 percent and 5.1 percent, respectively. Hyde Park’s and Bridgetown’s populations increased by 1.9 percent and 11.7 percent, respectively, while population in Ohio increased at a rate of 1.6 percent, and the United States’ population increased by 9.7 percent during the same time period. Through 2020, population is projected to decrease by 2.2 percent and 2.4 percent in the Delhi and Bridgetown but increase by 0.3 percent in Hyde Park, 0.7 percent in Cincinnati, by 0.8 percent in Hamilton County, by 1.5 percent in Ohio and by 7.6 percent in the United States.

 

More important is the trend in households. Hyde Park, Bridgetown, Ohio and the United States experienced 0.1 percent, 14.2 percent, 3.5 percent and 10.7 percent increases in households from 2000 through 2010, compared to decreases of 2.8 percent in Delhi, 9.9 percent in Cincinnati and 3.7 percent in Hamilton County. Delhi and Bridgetown are projected to decrease slightly in households from 2010 through 2020 by 2.5 percent and 2.4 percent, respectively. The numbers of households in Hyde Park, Cincinnati, Hamilton County, Ohio and the United States are projected to increase by 0.4 percent, 1.0 percent, 1.7 percent, 1.4 percent and 7.5 percent, respectively, through 2020.

 

 29 

 

 

Description of Primary Market Area (cont.)

 

Hyde Park had 2000 per capita income of $45,453, much higher than all other areas, with Delhi at $21,686, Bridgetown at $25,377, Cincinnati at $19,962, Hamilton County at $24,053, Ohio at $21,003 and the United States at $22,162. Per capita income increased in all areas from 2000 to 2010. Hyde Park’s per capita income increased to a still high $56,541, Delhi, Bridgetown, Cincinnati and Hamilton County increased in per capita income to $24,063, $30,746 $24,538 and $28,037, respectively. Ohio’s per capita income increased to $26,520 and the United States’ increased to $26,059. In 2000, median household income in Hyde Park was $58,379, higher than all other areas, with Delhi at $42,573, Bridgetown at $54,210, Cincinnati at $29,493 and Hamilton County at $40,964, Ohio at $40,956 and the United States with a median household income $41,994. Median household income increased from 2000 to 2010 by 33.6 percent, 38.3 percent, 16.6 percent, 82.0 percent, 12.9 percent, 19.3 percent and 19.2 percent to $77,993, $58,882, $63,218, $53,681, $46,236, $48,849 and $50,046 in Hyde Park, Delhi, Bridgetown, Cincinnati, Hamilton County, Ohio and the United States, respectively. All areas except Cincinnati are also projected to show increases in their median household income levels from 2010 through 2020. Cincinnati is projected to experience a median household income decrease of 13.9 percent to $46,256, while Hyde Park, Delhi, Bridgetown, Hamilton County, Ohio and the United States are projected to increase by 18.5 percent, 0.9 percent, 19.2 percent, 20.3 percent, 9.5 percent and 23.1 percent, respectively, to $92,453, $59,413, $75,352, $55,611, $53,490 and $61,618 median household income, respectively, from 2010 to 2020.

 

Exhibit 26 provides a summary of key housing data for Hyde Park, Delhi, Bridgetown, Cincinnati, Hamilton County, Ohio and the United States. In 2000, Bridgetown had a much higher rate of owner-occupancy of 88.2 percent, higher than all other areas, with Hyde Park at 57.2 percent, Delhi at 66.4 percent, Cincinnati at 39.0 percent, Hamilton County at 59.9 percent, Ohio at 66.4 percent and the United States at 66.2 percent. As a result, Bridgetown supported a much lower rate of renter-occupied housing of 11.8 percent, compared to 42.8 percent in Hyde Park, 33.6 percent in Delhi, 61.0 percent in Cincinnati, 40.1 percent in Hamilton County, 33.6

 

 30 

 

 

Description of Primary Market Area (cont.)

 

percent in Ohio and 33.8 percent in the United States. In 2010, owner-occupied housing decreased in Delhi, Bridgetown, Cincinnati, Hamilton County and the United States while increasing slightly in Hyde Park and Ohio. In 2010, owner-occupied housing was 59.2 percent in Hyde Park, 63.2 percent in Delhi, 86.8 percent in Bridgetown, 38.9 percent in Cincinnati, 59.5 percent in Hamilton County, 67.6 percent in Ohio and 65.4 percent in the United States.

 

Hyde Park’s 2000 median housing value was a higher $220,300, compared to Delhi at $101,200, Bridgetown at $120,100, Cincinnati at $93,000, Hamilton County at $111,400, Ohio at $103,700 and the United States at $119,600. The 2000 median rent of Hyde Park was $640, which was again higher than Delhi’s at $468, Bridgetown’s at $550, Cincinnati’s at $444, Hamilton County’s at $485, Ohio’s at $515 and the United States’ at $602. In 2010, median housing values had increased in Hyde Park to $312,800, in Delhi to $124,600, in Bridgetown to $148,100, in Cincinnati to $126,900, in Hamilton County to $141,100, in Ohio to $134,400 and in the United States to $179,900. The 2010 median rent levels were $822, $639, $770, $630, $683, $685 and $871 in Hyde Park, Delhi, Bridgetown, Cincinnati, Hamilton County, Ohio and the United States, respectively.

 

In 2000, the major source of employment for all areas by industry group, based on share of employment, was the services industry. The services industry was responsible for the majority of employment in Hyde Park, Delhi, Bridgetown, Cincinnati, Hamilton County, Ohio and the United States at percentages of 53.5 percent, 48.6 percent, 45.1 percent, 54.8 percent, 49.5 percent, 43.8 percent and 46.7 percent, respectively (reference Exhibit 27). The wholesale/retail industry was the second major employer in all areas except Ohio, where the manufacturing group was the second highest employer. The manufacturing group was the third major overall employer in all areas except Ohio, where the wholesale/retail industry was the third highest employer. The agriculture/mining group, construction group, transportation/ utilities, information and finance/insurance/real estate group combined to provide 18.4 percent of employment in Hyde Park, 23.0 percent of employment in Delhi, 24.1 percent of employment in Bridgetown, 19.7 percent of employment in Cincinnati, 21.1 percent of employment in

 31 

 

 

Description of Primary Market Area (cont.)

 

Hamilton County, 20.6 percent of employment in Ohio and 23.9 percent of employment in the United States.

 

In 2010, the services industry, wholesale/retail trade industry, and manufacturing industry provided the first, second and third highest levels of employment, respectively, for Delhi, Bridgetown, Cincinnati, Hamilton County and the United States, with the services industry, manufacturing industry and then wholesale/retail trade industries indicating first, second and third highest levels in Hyde Park and Ohio. The services industry accounted for 57.8 percent, 54.2 percent, 51.1 percent, 58.7 percent, 54.9 percent, 51.2 percent and 53.2 percent in Hyde Park, Delhi, Bridgetown, Cincinnati, Hamilton County, Ohio and the United States, respectively. The wholesale/retail trade industry provided for 10.9 percent, 14.8 percent, 13.9 percent, 12.7 percent, 14.2 percent, 14.8 percent and 14.5 percent in Hyde Park, Delhi, Bridgetown, Cincinnati, Hamilton County, Ohio and the United States, respectively. The manufacturing group provided 13.4 percent, 9.9 percent, 11.3 percent, 11.0 percent, 12.3 percent, 15.0 percent and 10.4 percent of employment in Hyde Park, Delhi, Bridgetown, Cincinnati, Hamilton County, Ohio and the United States, respectively. The agriculture/mining, construction, transportation/utilities, information and finance/insurance/real estate areas accounted for 17.9 percent, 21.1 percent, 23.7 percent, 17.6 percent 18.7 percent, 19.0 percent and 21.9 percent of employment in Hyde Park, Delhi, Bridgetown, Cincinnati, Hamilton County, Ohio and the United States, respectively, with Hyde Park and Bridgetown having higher employment in the finance/insurance/real estate industry than other areas.

 

Some of the largest employers in Hamilton County are:

 

Employer  Employees   Product/Service
Kroger Company   21,646   Retail - food stores
University of Cincinnati   16,016   Education
Cincinnati Children’s Hospital   14,944   Healthcare
TriHealth, Inc.   11,800   Healthcare
Procter & Gamble Company   11,000   Manufacturing - soaps, consumer goods
UC Health   10,000   Healthcare
GE Aviation   7,800   Manufacturing

 

 32 

 

 

Description of Primary Market Area (cont.)

 

Employer  Employees   Product/Service
Mercy Health   7,500   Healthcare
St. Elizabeth Healthcare   7,479   Healthcare
Fifth Third Bancorp   6,882   Finance/banking
City of Cincinnati   6,530   Government
Christ Hospital   5,300   Healthcare
Archdiocese of Cincinnati   5,096   Religious administration
Macy’s   4,500   Retail - department stores
Internal Revenue Service   4,413   Government
Miami University   4,188   Education
Fidelity Investments   4,125   Finance
Kings Island   4,000   Entertainment
Frisch’s Restaurants, Inc.   3,393   Restaurants
State of Ohio   3,087   Government
Amazon.com LLC   3,000   Retail

 

The unemployment rate is another key economic indicator. Exhibit 28 shows the unemployment rates in Hamilton County, Ohio and the United States in 2012 through 2016. Hamilton County has been characterized by similar but more recently lower unemployment rates than both state and national levels. In 2012, Hamilton County had an unemployment rate of 7.4 percent, compared to unemployment rates of 7.4 percent in Ohio and 8.1 percent in the United States. Hamilton County's unemployment rate decreased slightly in 2013, as did those of Ohio and the United States to 7.3 percent, 7.5 percent and 7.4 percent, respectively. In 2014, Hamilton County’s rate of unemployment decreased as did all other areas to 5.5 percent, 5.8 percent and 6.2 percent in Hamilton County, Ohio and the United States, respectively. In 2015, Hamilton County’s rate of unemployment decreased to 4.5 percent compared to a decrease to 4.9 percent in Ohio and to 5.3 percent in the United States. Through 2016, unemployment rates were slightly lower in Hamilton County at 4.4 percent, no change in Ohio at 4.9 percent and a decrease in the United States at 4.9 percent.

 

Exhibit 29 provides deposit data for banks and thrifts in Hamilton County. Eagle’s deposit base in Hamilton County was approximately $98.8 million or a 4.6 percent share of the total thrift deposits but a 0.1 percent share of the total deposits, which were approximately $82.2

 

 33 

 

 

Description of Primary Market Area (cont.)

 

billion as of December 31, 2016. The market area is dominated by banks, with bank deposits accounting for approximately 97.6 percent of deposits at December 31, 2016.

 

Exhibit 30 provides interest rate data for each quarter for the years 2012 through 2016. The interest rates tracked are the Prime Rate, as well as 90-Day, One-Year and Thirty-Year Treasury Bills. The Prime Rate was stable for the majority of the five years, increasing slightly in the 4th quarter of 2015 and again in the 4th quarter of 2016. Short term interest rates experienced a slightly rising trend in 2012, and then stable in 2013 and 2014, with the Thirty-Year Treasury rate rising in 2013, decreasing in 2014, fluctuating in 2015, and then decreasing in the first three quarters of 2016 but increasing in the last quarter of 2016.

 

SUMMARY

 

In summary, population increased by in Hyde Park and Bridgetown from 2000 to 2010 but decreased in Delhi, Cincinnati and Hamilton County, and the number of households increased and decreased similarly. The 2010 per capita income and median household income levels in Hyde Park were much higher than all other areas, and all but Hamilton County had 2010 median household income levels above both state and national levels. Also, Hamilton Countys unemployment rates have been lower than state and national rates. According to the 2010 Census, median housing values ranged from a low of $124,600 in Delhi to a high of $312,800 in Hyde Park.

 

The Bank held deposits of approximately 4.6 percent of all thrift deposits in the market area as of December 31, 2016, but represented only a 0.1 percent share of the total deposit base of $88.2 billion.

 

 34 

 

 

III.COMPARABLE GROUP SELECTION

 

Introduction

 

Integral to the valuation of the Corporation is the selection of an appropriate group of publicly traded thrift institutions, hereinafter referred to as the "comparable group". This section identifies the comparable group and describes each parameter used in the selection of each institution in the group, resulting in a comparable group based on such specific and detailed parameters, current financials and recent trading prices. The various characteristics of the selected comparable group provide the primary basis for making the necessary adjustments to the Corporation's pro forma value relative to the comparable group. There is also a recognition and consideration of financial comparisons with all publicly traded, FDIC-insured thrifts in the United States and all publicly traded, FDIC-insured thrifts in the Midwest region and in Ohio.

 

Exhibits 31 and 32 present Share Data and Pricing Ratios and Key Financial Data and Ratios, respectively, both individually and in aggregate, for the universe of 146 publicly traded, FDIC-insured thrifts in the United States ("all thrifts"), excluding mutual holding companies, used in the selection of the comparable group and other financial comparisons. Exhibits 31 and 32 also subclassify all thrifts by region, including the 47 publicly traded Midwest thrifts ("Midwest thrifts") and the 13 publicly traded thrifts in Ohio ("Ohio thrifts"), and by trading exchange. Exhibit 31 presents prices, pricing ratios and price trends for all publicly traded FDIC-insured thrifts.

 

The selection of the comparable group was based on the establishment of both general and specific parameters using financial, operating and asset quality characteristics of the Corporation as determinants for defining those parameters. The determination of parameters was also based on the uniqueness of each parameter as a normal indicator of a thrift institution's operating philosophy and perspective. The parameters established and defined are considered to be both reasonable and reflective of the Corporations basic operation.

 

 35 

 

 

Introduction (cont.)

 

The general parameter requirements for the selection of the peer group candidates included a maximum asset size limit of $800 million, a trading exchange requirement that each candidate be traded on one of the two major stock exchanges, the New York Stock Exchange or the NASDAQ, a geographic parameter that eliminates potential candidates located in the Southwest and West, a merger and acquisition parameter that eliminates any potential candidate that is involved in a merger and acquisition transaction, and a recent conversion parameter that eliminates any institution that has not been converted from mutual to stock for at least four quarters or prior to December 31, 2016. Due to the general parameter requirement related to trading on NASDAQ or the New York Stock Exchange, the size of the peer group institutions results in larger institutions.

 

Inasmuch as the comparable group must consist of at least ten institutions, the parameters relating to asset size and geographic location have been expanded as necessary in order to fulfill this requirement.

 

Due to lack of comparability, there are no mutual holding companies included as potential comparable group candidates.

 

GENERAL PARAMETERS

 

Merger/Acquisition

 

The comparable group will not include any institution that is in the process of a merger or acquisition as the seller at December 31, 2016, due to the price impact of such a pending transaction. There were two thrift institutions that were potential comparable group candidates but had to be eliminated due to their involvement in a merger/acquisition.

 

Georgetown Bancorp - Massachusetts

 

Standard Financial Corp. - Pennsylvania

 

 36 

 

 

Merger/Acquisition (cont.)

 

There are no pending merger/acquisition transactions involving thrift institutions that were potential comparable group candidates in the Corporation’s city, county or market area as indicated in Exhibit 34.

 

Trading Exchange

 

It is necessary that each institution in the comparable group be listed on one of the two major stock exchanges, the New York Stock Exchange or the National Association of Securities Dealers Automated Quotation System (NASDAQ). Such a listing indicates that an institution’s stock has demonstrated trading activity and is responsive to normal market conditions, which are requirements for listing. Of the 146 publicly traded, FDIC-insured savings institutions, excluding mutual holding companies, 8 are traded on the New York Stock Exchange and 89 are traded on NASDAQ. There were an additional 18 traded over the counter and 31 institutions are listed in the Pink Sheets, but they were not considered for the comparable group selection.

 

IPO Date

 

Another general parameter for the selection of the comparable group is the initial public offering ("IPO") date, which must be at least four quarterly periods prior to December 31, 2016, in order to insure at least four consecutive quarters of reported data as a publicly traded institution. The resulting parameter is a required IPO date prior to December 31, 2015.

 

Geographic Location

 

The geographic location of an institution is a key parameter due to the impact of various economic and thrift industry conditions on the performance and trading prices of thrift institution

 

 37 

 

 

Geographic Location (cont.)

 

stocks. Although geographic location and asset size are the two parameters that have been developed incrementally to fulfill the comparable group requirements, the geographic location parameter has nevertheless eliminated regions of the United States distant to the Corporation, including the Southwest and West regions.

 

The geographic location parameter consists of the Midwest, North Central, Southeast and Northeast regions for a total of fifteen states. To extend the geographic parameter beyond those states could result in the selection of similar thrift institutions with regard to financial conditions and operating characteristics, but with different pricing ratios due to their geographic regions. The result could then be an unrepresentative comparable group with regard to price relative to the parameters and, therefore, an inaccurate value.

 

Asset Size

 

Asset size was another key parameter used in the selection of the comparable group. The total asset size for any potential comparable group institution was $800 million or less, due to the general similarity of asset mix and operating strategies of institutions within this asset range, compared to the Corporation, with assets of approximately $116 million. Such an asset size parameter was necessary to obtain an appropriate comparable group of at least ten institutions.

 

In connection with asset size, we did not consider the number of offices or branches in selecting or eliminating candidates, since that characteristic is directly related to operating expenses, which are recognized as an operating performance parameter.

 

 38 

 

 

SUMMARY

 

Exhibits 35 and 36 show the 25 institutions considered as comparable group candidates after applying the general parameters, with the outlined institutions being those ultimately selected for the comparable group using the balance sheet, performance and asset quality parameters established in this section.

 

 39 

 

 

BALANCE SHEET PARAMETERS

 

Introduction

 

The balance sheet parameters focused on seven balance sheet ratios as determinants for selecting a comparable group, as presented in Exhibit 35. The balance sheet ratios consist of the following:

 

1.Cash and investments to assets
2.Mortgage-backed securities to assets
3.One- to four-family loans to assets
4.Total net loans to assets
5.Total net loans and mortgage-backed securities to assets
6.Borrowed funds to assets
7.Equity to assets

 

The parameters enable the identification and elimination of thrift institutions that are distinctly and functionally different from the Corporation with regard to asset mix. The balance sheet parameters also distinguish institutions with a significantly different capital position from the Corporation. The ratio of deposits to assets was not used as a parameter as it is directly related to and affected by an institution's equity and borrowed funds ratios, which are separate parameters.

 

Cash and Investments to Assets

 

The Bank’s ratio of cash and investments to assets, excluding mortgage-backed securities, was 17.2 percent at December 31, 2016, and reflects the Bank’s share of cash and investments higher than the national and state averages of 13.4 percent and 15.2 percent, respectively. The Bank's investments have consisted of only interest-bearing deposits.

 

 40 

 

 

Cash & Investments to Assets (cont.)

 

For its three most recent fiscal years ended December 31, 2016, the Bank’s average ratio of cash and investments to assets was a lower 16.66 percent, ranging from a low of 14.70 percent in 2014 to high of 18.10 percent in 2015.

 

The parameter range for cash and investments is has been defined as 38.0 percent or less of assets, with a midpoint of 19.0 percent.

 

Mortgage-Backed Securities to Assets

 

At December 31, 2016, the Bank had no mortgage-backed securities, resulting in a zero percent ratio, modestly lower than the national average of 7.59 percent and the regional average of 7.79 percent for publicly traded thrifts. The Bank’s three most recent fiscal year average is also zero percent, also lower than industry averages.

 

Inasmuch as many institutions purchase mortgage-backed securities as an alternative to both lending, relative to cyclical loan demand and prevailing interest rates, and other investment vehicles, this parameter is also fairly broad at 42.0 percent or less of assets and a midpoint of 21.0 percent.

 

One- to Four-Family Loans to Assets

 

The Bank’s lending activity has been focused on the origination of residential mortgage loans secured by one- to four-family dwellings. One- to four-family loans, excluding construction loans and home equity loans, represented 41.1 percent of the Bank's assets at December 31, 2016, which is lower than its ratio of 41.9 percent at December 31, 2015, and

 

 41 

 

 

One- to Four-Family Loans to Assets (cont.)

 

lower than its ratio of 46.9 percent at December 31, 2014. The parameter for this characteristic is 60.00 percent of assets or less in one- to four-family loans with a midpoint of 30.00 percent.

 

Total Net Loans to Assets

 

At December 31, 2016, the Bank had a 74.0 percent ratio of total net loans to assets and a higher three fiscal year average of 74.1 percent, compared to the national average of 71.2 percent and the regional average of 68.4 percent for publicly traded thrifts. The Bank's ratio of total net loans to assets changed from 76.2 percent of total assets at December 31, 2014, to 72.1 percent at December 31, 2015, to 74.0 percent at December 31, 2016.

 

The parameter for the selection of the comparable group is from 20.0 percent to 90.0 percent with a midpoint of 55.0 percent. The lower end of the parameter range relates to the fact that, as the referenced national and regional averages indicate, many institutions hold greater volumes of mortgage-backed securities as cyclical alternatives to lending, but may otherwise be similar to the Bank.

 

Total Net Loans and Mortgage-Backed Securities to Assets

 

As discussed previously, the Bank’s shares of mortgage-backed securities to assets and total net loans to assets were zero percent and 74.0 percent, respectively, for a combined share of 74.0 percent. Recognizing the industry and regional ratios of 78.8 percent and 76.2 percent, respectively, the parameter range for the comparable group in this category is 60.0 percent to 90.0 percent, with a midpoint of 75.0 percent.

 

 42 

 

 

Borrowed Funds to Assets

 

The Bank had borrowed funds of $28,000 or 0.02 percent of assets at December 31, 2016, which is moderately lower than current industry average of 9.74 percent.

 

The use of borrowed funds by some institutions indicates an alternative to retail deposits and may provide a source of longer term funds. The federal insurance premium on deposits has also increased the attractiveness of borrowed funds. The institutional demand for borrowed funds has decreased in recent years, due to much lower rates paid on deposits. Additionally, many thrifts are not aggressively seeking deposits, since quality lending opportunities have diminished in the current economic environment.

 

The parameter range of borrowed funds to assets is 48.0 percent or less with a midpoint of 24.0 percent.

 

Equity to Assets

 

The Bank’s equity to assets ratio was 11.62 percent at December 31, 2016, 10.95 percent at December 31, 2015, and 10.58 percent at December 31, 2014, averaging 11.05 percent for the three fiscal years ended December 31, 2016. The Bank’s equity increased in each of the past four fiscal periods from December 31, 2012, to December 31, 2016. After conversion, based on the midpoint value of $17.0 million, with 50.0 percent of the net proceeds of the public offering going to the Bank and recognizing the Foundation, its equity is projected to increase to 17.07 percent of assets, with the Corporation’s equity at 20.76 percent of assets.

 

Based on those equity ratios, we have defined the equity ratio parameter to be 8.0 percent to 20.0 percent with a midpoint ratio of 14.0 percent.

 

 43 

 

 

PERFORMANCE PARAMETERS

 

Introduction

 

Exhibit 36 presents five parameters identified as key indicators of the Bank’s earnings performance and the basis for such performance both historically and during the year ended December 31, 2016. The primary performance indicator is the Bank's core return on average assets (ROAA). The second performance indicator is the Bank's core return on average equity (ROAE). To measure the Bank's ability to generate net interest income, we have used net interest margin. The supplemental source of income for the Bank is noninterest income, and the parameter used to measure this factor is the ratio of noninterest income to average assets. The final performance indicator is the Bank's ratio of operating expenses or noninterest expenses to average assets, a key factor in distinguishing different types of operations, particularly institutions that are aggressive in secondary market activities, which often results in much higher operating costs and overhead ratios.

 

Return on Average Assets

 

The key performance parameter is core ROAA. For the year ended December 31, 2016, the Bank’s core ROAA was 0.61 percent based on a core income after taxes of $693,000, as detailed in Item I of this Report. The net ROAA for the year ended December 31, 2016, was 1.29 percent on net income of $1,460,000. The Bank's ROAA in its prior two fiscal years of 2014 and 2015, was 0.63 percent and 0.58 percent, respectively, with a three fiscal year average ROAA of 0.63 percent based on core income.

 

Considering the historical and current earnings performance of the Bank, as well as the industry, the range for the ROAA parameter based on core income has been defined as less than 1.30 percent with a midpoint of 0.65 percent.

 

 44 

 

 

Return on Average Equity

 

The ROAE has been used as a secondary parameter to eliminate any institutions with an unusually high or low ROAE that is inconsistent with the Bank's position. This parameter does not provide as much meaning for a newly converted thrift institution as it does for established stock institutions, due to the unseasoned nature of the capital structure of the newly converted thrift and the inability to accurately reflect a mature ROAE for the newly converted thrift relative to other stock institutions.

 

The Bank’s core ROAE for the year ended December 31, 2016, was 5.44 percent based on its core earnings. In its most recent three fiscal years, the Bank's average ROAE was 5.81 percent, from a low of 5.31 percent in 2015 to a high of 6.19 percent in 2014.

 

The parameter range for ROAE for the comparable group, based on core income, is 10.00 percent or less with a midpoint of 5.00 percent.

 

Net Interest Margin

 

The Bank had a net interest margin of 3.00 percent for the year ended December 31, 2016, representing net interest income as a percentage of average interest-earning assets. The Bank's net interest margin levels in its two prior fiscal years of 2014 and 2015 were 3.25 percent and 3.06 percent, respectively, averaging 3.10 percent.

 

The parameter range for the selection of the comparable group is from a low of 1.50 percent to a high of 4.50 percent with a midpoint of 3.00 percent.

 

 45 

 

 

Operating Expenses to Assets

 

For the year ended December 31, 2016, the Bank had a 4.07 percent ratio of operating expense to average assets impacted by two one-time expenses. In its two prior fiscal years of 2014 to 2015, the Bank’s expense ratio averaged 3.42 percent, from a low of 3.26 percent in fiscal year 2014 to a high of 4.07 percent in fiscal year 2016, with a core 2016 overhead ratio of a more normal 3.51 percent.

 

The operating expense to assets parameter for the selection of the comparable group is from a low of 1.10 percent to a high of 4.10 percent with a midpoint of 2.50 percent.

 

Noninterest Income to Assets

 

Compared to publicly traded thrifts, the Bank has experienced a higher level of noninterest income as a source of additional income due to its gains on loans sold. The Bank’s ratio of noninterest income to average assets was 2.94 percent for the year ended December 31, 2016, but a lesser 2.11 percent excluding the one time BOLI death benefit. For its prior two fiscal years ended December 31, 2014, and 2015, the Bank’s ratios of noninterest income to average assets were 1.24 percent and 1.69 percent, respectively, for a three-year average of 1.96 percent and a lower 1.68 percent excluding BOLI death benefit in 2016.

 

The range for this parameter for the selection of the comparable group is 3.00 percent of average assets or less, with a midpoint of 1.50 percent.

 

 46 

 

 

ASSET QUALITY PARAMETERS

 

Introduction

 

The final set of financial parameters used in the selection of the comparable group are asset quality parameters, also shown in Exhibit 36. The purpose of these parameters is to insure that any thrift institution in the comparable group has an asset quality position similar to that of the Bank. The three defined asset quality parameters are the ratios of nonperforming assets to total assets, repossessed assets to total assets and loan loss reserves to total assets at the end of the most recent period.

 

Nonperforming Assets to Total Assets

 

The Bank’s ratio of nonperforming assets to assets was 0.72 percent at December 31, 2016, which was lower than the national average of 0.94 percent for publicly traded thrifts and the average of 0.94 percent for Midwest thrifts. The Bank’s ratio of nonperforming assets to total assets averaged 0.99 percent for its most recent three fiscal years ended December 31, 2016, from a high of 1.16 percent at December 31, 2014, to a low of 0.72 percent at December 31, 2016.

 

The comparable group parameter for nonperforming assets is 3.00 percent or less of total assets, with a midpoint of 1.50 percent.

 

Repossessed Assets to Assets

 

The Bank had repossessed assets of $55,000 at December 31, 2016, representing a ratio to total assets of 0.05 percent, following ratios of repossessed assets to total assets of 0.44 percent and 0.37 percent at December 31, 2015, and December 31, 2014, respectively. National

 

 47 

 

 

Repossessed Assets to Assets (cont.)

 

and regional averages were 0.16 percent and 0.16 percent, respectively, for publicly traded thrift institutions.

 

The range for the repossessed assets to total assets parameter is 0.30 percent of assets or less with a midpoint of 0.15 percent.

 

Loans Loss Reserves to Assets

 

The Bank had an allowance for loan losses of $1,137,000, representing a loan loss allowance to total assets ratio of 0.98 percent at December 31, 2016, which was higher than its 0.94 percent ratio at December 31, 2015, and lower than its 1.13 percent ratio at December 31, 2014.

 

The loan loss allowance to assets parameter range used for the selection of the comparable group required a minimum ratio of 0.10 percent of assets.

 

THE COMPARABLE GROUP

 

With the application of the parameters previously identified and applied, the final comparable group represents ten institutions identified in Exhibits 37, 38 and 39. The comparable group institutions range in size from $335.0 million to $777.5 million with an average asset size of $529.3 million and have an average of 7.0 offices per institution. Three of the comparable group institutions are in Maryland, one each in Illinois, Kentucky, Michigan, New York, Ohio, Pennsylvania and Minnesota, and all ten are traded on NASDAQ.

 

 48 

 

 

The Comparable Group (cont.)

 

The comparable group institutions as a unit have a ratio of equity to assets of 11.6 percent, which is 2.2 percent lower than all publicly traded thrift institutions in the United States; and for the most recent four quarters indicated a core return on average assets of 0.71 percent, lower than all publicly traded thrifts at 0.77 percent and lower than the publicly traded Ohio thrifts at 0.95 percent.

 

 49 

 

 

IV.ANALYSIS OF FINANCIAL PERFORMANCE

 

This section reviews and compares the financial performance of the Bank to all publicly traded thrifts, to publicly traded thrifts in the Midwest region and to Ohio thrifts, as well as to the ten institutions constituting the Bank’s comparable group, as selected and described in the previous section. The comparative analysis focuses on financial condition, earning performance and pertinent ratios as presented in Exhibits 40 through 45.

 

As presented in Exhibits 40 and 41, at December 31, 2016, the Bank’s total equity of 11.62 percent of assets was similar to the comparable group at 11.60 percent, lower than all thrifts at 11.86 percent, Midwest thrifts at 11.82 percent and lower than Ohio thrifts at 12.16 percent. The Bank had a 73.97 percent share of net loans in its asset mix, higher than the comparable group at 71.70 percent, all thrifts at 71.24 percent and Midwest thrifts at 68.44 percent and lower than Ohio thrifts at 74.98 percent. The Bank had a higher 17.19 percent share of cash and investments with a lower zero percent share of mortgage-backed securities. The comparable group had a lower 15.01 percent share of cash and investments and a higher 7.89 percent share of mortgage-backed securities. All thrifts had a 7.59 percent of assets in mortgage-backed securities and 13.42 percent in cash and investments. The Bank’s 86.26 percent share of deposits was higher than the comparable group, all thrifts, Midwest thrifts and Ohio thrifts, reflecting the Bank's lower share of borrowed funds of 0.02 percent and similar share of equity of 11.62 percent. As ratios to assets, the comparable group had deposits of 77.96 percent and borrowings of 10.75 percent. All thrifts averaged a 77.52 percent share of deposits and 9.74 percent of borrowed funds, while Midwest thrifts had a 79.07 percent share of deposits and an 8.19 percent share of borrowed funds. Ohio thrifts averaged a 74.49 percent share of deposits and a 12.57 percent share of borrowed funds. The Bank had no goodwill and intangible assets, compared to 0.53 percent for the comparable group, 0.46 percent for all thrifts, 0.27 percent for Midwest thrifts and 0.31 percent for Ohio thrifts.

 

 50 

 

 

Analysis of Financial Performance (cont.)

 

Operating performance indicators are summarized in Exhibits 42, 43 and 44 and provide a synopsis of key sources of income and key expense items for the Bank in comparison to the comparable group, all thrifts, and regional thrifts for the trailing four quarters.

 

As shown in Exhibit 44, for the year ended December 31, 2016, the Bank had a lower yield on average interest-earning assets relative to the comparable group, all thrifts, Midwest thrifts and Ohio thrifts. The Bank's yield on interest-earning assets was 3.71 percent compared to the comparable group at 4.10 percent, all thrifts at 3.81 percent, Midwest thrifts at 3.76 percent and Ohio thrifts at 3.97 percent.

 

The Bank's cost of funds for the twelve months ended December 31, 2016, was lower than the comparable group and all thrifts, similar to Midwest thrifts, and higher than Ohio thrifts. The Bank had an average cost of interest-bearing liabilities of 0.78 percent compared to 0.83 percent for the comparable group, 0.87 percent for all thrifts, 0.79 percent for Midwest thrifts and 0.66 percent for Ohio thrifts. The Bank's yield on interest-earning assets and cost of funds resulted in a net interest spread of 2.93 percent, which was lower than the comparable group at 3.27 percent, similar to all thrifts at 2.94 percent, lower than Midwest thrifts at 2.97 percent and Ohio thrifts at 3.31 percent. The Bank generated a net interest margin of 3.00 percent for the year ended December 31, 2016, based on its ratio of net interest income to average interest-earning assets, which was lower than the comparable group ratio of 3.40 percent. All thrifts averaged a higher 3.10 percent net interest margin for the trailing four quarters, with Midwest thrifts at 3.13 percent; and Ohio thrifts averaged a higher 3.44 percent.

 

The Bank’s major source of earnings is interest income, as indicated by the operations ratios presented in Exhibit 43. The Bank had $83,000 in provision for loan losses during the twelve months ended December 31, 2016, representing 0.07 percent of average assets. The average provision for loan losses for the comparable group was also 0.07 percent, with all thrifts at 0.06 percent, Midwest thrifts at 0.05 percent and Ohio thrifts at 0.07 percent.

 

 51 

 

 

Analysis of Financial Performance (cont.)

 

The Bank's total noninterest income was $3,318,000 or 2.94 percent of average assets for the year ended December 31, 2016, including a one time BOLI death benefit of $940,000 or 28.3 percent of noninterest income. Excluding such death benefit, noninterest income was lower but a still strong 2.11 percent of assets. The Bank’s higher ratio of noninterest income to average assets was higher than the comparable group at 0.63 percent, and higher than all thrifts at 0.90 percent, Midwest thrifts at 0.91 percent and higher than Ohio thrifts at 0.69 percent. For the year ended December 31, 2016, the Bank’s operating expense ratio was 4.07 percent of average assets, including $121,000 in a one-time FHLB prepayment advance penalty and a $410,000 death benefit obligation for a combined $531,000 and resulting in core operating expenses of $4,060,000 or 3.60 percent, higher than the comparable group at 2.80 percent, all thrifts at 3.02 percent Midwest thrifts at 3.07 percent, and Ohio thrifts at 2.81 percent.

 

The overall impact of the Bank’s income and expense ratios is reflected in its net income and return on assets. For the year ended December 31, 2016, the Bank had a net ROAA of 1.29 and core ROAA of 0.61 percent. For its most recent four quarters, the comparable group had a lower net ROAA of 0.84 percent and a higher core ROAA of 0.71 percent. All publicly traded thrifts averaged a lower net ROAA of 0.81 percent and a higher 0.77 percent core ROAA, with Midwest thrifts a 1.02 percent net ROAA and a 0.99 percent core ROAA. The twelve month net and core ROAA for the 13 Ohio thrifts was 0.99 percent and 0.95 percent, respectively.

 

 52 

 

 

V.MARKET VALUE ADJUSTMENTS

 

This is a conclusive section where adjustments are made to determine the pro forma market value or appraised value of the Corporation based on a comparison of Eagle with the comparable group. These adjustments will take into consideration such key items as earnings performance, primary market area, financial condition, asset and deposit growth, dividend payments, subscription interest, liquidity of the stock to be issued, management, and market conditions or marketing of the issue. It must be noted that all of the institutions in the comparable group have their differences among themselves and relative to the Bank, and, as a result, such adjustments become necessary.

 

EARNINGS PERFORMANCE

 

In analyzing earnings performance, consideration was given to net interest income, the amount and volatility of interest income and interest expense relative to changes in market area conditions and to changes in overall interest rates, the quality of assets as it relates to the presence of problem assets which may result in adjustments to earnings due to provisions for loan losses, the balance of current and historical nonperforming assets and real estate owned, the balance of valuation allowances to support any problem assets or nonperforming assets, the amount and volatility of noninterest income, and the amount and ratio of noninterest expenses. The earnings performance analysis was based on the Bank’s respective net and core earnings for the year ended December 31, 2016, with comparisons to the core earnings of the comparable group, all thrifts and other geographical subdivisions.

 

As discussed earlier, the Bank has experienced increases in its assets in each of the past four fiscal years and loans in two of the past four fiscal years and increases in deposits in three of the past four fiscal years, with increases experienced for loans in 2016 and 2013 and increases in deposits in 2014, 2015 and 2016. The Bank has experienced positive earnings in each of the past five fiscal years and has focused on controlling its lower balance of nonperforming assets;

 

 53 

 

 

Earnings Performance (cont.)

 

maintaining its ratio of interest sensitive assets relative to interest sensitive liabilities by maintaining a moderate share of cash and investments and adjustable-rate loans, thereby maintaining its overall interest rate risk; strengthening its strong level of noninterest income; and maintaining adequate allowances for loan losses to reduce the impact of any charge-offs. Historically, the Bank has closely monitored its lower yields and costs, which have resulted in a lower net interest margin that has been historically lower than industry averages due to its lower yield on earning assets even with its lower cost of funds, with the margin trend experiencing minimal change over the past two years, and a 3.00 percent net interest margin for the year ended December 31, 2016, was lower than the industry average of 3.10 percent and lower than the comparable group average of 3.41 percent. During its prior two fiscal years, Eagle’s ratio of interest expense to interest-bearing liabilities has increased slightly from 0.82 percent in fiscal year 2014 to 0.84 percent in 2015. The Bank’s ratio then decreased to 0.78 percent for the year ended December 31, 2016, which was lower than the average of 0.83 percent for the comparable group and lower than the average of 0.87 percent for all thrifts. Following the conversion, the Bank will continue to control its operating expenses, strive to maintain its net interest margin, strive to increase its noninterest income, gradually increase its core net income, increase its return on assets, continue to control its balance of nonperforming and classified assets, and closely monitor its interest rate risk.

 

The Bank has experienced a moderate increase in loan origination activity from fiscal year 2015 to 2016. Total loan originations in fiscal year 2015 were $100.0 million with a net loan change of a decrease of $(27,000) including $69.0 million in loan sales and no loan purchases. Gross loan originations were a larger $115.6 million in fiscal year 2016, with another $1.2 million in loan purchases. This level of originations and purchases in 2016 resulted in a net increase in loans of $6.0 million in 2016, noticeably higher than the $27,000 decrease in 2015, and included $81.7 million in loan sales in 2016.

 

 54 

 

 

Earnings Performance (cont.)

 

From December 31, 2015, to December 31, 2016, one- to four-family loans and commercial real estate loans, home equity loans, construction loans and commercial business loans experienced increases in their balances. Home equity loans and construction loans indicated dollar increases of $1.7 million and $1.6 million, respectively, from December 31, 2015, to December 31, 2016. One- to four-family loans increased in dollars by $1.7 million or 3.6 percent, from December 31, 2015, to December 31, 2016. Commercial real estate loans increased by $692,000 or 5.3 percent from December 31, 2015, to December 31, 2016. The other individual changes were commercial business loans, which increased $585,000 or 49.0 percent and multi-family loans, which decreased $482,000 or 16.1 percent from December 31, 2015, to December 31, 2016. Overall, the Bank’s lending activities resulted in a total loan increase of $5.7 million or 6.8 percent and a net loan increase of $6.4 million or 8.4 percent from December 31, 2015, to December 31, 2016.

 

The impact of Eagle’s primary lending efforts has been to generate a yield on average interest-earning assets of 3.71 percent for the year ended December 31, 2016, compared to a higher 4.10 percent for the comparable group, 3.81 percent for all thrifts and 3.26 percent for Midwest thrifts. The Bank’s ratio of interest income to average assets was 3.37 percent for the year ended December 31, 2016, lower than the comparable group at 3.78 percent, all thrifts at 3.73 percent and Midwest thrifts at 3.66 percent, reflecting the Bank's lower yield.

 

Eagle’s 0.78 percent cost of interest-bearing liabilities for the year ended December 31, 2016, was lower than the comparable group at 0.83 percent, lower than all thrifts at 0.87 percent and similar to Midwest thrifts at 0.79 percent and higher than Ohio thrifts at 0.66 percent. The Bank's resulting net interest spread of 2.93 percent for the year ended December 31, 2016, was lower the comparable group at 3.27 percent and similar to all thrifts at 2.94 percent, Midwest thrifts at 2.97 percent and lower than Ohio thrifts at 3.31 percent. The Bank's net interest margin of 3.00 percent, based on average interest-earning assets for the year ended December 31, 2016, was lower than the comparable group at 3.40 percent, lower than all thrifts at 3.10 percent, Midwest thrifts at 3.13 percent and Ohio thrifts at 3.44 percent.

 

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Earnings Performance (cont.)

 

The Bank's ratio of noninterest income to average assets was a higher 2.94 percent for the year ended December 31, 2016, due to a one-time BOLI death benefit and lower 2.11 percent excluding the BOLI death benefit, which was higher than the comparable group at 0.63 percent, higher than all thrifts at 0.90 percent and Midwest thrifts at 0.91 percent, due to the Bank’s higher gains on loans sold.

 

The Bank's operating expenses were higher than the comparable group, all thrifts, Midwest thrifts and Ohio thrifts. For the year ended December 31, 2016, Eagle had an operating expenses to average assets ratio of 4.07 percent and a lower 3.60 percent, excluding one-time expenses, compared to 2.80 percent for the comparable group, 3.02 percent for all thrifts, 3.07 percent for Midwest thrifts and 2.81 percent for Ohio thrifts.

 

For the year ended December 31, 2016, Eagle generated a higher ratio of noninterest income, a higher ratio of noninterest expenses and a lower net interest margin relative to its comparable group. The Bank had 0.07 percent in provision for loan losses during the year ended December 31, 2016, compared to the comparable group at 0.07 percent of assets, all thrifts at 0.06 percent and Midwest thrifts at 0.05 percent. The Bank’s allowance for loan losses to total loans of 1.31 percent was higher than the comparable group and higher than all thrifts. The Bank’s 135.68 percent ratio of reserves to nonperforming assets was similar to the comparable group at 132.94 percent and higher than all thrifts at 117.4 percent.

 

As a result of its operations, the Bank's core income for the year ended December 31, 2016, was lower than the comparable group but its net income was higher due to a one-time BOLI death benefit. Based on net earnings, the Bank had a return on average assets of 1.29 percent for the year ended December 31, 2016, and a return on average assets of 0.58 percent and 0.63 percent in fiscal years 2015 and 2014, respectively. The Bank’s core return on average assets was 0.61 percent for the year ended December 31, 2016, as detailed in Exhibit 7. For their most recent four quarters, the comparable group had a lower net ROAA of 0.84 percent and a higher core ROAA of 0.71 percent, while all thrifts indicated a lower net ROAA and higher core

 

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Earnings Performance (cont.)

 

ROAA of 0.81 percent and 0.77 percent, respectively. Midwest thrifts indicated a net ROAA of 1.02 percent and a core ROAA of 0.99 percent.

 

Following its conversion, Eagle’s earnings will continue to be dependent on a combination of the overall trends in interest rates, the consistency, reliability and variation of its net interest income, noninterest income, overhead expenses and its asset quality and its future needs for provisions for loan losses. Earnings are projected to represent a 0.42 percent ROAA in 2017 and then 0.58 percent in 2018. The Bank’s ratio of noninterest income to average assets increased from fiscal 2015 to 2016. The increase in core noninterest income in fiscal 2016 was due to the Bank’s increases in gains on the sale of loans. Overhead expenses indicated a modest increase overall during the past two fiscal years also impacted by the higher expenses related to the Bank’s strong lending program.

 

In recognition of the foregoing earnings related factors, considering Eagle’s historical and current performance measures, as well as Business Plan projections, a downward adjustment has been made to the Corporation’s pro forma market value for earnings performance.

 

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MARKET AREA

 

Eagle’s market area is focused on Hamilton County, Ohio, as all three of the Bank’s offices are located in Cincinnati. The Bank’s primary retail market area is focused on the Cincinnati areas of Hyde Park (ZIP Code 45208), Delhi (ZIP Code 45238), and Bridgetown (ZIP Code 45248), while the Bank’s lending market extends into the surrounding Hamilton County in Ohio as well as more distantly into the adjacent counties of Butler, Clermont and Warren in Ohio, the counties of Boone, Campbell and Kenton in Kentucky, and Dearborn County in Indiana. The population trends indicate decreases in Delhi, Cincinnati and Hamilton County for the period from 2000 to 2010, while Hyde Park, Bridgetown, Ohio and the United States increased in population. Through 2020, population is projected to decrease by 2.6 percent and 2.4 percent in Delhi and Bridgetown, respectively.

 

Hyde Park and Bridgetown had higher per capita income than all other areas; and Hyde Park, Delhi and Bridgetown all had higher median household income levels than all other areas.

 

In 2010, median housing values were $312,800 in Hyde Park, $124,600 in Delhi, $148,100 in Bridgetown, $126,900 in Cincinnati, $141,100 in Hamilton County, $134,400 in Ohio and $179,900 in the United States.

 

Also, Hamilton County has been characterized with lower unemployment rates. Currently, Hamilton County has an unemployment rate of 4.4 percent, with Ohio and the United States both at 4.9 percent.

 

The Bank held deposits of 4.6 percent of the total thrift deposits in the market area as of June 30, 2016, which represented only an 0.1 percent share of the total deposit base of $88.2 billion.

 

In recognition of the foregoing factors, we believe that a downward adjustment is warranted for the Banks market area.

 

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FINANCIAL CONDITION

 

The financial condition of Eagle is discussed in Section I and shown in Exhibits 1, 2, 5, and 12 through 22, and is compared to the comparable group in Exhibits 39, 40, and 41. The Bank's ratio of total equity to total assets was 11.62 percent at December 31, 2016, which was similar to the comparable group at 11.60 percent and lower than all thrifts at 11.86 percent and Ohio thrifts at 12.16 percent. Based on the conversion completed at the midpoint of the valuation range, the Corporation's pro forma equity to assets ratio will be 20.76 percent, and the Bank's pro forma equity to assets ratio will increase to 17.07 percent, recognizing the formation of the $500,000 Foundation.

 

The Bank's mix of assets and liabilities indicates both similarities to and variations from its comparable group. Eagle had a higher 73.97 percent ratio of net loans to total assets at December 31, 2016, compared to the comparable group at 71.7 percent. All thrifts indicated a lower 71.2 percent, as did Midwest thrifts at 68.4 percent. The Bank's 17.2 percent share of cash and investments was higher than the comparable group at 15.0 percent, while all thrifts were at 13.4 percent and Midwest thrifts were at 15.2 percent. Eagle’s absence of mortgage-backed securities was moderately lower than the comparable group at 7.9 percent and lower than all thrifts at 7.6 percent and Midwest thrifts at 7.8 percent.

 

The Bank's 86.3 percent ratio of deposits to total assets was higher than the comparable group at 78.0 percent, higher than all thrifts at 77.5 percent and higher than Midwest thrifts at 79.1 percent. Eagle’s higher ratio of deposits was due to its lower share of borrowed funds. Eagle had a similar equity to asset ratio of 11.6 percent, compared to the comparable group at 11.6 percent of total assets, with all thrifts at 11.9 percent and Midwest thrifts at 11.8 percent. Eagle had a lower share of borrowed funds to assets of 0.02 percent at December 31, 2016, moderately below the comparable group at 10.8 percent and lower than all thrifts at 9.7 percent and lower than Midwest thrifts at 8.2 percent. In fiscal year 2016, total deposits increased by $7.6 million or 8.2 percent and increased from $92.4 million to $100.0 million. During fiscal year 2015, Eagle’s deposits increased by $4.1 million or 4.6 percent from $88.4 million to $92.5 million.

 

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Financial Condition (cont.)

 

Eagle had no assets in combined goodwill and intangible assets and had a lower share of repossessed real estate at December 31, 2016. The Bank had repossessed real estate of $55,000 or 0.05 percent of assets at December 31, 2016. This compares to ratios of 0.53 percent for goodwill and intangible assets and 0.10 percent for real estate owned, for the comparable group. All thrifts had a goodwill and intangible assets ratio of 0.46 percent and a real estate owned ratio of 0.16 percent.

 

The financial condition of Eagle is impacted by its lower than average balance of nonperforming assets of $733,000 or 0.72 percent of total assets at December 31, 2016, compared to a higher 1.07 percent for the comparable group, 0.94 percent for all thrifts, 0.94 percent for Midwest thrifts and a higher 0.86 percent for Ohio thrifts. The Bank's ratio of nonperforming assets to total assets was 1.16 percent at December 31, 2014, and 1.27 percent at December 31, 2015.

 

At December 31, 2016, Eagle had $1,137,000 of allowances for loan losses, which represented 0.98 percent of assets and 1.31 percent of total loans. The comparable group indicated higher allowance ratios, relative to assets and loans, equal to 1.00 percent of assets and 1.22 percent of total loans, while all thrifts had allowances relative to assets and loans that averaged a lower 0.80 percent of assets and a lower 1.08 percent of total loans. Also of major importance is an institution's ratio of allowances for loan losses to nonperforming assets, since a portion of nonperforming assets might eventually be charged off. Eagle’s $1,137,000 of allowances for loan losses, represented 135.68 percent of nonperforming assets at December 31, 2016, compared to the comparable group's similar 132.94 percent, with all thrifts at 117.37 percent, Midwest thrifts at 110.18 percent and Ohio thrifts at a higher 138.06 percent. Eagle’s ratio of net charge-offs to average total loans was (0.02) percent for the year ended December 31, 2016, compared to a similar (0.01) percent for the comparable group, 0.06 percent for all thrifts and 0.10 percent for Midwest thrifts.

 

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Financial Condition (cont.)

 

Eagle has a modest level of interest rate risk. The change in the Bank’s NPV level at December 31, 2016, reflecting the most current information available, based on a rise in interest rates of 100 basis points was a 5.35 percent decrease, representing a dollar decrease in equity value of $1,670,000. The Banks exposure increases to a 10.09 percent decrease in its NPV level under a 200 basis point rise in rates, representing a dollar decrease in equity of $3,152,000. The Banks post shock NPV ratio at December 31, 2016, assuming a 200 basis point rise in interest rates was 24.68 percent and indicated a 219 basis point decrease from its 26.87 percent based on no change in interest rates.

 

Compared to the comparable group, with particular attention to the Bank’s equity level, asset quality position level and asset and liability mix, we believe that no adjustment is warranted for Eagle’s current financial condition, due to the Bank’s similar equity position, recognizing its recently lower share of nonperforming assets and similar share of allowance for loan losses to nonperforming assets.

 

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ASSET, LOAN AND DEPOSIT GROWTH

 

During its most recent two fiscal years, Eagle has been characterized by moderate changes in assets, loans and deposits relative to its comparable group. The Bank’s average annual asset change from December 31, 2014, to December 31, 2016, was an increase of 3.5 percent. This increase compares to a similar 3.1 percent increase for the comparable group, a lesser 2.8 percent for all thrifts, and a lesser 2.5 percent for Midwest thrifts. The Bank’s increase in assets is reflective of its increases in loans and deposits in 2016 of 8.49 percent and 8.18 percent, respectively. Eagle’s deposits indicate an average annual increase of 5.97 percent from December 31, 2014, to December 31, 2016, compared to average growth rates of 4.2 percent for the comparable group, 2.7 percent for all thrifts and 2.6 percent for Midwest thrifts.

 

Eagle’s deposits indicated an increase of 8.2 percent from fiscal 2015 to 2016. Annual deposit change was growth rates of 4.2 percent for the comparable group, 2.7 percent for all thrifts and 2.6 percent for Midwest thrifts. The Bank had only $28,000 in borrowed funds or 0.02 percent of assets at December 31, 2016, compared to the comparable group at 9.7 percent and had a higher $3.1 million in borrowed funds for the Bank at December 31, 2015, or 2.78 percent of assets.

 

Recognizing its moderate increase in deposits in 2016, after modest growth in 2015 and 2014, and considering the demographics, competition and deposit base trends in its market area, the Bank’s ability to increase its asset, loan and deposit bases in the future is somewhat limited, with its ability to increase its market share by competitively pricing its loan and deposit products, maintaining a high quality of service to its customers and strengthening its loan origination activity. Eagle’s primary market area county of Hamilton experienced decreases in population and households in Hamilton County between 2000 and 2010 with a projected increase from 2010 to 2020 of a minimal 0.8 percent. The Bank’s primary market area county also indicated 2010 per capita income modestly above Ohio’s and that of the United States, and the median household income level in Hamilton County was below the state and the national levels in 2010. In 2010, the median housing value in Hamilton County at $141,100 was higher than that of Ohio at $134,400 and lower than the United States at $179,900, with median rents lower than both.

 

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Asset, Loan and Deposit Growth (cont.)

 

The total deposit base in Hamilton County increased by 17.2 percent from June 30, 2015, to June 30, 2016; and during that period, the number of financial institution offices in Hamilton County decreased by four. In June 30, 2016, Eagle’s deposit market share of thrifts in Hamilton County was 4.6 percent, increasing from 3.6 percent in 2015.

 

Based on all the foregoing factors, we have concluded that no adjustment to the Corporation’s pro forma value is warranted for asset, loan and deposit growth.

 

DIVIDEND PAYMENTS

 

The Corporation has no plans to pay an initial cash dividend. The payment of cash dividends will depend upon such factors as earnings performance, financial condition, capital position, growth, asset quality and regulatory limitations. Five of the ten institutions in the comparable group paid cash dividends during the most recent twelve months for an average dividend yield of 1.92 percent and an average payout ratio of 28.41 percent. During that twelve month period, the average dividend yield was 2.05 percent for the thirteen Ohio thrifts; and the average dividend yield was 1.45 percent and the average payout ratio was 28.70 percent for all thrifts.

 

In our opinion, a downward adjustment to the pro forma market value of the Corporation is warranted related to dividend payments.

 

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SUBSCRIPTION INTEREST

 

In 2015, investors' interest in new issues continued to be reasonable then increased in late 2016. Such interest is possibly related to the improved asset quality position and resultant earnings of financial institutions overall, along with the change in the political environment and the over reaction of the new political status, which could be challenged in the future due to the low interest rate environment and the compression of net interest margin. The selective and conservative reaction of IPO investors appears generally to be related to a number of analytical, economic and market-related factors, including the financial performance and condition of the converting thrift institution, the strength of the local economy, housing market conditions, general market conditions for financial institution stocks and stocks overall, aftermarket price trends and the expectation of renewed merger/acquisition activity in the thrift industry.

 

Eagle will direct its offering initially to depositors and residents in its market area. The board of directors and officers anticipate purchasing approximately $2.1 million or 12.4 percent of the stock offered to the public based on the appraised midpoint valuation. The Bank will form an ESOP, which plans to purchase 8.0 percent of the total shares issued in the conversion and 40,000 shares will be issued to the Foundation.

 

The Bank has secured the services of Keefe, Bruyette & Woods, to assist in the marketing and sale of the conversion stock.

 

Based on the size of the offering, recent banking conditions, current market conditions, historical local market interest, the terms of the offering, and recent subscription levels for conversions, we believe that no adjustment is warranted for the Bank’s anticipated subscription interest.

 

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LIQUIDITY OF THE STOCK

 

The Corporation will offer its shares through a subscription and Eagle offering with the assistance of Keefe, Bruyette & Woods. . The stock of the Corporation will be traded on NASDAQ.

 

The Bank's total public offering is considerably smaller in size than the average market value of the comparable group. The comparable group has an average market value of $61.5 million for the stock outstanding compared to a midpoint value of $17.0 million for the Corporation, less the ESOP of 136,000 shares, 40,000 to be contributed to the Foundation, and the estimated 208,000 shares to be purchased by senior officers and directors. The Corporation’s public market capitalization will be approximately 27.6 percent of the size of the public market capitalization of the comparable group. Of the ten institutions in the comparable group, all trade on Nasdaq with those ten institutions indicating an average daily trading volume of over 13,000 shares during the last four quarters.

 

The comparable group has an average of 6,092,184 shares outstanding compared to 1,700,000 shares outstanding for the Corporation based on the midpoint valuation.

 

Based on the average market capitalization, shares outstanding and daily trading volume of the comparable group, we have concluded that a moderate downward adjustment to the Corporation’s pro forma market value is warranted relative to the liquidity of its stock.

 

MANAGEMENT

 

Gary J. Koester is the president and chief executive officer and has served in those capacities with Eagle since 1996. He has also served as a director since 1982. Mr. Koester began his career at Eagle in 1977 and has held various other positions during his time with the Bank. His experience at Eagle includes all facets of the Bank, including lending, operations, and information technology.

 

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Management (cont.)

 

Ms. Patricia L. Walter is the executive vice president of the Bank and was hired on July 6, 2016. For the eleven preceding years, Ms. Walter served as the controller and then the senior vice president of financial for the former Cheviot Savings Bank. Ms. Walter began her career in 1997, working for six years with Grant Thornton LLP as an auditor and for two years for Comair, Inc., as the manager of corporate accounting.

 

Mr. Kevin R. Schramm is a vice president, chief financial officer and treasurer of the Bank. Mr. Schramm has served as chief financial officer and treasurer with Eagle since September 2006, recently being named vice president. Mr. Schramm began his career in 1986 with Cinco Federal Credit Union, where he spent 17 years in various positions, including operations manager and controller. Mr. Schramm’s experience also includes service as the chief financial officer of Cottage Savings Bank.

 

W. Raymond McCleese is the Bank’s vice president of commercial lending and was hired on May 16, 2016. Prior to joining Eagle, he served two years as the vice president of commercial lending for First Financial Bank, and for over four years as a vice president and a part of senior management for the former Merchants Bank and Trust, heading up the commercial and industrial division. Additional experience includes service as a federal SBSE agent for the Internal Revenue Service, chief financial officer of a mid-sized interior design firm, and as a staff accountant for a well-established local CPA firm.

 

During its two most recent fiscal years, Eagle has been able to control its net interest spread and demonstrated a strong level of core noninterest income, excluding its one-time BOLI death benefit in 2016. The Bank did experience an increase in its noninterest expenses to assets in 2016, again including two one-time expense items–an FHLB prepayment penalty and a BOLI payout obligation. The Bank experienced positive earnings in 2015 and 2016. The Bank’s asset quality position has remained favorable in 2015 and 2016, with nonperforming assets being lower than industry overages. Eagle’s interest rate risk has been moderate, primarily as a result of its higher share of fixed-rate one- to four-family mortgage loans. The Bank’s core earnings

 

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Management (cont.)

 

and core return on assets have been below industry averages, along with its net interest margin, impacted by a much lower yield on earning assets. Management is confident that the Bank is positioned for moderate loan growth and stable profitability following its conversion.

 

Overall, we believe the Bank to be professionally and knowledgeably managed, as are the comparable group institutions. It is our opinion that no adjustment to the pro forma market value of the Corporation is warranted for management.

 

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MARKETING OF THE ISSUE

 

The necessity to build a new issue discount into the stock price of a new conversion continues to be a closely examined issue in recognition of uncertainty among investors as a result of the thrift industry's continued high level of competition, dependence on interest rate trends, volatility in the stock market, speculation on future changes, current legislation related to the regulation of financial institutions, and their ability to generate selected income.

 

We believe that a new issue discount applied to the price to book valuation approach is appropriate and necessary in this offering, recognizing the Bank’s volatile earnings and strong dependence on gains on loan sales, historically, as well as going forward. In our opinion, recent market trends cause us to conclude that a modest new issue discount is warranted in the case of this offering. Consequently, at this time we have made a modest downward adjustment to the Corporation's pro forma market value related to a new issue discount.

 

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VI.VALUATION METHODS

 

Introduction

 

Historically, the most frequently used method for determining the pro forma market value of common stock for thrift institutions by this firm has been the price to book value ratio method, due to the volatility of earnings in the thrift industry. As earnings in the thrift industry have improved, more emphasis has been placed on the price to earnings method, particularly considering increases in stock prices during these last two years. However, as provisions for loan losses decreased significantly and became negative for some, the price to book value method continues to be pertinent and meaningful in the objective of discerning commonality and comparability among institutions. In determining the pro forma market value of the Corporation, primary emphasis has been placed on the price to book value method, with additional analytical and correlative attention to the price to earnings method and the price to assets method.

 

In recognition of the volatility and variance in earnings, the continued differences in asset and liability repricing and the frequent disparity in value between the price to book approach and the price to earnings approach, a third valuation method, the price to net assets method, has also been used. The price to assets method is used less often for valuing ongoing institutions, but becomes more useful in valuing converting institutions when the equity position and earnings performance of the institutions under consideration are different.

 

In addition to the pro forma market value, we have defined a valuation range with the minimum of the range being 85.0 percent of the pro forma market value, the maximum of the range being 115.0 percent of the pro forma market value and the super maximum being 115.0 percent of the maximum. The pro forma market value or appraised value will also be referred to as the “midpoint value.”

 

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Introduction (cont.)

 

In applying each of the valuation methods, consideration was given to the adjustments to the Bank's pro forma market value discussed in Section V. Downward adjustments were made for the Bank’s earnings, market area, liquidity of the stock, dividend and marketing of the issue. No adjustments were made for the Bank’s subscription interest, management, financial condition and asset, loan and deposit growth.

 

PRICE TO BOOK VALUE METHOD

 

In the valuation of thrift institutions, the price to book value method focuses on an institution's financial condition, and does not give as much consideration to the institution's long term performance and value as measured by earnings. Due to the earnings volatility of many thrift stocks, the price to book value method is frequently used by investors who rely on an institution's financial condition rather than earnings performance. Although this method is, under certain circumstances, considered somewhat less meaningful for institutions that provide a consistent earnings trend, it remains significant and reliable when an institution’s performance or general economic conditions are experiencing volatile or uncustomary trends related to internal or external factors, and serves as a complementary and correlative analysis to the price to earnings and price to assets approaches.

 

The pro forma equity used in the valuation was $13,477,000, which is based on the Bank’s December 31, 2016, equity level. The Bank’s tangible equity was an identical $13,477,000.

 

Exhibit 47 shows the average and median price to book value ratios for the comparable group which were 98.17 percent and 100.78 percent, respectively. The full comparable group indicated a moderate pricing range, from a low of 70.85 percent (Central Federal Corp.) to a high of 108.23 percent (Poage Bankshares). The comparable group had higher average and median price to tangible book value ratios of 105.33 percent and 105.88 percent, respectively, with a

 

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Price to Book Value Method (cont.)

 

range of 70.85 percent to 134.45 percent. Excluding the low and the high in the group, the comparable group's price to book value ratio range narrowed to a low of 93.24 percent and a high of 106.32 percent, and the comparable group’s price to tangible book value ratio range also narrowed modestly from a low of 93.25 percent to a high of 118.45 percent.

 

Considering the foregoing factors in conjunction with the adjustments made in Section V, we have determined a fully converted pro forma price to book value ratio of 63.30 percent and a price to tangible book value ratio of 63.30 percent at the midpoint. The price to book value ratio increases from 58.71 percent at the minimum to 70.96 percent at the super maximum, while the price to tangible book value ratio increases from 58.71 percent at the minimum to 70.96 percent at the super maximum.

 

The Corporation's pro forma price to book value and price to tangible book value ratios of 63.30 percent and 63.30 percent, respectively, as calculated using the prescribed formulary computation indicated in Exhibit 46, are influenced by the Bank's capitalization, asset quality position, earnings performance, ESOP level, local market and public ownership, as well as subscription interest in thrift stocks and overall market and economic conditions. The pro forma price to book value also recognized the Bank’s plan to form a foundation of $500,000 from the proceeds comprised of $100,000 in cash and 40,000 shares of stock at a price of $10.00 per share. The Corporation's ratio of equity to assets after conversion at the midpoint of the valuation range will be approximately 20.76 percent compared to 11.60 percent for the comparable group (reference Exhibit 47). Based on the price to book value ratio and the Bank's total pro forma equity of $13,477,000 at December 31, 2016, the indicated pro forma market value of the Corporation using this approach is $17,000,000 at the midpoint (reference Exhibit 46).

 

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PRICE TO CORE EARNINGS METHOD

 

The foundation of the price to core earnings method is the determination of the core earnings based to be used, followed by the calculation of an appropriate price to core earnings multiple. The Corporation’s after tax core earnings for the year ended December 31, 2016, were $693,000 (reference Exhibit 7) and its net earnings were $1,460,000 for that period. To opine the pro forma market value of the Corporation using the price to core earnings method, we applied the core earnings base of $693,000.

 

In determining the fully converted price to core earnings multiple, we reviewed the ranges of the price to core earnings and the price to net earnings multiples for the comparable group and all publicly traded thrifts. As indicated in Exhibit 46, the average price to core earnings multiple for the comparable group was 21.20, while the median was a lower 17.16. The average price to net earnings multiple was 22.62, and the median multiple was 16.21. The range of the price to core earnings multiple for the comparable group was from a low of 8.33 to a high of 47.09. The range in the price to core earnings multiple for the comparable group, excluding the high and low ranges, was from a low multiple of 12.15 to a high of 41.25 times earnings for eight of the ten institutions in the group, indicating a modest narrowing of the range.

 

Consideration was given to the adjustments to the Corporation’s pro forma market value discussed in Section V. In recognition of those adjustments, we have determined a fully converted price to core earnings multiple of 22.74 at the midpoint, based on the Corporation’s core earnings of $693,000 for the year ended December 31, 2016. The Corporation’s fully converted core earnings multiple of 22.74 is higher than its net earnings multiple, which was 10.77 times earnings.

 

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PRICE TO ASSETS METHOD

 

The final valuation method is the price to assets method. This method is not frequently used, since the calculation incorporates neither an institution's equity position nor its earnings base. Additionally, the prescribed formulary computation of value using the pro forma price to assets method does not recognize the runoff of deposits concurrently allocated to the purchase of conversion stock, returning a pro forma price to assets ratio below its true level following conversion.

 

Exhibit 47 indicates that the average price to assets ratio for the comparable group was 11.51 percent and the median was 11.29 percent. The range in the price to assets ratios for the comparable group varied from a low of 6.90 percent (Central Federal) to a high of 18.09 percent (Wolverine Bancorp). The range narrows modestly with the elimination of the two extremes in the group to a low of 8.60 percent and a high of 15.56 percent.

 

Consistent with the previously noted adjustments, it is our opinion that an appropriate price to assets ratio for the Corporation is 13.14 percent at the midpoint, which ranges from a low of 11.37 percent at the minimum to 16.761 percent at the super maximum. Based on the Bank's December 31, 2016, asset base of $115,973,000, the indicated pro forma market value of the Corporation using the price to assets method is $17,000,000 at the midpoint (reference Exhibit 45).

 

VALUATION CONCLUSION

 

Exhibit 52 provides a summary of the valuation premium or discount for each of the valuation ranges when compared to the comparable group based on each of the fully converted valuation approaches. At the midpoint value, the price to book value ratio of 63.30 percent for the Corporation represents a discount of 35.52 percent relative to the comparable group and decreases to a discount of 27.92 percent at the super maximum. The price to assets ratio of 13.14 percent at the midpoint represents a premium of 14.16 percent, increasing to a premium of 45.61

 

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Valuation Conclusion (cont.)

 

percent at the super maximum. The price to core earnings multiple at the midpoint represents a premium of 7.25 percent and represents a premium of 40.17 percent at the super maximum.

 

It is our opinion that as of February 21, 2017, the pro forma market value of the Corporation is $17,000,000 at the midpoint, representing 1,700,000 shares at $10.00 per share. The pro forma valuation range of the Corporation is from a minimum of $14,450,000 or 1,445,000 shares at $10.00 per share to a maximum of $19,550,000 or 1,955,000 shares at $10.00 per share, and then to a super maximum of $22,482,500 or 2,248,250 shares at $10.00 a share, with such range being defined as 15 percent below the appraised value to 15 percent above the appraised value and then 15 percent above the maximum.

 

The appraised value of Eagle Financial Bancorp, Inc., as of February 21, 2017, is $17,000,000 at the midpoint.

 

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EXHIBITS

 

 

 

 

NUMERICAL

 

EXHIBITS

 

 

 

 

EXHIBIT 1

 

EAGLE SAVINGS BANK

CINCINNATI, OHIO

 

Balance Sheet

At December 31, 2016

 

   At December 31, 
   2016 
   (in thousands) 
ASSETS     
Cash and due from banks  $459 
Federal Reserve Bank and Federal Home Loan Bank (FHLB) demand accounts   19,130 
Cash and cash equivalents   19,589 
      
Interest-bearing time deposits in other banks   346 
Loans held-for-sale   2,732 
Loans, net of allowance for loan losses of $1,137   83,048 
Premises and equipment at depreciated cost   4,340 
FHLB stock, at cost   728 
Foreclosed real estate held-for-sale, net   55 
Bank-owned life insurance   1,865 
FHLB lender risk account receivable   2,698 
Accrued interest receivable   270 
Prepaid federal income taxes   75 
Other assets   227 
      
Total assets  $115,973 
      
LIABILITIES AND EQUITY     
      
LIABILITIES     
Deposits     
Noninterest-bearing  $4,816 
Interest-bearing   95,228 
Total deposits   100,044 
      
FHLB advances   28 
Advances from borrowers for taxes and insurance   716 
Accrued interest payable   1 
Accrued supplemental retirement plans   868 
Deferred federal tax liability   554 
Other liabilities   285 
Total liabilities   102,496 
      
Retained earnings   13,477 
Total equity   13,477 
      
Total liabilities and retained earnings  $115,973 

 

Source: Eagle Savings' audited financial statement

 

 75 

 

 

EXHIBIT 2

 

EAGLE SAVINGS BANK

CINCINNATI, OHIO

 

Balance Sheets

At December 31, 2012, 2013, 2014 and 2015

 

   December 31, 
   2015   2014   2013   2012 
   (in thousands) 
ASSETS                    
Cash and cash equivalents  $19,012   $12,850   $10,351   $13,139 
Interest-bearing time deposits in other banks   842    2,979    4,966    8,644 
Loans held-for-sale   2,439    803    1,242    3,977 
Loans, net of allowance for loan losses of $1,036, $1,219, $1,339, and $1,324, respectively   76,638    81,278    82,044    69,363 
Premises and equipment at depreciated cost   4,410    3,938    3,134    3,117 
FHLB stock at cost   727    726    722    722 
Foreclosed real estate held-for-sale, net   478    402    247    877 
Bank-owned life insurance   2,362    2,299    2,237    2,180 
FHLB lender risk account receivable   2,212    1,981    1,470    1,096 
Accrued interest receivable   260    272    292    267 
Prepaid federal income taxes   133                
Other assets   183    138    177    476 
Total assets  $109,696   $107,666   $106,882   $103,858 
                     
LIABILITIES AND RETAINED EARNINGS LIABILITIES                    
Deposits  $92,450   $88,404   $86,668   $87,568 
FHLB advances   3,052    6,079    8,111    5,168 
Advances from borrowers for taxes and insurance   674    705    723    527 
Accrued interest payable   12    14    21    20 
Accrued supplemental retirement plans   769                
Deferred federal tax liability   437                
Other liabilities   285    1,072    732    962 
Total liabilities   97,679    96,274    96,255    94,245 
                     
Retained earnings  $12,017   $11,392   $10,627   $9,613 
                     
Total equity   12,017    11,392    10,627    9,613 
                     
Total liabilities and retained earnings  $109,696   $107,666   $106,882   $103,858 

 

Source: Eagle Savings Bank's audited financial statements

 

 76 

 

 

EXHIBIT 3

 

EAGLE SAVINGS BANK

CINCINNATI, OHIO

 

Statement of Income

For the Year Ended December 31, 2016

(In thousands)

 

   Year Ended 
   December 31, 
   2016 
Interest and dividend income     
Interest earned on loans  $3,698 
Dividends on FHLB stock   29 
Other interest-earning deposits and other   76 
Total interest and dividend income   3,803 
      
Interest expense:     
Interest on deposits   689 
FHLB advances   33 
Total interest expense   722 
      
Net interest income   3,081 
      
Provision for loan losses   83 
      
Net interest income after provision for loan losses   2,998 
      
Noninterest income:     
Net gains on loan sales   2,131 
Other service charges and fees   187 
Net gain (loss) on sale of foreclosed real estate   12 
Death benefit proceeds in excess of cash surrender value BOLI   940 
Income from BOLI   48 
Total noninterest income   3,318 
      
Noninterest expense:     
Compensation and benefits   2,463 
Occupancy and equipment, net   226 
Data processing   360 
Legal and professional services   189 
FDIC premium expense   57 
Foreclosed real estate impairments and expenses, net   44 
Franchise and other taxes   109 
Advertising   179 
ATM processing expense   81 
FHLB advance prepayment penalty   121 
Death benefit obligation payout of BOLI   410 
Other expenses   352 
Total noninterest expense   4,591 
      
Income before income taxes   1,725 
      
Income taxes     
Current   109 
Deferred   156 
Total income taxes   265 
      
Net income  $1,460 

 

Source: Eagle Savings Bank's audited financial statement

 

 77 

 

 

EXHIBIT 4

 

EAGLE SAVINGS BANK

CINCINNATI, OHIO

 

Statements of Income

Years Ended December 31, 2012, 2013, 2014 and 2015

 

   December 31, 
   2015   2014   2013   2012 
Interest and dividend income:                    
Interest earned on loans  $3,718   $3,892   $3,754   $3,870 
Deposits with financial institutions       33    61    68 
Dividends on FHLB stock   29    29    31    32 
Other interest-earning deposits and other   37    16    15    18 
Total interest and dividend income   3,784    3,970    3,861    3,988 
                     
Interest expense:                    
Interest on deposits   622    591    573    772 
FHLB advances   144    169    227    222 
Total interest expense   766    760    800    994 
                     
Net interest income   3,018    3,210    3,061    2,994 
                     
Provision for loan losses   75    75        510 
                     
Net interest income after provision for loan losses   2,943    3,135    3,061    2,484 
                     
Noninterest income:                    
Net gains on loan sales   1,585    1,309    1,513    2,737 
Other service charges and fees   172    141    159    170 
Net gain (loss) on sale of foreclosed real estate   (18)   10    22    67 
Income from leasing       119    118    120 
Income from BOLI   63    62    57    65 
Total noninterest income   1,802    1,641    1,869    3,159 
                     
Noninterest expense:                    
Compensation and benefits   2,213    1,891    1,797    1,656 
Occupancy and equipment, net   248    318    282    274 
Data processing   345    268    250    260 
Legal and professional services   167    147    202    206 
FDIC premium expense   79    69    95    140 
Foreclosed real estate impairments and expenses, net   118    66    118    217 
Franchise and other taxes   78    73    101    84 
Advertising   136              
ATM processing expense   78              
Other expenses   324    847    553    790 
Total noninterest expense   3,786    3,679    3,398    3,627 
                     
Income before income taxes   959    1,097    1,532    2,016 
                     
Federal income tax expense   335    331    518    807 
                     
Net income  $624   $766   $1,014   $1,209 

 

Source: Eagle Savings Bank's audited financial statements

 

 78 

 

 

EXHIBIT 5

 

Selected Financial Information

At December 31, 2015 and 2016

 

   At December 31, 
   2016   2015 
   (In thousands) 
Selected Financial Condition Data:          
           
Total assets  $115,973   $109,696 
Cash and due from banks   19,589    19,012 
Interest-bearing deposits in banks   346    842 
Loans held-for-sale   2,732    2,439 
Loans, net   83,048    76,638 
Premises and equipment, net   4,340    4,410 
Bank-owned life insurance   1,865    2,362 
FHLB lender risk account receivable   2,698    2,212 
Deposits   100,044    92,450 
FHLB advances   28    3,052 
Total equity   13,477    12,017 

 

Source: Eagle Financial Bancorp, Inc.'s Prospectus

 

 79 

 

 

EXHIBIT 6

 

Income and Expense Trends

For the Years Ended December 31, 2015 and 2016

 

   For the Years Ended 
   December 31, 
   2016   2015 
   (In thousands) 
Selected Operations Data:          
Interest and dividend income  $3,803   $3,784 
Interest expense   722    766 
Net interest income   3,081    3,018 
Provision for loan losses   83    75 
Net interest income after provision for loan losses   2,998    2,943 
Noninterest income   3,318    1,802 
Noninterest expense   4,591    3,786 
Income before income tax expense   1,725    959 
Income tax expense   265    335 
Net income  $1,460   $624 

 

Source: Eagle Financial Bancorp, Inc.'s Prospectus

 

 80 

 

 

EXHIBIT 7

 

EAGLE SAVINGS BANK

Normalized or Core Earnings

Twelve Months Ended December 31, 2016

 

       Twelve Months 
       Ended 
       December 31, 
   Total   2016 
         
NET          
Net income before taxes  $1,725,000   $1,725,000 
           
Taxes   265,000    265,000 
           
Net income  $1,460,000   $1,460,000 
           
CORE          
Net income before taxes  $1,725,000      
           
Income adjustments:          
BOLI death benefit   (940,000)     
Gains on loans sold   (251,000)     
           
Expense adjustments:          
BOLI payout   410,000      
FHLB penalty   121,000      
           
Net income before taxes   1,065,000      
           
Taxes @ 34.9%   372,000      
           
Core income  $693,000      

 

Source: Eagle Savings Bank's audited financial statements

 

 81 

 

 

EXHIBIT 8

 

Performance Indicators

At or for the Years Ended December 31, 2015 and 2016

 

   Years Ended 
   December 31, 
   2016   2015 
Selected Financial Ratios and Other Data          
           
Performance Ratios:          
Return on average assets   1.30%   0.58%
Return on average equity   11.29%   5.28%
Interest rate spread (1)   2.94%   3.00%
Net interest margin (2)   3.02%   3.06%
Efficiency ratio (3)   71.75%   78.55%
Noninterest expense to average total assets   4.08%   3.51%
Average interest-earning assets to average interest-bearing liabilities   109.68%   108.42%
Average equity to average total assets   11.49%   10.96%
           
Asset Quality Ratios:          
Nonperforming assets to total assets   0.72%   1.27%
Nonperforming loans to total loans   0.87%   1.09%
Allowance for loan losses to nonperforming loans   145.21%   113.35%
Allowance for loan losses to total loans   1.27%   1.23%
           
Capital Ratios:          
Total capital (to risk-weighted assets)   14.11%   14.09%
Common equity Tier 1 capital (to risk-weighted assets)   13.02%   12.98%
Tier 1 capital (to risk-weighted assets)   13.02%   12.98%
Tier 1 capital (to average assets)   11.67%   11.19%

 

(1)Represents the difference between the weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities for the year.
(2)The net interest margin represents net interest income as a percent of average interest-earning assets for the year.
(3)The efficiency ratio represents noninterest expense divided by the sum of net interest income and noninterest income.

 

Source: Eagle Financial Bancorp, Inc.'s Prospectus

 

 82 

 

 

EXHIBIT 9

 

Volume/Rate Analysis

For the Years Ended December 31, 2016 vs. 2015

 

   Year Ended December 31, 
   2016 vs 2015 
   Increase (Decrease)     
   Due to     
   Volume   Rate   Total 
   (Dollars in thousands) 
Interest-earning assets:               
Loans  $44   $(64)  $(20)
Other interest-earning assets   8    31    39 
Total interest-earning assets  $52   $(33)  $19 
                
Interest-bearing liabilities:               
Interest-bearing checking  $3   $16   $19 
Savings   2        2 
Money market demand   2    21    23 
Certificates of deposit   31    (8)   23 
Total deposits   38    29    67 
FHLB advances   (159)   48    (111)
Total interest-bearing liabilities   (121)   77    (44)
                
Change in net interest income  $173   $(110)  $63 

 

Source: Eagle Financial Bancorp, Inc.'s Prospectus

 

 83 

 

 

EXHIBIT 10

 

Yield and Cost Trends

At December 31, 2016, and

For the Years Ended December 31, 2015 and 2016

 

       For the Years Ended 
   At December 31,   December 31, 
   2016   2016   2015 
   Yield/   Yield/   Yield/ 
   Rate   Rate   Rate 
Interest-earning assets:               
Loans, net   4.39%   4.41%   4.49%
Other interest-earning assets   0.73%   0.57%   0.42%
Total interest-earning assets   3.68%   3.72%   3.84%
Interest-bearing liabilities:               
Interest-bearing checking   0.16%   0.26%   0.16%
Savings   0.14%   0.15%   0.14%
Money market demand   2.60%   0.32%   0.22%
Certificates of deposit   1.33%   1.34%   1.36%
Total interest-bearing deposits   1.22%   0.75%   0.72%
FHLB advances   3.33%   4.25%   2.88%
Total interest-bearing liabilities   1.22%   0.78%   0.84%
                
Net interest rate spread (1)   2.46%   2.94%   3.00%
                
Net interest margin (2)       3.02%   3.06%
                
Average interest-earning assets to interest-bearing liabilities       109.68%   108.42%

 

(1)Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(2)Net interest margin represents net interest income divided by average total interest-earning assets.

 

Source: Eagle Financial Bancorp, Inc.'s Prospectus

 

 84 

 

 

EXHIBIT 11

 

Net Portfolio Value

At December 31, 2016

 

               NPV as a Percentage of 
Change in      Estimated Increase   Present Value of Assets (3) 
Interest Rates  Estimated   (Decrease) in NPV   MPV   Increase/ 
(Basis Points) (1)  NPV (2)   $ Amount   Percent   Ratio (4)   (Decrease) 
   (Dollars in thousands)       (Basis Points) 
                     
+300  $26,673   $(4,556)   (14.59)%   23.71%   (316)
+200   28,077    (3,152)   (10.09)%   24.68%   (219)
+100   29,559    (1,670)   (5.35)%   25.71%   (116)
   31,229            26.87%    
-100   28,828    (2,401)   (7.69)%   24.51%   (236)

 

(1)Assumes an immediate uniform change in interest rates at all maturities.
(2)NPV is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.
(3)Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.
(4)NPV Ratio represents NPV divided by the present value of assets.

 

Source: Eagle Financial Bancorp, Inc.'s Prospectus

 

 85 

 

 

EXHIBIT 12

 

Loan Portfolio Composition

At December 31, 2015 and 2016

(Dollars in thousands)

 

   At December 31, 
   2016   2015 
   Amount   Percent   Amount   Percent 
One- to four-family residential:                    
Owner-occupied  $41,914    46.75%  $39,376    46.94%
Nonowner-occupied   5,743    6.41%   6,603    7.87%
Commercial real estate and land   13,631    15.21%   12,939    15.42%
Home equity and other consumer(1)   14,593    16.28%   12,912    15.39%
Residential construction   9,468    10.56%   7,877    9.39%
Multi-family real estate   2,513    2.80%   2,995    3.57%
Commercial real estate and land   1,779    1.99%   1,194    1.42%
Total gross loans receivable   89,641    100.0%   83,896    100.0%
                     
Deferred loan costs   98         113      
Loans in process   (5,554)        (6,335)     
Allowance for loan losses   (1,137)        (1,036)     
                     
Total loans receivable, net  $83,048        $76,638      

 

(1)At December 31, 2016, other consumer loans totaled $32,000.

 

Source: Eagle Financial Bancorp, Inc.'s Prospectus

 

 86 

 

 

EXHIBIT 13

 

Loan Maturity Schedule

At December 31, 2016

 

       One- to four                         
   One- to four-   Family       Home                 
   Family   Residential   Commercial   Equity and                 
Due During the Years  Residential   Nonowner   Real Estate   Other   Residential   Multi-family         
Ending December 31,  Owner-Occupied   Occupied   and Land   Consumer   Construction   Real Estate   Commercial   Total 
   (Dollars in thousands) 
2017  $727   $100   $320   $1,188   $9,468   $52   $266   $12,121 
2018   827    105    335    1,241        55    277    2,840 
2019   863    111    350    1,297        57    289    2,967 
2020 to 2021   1,839    240    751    2,772        123    618    6,343 
2022 to 2026   5,345    721    2,206    8,095        359    329    17,055 
2027 to 2031   6,612    934    2,771            448        10,765 
2032 and beyond   25,701    3,532    6,898            1,419        37,550 
Total  $41,914   $5,743   $13,631   $14,593   $9,468   $2,513   $1,779   $89,641 

 

Fixed and Adjustable-Rate Loan Schedule

 

   Due After December 31, 2017 
   Fixed   Adjustable   Total 
   (Dollars in thousands) 
             
One- to four-family residential:               
Owner-occupied  $39,997   $1,190   $41,187 
Nonowner-occupied   2,237    3,406    5,643 
Commercial real estate and land   2,638    10,673    13,311 
Home equity and other consumer   733    12,672    13,405 
Residential construction            
Multi-family real estate   148    2,313    2,461 
Commercial   1,513        1,513 
Total  $47,266   $30,254   $77,520 

 

Source: Eagle Financial Bancorp, Inc.'s Prospectus

 

 87 

 

 

EXHIBIT 14

 

Loan Originations, Purchases, Sales and Repayments

For the Years Ended December 31, 2015 and 2016

 

   Years Ended 
   December 31, 
   2016   2015 
   (In thousands) 
         
Total gross loans, including loans held-for-sale, at beginning of year  $86,335   $86,361 
           
Loans originated:          
One- to four-family residential:          
Owner-occupied   94,440    79,098 
Nonowner-occupied        
Multi-family real estate        
Residential construction   9,439    9,295 
Commercial real estate and land   1,131    3,095 
Commercial   1,559    468 
Home equity and other consumer   9,061    8,021 
Total loans originated   115,630    99,977 
           
Loans purchased:          
One- to four-family residential:          
Owner-occupied        
Nonowner-occupied        
Multi-family real estate        
Residential construction        
Commercial real estate and land   1,176     
Commercial        
Home equity and other consumer        
Total loans purchased   1,176     
           
Loans sold:          
One- to four-family residential:          
Owner-occupied   (81,741)   (68,956)
Nonowner-occupied        
Multi-family real estate        
Residential construction        
Commercial real estate and land   (74)   (576)
Commercial        
Home equity and other consumer        
Total loans sold   (81,815)   (69,532)
           
Other:          
Principal repayments   (28,953)   (30,469)
           
Net loan activity   6,038    (27)
           
Total loans at end of period  $92,373   $86,334 

 

Source: Eagle Financial Bancorp, Inc.'s Prospectus

 

 88 

 

 

EXHIBIT 15

 

Loan Delinquencies

At December 31, 2016

 

   Loans Delinquent For         
   30-89 Days   90 Days and Over   Total 
   Number   Amount   Number   Amount   Number   Amount 
   (Dollars in thousands) 
                         
At December 31, 2016                              
                               
One- to four-family residential:                              
Owner-occupied   6   $469       $    6   $469 
Nonowner-occupied                        
Commercial real estate and land   1    207            1    207 
Home equity and other consumer   4    104    1    50    5    154 
Residential construction                        
Multi-family real estate                        
Commercial                        
                               
Total   11   $780    1   $50    12   $830 
                               
At December 31, 2015                              
                               
One- to four-family residential:                              
Owner-occupied   1   $25       $    1   $25 
Nonowner-occupied                        
Commercial real estate and land                        
Home equity and other consumer   2    33            2    33 
Residential construction                        
Multi-family real estate                        
Commercial                        
                               
Total   3   $58    0   $0    3   $58 

 

Source: Eagle Financial Bancorp, Inc.'s Prospectus

 

 89 

 

 

EXHIBIT 16

 

Nonperforming Assets

At December 31, 2015 and 2016

 

   At December 31, 
   2016   2015 
   (Dollars in thousands) 
         
Nonaccrual loans:          
One- to four-family residential:          
Owner-occupied  $   $ 
Nonowner-occupied        
Commercial real estate and land        
Home equity and other consumer   50     
Residential construction        
Multi-family real estate        
Commercial        
Total Total nonaccrual loans   50    0 
           
Accruing loans 90 days or more past due        
Total loans 90 days or more past due        
           
Accruing troubled debt restructurings:          
One- to four-family residential:          
Owner-occupied  $80   $82 
Nonowner-occupied   319    485 
Commercial real estate and land        
Home equity and other consumer        
Residential construction        
Multi-family real estate   4    17 
Commercial   330    330 
Total Total   733    914 
           
Total nonperforming loans  $783   $914 
Foreclosed real estate   55    478 
Total nonperforming assets   838    1,392 
           
Ratios:          
Total nonperforming loans to total loans   0.87%   1.09%
Total nonperforming assets to total assets   0.72%   1.27%

 

Source: Eagle Financial Bancorp, Inc.'s Prospectus

 

 90 

 

 

  

EXHIBIT 17

 

Classified Assets

At December 31, 2015 and 2016

(Dollars in thousands)

 

   At 
   December 31, 
   2016   2015 
Classified loans:          
Substandard  $1,737   $1,658 
Doubtful assets        
Loss assets        
Total classified loans  $1,737   $1,658 
           
Special mention loans  $99   $260 
           
Foreclosed real estate held-for-sale  $55   $478 

 

Source: Eagle Financial Bancorp, Inc.'s Prospectus

 

 91 

 

  

EXHIBIT 18

 

Allowance for Loan Losses

For the Years Ended December 31, 2015 and 2016

 

   At or for the Years Ended 
   December 31, 
   2016   2015 
   (Dollars in thousands) 
         
Balance at beginning of year  $1,036   $1,219 
           
Charge-offs:          
One- to four-family residential          
Owner-occupied   (35)   (91)
Nonowner-occupied       (198)
Commercial real estate and land        
Home equity and other consumer        
Residential construction        
Multi-family real estate        
Commercial        
Total charge-offs   (35)   (289)
           
Recoveries:          
One- to four-family residential          
Owner-occupied   11    18 
Nonowner-occupied        
Commercial real estate and land        
Home equity and other consumer        
Residential construction        
Multi-family real estate        
Commercial   42    13 
Total recoveries   53    31 
           
Net recoveries (charge-offs)   18    (258)
           
Provision for loan losses   83    75 
           
Balance at end of year  $1,137   $1,036 
           
Ratios:          
Net charge-offs (recoveries) to average loans outstanding   (0.02)%   0.31%
Allowance for loan losses to nonperforming loans at end of year   145.21%   113.35%
Allowance for loan losses to total loans at end of year   1.27%   1.23%

 

Source: Eagle Financial Bancorp, Inc.'s Prospectus

 

 92 

 

 

EXHIBIT 19

 

Mix of Average Deposit Accounts

For the Years Ended December 31, 2015 and 2016

 

   For the Years Ended December 31, 
   2016   2015 
   (Dollars in thousands) 
                 
Deposit type:                
   Average   Percent   Average   Percent 
   Balance   of Total   Balance   of Total 
Noninterest-bearing checking  $4,621    4.77%  $3,454    3.87%
Interest-bearing checking   15,733    16.22%   13,971    15.64%
Savings   14,152    14.59%   13,115    14.68%
Money market demand   20,587    21.23%   19,038    21.31%
Certificates of deposit   41,879    43.19%   39,762    44.50%
                     
Total deposits  $96,972    100.00%  $89,340    100.00%

 

Source: Eagle Financial Bancorp, Inc.'s Prospectus

 

 93 

 

 

EXHIBIT 20

 

Certificates of Deposit of $100,000 or More by Maturity and

All Certificates of Deposit By Rate and Maturity

As of December 31, 2016

 

   At 
   December 31, 
   2016 
   (In thousands) 
     
Three months or less  $1,521 
Over three months through six months   2,578 
Over six months through one year   2,740 
Over one year to three years   12,180 
Over three years    
      
Total  $19,019 

 

   At December 31, 2016 
   Period to Maturity 
                       Percentage 
   Less Than   Over One   Over Two           of Total 
   or Equal to   Year to Two   Years to   Over Three       Certificate 
   One Year   Years   Three Years   Years   Total   Accounts 
   (Dollars in thousands)     
Interest Rate:                              
Less than 1.00%  $12,257   $1,740   $479   $   $14,476    35.03%
1.00% - 1.99%   4,220    2,183    7,568    9,536    23,507    56.89%
2.00% - 2.99%       2,201    0    1,136    3,337    8.08%
                               
Total  $16,477   $6,124   $8,047   $10,672   $41,320    100.00%

 

Source: Eagle Financial Bancorp, Inc.'s Prospectus

 

 94 

 

 

EXHIBIT 21

 

Deposit Activity

At or for the Years Ended December 31, 2015 and 2016

 

   At December 31, 
   2016   2015 
   (In thousands) 
         
Beginning balance  $92,450   $89,055 
Net deposits before interest expense   6,905    2,773 
Interest expense   689    622 
Net increase in deposits   7,594    3,395 
Ending balance  $100,044   $92,450 

 

Source: Eagle Financial Bancorp, Inc.'s Prospectus

 

 95 

 

 

EXHIBIT 22

 

Borrowed Funds

For the Years Ended December 31, 2015 and 2016

 

   At or for the Years Ended 
   December 31, 
   2016   2015 
   (In thousands) 
FHLB advances:          
Balance at end of year  $28   $3,052 
           
Average balance during year   777    5,000 
           
Maximum outstanding at any month end   3,050    6,077 
           
Weighted average interest rate at end of year   3.33%   4.31%
           
Average interest rate during year   4.25%   2.88%

 

Source: Community Savings Bancorp, Inc.'s Prospectus

 

 96 

 

 

EXHIBIT 23

 

OFFICES OF EAGLE SAVINGS

CINCINNATI, OHIO

As of December 31, 2016

 

   Owned     Net Book Value 
   or  Year Acquired  of 
Location  Leased  or Leased  Real Property 
         (in thousands) 
Main Office           
6415 Bridgetown Road
Cincinnati, Ohio 45248
  Owned  2003  $2,586 
            
Branch Offices:           
5681 Rapid Run
Rapid Run Plaza (at Neeb Rd.)
Cincinnati, Ohio 45238
  Leased  2009   34 
            
3420 Edwards Road
Cincinnati, Ohio 45208
  Owned  2014   1,394

 

 

 

Source: Eagle Financial Bancorp, Inc.'s Prospectus

 

 97 

 

 

EXHIBIT 24

 

DIRECTORS AND MANAGEMENT OF COMMUNITY

At December 31, 2016

 

            Director   Term
Name(1)   Position(s) Held with the Bank   Age   Since   Expires
                 
Gary J. Koester   President, Chief Executive Officer and Director   63   1982   2019
James W. Braun   Chairman of the Board   69   1995   2018
Guy W. Cagney   Director   64   2002   2020
Steven J. Dulle   Director   59   1996   2020
Adam B. Goetzman   Director   57   2008   2018
Steven C. Kehoe   Director   61   2008   2019

 

(1)The mailing address for each person listed is 6415 Bridgetown Road, Cincinnati, Ohio 45248

 

Source: Eagle Financial Bancorp, Inc.'s Prospectus

 

 98 

 

  

EXHIBIT 25

 

Key Demographic Data and Trends

ZIP Codes 45208, 45238 and 45248,

Cincinnati, Hamilton County, Ohio and the United States

2000, 2010 and 2020

 

   2000   2010   % Change   2020   % Change 
Population                         
Hyde Park (ZIP Code 45208)   17,286    17,614    1.9%   17,665    0.3%
Delhi (ZIP Code 45238)   47,231    45,760    (3.1)%   44,767    (2.2)%
Bridgetown (ZIP Code 45248)   22,315    24,915    11.7%   24,325    (2.4)%
Cincinnati   331,285    296,943    (10.4)%   299,070    0.7%
Hamilton County   845,303    802,374    (5.1)%   809,128    0.8%
Ohio   11,353,140    11,536,504    1.6%   11,704,840    1.5%
United States   281,421,906    308,745,538    9.7%   332,139,637    7.6%
                          
Households                         
Hyde Park (ZIP Code 45208)   8,730    8,741    0.1%   8,780    0.4%
Delhi (ZIP Code 45238)   19,199    18,656    (2.8)%   18,189    (2.5)%
Bridgetown (ZIP Code 45248)   8,600    9,819    14.2%   9,579    (2.4)%
Cincinnati   148,095    133,420    (9.9)%   134,816    1.0%
Hamilton County   346,790    333,945    (3.7)%   339,479    1.7%
Ohio   4,445,773    4,603,435    3.5%   4,669,326    1.4%
United States   105,480,101    116,716,292    10.7%   125,527,510    7.5%
                          
Per Capita Income                         
Hyde Park (ZIP Code 45208)  $45,453   $56,541    24.4%        
Delhi (ZIP Code 45238)   21,686    24,063    11.0%        
Bridgetown (ZIP Code 45248)   25,377    30,746    21.2%        
Cincinnati   19,962    24,538    22.9%        
Hamilton County   24,053    28,037    16.6%        
Ohio   21,003    26,520    26.3%        
United States   22,162    26,059    17.6%        
                          
Median Household Income                         
Hyde Park (ZIP Code 45208)  $58,379   $77,993    33.6%  $92,453    18.5%
Delhi (ZIP Code 45238)   42,573    58,882    38.3%   59,413    0.9%
Bridgetown (ZIP Code 45248)   54,210    63,218    16.6%   75,352    19.2%
Cincinnati   29,493    53,681    82.0%   46,245    (13.9)%
Hamilton County   40,964    46,236    12.9%   55,611    20.3%
Ohio   40,956    48,849    19.3%   53,490    9.5%
United States   41,994    50,046    19.2%   61,618    23.1%

 

Source: U.S. Census and Business Decision

 

 99 

 

 

EXHIBIT 26

 

Key Housing Data

ZIP Codes 45208, 45238 and 45248,

Cincinnati, Hamilton County, Ohio and the United States

2000 & 2010

 

   2000   2010 
Occupied Housing Units          
Hyde Park (ZIP Code 45208)   8,730    8,741 
Delhi (ZIP Code 45238)   19,199    18,656 
Bridgetown (ZIP Code 45248)   8,600    9,819 
Cincinnati   148,095    133,420 
Hamilton County   346,790    333,945 
Ohio   4,445,773    4,603,435 
United States   105,480,101    116,716,292 
           
Occupancy Rate          
Hyde Park (ZIP Code 45208)          
Owner-Occupied   57.2%   59.2%
Renter-Occupied   42.8%   40.8%
Delhi (ZIP Code 45238)          
Owner-Occupied   66.4%   63.2%
Renter-Occupied   33.6%   36.8%
Bridgetown (ZIP Code 45248)          
Owner-Occupied   88.2%   86.8%
Renter-Occupied   11.8%   13.2%
Cincinnati          
Owner-Occupied   39.0%   38.9%
Renter-Occupied   61.0%   61.1%
Hamilton County          
Owner-Occupied   59.9%   59.5%
Renter-Occupied   40.1%   40.5%
Ohio          
Owner-Occupied   66.4%   67.6%
Renter-Occupied   33.6%   32.4%
United States          
Owner-Occupied   66.2%   65.4%
Renter-Occupied   33.8%   34.6%
           
Median Housing Values          
Hyde Park (ZIP Code 45208)  $220,300   $312,800 
Delhi (ZIP Code 45238)   101,200    124,600 
Bridgetown (ZIP Code 45248)   120,100    148,100 
Cincinnati   93,000    126,900 
Hamilton County   111,400    141,100 
Ohio   103,700    134,400 
United States   119,600    179,900 
           
Median Rent          
Hyde Park (ZIP Code 45208)  $640   $822 
Delhi (ZIP Code 45238)   468    639 
Bridgetown (ZIP Code 45248)   550    770 
Cincinnati   444    630 
Hamilton County   485    683 
Ohio   515    685 
United States   602    871 

 

Source: U.S. Census Bureau

 

 100 

 

 

EXHIBIT 27

 

Major Sources of Employment by Industry Group

ZIP Codes 45208, 45238 and 45248,

Cincinnati, Hamilton County, Ohio and the United States

2000 and 2010

 

   2000 
   Hyde Park   Delhi   Bridgetown                 
   ZIP Code   ZIP Code   ZIP Code       Hamilton       United 
Industry Group  45208   45238   45248   Cincinnati   County   Ohio   States 
                             
Agriculture/Mining   0.0%   0.1%   0.1%   0.1%   0.1%   1.1%   1.9%
Construction   2.0%   6.0%   7.8%   4.7%   5.6%   6.0%   6.8%
Manufacturing   13.5%   11.7%   14.6%   12.3%   14.5%   20.0%   14.1%
Wholesale/Retail   14.6%   16.7%   16.2%   13.2%   15.2%   15.5%   15.3%
Transportation/Utilities   2.3%   5.5%   4.8%   4.7%   4.7%   4.9%   5.2%
Information   3.6%   2.4%   2.6%   2.9%   2.8%   2.4%   3.1%
Finance, Insurance & Real Estate   10.5%   9.0%   8.8%   7.3%   7.9%   6.3%   6.9%
Services   53.5%   48.6%   45.1%   54.8%   49.5%   43.8%   46.7%

 

   2010 
   Hyde Park   Delhi   Bridgetown                 
   ZIP Code   ZIP Code   ZIP Code       Hamilton       United 
   45208   45238   45248   Cincinnati   County   Ohio   States 
                             
Agriculture/Mining   0.0%   0.0%   0.2%   0.1%   0.2%   0.9%   1.9%
Construction   1.9%   4.8%   7.5%   3.6%   4.5%   5.1%   6.2%
Manufacturing   13.4%   9.9%   11.3%   11.0%   12.3%   15.0%   10.4%
Wholesale/Retail   10.9%   14.8%   13.9%   12.7%   14.2%   14.8%   14.5%
Transportation/Utilities   2.1%   5.8%   4.8%   4.5%   4.5%   4.8%   4.9%
Information   2.2%   2.6%   2.2%   1.9%   1.9%   1.8%   2.2%
Finance, Insurance & Real Estate   11.7%   7.9%   9.0%   7.5%   7.6%   6.4%   6.7%
Services   57.8%   54.2%   51.1%   58.7%   54.9%   51.2%   53.2%

 

Source: Bureau of the Census

 

 101 

 

  

EXHIBIT 28

 

Unemployment Rates

Hamilton County, Ohio and the United States

For the Years 2012 through 2016

 

Location  2012   2013   2014   2015   2016 
                     
Hamilton County   7.4%   7.3%   5.5%   4.5%   4.4%
                          
Ohio   7.4%   7.5%   5.8%   4.9%   4.9%
                          
United States   8.1%   7.4%   6.2%   5.3%   4.9%

 

Source: Local Area Unemployment Statistics - U.S. Bureau of Labor Statistics

 

 102 

 

 

EXHIBIT 29

 

Market Share of Deposits

Hamilton County

June 30, 2016

 

   Hamilton         
   County's   Eagle's   Eagle's 
   Deposits   Deposits   Share 
   ($000)   ($000)   (%) 
             
Banks  $86,053,532         
Thrifts   2,154,550   $98,847    4.6%
Total  $88,208,082   $98,847    0.1%

 

Source: FDIC

 

 103 

 

 

EXHIBIT 30

 

National Interest Rates by Quarter

2012 - 2016

 

   1st Qtr.   2nd Qtr.   3rd Qtr.   4th Qtr. 
   2012   2012   2012   2012 
                 
Prime Rate   3.25%   3.25%   3.25%   3.25%
90-Day Treasury Bills   0.10%   0.10%   0.10%   0.11%
1-Year Treasury Bills   0.19%   0.19%   0.17%   0.15%
30-Year Treasury Notes   3.35%   2.76%   2.82%   2.95%

 

   1st Qtr.   2nd Qtr.   3rd Qtr.   4th Qtr. 
   2013   2013   2013   2013 
                 
Prime Rate   3.25%   3.25%   3.25%   3.25%
90-Day Treasury Bills   0.06%   0.04%   0.04%   0.05%
1-Year Treasury Bills   0.11%   0.11%   0.09%   0.10%
30-Year Treasury Notes   3.14%   3.70%   3.69%   3.96%

 

   1st Qtr.   2nd Qtr.   3rd Qtr.   4th Qtr. 
   2014   2014   2014   2014 
                 
Prime Rate   3.25%   3.25%   3.25%   3.25%
90-Day Treasury Bills   0.05%   0.04%   0.13%   0.07%
1-Year Treasury Bills   0.13%   0.11%   0.14%   0.13%
30-Year Treasury Notes   3.56%   3.34%   3.07%   2.75%

 

   1st Qtr.   2nd Qtr.   3rd Qtr.   4th Qtr. 
   2015   2015   2015   2015 
                 
Prime Rate   3.25%   3.25%   3.25%   3.50%
90-Day Treasury Bills   0.03%   0.01%   0.01%   0.16%
1-Year Treasury Bills   0.26%   0.28%   0.32%   0.62%
30-Year Treasury Notes   2.54%   3.20%   2.87%   3.01%

 

   1st Qtr.   2nd Qtr.   3rd Qtr.   4th Qtr. 
   2016   2016   2016   2016 
                 
Prime Rate   3.50%   3.50%   3.50%   3.75%
90-Day Treasury Bills   0.24%   0.30%   0.32%   0.51%
1-Year Treasury Bills   0.53%   0.58%   0.57%   0.81%
30-Year Treasury Notes   2.61%   2.26%   2.40%   2.97%

 

Source: The Wall Street Journal

 

 104 

 

 

Page 1

 

EXHIBIT 31

 

KELLER & COMPANY

Dublin, Ohio

614-766-1426

SHARE DATA AND PRICING RATIOS

PUBLICLY-TRADED, FDIC-INSURED SAVINGS INSTITUTIONS

(EXCLUDING MUTUAL HOLDING COMPANIES)

PRICES AS OF DECEMBER 30, 2016

ALL RATIOS/FINANCIAL DATA AS OF MOST RECENT FOUR QUARTERS

 

            PER SHARE   PRICING RATIOS 
                52 Week   Earnings       12 Month   Price/Net   Price/Core   Price/   Price/Tang.   Price/ 
            Price   Change   (EPS)   Assets   Div.   Earnings   Earnings   Book Value   Book Value   Assets 
      State  Exchange  ($)   (%)   ($)   ($)   ($)   (X)   (X)   (X)   (X)   (X) 
                                                  
SCBS  SOUTHERN COMMUNITY BANCSHARES  AL  OTC PINK   8.50    0.0    0.34    124.15    0.02    25.00    24.29    63.00    63.00    6.85 
SZBI  SOUTHFIRST BANCSHARES  AL  OTC PINK   4.25    21.4    0.52    128.00    0.00    8.17    5.74    NM    NM    3.32 
BOFI  BOFI HOLDING  CA  NASDAQ   28.55    35.6    1.94    124.09    0.00    14.72    14.87    250.00    252.00    23.01 
BYFC  BROADWAY FINANCIAL CORP  CA  NASDAQ   1.64    8.6    0.26    14.21    0.00    6.31    6.31    93.00    93.00    11.54 
FUBP  FIRST ULB CORP  CA  OTC PINK   25.75    68.9    2.75    346.68    0.00    9.36    9.33    85.00    88.00    7.43 
MLGF  MALAGA FINANCIAL CORP  CA  OTC BB   25.25    14.7    2.01    164.21    0.93    12.56    12.56    112.00    112.00    15.38 
PROV  PROVIDENT FINANCIAL HOLDINGS  CA  NASDAQ   20.22    7.0    0.83    155.74    1.08    24.36    23.79    121.00    122.00    12.98 
FBNK  FIRST CONNECTICUT BANCORP  CT  NASDAQ   22.65    30.1    0.85    179.19    0.22    26.65    26.65    140.00    143.00    12.64 
SIFI  SI FINANCIAL GROUP  CT  NASDAQ   15.40    12.8    0.51    125.83    0.26    30.20    30.20    118.00    133.00    12.24 
UBNK  UNITED FINANCIAL BANCORP  CT  NASDAQ   18.16    41.0    0.89    129.80    0.82    20.40    21.36    140.00    174.00    13.99 
WSFS  WSFS FINANCIAL CORP  DE  NASDAQ   46.35    43.2    1.91    211.51    0.39    24.27    24.65    210.00    280.00    21.91 
ACFC  ATLANTIC COAST FINANCIAL CORP  FL  NASDAQ   6.80    16.0    0.34    60.37    0.00    20.00    20.61    127.00    128.00    11.26 
EVER  EVERBANK FINANCIAL CORP  FL  NYSE   19.45    21.7    1.05    228.82    0.38    18.52    18.52    129.00    153.00    8.50 
FFHD  FIRSTATLANTIC BANK  FL  OTC BB   11.20    NM    0.61    72.54    0.03    18.36    19.31    117.00    123.00    15.44 
SBCP  SUNSHINE BANCORP, INC  FL  NASDAQ   17.14    12.8    (0.12)   107.09    0.00    NM    NM    117.00    135.00    16.01 
SSNF  SUNSHINE FINANCIAL  FL  OTC PINK   19.90    5.6    0.04    162.05    0.00    NM    NM    98.00    100.00    12.28 
CHFN  CHARTER FINANCIAL CORP  GA  NASDAQ   16.67    26.2    0.79    96.13    0.30    21.10    21.93    123.00    148.00    17.34 
TBNK  TERRITORIAL BANCORP  HI  NASDAQ   32.84    18.4    1.61    189.34    1.20    20.40    20.78    140.00    141.00    17.34 
AJSB  AJS BANCORP  IL  OTC BB   15.50    4.9    0.27    95.05    0.20    57.41    57.41    114.00    114.00    16.31 
AFBA  ALLIED FIRST BANCORP  IL  OTC BB   0.49    63.3    1.81    181.56    0.00    0.27    0.27    NM    NM    0.27 
BFIN  BANKFINANCIAL CORP  IL  NASDAQ   14.82    17.3    0.38    79.93    0.31    39.00    38.00    140.00    141.00    18.54 
BFFI  BEN FRANKLIN FINANCIAL  IL  OTC BB   11.50    0.0    (1.47)   115.03    0.00    NM    NM    102.00    102.00    10.00 
FIRT  FIRST BANCTRUST CORP  IL  OTC PINK   21.60    29.0    1.71    215.27    0.20    12.63    12.86    96.00    98.00    10.03 
GTPS  GREAT AMERICAN BANCORP  IL  OTC BB   27.15    18.0    1.66    408.14    0.84    16.36    18.10    70.00    75.00    6.65 
HARI  HARVARD BANCSHARES  IL  OTC BB   15.00    1.7    2.21    259.75    0.00    6.79    6.64    51.00    57.00    5.77 
IROQ  IF BANCORP  IL  NASDAQ   18.50    0.0    1.04    148.35    0.31    17.79    19.68    106.00    107.00    12.47 
JXSB  JACKSONVILLE BANCORP  IL  NASDAQ   30.00    14.2    1.82    183.86    1.29    16.48    18.18    118.00    127.00    16.32 

 

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Page 2

 

KELLER & COMPANY

Dublin, Ohio

614-766-1426

SHARE DATA AND PRICING RATIOS

PUBLICLY-TRADED, FDIC-INSURED SAVINGS INSTITUTIONS

(EXCLUDING MUTUAL HOLDING COMPANIES)

PRICES AS OF DECEMBER 30, 2016

ALL RATIOS/FINANCIAL DATA AS OF MOST RECENT FOUR QUARTERS

 

            PER SHARE   PRICING RATIOS 
                52 Week   Earnings       12 Month   Price/Net   Price/Core   Price/   Price/Tang.   Price/ 
            Price   Change   (EPS)   Assets   Div.   Earnings   Earnings   Book Value   Book Value   Assets 
      State  Exchange  ($)   (%)   ($)   ($)   ($)   (X)   (X)   (X)   (X)   (X) 
                                                  
MCPH  MIDLAND CAPITAL HOLDINGS CORP  IL  OTC PINK   19.00    0.3    (0.02)   321.30    0.08    NM    NM    62.00    62.00    5.91 
OTTW  OTTAWA SAVINGS BANCORP, INC  IL  OTC BB   12.73    26.7    0.47    95.40    0.00    27.09    28.93    116.00    121.00    13.34 
RYFL  ROYAL FINANCIAL  IL  OTC BB   11.65    17.7    0.72    120.28    0.00    16.18    15.96    83.00    85.00    9.69 
SUGR  SUGAR CREEK FINANCIAL CORP  IL  OTC BB   13.12    8.4    0.14    110.57    0.12    93.71    82.00    101.00    101.00    11.87 
AMFC  AMB FINANCIAL CORP  IN  OTC BB   15.00    36.4    1.67    203.94    0.25    8.98    8.98    76.00    77.00    7.36 
DSFN  DSA FINANCIAL CORP  IN  OTC BB   10.80    8.0    0.49    74.91    0.66    22.04    22.04    106.00    107.00    14.42 
FFWC  FFW CORP  IN  OTC PINK   31.05    25.5    3.40    297.47    0.30    9.13    9.55    99.00    103.00    10.44 
FDLB  FIDELITY FEDERAL BANCORP  IN  OTC PINK   10.00    (60.0)   5.59    430.13    0.00    1.79    2.84    NM    NM    2.32 
FCAP  FIRST CAPITAL  IN  NASDAQ   32.42    24.2    1.80    221.52    1.43    18.01    18.21    143.00    159.00    14.64 
FSFG  FIRST SAVINGS FINANCIAL GROUP  IN  NASDAQ   47.00    29.0    3.53    360.12    0.75    13.31    13.62    124.00    140.00    13.05 
LOGN  LOGANSPORT FINANCIAL CORP  IN  OTC PINK   39.15